2022 (7) TMI 1000 - AT - Income Tax

Depreciation on power plant at written down value method as against claimed by the appellant at straight line method since last more than five years - HELD THAT - The provisions of section 32(1)(i) of the Act provides that an undertaking engaged in generation or generation and distribution of power shall be allowed depreciation on such percentage on actual cost basis as per specified rules. What is relevant to note that the term used is an undertaking and not an entity or an assessee . Therefore, what is relevant to examine in the instant case is whether the assessee has more than one undertaking and if the answer to the same is in affirmative and whether one of the undertakings is engaged in generation or generation and distribution of power, in that case, the undertaking and in turn the assessee at the entity level shall be eligible for depreciation under SLM basis. As per the Inspector report who has carried out on the spot verification of the assessee's premises, the assessee has a captive power plant which is used to generate electricity which was utilized in the various units of the assessee including towel unit, spinning unit and WTP Plan plant of the assessee. We therefore find that the undisputed facts are that there are multiple units or undertakings of the assessee company and one of the undertakings is engaged in generation of power and which is captively consumed by other units. There is no bar under law that a captive undertaking is not eligible for deprecation under SLM basis - we note that in the past and subsequent years, the depreciation has been allowed under SLM basis and therefore, we see no rationale and justifiable basis for the CIT(A) to disturb the basis of allowing the depreciation under WDV instead of SLM basis as so claimed and allowed to the assessee over the years where there are no changes in the facts and circumstances of the case. We hereby set-aside the order of the CIT(A) and direct the AO to allow the depreciation on SLM basis as so claimed by the assessee and the ground of appeal is thus allowed.

Summary

Issues:
1. Disallowance of depreciation on power plant at written down value method instead of straight line method.
2. Eligibility of claiming depreciation on straight line method for a captive power plant.

Issue 1: Disallowance of Depreciation on Power Plant
The appeal was filed against the order of the Learned Commissioner of Income Tax (Appeals) disallowing depreciation on a power plant at written down value method instead of the claimed straight line method. The appellant, a public limited company engaged in manufacturing and trading, declared a loss for the relevant assessment year. The appellant's contention that non-mentioning of the nature of business as "Generation of Power" should not lead to disallowance of depreciation under section 32(1)(i) of the Income Tax Act was rejected by the CPC Bangalore. The Commissioner changed the method of depreciation to WDV basis instead of SLM basis, leading to the appeal.

Issue 2: Eligibility for Claiming Depreciation on Straight Line Method
The central issue revolved around whether the appellant, running a captive power plant, was entitled to claim depreciation on a straight line method for the power plant. The Commissioner contended that depreciation on SLM basis is admissible only for undertakings engaged in "generation and distribution of power" as per section 32(1)(i) of the Act. The Commissioner held that since the appellant's power generation was for internal consumption in various manufacturing units, it did not qualify as "generation and distribution of power." The appellant argued that the law does not prohibit an undertaking consuming power captively from claiming depreciation under section 32(1)(i). The Inspector's report confirmed the captive power plant's operation and utilization in various units. The appellant cited past and subsequent assessment years where depreciation on SLM method was allowed, emphasizing the principle of consistency.

The Tribunal analyzed the legal provisions under section 32(1)(i) of the Act, emphasizing that the term used is "undertaking," not "entity" or "assessee." It was crucial to determine if the appellant had multiple undertakings, with one engaged in power generation. The undisputed facts revealed multiple units of the appellant, with one undertaking involved in power generation for internal consumption. The Tribunal found no legal bar for a captive undertaking to claim depreciation on SLM basis. Given the consistent allowance of depreciation on SLM basis in the past and subsequent years, the Tribunal set aside the Commissioner's order and directed the AO to allow depreciation on SLM basis as claimed by the appellant. Consequently, the appeal of the assessee was allowed.