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TMI Blog2021 (6) TMI 664X X X X Extracts X X X X X X X X Extracts X X X X ..... visions. The A.O disallowed investment allowance U/s 32AC of Rs. 319,08,63,958/-, disallowed other income for 80lA of Rs. 3,77,42,894/- and made disallowance u/s 14A of Rs. 9,40,42,000/ -. 3. The subject matter of appeal is only regarding disallowance of investment allowance u/s 32AC of Rs. 319,08,63,958/-. The AO for making this disallowance, observed in his order as under: 4.1 For the year under consideration, the assessee claimed to have installed new machinery of the order of Rs. 2, 127 crores in new projects taken up at (i) Lower Jurala Hydro Electric Project, (ii) Kakatiya Thermal Power Project-II, (iii) Kothagudem TPS- VII stage and (iv) Pulichintala HES. On the said new machinery, the assessee claimed investment allowance u/s 32AC at Rs. 310.09 crores being 15% of the new machinery installed during the year. 4.2 During the course of hearings, the assessee was asked to substantiate their entitlement to the said allowance u/s 32AC, the assessee vide note dated 05.10.2018 submitted that the activity of generation of power amounted to production of an article or thing. Extending their argument, the assessee submitted that for the purpose of manufacture, an element of trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nies engaged in the business of manufacture or production of any article or thing. The section in relation to investment allowance reads as under: "32AC. (1) Where an assessee, being a company, engaged in the business of manufacture or production of any article or thing, acquires and installs new asset after the 31st day of March, 2013 but before the 1st day of April, 2015 and the aggregate amount of actual cost of such new assets exceeds one hundred crore rupees, then, there shall be allowed a deduction,- (a) . (b) for the assessment year commencing on the 1st day of April, 2015, of a sum equal to fifteen per cent of the actual cost of new assets acquired and installed after the 31st day of March, 2013 but before the 1st day of April, 2015, as reduced by the amount of deduction allowed, if any, under clause (a)". 4.5 Before going into the discussion further, it is relevant to refer to the case law relied upon by the assessee in the case of Damodar Valley Corporation and NTPC (supra). Both these decisions are given in the context of allowability of additional depreciation u/ s 32(I)(iia). Various judicial pronouncements on the issue make it clear that in order to find out w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epreciation under section 32(i)(ii) into existence, the power generating companies were not considered initially. It is only by an amendment to section 32(i)(ii), the power generating units were included to get the benefit of additional depreciation. It is referring to this position and provisions of section 32(l)(ii) only, the Courts in Damodar Valley Corporation and NTPC cases decided in the issue in favour of the assessee. 4.8 Now coming to section 32AC, as per Memorandum to Finance Act, 2013, this section was introduced as a measure to promote socio-economic growth. «Incentive for acquisition and installation of new plant or machinery by manufacturing company. In order to encourage substantial investment in plant or machinery, it is proposed to insert a new section 32AC in the Income Tax Act to provide that where an assessee, being a company, (a) is engaged in the business of manufacture of an article or thing; and (b) invests a sum of more than Rs. 100 crore in new assets (Plant or machinery) during the period beginning from 1st April, 2013 and ending on 31st March, 2015." In the said Memorandum, the power generating companies were not included. In the absence of speci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompanies have not been specifically m:luded in this section. In the appeal, the ld. Commissioner of Income Tax (Appeals) bas appealed the disallowance of Investment allowance and stated that power generation companies are not included specifically in the purview of Section 32AC. In the appeal before the Ld. Commissioner of Income Tax (Appeals), It was Submitted that- (i ) To be eligible for deduction U/s 32AC, The assessee must be a company engaged the business of manufacture or production of any article or thing, (ii) It should acquire and install new asset during the previous year and such investment should exceed 25 Crores and such company assessee will be eIigible of sum equal actual cost of new asset. The appellant submitted that, it is satisfying all the required attributes specified in section 32AC and that it is generating "ELECTRICITY". The Hon'ble Supreme Court in the case of CST Vs Madhya Pradesh State Electricity Board reported in A- l 970 (SC-732) and in the case of State of AP Vs NTPC reported in 127 SIC 280(SC), has held that electricity is a" Good". The Appellant further submitted before the Ld. CIT (A) that, the issue whether" Electricity" is a "Commo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eration tantamount to " Production". The Ld. Assessing Officer and also The Ld. CIT(A} have denied " Investment Allowance U1s. 32AC" to the Appellant Power Generating Company contending that, the legislature only amendment sec 32(1 )(iia) which was for an additional incentive by including the business of generation, transmission or distribution of power but did not amended the-section 32i\C Which also forms an additional incentive and only refers to manufacture or production of article or thing and explicitly does not mentioned" Or the business of ........." and thus the intent of not granting benefit concluded as explicit nature leaving no ambiguity in this regard. Thus The Ld. ClT(A) upheld the Assessment Order denying Investment Allowance uls 32AC to the Appellant, engaged in the power generation business. The Appellant humbly submit that the activity which is considered as "Manufacturing / Production" of an article or thing u/s, 32(1 )(iia) CUIU10t be so consider when it comes to granting of incentive to a company engaged in the business of manufacture or production of article or thing. The Hon'ble Income Tax Appellate Tribunal, Delhi 1-2 Bench in ITANo.12 DEL/2020 order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. The Hutti Gold Mines Co, Ltd. wherein the question of additional depreciation was considered and it was held as follows: "3. The material 011 record shows that the assessee is generating electricity through windmill as a second line of business. It is a product of the assessee company. It is covered under the words "article" or "thing". which is tradable I identifiable. In other words. the electricity falls within the definition: pi Sale of Goods Act. 1930, and process of generation of electricity is akin to manufacture or production of an "article" or "thing". The power generated need not necessarily be used in the production of assessee's own products namely mining and extraction of gold. The use of electricity in the manufacturing activity of the core business of the assessee is not a precondition for the grant of additional depreciation under the statute. Therefore, we do not see any merit in his appeal. Accordingly, this appeal is rejected. 4. However, we have not gone into the question of applicability of Section 32(1)(iia) of the Income Tax Act; 1961, and the question as to whether clarificatory or not is kept open to be decided at proper time." Although the Kar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an be preserved or stored." 9. The Tribunal's judgment in NTPC Vs. DCIT [relied upon in the orders of the CIT(A) as well as the Tribunal in the present case] followed this judgment of the Supreme Court to hold that electricity has, all the necessary trappings of "articles" or things" and the benefit of additional depreciation cannot be denied. 10, As held by the Constitution Bench. electricity is capable of abstraction, transmission, transfer, delivery, possession, consumption and use like any other movable property. Following the same logic, to deny the benefit of additional depreciation to a generating entity on the basis that electricity is not an "article" or "thing" is in our view an artificially restrictive meaning of the provision. The benefit of additional depreciation under Section 32(I)(iia) has, therefore, been rightly granted to the assessee by the concurrent judgments of the CIT(A) and the Tribunal. 11. We also note that, w.e.f from 01.04.2013, the provision has been amended by the 'Finance Act, 2012 and assessees engaged in the generation of power have expressly been included in the ambit thereof. 12. For the above reasons, the Court is of the opinion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n u/s 32AC of the Act. 7.1 In the case of ACIT, Coimbatore Vs. M. Satish Kumar, the ITAT, Chennai Bench in ITA No. 718/Mds/2012, dated 28/09/2012,on which reliance placed by the Assessee in its ground of appeal, has held as under: "9. We have heard the submissions made by the respective parties and have also examined the judgements orders relied on by the A.R. of the assessee. A perusal of the judgements clearly show that generation of electricity is akin to manufacturing of a new product. In the instant case, electricity which may not be seen with the eyes, however, its effect can be seen and felt. The electricity can be transmitted, transferred, delivered, stored, possessed etc. The Hon'ble Supreme Court in the case of the CST Vs. Madhya Pradesh Electricity Board (supra) has held that electricity falls within the definition of goods under the provisions of Sale of Goods Act, 1930. The Delhi Bench of the Tribunal in the case of NTPC Ltd. (supra) after a detailed examination of several judgements, Acts, Constitution of India, has concluded that the process of generation of electricity is akin to manufacture of an article or thing. 10. In view of the above, we are of the co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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