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TMI Blog2016 (1) TMI 412X X X X Extracts X X X X X X X X Extracts X X X X ..... as selected for scrutiny and notice u/s 143(2) was issued on 07.08.2006. Subsequently, notice u/s 142(1) of the Act along with questionnaire was also issued on 06.07.2007. In response to these notices, the assessee filed the requisite details / information. The assessment was completed u/s 143(3) of the Act at a total taxable income at Rs. 10,16,78,149/- by making two disallowances i.e. disallowance of additional depreciation of Rs. 5,64,30,426/- and disallowance u/s 14A of the Act of Rs. 1,20,540/-. 3. Aggrieved, the assessee preferred an appeal to the first appellate authority. The CIT (A) upheld the disallowance of additional depreciation made by the AO and also while upholding the disallowance u/s 14A made by the AO, he increased the disallowance to Rs. 2,26,000/- (i.e. Rs. 1,20,540/- made by AO + Rs. 1,05,460/- enhanced by the CIT (A) = Rs. 2,26,000/-). 4. The assessee, being aggrieved, is in appeal before us by taking the following effective grounds of appeal :- "1. That the Learned Commissioner of Income Tax (Appeals)-XVI, New Delhi has grossly erred on facts and in the circumstances of the case and in law in rejecting statutory claim for deduction of additional deprecia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cle or thing . He observed that this distinction between the manufacturing undertaking and undertakings engaged in generational power was maintained throughout in the income tax legislation. According to AO, this fact become further evident if one went through the various deductions/exemptions granted to the power sector in the history of Income tax legislation. And,the activity of manufacturing or production of article or thing was always treated differently from the other activities like construction, mining, hotel business, generation of power and other infrastructure projects. After observing few sections where benefit was intended to the sector of manufacturing or production of article or thing and also other industrial undertakings as well as the decision of the ITAT Chennai Bench in the case of Tamilnadu Chlorates vs. JCIT (2006) 98 ITD 1 (Chennai), the AO held that the benefit of additional depreciation was not available to the undertakings engaged in generation of power and made the aforesaid disallowance. 6.1 The assessee filed an appeal before the CIT (A) on this issue and the CIT (A), after discussing the provisions of section 32(1)(iia) and the case laws relied upon b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Commissioner found fault with the AO to exercise his revisional power under section 263 was with regard to the tariff of electricity wherein the Commissioner observed that CERC was tasked by law to regulate the tariff of electricity generating companies owned or controlled by the Central Government. NPTC has issued total sales bills of Rs. 23,066.30 crores to its customers in terms of CERC's existing norms. CERC's final norm fixation order was not made during the year. Yet NTPC revised the sales downwards to Rs. 22,128 crores and did not take into account a sum of Rs. 938.30 crores. According to the Commissioner, AO permitted this without any inquiry. On the aforesaid score, the Commissioner set aside the assessment order and remitted this issue to the AO for fresh examination. NTPC thereafter approached the Tribunal. The Tribunal allowed the assessee's appeal in respect to the additional depreciation, however, upheld the action of the Commissioner in respect to the tariff, thereby partly allowed the appeal. The impugned order of the Tribunal was challenged before the Hon'ble jurisdictional High Court who vide order dated 16.04.2014 in ITA 507/2013 set aside the orders of the auth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e" as well as "production". The relevant discussion made by the Hon'ble Court reads as under: "2. As noted above, the core issue is whether activity undertaken was manufacture or production. 3. In Black's Law Dictionary (5th Edition), the word "manufacture' has been defined as, "the process or operation of making goods or any material produced by hand, by machinery or by other agency; by the hand, by machinery, or by art. The production of articles for use from raw or prepared materials by giving such materials new forms, qualities, properties or combinations, whether by hand labour or machine". Thus by process of manufacture something is produced and brought into existence which is different from that, out of which it is 26 made in the sense that the thing produced is by itself a commercial commodity capable of being sold or supplied. The material from which the thing or product is manufactured may necessarily lose its identity or may become transformed into the basic or essential properties. (See Dy. CST (Law), Board of Revenue (Taxes) Coco Fibres [1992] Supp. 1 SCC 290). 4. Manufacture implies a change but every change is not manufacture, yet every change of an article is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use and name and commercially known as such from that point of view, is a question depending upon the facts and circumstances of the case. (See Empire Industries Ltd. v. Union of India [1985] 3 SCC 314). x x x x x x x x x x x x x x x x x x x x x x" 19. In this case, assessee was carrying on business of conversion of Jumbo Rolls of photographic films into small flats and rolls in desired sizes. It claimed deduction under sec. 80-HH and 80-I as well as investment allowance under sec. 32AB. The controversy arose whether conversion of jumbo rolls into small sizes amounts to manufacture or production, eligible for deduction under sec. 32AB or deduction under sections 80- HH and 80-I 28 of the Income-tax Act, 1961/ Hon'ble Supreme Court has held that this activity amounts to manufacture or production. Thus, we think it is not necessary to recapitulate and recite all the decision on the construction expression "manufacture". But suffice to say that core of all the decisions of the Hon'ble Supreme Court or Hon'ble High Court is to the effect that broadly manufacture is a transformation of an article, which is commercially different from the one which is converted. It is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n actionable claim............. and include material articles and commodities whether or not to be used in the construction, fitting out, improvement or repair of immoveable property. According to the Hon'ble Court, the definition of expression "goods" contained in section 2(g) of the Act No. 11 of 1959 has almost similar. In the light of these definitions, Hon'ble Court has examined whether electricity can be termed as a goods. The discussion made by the Hon'ble Court in the judgment reads as under: "The reasoning which prevailed with the High Court was that a well defined distinction existed between the sale or purchase of "goods" and consumption or sale of electricity; otherwise there was no necessity of having Entry No.53. But under Entry 53 taxes can be levied not only on sale of electricity to derive much assistance from the aforesaid entries. What has essentially to be seen is whether electric energy is "goods" within the meaning of the relevant provisions of the two Acts. The definition in terms is very wide according to which 'goods' mean all kinds of movable property. Then, certain items are specifically excluded or included in electric energy or electricity is, not one ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consumer or consumed by himself for his own purpose or for the purpose of his township or colony during the preceding months. Similar steps were taken by the Madhya Pradesh Government for the plants situated in its territorial jurisdiction. The question arose whether electricity sold to other states would be amenable to duties. The Hon'ble Court in that context considered, what is an electric energy and made following observations: "Before we deal with the constitutional aspects let us first state what electricity is, as understood in law, and what are its relevant characteristics. It is settled with the pronouncement of this Court in Commissioner of Sales-tax, Madhya Pradesh, Indore Vs. Madhya Pradesh Electricity Board, Jabalpur- 1969 (2) SCR 939 that electricity is goods. The definition of goods as given in Article 366(12) of the Constitution was considered by this Court and it was held that the definition in terms is very wide according to which "goods" means all kinds of moveable property. The term "moveable property" when considered with reference to "goods" as defined for the purpose of sales-tax cannot be taken in a narrow sense and merely because 33 electricity energy is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n as meter reading is recorded. All the three steps or phases (i.e. sale, supply and consumption) take place without any hiatus. It is true that from the place of generating electricity, the electricity is supplied to the substation installed at the units of the consumers through electrical higher-tension transformers and from there electricity is supplied to the meter. But the moment electricity is supplied through the meter, consumption and sale simultaneously take place. "as soon as the electrical energy is supplied to the consumers and is transmitted through the meter, consumption takes place simultaneously with the supply. There is no hiatus in its operation. Simultaneously sale also takes place." These properties of electricity as goods are of immense relevance as we would state hereafter". 21. On due consideration of these two decisions, it is implicitly clear that the Hon'ble Supreme Court has explained the meaning of electricity, the 35 Hon'ble Court has considered the definition of goods as given in Article 366(12) of the Constitution of India. It also took into consideration the Sales tax Act of the State of Andhra Pradesh as well as Madhya Pradesh and also conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uction under section 80-HH and in that test held that electricity is not an article. The ITAT has not dealt with these two judgments extensively rather simply observed that decision in the case of Madhya Pradesh Electricity Board was given in the context of the 37 language of a particular statute. The only discussion made by the ITAT with regard to these two judgments of the Hon'ble Supreme Court reads as under: "6. Reference was made to the decisions of Apex Court rendered in the case of M.P. Electricity Board 35 STC 188 (sic). In this case it was held that electricity is goods within the meaning of section 2(3) of Central Province and Virar Sales-tax Act. This decision was rendered in the context of the language of a particular statute. As such this meaning cannot be extended to the facts of the present case". 23. Thus, taking into consideration all these aspects, we are of the view that admissibility of additional depreciation cannot be denied to the assessee merely on the ground that electricity is not an article or thing. The order of the Learned CIT(Appeals) is reversed to this extent and the disallowance is deleted. 24. In the result, the appeal of the assessee is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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