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Damodar Valley Corporation Versus Deputy Commissioner of Income-tax

2016 (7) TMI 747 - ITAT KOLKATA

Revision u/s 263 - allowability of additional depreciation u/s 32(1)(iia) - Held that:- It is undisputed that no opportunity was afforded to the assessee in the instant case before us by the ld CIT to address on the aspect of ‘lack of enquiry’ on the allowability of claim of additional depreciation. - We hold that the ld CIT in concluding that lack of enquiry with regard to allowability of additional depreciation on the part of the ld AO would automatically make the order of ld AO erroneous .....

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sion order of CIT, Kolkata-3, Kolkata vide No. Pr.CIT-3/u/s.263/2015-16/8515-17 dated 29/30.10.2015. Assessment was framed by JCIT, Range-9, Kolkata u/s. 143(3) of the Income tax Act, 1961 (hereinafter referred to as the Act ) for AY 2011-12 vide his order dated 28.03.2014. 2. The only issue to be decided in this appeal is as to whether the ld CIT is justified in invoking revisionary jurisdiction u/s 263 of the Act in the context of allowability of additional depreciation u/s 32(1)(iia) of the A .....

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e sum of ₹ 20,35,78,496/-. The ld CIT issued show cause notice dated 31.7.2015 seeking to revise the assessment framed u/s 143(3) of the Act in as much as the ld AO had granted the claim of additional depreciation to the assessee company in the sum of ₹ 6,37,45,348/- which, in his opinion, could be granted only with effect from Asst Year 2013-14 as the assessee was engaged in the business of generation and distribution of electricity pursuant to the amendment brought in by the Financ .....

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termining total income of Rs. (-) 2,27,00,22,060/-(loss). On perusal of the assessment record vis-a-vis the return and other document submitted it is seen that the assessee company had claimed additional depreciation @ 20% on additions made to plant and machinery at Thermal Power Station and Hydel Power Station. Total additional depreciation u/s. 32(1)(ii) was found to have been claimed to the tune of ₹ 6,37,45,348/-. In case of any new machinery or plant which has been acquired and instal .....

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siness of generation or generation and distribution of power is only applicable w.e.f assessment year 2013-14 and subsequent years but not during the assessment year 2011-12. The wrongful act on the part of the AO on the point discussed above has made the assessment order erroneous and prejudicial to the interest of Revenue. The assessment order passed u/s. 143(3) dated 28.03.2014 is erroneous and prejudicial to the interest of Revenue on this point for the reasons discussed above. In view of th .....

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for 2011-12 should not be revised u/s.263 of the I.T Act, 1961. In case of non compliance on the date noted for hearing, the case would be decided ex-parte without any/further opportunity. 4. The assessee replied to the ld CIT in response to show cause notice that Sec. 32(1)(iia) has come in force with effect from 01.04.2005 provides that any assessee which is engaged in the business of manufacture or production of any article or thing is entitled to claim additional depreciation @ 20% of the ac .....

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article or thing. Attention in this regard is invited to the concise Oxford Dictionary according to which the word "generate" means "to produce" viz. to produce energy / electricity. The issue as to whether the generation of power amounts to production of an article or goods was examined by Supreme Court in the following judgments: 1. Commissioner of Sales Tax Vs. M.P. Electricity Board (AIR 1970 SC 732) 2. State of AP Vs. National Thermal Power Corpn Ltd (127 STC 280 SC) In .....

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purview of the Sales Tax Act. The assessee in that case contended before the Court that "electricity" generated was not "goods" as it did not have any physical existence or attributes or mass which "goods" possess. The Supreme Court observed that the term "goods" has to be understood in a wider sense and merely because electric energy is not tangible or cannot be moved does not cease to be "goods". The Court observed that when there can be sale .....

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ratio laid down in these judgments we submit that "electricity" is an article or thing an contemplated by Sec 32(l)(iia) of the I T Act and therefore an assessee who generates such an article or thing comes within the ambit of Sec 32(l)(iia) because the process of generation of electricity is akin to production of an article which is separately marketable as a distinct goods. 4.1. The assessee stated before the ld CIT that one of the case involving identical issue was that of NTPC Ltd .....

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ion to be erroneous on the ground that the assessee was not engaged in the business of manufacture or production of any article or thing. In CIT's opinion the assessee's business of generation of power could not be equated with the connotation of "production of an article or thing". According to CIT in common parlance the expression "article or thing" meant to be something which was tangible or moveable. According to CIT the electricity generated did not have any tang .....

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ITAT. The Delhi Bench of the ITAT decided the appeal of NPTC on 30.04.2012 in ITA No.1438/D/2009 which is reported in 22 taxmann.com 247. In its order the Tribunal upheld the CIT's power to invoke revisionary jurisdiction and also upheld CIT's order with regard assessment of power tariffs with reference to provisional tariff approved by CERC. However, with regard to the issue of allowing additional depreciation u/s 32(1)(iia) the Tribunal found that the assessment order did not suffer f .....

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further held that the process of power generation was akin to manufacture or production of an article or thing. The Tribunal noted that the power was generated by deploying huge plants and therefore it may be said that there was transformation of one source of energy into another. The energy so produced in law constituted "goods". The Tribunal accordingly held that the benefit of additional depreciation u/s 32(1)(iia) could not be denied to the assessee. Accordingly the ITAT reversed .....

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Madras High Court which is reproduced hereunder:- Whether on the facts and in the circumstances of the case the Tribunal was right in holding that generation of power by windmill would amount to manufacture or production of any article or thing ? It was contended that the Hon ble Madras High Court was specifically seized of the question as to whether an assessee engaged in the business of generation of power can be said to be engaged in manufacture or production of an article and hence qualifie .....

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:- CIT vs Hi Tech Arai Ltd reported in (2010) 321 ITR 477 (Mad) CIT vs Texmo Precision Castings reported in (2010) 321 ITR 481 (Mad) CIT vs Atlas Export Enterprises reported in (2015) 57 taxmann.com 285 (Mad) ACIT vs M Satishkumar in ITA No. 718/Mds/2012 dated 28.9.2012 (Chennai Tribunal) DCIT vs Hutti Gold Mines Co. Ltd in ITA No. 832/Bang/2012 dated 2.8.2013 (Bangalore Tribunal) It was contended that in the aforesaid decisions, the asst year involved was prior to Asst year 2013-14. 4.2. It wa .....

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therefore qualified for the benefit of section 32(1)(iia) of the Act. Accordingly the Chennai Tribunal dismissed the departmental appeal after taking note of the amendment in Section 32(1)(iia) of the Act by the Finance Act 2012. Similar view was also taken by the Bangalore Tribunal in the case referred supra. Accordingly, the assessee submitted before the ld CIT that the ld AO s order was in conformity with the view expressed in the aforesaid judicial decisions and therefore cannot be considere .....

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rd to allowability of additional depreciation which had made the order erroneous and prejudicial to the interest of the revenue and accordingly passed an order u/s 263 of the Act. Aggrieved, the assessee is in appeal before us on the following grounds :- 1. For that on the facts and in the circumstances of the case, the CIT was grossly unjustified in law and on facts in directing the AO to reassess the taxable income of the appellant after making further enquiries even though the assessment orde .....

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n for additional depreciation was not erroneous. 3. For that on the facts and in the circumstances of the case, various judicial forums like High Court & ITAT having held that assessees engaged in generation of power were eligible for additional depreciation u/s. 32 (1)(iia) and these decisions being available in public domain prior to passing of the order u/s. 143(3) for A.Y. 2011-12; the CIT was grossly unjustified in holding the assessment order u/s 143(3) to be erroneous on the ground th .....

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passing the revision order u/s. 263 on the alleged ground that the AO did not make any enquiry into the aspect of allowability of additional depreciation even though in the show cause notice issued; no such ground was assigned for considering the order of assessment to be erroneous and in that view of the matter the CIT's order setting aside the assessment for lack of enquiry was unsustainable and deserves to be set aside. 6. For that on the facts and in the circumstances of the case, the CI .....

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nly, but proceeded to treat the order of the ld AO as erroneous and prejudicial on a different footing that no enquiry was made by the ld AO with regard to allowability of additional depreciation. He argued that no opportunity was given by the ld CIT to the assessee to put forth its arguments on the said aspect of lack of enquiry thereby violating the mandate of section 263(1) of the Act. In response to this, the ld DR argued that the meaning of manufacture or production given by the Hon ble Sup .....

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ns and perused the materials available on record. At the outset, we find that on perusal of section 32(1)(iia) of the Act as it stood upto Asst Year 2012-13, it is evident that the additional depreciation is permissible to all assessees who are engaged in the business of manufacture or production of any article or thing. In the circumstances, the assessee who is desirous of claiming the additional depreciation need only to prove that during the relevant year he was engaged in the business of man .....

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n its colour and character and become a separate and new marketable commodity after the manufacturing process. In the instant case, the assessee had set up hydel power and thermal power plant, wherein the water and coal gets converted into electricity through the manufacturing process. Hence it is undisputed that transformation from mere coal to electricity and from mere water to electricity happens pursuant to the manufacturing process and the electricity so produced or generated becomes a sepa .....

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for additional depreciation u/s 32(1)(iia) of the Act for its power plant. This matter was further carried by the revenue to the Hon ble Calcutta High Court which was dismissed by the Hon ble Calcutta High Court in the case of CIT vs Ankit Metal & Power Ltd reported in (2016) 66 taxmann.com 367 (Calcutta) dated 20.11.2014. Hence, it could be safely concluded that the assessee is entitled for claiming additional depreciation u/s 32(1)(iia) of the Act even prior to the amendment brought in by .....

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sdictional tribunal decision before him in the case of CIT vs Ankit Metal and Power Ltd in ITA No. 517/Kol/2012 dated 8.1.2014 before him before passing the assessment order for the Asst Year 2011-12 u/s 143(3) dated 28.3.2014. We find that the ld AR had produced a chart regarding the claim of additional depreciation in all the earlier assessment years. Moreover, the ld AO had the benefit of the very same issue being allowed as allowance in all the earlier asst years commencing from Asst Year 20 .....

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ribunal and allowed the claim of additional depreciation to the assessee, though not discussed about the same in his assessment order. Hence passing an assessment order by following the various judicial decisions would not in any manner make the assessment order erroneous. 6.1. The Hon ble Supreme Court in the case of Malabar Industrial Co. Ltd vs CIT reported in 243 ITR 83 (SC) at page 88 held as follows:- The phrase prejudicial to the interest of the Revenue" has to be read in conjunction .....

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l to the interests of the Revenue, unless the view taken by the Income tax officer is sustainable in Law. 6.2. We find that the decisions of the Hon ble Madras High Court and Delhi Tribunal supra involving identical facts were very much available in the public domain prior to the date on which the assessment was framed by the ld AO on 28.3.2014 granting allowance of additional depreciation u/s 32(1)(iia) of the Act and hence it could be safely concluded that the ld AO had followed one of the cou .....

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sions which are in the public domain, it would be wrong on the part of the ld CIT to assume that the ld AO had not made any enquiry or applied his mind on the aspect of additional depreciation. It cannot be swept under the carpet that there was no debate in the case of the assessee with regard to the claim of additional depreciation in the earlier years as the same had been consistently been claimed and allowed by the ld AO in the scrutiny assessment proceedings. We find that even in the recent .....

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