2016 (1) TMI 412 - AT - Income Tax

Tribunal grants additional depreciation for power generation, dismisses re-computation under Section 14A.

The Tribunal allowed the assessee's claim for additional depreciation under Section 32(1)(iia) of the Income-tax Act, recognizing power generation as ... Disallowance of statutory claim for deduction of additional depreciation u/s 32(1)(iia) - power turbines employed for generation of power for captive consumption in the business of manufacturing of steel and iron products - Held 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. - Decided in favour of assessee. Issues Involved:1. Disallowance of additional depreciation under Section 32(1)(iia) of the Income-tax Act.2. Re-computation of disallowance under Section 14A of the Income-tax Act.Detailed Analysis:1. Disallowance of Additional Depreciation under Section 32(1)(iia):The primary issue in this appeal concerns the disallowance of additional depreciation claimed by the assessee under Section 32(1)(iia) of the Income-tax Act. The assessee, engaged in the manufacturing and selling of Sponge Iron and Billets, claimed additional depreciation on power turbines employed for generation of power for captive consumption. The Assessing Officer (AO) disallowed this claim, arguing that the generation of power does not qualify as manufacturing or producing an article or thing, as electricity is intangible and cannot be handled or stored. The AO referenced the Income-tax legislation's historical distinction between manufacturing undertakings and those engaged in power generation.The Commissioner of Income-tax (Appeals) [CIT (A)] upheld the AO's decision, leading the assessee to appeal to the Tribunal. The assessee's counsel argued that this issue was settled in favor of the assessee by the jurisdictional High Court in the case of NTPC Limited vs. CIT - V, which recognized power generation as eligible for additional depreciation.The Tribunal considered the precedent set by the High Court and the Tribunal's earlier decision in NTPC Limited vs. DCIT, which held that power generation qualifies for additional depreciation. The Tribunal noted that the Hon'ble Supreme Court in various cases (e.g., CST vs. MP Electricity Power, State of Andhra Pradesh vs. NTPC) recognized electricity as 'goods' and equated the generation of power to the production of an article or thing. Consequently, the Tribunal set aside the lower authorities' orders and allowed the assessee's claim for additional depreciation.2. Re-computation of Disallowance under Section 14A:The second issue involves the re-computation of disallowance under Section 14A of the Act. The AO initially disallowed Rs. 1,20,540, which the CIT (A) increased to Rs. 2,26,000 based on the decision in ITO v. Daga Capital Management (P.) Ltd. The assessee contested this enhanced disallowance, arguing that the facts of their case differed from the cited decision.During the Tribunal proceedings, the assessee's representative chose not to press this ground, emphasizing that this concession should not set a precedent for subsequent years. The Tribunal, therefore, dismissed this ground for the current assessment year but noted that this decision should not influence future assessments.Conclusion:The Tribunal partly allowed the appeal, granting the assessee's claim for additional depreciation under Section 32(1)(iia) and dismissing the re-computation of disallowance under Section 14A for the current assessment year without setting a precedent for future years. The judgment was pronounced in open court on November 18, 2015.