2016 (4) TMI 81 - AT - Income Tax

Tax Appeals Granted Deductions for Power Generation & Depreciation. Additional Depreciation Ordered. Revenue Appeals Dismissed.

The assessee's appeals in I.T.A.Nos.344 and 1034/Mds/2012 were allowed, permitting deduction u/s 80IA for power generation, depreciation on building in ... Deduction under industrial undertaking incentive for power generation - Captive consumption and eligibility for tax incentives - Additional depreciation on plant and buildings used for power generation - Depreciation on intangible commercial rights (goodwill) - Tax treatment of provisions for doubtful advances to avoid double taxation - Reopening of assessment and add back under computation of book profitsDeduction under industrial undertaking incentive for power generation - Captive consumption and eligibility for tax incentives - Assessee entitled to deduction under the relevant incentive provision in respect of profit from electricity generated by windmills and used for captive consumption. - HELD THAT: - The Tribunal, following the Madras High Court's decision in the assessee's own case (Tax Case (Appeal) No.757 of 2007 dated 18.1.2012), held that profit arising from generation of electricity for captive use qualifies for deduction under the statutory incentive. The Tribunal found the earlier contrary view of the authorities untenable in light of the High Court ruling and directed the Assessing Officer to allow the deduction. The pendency of the Revenue's SLP in the Apex Court was not regarded as a reason to take a different view. [Paras 5, 13, 36]Orders of lower authorities set aside; deduction under the incentive provision allowed for power generated and used for captive consumption.Additional depreciation on plant and buildings used for power generation - Additional depreciation on upgradation and newly installed machinery - Assessee entitled to additional depreciation on buildings and plant/machinery used exclusively for captive power generation and on additions/upgradation held to be eligible as new assets for additional depreciation. - HELD THAT: - Relying on this Tribunal's earlier reasoning in the assessee's own case for assessment year 2003-04, and applying the principle that buildings and assets exclusively used for generating power (and additions that amount to installation of new machinery or upgradation that effectively constitute fresh assets) qualify for higher/additional depreciation, the Tribunal found the Assessing Officer's disallowances unsustainable. The Tribunal directed allowance of additional depreciation on the captive power plant building and on the additional plant and machinery claimed. [Paras 9, 30, 33, 41]Assessing Officer directed to allow additional depreciation on the captive power plant building and on eligible plant and machinery additions.Depreciation on intangible commercial rights (goodwill) - Goodwill acquired by the assessee is an intangible commercial right eligible for depreciation. - HELD THAT: - The Tribunal applied Explanation 3 to the provision dealing with depreciation of intangible assets, which includes commercial rights such as goodwill. Where goodwill arose on amalgamation or was otherwise accounted as a commercial right, the Tribunal held that it constitutes an intangible asset eligible for depreciation and upheld the CIT(A)'s allowance of depreciation on goodwill. [Paras 16, 25, 38]Depreciation on goodwill upheld; CIT(A)'s allowance confirmed.Tax treatment of provisions for doubtful advances to avoid double taxation - Amount written off as advances which had earlier been provided for and offered to tax cannot be disallowed again; allowance prevents double taxation. - HELD THAT: - The Tribunal accepted the assessee's position that provisions made earlier in respect of doubtful advances had been added back to income and taxed; when the advances were subsequently written off, treating the amounts as disallowable would result in double taxation. Applying the principle that previously taxed provisions should not be subject to fresh taxation when written off, the Tribunal upheld the CIT(A)'s allowance of the deduction. [Paras 20]CIT(A)'s allowance of the write off confirmed to avoid double taxation.Reopening of assessment and add back under computation of book profits - Reopening of assessment was valid where provision for bad and doubtful debts had not been added back in computing book profits under the special book profit provision; such provisions are required to be added back. - HELD THAT: - The Tribunal found that the Assessing Officer reopened the assessment to compute long term capital gains and to add back provisions for bad and doubtful debts in computing book profits under the relevant provision. Noting that the original assessment record did not discuss the provision, the Tribunal held the reopening permissible. On the merits, the Tribunal applied the statutory rule that book profits are to be increased by amounts set aside for unascertained liabilities (including bad and doubtful debts), and therefore the add back was warranted. [Paras 47, 50]Reopening under the provision sustained; add back of provision to book profits upheld.Final Conclusion: Assessee's appeals allowing deduction under the incentive, additional depreciation and depreciation on goodwill, and allowance of write offs were allowed in part; Revenue's appeals against those findings and on other points were dismissed; reopening and required add back to book profits were upheld. Overall, the Tribunal allowed the assessee's principal claims and dismissed the Revenue's appeals in the matters decided for assessment years 2006 07, 2008 09 and 2010 11. Issues Involved:1. Disallowance of deduction u/s 80IA of the Act.2. Disallowance of depreciation on the building added in the captive power plant.3. Depreciation on goodwill.4. Provision made for doubtful advances.5. Reopening of assessment u/s 147 of the Act.6. Additional depreciation on the captive power plant.7. Additional depreciation on addition made to plant and machinery.Issue-wise Detailed Analysis:1. Disallowance of Deduction u/s 80IA of the Act:The assessee claimed deduction u/s 80IA on profits from generating power by windmill for captive consumption. The Assessing Officer disallowed the claim, and the CIT(A) upheld this based on a previous Tribunal order. However, the Madras High Court allowed the claim in a similar case. The Tribunal followed the High Court's judgment and directed the Assessing Officer to allow the deduction.2. Disallowance of Depreciation on the Building Added in the Captive Power Plant:The assessee claimed depreciation on a building constructed for the captive power plant, which the Assessing Officer disallowed. The Tribunal, referencing a prior decision and the Supreme Court's judgment in CIT vs Karnataka Power Corporation, found the assessee eligible for additional depreciation and directed the Assessing Officer to allow it.3. Depreciation on Goodwill:The assessee claimed depreciation on goodwill, which the Assessing Officer disallowed. The Tribunal upheld the CIT(A)'s decision to allow the claim, citing that goodwill is an intangible asset eligible for depreciation under Explanation 3 to sec. 32 of the Act.4. Provision Made for Doubtful Advances:The assessee wrote off advances as doubtful, which the Assessing Officer disallowed. The Tribunal found that since the provision was already offered for taxation, disallowing it would result in double taxation. Therefore, the Tribunal upheld the CIT(A)'s decision to allow the deduction.5. Reopening of Assessment u/s 147 of the Act:The assessment was reopened to add back the provision for bad and doubtful debts to the book profits. The Tribunal found the reopening justified as the provision was not discussed in the original assessment. The Tribunal also confirmed the addition of the provision to the book profits under sec. 115JB.6. Additional Depreciation on the Captive Power Plant:The assessee claimed additional depreciation on the power plant used for captive consumption. The Tribunal, following its previous decision, found the assessee eligible for additional depreciation and directed the Assessing Officer to allow it.7. Additional Depreciation on Addition Made to Plant and Machinery:The assessee claimed additional depreciation on upgraded machinery. The Tribunal found that the upgradation amounted to the installation of new machinery and allowed the additional depreciation, setting aside the lower authorities' orders.Summary of Judgments:- Assessee's appeals in I.T.A.Nos.344 and 1034/Mds/2012 were allowed.- Assessee's appeal in I.T.A.No.457/Mds/2014 was dismissed.- Revenue's appeals in I.T.A.Nos.448 & 1085/Mds/2012 and 468/Mds/2014 were dismissed.Order Pronounced:The order was pronounced in the open court on 4th March 2016, at Chennai.