2021 (6) TMI 664 - AT - Income Tax

Electricity Generation Deemed Manufacturing for Tax Benefits

The ITAT allowed the appeal of the power generation company, holding that the generation of electricity qualifies as manufacturing under Section 32AC of ... Disallowance on account of investment allowance u/s 32AC - Appellant is a State Government Public Sector Undertaking engaged in the business of generation of electricity - whether electricity is “goods”? - WhHELD THAT:- We find force in the written submissions filed by the ld. AR of the assessee. In the case of Vedanta Ltd. [2020 (9) TMI 1010 - ITAT DELHI] relying on the judgement of Sesa Goa [2004 (11) TMI 14 - SUPREME COURT] and NTPC Ltd [2012 (5) TMI 127 - ITAT DELHI] directed the AO to allow the claim of deduction u/s 32AC of the Act. As held generation of electricity is a manufacturing activity decision cited supra, 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 [1968 (11) TMI 85 - SUPREME COURT] has held that electricity falls within the definition of goods under the provisions of Sale of Goods Act, 1930. Therefore, respectfully following the above judgements , we set aside the order of CIT(A) and direct the AO allow the assessee’s claim of deduction u/s 32AC of the Act. Accordingly, the ground raised by the assessee on this issue is allowed. Issues Involved:1. Disallowance of investment allowance under Section 32AC of the Income Tax Act, 1961 for power generation companies.Issue-wise Detailed Analysis:Disallowance of Investment Allowance under Section 32AC:The primary issue in this case revolves around whether the assessee, a power generation company, is entitled to claim an investment allowance under Section 32AC of the Income Tax Act, 1961. The assessee claimed an investment allowance of Rs. 319,08,63,958 under Section 32AC, which was disallowed by the Assessing Officer (AO) on the grounds that the generation of power does not qualify as the manufacture or production of any article or thing as stipulated in Section 32AC.Assessee's Argument:The assessee contended that the generation of electricity should be considered as the production of an article or thing. The assessee supported this claim by citing several judicial precedents, including the ITAT Kolkata's decision in the case of Damodar Valley Corporation and the Supreme Court's rulings in Commissioner of Sales Tax v. MP Electricity Board and State of AP v. National Thermal Power Corporation Ltd. These cases established that electricity generation is akin to manufacturing and thus should be eligible for additional depreciation under Section 32(1)(iia).Assessing Officer's Reasoning:The AO argued that Section 32AC specifically provides incentives only to companies engaged in the manufacture or production of any article or thing and does not explicitly include power generation companies. The AO further noted that while Section 32(1)(iia) was amended to include power generation companies for additional depreciation, Section 32AC was not similarly amended. Hence, the AO concluded that the benefits of Section 32AC could not be extended to power generation companies.CIT(A)'s Decision:The CIT(A) upheld the AO's decision, reiterating that the legislative intent behind Section 32AC did not include power generation companies within its scope. The CIT(A) emphasized that the specific inclusion of power generation companies in Section 32(1)(iia) but not in Section 32AC indicated a deliberate legislative choice.ITAT's Analysis:The ITAT examined the legislative provisions, judicial precedents, and the specific arguments presented by both parties. The tribunal referred to the ITAT Delhi's decision in Vedanta Ltd., which had addressed a similar issue and concluded that power generation qualifies as the manufacture or production of an article or thing, thereby entitling the company to claim benefits under Section 32AC. The ITAT also considered the Supreme Court's ruling in the case of CST v. MP Electricity Board, which held that electricity is considered 'goods' under the Sale of Goods Act, 1930, and thus, the generation of electricity falls within the ambit of manufacturing.Conclusion:The ITAT concluded that the generation of electricity constitutes a manufacturing activity and, therefore, the assessee is eligible for the investment allowance under Section 32AC. The tribunal set aside the CIT(A)'s order and directed the AO to allow the assessee's claim for deduction under Section 32AC.Final Judgment:The appeal of the assessee was allowed, and the ITAT directed the AO to grant the investment allowance under Section 32AC to the power generation company.Pronouncement:The judgment was pronounced in the open court on 14th June 2021.