Assessee's Electric Installation Depreciation Dispute: Function Analysis Required

The Tribunal initially dismissed the assessee's claim for higher depreciation on electric installations, considering them not integral to plant and machinery. The High Court remitted the issue back to the Tribunal to determine whether items listed under "electric installation" should be depreciated at 10% as electrical fittings or at 15% as plant and machinery. The Tribunal directed the assessee to provide specific functions performed by each item for a detailed examination by the Assessing Officer, with both appeals allowed for statistical purposes.

---

---

Issues Involved:
1. Disallowance of depreciation on electric installation.
2. Determination of whether items under "electric installation" are entitled to depreciation at 10% under "electrical fitting" or 15% under "plant and machinery".

Issue-wise Detailed Analysis:

1. Disallowance of Depreciation on Electric Installation:

The Tribunal initially dismissed the assessee's claim for higher depreciation on electric installations, considering them not integral to plant and machinery. The Tribunal observed that the majority of expenses, such as transformer, panel switchgear, LT PVC Cable, Poly Cab Cable, electric generating set, Electrical Control Panel, Electrical Items, installation work, DG Set, etc., were part of electrical fittings, which are eligible for only 10% depreciation. The Tribunal referenced case laws like CIT vs. MTNL and Siemens Ltd., noting the different business nature and facts, concluding that the items could not be treated as part of plant and machinery.

2. Determination of Depreciation Rate:

The Hon’ble High Court of Delhi remitted the issue back to the Tribunal to examine whether items listed under "electric installation" should be depreciated at 10% as electrical fittings or at 15% as plant and machinery. The High Court emphasized the need for greater consideration, directing the Tribunal to examine each item separately and determine the appropriate category.

Tribunal's Further Proceedings:

Upon remand, the Tribunal heard the parties through videoconferencing. The assessee argued that the items were integral to the manufacturing process and thus should be considered part of plant and machinery, eligible for 15% depreciation. They cited various judgments, including CIT v. Karnataka Power Corporation and CIT vs. Delhi Airport Services, to support their claim that the items in question were essential for manufacturing operations.

The Department contended that the items were ancillary and not integral to the manufacturing process, thus only qualifying for 10% depreciation. They referenced the decision in CIT Vs. JKK Textiles Processing, arguing that transformers and DG sets were for electricity supply and not directly involved in manufacturing.

Tribunal's Findings:

The Tribunal noted that the definition of "plant" includes items essential for business operations. However, it emphasized the need for a functional test to determine if each item is integral to manufacturing. The Tribunal observed that the assessee had not provided sufficient details about the function and installation location of each item. Items like transformer oil, diesel for DG sets, and rent for DG sets lacked explanation on their qualification as capital expenditure.

Conclusion:

The Tribunal restored the issue to the Assessing Officer (AO) for a detailed examination, directing the assessee to provide specific functions performed by each item listed by the High Court. The AO is to decide the issue in accordance with the law, considering the functions and roles of each item in the manufacturing process.

Final Order:

Both appeals were allowed for statistical purposes, with the direction to reassess the depreciation claims based on detailed functional analysis as per the High Court's instructions. The order was pronounced on 23rd September 2021.

---