Appeal allowed for depreciation method change on power plant

The appeal was filed against the disallowance of depreciation on a power plant at written down value method instead of the claimed straight line method. The Commissioner changed the method of depreciation to WDV basis, leading to the appeal. The central issue was whether the appellant, running a captive power plant, was entitled to claim depreciation on a straight line method for the power plant. The Tribunal found no legal bar for a captive undertaking to claim depreciation on SLM basis. Given the consistent allowance of depreciation on SLM basis in the past and subsequent years, the Tribunal allowed the appeal of the assessee.

---

---

Issues:
1. Disallowance of depreciation on power plant at written down value method instead of straight line method.
2. Eligibility of claiming depreciation on straight line method for a captive power plant.

Issue 1: Disallowance of Depreciation on Power Plant
The appeal was filed against the order of the Learned Commissioner of Income Tax (Appeals) disallowing depreciation on a power plant at written down value method instead of the claimed straight line method. The appellant, a public limited company engaged in manufacturing and trading, declared a loss for the relevant assessment year. The appellant's contention that non-mentioning of the nature of business as "Generation of Power" should not lead to disallowance of depreciation under section 32(1)(i) of the Income Tax Act was rejected by the CPC Bangalore. The Commissioner changed the method of depreciation to WDV basis instead of SLM basis, leading to the appeal.

Issue 2: Eligibility for Claiming Depreciation on Straight Line Method
The central issue revolved around whether the appellant, running a captive power plant, was entitled to claim depreciation on a straight line method for the power plant. The Commissioner contended that depreciation on SLM basis is admissible only for undertakings engaged in "generation and distribution of power" as per section 32(1)(i) of the Act. The Commissioner held that since the appellant's power generation was for internal consumption in various manufacturing units, it did not qualify as "generation and distribution of power." The appellant argued that the law does not prohibit an undertaking consuming power captively from claiming depreciation under section 32(1)(i). The Inspector's report confirmed the captive power plant's operation and utilization in various units. The appellant cited past and subsequent assessment years where depreciation on SLM method was allowed, emphasizing the principle of consistency.

The Tribunal analyzed the legal provisions under section 32(1)(i) of the Act, emphasizing that the term used is "undertaking," not "entity" or "assessee." It was crucial to determine if the appellant had multiple undertakings, with one engaged in power generation. The undisputed facts revealed multiple units of the appellant, with one undertaking involved in power generation for internal consumption. The Tribunal found no legal bar for a captive undertaking to claim depreciation on SLM basis. Given the consistent allowance of depreciation on SLM basis in the past and subsequent years, the Tribunal set aside the Commissioner's order and directed the AO to allow depreciation on SLM basis as claimed by the appellant. Consequently, the appeal of the assessee was allowed.

---