Tribunal Allows Additional Depreciation on Windmills for Electricity Generation

The Tribunal upheld the CIT(A)'s decision to allow additional depreciation on windmills, confirming that electricity generation qualifies as manufacturing. Regarding the deletion of the addition made under Section 14A for computing book profits under Section 115JB, the Tribunal partially allowed the Revenue's appeal, directing a 1% ad-hoc disallowance of exempt income.

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Issues Involved:
1. Deletion of disallowance of additional depreciation on windmills.
2. Deletion of addition made under Section 14A for computing book profits under Section 115JB.

Detailed Analysis:

1. Deletion of Disallowance of Additional Depreciation on Windmills:

The Revenue challenged the CIT(A)'s decision to delete the disallowance of additional depreciation of Rs. 9,17,06,000/- on windmills. The AO had disallowed this depreciation on the grounds that generating electricity did not constitute manufacturing under Section 32(1)(iia) of the Income Tax Act.

The CIT(A) reversed the AO's decision, citing Tribunal decisions and the Hon'ble Supreme Court's interpretation that electricity generation qualifies as manufacturing. The CIT(A) also referenced the Finance Act 2012 amendment, which clarified that electricity generation is a manufacturing activity, applicable retrospectively.

The Tribunal upheld the CIT(A)'s decision, referencing the Hon'ble Madras High Court's ruling in S. Srinivasaraghavan vs. ACIT, which recognized electricity generation as a manufacturing activity, thus making the assessee eligible for additional depreciation.

2. Deletion of Addition Made Under Section 14A for Computing Book Profits Under Section 115JB:

The AO had added Rs. 14,62,000/- to the book profit under Section 115JB, which was disallowed by the CIT(A). The CIT(A) held that the AO should have used Section 154 to rectify the mistake if the appeal effect was not properly given. The CIT(A) also noted that disallowances under Section 14A should not affect book profit calculations under Section 115JB, based on the ITAT's ruling in Reliance Petroproducts Pvt. Ltd.

The Tribunal supported the CIT(A)'s view, referencing the Special Bench of the Delhi Tribunal in ACIT vs. Vireet Investment Pvt. Ltd., which held that disallowances under Section 14A cannot be applied to book profit calculations under Section 115JB. The Tribunal also cited the Hon'ble Calcutta High Court in CIT vs. Jayshree Tea Industries Ltd., which emphasized that Section 115JB is a complete code in itself and should not be influenced by Section 14A.

However, the Tribunal acknowledged that disallowance related to exempt income must still be made under clause (f) to Explanation 1 of Section 115JB. Given the lack of a specific mechanism, the Tribunal directed an ad-hoc disallowance of 1% of the exempt income, subject to the maximum amount disallowed by the lower authorities.

Conclusion:

The Tribunal dismissed the Revenue's appeal regarding additional depreciation on windmills, affirming that electricity generation constitutes manufacturing. For the Section 14A disallowance under Section 115JB, the Tribunal partially allowed the Revenue's appeal, directing a 1% ad-hoc disallowance of the exempt income.

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