TaxTMI 
TaxTMI 
2012 (5) TMI 127
X X X X Extracts X X X X
X X X X Extracts X X X X
.... brief facts of the case are that assessee has filed its return of income under sec. 139(1) of the Income-tax Act, 1961 on 24.10.2005 declaring total income of Rs. 1330,17,92,000. This return was processed under sec. 143(1) of the Act on 27.2.2006 at the returned income. Subsequently, the case of the assessee was selected for scrutiny assessment and a notice under sec. 143(2) of the Act was issued on 23.3.2006 which was duly served upon the assessee. Learned Assessing Officer had served a detailed questionnaire upon the assessee under sec. 142(1) of the Act. In response to the notices, Shri PK Gupta, DGM(Finance & taxation) attended the assessment proceedings and submitted the necessary details from time to time, as called for by the Assessing Officer. On an analysis of various issues, learned Assessing Officer has passed the assessment order under sec. 143(3) on 27.11.2006. Learned Assessing Officer has determined the taxable income of the assessee at Rs. 3736,18,91,370. 3. On an analysis of the assessment record, Learned Commissioner harbored an opinion that Assessing Officer has allowed additional depreciation under sec. 32(1)(iia) of the Act amounting to Rs. 187,55,71,000 on a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....efit is available only to those undertakings which are engaged in the business of manufacture or production of any article or thing. Other businesses are not eligible to claim the benefit. Generation of power cannot be equated with the production of article or thing. Article or thing in common parlance is known as something tangible, movable, etc. Generation of power is giving energy as output and therefore, activity is no way similar to the production of article or thing. In case of CIT vs. N.C. Budhiraja and Co. (1993), 204 ITR 412 (S.C), it was held that the expression 'manufacture' and 'produce' are normally associated with movables-articles and goods, big and small. Therefore, in light of the position of facts and law claim of additional depreciation has been erroneously allowed and to that extent order of the A.O. is erroneous is so far as it is prejudicial to the interest of revenue. (b) Provisional Revision of Sales In Schedule 28 of Annual Report of the company vide para 3(a) and (b) it is mentioned: 3(a) 'The Central Electricity Regulatory Commission (CERC) has notified by regulation in March 2004, the terms and conditions for determination of tariff applicable with ef....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e issue of wrong allowance of additional depreciation and provisional revision of sales of energy. Your reply must reach to the office of the undersigned on or before 26.10.2007. You may attend the office of undersigned on 26.10.2007 at 11.00 a.m," 4. Learned Commissioner after hearing the assessee and going through the record observed that assessee is engaged in the activity of generation of power. Section 32(1)(iia) of the Act provides an additional depreciation to those undertakings which are engaged in the business of manufacture or production of any article or thing. According to the Learned Commissioner, other businesses are not eligible to claim the benefit. He is of the opinion that generation of power cannot be equated with the production of article or thing because article or thing in common parlance is known as something tangible and moveable etc. Generation of power is giving energy as out put and, therefore, activity is no way similar to the production of article or thing. According to the Learned Commissioner, an article or thing is always associated with the concept of weight, mass and volume. Power or Electricity does not have any of these attributes. It has no vol....
X X X X Extracts X X X X
X X X X Extracts X X X X
....praised us with the meaning of expression 'manufacture' or 'production'. For buttressing his contentions, he relied upon the judgment of the Hon'ble Supreme Court in the case of CIT vs. Sesa Goa Ltd. reported in 279 ITR 331 and India Cine Agency vs. CIT reported in 308 ITR 98. He pointed out that the main controversy for adjudication before the ITAT is whether electricity is a goods and generation is a manufacture. In order to appraise us the meaning of expression 'goods and manufacture", he drew our attention towards their dictionary meaning provided in the Oxford English Dictionary and how these expressions have been construed in various authoritative pronouncements of the Hon'ble High Court as well as of Hon'ble Supreme Court. He relied upon the following decisions and placed their copies on the record: CST Vs. Madhya Paradesh Electricity Board A 1970 S.C 732; State of A.P Vs. NTPC 127 STC 280 (S.C); Orient Paper vs. Orissa State 42 ELT 552; CMS (India) Operations vs. CCE 7 STR 369 (CEGAT); NTPC-SAIL vs. CCE (unreported; Tamilnadu Cholrates vs. JCIT 98 ITD 1 (Che); CIT vs. Hi Tech Arai 321 ITR 477 (Mad.); CIT vs. Texmo Precision Castings 321 ITR 481 (Mad.). 7....
X X X X Extracts X X X X
X X X X Extracts X X X X
....998, this duty has been assigned to CERC. The CERC, by way of Regulation 2001 notified the terms and conditions of tariff determination for the period 2001 to 2004 and similarly by another regulation of 2004, it notified the terms and conditions for the period 2004- 09. First tariff order for NTPC station for the period 01 to 2004. was issued by CERC in financial year 2003-04. For the period 2004-09, it was issued in financial year 2006-07. Prior to issue of such orders, the CERC issued provisional order for the purpose of billing which is to be retrospectively adjusted when the final tariff orders are issued. Thus, the assessee raised the bill as per existing norms of CERC but the company has made a bona fide estimate of the sale being realizable as per the expected tariff notification and thus revised the sales. Assessing Officer has accepted this aspect after going through the details. The learned counsel for the assessee argued that this amount cannot be included in the total sales of the assessee because final order of CERC was not available at the end of the accounting year as the rates were provisional. For buttressing his contentions, he relied upon the following decisions:....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e further relied upon the judgement of Hon'ble Supreme Court in the case of State of Gujarat and Ors. Vs. ESSAR. Oil reported in 2012 TIOL in order to buttress that taxing statute to be construed liberally while exemption to be interpreted strictly. He also relied upon the judgment of Hon'ble Allahabad High Court in the case of CIT vs. Oriental Motor Car CO. Ltd. reported in 3 taxman 567 and the decision of Hon'ble Gujarat High Court in the case of Alambic Chemical Works vs. DCIT reported in 266 ITR 47. Learned DR also relied upon the judgement of Hon'ble Supreme Court in the case of CIT vs. N.C. Budhiraja reported in 204 ITR 412 and apprised us as to how the expression "manufacture and production" are to be construed. 11. We have duly considered the rival contentions and gone through the record carefully. On an analysis of the record, we are of the opinion that basically three issues are to be resolved by us, namely, (a) whether Learned Commissioner has rightly taken cognizance of sec. 263 of the Income-tax Act, 1961 and treated the assessment order as erroneous as well as prejudicial to the interest of the revenue; (b) whether Learned Commissioner has rightly wit....
X X X X Extracts X X X X
X X X X Extracts X X X X
....es such power in accordance with law and arrives at a conclusion, such conclusion cannot be termed to be erroneous simply because the CIT does not feel satisfied with the conclusion. (viii) The CIT, before exercising his jurisdiction under s. 263 must have material on record to arrive at a satisfaction. (ix) If the A.O has made enquiries during the course of assessment proceedings on the relevant issues and the assessee has given detailed explanation by a letter in writing and the A.O allows the claim on being satisfied with the explanation of the assessee, the decision of the A.O cannot be held to be erroneous simply because in his order he does not make an elaborate discussion in that regard." 13. Before embarking upon an inquiry about the facts of the present case and how those facts have been considered by the learned CIT, we deem it appropriate to make a reference to the observations of the Hon'ble Delhi High Court in the case of Vee Gee Enterprises reported in 99 ITR 373 wherein Hon'ble High Court has expounded the approach of the Assessing Officer required to be adopted while passing assessment order. The observations of the Hon'ble High Court read as under:- ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....all these details. However, Hon'ble Supreme Court in the case of Malabar Industries, Hon'ble Delhi High Court in the case of Gee Vee Enterprises as well as in the case of Ashok Logani and DLF Power Equipments, it has been held that if the Assessing Officer failed to go into the issues in proper perspective and his approach is perfentory then the order would be termed as erroneous which would ultimately caused a prejudice to the assessee on escapement of income from tax. The judgment of the Hon'ble Delhi High Court in the case of Ashok Logani as well as in the case of DLF Power are the latest decisions on this issue. Similarly, Learned DR has brought to our notice the decision of Hon'ble Delhi High Court dated 15.2.2012 in the case of CIT vs. Regency Park Property Management Service Pvt. Ltd. reported in 2012 TIOL page 75 where it has been held that if Assessing Officer had not dealt with the details and examined the issues then there was an error on the part of the Assessing Officer upon which action under sec. 263 can be justified. Thus, considering all these aspects, we are of the view that Learned Commissioner has rightly taken cognizance under sec. 263 of the Ac....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n this issue nor any finding is discernible from the assessment order or from the Learned Commissioner's Order with regard to inclusion or exclusion of these amounts from the sales. Therefore, it is not adviseable at the end of ITAT to take up this issue and record a finding on merit. 16. On due consideration of all these facts and circumstances, we are of the view that learned Assessing Officer has not put any query to the assessee about the reduction of the sales provisionally. As far as the reference to page No.90 is concerned, the assessee has given an explanation with regard to different issues wherein it has pointed out about the provisional revision of the sales, but Assessing Officer has not called for the information on this issue nor examined it. Even if the details are available on the record, there is no application of the mind at the end of the Assessing Officer. Thus, his order is erroneous. As far as the second condition i.e. whether any prejudice has been caused to the revenue or not is concerned, we find that Learned Commissioner has recorded a finding that permitting the assessee to reduce the sales without examining the issue, whether the assessee can reduce it ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ciation on the ground that Assessing Officer has not conducted inquiry before allowing this depreciation. On merit, Ld. Commissioner has observed that assessee is engaged in the activity of generation of power. Section 32(1)(IIa) of the Act provides additional depreciation to those undertaking which are engaged in the business of manufacture or production of any article or thing. According to the Learned Commissioner, other businesses are not eligible to claim the benefit. He observed that generation of power cannot be equated with the production of article or thing because article or thing in common parlance is known something tangible and moveable etc. Generation of power is giving energy as output and, therefore, this activity is nowhere similar to production of article or thing because an article or thing is always associated with the concept of weight, mass and volume. The power or electricity does not have any of these attributes. It has no volume and it does not occupy any space, no weight or no mass can be attributed to it. The learned counsel for the assessee in order to appraise us the meaning of expression 'manufacture and production made reference to the decision of Hon....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ot only the production but also various stages through which the raw material is subjected to change by different operations. It is the cumulative effect of the various processes to which the raw material is subjected to that the manufactured product emerges. Therefore, each step towards such production would be a process in relation to the manufacture. Where any particular process is so integrally connected with the ultimate production of goods that but for that process processing of goods would be impossible or commercially inexpedient, that process is one in relation to the manufacture. (See Collector of Central Excise v. Rajasthan State Chemical Works [1991] 4 SCC 473). x x x x x x x x x x x x x x x x x x x x x x 7. To put it differently, the test to determine whether a particular activity amounts to "manufacture' or not is: Does a new and different good emerge having distinctive name, use and character. The moment there is transformation into a new commodity commercially known as a distinct and separate commodity having its own character, use and name, whether be it the result of one process or several processes 'manufacture' takes place and liability to duty is attracted. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ned counsel for the assessee in order to buttress his arguments, power/electricity generated by the assessee is an article or goods, made reference to the decision of Hon'ble Supreme Court in the case of CST Vs. MP Electricity Power. In this case, the MPEST Board sold, supplied and distributed electric energy to various consumers. It also sold coal-ash, a waste product and supplied stream to Nepa Mills of Burhanpur. The sale of electricity is exempt from sales-tax. However, for the purpose of determining the gross turn over, the sale of electric energy is to be taken into account. The first question which arose before the Honble Court was; "On the facts and circumstances of the case whether or not the Madhya Pradesh Electricity Board is a dealer with in the meaning of Section 2(c) of the C.P. and Bare Sales-tax Act, and section 2(d) of the Madhya Pradesh General Sales-tax Act, 1958, in respect of its activity of generation, distruption, sale and supply of electric energy?" 20.1 In order to decide whether Madhya Pradesh Electricity Board is a dealer or not, Hon'ble Court took into consideration the definition of "dealer" as given in the two acts referred in the question and ob....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ike any other moveable object we see no difficulty in holding that electric energy was intended to be covered by the definition of "goods" in the two Acts. If that had not been the case there was no necessity of specifically exempting sale of electric energy from the payment of sales tax by making a provision for it in the Schedules to the two Acts. It cannot be denied that the Electricity Board carried on principally the business of selling, supplying or distributing electric energy. It would therefore clearly fall within the meaning of the expression "dealer" in the two Acts". 20.2 This question again fallen for the consideration of the Hon'ble Supreme Court in the case of State of Andhra Pradesh Vs. NTPC. The dispute in this case was that respondent NTPC had a thermal power station at Ramagundam within the State of Andhra Pradesh and sold the electricity to the Board of Karnataka, Kerala, Tamilnadu and the State of Goa in pursuance of contract of sales occasioning interstate movement of electricity. The Andhra Pradesh Government wanted to levy of duty on certain sales of electric energy. According to the understanding of Andhra Pradesh Government, section 3 of their Sales-t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....energy can be 'stored', the observation must be held to be erroneous or by oversight. The science and technology till this day have not been able to evolve any methodology by which electric energy can be preserved or stored. Another significant characteristic of electric energy is that its generation or production coincides almost instantaneously with its consumption. To quote from Aiyar's Law Lexicon (Second Adition, 2000)__ 'Electricity in physics is "the name given to the cause of a series of phenomena exhibited by various substances, and also to the phenomena themselves." Its true nature is not understood. Imperial Dict. (quoted in Spensley v. Lancashire Ins. Co., 54 Wis. 433, 442, 11 NW 894, where the court, quoting from the same authority, said, "We are totally ignoran of the nature of this cause whether it be a material agent or merely a property of matter. But as some hypothesis is necessary for explaining the phenomena observed, it has been assumed to be a highly subtle, imponderable fluid, identical with lightning, which pervades the pores of all bodies, and is capable of motion from one body to another.' This characteristic quality of electric energy was judicially notic....
X X X X Extracts X X X X
X X X X Extracts X X X X
....g the electricity as not an article or thing has not made reference to any provisions of the Income-tax Act, 1961, he simply construed the meaning of electricity as not article or thing on the basis of his own inference drawn from the nature of this item but if we evaluate the conclusion drawn by the Learned Commissioner in the light of the decision of the Hon'ble Supreme Court given in the case of Indian Cine Agency, CST Vs. M.P. Electricity Board and Sate of Madhya Pradesh Vs. NTPC then it would suggest that electric energy has all trapping of an article or goods. The process of its generation is also akin to manufacture or production of an article or thing. It is being generated in huge plants though scientifically one may say it is transformation of one source of energy into the other. But all these aspects have been considered in these three judgments of the Hon'ble Supreme Court wherein Hon'ble Court has explained what is manufacture or production and what is electricity. Learned DR at the time of hearing, had made reference to the order of the ITAT, Chennai and the judgment of the Hon'ble Supreme Court in the case of NC Budhiraja. As far as the judgment of the Ho....