TaxTMI 
TaxTMI 
2016 (7) TMI 747
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....tion and distribution of electricity. The return of income for the Asst Year 2011-12 was filed by the assessee on 28.9.2011 declaring loss of Rs. 247,36,00,558/-. The assessment was completed u/s 143(3) of the Act on 28.3.2014 determining the total loss at Rs. 227,00,22,060/- after making disallowance u/s 14A of the Act in the sum of Rs. 20,35,78,496/-. The ld CIT issued show cause notice dated 31.7.2015 seeking to revise the assessment framed u/s 143(3) of the Act in as much as the ld AO had granted the claim of additional depreciation to the assessee company in the sum of Rs. 6,37,45,348/- which, in his opinion, could be granted only with effect from Asst Year 2013-14 as the assessee was engaged in the business of generation and distribution of electricity pursuant to the amendment brought in by the Finance Act 2012 in section 32(1)(iia) of the Act. For the sake of convenience, the show cause notice is reproduced hereunder:- "Sub: Proceedings u/s. 263 of the I.T Act 1961 in the case of M/s. Damodar Valley Corporation passed u/s.143(3) dated 28.03.2014 for the A.Y 2011-12. Please refer to the above. The ROI was e-field on 28.09.2011 declaring a total inc....
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.... in response to show cause notice that Sec. 32(1)(iia) has come in force with effect from 01.04.2005 provides that any assessee which is engaged in the business of manufacture or production of any article or thing is entitled to claim additional depreciation @ 20% of the actual cost in respect of new machinery or plant acquired and installed in the relevant previous year. On bare perusal of the said section it would be noted that an "eligible assessee" u/s 32(1)(iia) is the one who "manufactures or produces any article or thing". In the present case the assessee during the relevant year was engaged in the business of generation and distribution of power. The assessee submits that its activity of generation of power amounted to production of an article or thing. Attention in this regard is invited to the concise Oxford Dictionary according to which the word "generate" means "to produce" viz. to produce energy / electricity. The issue as to whether the generation of power amounts to production of an article or goods was examined by Supreme Court in the following judgments: 1. Commissioner of Sales Tax Vs. M.P. Electricity Board (AIR 1970 SC 732) 2. State of AP Vs. N....
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.... CIT held the AO's order granting additional deprecation to be erroneous on the ground that the assessee was not engaged in the business of manufacture or production of any article or thing. In CIT's opinion the assessee's business of generation of power could not be equated with the connotation of "production of an article or thing". According to CIT in common parlance the expression "article or thing" meant to be something which was tangible or moveable. According to CIT the electricity generated did not have any tangible existence nor it was having physical properties or mass and therefore the same could not be considered to be an article or thing and, therefore, the assessee could not be considered to be engaged in the business of production of an article or thing and hence not eligible for deduction u/s. 32(1)(iia). Besides the said reason; revision order was also passed on other issue of inclusion of additional power tariff. Being aggrieved by the CIT's order u/s 263 the matter was carried before the ITAT. The Delhi Bench of the ITAT decided the appeal of NPTC on 30.04.2012 in ITA No.1438/D/2009 which is reported in 22 taxmann.com 247. In its order the Tribuna....
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....sideration of the facts and the question raised before it, the Hon'ble Madras High Court dismissed the revenue's appeal by holding that the assessee engaged in the business of generation of power fulfilled the condition of production of any article or thing as contemplated in section 32(1)(iia) of the Act and accordingly eligible for additional depreciation. Similar views were also expressed in the following decisions :- CIT vs Hi Tech Arai Ltd reported in (2010) 321 ITR 477 (Mad) CIT vs Texmo Precision Castings reported in (2010) 321 ITR 481 (Mad) CIT vs Atlas Export Enterprises reported in (2015) 57 taxmann.com 285 (Mad) ACIT vs M Satishkumar in ITA No. 718/Mds/2012 dated 28.9.2012 (Chennai Tribunal) DCIT vs Hutti Gold Mines Co. Ltd in ITA No. 832/Bang/2012 dated 2.8.2013 (Bangalore Tribunal) It was contended that in the aforesaid decisions, the asst year involved was prior to Asst year 2013-14. 4.2. It was also submitted that the show cause notice seeking to revise the assessment u/s 263 of the Act was issued on the ground that the assessee is not engaged in the business of manufacture or production of any article or thing and h....
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....s of the case, various judicial forums like High Court & ITAT having held that assessees engaged in generation of power were eligible for additional depreciation u/s. 32 (1)(iia) and these decisions being available in public domain prior to passing of the order u/s. 143(3) for A.Y. 2011-12; the CIT was grossly unjustified in holding the assessment order u/s 143(3) to be erroneous on the ground that additional depreciation was allowed by the AO. 4. For that on the facts and in the circumstances of the case, in the assessment order passed u/s 143(3) while allowing deduction for additional depreciation u/s. 32 (1)(iia) the AO having followed one of the course permissible in law, the CIT was unjustified in invoking his revisionary power u/s. 263 of the Act & holding the assessment to be erroneous. 5. For that on the facts and in the circumstances of the case, the CIT was unjustified in passing the revision order u/s. 263 on the alleged ground that the AO did not make any enquiry into the aspect of allowability of additional depreciation even though in the show cause notice issued; no such ground was assigned for considering the order of assessment to be erroneous and ....
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....icity could be said to be engaged in the business of manufacture or production of any article or thing so as to be eligible for claiming additional depreciation u/s 32(1)(iia) of the Act. It is well settled that for the purpose of manufacture, an element of transformation is a pre-requisite. A particular item should undergo changes in its colour and character and become a separate and new marketable commodity after the manufacturing process. In the instant case, the assessee had set up hydel power and thermal power plant, wherein the water and coal gets converted into electricity through the manufacturing process. Hence it is undisputed that transformation from mere coal to electricity and from mere water to electricity happens pursuant to the manufacturing process and the electricity so produced or generated becomes a separate marketable commodity. The various apex court decisions relied upon by the assessee before the ld CIT as mentioned supra in the context of levy of sales tax on the sale of electricity had also decided that the generation of electricity amounts to production of article or thing. We also find that the co-ordinate bench decision of this tribunal in the case of A....
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....us. 6.1. The Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd vs CIT reported in 243 ITR 83 (SC) at page 88 held as follows:- "The phrase prejudicial to the interest of the Revenue" has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interest of the revenue. For example, when an Income tax officer adopted one of the courses permissible in law and it has resulted in loss of Revenue; or where two views are possible and the Income Tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue, unless the view taken by the Income tax officer is sustainable in Law." 6.2. We find that the decisions of the Hon'ble Madras High Court and Delhi Tribunal supra involving identical facts were very much available in the public domain prior to the date on which the assessment was framed by the ld AO on 28.3.2014 granting allowance of additional depreciation u/s 32(1)(iia) of the Act and hence it could be safely concluded ....