TaxTMI 
TaxTMI 
2025 (4) TMI 81
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....of Sec. 32AC, Sec.32AD of the Income Tax Act, 1961 which provides for allowance for a company engaged in the business of manufacture or production of any article or thing. 3.The CIT(A) erred in noticing the provisions of Sec. 32(1)(iia) of the Income Tax Act, 1961 which provides for additional depreciation @35% for a company engaged in the business of manufacture or production of any article or thing. 4.The CIT(A) erred in extending the benefit of Investment Allowance U/ s. 32AC & u/ s. 32AD of the Act to power generating companies by inheriting the provisions U/s. 32(1)(iia) of the Act, which specifically provides additional depreciation to companies engaged in the business of power generation in addition to companies engaged in the business of manufacture or production of any article or thing, which is against law. 5.The CIT(A) erred in relying on the various judicial pronouncements on different contexts where as in order to find out whether any assessee is entitled for any particular deduction, each case is required to be examined in the light of facts and circumstances of that very case and the very provisions of the Act." 3. Facts of the case, in ....
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....ic growth. "Incentive for acquisition and installation of new plant or machinery by manufacturing company. In order to encourage substantial investment in plant or machinery, it is proposed to insert a new section 32AC in the Income Tax Act to provide that where an assessee, being a company, (a) is engaged in the business of manufacture of an article or thing; and (b) invests a sum of more than Rs. 100 crore in new assets (Plant or machinery) during the period beginning from 1st April, 2013 and ending on 31st March, 2015. In the said Memorandum, the power generating companies were not included. In the absence of specific inclusion of power generating units into the purview of section 32AC, the benefits mentioned in section 32(1)(ii) cannot be extended to power generation companies. Therefore, the case laws relied upon by the assessee, which were rendered in the context of 32(1)(lia) cannot be applied to provisions of section 32AC and accordingly, the claim of investment allowance claimed by the assessee at Rs. 358,44,95,902/ - is disallowed and added to the income returned. It can be observed from the above that the AO has categorically held that power generating units are....
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....llowed the claim of the Appellant made u/ s 32AD by observing at para 7 of the order that: "The conditions laid down u/s 32AD is same as in the Section 32AC and as the assessee is not qualified for the investment allowance for not being in the business of manufacturing and production of any article or thing (as per detailed discussion in Para 6.01 to 6.07). Therefore, the claim of investment allowance u/s 32AD of Rs. 358,44,95,902/- is disallowed and added back to the income returned." I have already discussed in details at para 5.2. above that generation of power by the Appellant is akin to manufacture or production of any article or thing and, therefore, the Appellant is entitled to deduction claimed u/ s 32AD as well. Accordingly, I direct the AO to delete the addition of Rs. 358,44,95,902/- made in the assessment order by denying the benefits available to the Appellant u/s 32AD of the Act. The Ground is, thus, allowed. 5.4. Ground 4 Vide this ground of appeal, the Appellant has submitted that the AO has erred in restricting the claim of additional depreciation at a rate of 20 percent instead of 35 percent as claimed by the appellant u/ s 32 (....
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....e Ld.CIT(A) in para 5.3 of his order has also mentioned that the application of section 32AD is akin to manufacture or production of any article or thing, and therefore, assessee was entitled to deduction claimed under section 32AD of the Act as well. It was submitted that the Ld.CIT(A) had allowed the benefit of Section 32(1)(iia) of the Act, whereby the additional depreciation @ 20% was allowed. The CIT-DR for the purpose of proving the case of the assessee has submitted that the Assessing Officer while examining the case of the assessee has brought in various facts and the provision of law, which are available at paragraphs 6.00 to 8 of the assessment order, which is to the following effect : "6.00 Investment allowance u/s 32AC: The assessee claimed to have installed new machinery in new projects taken up at (i) Thermal Power Generation Plant, Visakhapatnam (Unit-1) installed new machinery costs exceeds 25 Crores on 11.01.2016 (ii). Boiler plant Visakhapatnam which is a backward area in the state of Andhra Pradesh, as per notification dated 28.09.2016 bearing No. SO 3075(E) (No. 85/2016) (F. No. 142/13/2015-TPL) On the said new machinery, the assessee claimed investment....
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....ticle or a thing and is, therefore, eligible for deductions as claimed by the assessee. It is the submission of the assessee that since electricity is generated/ produced, can be measured in units, transmitted, capable of being delivered and income can be earned from sale of electricity (it does not matter it is tangible or intangible form of energy), generation of power can be treated as manufacture of an article or thing. In support, the assessee referring to the following case laws submitted as under: Further it is to bring to your kind notice that the issue as to whether the generation of power amounts to production of an articular or goods was examined by ITAT B-Bench, Kolkata in the case of M/s Damodar Valley Corporation v. DCIT Circle (9), Kolkata and held that generation and distribution of electricity is akin to the manufacturing and hence the assesseo is eligible for additional deprecation u/s 32(1)(ii) (a) of the Act. Commissioner of Sales Tax v. MP Electricity Board (AIR 1970 SC 732) State of AP v. National Thermal Power Corporation Ltd (127 STC 280 SC) In the above decisions it has been held by the Apex court that the generation of p....
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....the incentives provided by the Income Tax Act to power generation companies and the intention of Legislation behind providing such Incentives. 6.06 Section 32 (1)(iia) provides for additional depreciation to incentivize the promotion of capital goods industry, engaged in the business of manufacture or production of any article or thing, and this section came into force vide Finance Act 2002. Though the proviso relating to allowing additional depreciation u/s 32(1)(ia) starts with the words 'engaged in the business of manufacture of an article or thing' akin to the proviso 32AC(1A) where an assessee, being a company, engaged in the business of manufacture or production of any article or thing the incentive of additional depreciation was not considered for power generation companies. However, the said incentive of additional depreciation was extended to the power generation companies by an amendment to the section 32(1)(ila) by including the power generation companies in the said proviso with effect from 01.04.2013 by the Finance Act, 2012. In the Memorandum to Finance Act, 2012, the reasons for extending the benefit of additional depreciation to power generation com....
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.... the context of 32(1)(iia) cannot be applied to provisions of section 32AC and accordingly, the claim of investment allowance claimed by the assessee at Rs. 358,44,95.502 is disallowed and added to the income returned. 7.00 Investment allowance u/s 32AD: On verification it is observed that the assessee also claimed additional investment allowance of Rs. 358,44,95,902/- u/s 32AD of IT Act. As per Section 32AD provides: "Where an assessee, sets up an undertaking or enterprise for manufacture or production of any article or thing, on or after the 1st day of April, 2015 in any backward area notified by the Central Government in this behalf, in the State of Andhra Pradesh or in the State of Bihar or in the State of Telangana or in the State of West Bengal, and acquires and installs any new asset for the purposes of the said undertaking or enterprise during the period beginning on the 1st day of April, 2015 and ending before the 1st day of April; 2020 in the said backward area, then, there shall be allowed a deduction of a sum equal to fifteen per cent of the actual cost of such new assets for the assessment year relevant to the previous year in which such new asset is installed....
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....plant and machinery as the same is installed for less than 180 days). Therefore, the excess depreciation of Rs. 271,70,42,063/ - (Rs. 6,33,98,10,083/- Rs. 362,27,68,020/-) is disallowed and added back to the income returned. Addition: Rs. 271,70,42,063/- 7. The CIT-DR submitted that the scope and ambit of Section 32(1)(iia) of the Act, as well as Sections 32AC and 32AD, need to be examined. For this purpose, he drew our attention to the bare provisions of the Act and the explanatory Memorandum of the Finance Bill, by virtue of which these provisions were inserted. It was submitted, if the Parliament deem it appropriate to extend the benefit of these provisions, to the "business of the generation, transmission and distribution of the power", then the legislature should have incorporated such assessee within the first proviso to Section 32(1)(iia), 32AC and 32AD of the Act. It was submitted that the "business of generation, transmission and distribution of the power" is conspicuously not appearing in either of the provisions to Section 32(1)(iia), 32AC and 32AD of the Act and therefore, these benefits as granted by the Ld.CIT(A) cannot be extended to the assessee. 8. Further....
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.... to the benefit of section 32-A(1) of the Act. The question whether the High Court was correct in holding that the activity did not amount to "manufacture" is left open." 8.1. Hence, it was submitted that the decision in the case of CIT Vs. Sesa Goa (supra) is not also not applicable to the facts of the present case. 9. Additionally, the CIT-DR has also drawn our attention to the decision of hon'ble Supreme Court in the case of Commissioner of Sales Tax, Madhya Pradesh Vs. Madhya Pradesh Electricity Board, Jabalpur dated 26.11.1968 reported in 1920 AIR 732, wherein the Hon'ble Supreme Court had the occasion to decide the applicability of Goods and Sales Tax on the supply of electricity, and in that context, the hon'ble Supreme Court has decided the issue. It was submitted by the CIT-DR that the literal and strict interpretation is required to be applied for deduction expenditure of tax as held by the hon'ble Supreme Court in a catena of judgments, more particularly, in the case of (1) PCIT Vs. Wipro reported in 446 ITR 001. (2) Commissioner of Customs Vs. Dilip Kumar (2018) 5 SCC 1 and (3) CIT Vs. M/s. Calcutta Kintwears, Ludhiana reported in (2014) 6 SCC 444,....
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....on of electricity is akin to manufacture of an article or thing. 10. In view of the above, we are of the considered opinion that generation of electricity is a manufacturing activity. The assessee is involved in the manufacturing activity and fulfills the conditions as laid down under section 32(1)(iia). The Government vide Finance Act. 2012 has amended the provisions of section 32(1)(iia) to include the business of generation or generation and distribution of power, eligible for benefit under section 32(1)(iia). Although the said amendment is with effect from 1.4.2013 but it gives impetus to the view that generation of electricity is a manufacturing process and qualifies for the benefits under section 32(1)(iia). In view of the above, the order of the CIT(A) is upheld and the appeal of the Revenue is dismissed being devoid of merit. 7.2 As the issue in dispute is similar to the issue decided by the ITAT, Delhi in Vedanta Ltd. and the Chennai Bench has decided that generation of electricity is a manufacturing activity decision cited supra, The electricity can be transmitted, transferred, delivered, stored, possessed etc. The Hon'ble Supreme Court in the case o....
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.... the respective parties and have also examined the judgments orders relied on by the authorised representative of the assessee. A perusal of the judgments clearly shows that generation of electricity is akin to manufacturing of a new product. In the instant case, electricity which may not be seen with the eyes, however, its effect can be seen and felt. The electricity can be transmitted, transferred, delivered, stored, possessed, etc. The hon'ble Supreme Court in the case of the Madhya Pradesh Electricity Board, (supra) has held that electricity falls within the definition of goods under the provisions of Sale of Goods Act, 1930. The Delhi Bench of the Tribunal in the case of National Thermal Power Corporation Ltd. (supra) after a detailed examination of several judgments, Acts, Constitution of India, has concluded that the process of generation of electricity is akin to manufacture of an article or thing. 10. In view of the above, we are of the considered opinion that generation of electricity is a manufacturing activity. The assessee is involved in the manufacturing activity and fulfils the conditions as laid down under section 32(1)(iia). The Government vide Finance....
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.... such machinery or plant shall be allowed as deduction under clause (ii) 7. Learned counsel for the assessee has drawn our attention to the judgement of the Karnataka High Court dated 16.09.2014 in ITA No.08/2014 [Commissioner of Income Tax vs. The Hutti Gold Mines Co Ltd) wherein the question of additional depreciation was considered and it was held as follows: 3. The material on record shows that the assessee is generating electricity through windmill as a second line of business. It is a product of the assessee company. It is covered under the words "article" or "thing", which is tradable/identifiable. In other words, the electricity falls within the definition of Sale of Goods Act, 1930, and process of generation of electricity is akin to manufacture or production of an "article" or "thing". The power generated need not necessarily be used in the production of assessee's own products namely mining and extraction of gold. The use of electricity in the manufacturing activity of the core business of the assessee is not a precondition for the grant of additional depreciation under the statute. Therefore, we do not see any merit in this appeal. Accordingly, thi....
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....we agree with Grover. J., on all other characteristics of electric energy except that it can be stored and to the extent that electric energy con 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." 9. The Tribunal's judgment in NTPC vs. DCIT[relied upon in the orders of the CIT(A) as well as the Tribunal in the present case] followed this judgment of the Supreme Court to hold that electricity has all the necessary trappings of "articles" or "things" and the benefit of additional depreciation cannot be denied. 10. As held by the Constitution Bench, electricity is capable of abstraction, transmission, transfer, delivery, possession, consumption and use like any other movable property. Following the same logic, to deny the benefit of additional depreciation to a generating entity on the basis that electricity is not an "article" or "thing" is in our view an artificially restrictive meaning of the provision. The benefit of additional depreciation under Section 32(1)(iia) has, therefore, been rightly grante....
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....of this order), and that there is no discrepancy in the decision passed by the Ld. CIT(A). 15. We have heard the rival submissions and perused the material on record. Before we deal with the respective contentions and the impact of the decisions cited by both the parties, it is essential to delineate the scheme of the Act, which provides the manner in which the computation of income of business is required to be made. Firstly, we refer to section 32(1)(iia) of the Act, which reads as under : 32. Depreciation .- (1) "[In respect of depreciation of- (i) buildings, machinery, plant or furniture, being tangible assets; (ii) know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after the 1st day of April, 1998, owned, wholly or partly, by the assessee and used for the purposes of the business or profession, the following deductions shall be allowed- ^5[(i) in the case of assets of an undertaking engaged in generation or generation and distribution of power, such percentage on the actual cost thereof to the assessee as may be pres....
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....alance fifty per cent. of the amount calculated at the percentage prescribed for such asset under clause (iia) shall be allowed under this sub-section in the immediately succeeding previous year in respect of such asset:] ^9[Provided also that where an asset being commercial vehicle is acquired by the assessee on or after the 1st day of October, 1998 but before the 1st day of April, 1999 and is put to use before the 1st day of April, 1999 for the purposes of business or profession, the deduction in respect of such asset shall be allowed on such percentage on the written down value thereof as may be prescribed. Explanation .- For the purposes of this proviso,- (a) the expression "commercial vehicle" means "heavy goods vehicle", "heavy passenger motor vehicle", "light motor vehicle", "medium goods vehicle" and "medium passenger motor vehicle" but does not include "maxi-cab", "motor-cab", "tractor" and "road-roller"; (b) the expressions "heavy goods vehicle", "heavy passenger motor vehicle", "light motor vehicle", "medium goods vehicle", "medium passenger motor vehicle", "maxi-cab", "motor-cab", "tractor" and "road roller" shall have the meanings re....
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....ve the same meaning as in clause (c) of sub-section (6) of section 43.] ^6[Explanation 3 .- For the purposes of this sub-section, ^7[the expression "assets"] shall mean- - (a) tangible assets, being buildings, machinery, plant or furniture; (b) intangible assets, being know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature. Explanation 4 .- For the purposes of this sub-section, the expression "know-how" means any industrial information or technique likely to assist in the manufacture or processing of goods or in the working of a mine, oil-well or other sources of mineral deposits (including searching for discovery or testing of deposits for the winning of access thereto).] ^1[Explanation 5 .- For the removal of doubts, it is hereby declared that the provisions of this sub-section shall apply whether or not the assessee has claimed the deduction in respect of depreciation in computing his total income;] ^2[(iia) in the case of any new machinery or plant (other than ships and aircraft), which has been acquired and installed after the 31st day of March, 2005, by....
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.... Explanation .- For the purposes of this clause,- (1) "moneys payable" in respect of any building, machinery, plant or furniture includes- (a) any insurance, salvage or compensation moneys payable in respect thereof; (b) where the building, machinery, plant or furniture is sold, the price for which it is sold, so, however, that where the actual cost of a motor car is, in accordance with the proviso to clause (1) of section 43, taken to be twenty-five thousand rupees, the moneys payable in respect of such motor car shall be taken to be a sum which bears to the amount for which the motor car is sold or, as the case may be, the amount of any insurance, salvage or compensation moneys payable in respect thereof (including the amount of scrap value, if any) the same proportion as the amount of twenty-five thousand rupees bears to the actual cost of the motor car to the assessee as it would have been computed before applying the said proviso; (2) "sold" includes a transfer by way of exchange or a compulsory acquisition under any law for the time being in force but does not include a transfer, in a scheme of amalgamation, of any asset by ....
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....(1) Where an assessee, being a company, engaged in the business of manufacture or production of any article or thing, acquires and installs new asset after the 31st day of March, 2013 but before the 1st day of April, 2015 and the aggregate amount of actual cost of such new assets exceeds one hundred crore rupees, then, there shall be allowed a deduction,- (a) for the assessment year commencing on the 1st day of April, 2014, of a sum equal to fifteen per cent. of the actual cost of new assets acquired and installed after the 31st day of March, 2013 but before the 1st day of April, 2014, if the aggregate amount of actual cost of such new assets exceeds one hundred crore rupees; and (b) for the assessment year commencing on the 1st day of April, 2015, of a sum equal to fifteen per cent. of the actual cost of new assets acquired and installed after the 31st day of March, 2013 but before the 1st day of April, 2015, as reduced by the amount of deduction allowed, if any, under clause (a). [(1A) Where an assessee, being a company, engaged in the business of manufacture or production of any article or thing, acquires and installs new assets and the amount of actua....
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....(iii) any office appliances including computers or computer software; (iv) any vehicle; or (v) any plant or machinery, the whole of the actual cost of which is allowed as deduction (whether by way of depreciation or otherwise) in computing the income chargeable under the head "Profits and gains of business or profession" of any previous year.] [32AD. Investment in new plant or machinery in notified backward areas in certain States .- (1) Where an assessee, sets up an undertaking or enterprise for manufacture or production of any article or thing, on or after the 1st day of April, 2015 in any backward area notified by the Central Government in this behalf, in the State of Andhra Pradesh or in the State of Bihar or in the State of Telangana or in the State of West Bengal, and acquires and installs any new asset for the purposes of the said undertaking or enterprise during the period beginning on the 1st day of April, 2015 and ending before the 1st day of April, 2020 in the said backward area, then, there shall be allowed a deduction of a sum equal to fifteen per cent. of the actual cost of such new asset for the assessment year relevant to the prev....
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....case, any new machinery or plant (other than ships and aircraft), acquired and installed after 31.03.2005 by an assessee engaged in the business of manufacture or production of any article or thing, or in the business of generation, transmission or distribution of power qualifies for an additional depreciation of 20% of the actual cost of such machinery or plant. Clause (ii) of Section 32 deals with the calculation of depreciation on the written down value of the block of assets. Under Section 32(1)(iia), the assessee is entitled to an additional deduction of 20% over and above the normal depreciation, provided the new machinery or plant is acquired after 31.03.2005. Further, an amendment effective from 01.04.2016 inserted by way of proviso to Section 32(1)(iia), a beneficial provision applicable to the states of Andhra Pradesh, Bihar, Telangana, and West Bengal. This proviso allows an enhanced additional depreciation of 35% instead of 20% for undertakings or enterprises engaged in manufacturing or producing any article or thing, provided they were set up on or after 01.04.2015. However, upon a closer scrutiny of the proviso to Section 32(1)(iia) and the main Section 32(1)(iia) of ....
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....rwise fall within the general language of the main enactment, and its effect is confined to that case. The proviso may, as LORD MACNAGHTEN laid down, be "a qualification of the preceding enactment which is expressed in terms too general to be quite accurate". The gen eral rule has been stated by HIDAYATULLAH, J., in the following words: "As a general rule, a proviso is added to an enactment to qualify or create an exception to what is in the enactment, and ordinarily, a proviso interpreted as 15 not rule 12 And in the words of KAPUR, J stating a general rule". "The proper function of a proviso is that it qualifies the generality of the main enactment by providing an exception and taking out as it were, from the main enactment, a portion which, but for the proviso would fall within the main enactment. Ordinarily it is foreign to the proper function of pro viso to read it as providing something by way of an addendum or dealing with a subject which is foreign to the main enactment." Further, a proviso is not normally construed as nullifying the enactment or as taking away completely a right conferred by the enactment. As a consequence of the aforesaid function of a true proviso certai....
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.... Ltd. (supra). Therefore, it was contended that the manufacturing of electricity attracts the provisions of Section 32, entitling the assessee to claim depreciation at the enhanced rate of 35% under the proviso to Section 32(1)(iia) of the Act. 21. The next issue came for our consideration is deduction claimed u/s 32AC and 32AD. The bare reading of the provisions reproduced herein above make it abundantly clear that the language used in Section 32AC and 32AD are parametria similar to the language used in Proviso to Section 32(1)(iia) of the Act. In our view the Legislature deem it appropriate to restrict the benefit of Section 32AC and 32AD only to such class of assessee, which are engaged in the business of manufacture or production of any article of thing acquires any new assets etc. and had not deliberately extended to "business of power generation, transmission and distribution. The benefit of Section 32AC and 32AD of the Act, were extended only to the assessee engaged in the business of manufacture of production of any article of thing acquires any new assets etc and was not extended to the assessee which are engaged in the "business of power generation, transmission and di....
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.... to by the CIT- DR as well as Ld.A.R. were focused on the specific provisions related to the interpretation of duties on the sale of electricity and did not address the issue of deduction or additional depreciation under Sections 32, 32AC, or 32AD of the Act. 24. The Hon'ble Supreme Court in the cases of Commissioner of Customs Vs. Dilip Kumar (supra) and PCIT Vs. Wipro (supra) had held that, for an assessee seeking exemption, deduction, or additional benefits, the conditions prescribed by the statute must be fulfilled fully and completely in their entirety, and the deduction or additional benefit cannot be granted based merely on interpretation. We may rely on the following observations of the Hon'ble Supreme Court in the case of PCIT Vs. Wipro (supra), as under: "7. It is the case on behalf of the Revenue that as there was a non- compliance of twin conditions under Section 10B (8) of the IT Act, namely, the declaration under Section 10B (8) was not submitted along with the original return of income, the assessee shall not be entitled to the exemption/benefit under Section 10B (8) of the IT Act. According to the Revenue, furnishing of declaration under Section ....
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....emption sought by an assessee. 9. In such a situation, filing a revised return under section 139(5) of the IT Act claiming carrying forward of losses subsequently would not help the assessee. In the present case, the assessee filed its original return under section 139(1) and not under section 139(3). Therefore, the Revenue is right in submitting that the revised return filed by the assessee under section 139(5) can only substitute its original return under Section 139(1) and cannot transform it into a return under Section 139(3), in order to avail the benefit of carrying forward or set-off of any loss under Section 80 of the IT Act. The assessee can file a revised return in a case where there is an omission or a wrong statement. But a revised return of income, under Section 139(5) cannot be filed, to withdraw the claim and subsequently claiming the carried forward or set- off of any loss. Filing a revised return under Section 139(5) of the IT Act and taking a contrary stand and/ or claiming the exemption, which was specifically not claimed earlier while filing the original return of income is not permissible. By filing the revised return of income, the assessee cannot be ....
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....ctly and literally comply with the exemption provisions. Therefore, the said decision shall not be applicable to the facts of the case on hand, while considering the exemption provisions. Even otherwise, Chapter III and Chapter VIA of the Act operate in different realms and principles of Chapter III, which deals with "incomes which do not form a part of total income", cannot be equated with mechanism provided for deductions in Chapter VIA, which deals with "deductions to be made in computing total income". Therefore, none of the decisions which are relied upon on behalf of the assessee on interpretation of Chapter VIA shall be applicable while considering the claim under Section 10B (8) of the IT Act. 12. Even the submission on behalf of the assessee that the assessee had a substantive statutory right under Section 10B (8) to opt out of Section 10B which cannot be nullified by construing the purely procedural time requirement regarding the filing of the declaration under Section 10B (8) as being mandatory also has no substance. As observed hereinabove, the exemption provisions are to be strictly and literally complied with and the same cannot be construed as procedural req....