DCIT CORPORATE CIRCLE-1, COIMBATORE vs. M/S. BANNARI AMMAN SUGARS LTD., COIMBATORE

Additional Depreciation on Power Generation Unit 4.1 The assessee claimed additional depreciation of Rs.844.47 Lacs on plant and machinery forming part of co-generation unit. It was pointed out that any new plant and machinery as acquired and installed after 31.03.2005 by an assessee engaged in the business of manufacturing and distribution of any article or thing (or in the business of generation and distribution of power) would be eligible for additional depreciation of 20% u/s 32(1)(iia). This would be over and above normal depreciation as available u/s 32(1)(ii). Reliance was placed on various judicial decisions in support of the claim which has been enumerated in the assessment order. 4.2 However, Ld. AO disallowed the same on the ground that the words ‘or in the business of generation and distribution of power’ were inserted by Finance Act 2012 w.e.f. 01.04.2013 and therefore, the additional depreciation would be allowable only from AY 2013-14. Since the assessee was engaged in the business of generation of power, excess depreciation thus claimed was to be withdrawn which aggregated to Rs.844.47 Lacs. 4.3 During appellate proceedings, the assessee relied on various judicial decisions including the decision of Chennai Tribunal in M. Satishkumar V/s DIT (33 Taxmann.com 396) wherein it was held that generation of electricity is a manufacturing activity and therefore, the assessee fulfills the conditions as laid down u/s 32(1)(iia). Although the amendment was effective only from 01.04.2012, however, it gives impetus to the view that generation of electricity is a manufacturing process and qualifies for deduction u/s 32(1)(iia). The assessee also cited the case laws of decision of Hon’ble Madras High Court in CIT V/s Texmo Precision Castings (321 ITR 481); CIT V/s VTM Ltd. (187 Taxman 319) & CIT V/s Hi Tech Arai Ltd. (321 ITR 477). Considering these decisions, the Ld. CIT(A) also noted that similar favorable view was taken by first appellate authority in the case of Madras Sugars Ltd. which got amalgamated with the assessee and therefore, the additional depreciation would be available to the assessee. Aggrieved, the revenue is in further appeal before us.

We find that in terms of the provisions of Sec. 32(1)(iia), in case of any new machinery or plant (other than ships and aircrafts) which has been acquired and installed after 31.03.2005 by an assessee engaged in the business of any article or thing, a further sum equal to 20% of actual cost of such machinery or plant shall be allowed as deduction. However, the benefit of such provisions has been extended to power sector by Finance Act, 2012 by insertion of the words "or in the business of generation or generation and distribution of power" under these provisions with effect from 01.04.2013. The explanatory memorandum to Finance Bill provides as under: - Extending benefit of initial depreciation to the power sector Section 32(1)(iia) provides for allowance of initial depreciation (in addition to normal depreciation) at the rate of 20% of the actual cost on new machinery or plant (other than ships and aircraft) to the assessee engaged in the business of manufacture or production of any article or thing in the year of acquisition and instalment. Under the existing provisions, the benefit of initial depreciation is not available on the new machinery or plant installed by an assessee engaged in the business of generation or generation and distribution of power. In order to encourage new investment by the assessees engaged in the business of generation or generation and distribution of power, it is proposed to amend this section to provide that an assessee engaged in the business of generation or generation and distribution of power shall also be allowed initial depreciation at the rate of 20% of actual cost of new machinery or plant (other than ships and aircraft) acquired and installed in a previous year.

Upon perusal of the decision of Chennai Tribunal in M. Satishkumar V/s DIT (33 Taxmann.com 396 28.09.2012), we find that identical question has been decided by coordinate bench in assessee’s favor as under: - 9. We have heard the submissions made by 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.

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 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 April 1, 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 Commissioner of Income-tax (Appeals) is upheld and the appeal of the Revenue is dismissed being devoid of merit.

We find that except for relying upon the amendment, the revenue is not able to demonstrate that the aforesaid decisions are not applicable to the facts of the case. No contrary decision has been shown to us. Under these circumstances, we confirm the impugned order on this issue and dismiss the ground raised

We find that this issue is covered in assessee’s favor by the decision of Vishakhapatnam Tribunal in Sri Sarvaraya Sugars Limited V/s JCIT (ITA No.577/Viz/2014 20.12.2017) wherein it was held that various components which form integral part of cogeneration plant are to be allowed higher rate of depreciation. We find that the facts are similar in the present case whereas the undisputed findings are that the various components form part of integral part of cogeneration plant. These components could not be used on standalone basis but part and parcel of power generation unit. Each item would not have any function by itself except when it forms part of the whole system. Therefore, no infirmity could be found in the impugned order, on this issue. The grounds thus raised stands dismissed.

We find that it is undisputed position that the assessee has fulfilled all the conditions laid down u/s 32(1)(iia) for claiming additional depreciation. In such a case, new plant & machinery as installed by the assessee would be entitled for additional depreciation since the assessee was engaged in manufacturing and production of article or thing. The Hon’ble High Court of Madras in the case of CIT V/s VTM Ltd. (187 Taxman 319) held that in order to claim additional depreciation u/s 32(1)(iia), what is required to be satisfied is only that a new machinery or plant has been acquired and installed after 31-3-2002 by an assessee, who was already engaged in business of manufacture or production of any article or thing. The provisions do not state that setting up of a new machinery or plant, which was acquired and installed after 31-3-2002, should have any operational connectivity to article or thing that was 10 ITA No: 1289/Chny/2019 already being manufactured by the assessee. Respectfully following the same, we dismiss the grounds raised