M/S. SANWARIA AGROILS LIMITED,BHOPAL vs. THE ACIT 1(1), BHOPAL

आदेश /O R D E R PER O.P. MEENA, ACCOUNTANT MEMBER. This appeal filed by the assessee is directed against the

order of Learned Commissioner of Income-tax (Appeals)-I,

Bhopal [in short “the CIT(A)”] dated 19-09-2013 pertaining to

Assessment Year 2007-08, which in turn has arisen from the

order dated passed by the ACIT 1(1) Bhopal (in short “the AO” )

under section 147 read with section 143 (3) of Income Tax

Act,1961 ( in short ‘the Act’). The assessee has taken following

grounds of appeal:-

M/s. Sanwaria Agroil Ltd. / I.T.A. No. 620/Ind/2013 /A.Y.:07-08 Page 2 of 34

1.That the learned CIT (A) erred in holding that the proceedings initiated under section 148 and the order of reassessment passed by the AO were not bad in law. 2.That the order of assessment has been reopened merely on the basis of change of opinion which was not permitted under section 147. The CIT (A) out to have declared reassessment proceedings without jurisdiction and bad in law. 3. That the Ld. CIT (A) erred in maintaining disallowance of claim of additional depreciation under section 32 (1) (iia) of the Act of Rs.1, 20, 20, 000/-. 4.That the Ld. CIT (A) erred in maintaining Levy of interest under section 234B without VAT invoice special provisions of section 234B applicable in the facts of the case.

initiation of reassessment proceedings under section 147 of

the Act, which were upheld by the learned CIT (A). 3. Succinctly, facts as culled out from the orders of lower

authorities are that the assessee is a limited company and

engaged in the business of processing, extraction, and refining

of soya seeds and soya refined oil and also in generation of

power. The assessee has filed original return of income on 04-

11-2007 declaring total income at Rs. 8, 58, 82, 560/-. This was

revised on 16-03-2009 by declaring total income of Rs.8, 35, 82,

M/s. Sanwaria Agroil Ltd. / I.T.A. No. 620/Ind/2013 /A.Y.:07-08 Page 3 of 34

306/-. The original assessment under section 143 (3) was

completed vide order dated 30-10-2009 determining total

income at Rs. 8, 76, 15, 740/-. Subsequently the case was

reopened under section 147 by issuing notice under section 148

on 29-09-2011, after recording reason by the AO. The assessee

has requested for supply the copy of reasons recorded, and the

AO provided the same on 24-11-2011. 4. Aggrieved by the order of the AO, the assessee had filed an

appeal before the CIT (A). It was claimed that the reasons for

reopening was supplied on 16-02-2012, the perusal of the same

shows that the same were recorded on 23-11-2011. Therefore, it

was contended that the reasons were recorded after issue of

notice under section 148 for the assessment, and, therefore, the

reassessment proceedings initiated were without any jurisdiction

and the same is liable to be annulled. However, ongoing through

the reasons, the Ld. CIT (A) noted that in the copy of reasons

supplied to the appellant, in the footer of each page the following

were so mentioned “Reply-HM note -23.11.2011-ACIT-1 (1)”. On

the perusal of the copy of reasons recorded, the CIT (A) observed

that no date is mention in the beginning of the reasons recorded

or below the signature of the AO. The AO had supplied the

M/s. Sanwaria Agroil Ltd. / I.T.A. No. 620/Ind/2013 /A.Y.:07-08 Page 4 of 34

reason on 24-11-2011 and to the appellant and it appears that

while supplying a copy of the reasons recorded, the AO had

taken a printout of the reasons already recorded from his

computer on 23.11. 2011. But, it does not indicate or confirm

that the reasons were actually recorded on 23-11-2011. Whereas

on perusal of the original assessment records, it is found from

the copy the original reasons recorded for issuing notice under

section 148 that there is no such remark in the footer of the

pages of original reasons recorded. The notice under section 148

was issued on 29-09-2011 and reasons were also recorded

before the issue of the said notice, as mentioned in the note

sheet entry dated 29-09-2011. Accordingly, the submissions of

the appellant were rejected on this ground and appeal was

dismissed. 5. Being, aggrieved the assessee filed this appeal before the

Tribunal. The learned Counsel for the assessee, relying on the

decision in the case of CIT v. Fujistu Optel Ltd. [2013] 359 ITR

67 (MP), submitted that assessment has been reopened on the

ground that additional depreciation and expenses in relation to

exempt income were already on record, therefore, the reopening

on same set of facts amounts to change of opinion, and the

M/s. Sanwaria Agroil Ltd. / I.T.A. No. 620/Ind/2013 /A.Y.:07-08 Page 5 of 34

reopening is bad in law. Further, the reopening has been made

on the basis of audit report, and there is no application of mind

of the AO, therefore, the reopening of assessment is not in

accordance with law and deserve to be quashed.

the CIT(A) submitted that the assessment has been reopened on

the basis of material noticed during the course of assessment

proceeding for the assessment year 2008-09, wherein the

opening WDV on “windmill” after claim of additional

depreciation was furnished by the assessee was noticed, which

showed that the assessee has claimed additional depreciation on

windmill installed for captive power generation, which is not

permissible in law and therefore, the assessment reopened by

the AO, after recording reasons for doing so. The copy of the

same was also made available to the assessee during asp

proceeding wherein the assessee has not taken any objection on

this ground. 7. We have heard the rival submissions of both the parties

and have perused the material available on record. We find that

the assessment year involve under consideration is A.Y. 2007-

M/s. Sanwaria Agroil Ltd. / I.T.A. No. 620/Ind/2013 /A.Y.:07-08 Page 6 of 34

expires on 31-03-2012. The notice under section 148 was

issued in this case on 29-09-2011 i.e. before expiry of 4 years

from the end of relevant assessment year. As per the mandate of

section 147 if the AO has reason to believe that any income

chargeable to tax has escaped assessment for any assessment

year, he may, subject to the provisions of sections 148 to 153,

assess or reassess such income and also any other income

chargeable to tax which has escaped assessment and which

comes to his notice subsequently in the course of the

reassessment proceedings. Accordingly, we find that the AO has

satisfied the required conditions laid down in the statute for the

issuance of notice under section 148 and there is no infirmity in

his order on this count. Notice under section 148 within four

years can be issued even if there is no failure on the part of

assessee to disclose all material truly and fully necessary for

assessment. Thus, the issue of notice under section 148 is as

per law. This view is also supported by decision of Hon`ble

Bombay High Court in the case of Grind well Norton Ltd. v

Jagdish Prasad Jangid ACIT and Others 267 ITR 673(Bom)

wherein it was observed by the Hon’ble High Court as under:

M/s. Sanwaria Agroil Ltd. / I.T.A. No. 620/Ind/2013 /A.Y.:07-08 Page 7 of 34

“ If one reads explanation 2 to section 147 of the IT Act including the proviso therefore then it is clear that where the Department re-opens assessment within a period of 4 years, it can do so on the ground of income having escaped assessment. Even if there is no failure on the part of assessee to disclose fully and truly all material facts. However in the cases of reopening after 4 Years, the A.O. must have reason to believe that the income had escaped assessment by reason of failure on the part of the assessee is disclose fully and truly all material facts, explanation 2 cannot be read without reading the proviso to sec. 147. In this case mere information regarding claim u/s. 80I and 80IA had been provide to A.O. while completing the original assessment and there was no failure on the part of assessee to disclose fully and truly material facts the re-opening beyond 4 years was not valid..”

four years of the end of the relevant assessment year would be

attracted even in cases where there has been a complete

disclosure of all relevant facts upon which a correct assessment

might have been based in the first instance, and whether it is an

error of fact or law that has been discovered or found out

justifying the belief required to initiate the proceedings. The

words “escaped assessment”, where the return is filed, cover the

M/s. Sanwaria Agroil Ltd. / I.T.A. No. 620/Ind/2013 /A.Y.:07-08 Page 8 of 34

case of discovery of a mistake in the assessment caused by

either an erroneous construction of the transaction or due to its

non-consideration, or caused by a mistake of law applicable to

such transfer or transaction even where there has been a

complete disclosure of all relevant facts upon which a correct

assessment could have been based. In cases where the

Assessing Officer had over-looked something at the first

assessment, there can be no question of any change of opinion,

when the income which was chargeable to tax is actually taxed

as it ought to have been under the law, but was not, due to an

error committed at the first assessment.

mean cause or justification. If the Assessing Officer has a cause

or justification to think or suppose that income had escaped

assessment, he can be said to have a reason to believe that such

income had escaped assessment. The words “reason to believe”

cannot mean that the Assessing Officer should have finally

ascertained the facts by legal evidence. Unless the ground or the

material on which his belief is based, is found to be so irrational

as not to be worthy of being called a reason by any honest man,

his conclusion that it constitutes a sufficient reason, cannot be

M/s. Sanwaria Agroil Ltd. / I.T.A. No. 620/Ind/2013 /A.Y.:07-08 Page 9 of 34

overridden. If the Assessing Officer honestly comes to a

conclusion that a mistake has been made, it matters nothing so

far as his jurisdiction to initiate the proceedings under section

147 is concerned, that he may have come to an erroneous

conclusion whether on law or on facts. The court will not in

exercise of its extraordinary jurisdiction under the Constitution,

examine the sufficiency of the reason which led the Assessing

Officer to believe that the income had escaped assessment as

held in the case of Shri Praful Chunilal Patel v. M. J. Makwana

[1999] 236 ITR 832(Guj). 10. We further fortify our view by placing reliance on the

decision of Hon`ble Bombay High Court in the case of Dr.

Amin`s Pathology Laboratory v. P.N. Prasad , JCIT [2001] 252

ITR 673 (Bom)/ [2001] 172 CGTR 696 (Bom) it was observed in

para that Hon`ble High Court observed as follows:

“However, in the present case, the period of four years has since elapsed. Therefore, the proviso to section 147 comes into the picture. Under the said proviso, no action can be taken after four years unless any income chargeable to tax has escaped assessment by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. Therefore, it was contended on behalf of the assessee that, in the present case, there is no allegation of failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment.

M/s. Sanwaria Agroil Ltd. / I.T.A. No. 620/Ind/2013 /A.Y.:07-08 Page 10 of 34

In the present matter, as stated above, the assessee has been following the mercantile system of accounting for all items of expenditure and income except for all collections which are under cash basis. A reading of the assessment order clearly shows that the Assessing Officer failed to notice an important item, viz., an amount of Rs. 6,70,758 which represented unpaid purchases. The assessee-firm had claimed expenses in respect of all purchases. However, an amount of Rs. 6,70,758 represented unpaid purchases. It is for this reason that the Assessing Officer has come to the conclusion for issuance of notice under section 148 that the assessee-firm had suppressed an income to the extent of Rs. 6,70,758. Under Explanation 1 to the proviso, mere production of account books from which material evidence could have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the proviso. Therefore, mere production of the balance-sheet, profit and loss account or account books will not necessarily amount to disclosure within the meaning of the proviso. In the present case, the facts show that the Assessing Officer overlooked the aforestated item. That, he noticed it subsequently. That, at the time of passing the original order of assessment, he could not be said to have opined on the above item. Therefore, there was no change of opinion. Therefore, in the present case, the impugned notice is sustained.

assessee, in the instant case, there is no evidence on record; to

suggest that the assessee has furnished full particulars with

regard to nature of the claim of additional depreciation on wind

electric generator as could be seen from the reasons recorded

that the assessee has neither furnished depreciation chart as

M/s. Sanwaria Agroil Ltd. / I.T.A. No. 620/Ind/2013 /A.Y.:07-08 Page 11 of 34

per Income Tax Act nor along with computation of total income

nor it was available on record. It was only when the assessee

had shown opening WDV of wind electric generator for Rs.

6,01,00,000 i.e. (12,20,20,000- 60,10,00,000) (as claimed in A.Y.

2007-08) in depreciation chart for the assessment year 2008-09,

which is available in case record of assessment year 2008-09.

The AO, after due diligence, came to know that the assessee has

claimed additional depreciation of Rs. 8,95,89,175/- which

inter-alia included additional depreciation of Rs. 1,20,20,000/-

on Wind electricity generator and same was allowed. Even in

scrutiny proceedings completed for the assessment year 2007-

08 it is not the case of the assessee that this specific issue was

considered and all the facts concerning the claim of additional

depreciation are available on record. Further the assessee has

earned dividend income of Rs. 1.24 crore which is claimed

exempt income under section 10(34) but no disallowance under

section 14A of the Act, were made even though the assessee has

debited interest expenditure of Rs. 3.61 crores. Thus, there was

prima-facie reason for reopening of assessment. Therefore, the

Assessing Officer was justified in reopening the assessment by

issuing notice under section 148 of the Act. We therefore, reject

M/s. Sanwaria Agroil Ltd. / I.T.A. No. 620/Ind/2013 /A.Y.:07-08 Page 12 of 34

ground of the assessee with regard to validity of reopening of

assessment. As there was prima-facie case of reason to believe

that income chargeable to tax has escaped assessment. 12. Further reliance is placed in the case of Raymond Woolen

Mills Ltd. vs. ITO [1999] 236 ITR 34 (SC); wherein it was

observed that:

“ in determining whether commencement of proceedings u/s 147(a) was valid, what was to be seen was only the prima facie material; the sufficiency or correctness of the material was not a thing to be considered at that stage. Reopening of the assessment of the preceding year on the basis of information obtained in the subsequent year's proceedings regarding undervaluation of inventories resulting in under- statement of profits was held valid under section 147(a).

287 (SC) it was held that reassessment can be initiated even if

information may be obtained from record of original assessment.

assessment was reopened on the basis of audit objection, which

is not permissible in law. In this regard we rely in the case of P.

V. S. Beedies Pvt. Ltd. [1999] 237 ITR 13, the Apex Court held

“that the audit party can point out a fact, which has been overlooked by the Income-tax Officer in the assessment.

M/s. Sanwaria Agroil Ltd. / I.T.A. No. 620/Ind/2013 /A.Y.:07-08 Page 13 of 34

Though there cannot be any interpretation of law by the audit party, it is entitled to point out a factual error or omission in the assessment and reopening of a case on the basis of factual error or omission pointed out by the audit party is permissible under law. As the Tribunal has rightly noticed, this was not a case of the Assessing Officer merely acting at the behest of the audit party or on its report. It has independently examined the materials collected by the audit party in its report and has come to an independent conclusion that there was escapement of income. The answer to the question is, therefore, in the affirmative, in favour of the Revenue and against the assessee. 15. Ongoing through the assessment order, and reasons

recorded by the AO, we find to the AO had applied his

independent mind on the basis of material available on record

for A.Y. 2008-08 and also for assessment year under

consideration and find that the information pointed out by the

audit was on factual error. Therefore, the AO has formed his

opinion about reason to believe that income chargeable to tax

had escaped assessment. 16. In the light of above facts, the reopening of assessment is

perfectly in accordance with law hence same is upheld. This

ground of appeal of the assessee is therefore dismissed.

M/s. Sanwaria Agroil Ltd. / I.T.A. No. 620/Ind/2013 /A.Y.:07-08 Page 14 of 34

claim of additional depreciation of Rs. 1,20,20,000/- under

section 32 (1) (iia) of the Act on Wind Electric Generator. 18. Facts apropos of this ground are that the AO noted that the

assessee has shown addition to asset of Wind Electric Generator

for Rs. 1, 20, 20, 000/-during the year under consideration,

which commissioned and put to use during the year under

consideration. Since the assets were used for a period less than

180 days during the year, the assessee claimed depreciation on

these assets of Rs. 6, 01, 00, 000/-in A.Y. under consideration

as follows : Normal depreciation Rs. 1, 20, 20, 000 @40% -Rs.

4,80,80,000 +Additional depreciation Rs. 1,20,20,000 @10% -

1,20,20,000 = Total depreciation= Rs. 6,01,00,000

depreciation of Rs. 1, 20, 20, 000/- under section 32 (1) (iia) on

Wind Electric Generations. According to the AO, the wind

Electric generators were used for generation of power and these

were not new machinery or plant for manufacturing or

producing of any article or thing, as power is not an article or

thing as envisaged in section 32 (1) (iia) of the Act. Therefore, it

was held by the AO that the assessee was not entitled for

M/s. Sanwaria Agroil Ltd. / I.T.A. No. 620/Ind/2013 /A.Y.:07-08 Page 15 of 34

additional depreciation under section 32 (1) (iia) on the

acquisition of wind Electric generators. The AO also referred to

the decision of Honourable ITAT Chennai in the case of Tamil

Nadu Chlorates v. JCIT 98 TTJ 1 (Chennai), wherein it was

held that power could not be held to be article or thing and

thus, the taxpayer was not eligible to claim an additional

depreciation on purchase of new machinery used for generation

of power.

Ld. CIT (A). It was submitted that the assessee was engaged in

the business of manufacturing of edible oil and D.O.C. Section

32 (1)(iia) allows a benefit of additional depreciation of 20% on

new plant and machinery installed by the assessee to

manufacture or produce of any article or thing. It was

submitted that the Electric energy is “good” and, thus, an

article or thing. The electricity is sold and duties are collected

on production of electricity energy . In the VAT Act, the

electrical energy is placed in Schedule-I as “Exempted goods”.

Therefore, there is no dispute that electrical energy is good and

capable of being transferred and sold. The Ld. CIT (A) noted

that the assessee had two separate major business segments

M/s. Sanwaria Agroil Ltd. / I.T.A. No. 620/Ind/2013 /A.Y.:07-08 Page 16 of 34

i.e. solvent extraction and refining and power generation. The

assessee has acquired Wind Electric Generator for its new

business of power generation. Now the issue involved is

whether an assessee engaged in the business of generation of

power was entitled for deduction of additional depreciation of

20% of the actual cost of any new machinery or plant acquired

after 31st day of March 2005. The CIT(A) referred the relevant

provision inserted in the Finance Act 2012 “or in the business of

generation for generation and distribution of power” in section

32 (1)(iia) with effect from 01-04-2013. Therefore, the Ld. CIT

(A) held that the amended provision are applicable for A.Y.

2013-14 and subsequent assessment years. Thus, it makes

clear that an assessee who was engaged in the business of

generation or generation and distribution of power was not

entitled for deduction of additional depreciation on the

acquisition of new plant or machinery as per section 32 (1)(iia)

before A.Y. 2013-14. The Ld. CIT (A) also referred to the

relevant portion of the Explanatory Memorandum relating to

additional depreciation under section 32 (1) (iia) which is

reproduced as under :

Extending benefit of initial depreciation to the power sector

M/s. Sanwaria Agroil Ltd. / I.T.A. No. 620/Ind/2013 /A.Y.:07-08 Page 17 of 34

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 manufactured or production of any article or thing in the year of acquisition and instalment. Under the existing provisions, the benefit of the initial depreciation is not available on the new machinery or plant installed by the assessee engaged in the business of generation or generation and distribution of power. 21. In order to increase in new investment by the assessee’s

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. This amendment would take effect

from 1st April 2013 and will, accordingly, apply in relation to

the assessment year 2013-14 and subsequent assessment

years. 22. From the above it is evidently clear that the initial

depreciation under section 32 (1) (iia) in respect of new

machinery and plant for generation or generation and

M/s. Sanwaria Agroil Ltd. / I.T.A. No. 620/Ind/2013 /A.Y.:07-08 Page 18 of 34

distribution of power is allowable at the rate of 20% of actual

cost from assessment year 2013-14 only. Now, in the instant

case, the year involved is assessment year 2007-08 and, thus,

the appellant was not eligible for claiming initial depreciation

under section 32 (1) (iia) of the Act on the wind Electric

Generator in the year under consideration. Accordingly the

disallowance of initial depreciation under section 32 (1) (iia) of

Rs.1, 20, 20, 000/-is made by the AO was confirmed.

Tribunal. The learned counsel for the assessee submitted that

electricity is produced and, commercially tradeable and therefore

it was ‘article or thing’ within the meaning of section 32 (1) (iia)

of the Act. The learned counsel referred the VAT Act and

submitted that in the said Act, the electricity is considered as

good for the levy of VAT. The learned Counsel for the assessee

also cited a decision in the case of Commissioner of Sales tax,

Madhya Pradesh v. Madhya Pradesh Electricity Board Jabalpur

1970 AIR 732, 1969 SCR (2) 939 wherein supply Electric

energy was treated as good and electricity board was treated as

a dealer for the purpose of sales tax. The learned Counsel for

the assessee also placed reliance in the case of ACIT v. Delta

M/s. Sanwaria Agroil Ltd. / I.T.A. No. 620/Ind/2013 /A.Y.:07-08 Page 19 of 34

Enterprise [ I.T.A. No. 944/Mum/2012] (A.Y. 07-08) dated 09-

10-2015] , wherein relying on the decision of Southern

Petrochemical and Industries Co. Ltd. , the Supreme Court held

that the electricity has to be considered as (goods) for the

purpose of application of Sales Tax Laws. In the case of A.P. v.

National Thermal Power Corporation Ltd. [2002] 5 SCC 203, M.

P. Cement Manufactures Association v. State of Madhya Pradesh

[2004] 2 SCC 249 referred to in Tata Consultancy Services v.

State of A.P. [2004] 271 ITR 401 , it was held that the

electricity was capable of abstraction, consumption and use

which, if done dishonestly was punishable u/s. 39 of the Indian

Electricity Act, 1910. It was held that electricity energy would be

transmitted, transferred, delivered, stored and possessed etc. in

the same way as any other movable property. It was held that

that the electricity is “”goods”” within the meaning of Sales Tax

Act. Therefore, in view of the decision relied upon by the Ld.

counsel, it can be said that the electricity generated by the

assessee amounts to production of an “article or thing”” within

the meaning of section 32 (1)(iia) of the Act and therefore, the

assessee would be entitled for additional depreciation @20%.

While doing so , it was also relied in the case of ACIT v. Mallow

M/s. Sanwaria Agroil Ltd. / I.T.A. No. 620/Ind/2013 /A.Y.:07-08 Page 20 of 34

International in I.T.A. No. 152/MDS/2014 dtd. 19-12-2014 for

the assessment year 2006-07. Wherein relying on the decision of

The Hon`ble Madras High Court in the case of CIT v. Hi Tech

Arai (supra) has held

that where the assessee has setup a wind mill in addition to some other existing business , and is engaged in the generation of electricity , the assessee is entitled to additional depreciation on the same. 6. We find that the issue in appeal is squarely covered in favour of the assessee by the aforesaid decisions of the Hon`ble Madras High Court and the coordinated bench of the Tribunal. We do not find any infirmity in the impugned order.

M/s. Sanwaria Agroil Ltd. / I.T.A. No. 620/Ind/2013 /A.Y.:07-08 Page 21 of 34

on the issue. Further, admittedly the assessee is not engaged in the business of manufacture or production of an article or thing prior to the manufacture of the electricity using the impugned “windmill”. Considering the above settled nature of the issue, we are of the opinion, assessee is not entitled to the claim additional depreciation.

M/s. Sanwaria Agroil Ltd. / I.T.A. No. 620/Ind/2013 /A.Y.:07-08 Page 22 of 34

wherein the provisions of section 32 (1)(iia) has been amended to provide for additional depreciation to an assessee engaged in business of generation or generation & distribution of powers, the assessee’s claim was denied holding the said amendment prospective in nature. However, the assessee’s case is that by using “windmill” the assessee is producing an article or a thing as define under section 32 (1) (iia) of the Act hence, it is entitled to additional depreciation.

M/s. Sanwaria Agroil Ltd. / I.T.A. No. 620/Ind/2013 /A.Y.:07-08 Page 23 of 34

plant shall be allowed as deduction under clause (ii). In other words, over and above the depreciation claimed and allowed u/s 32(1)(ii) of the Act, the assessee shall be eligible for an additional depreciation of 20% of the actual cost of such machinery and plant. It further provides that a machinery of plant should be a new machinery or plant (other than ships and aircraft) which has been acquired and installed after the 31st day of March, 2005. It further provides that the additional depreciation in new machinery or plant shall be allowed in the hands of the assessee who is engaged in the business of manufacture or production of any article or thing or in the business of generation or generation & distribution of power. In the instant case, it is not in dispute that new machinery or plant has been acquired and installed after the 31st March 2005. It is also not in dispute that the assessee has claimed depreciation u/s 32(1)(ii) of the Act. Once the AO has accepted the assessee’s claim u/s 32(1)(ii) of the Act, we do not see a reason why the assessee should be denied the claim of additional depreciation on the same assets u/s 32(1)(iia) of the Act. 30. In the case of JCIT vs. Mineral Enterprises Ltd. (2013) 144 ITD 680 (Bang.)(Trib.): The assessee was engaged in manufacture of article or thing. By exercising the option provided under second proviso to rule 5(1A), it claimed additional depreciation on wind mill. The AO disallowed the claim of additional depreciation on wind mill on the ground that provisions of the Act allowed depreciation only in case of any new machinery or plant (other than ships and aircraft) and not

M/s. Sanwaria Agroil Ltd. / I.T.A. No. 620/Ind/2013 /A.Y.:07-08 Page 24 of 34

for wind mill, which was engaged in power generation. It was held that in view of the decision of Madras High Court rendered in case of CIT Vs. VTM Ltd. [2009] 319 ITR 336, assessee was entitled to additional depreciation on the wind mill. 31. The learned Counsel for the assessee, has placed reliance in the case of CIT Vs. VTM Ltd. (2009) 319 ITR 336 (Mad.)(HC): In this case, assessee is a company engaged in the business of manufacture of textile goods. It set up a windmill for generation of power and claimed additional depreciation u/s 32(1)(iia). AO held that setting up of a windmill has absolutely no connection with the manufacturing of textile goods and thus assessee is not entitled to claim additional depreciation u/s 32(1)(iia). It was held that to claim additional depreciation u/s 32(1)(iia), what is required to be satisfied is that setting up of a new machinery or plant should have been acquired and installed after 31st March, 2002 by an assessee, who was already engaged in the business of manufacture or production of any article or thing. The said provision does not state that the setting up of a new machinery or plant, which was acquired and installed upto 31st March, 2002 should have any operational connectivity to the article or thing that was already being manufactured by the assessee. Therefore, the contention that setting up of a windmill has nothing to do with the power industry, namely, manufacture of textile goods is totally not germane to the specific provision contained in s.32(1)(iia) of the Act. Accordingly, additional depreciation on windmill as allowed by CIT(A)/ITAT was upheld. This view was also followed in case of CIT Vs. Hi Tech Arai Ltd.

M/s. Sanwaria Agroil Ltd. / I.T.A. No. 620/Ind/2013 /A.Y.:07-08 Page 25 of 34

321 ITR 477 (Mad.)(HC) and CIT Vs. Texmo Precision Castings 321 ITR 481 (Mad.)(HC).

M/s. Sanwaria Agroil Ltd. / I.T.A. No. 620/Ind/2013 /A.Y.:07-08 Page 26 of 34

allowed additional depreciation during the year under consideration i.e. A.Y. 08-09. The said amendment has been incorrectly interpreted by AO. The coordinated bench of Chennai Tribunal in case of ACIT Vs. M. Satish Kumar (2012) 19 ITR (Trib.) 646, case pertaining to A.Y. 08-09, has given a finding on such amendment and has held that generation of electricity is a manufacturing activity entitling assessee to claim additional depreciation u/s 32(1)(iia). In this case, assessee was engaged in the business of sale of imported second hand machinery and generation of electricity through windmills. He installed two windmills. The 1st windmill was installed in Year 2005 and second in Sept. 2007 i.e. A.Y. 08-09. Assessee claimed 100% depreciation in respect of 2nd windmill installed as per provisions of sec. 32(1) and Item xiii of New Appendix 1 read with Rule 5. The AO rejected the claim of assessee for grant of additional depreciation on windmill installed during A.Y. 08-09 by observing that assessee is not involved in manufacturing of any goods. Before Tribunal, revenue submitted that assessee is a commission agent and not a manufacturer. For availing benefit of additional depreciation, it is essential that assessee should be engaged in manufacturing activity. Therefore, assessee is not entitled to additional depreciation u/s 32(1)(iia). Assessee submitted that it had no claimed additional depreciation on 1st windmill since he was not involved in any manufacturing or production activity at that time. Now, he is claiming additional depreciation on 2nd windmill as he is already engaged in the business of production/generation of electricity. It was held vide Para 9 and 10 of the order as under:- “A perusal of judgment 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.

M/s. Sanwaria Agroil Ltd. / I.T.A. No. 620/Ind/2013 /A.Y.:07-08 Page 27 of 34

The electricity can be transmitted, transferred, delivered, stored, possessed etc.

M/s. Sanwaria Agroil Ltd. / I.T.A. No. 620/Ind/2013 /A.Y.:07-08 Page 28 of 34

during the relevant year he was engaged in the business of manufacture or production of any article or thing. Now the question to be decided is as to whether the assessee engaged in generation and distribution of electricity 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 prerequisite. 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 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. Hence, it could be safely concluded that the assessee is entitled for claiming additional depreciation u/s 32(1)(iia) of the Act even prior to the amendment brought in by Finance Act 2012. 15.

M/s. Sanwaria Agroil Ltd. / I.T.A. No. 620/Ind/2013 /A.Y.:07-08 Page 29 of 34

additional wind mills, both prior to as well as after the installation of the additional wind mills, the assessee was using wind energy for generating power for its capitative consumption apart from selling the surplus power generated to the Tamil Nadu Electricity Board. As far as application of Section 32(1)(iia) of the Act, is concerned, what is required to be satisfied in order to claim the additional depreciation is that the setting up of a new machinery or plant should have been acquired and installed after 31st March 2002 by an assessee, who was already engaged in the business of manufacture or production of any article or thing. The said provision does not state that the setting up of a new machinery or plant, which was acquired and installed up to 31.03.2002 should have any operational connectivity to the article or thing that was already being manufactured by the assessee. Therefore, the contention that the setting up of a wind mill has nothing to do with the power industry, namely, manufacture of oil seeds etc. is totally not germane to the specific provision contained in section 32(1)(iia) of the Act.

M/s. Sanwaria Agroil Ltd. / I.T.A. No. 620/Ind/2013 /A.Y.:07-08 Page 30 of 34

to electricity through a process in to electricity happens pursuant to the manufacturing process and the electricity so produced or generated becomes a separate marketable commodity. A particular item should undergo changes in its colour and character and become a separate and new marketable commodity after the manufacturing process. The electricity though could not be seen by eyes, however, its effect can be seen and felt. The electricity can be transmitted, transferred, delivered, stored, possessed etc. The Apex Court in the case of Commissioner of Sales tax, Madhya Pradesh v. Madhya Pradesh Electricity Board Jabalpur 1970 AIR 732, 1969 SCR (2) 939 held the supply Electric energy as good and electricity board was treated as a dealer for the purpose of sales tax. Therefore, the argument of Revenue does not hold good. The Various Apex Court decisions relied upon by the assessee 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. Hence, it could be safely concluded that the assessee is entitled for claiming additional depreciation u/s. 32(1) (iia) of the Act even prior to the amendment brought in by Finance Act 2012. 39. The learned Sr. D.R. has relied in the case of Clover Developer P Ltd. v. ACIT [I.T.A. No. 6422/M/2011-A.Y. 0708 dtd. 01-05-2013],which is in favour of the Revenue. However, the assessee has relied on various decisions as referred to above of Mumbai, Delhi and Chennai Tribunals as well as Hon`ble Madras High Court and other coordinated benches, which are favour of the assessee. When two views are possible then view,

M/s. Sanwaria Agroil Ltd. / I.T.A. No. 620/Ind/2013 /A.Y.:07-08 Page 31 of 34

which is favourable, be adopted. In this regard, we find that it has been held in plethora of judgements that in case where two possible on the same issue and there being no judgement on the said issue from the Jurisdictional Hon`ble High Court or the Hon`ble Apex Court, the view that is favourable to the assessee has to be adopted. In other words, the Hon`ble non- Jurisdictional High Court`s judgement in favour of the assessee, is to be preferred over the non-Jurisdictional High Court`s judgement not favourable to the assessee. In this connection, we rely on the following judgements:

i) CIT v. Kulu Valley Transport Co. Pvt. Ltd. [1970] 77 ITR 518 (SC) held that even if two views are possible the view which is favourable to the assessee must be accepted while construing the provisions of a taxing statute. ii) CIT v. Vegetables Products Ltd. [1973] 88 ITR 192 (SC) held On the other hand, if two reasonable constructions of taxing provision are possible, that construction which favours the assessee must be adopted. This is well-accepted rule of construction recognized by this court in several of its decisions. iii) CIT v. Madho Pd. Jatia [1976] 105 ITR 179 (SC) held where ambiguous interpretation of statute – admitting two views- views which is favourable to subject should be adopted. iv) Petron Engineering Construction Pvt. Ltd. v. CBDT [1989] 175 ITR 523 (SC) held that principle that when two interpretations are possible to be made, the interpretation, which is favourable to the assessee, should be adopted is well settled and there is no doubt about that. v) CIT (TDS) v. Reliance Engineering Associates Pvt. Ltd. [2012] 80 CCH 113 (Guj) held that it is well-settled law that where two interpretations are possible, the one

M/s. Sanwaria Agroil Ltd. / I.T.A. No. 620/Ind/2013 /A.Y.:07-08 Page 32 of 34

which is favourable to the assessee should be adopted. Appeal dismissed.

M/s. Sanwaria Agroil Ltd. / I.T.A. No. 620/Ind/2013 /A.Y.:07-08 Page 33 of 34

our view, the said amendment cannot be read to negate the settled legal position that generation of electricity is akin to manufacture or production of an article or thing. As held by Coordinate Bench in M Satish Kumar (supra), the said amendment by the Finance Act 2012 gives an impetus to the view that generation of electricity is a manufacturing process. In light of above, the assessee is held entitled to the additional claim of depreciation on the power plant and the windmill installed during the year. Hence, the ground of the assessee is allowed.

M/s. Sanwaria Agroil Ltd. / I.T.A. No. 620/Ind/2013 /A.Y.:07-08 Page 34 of 34

order in a case with law. This ground of appeal is disposed-of accordingly. 44. In the result, the appeal of the assessee is partly allowed. 45. The order pronounced in the open Court on 16.5.2017

Sd/- Sd/- ( C.M. GARG) ( O. P. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER िदनांक /Dated : 16TH May, 2017 OPM