ACIT, CHENNAI vs. KANISHK STEEL INDUSTRIES LTD., CHENNAI

This appeal of the Revenue is directed against the order of the Commissioner of Income Tax (Appeals)-II, Chennai, dated 21.07.2014 and pertains to assessment year 2006-07.

Dr. B. Nischal, the Ld. Departmental Representative, submitted that the assessee claimed additional depreciation on the windmill. The assessee explained before the Assessing Officer that there was no specific exclusion in Section 32(1)(iia) of the Income- tax Act, 1961 (in short 'the Act') to exclude the windmill for additional depreciation. The Assessing Officer found that the assessee has not produced any article or thing by using the windmill. Windmill consumes electricity and also generates electricity. Therefore, the assessee is not entitled for additional depreciation in respect of the windmill.

On the contrary, Shri V. Ravichandran, the Ld. representative for the assessee, submitted that the assessee, in fact, claimed depreciation on the windmill under Section 32(1)(iia) of the Act. According to the Ld. representative, the electricity generated from windmill is used for captive consumption. The assessee claimed additional depreciation to the extent of 20% under Section 32(1)(iia) of the Act. The Assessing Officer disallowed the claim of the assessee on the ground that generation of electricity does not amount to production of thing or article.

We have considered the rival submissions on either side and perused the relevant material available on record. The Assessing Officer admittedly disallowed the claim of the assessee on the ground that generation of electricity does not amount to manufacturing of article or thing. The assessee admittedly in the business of manufacturing iron and steel products. The electricity generated by the windmill was used for captive consumption in manufacturing activity. Therefore, the question arises for consideration is when the assessee used the electricity generated by the windmill in manufacturing activity, whether the assessee is entitled for additional depreciation under Section 32(1)(iia) of the Act? An identical situation was considered by the Madras High Court in VTM Ltd. (supra). In the case before Madras High Court, the assessee was engaged in the manufacturing of textile goods and electricity generated by the windmill was used for captive consumption in manufacturing of textile goods. In those circumstances, the Madras High Court found that the provisions of the Act does not state that setting up of new machinery or plant should have operational connectivity to the article or thing that was already being manufactured by the assessee. In those circumstances, this Tribunal is of the considered opinion that the CIT(Appeals) has rightly placed his reliance on the binding judgment of Madras High Court. Therefore, this Tribunal do not find any reason to interfere with the order of the lower authority.

In the result, this appeal of the Revenue is dismissed.