Additional Depreciation is allowable u/s 32(1(iia) of Income Tax Act on Plant & Machinery Installed in the Captive Power Plant: ITAT

The Kolkata bench of the Income Tax Appellate Tribunal (ITAT) held that the additional depreciation is allowable under Section 32(1)(iia) of the Income Tax Act, 1961 on plant and machinery installed in the captive power plant.

The assessee is a limited company engaged in the manufacturing of sugar and its by-products. A current year loss of Rs. 9,81,23,206/- was declared in the return of income. The case was selected for scrutiny through Computer-Assisted Scrutiny Selection (CASS) followed by serving of statutory notice under Sections 143(2) and 142(1) of the Income Tax Act.

During the course of assessment proceedings, the Assessing Officer examined the assessee’s claim for additional depreciation under Section 32(1)(iia) at Rs. 2,39,90,900/- claimed on the purchase of turbine used for generating the power and thereafter placed within Co-generation System with Pressure Boiler. The claim of the assessee is that the generation of power is a manufacturing activity and, therefore, is eligible for additional depreciation.

The Assessing Officer was of the considered view that the specific amendment has been brought in Section 32(1)(iia) of the Income Tax Act on 01.04.2013 and onwards by way of including the business of generation and distribution of power and therefore, the assessee is not entitled to the said claim of additional depreciation.

In the case of PCIT vs Kadodra Power Ltd. (Appeal No. 383/2019 dated 06.08.2019) the amendment brought in the Finance Act, 2012 was discussed and held that the said amendment cannot read to negate the settled legal position that the generation of electricity is akin to manufacture or production of an article or thing. Therefore, the court held that the assessee is entitled to additional depreciation of plant and machinery installed in the captive power plant.

The Two-member bench comprising of Manish Borad (Accountant member) and Sonjoy Sarma (Judicial member) held that the assessee is entitled to additional depreciation on the plant and machinery installed during the year for manufacturing/generation of power since the generation of power is manufacturing or production of article or thing. Thus, the appeal of the revenue was dismissed.

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