The Ahmedabad Bench of Income Tax Appellate Tribunal ( ITAT ) restored the additional depreciation claim for statistical reassessment following a legal amendment in Section 32(1)(iia) of the Income Tax Act,1961.
Uttar Gujarat Vij Company Ltd., the appellant-assessee, faced disallowance of additional depreciation under Section 32(1)(iia) during the proceedings for the assessment years 2016-17 to 2018-19.
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In a previous ruling by the Tribunal in ITA No. 446/Ahd/2018 for the assessment year 2014-15, the Tribunal dismissed a similar ground. The assessee claimed an additional depreciation of Rs.1,29,83,978, asserting that it had commissioned new plant and machinery worth ₹504,90,24,076, thus qualifying for a 15% additional depreciation claim under the block of plant and machinery.
The appellant contended that it did not acquire any second-hand fixed assets during the year, arguing that since the generation of power is deemed a manufacturing activity, it should qualify for the additional depreciation under the amended section.
The Department Representative (DR) maintained that the assessment order and the Commissioner of Income Tax (Appeals)[CIT(A)]’s ruling supported the disallowance.
Upon review, the tribunal noted that the appellant-assessee was primarily a distribution company and did not engage in power generation. Section 32(1)(iia) specifies that additional depreciation is applicable to companies engaged solely in generation or both generation and distribution. Since the assessee’s activities were limited to distribution, the tribunal upheld the CIT(A)’s decision to disallow the additional depreciation claim.
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However, for the assessment year 2017-18, the counsel for the assessee highlighted an amendment to Section 32(1)(iia) by the Finance Act of 2016, effective from April 1, 2017, which allows additional depreciation to entities engaged in power distribution. Given this significant change, the bench decided to restore the matter to the Assessing Officer(AO) to verify whether the amended provision applied to the current facts and circumstances of the case.
The two member bench comprising Siddhartha Nautiyal(Judicial Member) and Annapurna Gupta(Accountant Member) allowed the appeal for statistical purposes, enabling the reassessment of the depreciation claim in light of the new legal framework.
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