The Ahmedabad bench of the Income Tax Appellate Tribunal ( ITAT ) recently made a significant decision, overturning an order passed by the Principal Commissioner of Income Tax ( PCIT ) under section 263 of the Income Tax Act, 1961, for Assessment Year (A.Y.) 2018-19.
The case involved Gujarat Gas Ltd., a company engaged in the business of city gas distribution, including sale, purchase, supply, processing, distribution, and transportation of natural gas.
Gujarat Gas Ltd, appellant-assessee had filed an appeal before the ITAT against the PCIT’s order, which had set aside the A.O.’s order allowing additional depreciation under Section 32(1)(iia) of the Act.
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The PCIT invoked Section 263 of the Income Tax Act to revise the assessment order, holding it to be erroneous and prejudicial to the interest of revenue, primarily due to the allowance of additional depreciation and deduction under Section 35DD of the Act.
S. N. Soparkar along with Parin Shah, the Counsel’s for the assessee submitted that the PCIT failed to consider that the assessee had made provision for expense of Stamp Duty of Rs. 25 crores in pursuance of scheme of amalgamation.
The Counsel for the assessee argued that in past decisions, the CIT(A), Ahmedabad ITAT, and the Gujarat High Court had consistently accepted that the assessee company (which merged with Gujarat Gas Company Ltd.) is involved in “industrial activity” related to the production of natural gas. The CIT(A) had allowed the company a deduction under Section 80-IA of the Income Tax Act for several years, starting from A.Y. 1997-98, and the ITAT upheld these claims, confirming that the company is an “industrial undertaking.”
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The Counsel also highlighted a ruling by the Gujarat High Court in favor of Gujarat Gas Company Ltd., which recognized that processing activities, such as compressing natural gas, qualify as “manufacturing.” Additionally, the Counsel pointed out that in a previous year, the ITAT granted depreciation on plant and machinery used for compressing natural gas, as it was considered part of the “manufacturing process.” The Counsel further mentioned similar rulings for other gas distribution companies, such as Indian Gas Ltd. and Central UP Gas Ltd., where additional depreciation was allowed for activities involving the processing, distribution, and transportation of natural gas. Based on these facts, the Counsel concluded that the assessee is entitled to additional depreciation under Section 32(1)(iia) of the Income Tax Act.
A. P. Singh,representing Principal Commissioner of Income Tax-3, Ahmedabad ,relied on the observations made by CIT(A).
The two member bench of Sidhartha Nautiyal (JudicialMember) and Annapurna Gupta(Accountant Member) observed that The Gujarat High Court had previously ruled in favor of Gujarat Gas Company Ltd., stating that its activities, including altering natural gas for industrial and domestic use, qualify as manufacturing. Based on this, the assessee’s claim for additional depreciation under Section 32(1)(iia) was upheld, and it was concluded that the Ld. PCIT was wrong in challenging this claim.
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Regarding the non-granting of a deduction under Section 35DD, the assessee provided proof of paying Rs. 42.86 crores in Stamp Duty in installments in 2016 and 2019. This included a provision of Rs. 25 crores made in the books for the financial year 2015-16, and the expense was not contingent. The Assessing Officer had earlier dropped similar proceedings for A.Y. 2017-18, confirming that the deduction was rightful. Therefore, the claim for Rs. 5 crores under Section 35DD was allowed, and the appeal was decided in favor of the assessee for A.Y. 2018-19.
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