DCIT, CIR-2(2), KOLKATA, Kolkata V. M/s West Bengal State Electricity Distribution Co. Ltd., Kolkata

ITA 1001/KOL/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 1160 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 3 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 07-09-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 13-07-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANAND R BAIWAR
• Assessee Lawyers: N K PODDA R
• Keywords: Depreciation; Additional depreciation; Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH A, KOLKATA [BEFORE SHRI P.M. JAGTAP, AM & SHRI S.S. VISWANETHRA RAVI, JM ] I.T.A. NO. 871 & 872/KOL/2015 ASSESSMENT YEAR 2010-11 & 2011-12 WEST BENGAL STATE ELECTRICITY DISTRIBUTION CO. LTD. ...........................APPELLANT BIDYUT BHAWAN, SECTOR II, BLOCK DJ, BIDHAN NAGAR, KOLKATA 700 091 [PAN: AAACW6953H] DCIT, CIRCLE 2(2) KOLKATA,...................RESPONDENT AAYAKAR BHAWAN, 7 TH FLOOR, P-7, CHOWRINGHEE SQUARE, KOLKATA - 700069 I.T.A. NO. 1001 & 1002/KOL/2015 ASSESSMENT YEAR 2010-11 & 2011-12 DCIT, CIRCLE 2(2) KOLKATA,...................APPELLANT AAYAKAR BHAWAN, 7 TH FLOOR, P-7, CHOWRINGHEE SQUARE, KOLKATA - 700069 WEST BENGAL STATE ELECTRICITY DISTRIBUTION CO. LTD. ....................RESPONDENT BIDYUT BHAWAN, SECTOR II, BLOCK DJ, BIDHAN NAGAR, KOLKATA 700 091 [PAN: AAACW6953H] APPEARANCES BY: SHRI ANAND R. BAIWAR, CIT APPEARING ON BEHALF OF THE REVENUE. SHRI N.K. PODDAR, SR. ADVOCATE APPEARING ON BEHALF OF THE ASSESSEE. DATE OF CONCLUDING THE HEARING : SEPTEMBER 12, 2017 DATE OF PRONOUNCING THE ORDER : OCTOBER 31, 2017 ORDER SHRI P.M. JAGTAP, AM THESE FOUR APPEALS, TWO FILED BY THE ASSESSEE BEING ITA NO. 871 & 872/KOL/2015 AND TWO FILED BY THE REVENUE BEING ITA NO. 1001 & 1002/KOL/2015, ARE CROSS-APPEALS WHICH ARE DIRECTED AGAINST TWO 2 I.T.A. NOS. 871/872 & 1001/1002/KOL/2015 W.B. STATE ELECTRICITY DISTRIBUTION CO. LTD. SEPARATE ORDERS PASSED BY THE LD. CIT (A) 1, KOLKATA BOTH DATED 09.03.2015 FOR A.Y. 2010-11 AND 2011-12. SINCE THESE APPEALS INVOLVE SOME COMMON ISSUES, THE SAME HAVE BEEN HEARD TOGETHER AND ARE BEING DISPOSED OF BY A SINGLE CONSOLIDATED ORDER. 2. FIRST WE TAKE UP THE CROSS-APPEALS FOR A.Y. 2010-11. THE COMMON ISSUE INVOLVED GROUND NO 1 AND 2 OF THE ASSESSEES APPEAL FOR A.Y. 2010-11 RELATES TO THE DISALLOWANCE MADE BY THE A.O. AND CONFIRMED BY THE LD. CIT (A) ON ACCOUNT OF ASSESSEES CLAIM FOR ADDITIONAL DEPRECIATION UNDER SECTION 32(1)(IIA) OF THE INCOME TAX ACT, 1961 AMOUNTING TO RS. 34,02,72,223/-. 3. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY WHICH IS ENGAGED IN THE BUSINESS OF GENERATION AND DISTRIBUTION OF ELECTRICITY. THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS FILED BY IT ON 12.10.2010 DECLARING A TOTAL INCOME AT NIL. IN THE SAID RETURN, ADDITIONAL DEPRECIATION UNDER SECTION 32(1)(IIA) WAS CLAIMED BY THE ASSESSEE AMOUNTING TO RS. 34,02,72,223/-. IN THIS REGARD, IT WAS SUBMITTED BY THE ASSESSEE WHILE EXPLAINING THE NATURE OF ITS BUSINESS DURING THE COURSE OF ASSESSMENT PROCEEDINGS BEFORE THE A.O. THAT IT HAS HYDEL GENERATING STATIONS IN THE DISTRICT OF DARJEELING, UTTAR DINAJPUR AND BIRBHUM WHERE POWER IS GENERATED IN THE VOLTAGE 440 V TO 11.5 KV. IT WAS ALSO SUBMITTED THAT THE ASSESSEE HAS TO CONVERT THIS AVAILABLE POWER FROM ONE VOLTAGE TO ANOTHER VOLTAGE LEVEL AT DIFFERENT SUB-STATIONS THROUGHOUT WEST BENGAL WITH THE HELP OF MACHINERIES AND EVACUATE THE POWER AT CONSUMERS AND THROUGH TRANSMISSION AND DISTRIBUTION LINES OF DIFFERENT VOLTAGE LEVEL. FROM THIS EXPLANATION OFFERED BY THE ASSESSEE, THE AO WAS OF THE VIEW THAT THE ASSESSEE WAS 3 I.T.A. NOS. 871/872 & 1001/1002/KOL/2015 W.B. STATE ELECTRICITY DISTRIBUTION CO. LTD. NOT ACTUALLY ENGAGED IN MANUFACTURING ACTIVITY AND IT WAS ENGAGED IN THE TRANSMISSION OF ELECTRICITY ONLY. HE ALSO HELD THAT THE CONVERSION OF AVAILABLE POWER FROM ONE VOLTAGE LEVEL TO ANOTHER VOLTAGE LEVEL DID NOT TANTAMOUNT TO EITHER MANUFACTURING OR PRODUCTION ACTIVITY AND THE ASSESSEE THEREFORE WAS NOT ENTITLED TO CLAIM ADDITIONAL DEPRECIATION UNDER SECTION 32(1)(IIA) OF THE ACT. ACCORDINGLY THE CLAIM OF THE ASSESSEE FOR ADDITIONAL DEPRECIATION WAS DISALLOWED BY THE AO. 4. THE DISALLOWANCE MADE BY THE AO ON ACCOUNT OF ITS CLAIM FOR ADDITIONAL DEPRECIATION UNDER SECTION 32(1)(IIA) WAS CHALLENGED BY THE ASSESSEE IN THE APPEAL FILED BEFORE THE LD. CIT (A). DURING THE COURSE OF APPELLATE PROCEEDINGS BEFORE THE LD. CIT (A), THE FOLLOWING SUBMISSIONS WERE MADE BY THE ASSESSEE IN SUPPORT OF ITS CLAIM FOR ADDITIONAL DEPRECIATION UNDER SECTION 32(1)(IIA): 1. CLAUSE (29BA) INSERTED IN SECTION 2 OF THE INCOME TAX ACT, 1961, BY THE FINANCE (NO. 2) ACT, 2009, W.E.F. 01.04.2009, DEFINES THE EXPRESSION MANUFACTURE AS UNDER: MANUFACTURE, WITH ITS GRAMMATICAL VARIATIONS, MEANS A CHANGE IN A NON- LIVING PHYSICAL OBJECT OR ARTICLE OR THING, (A) RESULTING IN TRANSFORMATION OF THE OBJECT OR ARTICLE OR THING INTO A NEW AND DISTINCT OBJECT OR ARTICLE OR THING HAVING A DIFFERENT NAME, CHARACTER AND USE; OR (B) BRINGING INTO EXISTENCE OF A NEW AND DISTINCT OBJECT OR ARTICLE OR THING WITH A DIFFERENT CHEMICAL COMPOSITION OR INTEGRAL STRUCTURE; 2. THE EXPRESSION PRODUCTION HAS NOT BEEN DEFINED IN THE INCOME TAX ACT, 1961. HOWEVER, A LARGER BENCH OF THREE LEARNED JUDGES OF THE HONBLE SUPREME COURT IN CIT VS SESA GOA LTD. (2004) 271 ITR 331, 334 (SC), FOLLOWING THE EARLIER JUDGMENT IN CIT VS N.C. BUDHARAJA & CO. & ANR. (1993) 204 ITR 412, 423 (SC), CLEARLY HELD AND OBSERVED THAT THE WORD PRODUCTION HAS A WIDER CONNOTATION THAN THE WORD MANUFACTURE. WHILE 4 I.T.A. NOS. 871/872 & 1001/1002/KOL/2015 W.B. STATE ELECTRICITY DISTRIBUTION CO. LTD. EVERY MANUFACTURE CAN BE CHARACTERIZED AS PRODUCTION, EVERY PRODUCTION NEED NOT AMOUNT TO MANUFACTURE. THE WORD PRODUCTION OR PRODUCE WHEN USED IN JUXTAPOSITION WITH THE WORD MANUFACTURE TAKES IN TO BRING INTO EXISTENCE NEW GOODS BY A PROCESS WHICH MAY OR MAY NOT AMOUNT TO MANUFACTURE. IT IS THEREFORE, NOT NECESSARY, AS HAS BEEN SOUGHT TO BE CONTENDED BY LEARNED COUNSEL FOR THE REVENUE, THAT THE MINED ORE MOST BE COMMERCIALLY NEW PRODUCT.... 3. THE AFORESAID PRINCIPLES WITH REFERENCE TO THE LARGER BENCH DECISION IN SESA GOAS (SUPRA) WERE REITERATED BY THE HONBLE SUPREME COURT IN INDIA CINE AGENCIES VS CIT (2009) 308 ITR 98, 102-104 (SC), IN VIJAY SHIP BREAKING CORPORATION VS CIT (2009) 314 ITR 309, 312 (SC), IN ITO VS ARIHANT TILES AND MARBLES PVT. LTD. (2010) 320 ITR 79, 87 (SC), ALSO FOLLOWED BY THE HONBLE HIGH COURTS IN GIRNAR INDUSTRIES VS CIT (2010) 230 CTR 401 (KER), IN CIT VS RAMSONS ORGANICS LTD. (2010) 228 CTR 502 (DEL), BY THE LEARNED TRIBUNAL IN ACIT VS LEEBO METALS PVT. LTD. (2010) 4 ITR (TRIB) 275 (MUM) AND BY THE HONBLE ALLAHABAD HIGH COURT IN CIT VS JANSONS & CO. (2006) 283 ITR 175 (ALL.). 4. IT IS RESPECTFULLY SUBMITTED THAT VARIOUS OTHER DECISIONS DEALING WITH THE MEANING OF THE EXPRESSION MANUFACTURE / PRODUCTION, E.G. CHRESTIEN MICA INDUSTRIES LTD. VS STATE OF BIHAR (1961) 12 STC 150 (SC) SPLITTING OF MICA, ASPINWALL & CO. LTD. VS CIT (2001) 251 ITR 323, 327-328 (SC) MAKING COFFEE BEANS FROM RAW BERRIES HELD TO BE A MANUFACTURING ACTIVITY, VIJAY SHIP BREAKING CORPORATION VS CIT (2009) 314 ITR 309 (SC) CASE OF SHIP BREAKING, INDIA CINE AGENCIES VS CIT (2009) 208 ITR 98 (SC) CONVERSION OF JUMBO ROLLS OF PHOTOGRAPHIC FILMS INTO SMALL FLATS AND ROLLS OF DIFFERENT SIZES, CIT VS ORACLE SOFTWARE INDIA LTD. (2010) 320 ITR 546 (SC) DUPLICATION OF BLANK CD INTO RECORDED CD, CIT VS ARIHANT TILES AND MARBLES PVT. LTD. (2010) 320 ITR 79 (SC) SAWING MARBLE BLOCKS INTO SLABS AND TILES AND POLISHING CIT VS EMPTEE POLY TARN PVT. LTD. (2010) 320 ITR 665 (SC) AND CIT VS YASHASVI YARN LTD. (2013) 350 ITR 208 (SC) TWISTING AND TEXTURISING PARTIALLY ORIENTED YARN THROUGH THERMO MECHANICAL PROCESS HELD TO BE MANUFACTURE, CIT VS JANSONS & CO. (2006) 283 ITR 175 (ALL) WELDING, SOLDERING AND LACQUERING OF BRASS WARES, CIT VS VINBROS & CO. (2008) 218 CTR 634 (MAD) BLENDING AND BOTTLING OF INDIAN MADE FOREIGN LIQUOR, CIT VS PREMIER TOBACCO PACKERS PVT. LTD. (2006) 284 ITR 222 (MAD) THRASHING AND RE-DRYING OF TOBACCO LEAVES, CIT VS RAMSONS ORGANICS LTD. (2010) 228 CTR 502 (DEL) EXPORTING PROCESSED STONE, MARBLE, GRANITE ETC. HELD TO BE A MANUFACTURING ACTIVITY FOR THE PURPOSES OF SECTION 108 CIT VS JAMAL PHOTO INDUSTRIES (I) PVT. LTD. (2006) 287 ITR 620 (MAD) PROCESSING OF FILM AND PRINTING PHOTOGRAPHS 5 I.T.A. NOS. 871/872 & 1001/1002/KOL/2015 W.B. STATE ELECTRICITY DISTRIBUTION CO. LTD. FROM NEGATAIVE FFILM, B.S. BAJAJ & SOBNS VS CIT (1996) 222 ITRF 418 (P&H) CONVERSION OF TIMBER INTO RAFTERS HELD TO BE PRODUCTION, ACIT VS LEEBO METALS PVT. LTD. (2010)4 ITR (TRIB) 278 (MUM) MAKING COPPER WIRES OF VARYING THICKNESS OUT OF COPPER RODS HELD TO BE PRODUCTION, ITO VS SHRI SWASAN CHEMICALS (M) PVT. LTD. (2008) 300 ITR (AT) 171 (CHENNAI) CONVERTING PLASTIC GRANULES INTO POLYMER POWDERS RESULTING IN QUALITATIVE CHANGE AND GIVING HE PRODUCT DISTINCT APPEARANCE AND CHARACTER, CIT VS MALLIKARJUN GEORESOURCES ASSOCIATES (2012) 341 ITR 581 (UTTARAKHAND) ACTIVITY OF CONVERTING BOULDERS INTO GRITS / STONE CHIPS, POWDER, WAS HELD TO BE PRODUCTION; AND IN CIT VS BUSINESS INFORMATION PROCESSING SERVICE (2012) 345 ITR 548 (RAJ) COMPUTER DATA PROCESSING AND SALE OF COMPUTER STATIONARY WAS HELD TO BE AN ACTIVITY OF PRODUCING ARTICLES OR THINGS. 5. CLAUSE (29) OF SECTION 2 OF THE ELECTRICITY ACT, 2003 DEFINES THE WORD GENERATE TO MEAN TO PRODUCE ELECTRICITY FROM A GENERATING STATION FOR THE PURPOSES OF GIVING SUPPLY TO ANY PREMISES OR ENABLING A SUPPLYTO BE SO GIVEN. 6. ELECTRIC ENERGY HAS ALREADY BEEN HELD TO BE GOODS BY THE HONBLE SUPREME COURT IN COMMISSIONER OF SALES TAX, MADHYA PRADESH, INDOR VS MADHYA PRADESH ELECTRICITY BOARD, JABALPUR REPORTED IN (1969) 1 SCC 200 (SC) AIR 1970 SC 732 AND REITERATED IN STATE OF ANDHRA PRADESH VS NATIONAL THERMAL POWER CORPORATION LTD. (2002) 5 SCC 203 (SC). 7. IN NATIONAL THERMAL POWER CORPORATIONS CASE (SUPRA), THE HONBLE SUPREME COURT ALSO RECOGNIZED THAT GENERATION OF ELECTRICITY WAS NOTHING BUT PRODUCTION THEREOF KINDLY SEE PARAGRAPHS 21 & 29 OF THE SAID JUDGMENT. 8. IN ADVANCED LAW LEXICON P. RAMANATHA AIYAR, THIRD EDITION, 2005, AT PAGE 346, THE WORD ARTICLE HAS BEEN DEFINED TO INCLUDE COAL GAS COX VS CUTLER & SONS LTD. AND HAMPTON COURT GAS CO. (1948) 2 ALL ER 665, 667 (CA); WATER IN THE FILTER BEDS HAS ALSO BEEN TREATED AS AN ARTICLE LONGHURT VS GUILDFORD GODALMIRY AND DISTRICT WATER BOARD (1961) 3 ALL ER 545, 550 (HL). 9. IN ADVANCED LAW LEXICON P. RAMANATHA AIYAR, THIRD EDITION, 2005, AT PAGE 4680, IT HAS BEEN STATED THAT THE WORD THING IS OF EXTENSIVE SIGNIFICATION, AND IN COMMON PARLANCE MAY INTEND ALL MATTERS OF SUBSTANCE, IN CONTRADISTINCTION TO PERSON. WHATEVER MAY BE POSSESSED OR OWNED OR BE THE OBJECT OF A RIGHT, IS A THING. 6 I.T.A. NOS. 871/872 & 1001/1002/KOL/2015 W.B. STATE ELECTRICITY DISTRIBUTION CO. LTD. 10 IN BLACKS LAW DICTIONARY, THE FOLLOWING MEANINGS ARE ASSIGNED TO THE EXPRESSION THINGS: THINGS. THE OBJECTS OF DOMINION OR PROPERTY AS CONTRADISTINGUISHED FROM PERSONS. GAYER VS WHELAN, 59 CAL. APP. 2D 255, 138 P.2D 763, 768. THE OBJECT OF A RIGHT; I.E. WHATEVER IS TREATED BY THE LAW AS THE OBJECT OVER WHICH ONE PERSON EXERCISES A RIGHT, AND WITH REFERENCE TO WHICH ANOTHER PERSON LIES UNDER A DUTY. SUCH PERMANENT OBJECT, NOT BEING PERSONS, AS RE SENSIBLE, OR PERCEPTIBLE THROUGH THE SENSES. THINGS ARE DISTRIBUTED INTO THREE KINDS : (1) THINGS REAL OF IMMOVABLE, COMPREHENDING LANDS, TENEMENTS, AND HEREDITAMENTS; (2) THINGS PERSONAL OR MOVABLE, COMPREHENDING GOODS AND CHATTELS AND (3) THINGS MIXED, PARTAKING OF THE CHARACTERISTICS OF THE TWO FORMER, AS A TITLE DEED, A TERM FOR YEARS. THE CIVIL LAW DIVIDED THINGS INTO CORPORAL (TANGI POSSUNT) AND INCORPOREAL (TANGI NO POSSUNT). 11. IN VIEW OF THE AFORESAID DISCUSSIONS, IT IS NOT CORRECT FOR THE ASSESSING OFFICER TO ALLEGE AND/OR HOLD THAT ELECTRIC POWER IS NOT PRODUCED BY THE APPELLANT ASSESSEE COMPANY. 12. IN FACT, THE PROCESS OF UP GRADATION AND DOWN GRADATION OF POWER THROUGH DIFFERENT VOLTAGE LEVEL WITH THE HELP OF PLANT AND MACHINERY AND LINES, IS ALSO NOTHING BUT A PRODUCTION PROCESS. THIS ASPECT HAS BEEN CLEARLY RECOGNIZED EVEN BY THE COURT OF APPEALS IN THE STATE OF MICHIGAN IN THE CASE OF DETROIT EDISON CO. VS DEPARTMENT OF TREASURY, THE JUDGMENT DELIVERED 9 TH JANUARY, 2014. 5. THE ABOVE SUBMISSIONS MADE BY THE ASSESSEE DID NOT FIND FAVOUR WITH THE LD. CIT (A) WHO PROCEEDED TO CONFIRM THE DISALLOWANCE MADE BY THE AO ON ACCOUNT OF ASSESSEES CLAIM FOR ADDITIONAL DEPRECIATION UNDER SECTION 32(1)(IIA) FOR THE FOLLOWING REASONS GIVEN IN HIS IMPUGNED ORDER: BEFORE CONSIDERING THE CLAIM OF THE APPELLANT REGARDING ADDITIONAL DEPRECIATION IT WOULD BE WORTHWHILE TO CONSIDER THE RELEVANT PROVISION OF THE INCOME TAX ACT AS IT EXISTED FOR A.Y. 2011-12. SECTION 32(1)(AII) 7 I.T.A. NOS. 871/872 & 1001/1002/KOL/2015 W.B. STATE ELECTRICITY DISTRIBUTION CO. LTD. (IIA) IN THE CASE OF ANY NEW MACHINERY OR PLANT (OTHER THAN SHIPS AND AIRCRAFT) WHICH HAS BEEN ACQUIRED AND INSTALLED AFTER THE 31 ST DAY OF MARCH, 2005, BY AN ASSESSEE ENGAGED IN THE BUSINESS OF MANUFACTURE OR PRODUCTION OF ANY ARTICLE OR THING, A FURTHER SUM EQUAL TO TWENTY PER CENT OF THE ACTUAL COST OF SUCH MACHINERY OR PLANT SHALL BE ALLOWED AS DEDUCTION UNDER CLAUSE (II): IT IS THEREFORE SEEN FROM THE ABOVE SEEN THAT THIS SECTION USES THE EXPRESSION BUSINESS OF MANUFACTURE OR PRODUCTION OF ANY ARTICLE OR THING IN THE RELEVANT PERIOD. THE APPELLANTS MAIN CONTENTION IS THAT GENERATION AND DISTRIBUTION OF ELECTRICITY WAS MANUFACTURE / PRODUCTION OF ANY ARTICLE OR THING FOR THE PURPOSE OF INCOME TAX ACT. IT IS HOWEVER SEEN THAT THE CASE LAWS RELIED UPON BY IT I.E. CIT VS SESA GOA LTD. AND CIT VS N.C. BUDHARAJA & CO. & ANR. SUPRA HAVE CONSIDERED THE USAGE OF THE WORD PRODUCTION AND HELD THAT THE SAME OF THE WIDER MEANING THAN MANUFACTURE THE OTHER CASE LAWS RELIED UPON THE APPELLANT ALSO HOWEVER DO NOT RELIED TO ISSUE OF GENERATION AND DISTRIBUTION OF ELECTRICITY. THE ONLY DECISION WHICH CAN BE DIRECTLY CONSIDERED ON THIS ISSUE IS NOT OF AN INDIAN COURT BUT THAT OF USA I.E. COURT OF APPEALS IN THE STATE OF MICHIGAN IN THE CASE OF DETROIT EDISON CO. VS DEPARTMENT OF TREASURY, THE JUDGMENT DELIVERED 9 TH JANUARY, 2014, RELIED UPON BY THE APPELLANT. IT IS ALSO OBSERVED THAT THE ISSUE IS IN THAT CASE WAS DIFFERENT AS THERE THE TERM USED WAS PROCESSING AND THE CLAIM OF DETROIT EDISON CO. WAS FOR EXEMPTION OF INDUSTRIAL PROCESSING WHEREAS THE TERMS USED IN THE SECTION 32(1)(IIA) ARE MANUFACTURE OR PRODUCTION, WHICH BY DEFINITION ARE DIFFERENT FROM PROCESSING. 4.2.1 IT IS ALSO SEEN THAT THIS SECTION HAS BEEN AMENDED BY FINANCE ACT, 2012 W.E.F. 01.04.2013 TO INCLUDE THE BUSINESS OF GENERATION OR GENERATION AND DISTRIBUTION OF POWER. IN THE EXPLANATORY NOTES TO THE FINANCE ACT ALSO, IT HAS BEEN MENTIONED THAT HITHERTO THE CLAIM WAS NOT AVAILABLE TO POWER GENERATION DISTRIBUTION COMPANIES, THUS IT WOULD BECOME AVAILABLE W.E.F. 01.04.2013. THE SECTION 32(1)(IIA) AFTER THIS AMENDMENT IS AS UNDER: (IIA) IN THE CASE OF ANY NEW MACHINERY OR PLANT (OTHER THAN SHIPS AND AIRCRAFT) WHICH HAS BEEN ACQUIRED AND INSTALLED AFTER THE 31 ST DAY OF MARCH, 2005, BY AN ASSESSEE ENGAGED IN THE BUSINESS OF MANUFACTURE OR PRODUCTION OF ANY ARTICLE OR THING, [OR IN THE BUSINESS OF GENERATION OR GENERATION AND DISTRIBUTION OF POWER] A FURTHER SUM EQUAL TO TWENTY PER CENT OF THE ACTUAL COST OF SUCH MACHINERY OR PLANT SHALL BE ALLOWED AS DEDUCTION UNDER CLAUSE (II): 8 I.T.A. NOS. 871/872 & 1001/1002/KOL/2015 W.B. STATE ELECTRICITY DISTRIBUTION CO. LTD. THE ABOVE AMENDMENT THEREFORE CLEARLY INDICATES THAT THE LEGISLATURE BY VIRTUE OF THE AMENDMENT OF SECTION 32(1)(IIA) BY THE FINANCE ACT, 2012 WANTED TO EXPAND THIS BENEFIT TO POWER GENERATION AND DISTRIBUTION COMPANIES, WHICH PRIOR TO THIS AMENDMENT COULD NOT AVAIL SUCH A DEDUCTION. IT IS ALSO CLEAR FROM THE AMENDMENT THAT THE SAME WAS W.E.F. 01.04.2012, THEREFORE IT MAKES THE POSITION OF LAW VERY CLEAR IN RESPECT OF CLAIM OF ADDITIONAL DEPRECIATION IN RESPECT OF POWER GENERATION AND DISTRIBUTION COMPANIES PRIOR TO 01.04.2012 I.E. THAT THEY COULD NOT AVAIL SUCH A DEDUCTION BEFORE THE AMENDMENT. ACCORDINGLY CONSIDERING ALL OF THE ABOVE FACTS IT IS HELD THAT THE APPELLANT WAS NOT ELIGIBLE FOR DEDUCTION OF ADDITIONAL DEPRECIATION ON THE PLANT & MACHINERY INSTALLED DURING THE YEAR U/S 32(1)(IIA) AND THE DISALLOWANCE MADE BY THE A.O. IS UPHELD. 6. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES ON THIS ISSUE AND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE LEARNED COUNSEL FOR THE ASSESSEE HAS MADE A DETAILED SUBMISSION IN SUPPORT OF THE ASSESSEES CASE ON THIS ISSUE BY RELYING ON VARIOUS JUDICIAL PRONOUNCEMENTS OF THE HONBLE SUPREME COURT AS WELL AS SEVERAL HIGH COURTS TO MAKE OUT A CASE THAT THE GENERATION OF ELECTRICITY IS AKIN TO MANUFACTURING A NEW PRODUCT. HE HAS ALSO RELIED ON THE DECISION OF MADRAS BENCH OF THIS TRIBUNAL IN THE CASE OF ECIT VS M. SATISH KUMAR (2012) 19 ITR (TRIB.) 646 WHEREIN IT WAS HELD BY RELYING ON THE VARIOUS DECISIONS OF THE HONBLE SUPREME COURT AS WELL AS HIGH COURTS THAT ELECTRICITY FALLS WITHIN THE DEFINITION OF GOODS AND THE PROCESS OF GENERATION OF ELECTRICITY IS AKIN TO MANUFACTURE OF ARTICLE OR THING. IT WAS HELD THAT GENERATION OF ELECTRICITY THUS IS A MANUFACTURING ACTIVITY AND THE ASSESSEE ENGAGED IN THE BUSINESS OF GENERATION OF ELECTRICITY WAS ENTITLED FOR ADDITIONAL DEPRECIATION UNDER SECTION 32(1)(IIA). THE LEARNED COUNSEL FOR THE ASSESSEE HAS 9 I.T.A. NOS. 871/872 & 1001/1002/KOL/2015 W.B. STATE ELECTRICITY DISTRIBUTION CO. LTD. ALSO POINTED OUT THAT THE EFFECT OF AMENDMENT MADE IN SECTION 32(1)(IIA) WITH EFFECT FROM 01.04.2013, WHICH IS RELIED UPON BY THE LD. CIT (A) IN HIS IMPUGNED ORDER TO DECIDE THE ISSUE AGAINST THE ASSESSEE, WAS ALSO CONSIDERED BY THE TRIBUNAL IN THE CASE OF M. SATISH KUMAR (SUPRA) AND IT WAS HELD THAT THE SAID AMENDMENT GIVE IMPETUS TO THE VIEW THAT THE GENERATION OF ELECTRICITY IS A MANUFACTURING PROCESS ELIGIBLE FOR THE BENEFIT UNDER SECTION 32(1)(IIA). 7. THE LEARNED COUNSEL FOR THE ASSESSEE HAS ALSO RELIED ON THE DECISION OF BANGALORE BENCH OF THIS TRIBUNAL IN THE CASE OF DCIT VS HUTTI GOLD MINES CO. LTD. (2013) 26 ITR (TRIB.) 600 WHEREIN IT WAS HELD THAT THE POWER GENERATED BY THE WINDMILL WAS A PRODUCT BY THE ASSESSEE COMPANY AND SINCE IT WAS COVERED UNDER THE WORDS ARTICLE OR THING WHICH WAS TRADABLE OR IDENTIFIABLE, THE PROCESS OF GENERATION OF ELECTRICITY WAS AKIN TO MANUFACTURE OF ARTICLE OR THING. IT WAS ALSO HELD THAT THE POWER GENERATED NEED NOT NECESSARILY BE USED IN THE PRODUCTION OF ASSESSEES OWN PRODUCTS AND THE USE OF ELECTRICITY IN MANUFACTURING ACTIVITY OF THE CORE BUSINESS OF THE ASSESSES WAS NOT A PRECONDITION FOR THE GRANT OF ADDITIONAL DEPRECIATION UNDER SECTION 32(1)(IIA). IT WAS FURTHER HELD THAT THE AMENDMENT BROUGHT ABOUT IN SECTION 32(1)(IIA) BY THE FINANCE ACT 2012 WITH EFFECT FROM 01.04.2013 TO INCLUDE THE BUSINESS OF GENERATION OF DISTRIBUTION OF POWER TO GIVE BENEFIT OF ADDITIONAL DEPRECIATION WAS ONLY CLARIFICATORY. AS SUBMITTED BY THE LEARNED COUNSEL FOR THE ASSESSEE, THE DECISION OF BANGALORE BENCH OF THIS TRIBUNAL IN THE CASE OF HUTTI GOLD MINES CO. LTD. (SUPRA) HAS BEEN UPHELD BY THE HONBLE KARNATAKE HIGH COURT (IT APPEAL NO 08 OF 2014 DATED 16.09.2014) BY HOLDING THAT SECTION 32(1)(IIA) OF THE INCOME TAX ACT, 1961 INCLUDES THE BUSINESS 10 I.T.A. NOS. 871/872 & 1001/1002/KOL/2015 W.B. STATE ELECTRICITY DISTRIBUTION CO. LTD. OF GENERATION AND DISTRIBUTION OF POWER TO AVAIL THE BENEFIT OF ADDITIONAL DEPRECIATION. 8. THE LEARNED COUNSEL FOR THE ASSESSEE HAS ALSO RELIED ON THE DECISION OF HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS HI TECH ARAI LTD. 321 ITR 477 WHEREIN THE ASSESSEE COMPANY HAD SET UP TWO WINDMILLS IN ADDITION TO ALREADY EXCEEDING FOUR WINDMILLS AND THEREBY INCREASED ITS GENERATION ACTIVITY BY ABOVE 50%. THE ASSESSEE COMPANY WAS ENGAGED IN THE BUSINESS BY MANUFACTURE OF OIL-SEEDS, MOULDED RUBBER PARTS ETC. AND IT WAS USING WIND ENERGY FOR GENERATING POWER FOR ITS CAPTIVE CONSUMPTION APART FROM SELLING SURPLUS POWER GENERATED TO TAMIL NADU ELECTRICITY BOARD. IN THESE FACTS AND CIRCUMSTANCES OF THE CASE, ONE OF THE QUESTIONS RAISED BEFORE THE HONBLE MADRAS HIGH COURT FOR CONSIDERATION WAS WHETHER THE ENTIRE NEW MACHINERY OR PLANT PURCHASED FOR WINDMILLS WAS ELIGIBLE FOR ADDITIONAL DEPRECIATION UNDER SECTION 32(1)(IIA) OF THE ACT OR ONLY THOSE PLANT AND MACHINERY PURCHASED AND USED IN ITS MAIN BUSINESS. WHILE ANSWERING THIS QUESTION IN FAVOUR OF THE ASSESSEE, HONBLE MADRAS HIGH COURT HELD THAT SECTION 32(1)(IIA) DOES NOT STATE THE SETTING UP OF NEW MACHINERY OR PLANT, WHICH WAS ACQUIRED AND INSTALLED AFTER 31.03.2002, SHOULD HAVE ANY OPERATION CONNECTIVITY TO THE ARTICLE OR THING THAT WAS ALREADY BEING MANUFACTURED BY THE ASSESSEE. IT WAS HELD THAT THE CONTENTION THAT THE SETTING UP OF A WINDMILL HAS NOTHING TO DO WITH THE POWER INDUSTRY, NAMELY, MANUFACTURE OF OIL-SEEDS THUS WAS TOTALLY NOT GERMANE TO THE SPECIFIC PROVISION CONTAINED IN SECTION 32(1)(IIA) OF THE ACT AND THE ASSESSEE WAS ENTITLED FOR ADDITIONAL DEPRECIATION UNDER SECTION 32(1)(IIA) ON PLANT & MACHINERY INSTALLED IN WINDMILLS. 11 I.T.A. NOS. 871/872 & 1001/1002/KOL/2015 W.B. STATE ELECTRICITY DISTRIBUTION CO. LTD. 9. KEEPING IN VIEW THE SUBMISSIONS MADE BY THE LEARNED COUNSEL FOR THE ASSESSEE, WE FIND THAT THE ISSUE INVOLVED IN THE PRESENT CASE RELATING TO THE ASSESSEES CLAIM FOR ADDITIONAL DEPRECIATION UNDER SECTION 32(1)(IIA) IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE INTER ALIA BY THE DECISION OF COORDINATE BENCHES OF THIS TRIBUNAL IN THE CASE OF M. SATISH KUMAR (SUPRA) AND HUTTI GOLD MINES CO. LTD. (SUPRA) AS WELL AS BY THE DECISION OF HONBLE MADRAS HIGH COURT IN THE CASE HI TECH ARAI LTD. (SUPRA) AND THAT OF HONBLE KARNATAKA HIGH COURT GOLD CO. LTD. (SUPRA). THE LEARNED DR, ON THE OTHER HAND, HAS NOT BEEN ABLE TO BRING TO OUR NOTICE ANY JUDICIAL PRONOUNCEMENTS ON THIS ISSUE EITHER OF THE HONBLE JURISDICTIONAL HIGH COURT OR ANY OTHER HIGH COURT WHICH IS IN FAVOUR OF THE REVENUE. WE, THEREFORE, RESPECTFULLY FOLLOW THE AFORESAID JUDICIAL PRONOUNCEMENTS CITED BY THE LEARNED COUNSEL FOR THE ASSESSEE WHICH ARE IN FAVOUR OF THE ASSESSEE AND DELETE THE DISALLOWANCE MADE BY THE AO AND CONFIRMED BY THE LD. CIT (A) ON ACCOUNT OF ASSESSEES CLAIM FOR ADDITIONAL DEPRECIATION UNDER SECTION 32(1)(IIA). GROUND NO 1 & 2 OF THE ASSESSEES APPEAL FOR A.Y. 2011-12 ARE ACCORDINGLY ALLOWED. 10. THE COMMON ISSUE INVOLVED IN GROUND NO 3 OF THE ASSESSEES APPEAL FOR A.Y. 2010-11 AND GROUND NO 1 OF THE REVENUES APPEAL FOR A.Y. 2010-11 RELATES TO THE DISALLOWANCE OF RS. 50,16,000/- MADE BY THE AO UNDER SECTION 14A OF THE ACT READ WITH RULE 8D WHICH IS SUSTAINED BY THE LD. CIT (A) TO THE EXTENT OF RS. 4,87,500/- 11. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD RECEIVED A DIVIDEND INCOME OF RS. 25,46,900/- WHICH WAS CLAIMED TO BE EXEMPT 12 I.T.A. NOS. 871/872 & 1001/1002/KOL/2015 W.B. STATE ELECTRICITY DISTRIBUTION CO. LTD. UNDER SECTION 10(34). NO DISALLOWANCE ON ACCOUNT OF EXPENDITURE INCURRED IN RELATION TO THE SAID INCOME HOWEVER WAS OFFERED BY THE ASSESSEE AS REQUIRED UNDER SECTION 14A. THE AO THEREFORE INVOKED RULE 8D AND WORKED OUT SUCH EXPENDITURE AT RS. 50,16,000/- WHICH WAS DISALLOWED UNDER SECTION 14A. ON APPEAL, THE LD. CIT (A) FOUND THAT THE RELEVANT INVESTMENT IN THE SHARES OF M/S. NEW TOWN ELECTRICITY SUPPLY CO. LTD. HAVING BEEN MADE BY THE ASSESSEE FROM ITS OWN FUNDS, THE DISALLOWANCE MADE BY THE AO UNDER SECTION 14A ON ACCOUNT OF INTEREST BY APPLYING RULE 8D WAS NOT WARRANTED. AS REGARDS THE DISALLOWANCE ON ACCOUNT OF OTHER EXPENDITURE, THE LD. CIT (A) FOUND THAT THE AVERAGE VALUE OF INVESTMENT DURING THE YEAR UNDER CONSIDERATION WAS 9,75,00,000/- AND DISALLOWANCE ON ACCOUNT OF OTHER EXPENDITURE WAS REQUIRED TO BE MADE TO THE EXTENT OF RS. 4,87,500/- UNDER RULE 8D(2)(II). HE ACCORDINGLY RESTRICTED THE DISALLOWANCE OF RS. 50,16,000/- MADE BY THE AO UNDER SECTION 14A TO RS. 4,87,500/-. 12. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES ON THIS ISSUE AND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE LEARNED COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE DIVIDEND INCOME OF RS. 25,46,900/- WAS RECEIVED BY THE ASSESSEE ONLY BY ONE CHEQUE ON THE SHARES HELD IN NEW TOWN ELECTRICITY CO. LTD. HE HAS CONTENDED THAT THERE WAS THUS NO EXPENDITURE WHATSOEVER INCURRED BY THE ASSESSEE FOR EARNING THE SAID DIVIDEND INCOME AND THIS STAND OF THE ASSESSEE WAS NEVER DISPUTED WITHER BY THE A.O. OR BY THE LD. CIT (A) BY RECORDING ANY DISSATISFACTION BEFORE MAKING DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D. IN THIS REGARD, HE HAS RELIED ON THE PROVISION OF SUB-SECTION (2) OF SECTION 14A WHICH STIPULATES THAT 13 I.T.A. NOS. 871/872 & 1001/1002/KOL/2015 W.B. STATE ELECTRICITY DISTRIBUTION CO. LTD. THE ASSESSING OFFICER SHALL DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT IN ACCORDANCE WITH SUCH METHOD AS MAY BE PRESCRIBED (RULE 8D) IF THE ASSESSING OFFICER HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. THE ASSESSING OFFICER THUS WAS REQUIRED TO RECORD HIS DISSATISFACTION WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME BEFORE INVOKING RULE 8D AND SINCE THERE WAS NO SUCH DISSATISFACTION RECORDED BY THE AO AS AGREED EVEN BY THE LD. DR, WE FIND MERIT IN THE CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE DISALLOWANCE UNDER SECTION 14A MADE BY APPLYING RULE 8D IS NOT SUSTAINABLE. WE, THEREFORE, DELETE THE DISALLOWANCE MADE BY THE A.O. UNDER SECTION 14A READ WITH RULE 8D AND SUSTAINED BY THE LD. CIT (A). GROUND NO 3 OF THE ASSESSEES APPEAL IS ACCORDINGLY ALLOWED WHILE GROUND NO 1 OF THE REVENUES APPEAL FOR A.Y. 2010-11 IS DISMISSED. 13. AS REGARDS THE ISSUE INVOLVED IN GROUND NO 2 OF THE REVENUES APPEAL FOR A.Y. 2010-11 RELATING TO THE DELETION BY THE LD. CIT (A) OF THE DISALLOWANCE MADE BY THE A.O. UNDER SECTION 40(A)(IA) ON ACCOUNT OF PAYMENT OF ERPC CHARGES WITHOUT DEDUCTION OF TAX AT SOURCE, IT IS OBSERVED THAT THE RELIEF ON THIS ISSUE WAS ALLOWED BY THE LD. CIT (A) TO THE ASSESSEE IN THE YEAR UNDER CONSIDERATION I.E. A.Y. 2010-11 BY RELYING ON THE ORDER OF HIS PREDECESSOR IN ASSESSEES OWN CASE FOR A.Y. 2008-09. AS AGREED BY THE LEARNED REPRESENTATIVES OF BOTH THE SIDES, THE DECISION RENDERED BY THE LD. CIT (A) GIVING RELIEF TO THE ASSESSEE 14 I.T.A. NOS. 871/872 & 1001/1002/KOL/2015 W.B. STATE ELECTRICITY DISTRIBUTION CO. LTD. ON THE SIMILAR ISSUE IN A.Y. 2008-09 HAS BEEN UPHELD BY THE TRIBUNAL VIDE ITS ORDER DATED 04.05.2016 PASSED IN ITA NO. 1428/KOL/2013. THIS ISSUE THUS NOW STANDS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2008- 09 AND RESPECTFULLY FOLLOWING THE SAME, WE UPHOLD THE IMPUGNED ORDER OF THE LD. CIT (A) DELETING THE DISALLOWANCE MADE BY THE A.O. UNDER SECTION 40(A)(IA) ON ACCOUNT OF PAYMENT OF ERPC CHARGES. GROUND NO 2 OF THE REVENUES APPEAL FOR A.Y. 2010-11 IS ACCORDINGLY DISMISSED. 14. NOW WE TAKE UP THE APPEAL OF THE ASSESSEE FOR A.Y. 2011-12, GROUND NO 1 AND 2 OF WHICH INVOLVE A SIMILAR ISSUE AS INVOLVED IN GROUND NO 1 AND 2 IN ASSESSEES APPEAL FOR A.Y. 2010-11 RELATING TO THE DISALLOWANCE MADE BY THE A.O. AND CONFIRMED BY THE LD. CIT (A) ON ACCOUNT OF ASSESSEES CLAIM FOR ADDITIONAL DEPRECIATION UNDER SECTION 32(1)(IIA). FOLLOWING OUR CONCLUSION DRAWN ON THE SIMILAR ISSUE FOR A.Y. 2010-11 IN THE FOREGOING PORTION OF THIS ORDER, WE DELETE THE DISALLOWANCE MADE BY THE A.O. AND CONFIRMED BY THE LD. CIT (A) ON ACCOUNT OF ASSESSEES CLAIM FOR ADDITIONAL DEPRECIATION UNDER SECTION 32(1)(IIA) AND ALLOW GROUND NO 1 AND 2 OF ASSESSEES APPEAL. 15. AS REGARDS THE COMMON ISSUE INVOLVED IN GROUND NO 3 OF THE ASSESSEES APPEAL AND GROUND NO 1 OF THE REVENUES APPEAL FOR A.Y. 2011-12 RELATING TO THE DISALLOWANCE OF RS. 59,00,000/- MADE BY THE A.O. UNDER SECTION 14A READ WITH RULE 8D WHICH IS SUSTAINED BY THE LD. CIT (A) TO THE EXTENT OF RS. 9,08,000/-, IT IS OBSERVED THAT IT IS SIMILAR TO THE ONE INVOLVED IN GROUND NO 3 OF THE ASSESSEES APPEAL AND GROUND NO 1 OF THE REVENUES APPEAL FOR A.Y. 2010-11 WHICH HAS 15 I.T.A. NOS. 871/872 & 1001/1002/KOL/2015 W.B. STATE ELECTRICITY DISTRIBUTION CO. LTD. ALREADY BEEN DECIDED BY US ON THE FOREGOING PORTION OF THIS ORDER. FOLLOWING OUR CONCLUSION DRAWN IN A.Y. 2010-11, WE DELETE THE DISALLOWANCE MADE BY THE A.O. UNDER SECTION 14A AND SUSTAINED BY THE LD. CIT (A). GROUND NO 3 OF THE ASSESSEES APPEAL IS ACCORDINGLY ALLOWED WHILE GROUND NO 1 OF THE REVENUES APPEAL FOR A.Y. 2011-12 IS DISMISSED. 16. AS REGARDS THE ISSUE INVOLVED IN GROUND NO 2 OF THE REVENUES APPEAL FOR A.Y. 2011-12 RELATING TO DELETION BY THE LD. CIT (A) OF THE ADDITION MADE BY THE A.O. UNDER SECTION 40(A)(IIA) OF THE ACT ON ACCOUNT OF PAYMENT OF ERPC CHARGES WITHOUT TAX DEDUCTION AT SOURCE, IT IS OBSERVED THAT THE SAME IS SIMILAR TO THE ONE INVOLVED IN GROUND NO 2 OF THE REVENUES APPEAL FOR A.Y. 2010-11 WHICH HAS BEEN DECIDED BY US IN THE FOREGOING PORTION OF THIS ORDER. FOLLOWING OUR CONCLUSION FOR A.Y. 2010-11 ON THE SIMILAR ISSUE, WE UPHOLD THE IMPUGNED ORDER OF THE LD. CIT (A) GIVING RELIEF TO THE ASSESSEE ON THIS ISSUE AND DISMISS GROUND NO 2 OF THE REVENUES APPEAL FOR A.Y. 2011-12. 17. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE ALLOWED WHILE BOTH THE APPEALS OF THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST OCTOBER, 2017. SD/- SD/- (S.S. VISWANETHRA RAVI) (P.M. JAGTAP) (JUDICIAL MEMBER) ACCOUNTANT MEMBER DATED: 31/10/2017 BISWAJIT, SR. P.S. 16 I.T.A. NOS. 871/872 & 1001/1002/KOL/2015 W.B. STATE ELECTRICITY DISTRIBUTION CO. LTD. COPY OF ORDER FORWARDED TO: 1. M/S. WEST BENGAL STATE ELECTRICITY DISTRIBUTION CO. LTD., BIDYUT BHAWAN, BLOCK DJ, SECTOR II, BIDHANNAGAR, KOLKATA - 700091 2. DCIT, CIRCLE 2(2), AAYAKAR BHAWAN, P-7, CHOWRINGHEE SQUARE, KOLKATA 700069. 3. THE CIT(A) 4. THE CIT 5. DR TRUE COPY, BY ORDER, SR. P.S. / H.O.O. ITAT, KOLKATA