For that on the facts and in the circumstances of the case, the CIT was unjustified in passing the revision order under section 263 on the alleged ground that the assessing officer did not make any inquiry into the aspect of allow ability of additional depreciation even though in the show cause notice issued; no such ground was assigned for considering the order of assessment to be erroneous and in that view of the matter the CIT’s order setting aside the assessment for lack of inquiry was unsustainable and deserves to be set aside. Except for assets in respect of which no extra shift depreciation is permitted (indicated by NESD in Part C above), if an asset is used for any time during the year for double shift, the depreciation will increase by 50% for that period and in case of the triple shift the depreciation shall be calculated on the basis of 100% for that period. The only issue to be decided in this appeal is as to whether the learned CIT is justified in invoking revisionary jurisdiction under section 263 of the Act in the context of allow ability of additional depreciation under section 32(1)(iia) of the Act in the facts and circumstances of the case. Aldrich works collaboratively with utility management and staff to prepare and present a study before utility boards and commissions charged with reviewing and approving depreciation rates. Accordingly the Chennai Tribunal dismissed the departmental appeal after taking note of the amendment in section 32(1)(iia) of the Act by the Finance Act, 2012. The Court observed that when there can be sale and purchase of electricity then they did not see any reason as to why electricity would not be assumed to be “goods” The Supreme Court therefore held that “electricity” comes within the purview of the term “goods” and therefore sale of electricity came within the taxing provisions of the sale of goods Act so as to attract levy of sales tax. The Tribunal accordingly held that the benefit of additional depreciation under section 32(1)(iia) could not be denied to the assessee. Estimating a precise service life and final salvage value of an asset, sometimes forty or more years in the future, verges on impossible. 4. James Keen has over 15 years experience as an engineering analyst and in complex regulatory proceedings, which includes electric, natural gas, oil and gas pipeline, water and wastewater, and refuse utilities. We find that on perusal of section 32(1)(iia) of the Act as it stood upto assessment year 2012-13, it is evident that the additional depreciation is permissible to all assessees who are engaged in the business of manufacture or production of any article or thing. 1458 (Kol.) 2. In this case, the company has an option to depreciate the asset using either 10 year life prescribed in the Schedule II or the estimated useful life, i.e., 12 years. Room No. In a study, each asset account is carefully analyzed to determine the proper depreciation rate. The issue as to whether the generation of power amounts to production of an article or goods was examined by Supreme Court in the following judgments :–. to produce energy/electricity. Copyright © TaxGuru. In order to address the “prediction problem,” a commonly accepted solution is the use of the mortality curves that apply to utility plant. Maintained by V2Technosys.com, Appeal Number : IT Appeal No. The assessee stated before the learned CIT that one of the case involving identical issue was that of NTPC Ltd a public sector undertaking whose principal business is generation of Thermal Power. For example, when an Income Tax officer adopted one of the courses permissible in law and it has resulted in loss of Revenue; or where two views are possible and the Income Tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue, unless the view taken by the Income tax officer is sustainable in Law.’. Just in case, I will explain about meaning of depreciation cost. ） What is depreciation cost. CIT (ITAT Kolkata). 25. 3(ii)] MINISTRY OF POWER. The learned CIT issued show cause notice dated 31-7-2015 seeking to revise the assessment framed under section 143(3) of the Act in as much as the learned assessing officer had granted the claim of additional depreciation to the assessee company in the sum of Rs. “Sub. in books of accounts-reg, Gujarat HC rejects TAR/ITR due date date extension writ applications. In the instant case, the assessee had set up hydel power and thermal power plant, wherein the water and coal gets converted into electricity through the manufacturing process. For that on the facts and in the circumstances of the case, in the assessment order passed under section 143(3) while allowing deduction for additional depreciation under section 32(1)(iia) the assessing officer having followed one of the course permissible in law, the CIT was unjustified in invoking his revisionary power under section 263 of the Act & holding the assessment to be erroneous. Faceless Penalty Scheme 2021- Decoding the New Rules of Penalty Shoot-out: !! The purpose of the depreciation expense is to recover the utility’s plant investment incrementally throughout the service life of the asset. In the result, the appeal of the assessee is allowed. In the decided case the State Electricity Board generated and distributed electricity energy to various consumers. For that on the facts and in the circumstances of the case, the CIT was grossly unjustified in law and on facts in directing the assessing officer to reassess the taxable income of the appellant after making further inquiries even though the assessment order under section 143(3) was neither erroneous nor prejudicial to the interest of the revenue within the meaning of section 263 of the Act. 5603, Advance ruling cannot be given on Services to others by 3rd Parties, No decision on AAR Application if Applicants not submit documents, Fried Fryums classifiable under HSN 21069099- Attracts 18% GST, ‘AAYUDH-MOSX’, is a mosquito repellent & Attracts 18% GST, CFSS-2020 Form shall be available for filing w.e.f 16.01.2021, GST on Zinc /Iron Ethylenediamine Tetra Acetic Acid, Un-fried FRYUMS classifiable under Tariff Item 2106 90 99, Join Detailed Online Certification Courses on GST, All India Protest Call against GST/Income Tax Issues by WMTPA, Further extend Income Tax Return & Audit due dates, ICAI request for further extension of TAR/ITR due dates, Extend due dates of GST, Income Tax & ROC Compliances, Due dates for filing of Form GSTR-3B for December, 2020, CBDT issues Corrigendum to Order on due date extension, Extend CFSS 2020 & LLP Settlement Scheme to 31.03.2021. We find that even in the recent decision of the Hon’ble Supreme Court in the case of CIT v. Amitabh Bachchan (2016) 384 ITR 200 (SC) had only concluded that the learned CIT can proceed to adjudicate other issues other than what is mentioned in the original show cause notice. We hold that the learned CIT in concluding that lack of inquiry with regard to allow ability of additional depreciation on the part of the learned assessing officer would automatically make the order of learned assessing officer erroneous and prejudicial to the interest of the revenue, is palpably illegal in the facts and circumstances of the case in as much as no opportunity of hearing was given to the assessee in that regard. Attention is specifically drawn to the decision of the Supreme Court in the case of Madhya Pradesh Electricity Board (supra). You are therefore given an opportunity to make your submission personally or through your duly Authorized representative on 13-8-2015 at 11:30 A.M. before me at my chamber. After due consideration of the facts and the question raised before it, the Hon’ble Madras High Court dismissed the revenue’s appeal by holding that the assessee engaged in the business of generation of power fulfilled the condition of production of any article or thing as contemplated in section 32(1)(iia) of the Act and accordingly eligible for additional depreciation. Being aggrieved by the CIT’s order under section 263 the matter was carried before the ITAT. CIT v. Hutti Gold Mines Co. Ltd. (2013) 60 SOT 147 (Bang.-Trib.). (supra). Aggrieved, the assessee is in appeal before us on the following grounds :–. In case WDV method opted, it will be done same as it is done for normal assessee In case SLM Method followed:- If Selling price is less than WDV Value, difference is written of as terminal depreciation If Selling Price > WDV (but less than actual cost),then difference is PGBP Income u/s 41 If Selling Price>Actual Cost ,then Because of the vast number of utility assets, the years of historical experience and the computational challenges of the calculations, specialized computer models are universally used to crunch the numbers. For that on the facts and in the circumstances of the case, the CIT’s order under section 263 dated 29-10-2015 being legally and factually unsustainable the same be cancelled and the assessing officer’s order under section 143(3) dated 28-3-2014 allowing the deduction for additional depreciation under section 32(1)(iia) be restored.”. ), Dy. 7. 4.2. The assessee also submitted that no appeal was preferred by the revenue to the Hon’ble Delhi High Court against the order of the Delhi Tribunal supra. The assessment was completed under section 143(3) of the Act on 28-3-2014 determining the total loss at Rs. of 2012, date 8-1-2014] had also held that assessee is entitled for additional depreciation under section 32(1)(iia) of the Act for its power plant. Damodar Valley Corporation passed under section 143(3) dated 28-3-2014 for the assessment year 2011-12. Ltd. (2002) 127 STC 280 (SC). In the case of the State of Andhra Pradesh vs NTPC, the Supreme Court held that electricity is able to be transmitted, transferred and delivered. To accommodate these complexities, depreciation models have been developed combining both analysis and professional judgment to produce rational and supportable depreciation rate projections. We find that the learned AR had produced a chart regarding the claim of additional depreciation in all the earlier assessment years. 517 (Kol.) The Delhi Bench of the ITAT decided the appeal of NPTC Ltd. v. Dy. : Proceedings under section 263 of the Income Tax Act, 1961 in the case of M/s. Hence passing an assessment order by following the various judicial decisions would not in any manner make the assessment order erroneous. What’s the Right Corporate Structure for Your Organization? (-) 2,27,00,22,060 (loss). The various apex court decisions relied upon by the assessee before the learned CIT as mentioned supra in the context of levy of sales tax on the sale of electricity had also decided that the generation of electricity amounts to production of article or thing. Similar views were also expressed in the following decisions :–, CIT v. Hi Tech Arai Ltd. (2010) 321 ITR 477 (Mad), CIT v. Texmo Precision Castings (2010) 321 ITR 481 (Mad), CIT v. Atlas Export Enterprises (2015) 373 ITR 414 (Mad), Asst. 4. Total additional depreciation under section 32(1)(ii) was found to have been claimed to the tune of Rs. Hence, it could be safely concluded that the assessee is entitled for claiming additional depreciation under section 32(1)(iia) of the Act even prior to the amendment brought in by Finance Act, 2012. Much attention is often paid to the operating expenses and the return component in the equation. By minimizing the operating expenses, rates can be lowered. It is well settled that for the purpose of manufacture, an element of transformation is a pre- requisite. In order to provide this service to our utility clients, Aldrich is in the final stages of development of a data driven depreciation model. However, in the case of Tamil Nadu Road Development Company Ltd. 24 DTR 618 it was held that Road is not plant but after asst year 1988-89 is included in the category of building for depreciation as such. We also find that the co-ordinate bench decision of this tribunal in the case of ACIT v. Ankit Metal & Power Ltd. [IT Appeal No. Sir In Case Of Addition for FY 2019-20 It is Taking Wrong Rate of Depreciation For SLM. Both extremes carry pros and cons for utilities and consumers, and only the development of a reasonable depreciation rate will properly balance the interests. The Tribunal noted that the power was generated by deploying huge plants and therefore it may be said that there was transformation of one source of energy into another. MACRS Solar Depreciation: 20,35,78,496. The Supreme Court observed that the term “goods” has to be understood in a wider sense and merely because electric energy is not tangible or cannot be moved does not cease to be “goods”. From the date this Schedule comes into effect, the carrying amount of the asset as … 13–6 Company policy should provide for a plant ledger, identification tags on all plant assets, and a system of retirement work orders. Damodar Valley Corporation Vs. Dy. 72A. Essentially, today’s customers should pay for today’s plant, not tomorrow’s or yesterday’s plant. Life of Asset is 15 years. Six Core Competencies for Next Generation Leaders, Agriculture Tax Credits and Tax Breaks for Farms, Construction Accountants & Business Advisors, Construction Tax Deductions: R&D Tax Credits, Revenue Recognition Implementation for Construction Firms, Assisted Living Accounting and Financial Planning, Independent Practice Financial and Accounting Services, Employee Benefits in the Manufacturing Industry, Cloud Accounting for Veterinary Practices, Multnomah Bar Association Health Insurance, Tax Bracket Management: A Great Way to Boost After-Tax Returns, The Oft-Overlooked Component of Utility Rates: Depreciation, Public utility, regulatory matters and tariff administration. If the correct curve and average service life is chosen for a specific type of utility asset (e.g. The revenue requirement formula is the basis of the utility rates we pay to charge our smart phone, heat our home, cook our dinner, and water our lawn. Every loss of revenue as a consequence of an order of the assessing officer cannot be treated as prejudicial to the interest of the revenue. In its order the Tribunal upheld the CIT’s power to invoke revisionary jurisdiction and also upheld CIT’s order with regard assessment of power tariffs with reference to provisional tariff approved by CERC. In the present case the assessee during the relevant year was engaged in the business of generation and distribution of power. It was further clarified in the Finance Act, 2012 that additional depreciation is allowable with effect from assessment year 2013-14 in the case of generation or generation and distribution of power as this category was inserted with effect from 1-4-2013. He argued that no opportunity was given by the learned CIT to the assessee to put forth its arguments on the said aspect of ‘lack of inquiry’ thereby violating the mandate of section 263(1) of the Act. In the production department of a manufacturing company, depreciation expense is considered an indirect cost, since it is included in factory overhead and then allocated to the units manufactured during a reporting period. In order to submit a comment to this post, please write this code along with your comment: 769aff7bd8e6bec09ac4faec1a4f6487. The treatment of depreciation as an indirect cost is the most common treatment within a business. Now the question to be decided is as to whether the assessee engaged in generation and distribution of electricity could be said to be engaged in the business of manufacture or production of any article or thing so as to be eligible for claiming additional depreciation under section 32(1)(iia) of the Act. It is undisputed that no opportunity was afforded to the assessee in the instant case before us by the learned CIT to address on the aspect of ‘lack of inquiry’ on the allow ability of claim of additional depreciation. Though calculating a depreciation rate is simple in concept, the realities of utility operation, the significance of the result, the obscurity of the future, and the need to provide a rationale and supportable defense of the final rate introduces several complexities into the calculation. In view of the aforesaid findings and in the facts and circumstances of the case and respectfully following the various judicial precedents relied upon on the impugned issue, we have no hesitation in quashing the order passed by the learned CIT under section 263 of the Act and allow the grounds raised by the assessee. The learned AR reiterated the arguments advanced before the learned CIT. The CIT however revised the assessment order under section 263 of the Act. In the circumstances, the assessee who is desirous of claiming the additional depreciation need only to prove that during the relevant year he was engaged in the business of manufacture or production of any article or thing. If you use a capital asset, such as a car or machinery, in earning your income, you may be able to claim a deduction for the cost of that asset, spread over its effective life. Hence it is undisputed that transformation from mere coal to electricity and from mere water to electricity happens pursuant to the manufacturing process and the electricity so produced or generated becomes a separate marketable commodity. An Electricity company has financed the project costing Rs.200 lakhs by 70% Debt & 30% Equity. This claim for depreciation is generally referred to as capital allowances. In this case, we assume the 'depreciation basis' is the Net Cost (after incentives) and then we add back 50% of the federal tax credit. Join our newsletter to stay updated on Taxation and Corporate Law. (4) „Auditor‟ means an auditor appointed by a generating company or a transmission licensee, as the case may be, in accordance with the provisions of sections 224, 233B and 619 of the Companies Act, 1956 (1 of 1956)], as amended from time to time or Chapter X of the Companies Act, 2013 (18 of 2013) or any other law for the time 187.55 cr. As a company is required to identify only material/significant components separately for the purpose of charging depreciation, materiality is a matter of judgement that need to be decided on the facts of each case. Besides the said reason; revision order was also passed on other issue of inclusion of additional power tariff. The various decisions supra relied upon by the assessee before the learned CIT were very much in the public domain (except the Hon’ble Calcutta High Court decision dated 20-11-2014 in the case of Ankit Metal and Power Ltd.) as they were reported judgments and the learned assessing officer following the same while framing the assessment under section 143(3) of the Act for the assessment year 2011-12, cannot be termed as erroneous in terms of section 263 of the Act. Assessment was framed by JCIT, Range-9, Kolkata under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) for assessment year 2011-12 vide his order dated 28-3-2014. Hence there was no iota of doubt in the mind of the learned assessing officer to adjudicate this specific issue in the assessment year under appeal from a different perspective. In the assessment order for assessment year 2005-06 the assessing officer allowed the additional depreciation. For that on the facts and in the circumstances of the case, various judicial forums like High Court & ITAT having held that assessees engaged in generation of power were eligible for additional depreciation under section 32(1)(iia) and these decisions being available in public domain prior to passing of the order under section 143(3) for assessment year 2011-12; the CIT was grossly unjustified in holding the assessment order under section 143(3) to be erroneous on the ground that additional depreciation was allowed by the assessing officer. He focuses on revenue requirement, cost of service and depreciation studies as well as tariff filings, certificate issues and other financial analyses and regulatory…, Are you a benefits recipient or looking for help with your client account? The assessee also placed on record before the learned CIT the decision of the Hon’ble Madras High Court in the case of CIT v. VTM Ltd. (2009) 319 ITR 336 (Mad) wherein, the Hon’ble Madras High Court dismissed the revenue’s appeal. of 2012, date 8-1-2014] had also held that assessee is entitled for additional depreciation under section 32(1)(iia) of the Act for its power plant. (A) 10% (B) 15% (C) 20% (D) 25% 39. On perusal of the assessment record vis-a-vis the return and other document submitted it is seen that the assessee company had claimed additional depreciation @ 20% on additions made to plant and machinery at Thermal Power Station and Hydel Power Station. Moreover, the learned assessing officer had the benefit of the jurisdictional tribunal decision before him in the case of Ankit Metal and Power Ltd. (supra) before him before passing the assessment order for the assessment year 2011-12 under section 143(3) dated 28-3-2014. an electric transformer), a reasonable projection of the overall remaining life of the asset account can be determined. Accordingly the ITAT reversed the CIT’s order under section 263 on this ground. Thereafter it was selected for scrutiny through CASS and the case was completed under section 143(3) by JCIT, Ranqe-9, Kolkata on 28-3-2014 determining total income of Rs. In the instant case, the assessee had set up hydel power and thermal power plant, wherein the water and coal gets converted into electricity through the manufacturing process. Market, technology, and a system of retirement work orders ) depreciation expense comprises! 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