Case Law Details

Case Name : Giriraj Enterprises Vs. Dy. CIT (ITAT Pune)
Appeal Number : ITA Nos. 1384, 1385, 1469 & 1470 (Pune) of 2015
Date of Judgement/Order : 23/02/2017
Related Assessment Year : 2011-12 & 2012-13
Courts : All ITAT (4785) ITAT Pune (139)

Giriraj Enterprises Vs. Dy. CIT (ITAT Pune):

Amendment to section 32(1)(iia) is clarificatory or giving impetus to the view that the additional depreciation is allowable on windmills as process of generation of electricity is akin to manufacture or production of an ‘article’ or ‘thing’.

FULL TEXT OF THE ITAT ORDER IS AS FOLLOWS:-

The aforesaid captioned cross appeals filed by the assessee and the Revenue are against the order of Commissioner (Appeals)-11, Pune, dated 17-8-2015 relating to assessment years 2011-12 & 2012-13 arising from the assessment order passed under section 143(3) of the Income Tax Act, 1961 (in short “the Act”).

2. The cross appeals filed by the assessee and the Revenue were heard together and are being disposed of by this consolidated order.

ITA No. 1384/PN/2015, assessment year 2011-12 (By Assessee) :–

3. In this appeal, the issue in controversy agitated on behalf of the assessee is dis-allowance of ‘additional depreciation’ on windmill quantified at Rs. 12,62,02,718 relevant to assessment year 2011-12.

4. The relevant facts, in brief, are that the assessee is engaged in the business of water park and trading in goods. The assessee filed return of income declaring total income of Rs. 79,06,340. In the course of assessment proceedings, the assessing officer noticed that the assessee has purchased certain windmills to the tune of Rs. 1,17,33,88,103 during the year on which normal depreciation allowance @ 80% was claimed under section 32(1) of the Act. Besides, the assessee also claimed additional depreciation @ 20% ascribed under section 32(1)(iia) of the Act amounting to Rs. 12,62,02,718 on the aforesaid acquisitions. The assessing officer show-caused the assessee to justify the eligibility of claim of additional depreciation under section 32(1)(iia) of the Act. The assessee canvassed before the assessing officer that electricity produced by the windmill is an “article or thing” within the meaning of section 32(1)(iia) of the Act. It was submitted that when the windmills so installed converts wind energy into electric energy, it is certainly an activity of ‘manufacture’ because the wind energy is converted into totally different form i.e., electric energy. The electrical energy is having a different name, character and use vis-à-vis the wind energy and hence it falls within the definition of expression ‘manufacture’. The assessee relied upon the following judicial precedents wherein it was held that process of generation of electricity is akin to manufacture or production of article or thing and therefore the assessee is entitled to additional depreciation as claimed :–

(i) Dy. CIT v. Avinash Nivrutti Bhosale (IT Appeal No. 823/PN/2011, date 27-8-2012).

(ii) Asst. CIT v. M. SatishKumar in (IT Appeal No. 718 (Mds.) of 2012, date (assessment year 2008-09), date 28-9-2012),

(iii) N.T.P.C Ltd. v. Dy Commissioner (2012) 54 SOT 177 (URO) (Delhi)

(iv) Dy. CIT v. Hutti Gold Mines Co. Ltd. (2013) 60 SOT 147 (URO) (Bang.-Trib).

(v) D. J Malpani v. ACIT (IT Appeal Nos. 1148 to 1154/Pn/2013, order date 30-10-2015)

(vi) CIT v. United Western Bank Ltd. (2003) 259 ITR 312/127 Taxman 238 (Bom.)

5. The assessing officer, however, rejected the contentions of the assessee that electricity produced by operating windmills falls under expression ‘article or thing’. The assessing officer also observed that additional depreciation is available only to an assessee engaged in manufacture or production of article or thing. The assessee is neither engaged in manufacturing activity nor engaged in production activity. The assessee is engaged in business of Water Park and trading in goods which is not manufacturing activity in the year under consideration. The assessing officer went on to observe that generation of electricity with the use of windmill does not tantamount to production of article or thing per se. He held that the conditions of section 32(1)(iia) are not fulfilled and accordingly disallowed the additional depreciation claim of the assessee.

6. Aggrieved, the assessee preferred appeal before the Commissioner (Appeals). It was reiterated before the Commissioner (Appeals) that the assessee was qualified for claim of additional depreciation since the assessee was producing power through wind energy from windmills installed during the year. This tantamount to manufacture or production of article or thing in terms of section 32(1)(iia). The Commissioner (Appeals), however, was also not impressed with the submissions of the assessee. The Commissioner (Appeals) referred to the various judicial decisions cited by the assessee and observed that these decisions were rendered prior to amendment carried out in section 32(1)(iia) of the Act with effect from 1-4-2013. The Commissioner (Appeals) noted that specific amendment in section 32(1)(iia) was brought with effect from 1-4-2013 whereby benefit of additional allowance was extended to the business of generation or distribution of power. The Commissioner (Appeals) also referred to the ‘Explanatory Note’ to the Finance Act, 2012 explaining the amendment and observed that the amendment carried out with effect from 1-4-2013 is not clarificatory or declaratory. The Commissioner (Appeals) held that the amendment is prospective in nature and therefore the assessee is not eligible for additional depreciation for assessment years prior to assessment year 2013-14. The Commissioner (Appeals) thereafter observed that accelerated depreciation of 80% is available to those wind mills which are installed before 31-3-2012. The accelerated depreciation allowance on wind mills has been brought down to ordinary rate by an amendment in the Income Tax Rules 2012. Thus the rationale to provide additional deprecation to these wind mills installed after amendment in Income Tax Rule 2012 was to compensate these wind mill owners by way of additional depreciation. This is the reason for including power sector in the ambit of section 32(1)(iia). He accordingly declined to provide any relief to the assessee on this score.

7. Aggrieved thereto the assessee is in appeal before the Tribunal.

8. The learned Counsel for the assessee, Dr. Sunil Pathak reiterated the submissions made before the lower authorities and exhorted that the expression “business of manufacture or production of any article or thing” is wide enough to include business of generation and distribution of power. As per section 32(1)(iia) of the Act, the additional depreciation @ 20% of the actual cost of plant and machinery is allowable if these assets are acquired and installed after 31-3-2005. Further, condition as provided in this section is that the assessee should be engaged of manufacture or production of article or thing. The learned Counsel relied upon the decision of the ITAT in the case of Avinash Nivrutti Bhosale (supra) for the proposition that production of electricity is same as production of article or thing. He submitted that similar view has been taken by the Delhi Bench of ITAT in the case of NTPC Ltd. (supra).

8.1 Dr. Pathak submitted that in NTPC Ltd. case (supra) the Delhi Bench of ITAT after analysis of several decisions concluded that additional depreciation cannot be denied to the assessee merely on the ground that electricity is not an ‘article or thing’. It was submitted that the Delhi Bench of the Tribunal in NTPC Ltd. case (supra) categorically held that the depreciation is allowable on plants and machinery producing electricity.

8.2 Dr. Pathak, next adverted our attention to another decision of ITAT in the case Hutti Gold Mines Co.Ltd. (supra) and M. Satishkumar (supra) wherein also it has been held that sub-sequent amendment has given an impetus to the view that generation of electricity is a manufacturing process and qualifies for benefits under section 32(1)(iia) of the Act.

8.3 Dr. Pathak thereafter referred to the another decision of Pune Bench of ITAT in the case of M/s. D.J. Malpani (supra) dated 30-10-2015 i.e., rendered after the amendment to section 32(1)(iia) of the Act. In view of these decisions, the learned Counsel claimed that the assessee is eligible to claim additional depreciation for the assessment years even prior to 1-4-2013 i.e., the date from which the amendment was stated to be made effective. In short, Dr. Pathak would submit that even without amendment, the activity of generation of electricity from windmills falls within the scope of existing expression ‘manufacture or production of any article or thing’.

8.4 The learned Counsel further buttressed his contentions and submitted that in view of various case laws in the context of section 43B or section 40(a)(ia) of the Act, the amendment carried out in the provision of section 32(1)(iia) of the Act should be considered as retrospective in operation on the similar rationale. He, therefore, pleaded that the view taken by the Commissioner (Appeals) is not in accordance with the provision of the Act. He thus pleaded for reversal of the order of Commissioner (Appeals) and urged for restoration of additional depreciation as claimed.

9. The learned Departmental Representative (Departmental Representative) appearing for Revenue, on the other hand, relied upon the order of the Commissioner (Appeals). The learned Departmental Representative referred to para no. 8.2.3 of the order of the Commissioner (Appeals) and submitted that the legislative intend behind the amendment is quite clear from the ‘Explanatory Note’ which has explained the objective of amendment carried out in section 32(1)(iia) of the Act. In the light of the amendment which is effective from 1-4-2013 relevant to assessment year 2013-14, it is apparent that the assessee is not entitled to additional depreciation as claimed in the impugned assessment years in appeal. It was submitted that legislature would not make amendment if it was unnecessary. The amendment is prospective and thus not available to assessment years in appeal.

10. We have carefully considered the rival submissions and perused the orders of the authorities below and various case laws cited. As noted, the Assessee has acquired windmills during the financial years relevant to assessment years 2011-12 & 2012-13 in appeal. The windmills were installed to generate electricity. On such acquisitions of windmills, the Assessee has, apart from claim of deprecation allowance under section 32(1) available at accelerated rate of 80% under section 32(1)(i), also went on to claim additional depreciation allowance @ 20% available in terms of section 32(1)(iia) of the Act. As can be seen, special status was conferred on wind mills by granting deprecation at higher rate of 80%. As noted earlier, section 32(1)(iia), over and above the normal depreciation allowable at prescribe rates, provides benefit of additional depreciation @ 20% on actual costs of acquisitions of plant and machinery made during the year. The controversy that precisely arises in the present case is whether the assessee is entitled to additional depreciation @ 20% concerning assessment years prior to assessment year 2013-14 with reference to business of generation and distribution of power in terms of section 32(1)(iia) as it stood prior to its amendment effective from 1-4-2013 .? In other words, the question to be determined is whether an assessee engaged in business of generation and distribution of power is eligible for additional depreciation as per existing provision having regard to specific amendment specifically carried out with effect from 1-4-2013 to cover power sector.

11. The relevant provisions of section 32 of the Act governing depreciation allowance, post amendment, is noted here under for ready reference:–

“Section 32, (1) In respect of depreciation of–

(i) buildings, machinery, plant or furniture, being tangible assets;

(ii) know-how, patents, copyrights, trade marks, licenses, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after the 1-4-1998,

owned, wholly or partly, by the assessee and used for the purposes of the business or profession, the following deductions shall be allowed–

(i) in the case of assets of an undertaking engaged in generation or generation and distribution of power, such percentage on the actual cost thereof to the assessee as may be prescribed;

(ii) in the case of any block of assets, such percentage on the written down value thereof as may be prescribed :–

Provided, (a) & (b)** ** **

Provided that where an asset referred to in clause (i) or clause (ii) or clause (iia), as the case may be, is acquired by the assessee during the previous year and is put to use for the purposes of business or profession for a period of less than one hundred and eighty days in that previous year, the deduction under this sub-section in respect of such asset shall be restricted to fifty per cent of the amount calculated at the percentage prescribed for an asset under clause (i) or clause (ii) 1 or clause (iia), as the case may be :–

Provided also & Explanation 1 to Explanation 5** ** **

((iia) in the case of any new machinery or plant (other than ships and aircraft), which has been acquired and installed after the 31-3-2005, by an assessee engaged in the business of manufacture or production of any article or thing, 26(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) :–

Provided………………”

(underline is ours)

*26. Inserted by the Finance Act, 2012, with effect from 1-4-2013.”

12. The relevant clause (iia) of section 32(1) of the Act, as it stands, was substituted by the Finance Act, 2005, applicable with effect from 1-4-2006 and further amended by Finance Act 2012.

13. Clause 7 of the Explanatory Memorandum to Finance Bill 2012 seeks to explain the amendment concerning section 32(1)(iia) of the Act reads as under :–

“Extending benefit of initial depreciation to the power sector

Section 32(1)(iia) provides for allowance of initial depreciation (in addition to normal depreciation) at the rate of 20% of the actual cost on new machinery or plant (other than ships and aircraft) to the assessee engaged in the business of manufacture or production of any article or thing in the year of acquisition and installment. Under the existing provisions, the benefit of initial depreciation is not available on the new machinery or plant installed by an assessee engaged in the business of generation or generation and distribution of power. In order to encourage new investment by the assessees engaged in the business of generation or generation and distribution of power, it is proposed to amend this section to provide that an assessee engaged in the business of generation or generation and distribution of power shall also be allowed initial depreciation at the rate of 20% of actual cost of new machinery or plant (other than ships and aircraft) acquired and installed in a previous year. This amendment will take effect from 1-4-2013 and will, accordingly, apply in relation to the assessment year 2013-14 and sub-sequent assessment years.

(Clause 7)”

14. A bare reading of the Explanatory Memorandum amply spells out the intention of the legislature in no uncertain terms. The Act was amended to grant additional depreciation to an assessee engaged in the business of generation of power which was hitherto not available as understood by legislature. It is also apparent from the Explanatory Note that section 32(1)(iia) has been prospectively amended by Finance Act, 2012 with effect from 1-4-2013 to include the generation or generation and distribution of power within its ambit. With this amendment, the additional deprecation which was hitherto available on acquisition of plant and machinery engaged in the business of manufacture or production of article or thing as per clause (ii) of section 32(1) is now also extended to generation of power. As a necessary concomitant to this insertion with effect from 1-4-2103, the paramount inference to be drawn is that expression ‘manufacture or production of any article or thing’ did not include ‘generation and distribution of power’. The Explanatory Note explains the existing provision of section 32(1)(iia) prior to amendment and the purpose of amendment. The Explanatory Note, reproduced above, in unequivocal terms states that the benefit of additional depreciation is being extended with effect from 1-4-2013 to the power sector which was so far deprived of such benefit. Thus, as per the Explanatory Note, the benefit of additional deprecation is available to acquisition of plant and machinery concerning assessment year 2013-14 on wards. Ostensibly, the Explanatory Note explains the legislative intent. The legislative intent as discernible from the Explanatory note, the benefit of additional depreciation was not specifically extended to the plant and machinery used in power sector until the Finance Act, 2012.

15. We simultaneously notice that Income Tax Rules 1962 were amended to provide for depreciation allowance at a ordinary rate of 15 % instead of existing 80% of actual cost to wind mills installed after 31-3-2012. When seen in this perspective, the rationale to grant the additional depreciation to somewhat compensate these new wind mill owners to mitigate discrimination to some extent is not difficult to appreciate. Thus, amendment in section 32(1)(iia) with a view to grant additional depreciation in the light of scaled down depreciation also gives impetus to the view that the benefit extended under section 32(1)(iia) was not available to existing players and is prospective.

16. We shall also examine the issue from a different perspective. A careful reading of the amended clause (iia) reveals that ‘ a further sum equal to 20% of the actual cost of such machinery or plant shall be allowed as deduction under clause (ii). We take notice that under clause (ii), depreciation is allowed on block of asset while under clause (i), reference is to business of generation of power etc. at prescribed percentages. Thus, power sector is separately categorized. As a corollary, it is seen that the varied depreciation is applicable in the case of assets to an assessee engaged in the power generation business under clause (i) in distinction to other assesses under clause (ii). In view of specific reference to clause (ii) in section 32(1)(iia), it is not possible to overlook that business of generation of power is otherwise catalogued under clause (i) is also taken within the sweep of clause (iia) by virtue of this amendment.

17. Section 32 determines, confers and regulates the right of allowance on account of depreciation to the assessee and is thus a substantive section. The substantive nature is also evident from the fact that deprecation allowance is mandatory and its claim is not left to the option of the assessee. Notably, section 32(iia) grants vested right to claim depreciation over and above normal depreciation. Thus, general rule of prospective application as applicable to a substantive section should apply. It is a trite that a substantive provision in general has no retrospective effect. The transforming amendments of substantive sections are prima facie prospective in nature except where they are made retrospective in operation by specific statement or by necessary implication. Law of prospective application of amendments in statute as noted above is founded on long line of judicial precedents. Some of the decisions noted are CIT v. Gold Coin Health Food (P) Ltd. (2008) 304 ITR 308 (SC); J.K. Synthetics Ltd. v. CTO (1994) 119 CTR (SC) 222; Padmsundara Rao v. State of Tamilnadu (2002) 255 ITR 147 (SC); Reliance Jute & Industries Ltd. v. CIT (1979) 120 ITR 921/2 Taxman 417 (SC).

18. In view of the sub-sequent amendment carried out which explicitly expresses the intention of the legislature in unequivocal terms, read with presence of clause (ii) in exclusion to clause (i), the conclusion is inescapable that the power sector was included in the ambit of 32(iia), and with prospective effect. The intent and effect of amendment is clear. The insertions made towards inclusion of power sector with effect from a particular date underlines the implicit understanding of the legislature that the benefit was not hitherto available. The benefit has been consciously extended to this sector albeit with effect from 1-4-2013. The amendment in Income Tax Rules bringing down the normal deprecation allowance to wind mills also somewhat provides rationale for extending additional depreciation benefit to this sector. In the light of sub-sequent amendment, the scope for interpretation of expression ‘manufacture or production’ of any ‘article’ or ‘thing’ to infer power sector within the ambit of existing provisions prior to amendment, dehors the insertions, as applicable to the assessee is rendered incomprehensible and nugatory. The interpretation suggested by the learned Counsel for Authorised Representative that expression manufacture or production of any article or thing employed in clause (iia) to section 32 is sufficient to cover power section would frustrate the intent of the amendment carried out with a sub-sequent date. It is cardinal position of law that a substantive section is to be applied with from prospective date unless otherwise provided expressly or by necessary implication. When read with ordinary sense, the insertion made seeking to include power sector in the ambit of clause (iia) has clearly widened the scope of the existing benefit from a prospective date and thus cannot be read into the existing provision having regard to the amendment. Thus, the normal presumption of applicability of amendment with a prospective date cannot be disturbed in the light of express intendment now available in this regard.

19. We shall now address ourselves to various judicial decisions extensively quoted by the learned counsel for the assessee, Dr. Pathak relied upon large number of decisions to canvass that the generation of power and distribution is equivalent to manufacture or production of any article or thing. He heavily relied upon the decision of the co-ordinate bench of tribunal in the case of NTPC Ltd. (supra) relevant to assessment year 2005-06. He submitted that as per the aforesaid decision, the power generation and distribution activity tantamounts to manufacture or production of article or thing. Hence, the assessee is entitled to depreciation even under the existing provisions applicable to the relevant assessment years in question. He submitted that the amendment brought by Finance Act 2012 has only removed the ambiguity. On careful perusal, we find that the ITAT in NTPC Ltd. case (supra) was called upon to decide the validity of action by Commissioner under section 263 of the Act wherein the additional deprecation claimed was sought to be withdrawn by exercising revisionary powers by the Commissioner concerned. The scope of determination of issue was thus from a very different perspective. Besides, the coordinate bench was examining the issue with reference to first year of insertion of section 32(iia) of the Act. The ITAT referred to several decision of the apex court to hold that the production of power/energy has all the trappings of articles or goods. The process of its generation is akin to manufacture or production. Interestingly, the ITAT finally concluded that additional depreciation cannot be denied to the assessee merely on the ground that electricity is not an article or thing. Thus, it appears ITAT in NTPC Ltd. case (supra) did not hold that electricity is an article or a thing. This apart, the ITAT did not have the benefit of Explanatory Note to the specific insertion with regard to generation of power etc. Thus, the language employed by the legislature was subjected to interpretation process in the light of judicial precedents. Thus, legislative intent being not available in express terms was sought to be deduced from the language employed. The situation as noted above, has entirely changed with the express legislative intent now available on the issue which seeks to extend the benefit to power section from assessment year 2013-14 on wards. Hence, legislative intent being rendered unambiguous by the Explanatory Note, the decision of the Tribunal is of no avail to the assessee. In short, in NTPC Ltd. case (supra), the tribunal made certain observations without taking into account the all important and manifest legislative intent not present before it. Thus, there is a paradigm shift in the understanding of provision of section 32(1)(iia). The express legislative intention of eligibility of power sector for additional depreciation with prospective effect as discernible from Explanatory Note prospective effect has invalidated the assumption of generation of power as akin to manufacture or production of any article or thing for the purposes of section 32(1)(iia). Similarly the decision rendered by coordinate bench in the case of Avinash Nivrutti Bhosale (supra) has only followed the decision of the tribunal in the case of NTPC Ltd. (supra) which no longer holds the field as a binding precedent. Likewise, the decision arrived at in the case of Hutti Gold mines Co. Ltd. (supra) is without addressing the issue in the light of express legislative intention behind the amendment carried out in Finance Act, 2012. It merely observed that the amendment gives impetus to the view that generation of electricity is a manufacturing process and thus qualifies for benefit under section 32(1)(iia). The distinction between clause (ii) referred to in section 32(1)(iia) qua clause (i) was also not addressed in the decision. In the same vain, other decisions referred to on behalf of the assessee namely M. Satiskumar and D.J. Malpani (supra) has arrived at the conclusion having regard to the existing decisions governing the field without examining the issue in the light of categorical Explanatory Note explaining the purport of amendment. In the wake of aforesaid discussion, it is difficult to perpetuate the findings given in these decisions. Reliance placed on the decision of Jurisdictional High Court in United Western Bank case (supra) is totally in a different context. Reference to Supreme Court decision in the case of Madurai Mills was referred to in that case. It was observed in that case that Explanatory clause was clarificatory in the context of that case. It was observed in that case that deletion of certain exclusionary clause is only clarificatory since the substantive section of section 2(7) of the Interest Tax Act was not amended. The situation is converse here. In the instant case, the substantive section has been amended and with prospective effect. The rationale of amendment is quite clear. Thus, the amendment of substantive section in the wake of categorical legislative intent as available cannot be branded to be of clarificatory nature or retrospective. The submission of the Authorized Representative with reference to decisions rendered in the context of section 43B and 40(a)(ia) wherein the amendment were considered to be clarificatory and thus retrospective is also of no assistance to the assessee. The amendments were made to the machinery provisions to cure the defect and tone down the rigors of law in favour of the assessee. In the instant case on the other hand, the substantive section has been amended to include power sector for the purposes of additional benefit of depreciation. Thus, the amendment only extends the benefit to the power sector with a clear prospective date.

20. In the backdrop of above discussion, We are of the view that the action of the Assessee in claiming additional deprecation under section 32(1)(iia) runs counter to express legislative intention and thus not sustainable in law. Hence, we find no merit in the plea of assessee in this regard. Accordingly, Ground No. 1-3 concerning additional depreciation issue on wind mills purchased during the year are dismissed.

21. In consequence of aforesaid view in the matter, the assessing officer is directed to adjust the ‘actual cost’ of asset suitably and grant relief towards depreciation allowance under section 32(1) of the Act in the sub-sequent assessment years in accordance with law.

22. By Ground No. 4, the Assessee has agitated the action of the Commissioner (Appeals) in restricting depreciation to 10% on cost of temporary approach road and fencing as against the claim of the Assessee @ 80% at par with wind mill itself. The Assessee sought to submit by this ground that the expenses incurred on temporary road and fencing etc. are part and parcel of actual cost of windmill and therefore eligible for accelerated depreciation in parity with windmill. In the course of hearing, the Dr. Pathak fairly admitted that the issue is decided against the assessee in the case of Poonawala Finvest & Agro (P) Ltd. v. Asst. CIT (2009) 27 SOT 47 (URO) (Pune). In view thereof, we also dismiss Ground no. 4 of the appeal.

23. In the result, the appeal of the assessee in ITA No. 1384/PN/2015 relevant to assessment year 2011-12 is dismissed.

ITA No. 1385/PN/2015, assessment year 2012-13 (By Assessee) :–

24. The assessee is raised identical grievance in its appeal in ITA No. 1385/PN/2015 relevant to assessment year 2012-13. The facts and issue in this appeal are identical to facts and issue in ITA No. 1384/PN/2015. Thus, our decision in ITA No. 1384/PN/2015 shall apply mutatis-mutandis to ITA No. 1385/PN/2015.

25. In the result, the appeal of the assessee in ITA No. 1385/PN/2015 relevant to assessment year 2012-13 is also dismissed.

ITA No. 1469/PN/2015, assessment year 2011-12 (By Revenue) :–

26. The solitary issue raised by the Revenue in its appeal is dis allowance of depreciation on costs incurred in relation to installation of windmills to the tune of Rs. 2,78,43,463 made by the assessing officer.

27. Briefly stated, the relevant facts concerning the issue raised by the Revenue are that as per the assessment order the assessing officer disallowed depreciation at higher rate on the civil and electrical work done with installation of the windmills. The assessee made the following submissions before the assessing officer in this regard :–

“4.1) In this year, the assessee had acquired windmills and claimed depreciation @ 80%. The learned assessing officer has held that electrical items and other civil work is not part of windmill and therefore, the assessee is not entitled to claim higher depreciation on the same. The assessee would like to submit that other civil work includes expenditure on fencing, development of approach road and certain other items. While electrical work include items like transformers, wiring etc. in relation to the windmills installed during the year. The assessee contended that these items are a part and parcel of the windmill apparatus and hence, such costs were included in the cost of windmills and accordingly, the assessee has claimed higher depreciation @ 80% in respect of the above items. The learned assessing officer has held that separate rates of depreciation have been prescribed in respect of the items like civil construction and electrical items and hence, the depreciation @ 80% cannot be allowed in respect of such items. Thus, the learned assessing officer has held that the depreciation on cost incurred on development of roads and fencing was to be allowed @ 10% whereas the depreciation on electrical items was to be allowed @ 15% and accordingly, he has made a dis allowance of Rs. 2,78,43,463 in this year.

4.2) The assessee submits that the dis allowance made by the learned assessing officer is not justified. It is submitted that the cost towards development of road, fencing etc. was incurred for the purposes of installation of windmill and hence, it was necessary for functioning of the windmill. It is submitted that the expenditure has to be incurred on these items in order to install the windmill. Thus, these items are also part and parcel of the windmill and therefore, the depreciation at higher rate should be allowed. In this context, the assessee relies upon the Bombay H.C. decision in the case of Herdillia Chemicals Ltd. (216 ITR 742 (Bom))–In this case, Honorable H.C. has held that the expenditure incurred on leveling and development of land for the purpose of erection of plant and machinery formed part of the actual cost of the plant. H.C. held that there is no difference between this expenditure and the expenditure incurred on erection and installation of plant and machinery and allowed the claim of the assessee. In view of the said decision, the assessee submits that the depreciation should be allowed on the other items as well. However, the assessee would like to submit that ITAT, Pune in the case of Poonawalla Finvest (P) Ltd. has decided the issue against the assessee.

4.3) As regards, the claim of higher depreciation on electrical items, the assessee submits that items are in the form of transformers, wiring etc. which are necessary to make the windmill functional. Thus, it is submitted that the above items form part and parcel of the windmill and hence, they are an integral part of the windmills. Accordingly, the assessee submits that the cost of these items has been rightly included in the cost of windmills and thus, the depreciation @ 80% is allowable in respect of the said items. The assessee submits that this issue has been decided in favor of the assessee by ITAT Pune in the case of Poonawalla Finvest (P) Ltd. Hence, the assessee submits that the dis allowance made by the learned assessing officer on electrical items may kindly be deleted.”

28. The Commissioner (Appeals) following the decisions of his predecessor in assessee’s own case and also the order of the Pune Bench of the Tribunal in the case of Poonawala Finvest & Agro (P) Ltd. (supra) decided the issue in favour of the assessee and directed the assessing officer to delete the impugned disallowance.

29. Aggrieved by the order of the Commissioner (Appeals), the Revenue is in appeal before the Tribunal.

30. The learned Departmental Representative for the Revenue relied upon the order of the assessing officer.

31. We find that the controversy in the present case is squarely covered by the recent decision of the Pune Bench of the Tribunal in the case of Shreem Electric Ltd. v. Jt. Commissioner (IT Appeal No. 2107/PN/2013, order date 30-11-2015) wherein the Tribunal has decided the issue in favor of the assessee. The relevant extract of the order of the Tribunal on the issue is reproduced herein below :–

“8. We have carefully considered the orders of the authorities below and submissions made on behalf of the revenue. The only issue for adjudication before us is allow ability of similar depreciation rate as applicable to windmills, also to the ‘foundation & civil work’ and ‘erection & commissioning work’ executed for these windmills. It is the case of the assessee before the assessing officer as well as before the Commissioner (Appeals) that entire expenditure together with cost of windmill is entitled to same rate of depreciation at 80% as the other expenditure incurred towards ‘foundation & civil work’ and ‘erection & commissioning work’, etc. are integral part of windmills and are directly attributable to installation and operational functioning of wind turbine. Since the civil work and erection & commissioning expenses incurred are in relation to installation of windmill, depreciation on the same should be provided at the rate applicable to windmill. We find that the aforesaid assertions made on behalf of the assessee before the Revenue remains uncontroverted. Accordingly, We are of the firm view that the expenses incurred on erection & commissioning, civil work, etc. being necessary adjunct to the windmill and is not meant for any other purposes other than for operational functioning of wind turbine and therefore cannot be treated differently. Therefore, impugned capital expenditure towards civil work & commissioning etc. also will qualify for the same rate of depreciation as applicable to wind turbine itself. The issue is no longer res-integra and is covered by the decision of Co-ordinate Bench of the Tribunal in the case of Poonawala Finvest & Agro (P) Ltd. v. ACIT, (2008) 118 TTJ 68 (Pune) wherein it has been clearly held that the capital expenditure incidental to the windmill has to be tested on the touchstone of the functional test and the assessee will be entitled to higher rate of depreciation on such incidental expenditure, if it has no other use except for power generation done by the windmill. Our view is also supported by another decision of the Co-ordinate Bench of Pune Tribunal in the case of M/s. D.J. Malpani v. ACIT in ITA Nos. 1148 to 1154/PN/2013, order date 30-10-2015. Accordingly, we hold that the Revenue is misdirected itself in law in making the impugned dis allowance of depreciation.”

32. We also find that decision of Pune Bench of the Tribunal in the case of Poonawala Finvest & Agro (P) Ltd. (supra) relied upon by assessing officer infact supports the case of assessee.

33. In the light of the aforesaid precedents on the issue, we find no merit in the Grounds raised by the Revenue. Thus, Revenue fails on its Grounds.

34. In the result, the appeal of the Revenue in ITA No. 1469/PN/2015 relevant to assessment year 2011-12 is dismissed.

ITA No. 1470/PN/2015, assessment year 2012-13 (By Revenue) :–

35. The Revenue has raised identical grievance in its appeal in ITA No. 1470/PN/2015 relevant to assessment year 2012-13. The facts and issue in this appeal are identical to facts and issue in ITA No. 1469/PN/2015. Thus, our decision in ITA No. 1469/PN/2015 shall apply mutatis-mutandis to ITA No. 1470/PN/2015.

36. In the result, the appeal of the Revenue in ITA No. 1470/PN/2015 relevant to assessment year 2012-13 is also dismissed.

37. Resultantly, the aforesaid captioned appeals of the assessee as well as appeals of the Revenue are dismissed.

Ms. Sushma Chowla, Judicial Member–I have carefully gone through the proposed order of learned Brother and I have not been able to agree with the reasoning and conclusion arrived at in the proposed order in respect of grounds of appeal No. 1 to 3. I discussed the issue with him and as I am unable to concur with his conclusion and on the other hand, the learned Accountant Member is not inclined to yield to my suggestion, I therefore, propose to write my separate order only in respect of these three grounds of appeal in ITA Nos. 1384 & 1385/PN/2015.

2. Briefly, the facts relating to the issue vide grounds of appeal No. 1 to 3 raised by the assessee are that the assessee for the year under consideration had made investment under the head ‘Windmill’ totalling Rs. 117,33,88,103. The assessee had claimed additional depreciation to the tune of Rs. 12,62,02,718. The said depreciation was claimed by the assessee on the premise that it was engaged in the manufacture of article or thing and hence, eligible to claim the additional depreciation under section 32(1)(iia) of the Act. Since the electricity produced by operating windmills comes under ‘article’ or ‘thing’, the assessee claimed that it was engaged in the production of article or thing and hence, entitled to claim of additional depreciation under section 32(1)(iia) of the Act. In this regard, the learned Authorized Representative for the assessee placed reliance on the ratio laid down by Pune Bench of Tribunal in Avinash Nivrutti Bhosale (supra), relating to assessment year 2007-08, order dated 27-8-2012. The assessing officer was of the view that the assessee was not engaged in the manufacture of production of article or thing and hence, was not entitled to the claim of additional depreciation on windmill. The assessing officer further observed that the assessee was already enjoying the benefit of higher depreciation @ 80% and in case further additional depreciation of 20% is allowed to the assessee, then the entire 100% of the windmill cost would be allowed as deduction.

3. The Commissioner (Appeals) disallowed the claim of assessee by relying on the amendment to section 32(1)(iia) of the Act, which was inserted with effect from 1-4-2013. The Commissioner (Appeals) was of the view that the business of generation of power has been made eligible for additional depreciation with effect from 1-4-2013. He further held that the amendment was not clarificatory or declaratory, since it does not say ‘for the removal of doubts, it is clarified, etc. that the business of generation of power has been included in the section as new class of business, separate and distinct from the business of manufacture or production of an ‘article’ or ‘thing’. He further pointed out that accelerated depreciation being allowed @ 80% was restricted to windmills installed prior to 31-3-2012 by an amendment in the Income Tax Rules, 2012 and hence, the rationale for the amendment in section 32(1)(iia) of the Act. Since the accelerated depreciation was taken away by the amendment, there was need to holding them as eligible business for claiming additional depreciation, was the rationale of Commissioner (Appeals) in denying the deduction.

4. The learned Authorized Representative for the assessee has stressed that the issue raised in the present appeal is covered by various decisions of Tribunal. Further, it was pointed out by the learned Authorized Representative for the assessee that where it is a case of interpretation of provision, then the amendment is clarificatory in nature, which view had been accepted by the Tribunal in the case of M. Satish kumar (supra), relating to assessment year 2008-09, order dated 28-9-2012 and Hutti Gold Mines Co. Ltd. (supra) in the context of section 32(1)(iia) of the Act and hence, there was no controversy in allowing the claim of assessee. In this regard, he referred to the ratio laid down by the Honorable Bombay High Court in United Western Bank Ltd. (supra) to the proposition that the Courts have taken a view that just because a provision is amended and particular portion is deleted, it does not mean that later on after the amendment, the same view cannot be taken.

5. The issue arising in the present appeal is whether the view taken prior to the amendment that generation of power amounts to production or manufacture of an article or thing is sustainable and the amendment brought to section 32(1)(iia) of the Act was clarificatory and had retrospective application or it was to be applied prospectively. The Honorable Supreme Court in Commissioner of Sales Tax v. Madhya Pradesh Electricity Board AIR 1970 SC 732 vide judgment dated 26-11-1968, copy of which is filed by the learned Authorized Representative for the assessee on record, had held that electricity was goods “for the purpose of imposition of sales tax” under the Sale of Goods Act, 1930. The Honorable Supreme Court had held that the term “movable property” when considered with reference to goods has defined for the purpose of sales tax cannot be taken in a narrow sense and merely because electric energy is not tangible or cannot be moved or touched like for instance, a piece of wood or book, it cannot cease to movable property when it has all products of such property. Where it was capable of abstraction, consumption and use and could be transmitted, transferred, delivered, stored, possessed, etc. in the same way as any other movable property, then electric energy was held to be “goods”. The Honorable Supreme Court further held that since there could be sale and purchase of electric energy like any other movable object, the electric energy was intended to be covered by the definition of “goods”. Similar proposition was further laid down by the Honorable Supreme Court in the case of State of Andhra Pradesh v. National Thermal Power Corporation Ltd. (Civil Appeal No. 3112 of 1990, date 22-4-2002) wherein the Honorable Supreme Court considered what is an electric energy and held the same to be covered by the definition of “goods” under the Sale of Goods Act, 1930.

6. The Delhi Bench of Tribunal in NTPC Ltd. (supra), relating to assessment year 2005-06, order dated 30-4-2012, copy of which is filed on record, while applying the ratio laid down in the aforesaid two decisions by the Hon’ble Supreme Court observed that the expression ‘article, thing or goods’ was not defined in the Income Tax Act, but in case the above said propositions are applied, then it would suggest that electric energy had all trappings of article or goods. The Tribunal further held that the process of its generation is also akin to manufacture or production of an article or thing. Applying the said ratios, the Delhi Bench of Tribunal held that the admissibility of additional depreciation could not be denied to the assessee merely on the ground that the electricity was not an article or thing. In the facts of the case before the Delhi Bench of Tribunal, the Commissioner while exercising his powers under section 263 of the Act, had denied the additional depreciation to the assessee on the ground that it was not engaged in the manufacture of any article or thing. The said order of the Commissioner was reversed by the Tribunal and the dis allowance made by the Commissioner was deleted. It is not a case where the Commissioner in exercise of his revisionary powers under section 263 of the Act had not decided the issue, but had by his order withdrawn the additional depreciation claimed by the assessee, which was allowed to the assessee by the assessing officer.

7. The Pune Bench of Tribunal in Shri Avinash Nivrutti Bhosale (supra) had in turn, relied on the ratio laid down by the Delhi Bench of Tribunal in NTPC Ltd. (supra) and had also applied the principle laid down by the Hon’ble Supreme Court in Madhya Pradesh Electricity Board (supra) and held that electricity was an article or thing as contemplated under section 32(1)(iia) of the Act for the purpose of additional depreciation. The copy of the said order is placed on record. The Tribunal applying the ratio laid down by the co-ordinate Bench in the case of NTPC Ltd. (supra) had allowed the claim of assessee of additional depreciation under section 32(1)(iia) of the Act.

8. Further, the Chennai Bench of Tribunal in M. Satish Kumar (supra), relating to assessment year 2008-09, vide order dated 28-9-2012, copy of which is filed in Paper Book, had also considered the issue of grant of additional depreciation on the windmill installed during the relevant assessment year, wherein the issue was decided by the Tribunal in favor of the assessee by following judgments of Hon’ble Madras High Court in CIT v. Hi Tech Arai Ltd. (2010) 321 ITR 477 and the CIT v. Texmo Precision Castings (2010) 321 ITR 481 (Mad.). In the facts of the case before the Chennai Bench of Tribunal, the assessee was operating the windmill for generation of electricity and had installed its first windmill in the year 2005. The assessee claimed additional depreciation on the second windmill in the year under appeal and relied on the ratio laid down by the Hon’ble Supreme Court in Madhya Pradesh Electricity Board (supra), wherein it was held that electricity falls within the definition of goods as defined under Sale of Goods Act, 1930. Further, reliance was placed on the ratio laid down by the Hon’ble Supreme Court in State of National Thermal Power Corporation Ltd. (supra). Reliance was also placed on the decision of Delhi Bench of Tribunal in NTPC Ltd. (supra) and it was pointed out that the term ‘production and generation’ could be used interchangeably in the case of electricity and generation of electricity can also be termed as production of electricity. Further, reference was made to the judgment in the case of India Cine Agencies v. CIT (2009) 308 ITR 98 (SC), wherein it is held that the term production and manufacture signifies the same meaning, rather the word ‘production’ has wider connotation than the word ‘manufacture’. The Tribunal vide para 9 in view of the judgments observed that generation of electricity was akin to manufacturing of new product. In line with the other decisions of Tribunal and in view of the propositions laid down by the Hon’ble Supreme Court in Madhya Pradesh Electricity Board (supra), the Tribunal held that the generation of electricity was a manufacturing activity and since the assessee was involved in the manufacturing activity, fulfils the conditions as laid down under section 32(1)(iia) of the Act. The Tribunal vide para 10 noted that the Government vide Finance Act, 2012 had amended the provisions of section 32(1)(iia) of the Act to include business of generation or generation and distribution of power, eligible for the benefit under section 32(1)(iia) of the Act. The Tribunal further observed that although the said amendment was with effect from 1-4-2013, but it gave impetus to the view that generation of electricity was a manufacturing process and qualifies for the benefit under section 32(1)(iia) of the Act. In other words, the Tribunal recognizes the fact that established view was that generation of electricity was manufacturing process which qualified for the benefits under section 32(1)(iia) of the Act and the amendment brought in to the said sub-section with effect from 1-4-2013 gave impetus to the said view.

9. The Bangalore Bench of Tribunal in Hutti Gold Mines Co. Ltd. (supra) vide order dated 2-8-2013, on an issue of claim of additional depreciation on windmill relating to assessment year 2008-09 held that where power generation through windmill was the second line of business of the assessee company, the power generated by the windmill was product of the assessee company and it was covered under the word ‘article’ or ‘thing’ which is tradable/identifiable. In other words, electricity falls within definition of Sale of Goods Act, 1930 and process of generation of electricity is akin to manufacture or production or an ‘article’ or ‘thing’. The Tribunal also noted that the use of electricity in the manufacturing activity of core business of the assessee i.e., mining and extraction of gold, was not a pre-condition for the grant of additional depreciation under the Stature. Vide para 7.1, the Tribunal held that the amendment brought about in section 32(1)(iia) of the Finance Act, 2012 to include the business of generation and distribution of power to the benefit of additional depreciation is only clarificatory. The Tribunal then relied upon similar view having been taken by the Chennai Bench of Tribunal in M. Satishkumar (supra). Further, vide para 7.2, the Tribunal observed that the plea of the Revenue raised in ground of appeal No. 3 was also devoid of merits since in the relevant previous year i.e., the year in which windmills were installed, the assessee was entitled to depreciation only @ 80%. It was further held that the assessee would not have been entitled to additional depreciation, if the assessee was eligible for 100% depreciation.

10. Another decision relied upon by the learned Authorized Representative for the assessee is of Pune Bench of Tribunal in D.J. Malpani (supra), relating to assessment years 2004-05 to 2010-11 and cross appeals filed by the Revenue in ITA Nos. 1183 to 1188/PN/2013, D.J. Malpani case (supra),relating to assessment years 2005-06 to 2010-11, order dated 30-10-2015, wherein in ITA No. 1184/PN/2013, relating to assessment year 2006-07 in an appeal filed by the Revenue, the issue regarding claim of additional depreciation arose before the Tribunal. The first objection of the assessee was that no such disallowance was warranted since no incriminating material was found during the course of search or post search enquiries. The Tribunal upheld the order of Commissioner (Appeals) in this regard. Further, the Tribunal also considered the issue on merits and held that the said issue is decided in favour of the assessee by the Hon’ble Madras High Court in CIT v. VTM Ltd. (2009) 319 ITR 336. Further, reliance was placed on the decision of Chennai Bench of Tribunal in M. Satish Kumar (supra). Reference was also made to the ratio laid down by the Hon’ble Supreme Court in Madhya Pradesh Electricity Board (supra) and the decision of Delhi Bench of Tribunal in the case of NTPC Ltd. (supra), wherein it is held that generation of electricity was manufacturing activity and the assessee was eligible for additional depreciation under section 32(1)(iia) of the Act. In view thereof, the Tribunal decided the issue in favour of the assessee.

11. In such scenario, where different Benches of Tribunal have considered the amendment to the provisions of section 32(1)(iia) by the Finance Act, 2012, it cannot be said that the Bench has not considered the Explanatory Memorandum to Finance Bill, 2012. The amendment to section 32(1)(iia) of the Act itself says that the same is applicable with effect from 1-4-2013, but the co-ordinate Benches of Tribunal have held that the said amendment is clarificatory or giving impetus to the view that the additional depreciation is allowable to windmills since it is engaged in the production of an ‘article’ or ‘thing’. First, the issue was decided by Chennai Bench of Tribunal in M. Satishkumar (supra) which in turn, relied upon the ratio laid down by the Hon’ble Supreme Court in Madhya Pradesh Electricity Board (supra), wherein the Hon’ble Supreme Court held that electricity falls within the definition of goods as defined under the Sale of Goods Act, 1930. Further, the Hon’ble Supreme Court in State of Andhra Pradesh (supra) had further held that in the case of electricity, the property whereof, is that production (generation, transmission, delivery and consumption or simultaneous), instantaneously. The Hon’ble Supreme Court further held that electricity as goods comes into existence and is consumed simultaneously and the event of sale in the sense of transferring property in the goods merely intervenes as a step between generation and consumption. Following the above said proposition, the Tribunal had held that generation of electricity was akin to manufacture of a new product and where the assessee was involved in manufacturing activity and fulfils the conditions as laid down under section 32(1)(iia) of the Act, it was entitled to the additional depreciation. The Tribunal further held that the amendment to section 32(1)(iia) by the Finance Act, 2012 was with effect from 1-4-2013, but it gave impetus to the view that generation of electricity is a manufacturing process and qualifies for benefits under section 32(1)(iia) of the Act. The Bangalore Bench of Tribunal in Hutti Gold Mines Co. Ltd. (supra) had held that the said amendment is clarificatory in nature.

12. Both these decisions of Chennai Bench of Tribunal and Bangalore Bench of Tribunal were pronounced after considering the amendment and merely because they do not refer to Memorandum explaining the clauses of Finance Act, 2012 does not imply that the same has not been considered, where the amendment by the Finance Act, 2012 to section 32(1)(iia) of the Act provides that the aforesaid additional depreciation is available to persons who are engaged in the business of generation or generation and distribution of power in addition to the persons who are engaged in the business of manufacture or production of any ‘article’ or ‘thing’. The insertion made by the Finance Act, 2012 to the existing provisions of section 32(1)(iia) of the Act are clarificatory and it is wrong to say that the assessee would be entitled to claim the said additional depreciation in respect of windmills only after insertion made by the Finance Act, 2012 with effect from 1-4-2013. The view of the Hon’ble Madras High Court in Hi Tech Arai Ltd. (supra) and the Texmo Precision Castings (supra) was to allow the additional depreciation on the ground that electricity generation/production was akin to manufacture of an ‘article’ or ‘thing’. The said proposition was applied by the Delhi Bench of Tribunal in NTPC Ltd. (supra), Chennai Bench of Tribunal in M. Satishkumar (supra) and Bangalore Bench of Tribunal in Hutti Gold Mines Co. Ltd. (supra) and also Pune Bench of Tribunal in Avinash Nivrutti Bhosale (supra) and D.J. Malpani (supra). In such scenario, once different Benches of Tribunal have taken consistent view on allowability of additional depreciation under section 32(1)(iia) of the Act prior to 1-4-2013, there is no occasion to deviate from the same especially in view of recent decision of Hon’ble Bombay High Court in HDFC Bank Ltd. v. Dy. CIT (2016) 383 ITR 529. The jurisdictional High Court laid down the principle that there is no such thing as estoppel in law and by virtue of that (Tribunal) gives itself a licence to decide the issue before it ignoring the binding precedent in the petitioner’s own case in CIT v. HDFC Bank Ltd. (2014) 366 ITR 505 (Mag.) (Bom). The Hon’ble High Court further held that Once there is a binding decision of this court, the same continues to be binding on all the authorities within the State till such time as it stayed and/or set aside by the apex court or this very court takes a different view on an identical factual matrix or larger Bench of this court takes a view different from the one already taken. Further, it was held by the Hon’ble High Court as under:–

“23. We are conscious of the fact that we are fallible and, therefore, an order passed by us may not meet the approval of all and some may justifiably consider our order to be incorrect. However, the same has to be corrected/rectified in a manner known to law and not by disregarding binding decisions of this court. In fact our court in Panjumal Hassomal Advani v. Harpal Singh Abnashi Singh Sawhney, AIR 1975 Bom 120 has observed that a co-ordinate bench cannot refuse to follow an earlier decision on the ground that it is incorrect and/or rendered on misinterpretation. This for the reason that the decision of a co-ordinate bench would continue to be binding till it is corrected by a higher court. This principle laid down in respect of a co-ordinate court would apply with greater force on subordinate courts and Tribunals. We are also conscious of the fact that we are not final and our orders are subject to appeals to the Supreme Court. However, for the purposes of certainty, fairness and uniformity of law, all authorities within the State are bound to follow the orders passed by us in all like matters, which by itself implies that if there are some distinguishing features in the matter before the Tribunal and, therefore, unlike, then the Tribunal is free to decide on the basis of the facts put before it. However till such time as the decision of this court stands it is not open to the Tribunal or any other Authority in the State of Maharashtra to disregard it while considering alike issue. In case we are wrong, the aggrieved party can certainly take it up to the Supreme Court and have it set aside and/or corrected or where the same issue arises in a sub-sequent case the issue may be reurged before the court to impress upon it that the decision rendered earlier, requires reconsideration. It is not open to the Tribunal to sit in appeal from the orders of this court and not follow it. In case the doctrine of precedent is not strictly followed there would be complete confusion and uncertainty. The victim of such arbitrary action would be the rule of law of which we as the Indian State are so justifiably proud.”

13. The Hon’ble High Court directed the Tribunal not to disregard the binding decision of High Court, wherein a view has been taken on identical issue arising before it. The Hon’ble High Court was of the view that unless the Tribunal follows its discipline, it could result in uncertainty of the law and confusion among the taxpaying public as to what are the obligations under the Act. Besides opening the gates for arbitrary action in the administration of law, as each authority would then decide disregarding the binding precedents leading to complete chaos and anarchy in the administration of law. The dictate of the Hon’ble Bombay High Court following the earlier decision in Panjumal Hassomal Advani v. Harpal Singh Abnashi Singh Sawhney AIR 1975 Bom. 120 is that consistency is to be maintained where facts and issue are same. Thus, coordinate bench cannot refuse to follow earlier decision on the ground that it is incorrect and/or rendered on mis-interpretation. In other words, judicial propriety demands that where an issue has been earlier decided by Pune Bench of Tribunal and has also been decided by the other Benches of Tribunal and where the factual and legal aspects are same, no deviation should be made on any pretext and in not applying the ratio already taken.

14. Further, I find that the Hon’ble Madras High Court vide judgment dated 17-3-2015 in CIT v. Atlas Export Enterprises (2015) 373 ITR 414 while deciding an identical issue relating to assessment year 2006-07 of allowability of additional depreciation has allowed the claim of assessee by relying on its earlier decision in Hi Tech Arai Ltd. (supra) and VTM Ltd. (supra). In other words, the above said decisions of Hon’ble Madras High Court which had been applied by Chennai Bench of Tribunal in M. Satishkumar (supra) rules till today. The said decision of Hon’ble Madras High Court in Atlas Export Enterprises (supra) was not relied upon in the present case and I am drawing the support from the said ratio that even after insertion of the amendment to section 32(1)(iia) of the Act by the Finance Act, 2012, the persons engaged in running windmills are entitled to the claim of additional depreciation. It cannot be said that the Hon’ble High Court was not aware of the amendment and/or Memorandum explaining the amendment by the Finance Act, 2012. Where the issue is covered by the decision of Pune Bench of Tribunal as well as other Benches i.e., Chennai, Bangalore and Delhi, which have been relied upon by the assessee and in the absence of any adverse decisions by the Tribunal or any ratio laid down by any higher forum, the decisions of coordinate Bench are binding and judicial propriety demands that the same is to be followed. Accordingly, I hold that the assessee is entitled to claim additional depreciation under section 32(1)(iia) of the Act. The thrust has been placed on the amendment to clause (ii) of section 32(1)(iia) of the Act, which is misplaced. Accordingly, the grounds of appeal No. 1 to 3 raised by the assessee merits to be allowed.

15. Before parting, I may also address the proposition of learned Accountant Member to the extent as to the effect of amendment to section 32(1)(iia) of the Act, which is prospectively amended by the Finance Act, 2012 with effect from 1-4-2013. In the paras hereinabove, I have already held that the said amendment is clarificatory in nature and it gave impetus to the view already established that the persons who are engaged in the business of generation and distribution of electricity or engaged in the business of manufacturing or production of any ‘article’ or ‘thing’. The above said proposition was an accepted proposition and was applied in allowing additional depreciation in the hands of different assessees by different Benches of Tribunal. The Hon’ble Madras High Court has also allowed the additional depreciation in the hands of assessee in the cases of Hi Tech Arai Ltd. (supra) and VTM Ltd. (supra). The amendment which has been made to section 32(1)(iia) of the Act has clarified the legal position which was propounded earlier on the said issue. Where an amendment is made to support an interpretation which is made earlier by the Courts, then the amendment is clarifying the legal decision. In this regard, the learned Authorized Representative for the assessee has placed reliance on the decision of jurisdictional High Court in the case of United Western Bank Ltd. (supra), wherein a reference was made to the decision of Hon’ble Supreme Court in the case of CIT v. Madurai Mills Co. Ltd. (1973) 89 ITR 45. The perusal of the said decision which is placed at pages 41 and 42 of legal compilation reveals that the question which arises before the apex court for determination was the interpretation of section 12B(1) of Indian Income Tax Act, 1922. The question was whether on liquidation, distribution of assets amounts to transaction of transfer so as to attract section 12B of the Indian Income Tax Act, 1922. It was held by the apex court that the said question dealt with distribution of assets of the company in liquidation and on liquidation, such distribution did not amount to transfer the revenue. In that case Revenue had raised a proposition that prior to Finance (No. 3) Act, 1956, there was a proviso to section 12B(1) of the Indian Income Tax Act, 1922, under which distribution of capital assets on liquidation of a company was expressly excluded from the transfer, but when the said exclusionary clause was deleted, then the intent of Legislature was to treat the distribution of capital assets on liquidation of the company as a transfer. The said proposition raised by the Revenue was rejected by the Hon’ble Supreme Court and it was held that the said exclusionary clause was in the nature of clarification and its deletion did not affect the main section 12B(1) of Indian Income Tax Act, 1922. The apex court held that the proviso was only introduced by the Parliament by way of abundant caution. Applying the said proposition, the Hon’ble Bombay High Court in United Western Bank Ltd. (supra) held that under the main section 2(7) of the Interest Tax Act, 1974, the word interest meant interest on loans and advances and not interest on securities/debentures and therefore, deletion of exclusionary clause by the Finance (No. 2) Act, 1991 had no consequences on the main section 2(7) of the Interest Tax Act. The exclusionary clause which existed prior to October, 1991 provided that the interest on securities was to be excluded. The case of the Revenue before the Hon’ble Bombay High Court was that once the exclusionary clause was deleted, it indicates that the intention of Legislature was to tax interest on securities. The Hon’ble Bombay High Court in such scenario held that the exclusionary clause which existed prior to October, 1991 was only clarificatory in nature and the same was introduced out of abundant caution and its deletion had no effect to section 2(7) of the Act. Applying the said ratio to the facts of the present case, I hold that insertion by the Finance (No. 2) Act, 2012 does not affect the main section i.e., allowing the additional depreciation on manufacture of an ‘article’ or ‘thing’, under which the production/generation of electricity is squarely covered by applying the principles laid down by the Hon’ble Supreme Court in Madhya Pradesh Electricity Board (supra). The amendment was introduced by way of abundant caution, which had no effect on the main provision and was clarificatory in nature.

16. Another aspect in this regard is the introduction of second proviso under section 40(a)(ia) of the Act by the Finance Act, 2012 with effect from 1-4-2013, which in series of case laws is held to be clarificatory in nature and is to be applied retrospectively to all the pending decisions. Accordingly, I hold that the issue raised by way of grounds of appeal No. 1 to 3 is to be allowed in favour of the assessee, in view of the guiding principles laid down by the Hon’ble Supreme Court in Madhya Pradesh Electricity Board (supra), NTPC Ltd. (supra) and further is squarely covered by the ratio laid down by the Hon’ble Madras High Court in Hi Tech Arai Ltd. (supra) and VTM Ltd. (supra) and further covered by Pune Bench of Tribunal in Shri Avinash Nivrutti Bhosale (supra) and D.J. Malpani (supra) and also the Chennai Bench of Tribunal in M. Satishkumar (supra) and Bangalore Bench of Tribunal in Hutti Gold Mines Co. Ltd. (supra) which has decided the issue after insertion by the Finance Act, 2012.

17. On due consideration of issue raised, the grounds of appeal No. 1 to 3 raised by the assessee deserved to be allowed.

Reference under section 255(4) of Income Tax ACT, 1961

On a difference of opinion between the Members constituting the aforesaid Bench, three questions are to be referred by virtue of section 255(4) of the Income Tax Act for the esteemed view of a Third Member as follows:–

“1. In the facts and circumstances of the case, whether the issue of claim of additional depreciation under section 32(1)(iia) of the Income Tax Act is settled and covered in favour of the assessee and hence, the same is to be applied for deciding the issue.

2. In order to maintain consistency, whether it is incumbent upon the Tribunal to follow the settled judicial precedents?.

3. In the facts and circumstances of the case, whether the assessee is entitled to the claim of additional depreciation under section 32(1)(iia) of the Income Tax Act, in view of amendment by Finance Act, 2012 for assessment years 2011-12 & 2012-13”

Reference under section 255(4) of the Income Tax Act, 1961

In my humble opinion, following questions are pertinent to be referred to Hon’ble Third Member in terms of section 255(4) of the Act for esteemed opinion on subject matter of appeals.

1. Whether generation of power through wind mill assets acquired by the Assessee falls within the connotations of expression ‘manufacture or production of any article or thing’ as provided under section 32(1)(iia) for the relevant assessment years namely assessment year 2011-12 & assessment year 2012-13 in view of express legislative insertions made by Finance Act 2012 to extend & include activity of generation of power with effect from 1-4-2013 relevant to assessment year 2013-14 onwards.

2. In view of the express legislative intention spelt out in the Explanatory Memorandum to Finance Bill, 2012 with reference to proposed legislative alterations in section 32(1)(iia), whether the benefit of initial depreciation/additional depreciation under section 32(1)(iia) could be extended to assets acquired towards activity of generation of power for the period prior to assessment year 2013-14.

3. Whether the provisions of section 32(1)(iia) are in the nature of substantive provision or merely a procedural one ? and, if held substantive, whether the legislative amendment extending benefits to power sector under the aforesaid provision are prospective in nature or can it be applied retrospectively by holding the insertions made therein with effect from 1-4-2013 to be clarificatory in nature.

4. Whether in the facts and in the circumstances of the case, the legislative intention is required to be gathered from the language employed in Explanatory Memorandum or to be derived from judicial interpretations particularly when none of decisions cited has made any reference to aforesaid ‘Explanatory Memorandum’ for decision making purposes.

5. Whether in the facts and the circumstances of the case, can it be presumed that co-ordinate benches of Tribunals cited have impliedly considered Explanatory Memorandum when there is no reference made to this effect in the decisions of the co-ordinate benches while adjudicating the issue.

6. Whether judicial interpretations relied upon to include generation of power within the ambit of ‘manufacture or production of any article or thing’ per se even without the aid of sub-sequent insertions made to this effect stands contrast to the understanding of legislature in the light of sub-sequent amendment and if yes, whether legislative intention as spelt in Explanatory Memorandum will take precedence over the judicial interpretation so made without reference to Explanatory Memorandum?

7. Whether benefit of additional depreciation is restricted to assets referred to in clause (ii) of section 32(1) in exclusion to assets referred to in clause (i) prior to express inclusion of power sector in section 32(1)(iia) itself with effect from assessment year 2013-14.

8. Whether the judicial decisions rendered without deliberation on the effect of clause (ii) on allowability of deduction under section 32(1)(iia) can be viewed as sub-silentio and consequently not a binding precedent ?

9. Whether reduction of depreciation allowance eligible to wind mill assets to bring these assets at par in the realm of normal rate by Income Tax Rules 1962 for assets installed in financial year 2012-13 onwards and simultaneous & corresponding grant of additional depreciation to power sector also serves as an indicator of legislative intention to pour benefit of section 32(1)(iia) hitherto not available with a prospective date.

10. Whether in the totality of facts and the circumstances of the case and in law, the Assessee is entitled to benefit of additional deprecation under section 32(1)(iia) on the activities concerning generation of power through wind mills for the assessment year 2011-12 & assessment year 2012-13.

Statement under section 255(4) of the Income Tax Act, 1961

“Whether in the facts and circumstances of the case assessee is entitled to the claim of additional depreciation under section 32(1)(iia) of the Income Tax Act, 1961.”

Third Member Order

Dev Darshan Sud, President (As a Third Member)

This reference under section 255(4) of the Income Tax Act, 1961, was put up before me for adjudication on two different set of questions-one framed by the learned Judicial Member and the other by the learned Accountant Member.

2. The first set of questions framed by the Hon’ble JM read as under:–

“1. In the facts and circumstances of the case, whether the issue of claim of additional depreciation under section 32(1)(iia) of the Income Tax Act is settled and covered in favour of the assessee and hence, the same is to be applied for deciding the issue.

2. In order to maintain consistency, whether it is incumbent upon the Tribunal to follow the settled judicial precedents?.

3. In the facts and circumstances of the case, whether the assessee is entitled to the claim of additional depreciation under section 32(1)(iia) of the Income Tax Act, in view of amendment by Finance Act, 2012 for assessment years 2011-12 & 2012-13”

3. The second set of questions framed by the Hon’ble AM has as many as ten questions, which read as under:–

1. Whether generation of power through wind mill assets acquired by the Assessee falls within the connotations of expression ‘manufacture or production of any article or thing’ as provided under section 32(1)(iia) for the relevant assessment years namely assessment year 2011-12 & assessment year 2012-13 in view of express legislative insertions made by Finance Act 2012 to extend & include activity of generation of power with effect from 1-4-2013 relevant to assessment year 2013-14 onwards.

2. In view of the express legislative intention spelt out in the Explanatory Memorandum to Finance Bill, 2012 with reference to proposed legislative alterations in section 32(1)(iia), whether the benefit of initial depreciation/additional depreciation under section 32(1)(iia) could be extended to assets acquired towards activity of generation of power for the period prior to assessment year 2013-14.

3. Whether the provisions of section 32(1)(iia) are in the nature of substantive provision or merely a procedural one ? and, if held substantive, whether the legislative amendment extending benefits to power sector under the aforesaid provision are prospective in nature or can it be applied retrospectively by holding the insertions made therein with effect from 1-4-2013 to be clarificatory in nature.

4. Whether in the facts and in the circumstances of the case, the legislative intention is required to be gathered from the language employed in Explanatory Memorandum or to be derived from judicial interpretations particularly when none of decisions cited has made any reference to aforesaid ‘Explanatory Memorandum’ for decision making purposes.

5. Whether in the facts and the circumstances of the case, can it be presumed that co-ordinate benches of Tribunals cited have impliedly considered Explanatory Memorandum when there is no reference made to this effect in the decisions of the co-ordinate benches while adjudicating the issue.

6. Whether judicial interpretations relied upon to include generation of power within the ambit of ‘manufacture or production of any article or thing’ per se even without the aid of sub-sequent insertions made to this effect stands contrast to the understanding of legislature in the light of sub-sequent amendment and if yes, whether legislative intention as spelt in Explanatory Memorandum will take precedence over the judicial interpretation so made without reference to Explanatory Memorandum?

7. Whether benefit of additional depreciation is restricted to assets referred to in clause (ii) of section 32(1) in exclusion to assets referred to in clause (i) prior to express inclusion of power sector in section 32(1)(iia) itself with effect from assessment year 2013-14.

8. Whether the judicial decisions rendered without deliberation on the effect of clause (ii) on allowability of deduction under section 32(1)(iia) can be viewed as sub-silentio and consequently not a binding precedent ?

9. Whether reduction of depreciation allowance eligible to wind mill assets to bring these assets at par in the realm of normal rate by Income Tax Rules 1962 for assets installed in financial year 2012-13 onwards and simultaneous & corresponding grant of additional depreciation to power sector also serves as an indicator of legislative intention to pour benefit of section 32(1)(iia) hitherto not available with a prospective date.

10. Whether in the totality of facts and the circumstances of the case and in law, the Assessee is entitled to benefit of additional deprecation under section 32(1)(iia) on the activities concerning generation of power through wind mills for the assessment year 2011-12 & assessment year 2012-13.

4. Having gone through these questions, I must express my surprise that the entire case has been turned into a judicial mine field when numerous questions have been framed. I would have thought that in law difference should have been limited to the point of law involved, but I find that the question after question has been framed which would not serve the intent and purpose of section 255(4). In any event after going through the entire records, I find the following question is admitted for adjudication:–

“Whether in the facts and circumstances of the case assessee is entitled to the claim of additional depreciation under section 32(1)(iia) of the Income Tax Act, 1961.”

5. Learned Counsel for the assessee relies upon the decision of the Madras High Court in the case of Atlas Export Enterprises (supra), wherein the Hon’ble High Court of Madras considered the provisions of section 32(1)(iia) of the Act holding that the power generated by windmill was entitled to the benefit of depreciation as contemplated by section 32(1)(iia) as aforesaid. The Court holds–

** ** **

6. The facts in the present case are no different from the above-said decision. In the present case, the core business of the assessee is manufacturing and export of textile goods. During the assessment year 2006-07, the assessee had entered into the business of generation of power and installed one windmill. The assessee maintained separate books of account for export division and the windmill division. Since the claim of additional depreciation has to be seen in the context of generation of power through windmill only and the production of textile and its export has nothing to do with the generation of power for the purpose of considering additional depreciation. Further as rightly held by the Tribunal, the Revenue has not brought in any new or contra material to differ from the view of this Court in the decision reported in (2010) 321 ITR 477 (Mad) (CIT v. Hi Tech Arai Ltd.).

7. Accordingly, following the above-said decision of the Court, we find no infirmity in the order passed by the Tribunal. We, therefore, do not find any question of law much less substantial question of law to entertain these appeals.” (page 417)

6. The question before the Honorable Court was–”Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the generation of electricity by windmill amounts to production of an article or thing and consequently holding that the assessee is entitled for additional depreciation as per section 32(1)(iia)?”

7. The learned Departmental Representative submitted that such benefit should not be allowed because of specific amendment have been enacted sub-sequent to the year in question. In view of the decision of the Honorable High Court, I do not find it necessary to consider the other decisions of various benches of this Tribunal.

8. I do not find this to be a legitimate argument in view of what the Honorable High Court of Madras decides. The case is therefore answered in the affirmative that the assessee is entitled to claim additional benefit of depreciation under section 32(1)(iia) of the Income Tax Act.

Ms. Sushma Chowla, Judicial Member–On account of difference between the Members constituting the Bench, following issues were referred to the Third Member:–

“Whether in the facts and circumstances of the case assessee is entitled to the claim of additional depreciation under section 32(1)(iia) of the Income Tax Act, 1961.”

2. The Honorable President sitting as Third Member has agreed with the view taken by the Judicial Member on the said issue. Therefore, based on the majority view, ground-wise results of the appeals filed by the assessee and Revenue are as follows:–

ITA Nos. 1384 & 1385/PUN/2015

(1) Grounds of appeal No. 1 to 3 relating to claim of additional depreciation under section 32(1)(iia) of the Act, following the majority view, is allowed.

(2) Ground of appeal No. 4 raised by the assessee in restricting the depreciation to 10% on cost of temporary approach road and fencing, in view of admission of assessee is decided against the assessee following the ratio laid down in Poonawala Finvest & Agro (P) Ltd. 118 TTJ 68.

ITA Nos. 1469 & 1470/PUN/2015

(1) The solitary issue raised in both the appeals is against allowance of depreciation on cost incurred on installation of windmills is decided in favor of assessee, in view of ratio laid in Poonawala Finvest & Agro (P) Ltd. (supra).

3. In the result, both the appeals of assessee are partly allowed and the appeals of Revenue are dismissed.

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