Factory supervisors should be informed that no item of equipment should be retired from use without prior executive approval on a serially numbered retirement work order. Where R = Rate of Depreciation (in %) 4. 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. Contact us below for help determining whether a depreciation study would be useful for your utility. 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. This view was again reiterated by the Supreme Court in the case of National Thermal Power Corpn. The learned AR reiterated the arguments advanced before the learned CIT. 247,36,00,558. COVID-19 ALERT: All Aldrich office locations are currently closed until further notice. ), Dy. It is well settled that for the purpose of manufacture, an element of transformation is a pre- requisite. Often overlooked is the significance of the depreciation expense, the effect it can have on the rate base, and, therefore, the overall return on the utility’s investment. 5. In certain types of analysis, they also provide graphical tools, such as those shown below, to compare the utility’s asset experience with potential mortality curves so the best life projection can be chosen. Every electricity company is required to maintain a contingencies reserve. From the date this Schedule comes into effect, the carrying amount of the asset as … Hence the apex court decision in the case of CIT v. Amitabh Bachchan also would not advance the case of the revenue in the facts and circumstances of the case. 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 :–. 6,37,45,348 which, in his opinion, could be granted only with effect from assessment year 2013-14 as the assessee was engaged in the business of generation and distribution of electricity pursuant to the amendment brought in by the Finance Act, 2012 in section 32(1)(iia) of the Act. We find that the decisions of the Hon’ble Madras High Court and Delhi Tribunal supra involving identical facts were very much available in the public domain prior to the date on which the assessment was framed by the learned assessing officer on 28-3-2014 granting allowance of additional depreciation under section 32(1)(iia) of the Act and hence it could be safely concluded that the learned assessing officer had followed one of the course permissible in law. Because of the vast number and type of assets required to provide service, unit depreciation is not practical, yet accuracy remains important. According to Section 32AD, a new deduction of 15% on new plant and machinery in the year of installation and not in the year of purchase. CIT (ITAT Kolkata). If the cost of productionProduct CostsProduct costs are costs that are incurred to 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.’. CIT v. Hutti Gold Mines Co. Ltd. (2013) 60 SOT 147 (Bang.-Trib.). depreciation expense. In order to address the “prediction problem,” a commonly accepted solution is the use of the mortality curves that apply to utility plant. 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. 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. What’s the Right Corporate Structure for Your Organization? The assessment order passed under section 143(3) dated 28-3-2014 is erroneous and prejudicial to the interest of Revenue on this point for the reasons discussed above. 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. 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. 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. 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 assessee replied to the learned CIT in response to show cause notice that section 32(1)(iia) has come in force with effect from 1-4-2005 provides that any assessee which is engaged in the business of manufacture or production of any article or thing is entitled to claim additional depreciation @ 20% of the actual cost in respect of new machinery or plant acquired and installed in the relevant previous year. If the asset is used for more than a period of 180 days, then the additional depreciation permissible is 17.5%. 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. If the company depreciates the asset over the 12 ... electricity, rates of depreciation prevail over the Schedule XIV to the Companies Act. 20,35,78,496. We find that the learned CIT had changed his track from originally stating that the order passed by the learned assessing officer had incorrectly applied the provisions of section 32(1)(iia) of the Act for the assessment year 2011-12, to ‘lack of inquiry’ on the part of the learned assessing officer with regard to the claim of additional depreciation. 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. 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. MACRS Solar Depreciation: In the said order the CIT held the assessing officer’s order granting additional deprecation to be erroneous on the ground that the assessee was not engaged in the business of manufacture or production of any article or thing. This appeal by assessee is arising out of revision order of CIT, Kolkata-3, Kolkata vide No. 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. 6.1. 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 provide this service to our utility clients, Aldrich is in the final stages of development of a data driven depreciation model. 517 (Kol.) Hence passing an assessment order by following the various judicial decisions would not in any manner make the assessment order erroneous. Accordingly, In the case of Agarwal Transformers P.Ltd the Tribunal allowed higher depreciation @ 30% on the reasoning that generator is a renewable energy device. 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. in books of accounts-reg, Gujarat HC rejects TAR/ITR due date date extension writ applications. Similar view was also taken by the Bangalore Tribunal in the case referred supra. In a business venture, the major determinant of whether there will be continuity or discontinuity is cost. 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. Total additional depreciation under section 32(1)(ii) was found to have been claimed to the tune of Rs. 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. 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. In case of any new machinery or plant which has been acquired and installed by an assessee engaged in the business of generation or generation and distribution of power a further sum equal to 20%, of the actual cost of such machinery or plant shall be allowed as deduction. If the correct curve and average service life is chosen for a specific type of utility asset (e.g. CIT (2012) 54 SOT 177. 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. Much attention is often paid to the operating expenses and the return component in the equation. 7. 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. 2. Besides the said reason; revision order was also passed on other issue of inclusion of additional power tariff. By increasing the return component, a utility can maximize profit. An Electricity company has financed the project costing Rs.200 lakhs by 70% Debt & 30% Equity. The wrongful act on the part of the assessing officer on the point discussed above has made the assessment order erroneous and prejudicial to the interest of Revenue. In the result, the appeal of the assessee is allowed. Income Tax Depreciation is a positive decline in the real value of tangible assets due to consumption, wear and tear or obsolescence. Considering that Electricity generation, distribution & other costs (excluding Depreciation 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. Then, a well-researched report is prepared to present and defend the selected rates. State of AP v. National Thermal Power Corpn. (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. 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 This matter was further carried by the revenue to the Hon’ble Calcutta High Court which was dismissed by the Hon’ble Calcutta High Court in the case of CIT v. Ankit Metal & Power Ltd. (2015) 972 ITR 660 (Cal.). The Tribunal accordingly held that the benefit of additional depreciation under section 32(1)(iia) could not be denied to the assessee. The purpose of the depreciation expense is to recover the utility’s plant investment incrementally throughout the service life of the asset. 6.2. (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 In case of an electricity company, depreciation on assets is calculated based on the rates notified by (A) Companies Act 2013 (B) State Electricity Commission (C) Central Electricity Regulatory Commission (D) Income Tax Act 1961 40. Depreciation effectively turns the cost of the asset into a company expense. Copyright © TaxGuru. 2. 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. 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 guidance note gives indicators to assess significant components: • Determine the threshold value to The treatment of depreciation as an indirect cost is the most common treatment within a business. 6,37,45,348. 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.