Hindustan Zinc can claim additional depreciation on captive and wind power plants, Rajasthan High Court rules

For Assessment Year 2007–08, Hindustan Zinc Ltd. claimed additional depreciation under Section 32(1)(iia) of the Income Tax Act, 1961, on new plant and machinery installed at its captive power plant and wind power plant.

The Assessing Officer allowed the claim in the assessment under Section 143(3). The Commissioner, exercising revisionary jurisdiction under Section 263, set aside the assessment on the ground that power generation did not amount to manufacture or production of an article or thing. The ITAT allowed the assessee’s appeal, set aside the Commissioner’s order, and restored the assessment. The Revenue appealed to the High Court.

Whether the ITAT was justified in allowing the assessee’s claim for additional depreciation under Section 32(1)(iia) of the Act.

Whether the ITAT was justified in holding that the Commissioner was not entitled to exercise Section 263 jurisdiction, and whether its finding was perverse to the record.

Section 32(1)(iia), as amended by the Finance Act, 2007, permits additional depreciation on qualifying new machinery or plant acquired and installed after 31 March 2005, where the assessee is engaged in the business of manufacture or production of an article or thing.

Section 263 requires the assessment order to be both erroneous and prejudicial to the interests of the Revenue; if either condition is absent, revision is unavailable. A permissible view taken by the Assessing Officer cannot be revised merely because the Commissioner prefers another view.

The Court also relied on authority recognising electricity as movable property and on decisions holding that generation of power constitutes production, and that an assessee engaged in manufacturing or production may claim additional depreciation on qualifying power-generation plant.

Malabar Industrial Co. Ltd. v. CIT, (2000) 2 SCC 718.

The parties did not dispute that the new plant and machinery had been acquired and installed after the statutory cut-off date, satisfying the first condition under Section 32(1)(iia).

On the second condition, the Court held that electricity is movable property and that power generation falls within “production”; it also noted that the assessee manufactured minerals and used the power generated at its CPP and WPP in those manufacturing operations.

In light of the authorities supporting additional depreciation for qualifying power-generation assets, the Assessing Officer’s allowance of the claim was not erroneous in law.

Since the Commissioner’s stated basis for revision did not establish an error in the assessment, the necessary conditions for Section 263 jurisdiction were not met. The ITAT’s conclusion was neither perverse nor contrary to the record.

It upheld the ITAT’s order setting aside the Commissioner’s Section 263 order and restoring the assessment allowing additional depreciation. The Revenue’s appeal was dismissed, with parties bearing their own costs.