1. Appeal under Section 260A of Income Tax Act — Additional depreciation on new plant and machinery. (Para 1 , 2 , 3 )
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2026 Supreme(Raj) 775
HIGH COURT OF JUDICATURE FOR RAJASTHAN AT JODHPUR
SANJAY K. AGRAWAL, CJ, VINIT KUMAR MATHUR, J.
Commissioner of Income Tax - Appellant
Versus
M/s Hindustan Zinc Ltd. - Respondent
D.B. Income Tax Appeal No. 183 of 2014
Decided On : 05-10-2026
Important Points
An assessee engaged in manufacturing is entitled to additional depreciation under Section 32(1)(iia) for power plants, as electricity generation constitutes 'production'. Consequently, an order allowing such depreciation is not 'erroneous', precluding the exercise of revisional jurisdiction under Section 263.
Subject
Taxation Law - Income Tax
Act Referred
Headnote
(A) Income Tax Act, 1961 - Section 32(1)(iia) - Additional depreciation - Statutory requirements for claiming additional depreciation are that the new plant and machinery must be acquired and installed after 31.03.2005, and the assessee must be engaged in the business of manufacture or production of any article or thing (Paras 16, 17).
(B) Income Tax Act, 1961 - Section 263 - Revision of orders - Revisional jurisdiction can be invoked only if the order passed by the Assessing Officer is cumulatively "erroneous" and "prejudicial to the interests of the revenue". If either condition is absent, recourse to this section is not permissible (Paras 12, 13).
(C) Manufacture or Production - Generation of electricity constitutes 'production' of an article or thing, as electricity is considered movable property and 'goods'. An assessee engaged in the manufacture and production of articles who installs machinery for power generation to be used in its manufacturing units is entitled to additional depreciation under Section 32(1)(iia) (Paras 18(2), 18(3), 18(4), 18(5), 18(6), 18(7)).
Facts of the case:
The assessee claimed additional depreciation for new plant and machinery installed at power plants. The Assessing Officer accepted and allowed the claim. However, the revisional authority, exercising power under Section 263, set aside the assessment order on the ground that power generation does not amount to the manufacture or production of an article or thing. The Tribunal subsequently set aside the revisional order and restored the original assessment, holding that electricity generation constitutes production.
Findings of Court:
The court found that the assessee satisfied both statutory conditions for additional depreciation. Since electricity is recognized as movable property and its generation as 'production', and since the assessee utilizes the generated power for its existing manufacturing business, the claim is valid. The court concluded that the original assessment order was neither erroneous nor prejudicial to the revenue.
Issues: Whether the assessee is entitled to additional depreciation under Section 32(1)(iia) in respect of power generation plants and whether the revisional authority was justified in invoking Section 263 to set aside the assessment order.
Ratio Decidendi: Generation of electricity constitutes the 'production' of an article or thing. An assessee engaged in the business of manufacture and production who installs new plant and machinery for power generation is entitled to additional depreciation. Consequently, an order allowing such depreciation is not erroneous, and therefore, the revisional jurisdiction under Section 263 cannot be invoked (Paras 18(8), 19).
Result: Appeal dismissed.
(B) Income Tax Act, 1961 - Section 263 - Revision of orders - Revisional jurisdiction can be invoked only if the order passed by the Assessing Officer is cumulatively "erroneous" and "prejudicial to the interests of the revenue". If either condition is absent, recourse to this section is not permissible (Paras 12, 13).
(C) Manufacture or Production - Generation of electricity constitutes 'production' of an article or thing, as electricity is considered movable property and 'goods'. An assessee engaged in the manufacture and production of articles who installs machinery for power generation to be used in its manufacturing units is entitled to additional depreciation under Section 32(1)(iia) (Paras 18(2), 18(3), 18(4), 18(5), 18(6), 18(7)).
Facts of the case:
The assessee claimed additional depreciation for new plant and machinery installed at power plants. The Assessing Officer accepted and allowed the claim. However, the revisional authority, exercising power under Section 263, set aside the assessment order on the ground that power generation does not amount to the manufacture or production of an article or thing. The Tribunal subsequently set aside the revisional order and restored the original assessment, holding that electricity generation constitutes production.
Findings of Court:
The court found that the assessee satisfied both statutory conditions for additional depreciation. Since electricity is recognized as movable property and its generation as 'production', and since the assessee utilizes the generated power for its existing manufacturing business, the claim is valid. The court concluded that the original assessment order was neither erroneous nor prejudicial to the revenue.
Issues: Whether the assessee is entitled to additional depreciation under Section 32(1)(iia) in respect of power generation plants and whether the revisional authority was justified in invoking Section 263 to set aside the assessment order.
Ratio Decidendi: Generation of electricity constitutes the 'production' of an article or thing. An assessee engaged in the business of manufacture and production who installs new plant and machinery for power generation is entitled to additional depreciation. Consequently, an order allowing such depreciation is not erroneous, and therefore, the revisional jurisdiction under Section 263 cannot be invoked (Paras 18(8), 19).
Result: Appeal dismissed.
Legal Category Hierarchy
Advocates Appeared:
For the Appellant : Mr. KK Bissa, Mr. HG Chanda
For the Respondent: Mr. Ajay Kumar Vohra Sr. Adv (through VC) assisted by Mr. Anjay Kothari, Mr. Rohit Jain, Mr. Ram Krisan Rao, Mr. Amit Sharma
For the Appellant : Mr. KK Bissa, Mr. HG Chanda
For the Respondent: Mr. Ajay Kumar Vohra Sr. Adv (through VC) assisted by Mr. Anjay Kothari, Mr. Rohit Jain, Mr. Ram Krisan Rao, Mr. Amit Sharma
Table of Contents
2. Revenue contended assessee not entitled to additional depreciation — Assessee claimed fulfillment of statutory conditions under Section 32(1)(iia). (Para 8 , 9 )
3. Assessee fulfilled twin conditions for additional depreciation — CIT's revisional order lacked requisite error and prejudice. (Para 15 , 16 , 17 , 19 )
4. Invocation of Section 263 requires both erroneous order and prejudice to revenue — both absent here. (Para 12 , 13 , 14 )
5. Appeal dismissed — substantial questions answered against Revenue. (Para 19 , 20 )
6. What are the twin conditions for invoking revisional power under Section 263 of the Income Tax Act?
The order must be erroneous and prejudicial to the interests of the revenue; both conditions must be cumulatively satisfied. (Para 12 , 13 )
JUDGMENT :
Sanjay K. Agrawal, CJ.
1. Two substantial questions of law formulated on 26.04.2016 and 14.09.2026 for decision of the present appeal, preferred under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act of 1961’), read as under:
“1. Whether on the facts and in the circumstances of the case, the ITAT was justified in allowing the claim of the assessee for additional depreciation under Section 32(1)(iia) of the Income Tax Act?
2. Whether the I.T.A.T. was justified in holding that the PCIT is not justified in exercising the power under Section 263 of the Income Tax Act by recording a finding which is perverse to the record?”
[For the sake of convenience, the appellant herein would be referred to as ‘the Revenue’ and the respondent would be referred to as ‘the assessee’.]
2. The assessee-company is engaged in the business of zinc, lead, silver etc. and filed its return of income for Assessment Year 2007-08, declaring the taxable income of Rs.58,43,88,93,250/-. While filing the aforesaid return of income, the assessee claimed additional depreciation of Rs.18,87,27,973/- under Section 32(1) (iia) of the Act of 1961 in respect of new plant and machinery installed at Captive Power Plant, Chanderia (for short ‘CPP’) (Rs.9,90,887/-) and Wind Power Plant (for short ‘WPP’) (Rs.18,77,37,086/-).
3. The case of the assessee was selected for scrutiny and assessment and an assessment order dated 23.03.2009 came to be passed by the Assessing Officer under Section 143(3) of the Act of 1961, determining the taxable income of the assessee at Rs.61,65,85,62,500/- after making certain additions and disallowances. It is the case of the assessee that the additional depreciation claimed by it in the return of income in respect of CPP and WPP was accepted and allowed by the Assessing Officer while completing the scrutiny assessment and passing the assessment order for Assessment Year 2007-08.
4. The revisional authority i.e. Commissioner of Income Tax (for short ‘the CIT’), while exercising the revisional power under Section 263 of the Act of 1961, by order dated 14.03.2011 set aside the assessment order dated 23.03.2009 and directed the Assessing Officer to pass fresh assessment order, inter alia, for the reason that additional depreciation under Section 32(1)(iia) of the Act of 1961 is available to an assessee, who is engaged in manufacturing and production of an article or thing and since the assessee is generating power from CPP and WPP, which does not amount to manufacture or production of an article or thing, the assessee is not entitled for additional depreciation under Section 32(1)(iia) of the Act of 1961.
5. Feeling dissatisfied and aggrieved by the order of the CIT dated 14.03.2011, invoking revisional jurisdiction under Section 263(1) of the Act of 1961, the assessee preferred an appeal under Section 253 of the Act of 1961 before the Income Tax Appellate Tribunal (for short ‘the ITAT’) branding the same as unsustainable and stating that Section 263 of the Act of 1961 is not attracted and thus the CIT could not have invoked power and jurisdiction under Section 263 of the Act of 1961.
6. The ITAT, by the impugned order dated 28.02.2014, allowed the appeal of the assessee and set aside the order passed by the CIT under Section 263 of the Act of 1961, holding that for valid exercise of revisional jurisdiction under Section 263 of the Act of 1961, twin conditions of an order being ‘erroneous’ and ‘prejudicial to the interest of revenue’ have to be cumulatively met before revising an order. It was held that there is no error in the finding of the Assessing Officer and set aside the order passed by the CIT under Section 263 of the Act of 1961 and the order of the Assessing Officer was restored. The ITAT also held that the assessee is in production of an article or thing as generation of power amounts to ‘production’ of an article or thing, relying upon the principle of law laid down in the matters of CIT Vs. Sesa Goa Ltd.
