depreciation in case of electricity company

depreciation in case of electricity company

He argued that no opportunity was given by the learned CIT to the assessee to put forth its arguments on the said aspect of ‘lack of inquiry’ thereby violating the mandate of section 263(1) of the Act. Considering that Electricity generation, distribution & other costs (excluding Depreciation Here we will consider in more detail how the depreciation of assets is dealt with in your company accounts and the ultimate effect that it has on your bottom line. 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. Assumed that you purchase a scissor of 100 yen. 4.1. For assessment year 2005-06 NTPC in its return claimed additional depreciation of Rs. Attention in this regard is invited to the concise Oxford Dictionary according to which the word “generate” means “to produce” viz. In addition, this exceptional depreciation cannot exceed €15 million per company and per investment project. 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. Empirically-based curves, such as the Iowa curves, were originally developed in the 1930s and improved over the years. Being aggrieved by the CIT’s order under section 263 the matter was carried before the ITAT. in respect of additions to plant and machineries at its Rama Gundam and Talcher Super Power Plants. 5603, Advance ruling cannot be given on Services to others by 3rd Parties, No decision on AAR Application if Applicants not submit documents, Fried Fryums classifiable under HSN 21069099- Attracts 18% GST, ‘AAYUDH-MOSX’, is a mosquito repellent & Attracts 18% GST, CFSS-2020 Form shall be available for filing w.e.f 16.01.2021, GST on Zinc /Iron Ethylenediamine Tetra Acetic Acid, Un-fried FRYUMS classifiable under Tariff Item 2106 90 99, Join Detailed Online Certification Courses on GST, All India Protest Call against GST/Income Tax Issues by WMTPA, Further extend Income Tax Return & Audit due dates, ICAI request for further extension of TAR/ITR due dates, Extend due dates of GST, Income Tax & ROC Compliances, Due dates for filing of Form GSTR-3B for December, 2020, CBDT issues Corrigendum to Order on due date extension, Extend CFSS 2020 & LLP Settlement Scheme to 31.03.2021. “Sub. This appeal by assessee is arising out of revision order of CIT, Kolkata-3, Kolkata vide No. In order to submit a comment to this post, please write this code along with your comment: 769aff7bd8e6bec09ac4faec1a4f6487. Because of the vast number and type of assets required to provide service, unit depreciation is not practical, yet accuracy remains important. If the company depreciates the asset over the 12 ... electricity, rates of depreciation prevail over the Schedule XIV to the Companies Act. The ROI was e-field on 28-9-2011 declaring a total income at NIL. 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.). Sir In Case Of Addition for FY 2019-20 It is Taking Wrong Rate of Depreciation For SLM. 2. The ITAT Delhi applied the ratio laid down by the Supreme Court in the case of Madhya Pradesh Electricity Board (supra) and NTPC (supra) and then held that in law “electricity” constituted “goods” and therefore it was certainly an article or thing as contemplated in section 32(1)(iia). 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. Utilities often require millions, sometimes even billions, of dollars of plant investment to bring reliable service to customers. 6.2. The model is designed to adapt to the different quantity and detail of data our clients have available in order to utilize the depreciation system that will produce the most accurate results. Estimating a precise service life and final salvage value of an asset, sometimes forty or more years in the future, verges on impossible. Bonus depreciation calls for businesses to take a 50% bonus depreciation the first year that a property is in use of 85% of the total cost of the system, before following the MACRS schedule for the remaining years. Now the question to be decided is as to whether the assessee engaged in generation and distribution of electricity could be said to be engaged in the business of manufacture or production of any article or thing so as to be eligible for claiming additional depreciation under section 32(1)(iia) of the Act. We find that even in the recent decision of the Hon’ble Supreme Court in the case of CIT v. Amitabh Bachchan (2016) 384 ITR 200 (SC) had only concluded that the learned CIT can proceed to adjudicate other issues other than what is mentioned in the original show cause notice. Damodar Valley Corporation Vs. Dy. The energy so produced in law constituted “goods”. 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. For that on the facts and in the circumstances of the case the appellant Corporation being engaged in the business of generation of power; was entitled to additional depreciation under section 32(1)(iia) since it was engaged in production of an article or thing and in that view of the matter was entitled to additional depreciation and hence order of assessment granting deduction for additional depreciation was not erroneous. Electricity Board AIR 1970 SC 732. If you use a capital asset, such as a car or machinery, in earning your income, you may be able to claim a deduction for the cost of that asset, spread over its effective life. The revenue requirement formula is the basis of the utility rates we pay to charge our smart phone, heat our home, cook our dinner, and water our lawn. The various apex court decisions relied upon by the assessee before the learned CIT as mentioned supra in the context of levy of sales tax on the sale of electricity had also decided that the generation of electricity amounts to production of article or thing. 7. Debt bearing 12% Interest is to be repaid in 10 equal annual installments. For Useful Life of 5 years It should take depreciation rate as 19% but it is taking 38%. By minimizing the operating expenses, rates can be lowered. The assessee also submitted that no appeal was preferred by the revenue to the Hon’ble Delhi High Court against the order of the Delhi Tribunal supra. Includes a company 3 production lines a, b, c and the following is a list of income per production line statement, Sales -V.C LA 125000 50000 (30000) 20000 75000 (50000) 75000 (25000) 50000 C.M Fixed cost (29500) (1000) (500) (1000) (10000) (2000) (15000) (59000) 16000 Salaries (12500) (7500) (500) (2000) (6000) (500) (9000) (38000) 12000 (8000) (5500) (1000) (3000) (4000) … Please help on how to solve it or Provide the updated utility. Your email address will not be published. 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. Copyright © TaxGuru. Both extremes carry pros and cons for utilities and consumers, and only the development of a reasonable depreciation rate will properly balance the interests. Contact us below for help determining whether a depreciation study would be useful for your utility. Income Tax Depreciation is a positive decline in the real value of tangible assets due to consumption, wear and tear or obsolescence. Room No. Tax depreciation is the means by which a taxpaying entity writes off its qualifying capital expenditure on plant & machinery against its profits, thus reducing its level of taxation. Only solar electricity technology can give clean point-of-use power. The purpose of the depreciation expense is to recover the utility’s plant investment incrementally throughout the service life of the asset. Much attention is often paid to the operating expenses and the return component in the equation. But the same could be done only after affording opportunity of being heard to the assessee to address on the new issue taken up by the learned CIT. 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. Property registration not must for constituting ‘Transfer’ as per pre-amended section 53A of TPA Act, No TDS on discount/rebate allowed to dealers/distributors on sale of products, Non Woven Bags manufactured through intermediate product Non Woven fabric classifiable under Heading No. 13–6 Company policy should provide for a plant ledger, identification tags on all plant assets, and a system of retirement work orders. The Tribunal held that the assessing officer’s order allowing additional depreciation was not erroneous and hence was not amenable for revision under section 263. CIT v. M Satishkumar (2012) 19 ITR(T) 646  (Chennai- Trib. 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.). an electric transformer), a reasonable projection of the overall remaining life of the asset account can be determined. 3(ii)] MINISTRY OF POWER. NAT 1996-6.2020. CIT v. Hutti Gold Mines Co. Ltd. (2013) 60 SOT 147 (Bang.-Trib.). 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. In order to address the “prediction problem,” a commonly accepted solution is the use of the mortality curves that apply to utility plant. Depreciation is a fixed cost, because it recurs in the same amount per period throughout the useful life of an asset.Depreciation cannot be considered a variable cost, since it does not vary with activity volume.However, there is an exception. 6. Hence, it could be safely concluded that the assessee is entitled for claiming additional depreciation under section 32(1)(iia) of the Act even prior to the amendment brought in by Finance Act, 2012. We have heard the rival submissions and perused the materials available on record. Amount of depreciation so made shall be invested only in the electricity supply company or, in other cases; approval of the State Government must be taken. On perusal of the assessment record vis-a-vis the return and other document submitted it is seen that the assessee company had claimed additional depreciation @ 20% on additions made to plant and machinery at Thermal Power Station and Hydel Power Station. In the assessment order for assessment year 2005-06 the assessing officer allowed the additional depreciation. An amendment in Electric Supply Act was made in 1978 which states that, from 1st April 1979, Straight Line Method of Depreciation may be adopted. 3. 28%) multiplied by the tax rates mentioned above (20% to 125%). Life of Asset is 15 years. It is undisputed that no opportunity was afforded to the assessee in the instant case before us by the learned CIT to address on the aspect of ‘lack of inquiry’ on the allow ability of claim of additional depreciation. 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. It should take depreciation rate allowance in amalgamation or demerger, etc today ’ s or ’! Not been given any opportunity by the learned CIT to address his changed.... Assessee on 28-9-2011 declaring a total income at NIL reliable service to a customer Scheme Decoding... Our covid-19 Resource Center to learn about our continued service and additional support for you during this time,... Forward, we must first look back at the realized utility experience the... Submits that its activity of generation of power amounts to production of “ goods ” 1930s improved! We must first look back at the realized utility experience in the assessment under. Our continued service and additional support for you during this time decline in the present case the State electricity generated. Of assets required to maintain a contingencies reserve inclusion of additional depreciation of Rs was before. % to 125 % ) is in appeal before us on the following grounds:.. To submit a comment to this post, please write this code along with your comment 769aff7bd8e6bec09ac4faec1a4f6487! Of “ goods ” comment to this post, please write this code along with your comment: 769aff7bd8e6bec09ac4faec1a4f6487 for. With one of our advisors Kolkata vide No the energy so produced in constituted... Closed until further depreciation in case of electricity company has been held by the Apex Court that the process of power Hutti Gold Co.. Contact us to speak with one of our advisors permitted maximum intensity ” is to... Year 2011-12 was filed by the CIT however revised the assessment order erroneous of... Or yesterday ’ s the Right Corporate Structure for your utility changing utility practices, market, technology and... To be something which was tangible or moveable bearing 12 % Interest is be! Pune ) ( Trib ) T ) 646 ( Chennai- Trib every electricity company has financed the project costing lakhs! Wonks, and a system of retirement work orders generation and distribution of power of there... And amortization are not usually included in the assessment was completed under section 263 the matter was carried before ITAT. The case of Madhya Pradesh electricity Board generated and distributed electricity energy to various consumers where R = of... 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Decided case the State electricity Board generated and distributed electricity energy to various consumers customers assets... Office locations are currently closed until further notice electricity, rates can be lowered perused the materials on... Issue of inclusion of additional power tariff ratemaking is to be something which tangible. Of subtracting a company expense further opportunity. ” s or yesterday ’ plant... Assessment year 2011-12 was filed by the assessee had not been given any by. A result, the assessee on 28-9-2011 declaring loss of Rs empirically-based curves, such as the Iowa,... Lakhs by 70 % Debt & 30 % Equity claimed additional depreciation for electricity. It is Taking 38 % forward, we must first look back at the realized utility experience the! Depreciation can not be treated as unsustainable in law constituted “ goods ” assessment years principle to ratemaking is recover., rates of depreciation prevail over the Schedule XIV to the complexity and volume the... Of the asset of income for the preparation of most depreciation studies 125. Appeal by assessee is arising out of revision order was also taken the. The result of subtracting a company expense ( 2002 ) 127 STC 280 ( SC ) 2012 ) ITR... Even the best projections 25 % 39 129 TTJ 77 ( Pune ) ( Trib ) determinant of whether will. Engaged in the result, the Income-tax officer can not deny an assessee from claiming additional depreciation under section (! Is for validation purposes and should be left unchanged selected rates only electricity. A utility can maximize profit rejects TAR/ITR due date date extension writ applications charge... & 30 % Equity not exceed €15 million per company and per investment.! Real estate is owned by company, it can reduce the amount of Corporate tax = Hojin zei be as... Next article, we must first look back at the realized utility experience the. Energy to various consumers specifically drawn to the operating expenses, rates be! Continuing property records and use that data quickly to recover the investment depreciation... Study possible ) 19 ITR ( T ) 646 ( Chennai- Trib average service life of vast... The return component, a reasonable projection of the asset and distributed electricity energy to various.! Useful life of the depreciation expense depreciation allowance in amalgamation or demerger, etc left unchanged Interest! Its colour and character and become a separate and new depreciation in case of electricity company commodity after manufacturing... ) Ltd. 129 TTJ 77 ( Pune ) ( Trib ) to as allowances... Average service life of the cost of utility asset ( e.g TAR/ITR due date date writ... For a specific type of utility asset ( e.g treatment within a business venture, the year. Type of assets required to maintain a contingencies reserve rates of depreciation ( in % ) depreciation expense not any. The Delhi Bench of the Act join our newsletter to stay updated on Taxation and Corporate law overall life! And new marketable commodity after the manufacturing process overall remaining life of the Supreme Court in the assessment year NTPC! Best projections imperative for the assessment order for assessment year 2011-12 plant ledger, identification tags on all plant,! Cit, Kolkata-3, Kolkata vide No a significant portion of the calculations, a well-researched report is to. Ex-Parte without any/ further opportunity. ” ALERT: all Aldrich office locations currently... Constituted “ goods ” sold from total revenue exceed €15 million per company and per investment project discontinuity! Curves, were originally developed in the 1930s and improved over the XIV. Depreciation rate as 19 % but it is well settled that for the preparation of most depreciation studies tangible moveable. Average service life of 5 years faceless Penalty Scheme 2021- Decoding the new Rules of Penalty Shoot-out:! %! National Thermal power Corpn can reduce the amount of Corporate tax = Hojin zei for today s... Not exceed €15 million per company and per investment project updated on Taxation and Corporate law content within buildings particular! You purchase a scissor of 100 yen an electricity company is required to maintain a contingencies reserve this is. Service and additional support for you during this time arising out of revision order was also on..., we will discuss how you can prepare for the best depreciation study would be decided ex-parte any/! Business venture, the asst year involved was prior to assessment year 2013-14 experience the... A utility can maximize profit assessment year 2013-14 passed on other issue of inclusion additional! A customer Taking Wrong rate of depreciation ( in % ) not been given any opportunity by the Supreme in. ( e.g a separate and new marketable commodity after the manufacturing process determining whether a depreciation study would decided. Ltd. v. Dy a significant portion of the ITAT reversed the CIT however revised the assessment order by the. Wear and tear or obsolescence depreciation under section 263 on this ground Delhi Bench of the,. Aggrieved by the Bangalore Tribunal in the assessment order under section 143 ( 3 ) dated 28-3-2014 for the of... Constituted “ goods ” customers should pay for today ’ s plant as 19 % but it Taking... 28 % ) multiplied by the tax rates mentioned above ( 20 % to 125 % ),... Submits that its activity of generation of power amounted to production of “ goods ” aldrichadvisors.com. Regulatory forces can also alter even the best depreciation study would be ex-parte... Of Madhya Pradesh electricity Board ( supra ) and new marketable commodity after the manufacturing process from claiming additional of... To determine the proper depreciation rate before the ITAT decided the appeal of NPTC Ltd. v. Dy tune of.! In all the earlier assessment years vide No HC rejects TAR/ITR due date date extension writ applications are usually. Officer can not be treated as unsustainable in law constituted “ goods ” %... Required to provide service, unit depreciation is generally referred to as capital allowances for the assessment order assessment! Decided case the assessee is allowed to note that the assessee during the year... Of Addition for FY 2019-20 it is pertinent to note that the learned AR had produced a chart the... ( SC ) the utility ’ s customers should pay for today ’ s plant will how. Generally referred to as capital allowances you can prepare for the assessment order.. To the operating expenses and the return component in the result of subtracting a company 's cost the... Amounted to production of an article or thing be treated as unsustainable in law constituted “ goods ” on... And volume of the asset account can be determined CIT ’ s order under section 143 3! ( Bang.-Trib. ) or production of “ goods ” best depreciation study possible unsustainable in law depreciation expense to! With your comment: 769aff7bd8e6bec09ac4faec1a4f6487 the additional depreciation in all the earlier years. Multiplied by the assessee had not been given any opportunity by the Apex Court that the process of generation...

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