The Assessing Officer has disallowed my power company's section 32AC investment allowance on the ground that generating electricity is not the manufacture or production of an article or thing, and that the Finance Act 2013 memorandum did not mention power companies. Is there anything on the point?
Yes. On 14 June 2021 the ITAT Hyderabad set aside the Commissioner (Appeals) and directed the Assessing Officer to allow a section 32AC deduction of about Rs 301 crore to Telangana State Power Generation Corporation Ltd for AY 2016-17. The Assessing Officer had reasoned that because the Memorandum to the Finance Act 2013 did not name power generating companies, they were outside section 32AC, and that the case law on additional depreciation under section 32(1)(iia) could not be carried across. The Tribunal rejected that. It followed the ITAT Delhi decision in Vedanta Ltd, which had itself relied on the Supreme Court in Sesa Goa and NTPC, and a Chennai Bench decision holding that generation of electricity is a manufacturing activity, and it reasoned from the nature of electricity itself: it can be transmitted, transferred, delivered, stored and possessed, and the Supreme Court in CST v Madhya Pradesh Electricity Board had held that electricity falls within the definition of goods under the Sale of Goods Act, 1930. On that footing the appeal was allowed.
Decided by the ITAT (Satbeer Singh Godara, Judicial Member and Laxmi Prasad Sahu, Accountant Member) on 2021-06-14, reported as ITA No. 1424/H/2019, Income Tax Appellate Tribunal, Hyderabad Bench, assessment year 2016-17, pronounced 14 June 2021; no law-report citation traced. It bears on section 32AC, section 32AC(1), section 32(1)(iia) of the Income Tax Act 1961, in Deductions & Disallowances, How Tax Law Is Read and Appeals matters.
Section 32AC opens with "Where an assessee, being a company, engaged in the business of manufacture or production of any article or thing", and that phrase is the gateway. Assessees whose output is not a tangible product coming off a line — power generators above all — have had the allowance refused on the bare proposition that they do not manufacture anything. This order is a direct answer, and its reasoning is transferable: electricity is goods, it can be transmitted, stored and possessed, and its generation is a manufacturing activity. On the Revenue's negative-list argument the order is useful only for its result. The Assessing Officer's route was that the Finance Act 2013 Memorandum did not mention power generating companies, so their omission was deliberate. The Tribunal allowed the claim without addressing that argument at all: paragraph 7 records only that the Commissioner (Appeals) had confirmed the disallowance while ignoring the assessee's written submissions, that it found force in those submissions, and that Vedanta Ltd had directed the allowance. So the Memorandum point fails on the outcome, not on any reasoning given against it, and an assessee who has to meet it must argue it afresh. Two limits, and they matter. First, this is a Tribunal order and it decides one appeal; it is not binding on any other bench and the point is one on which benches can and do differ, so treat it as persuasive and be ready to argue it afresh. Second, be careful about the year and the limb. The assessment year is AY 2016-17, for which the only live limb of section 32AC is sub-section (1A) — the twenty-five crore annual threshold with installation on or before 31 March 2017 — because the sub-section (1) acquisition window closed on 31 March 2015. The order, in reproducing the section, sets out only sub-section (1). That is a defect in the order's exposition, not in its result on the manufacture question, but a reader who lifts the quoted text as the applicable provision for AY 2016-17 would be taking the wrong sub-section.
Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere.
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Telangana State Power Generation Corporation Ltd claimed an investment allowance under section 32AC of Rs 301.09 crores for AY 2016-17. The Assessing Officer disallowed it. His reasoning, as recorded in the order, was that section 32AC had been introduced by the Finance Act 2013 as an incentive for substantial investment in plant or machinery by manufacturing companies, that the Memorandum to that Act did not include power generating companies, and that in the absence of their specific inclusion the case law relied on by the assessee — which had been decided in the context of additional depreciation under section 32(1)(iia) — could not be applied to section 32AC. The Commissioner (Appeals) confirmed the disallowance. Before the Tribunal the assessee's written submissions were the same as those it had put to the Commissioner (Appeals), which the Tribunal found had been ignored.
The appeal of the assessee was allowed. The Tribunal set aside the order of the Commissioner (Appeals) and directed the Assessing Officer to allow the assessee's claim of deduction under section 32AC.
The Tribunal recorded that the Commissioner (Appeals) had confirmed the disallowance while ignoring the assessee's written submissions, and said it found force in those submissions. It noted that in Vedanta Ltd the ITAT Delhi, relying on the Supreme Court decisions in Sesa Goa and NTPC, had directed the Assessing Officer to allow a section 32AC deduction, and that a Chennai Bench had decided that generation of electricity is a manufacturing activity. It then reasoned from the nature of electricity: it can be transmitted, transferred, delivered, stored and possessed, and the Supreme Court in CST v Madhya Pradesh Electricity Board had held that electricity falls within the definition of goods under the Sale of Goods Act, 1930. Holding that the issue in dispute was similar to that decided in Vedanta Ltd, it followed those decisions and directed the allowance. Two things about the route are worth recording. The Tribunal did not engage with the Assessing Officer's Memorandum argument at any point after recording it. And its description at paragraph 7 of "Sesa Goa and NTPC Ltd" as a judgment of the Supreme Court sits awkwardly with the Chennai order it quotes at paragraph 7.1, which describes NTPC Ltd as a decision of the Delhi Bench of the Tribunal.
The electricity can be transmitted, transferred, delivered, stored, possessed etc. The Hon'ble Supreme Court in the case of the CST Vs. Madhya Pradesh Electricity Board (supra) has held that electricity falls within the definition of goods under the provisions of Sale of Goods Act, 1930.
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Handle my notice → Ask a CA on WhatsAppYes. On 14 June 2021 the ITAT Hyderabad set aside the Commissioner (Appeals) and directed the Assessing Officer to allow a section 32AC deduction of about Rs 301 crore to Telangana State Power Generation Corporation Ltd for AY 2016-17. The Assessing Officer had reasoned that because the Memorandum to the Finance Act 2013 did not name power generating companies, they were outside section 32AC, and that the case law on additional depreciation under section 32(1)(iia) could not be carried across. The Tribunal rejected that. It followed the ITAT Delhi decision in Vedanta Ltd, which had itself relied on the Supreme Court in Sesa Goa and NTPC, and a Chennai Bench decision holding that generation of electricity is a manufacturing activity, and it reasoned from the nature of electricity itself: it can be transmitted, transferred, delivered, stored and possessed, and the Supreme Court in CST v Madhya Pradesh Electricity Board had held that electricity falls within the definition of goods under the Sale of Goods Act, 1930. On that footing the appeal was allowed. This was decided by the ITAT (Satbeer Singh Godara, Judicial Member and Laxmi Prasad Sahu, Accountant Member) and bears on section 32AC, section 32AC(1), section 32(1)(iia) of the Income Tax Act 1961. It is reported as ITA No. 1424/H/2019, Income Tax Appellate Tribunal, Hyderabad Bench, assessment year 2016-17, pronounced 14 June 2021; no law-report citation traced. Section 32AC opens with "Where an assessee, being a company, engaged in the business of manufacture or production of any article or thing", and that phrase is the gateway. Assessees whose output is not a tangible product coming off a line — power generators above all — have had the allowance refused on the bare proposition that they do not manufacture anything. This order is a direct answer, and its reasoning is transferable: electricity is goods, it can be transmitted, stored and possessed, and its generation is a manufacturing activity. On the Revenue's negative-list argument the order is useful only for its result. The Assessing Officer's route was that the Finance Act 2013 Memorandum did not mention power generating companies, so their omission was deliberate. The Tribunal allowed the claim without addressing that argument at all: paragraph 7 records only that the Commissioner (Appeals) had confirmed the disallowance while ignoring the assessee's written submissions, that it found force in those submissions, and that Vedanta Ltd had directed the allowance. So the Memorandum point fails on the outcome, not on any reasoning given against it, and an assessee who has to meet it must argue it afresh. Two limits, and they matter. First, this is a Tribunal order and it decides one appeal; it is not binding on any other bench and the point is one on which benches can and do differ, so treat it as persuasive and be ready to argue it afresh. Second, be careful about the year and the limb. The assessment year is AY 2016-17, for which the only live limb of section 32AC is sub-section (1A) — the twenty-five crore annual threshold with installation on or before 31 March 2017 — because the sub-section (1) acquisition window closed on 31 March 2015. The order, in reproducing the section, sets out only sub-section (1). That is a defect in the order's exposition, not in its result on the manufacture question, but a reader who lifts the quoted text as the applicable provision for AY 2016-17 would be taking the wrong sub-section. If it applies to you, the first step is this: If the disallowance is on the 'not manufacture or production' ground, cite this order together with the authorities it follows, and put the electricity-as-goods reasoning in the forefront: it can be transmitted, transferred, delivered, stored and possessed, and the Supreme Court has held it to be goods under the Sale of Goods Act, 1930.
Telangana State Power Generation Corporation Ltd claimed an investment allowance under section 32AC of Rs 301.09 crores for AY 2016-17. The Assessing Officer disallowed it. His reasoning, as recorded in the order, was that section 32AC had been introduced by the Finance Act 2013 as an incentive for substantial investment in plant or machinery by manufacturing companies, that the Memorandum to that Act did not include power generating companies, and that in the absence of their specific inclusion the case law relied on by the assessee — which had been decided in the context of additional depreciation under section 32(1)(iia) — could not be applied to section 32AC. The Commissioner (Appeals) confirmed the disallowance. Before the Tribunal the assessee's written submissions were the same as those it had put to the Commissioner (Appeals), which the Tribunal found had been ignored. The matter was decided on 2021-06-14 by the ITAT (Satbeer Singh Godara, Judicial Member and Laxmi Prasad Sahu, Accountant Member). On those facts the ITAT held as follows. The appeal of the assessee was allowed. The Tribunal set aside the order of the Commissioner (Appeals) and directed the Assessing Officer to allow the assessee's claim of deduction under section 32AC.
The Tribunal recorded that the Commissioner (Appeals) had confirmed the disallowance while ignoring the assessee's written submissions, and said it found force in those submissions. It noted that in Vedanta Ltd the ITAT Delhi, relying on the Supreme Court decisions in Sesa Goa and NTPC, had directed the Assessing Officer to allow a section 32AC deduction, and that a Chennai Bench had decided that generation of electricity is a manufacturing activity. It then reasoned from the nature of electricity: it can be transmitted, transferred, delivered, stored and possessed, and the Supreme Court in CST v Madhya Pradesh Electricity Board had held that electricity falls within the definition of goods under the Sale of Goods Act, 1930. Holding that the issue in dispute was similar to that decided in Vedanta Ltd, it followed those decisions and directed the allowance. Two things about the route are worth recording. The Tribunal did not engage with the Assessing Officer's Memorandum argument at any point after recording it. And its description at paragraph 7 of "Sesa Goa and NTPC Ltd" as a judgment of the Supreme Court sits awkwardly with the Chennai order it quotes at paragraph 7.1, which describes NTPC Ltd as a decision of the Delhi Bench of the Tribunal. In the words reproduced by the source cited on this page: "The electricity can be transmitted, transferred, delivered, stored, possessed etc. The Hon'ble Supreme Court in the case of the CST Vs. Madhya Pradesh Electricity Board (supra) has held that electricity falls within the definition of goods under the provisions of Sale of Goods Act, 1930."
It was decided by the ITAT on 2021-06-14 and is reported as ITA No. 1424/H/2019, Income Tax Appellate Tribunal, Hyderabad Bench, assessment year 2016-17, pronounced 14 June 2021; no law-report citation traced. Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere. A Tribunal decision binds the assessing officer and the Commissioner (Appeals) within that Tribunal's jurisdiction, and is persuasive before other benches. It is not binding on a High Court, and a contrary co-ordinate bench decision will be argued against you, so check whether the point has been taken the other way before you build a reply around it. On section 32AC, section 32AC(1), section 32(1)(iia), the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The appeal of the assessee was allowed. The Tribunal set aside the order of the Commissioner (Appeals) and directed the Assessing Officer to allow the assessee's claim of deduction under section 32AC. It arises in Deductions & Disallowances, How Tax Law Is Read and Appeals matters, on section 32AC, section 32AC(1), section 32(1)(iia) of the Income Tax Act 1961, and was decided by Satbeer Singh Godara, Judicial Member and Laxmi Prasad Sahu, Accountant Member. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Be ready to argue the Memorandum point yourself. The Assessing Officer's reasoning here was that power generating companies were not named in the Finance Act 2013 Memorandum; the Tribunal allowed the appeal without answering that argument, so this order gives you the outcome but not the reasoning. The statutory words contain no such carve-out, and that is the argument to make. Identify the right sub-section for your year before you argue the merits. For AY 2016-17 and AY 2017-18 the claim lies under section 32AC(1A), not section 32AC(1), and the threshold is twenty-five crore rupees of actual cost of assets acquired in the year with installation on or before 31 March 2017. Do not rest on section 32(1)(iia) authorities alone. The Assessing Officer's answer was that additional-depreciation cases are on a differently worded provision; you need authority on section 32AC itself, which is what this order supplies. Check whether the department has appealed this order before you rely on it as settled. I have not traced any appeal, and the validity note says so.
Searched for later treatment; none was found. That is not the same as a source affirming it. Do not cite this order without the answer to it. In ACIT, Circle-2(1), Hyderabad v Hinduja National Power Corporation (ITAT Hyderabad, 8 January 2025) the CIT(A) had allowed the claim on the strength of this very order and the assessee relied on it again; the Bench reproduced paras 7 to 7.2 of it and then declined to follow it, holding that generation of power is deliberately left out of sections 32AC and 32AD even though it was written into section 32(1)(iia) in 2013, and allowed the Revenue's appeal. That is a coordinate Bench of the same station taking the opposite view, so this is a Tribunal split rather than a High Court conflict and the status stays here. No Bench has applied the order, and searches found no Telangana or Andhra Pradesh High Court decision either way. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
A TRAP IN THIS DOCUMENT, RECORDED SO THAT A LATER READER DOES NOT FALL INTO IT. The order runs to eight numbered paragraphs. A fragment probe on the phrase "generation of electricity is a manufacturing activity" returns a passage numbered "10" which ends "the order of the CIT(A) is upheld and the appeal of the Revenue is dismissed being devoid of merit" — that is NOT this Tribunal speaking and is not this order's disposal. It is a coordinate-bench decision reproduced inside the order (the passage reasons about section 32(1)(iia) and the Finance Act 2012 amendment, and dismisses a REVENUE appeal, whereas here it was the assessee who appealed and the assessee who succeeded). Anything cited from a paragraph numbered above 8 in this document is quoted material, not the Tribunal's own words. For the same reason, paragraph 4.8, which sets out the negative-list reasoning and ends "the claim of investment allowance claimed by the assessee at Rs.301.09 crores is disallowed and added to the income returned", is the ASSESSING OFFICER's reasoning as recorded in the order, not the Tribunal's; I have described it as the Assessing Officer's and have not quoted it as a holding. The key quote in this entry is taken from paragraph 7.2, which is the Tribunal's own reasoning, and its distinctive sentence was re-verified through an independent fragment query. Two further points. The order reproduces only section 32AC(1) at paragraph 4.4, although the assessment year is AY 2016-17, for which sub-section (1A) is the operative limb; the order does not address that. And the citations the order relies on — Vedanta Ltd (ITAT Delhi), Sesa Goa, NTPC, a Chennai Bench decision and CST v Madhya Pradesh Electricity Board — appear in the order as "(supra)" references; I did NOT retrieve any of them, and none of them is stated here as anything other than what this order says it relied on. A FURTHER POINT ON THE QUOTE. The two sentences quoted from paragraph 7.2 are reproduced word for word from paragraph 9 of the ITAT Chennai order in ACIT, Coimbatore v M. Satish Kumar, ITA No. 718/Mds/2012, 28 September 2012, which this order sets out as a block quotation at paragraph 7.1. I have kept the quote because the Hyderabad Bench writes those words as its own text at 7.2 and gives them as its ground for allowing the appeal, but the lift is disclosed here so that nobody cites them as this Bench's independent reasoning. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The appeal of the assessee was allowed. The Tribunal set aside the order of the Commissioner (Appeals) and directed the Assessing Officer to allow the assessee's claim of deduction under section 32AC.
TaxSphere, “Telangana State Power Generation Corporation Ltd v ACIT — generation of electricity is manufacture or production of an article or thing, so a power company is within the s.32AC investment allowance”, https://taxnotice.vittsphere.com/caselaw/case/telangana-state-power-generation-32ac-investment-allowance-electricity-generation-is-manufacture-or-production/ (validity last checked 2026-09-09)
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