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Outbyte PC Repair FREERepair Windows errors before they cause bigger problemsFix Now →Outbyte Driver Updater FREEScan for outdated or missing drivers - takes under a minuteDriver Scan →The Rajasthan High Court has upheld Hindustan Zinc Ltd.’s claim for ₹18,87,27,973 in additional depreciation under Section 32(1)(iia) of the Income-tax Act for Assessment Year 2007-08. The Division Bench held that electricity generation is “production” for this provision and dismissed the Revenue’s Section 263 challenge to the assessment.
The reportable judgment was delivered on 5 October 2026 by Chief Justice Sanjay K. Agrawal and Justice Vinit Kumar Mathur in Commissioner of Income Tax, Udaipur v. M/s Hindustan Zinc Ltd., D.B. Income Tax Appeal No. 183/2014.
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What the court decided
The court answered the substantial questions of law against the Revenue and in favour of Hindustan Zinc. It upheld the Income Tax Appellate Tribunal’s decision restoring the assessment that had allowed additional depreciation on new machinery used in the company’s captive and wind power facilities.
The ruling is significant because it applies the wider statutory concept of “production” to electricity generation. The court reasoned that electricity is movable property capable of being transmitted, transferred, delivered, stored or possessed. Generating electricity therefore falls within production, even though it may not involve manufacturing in the conventional sense.
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How much was claimed, and for which assets?
Hindustan Zinc manufactured zinc, lead, silver and related products. Electricity from its power facilities was used in those manufacturing units. The additional-depreciation claim was divided between two categories of new plant and machinery:
| Facility | Additional depreciation claimed | Use described in the judgment |
|---|---|---|
| Chanderia captive power plant (CPP) | ₹9,90,887 | New plant and machinery generating power for the company’s manufacturing operations |
| Wind power plant (WPP) | ₹18,77,37,086 | Wind-generation machinery supplying electricity used by the manufacturing business |
| Total | ₹18,87,27,973 | Claim under Section 32(1)(iia) for Assessment Year 2007-08 |
The wind-power component represented almost the entire claim. The decision consequently addresses both captive-generation machinery and wind-power machinery, rather than only one type of facility.
What Section 32(1)(iia) required
The court considered Section 32(1)(iia) as amended by the Finance Act, 2007. In the version relevant to the assessment, the provision allowed a further depreciation deduction equal to 20% of the actual cost of qualifying new plant and machinery.
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The machinery had to be new and acquired and installed after 31 March 2005. The first condition was undisputed in Hindustan Zinc’s case: the relevant machinery met that timing requirement.
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An assessee engaged in manufacture or production
The assessee also had to be engaged in the manufacture or production of an article or thing. The Revenue argued that generating power did not satisfy this business-condition requirement. The High Court rejected that narrow interpretation, holding that production is wider than manufacture and includes generation of electricity on the facts before it.
Statutory exclusions
Section 32(1)(iia) did not cover every asset. The court’s discussion identified exclusions for:
- machinery or plant previously used by another person;
- plant or machinery installed in an office or residential accommodation;
- office appliances;
- road transport vehicles; and
- assets for which the entire cost was otherwise deductible in one year.
Ships and aircraft were also outside the relevant clause. The qualifying assets in dispute were new power-generation plant and machinery, not excluded categories.
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Why electricity generation counted as production
The court’s analysis turned on the legal character of electricity. Although electricity cannot be handled like a solid manufactured product, it can be transmitted through a grid, transferred to another user, delivered, stored in an appropriate system or possessed. On that basis, the court treated electricity as movable property.
That classification supported the conclusion that generating electricity is production. The court also examined the commercial setting: Hindustan Zinc’s CPP and WPP supplied power used in its mineral-manufacturing operations. Once the statutory conditions were satisfied, the company could not be denied additional depreciation merely because the relevant machinery generated power rather than directly processing zinc, lead or silver.
The holding is not an unconditional deduction for every power project. It applies where the assessee meets the statutory timing and business requirements and the machinery is not within one of the exclusions in Section 32(1)(iia).
Why the Section 263 revision failed
The Commissioner had invoked Section 263 to revise the assessment. The stated objection was that power generation was not manufacture or production of an article or thing, so the allowance of additional depreciation allegedly made the assessment erroneous and prejudicial to the Revenue.
The ITAT set the revision aside, and the High Court agreed. Section 263 jurisdiction requires both elements of a cumulative test:
- the assessment order must be erroneous; and
- that error must be prejudicial to the interests of the Revenue.
Because the additional-depreciation allowance was legally supportable under the court’s interpretation of production, the assessment was not shown to satisfy that twin requirement. A Commissioner cannot use Section 263 simply to replace a legally sustainable view with a different interpretation.
Does the ruling cover captive and wind power alike?
Yes. The claim included both the Chanderia captive power plant and the wind power plant. The judgment’s reasoning was based on the statutory character of electricity generation and the company’s qualifying manufacturing business, not on a distinction that would exclude wind machinery.
That does not mean the judgment creates a blanket rule for every wind or captive plant. A taxpayer would still need to establish that the machinery is new, that acquisition and installation fall after the statutory cut-off, that the assessee is engaged in manufacture or production, and that no statutory exclusion applies.
Practical implications for taxpayers
Businesses seeking to rely on the reasoning should keep the facts that establish each statutory condition clear in their tax records. Useful evidence can include:
- invoices and commissioning records showing that the plant and machinery were new;
- acquisition and installation dates demonstrating compliance with the post-31 March 2005 requirement;
- fixed-asset registers identifying the actual cost and the assets on which additional depreciation is claimed;
- technical and operational records linking generated electricity to the assessee’s manufacturing or production business; and
- workpapers showing that excluded assets or assets receiving a full one-year deduction were not included.
These records do not eliminate the need to apply the statute to the particular assessment year and asset. They help distinguish a qualifying claim from one based only on the existence of a power project.
What the judgment does—and does not—establish
The decision is a Rajasthan High Court authority on the facts and statutory provisions considered in the case. It confirms the court’s view that electricity generation can constitute production for Section 32(1)(iia), and that a legally sustainable allowance cannot ordinarily be revised under Section 263 merely because the Revenue prefers another interpretation.
The available case record does not establish any later appeal, stay, review or statutory amendment affecting the ruling’s practical operation. Anyone relying on it for a current filing or dispute should verify the procedural status and the law applicable to the relevant assessment year.
In the court’s words: “In that view of the matter, the substantial questions of law are answered against the Revenue and in favour of the assessee.” The appeal was dismissed, with the parties left to bear their own costs.
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