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First identify why the deduction was denied. A disallowance based only on the claim that electricity is not an “article or thing” is legally different from a failure to prove that a particular turbine, transformer or other item was new plant and machinery. The Delhi High Court’s decision in NTPC SAIL Power supports generation entities on the first issue, while recent tribunal reasoning shows that weak asset-level evidence can still defeat the claim. If an assessment order has been served, protect the 30-day Form 35 appeal period immediately; do not wait for a rectification request to be decided.
Start by classifying the disallowance
Read the assessment order, computation and notice of demand together. Mark the exact paragraph in which the Assessing Officer (AO) rejects additional depreciation under section 32(1)(iia) of the Income Tax Act, 1961. Most disputes fall into one or more of these categories.
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| Objection in the order | What must be proved | Best response |
|---|---|---|
| Electricity is not an “article or thing” | That generation of electricity satisfies the statutory output requirement | Rely on the Delhi High Court’s NTPC SAIL Power reasoning, then establish every other statutory condition |
| The asset is not new plant or machinery | New acquisition, ownership, installation and business use of each item | Submit an asset-by-asset documentary trail; a legal argument alone is insufficient |
| The expenditure is merely an addition, replacement or expansion of an existing plant | Whether a separately identifiable qualifying asset was acquired and installed | Distinguish repairs or components from new plant and prove technical identity and commissioning |
| The 35% rate was claimed incorrectly | Location, undertaking date and the exact statutory proviso | Recompute under the ordinary rate unless the special conditions are demonstrably met |
| Procedural or computational mistake | An error obvious from the existing record | Consider rectification, but do not let it replace a first appeal on a debatable issue |
Protect the appeal deadline first
Form 35 is the ordinary first appeal against an AO order. The Income Tax Department’s Form 35 guidance states that an appeal is generally filed online within 30 days from service of the order or demand, as applicable. The clock is not suspended merely because you ask the AO for clarification or rectification. Delay can sometimes be condoned for reasonable cause, but treat condonation as a fallback, not a plan.
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1Scan for outdated or missing drivers - takes under a minute2Repair Windows errors before they cause bigger problems3Fix the driver behind crashes, sound loss and screen glitches- Record service. Save the email, portal download record, or other proof showing when the order and demand notice became available to you.
- Identify the challenged order. Note the assessment year, section under which it was passed, date, DIN or order number, disputed depreciation amount, interest and total demand.
- Calculate day 30. Count from the legally relevant service date and allow time for digital filing errors, payment of appeal fee and signature or verification requirements.
- Prepare Form 35. The online form requires the order details, statement of facts, grounds of appeal, tax and fee information, and supporting attachments.
- Upload a complete record. Include the order, demand notice, return and computation, depreciation schedule, tax-audit report, submissions made during assessment and the evidence supporting each asset.
- Submit and preserve proof. Download the acknowledgement, filed form, attachments and payment receipt. Check the portal for defects or requests for clarification after filing.
If the deadline is close, file the appeal with clearly framed grounds and seek permission to submit additional evidence where the appellate rules require it. A later, better-organised evidence pack cannot cure a missed limitation period automatically.
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Build an asset-level evidence file
The legal eligibility of electricity generation and the factual eligibility of a particular asset are separate questions. Prepare one schedule for every item included in the additional-depreciation claim.
Identity, purchase and payment
- Fixed-asset-register reference and block-of-assets classification.
- Purchase order, vendor contract, tax invoice and proof of payment.
- Import bill of entry, customs documents and freight records where equipment was imported.
- Serial number, model, capacity, technical specification and location.
- Evidence that the claimant, rather than a contractor or another group entity, acquired and owned the asset.
Installation and commissioning
- Site installation certificates, engineering completion reports and contractor invoices.
- Trial-run, synchronization and grid-connection records for generating equipment.
- Commissioning certificate, commercial-operation declaration and date put to use.
- Board, project-manager or engineer records explaining when the asset became operational.
- For captive facilities, records linking the equipment to the eligible generation activity.
Tax and operating records
- Return, computation, depreciation schedule and tax-audit report for the relevant year.
- Prior-year treatment of the same block and any correspondence explaining changes.
- Generation, sale, wheeling, captive-consumption, tariff and meter records.
- Notices, replies, hearing submissions and technical annexures exchanged with the department.
Reconcile the schedule to the general ledger and the return. If an invoice covers several components, identify which component is claimed as new plant and explain why it is a separate, qualifying asset rather than a repair or undifferentiated addition.
Answering the “electricity is not an article or thing” objection
In NTPC SAIL Power, the Delhi High Court rejected an artificially narrow reading of section 32(1)(iia). The court held that electricity has the relevant characteristics of movable property: it can be abstracted, transmitted, transferred, delivered, possessed, consumed and used. Its concise formulation was that “electricity has all the necessary trappings of ‘articles’ or ‘things’.” On that reasoning, additional depreciation cannot be refused to a generating entity solely because its output is electrical energy.
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Frame the argument narrowly. You are not asserting that every expenditure at a power station qualifies. You are establishing that the nature of the output does not automatically disqualify a genuine generating business. Attach the generation licence or approvals, technical description of the generating process, commissioning records and evidence of commercial generation, then address the separate requirements that the machinery be new, acquired, installed and used for business.
Check the assessment year and the 2013 amendment
The Finance Act, 2012 expressly included assessees engaged in generation of power in the additional-depreciation provision with effect from 1 April 2013. For periods covered by that express inclusion, present the claim under the amended statutory text and prove the remaining conditions. For earlier assessment years, rely on the judicial interpretation treating electricity as an article or thing, while checking the wording and authorities applicable to that year. Do not assume that the amendment, by itself, decides an earlier year or removes the need for asset evidence.
State the assessment year in every ground of appeal. A submission that omits the year can blur whether it relies on the pre-amendment judicial position, the post-1 April 2013 text, or both.
When the dispute is that the plant was not new
This is principally a factual dispute. A recent tribunal decision upheld disallowance where the record did not establish a new qualifying acquisition and installation; an addition to an existing plant did not qualify automatically. The department may therefore accept that electricity generation is an eligible activity yet deny the claim for a particular asset.
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- what was purchased and whether it is independently identifiable;
- when ownership and possession passed;
- where and how it was installed;
- when it was first put to use in the business; and
- how the invoice amount ties to the amount in the depreciation schedule.
Replacement projects require special care. A new turbine or transformer may be qualifying plant, but civil work, overhaul, spare parts or repairs may be treated differently. Use engineering descriptions and component-level invoices rather than labels such as “expansion” or “modernisation.” If evidence was not filed during assessment, explain why and request admission under the applicable appellate procedure.
Do not confuse the 20% rule with the 35% proviso
The ordinary additional-depreciation rule discussed in the authorities is 20% of qualifying plant and machinery. A special 35% provision applies in specified backward areas subject to its own conditions. Recent tribunal material distinguishes the general rule from that proviso and notes that the special wording does not expressly include generation, transmission and distribution of power.
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Before defending a 35% claim, verify the exact assessment year, the statutory clause in force then, the location notified for the benefit, the date the undertaking began manufacture or production, and whether generation is covered. If any condition is uncertain, compute the ordinary claim separately and show the difference, rather than presenting an unsupported 35% figure.
Appeal or rectification?
| Feature | Form 35 appeal | Rectification |
|---|---|---|
| Purpose | Challenge a debatable legal or factual disallowance | Correct a mistake apparent from the existing record |
| Time sensitivity | Generally 30 days from service of order or demand | Does not protect the appeal limitation period |
| Evidence | Can present structured grounds and, where permitted, additional evidence | Normally confined to what is already on the record |
| Typical example | Whether generation produces an “article or thing,” or whether an asset is new | An obvious arithmetical, transcription or processing error |
| Risk if used alone | Filing late can require condonation | A contested interpretation may be rejected as debatable |
Use rectification when the correction is unmistakable without a new investigation—for example, a figure was carried incorrectly from a schedule that the department already accepted. Whether electricity qualifies, whether a replacement is new plant, and whether installation occurred in the relevant year generally require legal or factual analysis and belong in an appeal. You may pursue rectification where appropriate, but file the appeal on time if the two remedies could overlap.
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The Income Tax Department’s transition guidance states that proceedings relating to tax years beginning before 1 April 2026 continue under the Income Tax Act, 1961 framework, including rectification and limitation. The newer Act taking effect does not automatically rewrite an earlier assessment. Identify the tax year and the proceeding before citing either statute, and preserve the limitation rules applicable to that proceeding.
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What to put in the statement of facts and grounds
Statement of facts
Give a dated narrative: nature of the generation business, project location, assets acquired, installation and commissioning, amount claimed, notices issued, explanations filed and the exact basis on which the AO disallowed the deduction. Attach a cross-reference to each supporting document.
Grounds of appeal
- Challenge the finding that electricity cannot be an article or thing, citing the NTPC SAIL Power interpretation where applicable.
- State that the amended provision expressly covers generation of power for years from 1 April 2013, while preserving the argument for earlier years under the judicial authorities.
- Challenge any conclusion that the assets were not new by identifying the purchase, installation and put-to-use evidence for each item.
- Contest the rate separately from eligibility; do not allow uncertainty over 35% to obscure a valid 20% claim.
- Request deletion or recomputation of consequential interest and demand after the depreciation issue is decided.
After filing: manage the disputed demand
Track acknowledgement, defect notices, hearing dates and requests for remand evidence. Keep a running reconciliation of the tax originally returned, the disallowance, interest, payments made and any recovery communication. The commercial consequences can include cash-flow pressure and changes to depreciation blocks or carry-forward computations, so update later returns consistently with the position adopted in the appeal. Do not claim a tax saving, success probability or average outcome that is not established for your facts.
A qualified Indian tax adviser or tax-litigation lawyer can draft Form 35, the statement of facts and grounds, and test whether the technical record proves newness and installation. That professional review is particularly important where the project contains mixed costs, multiple entities, imported equipment or a claim for the special rate.
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