Depreciation allowable on Plant and Machinery required for Manufacture of Compressed Natural Gas from Natural Gas: ITAT [Read Order]

Lucknow bench of Income Tax Appellate Tribunal (ITAT) has recently held that depreciation is allowable on plant & machinery which is required for manufacture of Compressed Natural Gas (CNG) from Natural Gas.

Assessee in the instant case engaged in the business activities of compressing and selling of CNG and piped natural gas and has claimed additional depreciation against the investment in new plant & machinery during the assessment year.

However the Assessing Officer (AO) disallowed assessee’s claim of depreciation. He was of the view that the assessee was not engaged in the business of manufacture or production of any article or thing and he further observed that during the year 2008 – 09 CIT (A) were confirmed the disallowance on the same issue in assessee’s own case also.

Aggrieved by the assessee approached the Tribunal on appeal. Before the division bench, the assessee contended that it is manufacturing compressed natural gas which is used for the automobile fuel, which is prepared by a process of manufacture, by which the natural gas is put through a plant/machinery for compression and when the compressed gas comes out in its new form it is used for the automobile fuel. For this purpose, it bought the new plant & machinery and it is also a part of the manufacturing process of CNG.

While considering the rival submissions of both the parties, the tribunal bench comprising of Judicial Member Partha Sarathi Chaudhury and Accountant Member T.S.Kapoor observed that compressed natural gas is a commodity having a distinct name, character and use and therefore, the test to determine whether ‘manufacture’ has taken place is satisfied by the assessee. CNG in its original form cannot be used as fuel for the automobile industry. It is only upon undergoing the process of compression, it is converted into compressed natural gas which is a commodity, to be used as a fuel for the automobile industry, the bench observed.

The division bench further observed that it has sought to show that the entire process by which natural gas is compressed and having been compressed acquires a new and changed name of compressed natural gas acquires a new use and a distinct commercial identity. It was also said that the newly bought plant & machinery were also the required for manufacture of CNG hence the bench also allowed assessee’s claim on depreciation.