TMI Blog2012 (8) TMI 337X X X X Extracts X X X X X X X X Extracts X X X X ..... the point "the same should be put to use" for allowance of deduction is nowhere mentioned - the expression “undertakes substantial renovation and modernisation” cannot be read in isolation and has to be read along with Explanation to section 80-IA(4)(iv)(c) - against assessee. - ITA No.359/Bang/2009 - - - Dated:- 4-7-2012 - N Barathvaja Sankar, N V Vasudevan, JJ. For Appellant: Shri V Sridhar, CA For Respondent : Shri S K Ambastha, CIT-I(DR) ORDER Per: N V Vasudevan: This appeal by the assessee is against the order dated 10.02.2009 of the CIT(Appeals)-I, Bangalore relating to assessment year 2005-06. 2. The only issue that arises for consideration in this appeal is as to whether the assessee is entitled to claim deduction u/s. 80-IA(4)(iv)(c) of the Income-tax Act, 1961 ( the Act ). 3. The assessee is a wholly owned Government of Karnataka Undertaking. It is an electricity distribution company. The assessee claimed deduction 80-IA(4)(iv)(c) of the Act in respect of the profits derived from the distribution of power at 100% of the gross total income. Section 80-IA provides that where the gross total income of the assessee includes any profits and gains deri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ks in Lines, Cable Network Capitalised During the year 31.07 Total 194.40 (b) Capital Works-in-Progress (CWIP) (Assets of capital works in the course of construction or acquisition) Schedule 7 to the Audited Balance Sheet Particulars Amount Rs.in Crores Improvement, modernization and renovation Works on the existing network of Lines, Cable Network -Additions during the year (out of total CWIP of Rs.158.10 Crores). Schedule 7 of Balance Sheet 118.84 (c) Total Gross Block of Lines Cable, Nework ( a + b) Particular Amount Rs.in Crores Total- Lines, Cable Network capitalized and added to the CWIP during the year pertaining to other Lines, cable network 313.24 Less: Other usual works relating to new lines Cables, service connections extensions etc. 31.07 282.17 According to the Assessee the increase in book value as aforesaid was more than 50% of the book value as contemplated by the provisions of Sec.80-IA(4)(iv)(c) of the Act and therefore deduction as claimed by the Assessee should be allowed. 6. Shred of all t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erefore boils down to the first year in which deduction has to be allowed. Ultimately, neither the revenue nor the Assessee will be at any loss. Nevertheless the question as to whether the conditions laid down in Sec.80-IA(4)(iv)(c) are satisfied or not has to be decided. 8. Before CIT(A), the Assessee pointed out that it had undertaken contract work under the Accelerated Power Development Reforms Programme (APDRP) as per the guidelines framed by the Ministry of Power, Government of India for strengthening, upgradation and modernization of existing lines and cable network system to the extent of Rs.339.16 Crores during the FY relevant to AY 05-06. It was further submitted that the nature of renovation and modernization works in the lines and cable network of distribution lines and the progress of works at various stages for which the Assessee had substantially incurred amounts by way of payments to contract suppliers as advance or by way of capital work-in-progress or capital goods stock apart from capitalization of such lines and cables in the Block of Fixed Assets was to the extent of Rs.194.40 Crores. It was claimed by the Assessee that though a sum of Rs.118.84 Crores was sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... L 158,10,29,533 45,10,47,005 11. The claim of the Assessee is that a sum of Rs.118.84 Crores out of the above is capital expenditure incurred for modernization and renovation of the existing cable/network and they were to be considered as part of the fixed assets. It was submitted that in Schedule-11 to the balance sheet, advance to suppliers and advance to contractors have bee shown as loans advances. Our attention was drawn to Accounting Standard (AS-10) of Institute of Chartered Accountants of India (ICAI) wherein, it has been opined as follows:- Determination and Disclosure of Capital WIP when Outside Contractor is Hired: The amount at which capital work-in-progress should be recognised by the company should reflect the stage of contract performance. As the progress payments to the contractor may not necessarily reflect the stage of contract performance, accounting for capital work-in-progress based on progress payments would not be appropriate. In order to recognise capital work-in-progress based on the stage of contract performance, it is essential that such stage should be capable of being reasonably estimated. The stage of contrac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deduction should be allowed. It was clarified at the time of hearing of the appeal that from the A.Y. 2006-07, the assessee has been getting the deduction u/s. 80-IA(4). It is no doubt true that the provisions talk about undertaking substantial renovation and modernisation of existing network of transmission or distribution lines by the electricity distribution company. The Explanation, however, defines what is substantial renovation and modernisation and it lays down that the value of transmission and distribution lines should increase as per the books, at least by 50%, compared to the book value as on 01.04.2004. Admittedly, as per the books of account, this criterion was not satisfied. The assessee however seeks to rely on the expenditure incurred during the previous year which were in connection with renovation and modernization of cable and transmission line which were not complete and were in progress and therefore classified as CWIP. The fact that they were shown as CWIP in the books of account would only mean that renovation and modernisation of the existing transmission or distribution lines had not been recognized as complete. We accept the submission of the ld. DR that t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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