TMI Blog2015 (11) TMI 927X X X X Extracts X X X X X X X X Extracts X X X X ..... eferred page No.75 of the supplementary paper book i.e. copy of the relevant extracts of the tax audit report of the assessee for the assessment year under consideration reflecting statement of particulars including bifurcation of expenses between normal meter and electronic meters. We thus set aside the matter to the file of the Assessing Officer to verify and allow the claimed depreciation at the rate of 80% on electronic meters/energy meters only after affording opportunity of being heard to the assessee. Regarding the claimed higher depreciation on the “bus bar chamber”, the Learned AR submitted that these are devices through which connection from overhead line/underground cable is provided to the meters and the said device forms integral/inextricable part of the meters without which the meter cannot function. The authorities below have denied the claimed higher depreciation on this instrument on the basis that these are not energy saving device. We set aside this matter to the file of the Assessing Officer to verify the above claim of the assessee that ‘bus bar chamber’ forms integral/inextricable part of the meters without which a meter cannot function and allow the deprec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at:- It is also an undisputed fact that in the Income-tax Act, 1961, it has not been prescribed that for arriving at the cost of closing stock inventory which method is to be taken into consideration, whether FIFO, weighted average, LIFO or any other method. But under AS2, it has been made clear that the cost of inventory should be arrived at by using the first in first out (FIFO), or weighted average cost formula. After making the change in the method of valuation of closing of inventory from FIFO method to the weight average method in the assessment year 2005-06, the same has been consistently followed by the assessee from the assessment year 2005-06 onward. We also concur with the view of the Learned CIT(Appeals) that it is for the assessee to decide which method is more correct and hence more appropriate for the valuation of the stores/spares and not for the Assessing Officer to decide as long as the change is bona fide and the assessee is consistently following the same in the subsequent years. We thus do not find infirmity in the First Appellate Order on the issue as there was no any casual departure in regard to the method adopted by the assessee. The same is upheld. - Deci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om REL. - Decided in favour of assessee. Disallowance of legal claims - CIT(Appeals) deleted the addition - Held that:- We find that the Assessing Officer has made the disallowance on estimate basis at 25% of the expenditure claimed. No basis has been assigned for making such ad hoc disallowance. Noting these material aspects, we are of the view that the Learned CIT(Appeals) has rightly deleted the disallowance in absence of any instance that there was any penalty which would fall under the Explanation to Sec. 37 of the Income-tax Act, 1961. - Decided in favour of assessee. Deemed dividend under sec. 2(22)(e) relating to loans advanced to the company by BSES Rajdhani Power Ltd. - CIT(A) deleted the addition - Held that:- By virtue of the provisions laid down under sec. 2(18)(b)(B)(c) of the Act, we principally agree with the contention of the assessee that provisions of sec. 2(22)(e) of the Act are not attracted, where the company, who provides loan/advance to the assessee, is a company in which public has substantial interest. In support, the assessee has also cited hereinabove the two conditions i.e. (a) (b) claimed to have been fulfilled in the present case, which our view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... line deposits credited to the profit and loss account during the year amounting to ₹ 14,94,91,835 (as per the Company s policy of offering the Service Line Deposits for Revenue over a period of three years), while computing the total income after holding that entire receipt by way of service line deposit is capital in nature. 2. That on the facts and circumstances of the case and in law, the Assessing Officer erred in assessing the income of the appellant under sec. 115B and not under the normal provisions of the Income-tax Act, 1961 ( the Act ), without appreciating that the deeming provisions of section 115JB of the Act were not applicable during relevant assessment year. 4. In support of the above applications, the Learned AR submitted that the issues raised therein in the additional grounds are legal in nature and for adjudication of the same, no fresh material outside the record is required to be considered. In support, he placed reliance on the decision of Hon ble Supreme Court in the case of National Thermal Power Co. Ltd. vs. CIT 229 ITR 383 (S.C). 5. The learned CIT(DR) opposed the applications. 6. Considering the above submissions made by the parti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on, the Courts have also, as noted above, recognized the powers of the Appellate Commissioner and the Tribunal to entertain a new claim for the first time though not made before the Assessing Officer. Income-tax proceedings are not strictly speaking adversarial in nature and the intention of the Revenue would be to tax real income. 39. This primarily on the premise that if a claim though available in law is not made either inadvertently or on account of erroneous belief of complex legal position, such claim cannot be shut out for all times to come, merely because it is raised for the first time before the appellate authority without restoring to revising the return before the Assessing Officer. 6.1 We thus respectfully following the ratio laid down by the Hon ble Supreme Court in the above cited case of National Thermal Power Co. Ltd. vs. CIT (supra) and the recent decision of Hon ble Gujarat High Court in the case of CIT vs. Mitesh Impex (supra) wherein later decisions of Hon ble Supreme Court and Hon ble High Courts have been discussed, allow the applications and admit the above stated additional grounds for our adjudication. 7. The Revenue on the other hand has ques ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of inventories, profit of the company is lower by ₹ 5.02 crores, it can be soundly concluded that A.O. is correct while making the addition on account of valuation of closing stock. Ground No.1 (assessee s appeal): 8. The grievance of the assessee in this ground is that the Learned CIT(Appeals) has wrongly allowed depreciation on energy meters at 25% as against the claimed 80%, resulting in disallowance of ₹ 30,60,30,810 (subsequently reduced to ₹ 21,33,46,193 by way of rectification order dated 03.03.2010 under sec. 154 of the Income-tax Act, 1961). 8.1 The facts in brief are that the assessee company is engaged in the business of distribution of electricity/power. Erstwhile, Delhi Vidyut Board (DVB) was unbundled into six entities and distribution business was privatized in July, 2002. As per the assessment order, the details of these six entities are as under: GENCOL (Power generating company) It generates power and steps it up to 33/66 KV and then to 220 KV before sending it to the transmission company. TRANSCO: (Power transmission company) It receives power at 220KV and steps it down to 66/33 KV before sending it to the distributing c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No.1 of the appeal preferred by the assessee. 9. In support of the ground, the Learned AR contended that the denial of depreciation at the prescribed rate of 80% in respect of the above meters is not legally sustainable for the reasons stated hereunder: - Advanced feature of automatic electric load monitor, time of day (TOD) displays, which indicates consumption at the particular point of time during the day that is relevant/ helpful in collecting data and devising reliable technical solutions; - Electricity leakage display (ELD) indicator, which glows in case of earth leakage/ faulty wiring at customer s premises; - Feature of indicating the maximum demand which helps in regulating total energy load on the distribution transformers; in case the transformers are overloaded, it will result in increased technical losses - Accurate measurement of energy consumption, which arrests losses due to power theft; - Provide load and energy data for proper management of energy/ power 9.1 The aforesaid meters are clearly eligible for higher rate of depreciation @80% in the light of the legal position discussed hereunder: 9.2 Section 32 of the Act provides for allowance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s are per se recognized as energy saving device by the aforesaid Schedule, since even if the meter does not have any special feature, accurate measurement of energy consumption by itself, results in conserving energy in as much as it enables regulation of energy consumption and arrests losses due to power theft. 9.7 In view of the aforesaid, and without anything more, it is respectfully submitted that the meters installed by the appellant, which were undisputedly used for measuring energy consumption are clearly eligible for depreciation at the prescribed rate of 80%. 9.8 Apart from the above, it is further submitted that in New Appendix 1 to the Income-tax Rules, 1962 which is relevant for assessment year 2006-07 and onwards, depreciation @ 80% is also available in respect of electrical equipments having the specific feature of Time of day , as provided hereunder: .. E. Electrical Equipment xxxxxxxxxxxxxxxx (i) Time of Day (TOD) energy meters Xxxxxxxxxxxxxxx (emphasis supplied) 9.9 In this regard, it is submitted that the specifications contained in the energy meters installed by the appellant company also included the specific feat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ific entries appearing in Appendix to Income Tax Rules, eligible for higher rate of depreciation @ 80%. 10. The Learned CIT(DR) on the other hand placed reliance on the orders of the authorities below on the issue. He submitted that the Learned CIT(Appeals) after discussing the issue in detail has rightly come to the conclusion that the meters are more technologically advanced and do have features which can help consumers save energy but with human intervention. The meters per se do not on its own help in saving energy and thus cannot be said to be energy saving devices. The Learned CIT(DR) submitted further that the assessee itself has contended that most of the meters are energy saving meters but the exact bifurcation has not been given. The authorities below thus were justified in denying the claimed 80% depreciation. 11. The Learned AR rejoined with the submission that bifurcation of expenditure incurred on electronic/energy meters and manual meters is very much reflected in the audit report made available at page No. 75 of the supplementary paper book filed by the assessee. 12. Considering the above submission, we find that the Learned CIT(Appeals) has agreed with th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... meters for measuring .electric energy . 12.3 The submission of the assessee that there is no further/additional condition requiring the assessee to actually establish any direct relationship of the meters with the energy saved nor the said schedule also mandate that the energy meters should be electrical or mechanical devices and merely provides that the meters should be electricity/energy measuring devices finds substance. In the aforesaid schedule, the electricity measuring meters have been recognized as energy saving devices. We also find substance in the contention of the assessee that even if meter does not have any special features, accurate measurement of energy consumption by itself results in conserving energy in as much as it enables regulation of energy consumption and arrests losses due to power theft. The New Appendix-I to the Incometax rules, 1962 which is relevant for assessment year 2006-07 and onwards, deprecation at the rate of 80% is also available in respect of electrical equipment having been specific features of time of day , as provided hereunder: .. E. Electrical Equipment Xxxxxxxxxxxxxxxxx (i)Time of Day (TOD) energy meters X ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d allow the depreciation thereupon accordingly after affording opportunity of being heard to the assessee. The ground No.1 of the appeal preferred by the assessee is accordingly allowed for statistical purposes. 13. Additional ground No.1(assessee ) and ground No.1 (Revenue): The facts in brief are that in the assessment year under consideration, the appellant received a sum of ₹ 15.68 crores as non-refundable service line deposits from customers as per the provisions of the DERC and the Electricity Act for the purpose of incurring expenditure for laying service line and other related expenses for providing new connections to customers. The amount so received by the appellant was recognized as income over a period of 3 years, i.e. 1/3rd of the service line deposit is recognized as income every year and the balance amount is shown as liability in the balance sheet. In the assessment year under consideration, an amount of ₹ 14.94 crores was recognized as income and transferred to P L account. Further, the expenditure incurred for providing service line was capitalized under the head plant and machinery and full depreciation was claimed by the appellant on the capit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n met directly or indirectly by any other person or authority: Explanation 10.-Where a portion of the cost of an asset acquired by the assessee has been met directly or indirectly by the Central Government or a State Government or any authority established under any law or by any other person, in the form of a subsidy or grant or reimbursement (by whatever name called), then, so much of the cost as is relatable to such subsidy or grant or reimbursement shall not be included in the actual cost of the asset to the assessee: Provided that where such subsidy or grant or reimbursement is of such nature that it can not be directly relatable to the asset acquired, so much of the amount which bears to the total subsidy or reimbursement or grant the same proportion as such asset bears to all the assets in respect of or with reference to which the subsidy or grant or reimbursement is so received, shall not be included in the actual cost of the asset to the assessee (emphasis supplied) 14.2 The aforesaid section clearly mandates that where cost of any asset is met directly or indirectly by any person in the form of a subsidy or grant or reimbursement, then, so much of the cos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no tax can be levied or recovered without authority of law. Article 265 of the Constitution of India imposes an embargo on imposition and collection of tax if the same is without authority of law. 14.10 Reliance, in this regard, was placed on the decision of Hon ble Supreme Court in the case of Lily Thomas v. U.O.I.: AIR 2000 SC 1650, where the Hon ble Court observed as under: It cannot be denied that justice is a virtue which transcends all barriers and the rules or procedures or technicalities of law cannot stand in the way of administration of justice. Law has to bend before justice (emphasis supplied) 14.11 The Hon ble Supreme Court in the case of CIT v. Shelly Products And Another: 261 ITR 367 observed that if the assessee has by mistake or inadvertence or on account of ignorance, included in his income any amount which is exempted from payment of tax or is not income within the contemplation of law, the assessee may bring the same to the notice of the assessing officer, which if satisfied, may grant the assessee necessary relief and refund the tax paid in excess, if any. 14.12 Thus, merely because capital receipt towards service line deposits was erroneously o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rting ground No.1 of the appeal preferred by the Revenue, submitted that the Learned CIT(Appeals) was not justified in deleting the addition of ₹ 73,75,590 made on account of security line deposit from customers. He submitted that these service line receipts are not a liability of the assessee but are revenue receipts received during the year on running of business operations of the assessee company. The assessee is engaged in selling electricity to the consumers from whom it charges fees in the name of energy charges. For this purpose, it has to provide service line connections to the consumers from whom it charges service line deposits. He contended that the service line receipts cannot be treated as capital receipts because their nature would not depend upon how the assessee company is utilizing them but in what capacity they have been received by the assessee. 16. In reply to the submission of the learned CIT(DR) on ground No. 1 of the appeal preferred by the Revenue, the Learned AR submitted that the service line deposits received by the assessee in the assessment year under consideration are in the nature of capital receipt, as elaborated hereunder: 16.1 The asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT vs. Cochin Electric Co: 57 ITR 82 (Ker.) CIT vs. Poona Electric Supply Co. Ltd.: 14 ITR 622 (Bom) Monghyr Electric Supply Co. vs. CIT: 26 ITR 15 (Orissa.) 16.7. Further, even in the impugned assessment order, the assessing officer has merely emphasized on the point that since the assessee-company is primarily a service provider, the charges received from consumers were revenue in nature, without appreciating that the said charges were actually received as reimbursement towards incurring capital expenditure and not for rendering of any service per se. 16.8 It may also be pertinent to note that it is not even the case of the assessing officer, that the deposits/charges were not utilized for undertaking capital works . 16.9 In this regard, the Learned AR further submitted, that merely because the assessee followed the erroneous principle of recognizing service line deposits as income, though over a period of three years, the said fact, by itself, could not have been the basis of bringing to tax the entire amount received as trading receipt, notwithstanding the mandate of Explanation 10 to section 43(1) of the Act. 17. After considering the above submissio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 43(1) of the Act cannot be ignored only because the method of accounting was erroneously followed by the assessee of recognizing service line deposits as income over a period of three years. Of course, there is no estoppels in law and we fully concur with this contention of the Learned AR. The very purpose of the assessment is to compute income in accordance with the provisions of the Act. We thus while setting aside the orders of the authorities below on the issue raised by the assessee in the additional ground No.1 direct the Assessing Officer to reduce the service line deposits from the cost of assets falling under the plant and machinery in accordance with the mandate of Explanation-10 to section 43(1) of the Income-tax Act, 1961. The additional ground No.1 raised by the assessee is accordingly allowed. 17.1 So far as deletion of addition of ₹ 73,75,590 by the Learned CIT(Appeals) is concerned, the addition was made by the Assessing Officer on account of security line deposit from customers treating the same in the nature of revenue receipts, hence, taxable in the hands of the assessee. We find that the Learned CIT(Appeals) has dealt with the issue in detail i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the A/Rs referred to the related provisions of the DERC and Electricity Act and submitted that the assessee company is governed by Rules and Regulations as laid down by Delhi Electricity Regulatory Commission (DERC). The relevant Rules of DERC relating to Service Line Deposits are laid down in the schedule of Misc Charges as finalized by DERC on 16.06.2003.In accordance with the above Notification/Rules and Regulations of DERC, the assessee was charging service line as well as development charges as the case may be and both were accounted for under the head service line deposits. In the Electricity Act 1910 service line has been defined as under: Service Line is a supply-line intended to serve a consumer or a group of consumers. The distributing main is or is intended to be connected to the service line through which the consumer is supplied electricity. Service line is thus a connecting link between licensee s supply system and the consumer s interior wiring system. A service line is a part of an electric supply-line, but it is essentially a line from the distributing main to the premises of consumer. Service line is an electric supply line intended to supply energy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... machinery (meter) @ 80%, in accordance with the provisions of Section 43(1). App. No.187/09-10 12 M/s BSES Rajdhani Power Ltd. A.Y.2005-06; u/s 143(3) 5.4 The appellant also objected to various observation of the A.O and it was submitted that the A.O has observed that it is not a deposit but a receipt as it is non-refundable. In rebuttal the appellant argued that service line charges are being recovered from the customers as per the Electricity Act, 2003 and the regulations framed under the Act by the DERC from time to time. These charges are levied to recover the cost of service line which includes cost of GI pipes, bricks, sand, overhead or underground service line cables, meter accessories etc. These charges are charged from the customers only at the time of providing the new connection to recover the capital expenditure incurred on the equipments. These expenditure are capitalized under the head Plant Machinery (Meter) and depreciation is claimed thereon. With regard to the capitalization of assets it was submitted that as per provision of Section 43 (1) of the Income Tax Act, the cost of laying down the new connection having been partly recovered from the consumer, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce with Sec. 43(1) of the I.T.Act, 1961.On the other hand, energy charges are recovered from consumers for the amount of electricity consumed by them at the prevailing tariff, which is of the revenue nature. Accordingly, both these receipts, namely energy charges and service line receipts have different characteristics and therefore could not be measured with the same yardstick. With regard to the A.O s observation that the Company has not submitted any reasoning whatsoever as to why it has treated specifically 1/3rd of these receipts as revenue receipts and not or 1/4th or some other proportion as revenue receipts. It was submitted that in the absence of a one to one linking of the service line deposits received with the capital expenditure incurred on the service line connections, the justification for treating 1/3rd of the total amount of receipts in a particular year as revenue is that by doing so the company is offering for revenue all service line receipts over three years. At the same time the company is claiming 99% of the cost incurred on capitalizing service line connections under plant machinery (Meters) as depreciation over three years based upon the fact that energ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business of distributing electrical energy to i Nagar, App. No.187/09-10 15 M/s BSES Rajdhani Power Ltd. A.Y.2005-06; u/s 143(3) the consumers. Installation of service lines is not an isolated or casual act; it is an incident of the business of the assessee. But if the amount contributed by the consumers for installation of shat is essentially reimbursement of capital expenditure, the excess remaining after expending the cost of installation out of the amount contributed is not converted into a trading receipt. This excess-which is called by the Tribunal profit element was not received in the form of profit of the business; it was part of a capital receipt in the hands of the assessee and it was not converted into a trading profit because the assessee was engaged in the business of distribution of electrical energy, with which the receipt was connected. In CIT v/s Poona Electric Supply Co.Ltd. 14 ITR 622 it was held by a Division Bench of the Bombay High Court that the amount received from the Govt. of Bombay by the Poona Electric Co. in reimbursement of expenses incurred for constructing new supply lines for supplying energy to new areas not previously served was a capital recei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rawn with the help of electric posts are electric supply lines and connection taken from the post to the building are service line. He has noted further that service line charges are levied to recover the cost of service line which includes the cost of GI pipes, bricks, sand, overheads or under ground cables etc. There is no dispute that the service line charges are charged from the consumer only at the time of providing new connections, to recover the expenditure incurred on such equipments and it is a one time charge levied on the consumers at the time of taking new connections and thereafter it is the responsibility of the BRPL for repair/replacement of the service line. It has been noted that the assessee was charging service line deposits as well as development charges from the consumers as per the rules and notification of Delhi Electricity Regulatory Commission (BERC). The capital expenditure incurred in respect of service line deposits on account of service line cables, cost of G.I. pipes, bricks etc. were capitalized under the head meter accessories (on which deprecation was claimed at the rate of 80% but was reduced by the Assessing Officer to 25%). However, the capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he matching concept as enunciated under AS-I requiring Revenue to be matched with cost. Based upon the matching concept and Revenue friendly concept, the offering of service line deposits (which are in the nature of capital receipts) over a period of three years is not prejudicial to the interest of Revenue, however, the service line receipts are of capital nature and is required to be reduced from the relevant cost of plant and machinery in accordance with sec. 43(1) of the Income-tax Act, 1961, explained the assessee. 17.4 With regard to the observation of the Assessing Officer that the assessee is engaged in selling electricity to the consumers from whom it charges fees in the name of energy charges and these energy charges are in the nature of Revenue receipts, the submission of the assessee remained that the nature of service line receipts are entirely different from the nature of the energy charges and the service line receipts deserve to be reduced from the cost of the relevant plant and machinery in accordance with sec. 43(1) of the Income-tax Act, 1961. On the other hand, energy charges are recovered from consumers for the amount of electricity consumed by them at the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng reasons: (a) Moving Average (weighted average) method was considered as the most appropriate method for valuation of closing stock considering that the stores and spares of the assessee-company comprise mainly of cables, conductors, transformers and other metal based items, whose value keeps fluctuating considerably and are extremely volatile based on the market value of Iron/Aluminum/Copper, etc. Thus, it was more logical/reasonable to adopt the weighted/moving average method, which has been consistently followed in the subsequent assessment years; (b) The aforesaid transition in the accounting package was undertaken by the assessee w.e.f. 01.04.2004, with the bona-fide intention of facilitating better control and accountability, which is more reliable/ feasible and recommended method for implementing SAP; (c) Change in the method also facilitated alignment of its policy with group company, M/s. Reliance Energy Limited ( REL ). 19.1 It is further of utmost importance to note that in the assessment year under consideration the assessee filed return of income declaring the income of Rs. Nil/- after setting off of brought forward unabsorbed business loss/depreciati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ars as well. 19.8 The relevant provisions of section 145A of the Act reads as under: 145A. Notwithstanding anything to the contrary contained in section 145,- (a) the valuation of purchase and sale of goods and inventory for the purposes of determining the income chargeable under the head Profits and gains of business or profession shall be- (i) in accordance with the method of accounting regularly employed by the assessee; and (ii) further adjusted to include the amount of any tax, duty, cess or fee (by whatever name called) actually paid or incurred by the assessee to bring the goods to the place of its location and condition as on the date of valuation. .. (emphasis supplied) 19.9 On perusal of the above, it may be noted that the section nowhere prohibits the assessee from changing its method of valuation of stock, but merely stipulates a condition that the method must be employed regularly. 19.10 A change in accounting policy regarding valuation of inventories is allowable if the proposed change is as per the requirement of statue and/ or is bona-fide. Thus, if the assessee was earlier using a particular method of valuation, whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same could not have been tinkered with, which would have impacted the profitability of assessment year 2005-06 and thereby the opening stock remained to be valued at FIFO. 19.16 Furthermore, in holding that Moving average method was not an appropriate method for valuation of stock, the assessing officer failed to provide any reason/ logic in the impugned assessment order. 19.17 Reliance placed by the assessing officer on the decision of the Hon ble Delhi High Court in the case of CIT vs. Bharat Commerce Industries Ltd.: 240 ITR 256 and the Hon ble Bombay High Court in the case of CIT vs. Sanjeev Woollen Mills: 127 Taxman 209 is misplaced. 19.18 In the case of Bharat Commerce (supra), the Hon ble Court categorically held that change in method of valuation is permissible if it is bona-fide and followed regularly from year to year. 19.19 In the instant case, the assessing officer has failed to establish that the change in method of valuation of closing stock was not bona-fide, more so when this method has been accepted by the assessing officer himself in the subsequent assessment years. 19.20 The decision in the case of Sanjeev Woollen (supra) proceeded on its pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er consideration, which resulted in reduction of profit to the tune of ₹ 5.02 crores in the said year. Accordingly, the assessing officer brought to tax ₹ 5.02 crores, being the difference on account of change in method of valuation of inventories by concluding that Moving average method is not an appropriate method for valuation of inventories. 20.4 On appeal against the aforesaid assessment order, the Ld.CIT(A) deleted the addition of ₹ 5.02 crores made by the assessing officer by holding that the change in method of valuation of inventories undertaken by the assessee in the assessment year under consideration was on account of bona-fide reasons, which did not result in any kind of tax advantage to the assessee and the changed method was also being consistently followed by the assessee in the subsequent assessment years. The Learned CIT(Appeals) has discussed the objections raised by the Assessing Officer and explanation of the assessee meeting out those objections. The assessee tried to establish its bona fide behind the change in the method of valuation. It was submitted that whenever there is a change in the method of valuation, there is bound to be some ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a case, a procedure cannot be App. No.187/09-10 7 M/s BSES Rajdhani Power Ltd. A.Y.2005-06; u/s 143(3) adopted for changing the value of the opening stock of that particular assessment year as per the changed method, for it will lead to a chain reaction of changes in the sense that the closing value of the stock of the year preceding will also have to change and correspondingly the value of the opening stock of that year and so on. I also find that In the income tax, it has not been prescribed that for arriving at the cost of closing stock of inventory which method is to be taken into consideration whether FIFO, weighted average, LIFO or any other method. But under AS2 it has been made clear that the cost of inventories should be arrived at by using the first in first out (FIFO), or weighted average cost formula. After making the change in the method of valuation of closing stock of Inventory from FIFO method to the weighted average method in the AY 2005-06, the same has been consistently followed by the assessee from the AY 2005-06 onwards. Further, I am of the view that, it is for the Assessee to decide which method is more correct and hence more appropriate for the valuation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... first year and in the second year the attempt is to suppress the profits.Thus the entire device adopted by the assessee was to inflate the deduction under section 80 HHC in the first year and to suppress the profit in the second year. 4.5 I find that the ratio of the above case is not applicable to the assessee company in view of the fact that the assessee company is not claiming deduction u/s 80 HHC or under any other section of the Income Tax Act, 1961.Further it can be said that there is intention to reduce the taxable profits by shifting the profits to the next year as it has already brought forward unabsorbed depreciation losses of the earlier years. Further, the assessee company also has the carry forward of unabsorbed depreciation and losses in the AY 2006-07. In my view the assessee is entitled to change his method of accounting and replace the regular method by another. Though it is essential that a method once chosen should be applied consistently through the years. So that in case of any deviation from the proper value App. No.187/09-10 9 M/s BSES Rajdhani Power Ltd. A.Y.2005-06; u/s 143(3) at the close of one year, it may be rectified by the accounts in the next y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee. The same is upheld. The ground No.2 of the appeal preferred by the Revenue is accordingly rejected. 21. Addl. Ground No.2 (assessee): The issue raised is as to whether provisions of section 115JB of the Income-tax Act, 1961 were not applicable during the relevant assessment year and thus the Assessing Officer was not justified in assessing the income of the assessee under sec. 115JB of the Act and not under normal provisions of the Act. The relevant facts are that the assessee is engaged in the business of distribution of electricity and is governed by the provisions of the Electricity Act, 2003. It claims that it prepares its annual account in accordance with the applicable Electricity Laws including the provisions of Delhi Electricity Reforms (Transfer Scheme), Rules, 2001. The submission of the assessee is that in accordance with proviso to sub-sections (1) and (2) of section 211 of the then applicable Companies Act, 1956 (Companies Act), the assessee prepares its audited annual account in accordance with the generally accepted accounting principles in India and provisions of the Companies Act, 1956 read with the Companies (Accounting Standard) Rules, 2006 as well ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plicable. In addition provisions of the Delhi Electricity Reform (Transfer Scheme) Rules, 2001 (hereinafter referred to as Transfer Scheme) and other relevant documents / agreements have been taken into account while preparing the financial statements 22.3 Thus, it may be pertinent to note that the books of accounts of the appellant-company are drawn in accordance with the statutory provisions as applicable to an Electricity Company, i.e., the Repealed Electricity (Supply) Act, 1948 and the Delhi Electricity Reform (Transfer Scheme) Rules, 2001(hereinafter referred to as Electricity Act/DERC Regulations ) and provisions of the Companies Act, 1956, to the extent the same are not inconsistent with the Electricity Act/ DERC Regulations. In other wordsin case of any variation/conflict in the aforesaid provisions, the appellant is bound to mandatorily follow/adopt the specific provisions of the Electricity Act/DERC Regulations, which are specifically related to its area of operations, although the basic form for preparation and presentation of accounts would be prescribed by Schedule VI to the Companies Act. The over-riding mandate of the Electricity Act, 2003 in respect of an Ele ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uding provisions of the Delhi Electricity Reforms (Transfer Scheme), Rules, 2001 and is not required to and has not been strictly preparing its audited annual accounts as per Parts II and III of Schedule VI of the Companies Act, 1956. 22.11 In the aforesaid context, it may also be pertinent to note that prior to the amendment to sub-section (2) of section 115JB of the Income-tax Act, 1961 ( the Act ), the deeming provisions of the said section were not applicable to companies to which proviso to sub-section (2) of section 211 of the Companies Act applied. 22.12 This is clearly evident from a bare reading of the provisions of section 115JB of the Act, as applicable to the relevant year under consideration. 22.13 The Learned AR submitted that on perusal of the aforesaid, it will kindly be noticed that the provisions of section 115JB of the Act applied during the relevant year only to companies required, under the law, to prepare its profit and loss account in accordance with Parts II and III of Schedule VI of the Companies Act and not otherwise. 22.14. It is of utmost importance to note that the Legislature re-introduced the MAT provisions vide Finance Bill, 1996: 220 ITR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Banking Regulation Act, 1949, Electricity Act, 2003, Insurance Regulatory Act, 1999 etc. Reference, in this regard, made to the following decisions:- - Kerala State Electricity Board v. DCIT: ITA Nos. 1703/1710 and 1716 of 2009 (Ker) - Maharashtra State Electricity Board v. JCIT: 82 ITD 422 (Mum.) - Reliance Energy Ltd. vs. ACIT: ITA No. 218/Mum/2005 (Mum.) - Krung Thai Bank PCL v. JDIT: 133 TTJ 435 (Mum.) 22.18 Accordingly, the provisions of section 115JB of the Act were, during the relevant year, not applicable to the appellant, contended the Learned AR. 22.19 The Learned AR submitted that the aforesaid contention of the appellant, is fortified by substantive amendments in section 115JB of the Act made by the Finance Act, 2012, with effect from April 1, 2013, which are discussed hereunder: 22.20 The scope of the deeming provisions of section 115JB of the Act was widened w.e.f. 01.04.2013, by including within the ambit of the said section, companies to which proviso to sub-section (2) of section 211 of Companies Act applied. The Learned AR referred sub-section (2) to section 115JB of the Act as substituted by the Finance Act, 2012 w.e.f. 01.04.2013. 22.21 T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erve on disposal of a revalued asset. Thus, the gains attributable to revaluation of the asset is not subject to MAT liability. It is, therefore, proposed to amend section 115JB to provide that the book profit for the purpose of section 115JB shall be increased by the amount standing in the revaluation reserve relating to the revalued asset which has been retired or disposed, if the same is not credited to the profit and loss account. III. It is also proposed to omit the reference of Part III of the Schedule VI of the Companies Act, 1956 from section 115JB in view of omission of Part III in the revised Schedule VI under the Companies Act, 1956. These amendments will take effect from 1st April, 2013 and will, accordingly, apply in relation to the assessment year 2013-14 and subsequent assessment years . [Clause 46] (emphasis supplied) 22.24 On perusal of the aforesaid, it will kindly be appreciated that the Legislature recognized that as per the provisions of the Companies Act, 1956, certain companies, e.g. insurance, banking or Electricity Company, are allowed to prepare their profit and loss account in accordance with the provisions specified in their regulatory ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itself. 22.29 Specific reliance in this regard was placed on the decision of the Delhi Bench of the Tribunal in the case of Bank of Tokyo Mitsubishi UFJ Ltd. vs. ADIT: ITA No.5364 of 2010 wherein the Tribunal was adjudicating the issue regarding applicability of provisions of section 115JB to a foreign bank which was subject to tax in India on income earned by the branch in India (PE)and preparing its accounts as per requirements of Banking Regulation Act. The Tribunal while following the principles laid down by the Supreme Court in Vatika Township (supra) observed that the amendment to section 115JB of the Act by the Finance Act, 2012 was prospective since the same resulted in substantial change in computation provisions. 22.30 To the same effect are the following decisions, wherein amendment to sub-section (2) of section 115JB of the Act vide Finance Act 2012 has been held to be prospective: - State Bank of Hyderabad v. DCIT: ITA No. 578/Hyd./2010 (Hyd.) - ICICI Lombart General Insurance Co. Ltd. V. ACIT: 54 SOT 538 (Mum.) 22.31 Applying the aforesaid legal principles, the Finance Act, 2012, in no uncertain terms, clearly provides that the provision of section 115 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed upon by the Learned AR having distinguishable facts are not applicable in the case of the assessee. He pointed out that the assessee itself had declared income under the deeming provisions of sec. 115JB of the Act, thus, the assessee has no grievance in this regard and the issue raised in the additional ground may be decided in favour of the Revenue. 24. We find that in support of the issue that deeming provisions of sec. 115JB of the Act were not applicable in the case of the assessee during the assessment year under consideration, the Learned AR has cited provisions of different laws and has placed reliance on several decisions. We thus prefer to examine provisions of different laws on the issue first. It was claimed that books of account of the assessee are drawn in accordance with the statutory provisions as applied to an electricity company, i.e. the Repealed Electricity (Supply) Act, 1948 and the Delhi Electricity Reforms (Transfer Scheme) Rules, 2001 and provisions of the Companies Act, 1956 to the extent the same are not inconsistent with the Electricity Act/DERC Regulation. It was submitted in other words that in case of any variation/conflict in the aforesaid provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e time being in force, except in so far as the said provisions are inconsistent with the provisions of such special Act; (e) to such body corporate, incorporated by any Act for the time being in force, as the Central Government may, by notification in the Official Gazette, specify in this behalf, subject to such exceptions, modifications or adaptations, as may be specified in the notification.] Application of Act to Government Companies Further, Section 1(4) of the Companies Act, 2013 reads as under: 1. Short title, extent, commencement and application (1) This Act may be called the Companies Act, 2013. .. (4) The provisions of this Act shall apply to- (a) companies incorporated under this Act or under any previous company law; (b) insurance companies, except in so far as the said provisions are inconsistent with the provisions of the Insurance Act, 1938 or the Insurance Regulatory and Development Authority Act, 1999; (c) banking companies, except in so far as the said provisions are inconsistent with the provisions of the Banking Regulation Act, 1949; (d) companies engaged in the generation or supply of electricity, e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, it is clear that the very basis of recognition of Revenue and expense is regulated by the DERC and not strictly as per the provisions of the Companies Act. It is also an established position of law that provisions of a specific Act would override the provisions of all other Acts, which is supported by the decisions relied upon by the assessee including the decision so Hon ble Supreme Court in the case of TRO vs. Custodian Special Court at 934 (supra). Thus, it can be safely arrived at a conclusion that the assessee prepares its annual account in accordance with the applicable laws including provisions of the Delhi Electricity Reforms (Transfer Scheme), Rule 2001 and is not required to and has not been strictly preparing its audited annual account as per Parts II and III of Schedule-6 of the Companies Act, 1956. 24.6 Further contention of the Learned AR remained that prior to the amendment to sub-section (2) of sec. 115JB of the Income-tax Act, 1961, the deeming provisions of the said section were not applicable to Companies to which proviso to sub-section (2) of sec. 211 of the Companies Act were abolished. To examine this contention, we have gone through the provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egulation, which are binding and mandatory to be followed by the assessee. 24.6 The cited decisions by the Learned AR in the cases of Kerala State Electricity Board, vs. DCIT (supra), Maharashtra State Electricity Board vs. JCIT (supra), Reliance Energy Ltd. vs. ACIT (supra) and Crung Thai Bank PCL vs. JDIT (supra) also support the contention of the assessee that provisions of sec. 115JB of the Act shall not apply to Companies referred in proviso to sub-sections (1) and (2) of sec. 211 of the Companies Act, i.e. companies covered by Special Acts viz. Banking Regulation Act, 1949, Electricity Act, 2003, Insurance Regulatory Act, 1999 etc. We accordingly hold that provisions of sec. 115JB of the Act were not applicable to the assessee during the year under consideration as the same is also fortified by substantive amendments in section 115JB of the Act by the Finance Act, 2012 w.e.f. 01.04.2013. Sub-section (2) to section 115JB of the Act as substituted by the Finance Act, 2012 w.e.f. 01.04.2013 reads as under: Special provision for payment of tax by certain companies 115JB. (1) Notwithstanding anything contained in any other provision of this Act, where in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y special Act only from assessment year 2013-14 and onwards. The memorandum explaining the provisions of the Finance Bill, 2012- 240 ITR (St.) 288 whereby sub-section (2) of sec. 115JB was substituted provides that the amendment is applicable w.e.f. 01.0.2013 i.e. for the assessment year 2013-14 onwards. The relevant extracts of the memorandum has been reproduced hereinabove in the submissions of the Learned AR. From the aforesaid amendments, it is clear that prior to amendment applicable from the assessment year 2013-14, provisions of sec.115JB of the Act were not applicable to an electricity company such as the assessee up to the assessment year 2012-13. 24.9 The Explanation-3 to section 115JB of the Act which provides an option to prepare its accounts as per Schedule-VI of the Companies Act or the governing law/special Act in respect of assessment year prior to 2013-14, has also been inserted as per the substantive amendments applicable from assessment year 2013-14 and onwards. The amendments to section 115JB of the Act made by Finance Act, 2012 are substantive in nature resulting in fresh liability to tax and would, therefore, apply only prospectively. The same cannot unless ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te the cornucopia of case law available on the subject because aforesaid legal position clearly emerges from the various decisions and this legal position was conceded by the counsel for the parties. In any case, we shall refer to few judgments containing this dicta, a little later. .. Thus, the rule against retrospective operation is a fundamental rule of law that no statute shall be construed to have a retrospective operation unless such a construction appears very clearly in the terms of the Act, or arises by necessary and distinct implication. Dogmatically framed, the rule is no more than a presumption, and thus could be displaced by out weighing factors. 35. Let us sharpen the discussion a little more. We may note that under certain circumstances, a particular amendment can be treated as clarificatory or declaratory in nature. Such statutory provisions are labeled as declaratory statutes . The circumstances under which a provision can be termed as declaratory statutes is explained by Justice G.P. Singh7 in the following manner: Declaratory statutes: The presumption against retrospective operation is not applicable to declarator ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ain any pre-existing legislation which was ambiguous or defective. The power of the High Court to entertain a petition for exercising revisional juris-diction was before the amendment derived from s. 115, Code of Civil Procedure, and the legislature has by the amending Act attempted to explain the meaning of that provision. An explanatory Act is generally passed to supply an obvious omission or to clear up doubts as to the meaning of the previous Act. 36. It would also be pertinent to mention that assessment creates a vested right and an assessee cannot be subjected to reassessment unless a provision to that effect inserted by amendment is either expressly or by necessary implication retrospective. (See Controller of Estate Duty Gujarat-I v. M.A. Merchant 1989 Supp (1) SCC 499. We would also like to reproduce hereunder the following observations made by this Court in the case of Govinddasv. Income-tax Officer (1976) 1 SCC 906, while holding Section 171 (6) of the Income- Tax Act to be prospective and inapplicable for any assessment year prior to 1st April, 1962, the date on which the Income Tax Act came into force: 11. Now it is a well settled rule of interpretation hal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned by the Branch in India (P.E) and preparing its accounts as per requirements of Banking Regulation Act. The relevant finding in that case are being reproduced hereunder: 74 .In our opinion this explanation cannot be held to be retrospective in operation because it has brought in a substantial change in the computation provision. Till the insertion of this amendment, various decisions clearly held that in case of Banking Companies, Electricity Companies and Insurance Companies, since they were governed by Special Acts and the profit and loss account was not prepared as per part II of schedule VI to the Companies Act, therefore, the computation provisions failed. Accordingly, in view of the decision of Supreme Court in the case of B.C. Srinivasa Setty (supra), the law till the insertion of this explanation was that the provisions of section 115JB were not applicable on account of impossibility of computation as the accounts were not prepared in accordance with part II, schedule VI to the Companies Act. Now by incorporating Explanation 3, the Companies governed by Special Acts which come within the ambit of company u/s 2(17) are covered by the provisions of section 115JB ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore Bench of the ITAT in the case of Syndicate Bank vs. DCIT (supra) has decided the issue in favour of the assessee, a banking company. Relevant para Nos. 98 99 thereof are being reproduced hereunder: 98. We have considered the rival submissions of the learned counsel for the assessee. We find that this issue was considered by the Mumbai Bench of the Tribunal in the case of Krung Thai Bank PCL (supra) and on the above issue held as follows: 5. Learned counsel for the assessee, however, contends that the provisions of MAT do not apply to the assessee, and, for this reason, very foundation of impugned reassessment proceedings is devoid of legally sustainable merits. His line of reasoning is this. The provisions of MAT can come into play only when the assessee prepares its profit and loss account in accordance with Schedule VI to the Companies Act. It is pointed out that, in terms of the provisions of sec. 115JB(2), every assessee is required to prepare its profit and loss account in terms of the provisions of Part II and III of Schedule VI to the Companies Act. Unless the profit and loss is so prepared, the provisions of Sec. 115JB cannot come into play at all. However, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enterprises engaged in developing, maintaining and operating infra-structure facility as a matter of policy, are not brought within the purview of the amendment (115JA) for the reason that such a policy would promote the infra-structural development of the country and that such an understanding of the CBDT is binding on the department, has also been pleased to arrive at a conclusion, relevant paragraphs thereof are being reproduced hereunder: 11. Before we examine the first question a brief survey of the history of section 115JB is necessary. Chapter XII-B was inserted by the Finance Act of 1987 in the Income-tax Act. Section 115J was introduced for the first time by the said Chapter. The relevant portion of the said section reads as follows: Section 115J. Special provisions relating to certain companies.-(1) Notwithstanding anything contained in any other provision of this Act, where in the case of an assessee being a company (other than a company engaged in the business of generation or distribution of electricity), the total income, as computed under this Act in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appended to the Explanation, the details of which are not necessary for the purpose of this case. However, the operation of section 115J came to an end with 1991- 92 assessment year onwards. 12. Subsequently, section 115JA came to be inserted in the Income-tax Act by Finance Act 2 of 1996, with effect from 1-4-1997. The scheme of section 115JA is almost similar to the scheme of section 115J. Two major points of difference are that the new section is applicable with reference to the previous year relevant to the assessment year commencing from 1-4-1997 and ending with 1-4-2001. Secondly, the express exclusion of the Companies engaged in the business of either generation or distribution of electricity is absent under section 115JA. The third and most important change is that two provisos are added to sub-section (2) stipulating that : Provided that while preparing profit and loss account, the depreciation shall be calculated on the same method and rates which have been adopted for calculating the depreciation for the purpose of preparing the profit and loss account laid before the company at its annual general meeting in accordance with the provisions of section 210 of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting policies; (ii) the accounting standards adopted for preparing such accounts including profit and loss account; (iii)the method and rates adopted for calculating the depreciation, shall correspond to the accounting policies, accounting standards and the method and rates for calculating the depreciation which have been adopted for preparing such accounts including profit and loss account for such financial year or part of such financial year failing within the relevant previous year . The scheme of the section 115JB is similar to section 115J and section 115JA. The difference insofar as it is relevant for the present purpose between section 115JB and its fore-runners (Sections 115J and 115 JA) is as follows: All the 3 sections (Ss.115J, 115JA and 115JB) create legal fictions regarding the total income (a defined expression under section 2(45) of the Act) of the Companies. While the earlier two sections mandate the department to make the assessment on a fictitious amount of total income where the actual amount of total income computed in accordance with the Income-tax Act is less than 30 per cent of the book profits of the Company, section 115JB mandates ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er and Auditor-General of India or such other person duly authorised by the Comptroller and Auditor-General of India. The accounts so prepared along with the audit report is required to be laid annually before the State Legislature and also to be published in the prescribed manner and copies of such publication shall be made available for sale at a reasonable price, obviously for the benefit of the general public who wish to scrutinise the accounts. 16. Thus, it can be seen that coming to the maintenance of the accounts, the appellant though is deemed to be a Company - both by virtue of operation of section 80 of the Income-tax Act for the purpose of Income-tax Act and by virtue of the definition of the expression Company under the Income-tax Act (which is already examined earlier) - the appellant is required to keep and maintain its accounts in a manner specified by the Central Government, but not in the manner specified in the Companies Act. Therefore, the question is whether the legal fiction contemplated under section 115JB can be pressed into service while making the assessment of Income-tax payable by the appellant. 17. It must be remembered that section 115JB c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f interpretation of statutes the omission of a clause which existed in the statute at some point of time by a subsequent amendment would indicate that the legislature intended not to give the benefit of such clause any more to those who were getting the benefit of such exclusion clause, in our opinion, it is not an absolute rule. The other attendant circumstances, the context, the history and the mischief sought to be remedied by the amendment are all required to be examined before reaching at definite conclusion. 19. The Circular No. 762 not only is binding on the respondents, but also explains the purpose in introducing section 115JA. The relevant portion reads as follows:- 46.1 In recent times, the number of zero-tax companies and companies paying marginal tax has grown. Studies have shown that in spite of the fact that companies have earned substantial book profits and have paid handsome dividends, no tax has been paid by them to the exchequer. 46.2 The Finance Act has inserted a new section 115JA of the Incometax Act, so as to levy a minimum tax on companies who are having book profits and paying dividends but are not paying any taxes. The scheme envisages the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business of generation and distribution of electricity and Enterprises engaged in developing, maintaining and operating infrastructure facilities, as a matter of policy, are not brought within the purview of the amendment (Section 115JA) for the reason that such a policy would promote the infrastructural development of the country. Such an understanding of the CBDT is binding on the department. 20. If that is the background in which section 115JA is introduced into the Income-tax Act, section 115JB, which is substantially similar to section 115JA, in our opinion, cannot have a different purpose and need not be interpreted in a manner different from the understanding of the CBDT of section 115JA. 24.8 Under the above facts and circumstances, we thus hold that even though the assessee, under a misconception of law, had declared income under the deeming provisions of sec. 115JB of the Act, still the Assessing Officer was under its duty bound to make correct assessment of income of the assessee in accordance with the provisions of the Act. As per above discussion and the ratios laid down in the cited decisions, we hold that the provisions of sec. 115JB of the Act were not a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 377; 16,39,25,174 (as per the Company s policy of offering the service line deposit for Revenue over a period of three years) while computing the total income after holding that entire receipts by way of service line deposit is capital in nature . 2. That on the facts and circumstances of the case and in law, the Assessing Officer erred in assessing the income of the appellant under sec. 115JB and not under the normal provisions of the Income-tax Act, 1961 (The Act) without appreciating that the deeming provisions of sec. 115JB of the Act were not applicable during relevant assessment year. 25.2 Similar arguments have been advanced by the parties as advanced by them on the allowability of the similar additional grounds in the assessment year 2005-06 hereinabove. Following the decision taken therein, we allow the present application and admit the above stated additional grounds for our adjudication. 26. On the issues raised in the additional grounds regarding the issues of (i) not directing the Assessing Officer to reduce the amount of service line deposit credited to the profit and loss account during the year by the Learned CIT(Appeals) while deciding service line deposi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Ground No2 (assessee): It is regarding the disallowance of depreciation to the tune of ₹ 20,69,729 upheld by the Learned CIT(Appeals). 28.1 The facts in brief are that during the year the assessee had received grant-in-ad of ₹ 18.63 crores from the Ministry of Power under the accelerated power development reforms program for the purpose of upgradation of sub-transmission and distribution in densely electrified zones in the Urban and Industrial Areas and improvement in the commercial viability of the S.E.Vs/Discom. 28.2 The aforesaid aid primarily had two main components as under: i) investment component for strengthening and up-gradation of the sub-transmission and distribution system; ii) incentive components to encourage/motivate utilities to reduce cash losses. 28.3 The expenditure incurred on up-gradation of the system was duly capitalized by the assessee under the head plant and machinery and the grant/aid received under the said scheme was reduced from the block of such assets (s). 28.4 The Assessing Officer held that since the grant in aid received by the assessee could not be directly attributed to the specific assets acquired during the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he actual cost of the assets to the assessee. For a ready reference, the said Explanation-10 to sec. 43(1) of the Act is being reproduced hereunder: Explanation 10- Where a portion of the cost of an assets acquired by the assessee has been met directly or indirectly by the Central Government or a State Government or any authority established under any law or by any other person, in the form of a subsidy or grant or reimbursement (by whatever name called), then, so much of the cost as is related to such subsidy or grant or reimbursement shall not be included in the actual cost of the assets to the assessee. 31.1 In view of the above discussion, we set aside the matter to the file of the Assessing Officer to verify the contents of page No. 78 of the supplementary paper book i.e. the relevant extracts of the tax audit report of the assessee for the assessment year 2006-07 reflecting the grant in aid reduced from the respective cost of assets and allow the claimed relief after affording opportunity of being heard to the assessee to this effect that the aid received by the assessee was rightly adjusted against the cost of acquisition of plant and machinery and not against mete ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ves that they are of revenue nature. h) Further the co. has not submitted any reasoning whatsoever as to why it has treated specifically 1/3rd of these receipts as revenue receipts and not or 1/4th or some other proportion as revenue receipts. i) Lastly, the assessee co. has not provided the details of these receipts including their reconciliation with its books even though specific query was raised in this regard vide note sheet entry dt. 21.11.2008. However a sample voucher of receipt was submitted which reveals that apart from service line charges, the co. is levying development charges from the customers for a new connection. Thus the co. is already collecting funds for incurring capital expenditure. j) The service line receipts simply cannot be treated as capital receipts because their nature would not depend upon how the assessee co. is utilizing them but in what capacity they have been received by the company. And the fact is that they have been received by the co. in the course of running its regular business operations. k) The assessee company also not provided the information in the tabular form inspite of specifically asked for by the AO during the Assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the assessee is under consideration before the Hon ble Supreme Court. 36. The Learned AR on the other hand placed reliance on the First Appellate Order with the submission that the aforesaid purchases were made by the assessee through a competitive bid, wherein tenders were floated to eight vendors which included REL. However, out of eight vendors, only four vendors qualified on technical valuation and ultimately the contract was awarded to REL, considering that REL had provided the lowest bid meeting all the technical requirement. Thus, the energy meters were procured from REL at the most competitive price and superior technical specification meeting the delivery schedule of the assessee. He contended that while arriving at the conclusion that the price at which the energy meters were purchased from REL was not at arm s length and that REL had sold the said product at an exorbitant price, the Assessing Officer failed to bring on record any independent corroborative evidence to substantiate that the price at which the energy meters were sold by REL to the assessee was not at fair market value. The Learned AR submitted that there is no stay of operation of the order passed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee-company followed standard procurement procedure as under: On receipt of internal purchase requisition along with technical specifications from user groups, tenders are floated to approved vendors who are registered with the Company; Commercial bids are received from such vendors, which are then compared with the technical requirements of the users; On evaluation, vendors are approved on fulfillment of technical specifications; On commercial discussions, the best bidder is approved by the management after considering various factors such as price, delivery schedule, warranty etc. 36.8 With respect to the purchase of electric energy meters from REL, the assessee-company adopted the same standard procurement procedure, which involved competitive bidding with the participation of all major vendors like L T, Genus, Emco Ltd, Secure Ltd, etc. 36.9 On enquiry floated by the Company, bids were received from 8 vendors, out of which 4 bidders were technically qualified, since the meters to be supplied were required to meet technical specifications as per the CEA Regulations. 36.10 Out of these 4 bidders, the bid quoted by REL was observed, as most competiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mited v. CIT: 129 ITR 105 (Guj.) CIT v. Aditya Medisales Ltd.: ITA No. 559/2009 (Guj.) CIT v. Gopala Polyplast Ltd. : ITA NO. 265/2009 (Guj.) JCIT v. ITC Ltd.: 112 ITD 57 (Kol.)(SB) Jagdamba Rollers Flour Mill Ltd. vs ACIT: 117 ITD 260 (Nag.) Aradhana Beverages Foods Co. (P.) Ltd vs. DCIT:51 SOT 426 (Del) S.K. Engg vs. JCIT: 103 ITD 97 (Bang.) Rangoon Chemical Works (P) Limited: 100 Taxman163 (Ahd.) (Mag) Kinetic Honda Motor Ltd V. JCIT 77 ITD 393 Shyam Oil Cake Ltd V. ACIT: 83 TTJ 414 (Jd.) Vikshara Trading Investment (P) Limited: 61 TTJ 6 (Ahd.) Beta Naphthol (P) Limited: 50 TTJ 375 (Ind.) 36.17 In the instant case, the assessing officer has failed to bring on record any corroborative evidence to establish that the price paid to REL for purchase of energy meters was unreasonable and excessive. Further, even in the DERC order, merely bald allegations have been made by the authorities, without any supporting evidence with respect to excessiveness of the payments made as compared to the market value . 36.18 In order to determine whether expenditure is excessive or unreasonable, reliance must be placed on the test of commercial e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sive or unreasonable having regard to the fair market value of the goods or legitimate need of the business. In the present case, the Assessing Officer has failed to bring on record any corroborative evidence to establish that the price paid to REL for purchase of energy meters was unreasonable and excessive. And above all the said DERC order on the basis of which the Assessing Officer came to the conclusion that excessive price has been paid to REL has already been set aside by the ATE and operation of that order giving relief to the assessee has not been stayed by any appellate authority as per the Learned AR. We also concur with the submissions of the assessee that capital expenditure payments eligible for depreciation are not covered under sec. 40A(2) of the Act by virtue of the fact that deprecation is not a deduction but only an allowance. Considering all these material aspects of the issue, we are of the view that the Learned CIT(Appeals) has rightly deleted the addition of ₹ 2,94,24,126 made on account of disallowance of depreciation on energy meters purchased from REL. The same is upheld. The ground No.1 is accordingly rejected. 38. Ground No.2: It is regarding th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sequently have the impact of reducing the claim of depreciation on such assets. 3805. Further, in respect of service line deposits, the Learned CIT(Appeals) held that since the assessee was following a consistent accounting principles of recognizing the same as income over a period of three years, no interference was required since the entire exercise was Revenue neutral. 39. In support of the ground, the learned CIT(DR) placed reliance on the assessment order. He contended that considering this aspect that service line deposit and consumer contribution are in the nature of non-refundable deposits and, therefore, not in the nature of liability, the Assessing Officer has rightly held that the aforesaid deposits were taxable as Revenue receipts keeping in view that the assessee is a service provider and the amount was received in the course of rendering of services. 40. The Learned AR on the other hand tried to justify the relief given by the First Appellate Authority. He submitted that the service line deposits and consumer contributions received by the assessee in the assessment year under consideration are in the nature of capital receipt, as elaborated hereunder: 40.1 R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g decisions: Rohatak Hissar Districts Electric Supply Co. (P.) Ltd. vs. CIT: 5 Taxman 116 (Del) Ranchi Electric Supply Co. Ltd. vs. CIT: 16 Taxman 213 (Pat.) CIT vs. Cochin Electric Co: 57 ITR 82 (Ker.) CIT vs. Poona Electric Supply Co. Ltd.: 14 ITR 622 (Bom) Monghyr Electric Supply Co. vs. CIT: 26 ITR 15 (Orissa.) 40.7 Further, even in the impugned assessment order, the assessing officer has merely emphasized on the point that since the assessee-company is primarily a service provider, the charges received from consumers were revenue in nature, without appreciating that the said charges were actually received as reimbursement towards incurring capital expenditure and not for rendering of any service per se. 40.8 It may also be pertinent to note that it is not even the case of the assessing officer, that the deposits/charges were not utilized for undertaking capital works . 40.9 In this regard, it was further submitted, that merely because the assessee followed the erroneous principle of recognizing service line deposits as income, though over a period of three years, the said fact, by itself, could not have been the basis of bringing to tax the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n pleased to hold categorically that service connection receipts of an electricity company are not receipts incidental to nor carrying on of the assessee s business, are receipts for bringing into existence capital of lasting value. Since the contributions made were not made merely for services rendered and to be rendered, but for installation of capital equipment, the same constituted capital receipts. It was further held that even the balance amount retained by the assessee which had not been expended could not also be considered to be a revenue receipts. Similar view has been expressed by Hon ble Bombay High Court in the case of CIT vs. Electric Supply Co. Ltd. (supra) and by the Hon ble Kerala High Court in the case of CIT vs. Coching Electric Co. (supra). The service line deposits received by the assessee from the consumers for connecting line which links the supply system to the premises of the consumers and utilized for the purpose of supplying electricity and are charged from the consumers only at the time of providing new connections to recover the capital expenditure incurred on setting up of such lines, in our view, has rightly been held by the Learned CIT(Appeals) as ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade to customers. The Assessing Officer did not agree with and made an ad hoc disallowance at 25% of the total legal expenditure amounting to ₹ 44,71,064 with this finding that the said expenditure is penal in nature hence is not allowable under the provisions of the Act. 42.2 Before the Learned CIT(Appeals), the assessee mainly contended that the Assessing Officer has not been able to point out any specific expense incurred by the assessee to be penal in nature but has summarily made an ad hoc disallowance @ 25% without any cogent reason. The Learned CIT(Appeals) has deleted the disallowance. 43. In support of the ground, the learned CIT(DR) has basically placed reliance on the assessment order and has reiterated that the claimed expenditure was penal in nature, hence, it was not allowable under the provisions of the Income-tax Act, 1961. 44. The learned AR on the other hand tried to justify the First Appellate Order on the issue and submitted that the assessee-company, in the course of its business, incurred routine expenditure for settlement of legal claims amounting to ₹ 1.78 crores. 44.1 The aforesaid payments, it was submitted, were made by the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ₹ 12,11,462 made by the Assessing Officer on account of disallowance of extra depreciation on computer peripheral. During the year, the assessee has purchased certain computers accessories and peripheral in the nature of scanner, printer, input and output processing units, etc. aggregating to ₹ 28,32,502, which were capitalized under the head computer and depreciation thereon was claimed at the prescribed rate of 60%. The Assessing Officer held that computer accessories and peripheral could not be classified under the head computer and therefore, disallowed depreciation claimed @ 60% and restricted the same @ 15%, disallowing the claim of depreciation to the tune of ₹ 12,11,462. The Learned CIT(Appeals) has, however, deleted the disallowance relying upon the decision of Hon ble jurisdictional High Court of Delhi in the case of BSES Rajdhani Powers Ltd., ITA No. 1266 of 2010 judgment dated 31.8.2010. Against this action of the Learned CIT(Appeals), the Revenue is in appeal. 47. In support of the ground, the learned CIT(DR) has basically placed reliance on the assessment order. 48. The learned AR on the contrary has supported the First Appellate Order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1) of the Income Tax Act, 1961. 2. Depreciation on energy meters wrongly allowed at 15% as against 80% resulting in a disallowance of ₹ 32, 54, 73,974. The Ld.CIT(A)- VI has wrongly upheld that the Energy Meters are eligible for depreciation @ 15 % as against the claims @ 80 % . In this regard she has ignored the facts that these meters are for measuring electric energy which has been specifically mentioned as eligible for 80% depreciation in the depreciation schedule of the Income Tax Rules 1961. Further these meters also has the characteristics of energy saving device which is subject to depreciation @ 80%. In view of the above, depreciation allowed @ 15 % as against the 80% claim on energy meters resulting in a disallowance of ₹ 32,54,73,974 is wrong, against the facts of the case and unsustainable in the eyes of law . 51. The issues raised in the above grounds are covered by the decision taken on identical issues in the above appeals for the assessment years 2005- 06 and 2006-07. 51.1 In ground No.1, the issue raised is regarding validity of the First Appellate Order upholding service line deposits from the consumers as taxable over a period of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceipts they are no more a liability on the company. Hence the treatment given by the assessee co. to service line deposit by treating them as loan funds and accordingly as liabilities is all together incorrect. c) Further the assessee co. is engaged in selling electricity to the consumers from whom it charges fees in the name of energy charges. These energy charges are undisputedly in the nature of revenue receipts. d) The assessee co. is a service provider co. and is engaged in the business of distribution of electricity to different categories of customers as per their requirements. Hence it is in the nature of service provider. e) Since the assessee co. is engaged in selling the energy, therefore for this purpose it has to provide service line connections to the consumers for which it charges service line deposits. Hence it can be seen that these service line receipts are received by the co. during the course of its regular business/commercial operations. Hence, they are in the nature of revenue receipts. f) The reasoning given by the assessee co. that it incurs capital expenditure for extending service lines to the consumers and these receipts are utilized for this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e for the assessment year under consideration and both have been decided hereinabove on identical issues raised in the appeals for the assessment years 2005-06 and 2006-07 with this finding the Learned CIT(Appeals) was justified in treating the service line deposits received by the assessee from the consumers as capital in nature and the Assessing Officer has been directed to reduce the amount of service deposits credited to the profit and loss account during the year as per the assessee s policies of offering the service line deposits for revenue over a period of three years, while computing the total income after holding that entire receipts by way of service line deposits is capital in nature. The action of the Learned CIT(Appeals) in treating consumers contribution for capital work as capital in nature has also been justified and upheld. The ground No.1 is decided accordingly. The same is thus rejected. 55. In ground No.2, the issue raised is as to whether the Learned CIT(Appeals) has erred in deleting the addition of ₹ 32,59,746 made on account of disallowance of legal claims ignoring that payments made by the assessee are penal in nature and hence not allowable. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion @ 80% on the energy meters. We thus set aside the matter to the file of the Assessing Officer to allow the claimed depreciation on the expenditure incurred on enerty/electronic meters as per audit report made available after affording opportunity of being heard to the assessee. The ground No.1 is accordingly allowed for statistical purposes. 60. Ground No.2: This ground is consequential to issue No.1 of the appeal preferred by the Revenue questioning the action of the Learned CIT(Appeals) in deleting the addition made on account of service line deposits treating the same as capital in nature. We will thus deal with the issue raised in ground No.2 of the appeal along with issue No.1 of the appeal preferred by the Revenue in the succeeding paragraph. 61. In result, the appeal is partly allowed. ITA No. 5075/Del/2013 Revenue (A.Y. 2008-09): 62. The Revenue has impugned First Appellate Order on the following issues: 1. Whether on the facts circumstances of the case, the learned CIT (A) has erred in deleting the addition of ₹ 1,21,47,44,450/- made by the AO on account of service line deposit without taking into account the fact that the amount received fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowable. The same is thus rejected. 65. Issue No.3: It is related to Issue No.1 hereinabove. Following the finding given therein against the issue No.1, the issue No.3 is decided against the Revenue. It is accordingly rejected. 66. In result, the appeal is dismissed. 67. In summary, the appeals preferred by the assessee are partly allowed and that preferred by the revenue is dismissed. ITA No. 3689/Del/2011 (Assessee) (A.Y. 2005-06): 68. The assessee has impugned First Appellate Order on the following grounds: 1. Depreciation on energy meters wrongly allowed at 25% as against 80% resulting in a disallowance of ₹ 22,65,50,211 (subsequently reduced to ₹ 20,36,82,454 by way of rectification order dated 23.07.2010 u/s 154 of Income Tax Act, 1961). The Ld. CIT(A)- V has wrongly upheld that the Energy Meters are eligible for depreciation @ 25 % as against the claims @ 80 %. In this regard she has ignored the facts that these meters are for measuring electric energy which has been specifically mentioned as eligible for 80% depreciation in the depreciation schedule of the Income Tax Rules 1962. Further these meters also have the characteristics of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity of being heard to the assessee. The ground No.1 is accordingly allowed for statistical purposes. 72. So far as additional grounds are concerned, identical issues raised in the corresponding additional grounds hereinabove in the appeal for the assessment year 2005-06 preferred by the BSES Rajdhani Power Ltd. have been decided in favour of the assessee with this finding that the Learned CIT(Appeals) while treating the service line deposits received from the consumers are of capital nature, should have directed the Assessing Officer to reduce the amount of service line deposits credited to the profit and loss account during the year as per the assessee s policy of offering the service line deposits for Revenue over a period of three yearts while computing the total income after holding that the entire receipt by way of service line deposit is capital in nature (Additional ground No.1) and it has been held that the Assessing Officer was not justified in assessing the income of the assessee under sec. 115JB and not under the normal provisions of the Income-tax Act, 1961 ( additional ground No.2 ). Following these decisions therein on identical issues, the issues raised in additio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee as required for the change in the method of valuation. d) Further, on perusal of Accounting Standard-2, provisions of the IT Act, case laws relevant excerpts from 3CD report which clearly states that due to change of valuation of inventories, profit of the company is lower by ₹ 5.02 crores, it can be soundly included that AO is correct while making the addition on account of valuation of closing stock. e) The appellant craves leave for reserving the right to amend, modify, alter, add or forego any ground(s) of appeal at any time before or during the hearing of this appeal. 74. Ground No.1: In this ground, the validity of the First Appellate Order whereby the Learned CIT(Appeals) has deleted the addition of ₹ 10,94,42,155 (subsequently reduced to ₹ 1,30,33, 059) made on account of service line deposits from customers has been questioned. Under similar set of facts, an identical issue has been decided against the Revenue hereinabove in the appeal preferred by the Revenue in this case of BSES Rajdhani Power Ltd. for the assessment year 2005-06. Following the same, we decide the issue raised in this ground No.1 in favour of the assessee while upho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aracteristics of energy saving devices which are subject to depreciation @ 80%. In view of the above, depreciation allowed @ 15% as against the 80% claim on energy meters resulting in a disallowance of ₹ 48,13,62,420, is wrong, against the facts of the case and unsustainable in the eyes of law. 3. Grant in aid for fixed assets and disallowance of depreciation to the tune of ₹ 3,03,32,909. The Ld. CIT (A) - VII had wrongly upheld that adjustment of grants in aid for fixed assets is to be made in the ratio of addition to plant and machinery which is (subject to depreciation @ 15%) and addition to energy meters which is (subject to depreciation @ 80%) resulting in disallowance of depreciation to the tune of ₹ 3,03,32,909. 4. The appellant craves to leave, add, alter, modify, rectify, and amend all or any of the grounds before or at the time of hearing. 78. Besides above, the assessee has also moved application for admission of the following additional ground: That on the facts and circumstances of the case and in law, the Assessing Officer erred in assessing the income of the appellant under sec. 115JB and not under the normal provisions of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that entire receipt by way of service line deposit is capital in nature. The ground No.1 is accordingly allowed. 80 Ground NO.2: It is in relation to the depreciation on energy meters allowed at 15% as against 18% resulting in a disallowance of ₹ 48,13,62,420. An identical issue under the similar set of facts has been decided hereinabove in ground No.1 of the appeal for the assessment year 2005-06 preferred by the assessee. Following the same, it is held that the assessee is eligible to claim depreciation on energy meters @ 80% and accordingly direct the Assessing Officer to allow the same on the basis of the expenditure incurred on electronic meters/energy meters reflected in the audit report. The ground No.2 is accordingly allowed for statistical purposes. 81. Ground No. 3: It is regarding disallowance of deprecation to the tune of ₹ 3,03,32,909. The facts in brief are that during the year, the assessee had received grant in aid of ₹ 18.63 crores from the Ministry of Power under the Accelerated Power Development Reforms Program (APRBRP) for the purpose of up-gradation of sub-transmission and distribution in Densely Electrified Zone in the urban and industr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Energy Meters are eligible for depreciation @ 15 % as against the claims @ 80 % . In this regard she has ignored the facts that these meters are for measuring electric energy which has been specifically mentioned as eligible for 80% depreciation in the depreciation schedule of the Income Tax Rules 1961. Further these meters also has the characteristics of energy saving device which is subject to depreciation @ 80%. In view of the above, depreciation allowed @ 15 % as against the 80% claim on energy meters resulting in a disallowance of ₹ 33,28,96,938 is wrong, against the facts of the case and unsustainable in the eyes of law. 3. Based upon the provisions of Section 2(18) of the Income Tax Act, 1961, applicability of the provisions of Section 2(22)(e) (pertaining to the taxability of deemed dividend of ₹ 59,27,00,000) has not been decided in the hands of the appellant company. The CIT(A)-VI erred in not deciding the applicability of Section 2(22)(e) (pertaining to the taxability of deemed dividend in the hands of the appellant) based upon the provisions of Section 2(18) of the Income Tax Act, 1961. In this regard it has been mentioned in the CIT(A) order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the total income after holding that the entire receipts by way of service line deposits is capital in nature (as decided by the Learned CIT(Appeals) ). The ground No.1 is accordingly allowed. 85. Ground No.2: It is regarding disallowance of claimed depreciation at the rate of 80% on energy meters and allowing depreciation @ 15% thereon by the authorities below resulting in disallowance of ₹ 33,28,96,938. An identical issue under the similar set of facts has been decided hereinabove in the case of the assessee in its appeal for the assessment year 2005-06 in favour of the assessee. Following the same, we hold that the assessee is eligible for claiming depreciation @ 80% on energy meters and direct the Assessing Officer to allow depreciation accordingly on the expenditure incurred on electronic/energy meters reflected in audit report of the assessee. The ground No.2 is accordingly allowed for statistical purposes. 86. Ground No.3: The facts in brief are that during the year, the Assessing Officer made an addition of ₹ 59,27,00,000 on account of deemed dividend under sec. 2(22)(e) relating to loans advanced to the company by BSES Rajdhani Power Ltd. Before the Learn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Powersurfer Interactive (I) Pvt. Ltd. 97,00,000 Delhi Power Co. Ltd. 5,68,39,997 49% Chief Secretary 1 Principal Secretary (Finance) 1 Principal Secretary (Power) 1 Total 11,60,00,000 100% Further, the shareholding of BRPL as on 31.03.2007 is tabulated as under: Name of Share Holder No. of shares Percentage of Total Reliance Energy Ltd. 11,97,00,000 51% Reliance Energy Mgt. Service Pvt. Ltd 3,83,00,000 Reliance Energy Global Pvt. Ltd. 3,83,00,000 Powersurfer Interactive (I) Pvt. Ltd. 3,83,00,000 Delhi Power Co. Ltd. 22,53,99,997 49% Chief Secretary 1 Principal Secretary (Fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rticipate in profits) holding not less than ten per cent of the voting power, or to any concern, in which such shareholder is a member or a partner and in which he has a substantial interest (hereafter in this clause referred to as the said concern)] or any payment by any such company on behalf, or for- the individual benefit, of any such shareholder, to the extent to which the company in either case possesses accumulated profits; but dividend does not include- . (e mphasis supplied) 87.1 On perusal of the aforesaid, it may be noted that the provisions of this clause are attracted to any payment made by a Company, not being a company in which the public is substantially interested (as defined under section 2(18) of the Act, discussed infra) and the payments being in the nature of (1) advance; or (2) loan; or (3) any payment on behalf of any shareholder; or (4) any payment for the individual benefit of any shareholder. 87.2. In the present case, it is submitted that the provisions of section 2(22)(e) of the Act were not applicable in the case of the assessee at the very threshold as BRPL is a company in which public is substantially interested as elaborated hereun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ivate Company is held by: (1) the Government; or (2) Corporation established by a Central, State or Provincial Act; or (3) any company to which this clause applies; then such Company is considered to be a company in which the public are substantially interested , for the purposes of the Act. 87.5 Further, Explanation to the aforesaid section provides that in the case of an Indian company whose business consists mainly of distribution of electricity, then the words not less than 50% shall be substituted with not less than 40% . 87.6 The Learned AR submitted that BRPL is a company in which the public are substantially interested as defined under section 2(18) of the Act, as elaborated hereunder: BRPL, was incorporated as a public company incorporated on 04.07.2001 and 49% of the shares of the said Company are held by Delhi Power Co. Ltd., a Corporation set up under the State Act of Delhi Electricity Reform Act, 2000 (Delhi Act No.2 of 2001). Further, it may also be noted that Delhi Power Co. Ltd., is a Company which is wholly held by the Government and hence a company in which public is substantially interested. 87.7 Thus, in view of the aforesaid fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d company are held by the Delhi Power Co. Ltd., a corporation set up under the State Act of Delhi Electricity Reforms Act, 2000 (Delhi Act No.2 of 2001). It has also been pointed out that Delhi Power Co. Ltd. is a company which is wholly held by the government and hence a company in which public is substantially interested. In view of the submissions, the contention of the Learned AR remained that BRPL satisfies the conditions stipulated in both sub-clause (b) and (c) of section 2(18)(b)(B) of the Act as: i) More than 40% of its shares are held by Corporation set up under the State Act; ii) More than 40% its share is held by a company which is held directly by the government. 89.1 Accordingly provisions of sec. 2(22)(e) of the Act are not attracted at the threshold. The Assessing Officer nowhere disputed the fact that 49% shares of BRPL are held by Delhi Power Co. Ltd., which is a corporation set up under the State Act, but has held that there was no evidence to prove that 49% shares of BRPL held by Delhi Power Co. Ltd. were allotted or acquired unconditionally. 89.2 Before the Learned CIT(Appeals), the assessee has raised two contentions. Firstly, the BRPL who has prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith this non-action of the Learned CIT(Appeals). By virtue of the provisions laid down under sec. 2(18)(b)(B)(c) of the Act, we principally agree with the contention of the assessee that provisions of sec. 2(22)(e) of the Act are not attracted, where the company, who provides loan/advance to the assessee, is a company in which public has substantial interest. In support, the assessee has also cited hereinabove the two conditions i.e. (a) (b) claimed to have been fulfilled in the present case, which our view need verification to decide the issue raised in ground NO.3 of the assessee. Since the Learned CIT(Appeals) has left the issue undecided, we in the interest of justice set aside the matter to the file of the Learned CIT(Appeals) to decide the issue after affording opportunity of being heard to the parties. The ground No.3 of the appeal preferred by the assessee is thus allowed for statistical purposes. 89.6 Thus, ground No.3 of the appeal of the assessee is allowed for statistical purposes and ground No.4 of the appeal filed by the Revenue is rejected. 91. In result, the appeal is partly allowed. ITA No. 1538/Del/2011 Revenue (A.Y.2007-08): 90. The Revenue h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted which reveals that apart from service line charges, the co. is levying development charges from the customers for a new connection. Thus the co. is already collecting funds for incurring capital expenditure. u) The service line receipts simply cannot be treated as capital receipts because their nature would not depend upon how the assessee co. is utilizing them but in what capacity they have been received by the company. And the fact is that they have been received by the company. And the fact is that they have been received by the co. in the course of running its regular business operations. v) The assessee company also not provided the information in the tabular form inspite of specifically asked for by the AO during the Assessment proceedings. 5. The Ld. CIT(A) has erred on facts and in law in deleting addition of ₹ 32,59,746/- made on account of disallowance of legal claims ignoring that payments made by the assessee are penal in nature and hence not allowable. 6. The Ld.CIT(A) has erred on facts and in law in deleting addition of ₹ 4,33,41,629/- made on account of disallowance of extra depreciation on computer peripherals/accessories ignoring ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ferred by the assessee hereinabove. Following the decision taken therein the action of the Learned CIT(Appeals) in deleting the addition in question is upheld. Ground No. 4 is accordingly rejected. 96. In result, the appeal is dismissed. ITA No. 3922/Del/2012 - Assessee (A.Y. 2008-09): 97. The assessee has impugned First Appellate Order on the following grounds: 1. Service line deposits from the customers wrongly upheld as taxable over a period of 3 years. The Learned CIT(Appeals)-VIII has upheld that the service line deposits are capital in nature but in this regard he has wrongly upheld that the same are taxable over a period of 3 years. In fact the same are in the nature of capital receipts and at the most can be reduced from the cost of plant and machinery in accordance with the provisions of sec. 43(1) of the Income-tax Act, 1961. 2. Depreciation on energy meters at 15% as against its eligibility of 80%. The Learned CIT(Appeals)-VIII has dismissed this ground mentioning that since appellant has claimed 15% depreciation on Energy Meters in the revised returns which has been allowed by the A.O. no cause of grievance arises. The company is in appeal befo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ine deposits from consumers as capital in nature should have directed the Assessing Officer to reduce the amount of service line deposits credited to the profit and loss account during the year (as per the company s policy of offering the service line deposits for Revenue over a period of three years) by computing the total income after holding that entire receipts by way of service line deposits is capital in nature. We direct to the Assessing Officer accordingly. The ground No.1 is accordingly allowed. 100. Ground No2: An identical issue regarding depreciation on energy meters @ 80% claimed by the assessee has been decided in the assessment year 2005-06 in ground No.1 of the appeal preferred by the assessee. Following the same, the issue is decided in favour of the assessee with this finding that the assessee is very much eligible for the claimed depreciation @ 80% on the energy meters with direction to the Assessing Officer to allow the claimed depreciation @ 80% on the expenses incurred on electronic/energy meters reflected in the audit report. The ground No. 2 is accordingly allowed for statistical purposes. 101. Ground NO.3: It is regarding the additional depreciation o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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