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BSES Rajdhani Power Ltd. Versus Assistant CIT, Circle-3 (1) , New Delhi and Deputy CIT, Circle 3 (1) , New Delhi Versus BSES Rajdhani Power Ltd.,

2015 (11) TMI 927 - ITAT DELHI

Depreciation on energy meters - 25% OR 80% - Held that:- In the depreciation schedule for the assessment year 2006-07 and onwards specifically/separately covers feature of “Time of Day” under Item III(8)(ix)-E(i). Under the above facts and circumstances especially in view of above referred schedule read with sec. 32 of the Income-tax Act, we find that the assessee has been successfully able to demonstrate that it was very much entitled to claim depreciation on energy meters @ 80% and without app .....

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ned AR has referred 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 bei .....

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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 depreciation thereupon accordingly after affording opportunity of being heard to the assessee. - Decided in favour of assessee for statistical purposes.

Service Line Deposits received from the Consumers - Capital or revenue nature - Held that:- We find substance in the conte .....

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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 .....

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ee as there is no dispute on the facts of the case. Discussing these submissions of the assessee and meeting out the observations of the Assessing Officer, we are of the view that the Learned CIT(Appeals) rightly come to the conclusion that the amounts received for installation of service lines are to be treated as capital receipts in the hands of the assessee. In result, the Learned CIT(Appeals) was justified in deleting the addition of ₹ 73,75,590 made on account of service line deposits .....

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e 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/spar .....

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ssessment 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? - Held 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 .....

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of energy meters was unreasonable and excessive - Held that:- For invoking the provisions of sec. 40A(2) of the Act, the onus lies upon the Assessing Officer to prove that payment is excessive 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. A .....

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ion 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 made on account of disallowance of depreciation on energy meters purchased from 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 claime .....

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eld 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 need verification to deci .....

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- SHRI I.C. SUDHIR AND SHRI INTURI RAMA RAO For The Assessee : S/Shri Ajay Vohra,Sr. Adv., Rohit Jain, Adv. & Shri Deepashree Rao, CA For The Department : Shri Ravi Jain, CIT(DR) ORDER PER I.C. SUDHIR: JUDICIAL MEMBER These are the cross appeals by the parties against the First Appellate Order for the assessment years 2005-06, 2006-07 and 2007-08. ITA No. 3688 & 3661/Del/2011: (A.Y. 2005-06): ITA No. 3688/Del/2011: (Assessee): 2. The assessee has questioned First Appellate Order on the f .....

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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 energy saving device which is subject to depreciation @ 80%. In view of the above, depreciation @ 25% as against the 80% claim on energy meters resulting in a disallowance of ₹ 21,33,46,193, is wrong, against the facts of the case and unsustainable in the eyes of law. 3. The assessee has also moved applicati .....

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e 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 o .....

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issues raised in the proposed additional grounds are legal in nature which go to the root of the matter and adjudication of the same does not need consideration of fresh material outside the record. Hon ble Supreme Court in the case of National Thermal Power Co. Ltd. Vs. CIT (supra) has been pleased to hold as under: Undoubtedly, the Tribunal will have the discretion to allow or not allow a new ground to be raised. But where the Tribunal is only required to consider a question of law arising fr .....

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(India) vs. CIT (2006) - 284 ITR 323 (S.C), ITO vs. Arihant Tiles & Marbles (P) Ltd. (2010) - 320 ITR 79 (S.C), NTPC Ltd. vs.CIT (1998)- 229 ITR 383 (S.C) as well as its own decision in the case of CIT vs. Cellulose Products of India Ltd. (1985) - 151 ITR 499 (Guj.) (FB) has been pleased to hold that merely because a ground has not been raised though it could have been raised in support of the relief sought in the appeal, it cannot be said that such ground cannot be raised before the ITAT. T .....

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he Courts have recognized their jurisdiction to entertain a new ground or a legal contention. A ground would have a reference to an argument touching a question of fact or a question of law or mixed question of law or facts. A legal contention would ordinarily be a pure question of law without raising any dispute about the facts. Not only such additional ground or contention, the Courts have also, as noted above, recognized the powers of the Appellate Commissioner and the Tribunal to entertain a .....

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thority 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 f .....

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nce are taxable in its hands. b) 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. c) 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 receivable .....

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on facts and in law in deleting the addition of ₹ 50200000 made on account of valuation of closing stock ignoring that: a) in this particular case the assessee was earlier following First In First Out (FIFO) method for valuation of stores/spares. Under any circumstances FIFO method is more correct & hence more appropriate for the valuation of stores/spares as closing stock as compared to Moving Average method. b) no sound reasoning/acceptable logic is given by the assessee company for .....

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2 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-ta .....

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ansmission company) - It receives power at 220KV and steps it down to 66/33 KV before sending it to the distributing companies. HOLDING COMPANY: (Delhi Power company Ltd.) with the principal object of holding shares in G ENCO, TRNACO, DISCOMS and the liabilities of the Board. DISCOMS (Power distribution companies) - It receives power at 66/33 KV and steps it down to 11 KV before feeding it to the distribution transformer, which further steps down to 04. KV and reaches to the consumers. There are .....

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lating to the issue raised in ground No.1 of the appeal of the assessee is that during the year the assessee claimed depreciation on energy meters which according to assessee fell under the category of assets provided under item (iii)(8)(ix)(B) (E) of the table of rates of depreciation in Appendix-1 to the Income-tax Rules, 1962 and were eligible for depreciation @ 80%. The assessee contended that aforesaid meters were utilized for measuring electric energy but at the same time various advanced .....

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ave advanced features as available in other electronic/smart meters and assessee had also claimed higher depreciation on bus bar chambers, which are devices through which connection from overhead lines/under ground cable is provided to the meters. 8.3 The Learned CIT(Appeals) affirmed the assessment order with the finding that the said equipments were merely reading meters and they did not facilitate in energy conservation. This First Appellate Order has been questioned in ground No.1 of the app .....

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eakage 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 .....

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chise or any other business or commercial rights of similar nature, being intangible assets acquired on or after the 1st day of April, 1998, owned wholly or partly, by the assessee and used for the purposes of the business or profession, the following deductions shall be allowed: (i) xxxx xxxx xxxx xxxx (ii) in the case of any block of assets, such percentage on the written down value thereof as may be prescribed. xxxx xxxx xxxx xxxx 9.3 Under item -III (8) of the table of rates of depreciation .....

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matic electrical load monitoring systems; (b) Digital heat loss meters; xxxxxxxxx (e) meters for measuring heat losses, furnace oil flow, stream flow, electric energy and power factor meters (f) Maximum demand indicator and clamp on power meters xxxxxxxxxx (emphasis supplied) 9.4 On perusal of the aforesaid, it will kindly be appreciated that item III (8)(ix)(B) of the Depreciation Schedule provides for higher rate of depreciation in respect of meters for measuring…….. electric ene .....

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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 dep .....

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pplied) 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 feature of Time of Day , which is, as stated above, also specifically/ separately covered under item III (8)(ix)E(i) of the Depreciation Schedule (for assessment years 2006-07 and onwards). 9.10 Furthermore, in the case of the appellant, the energy meters installed in the assessment year under consideration are, as a matter of fact, not .....

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e energy meters did not facilitate in conservation of energy. The said contention of the assessing officer is, in our respectful submission, factually incorrect and without any cogent basis. 9.12 As regards the contention of the assessing officer that the appellant had also claimed higher depreciation on bus bar chamber, which are devices through which connection from overhead line/ underground cable is provided to the meters, it is submitted that the assessing officer failed to appreciate that .....

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ll Ltd.: 289 ITR 261 (P&H) - CIT vs. Metalman Auto (P.) Ltd: 336 ITR 434 (P&H) - CIT v. India Turpentine & Rosin Co. Ltd.: 75 ITR 533 (All.) - DCIT vs. UAL Industries: 31 taxmann.com 111 (Kolkata - Trib.) ™ - Ghaziabad footwear (P.) Ltd vs. DCIT: 142 Taxman 18 (Del Tri.) - Madhu Industries Ltd, Ahmedabad vs. ITO: 132 TTJ 233 (Ahd) In view of the above, it is respectfully submitted that meters acquired and installed by the appellant were capable of performing specific functions .....

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ervention. 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 ma .....

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red by the assessee are in the nature of energy saving equipment/devices having inter alia the following advanced features helping in conservation of energy: i) 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; ii) Electricity leakage display (ELD) indicator, which glows in case of earth leakage/ faulty w .....

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ck of assets at such percentage of the written down value as may be prescribed. Under Item-III(8) of the table rates of depreciation in Old Appendix-I to the Income-tax Rules, 1962 is relevant for the assessment year 2005-06 wherein depreciation @ 80% is available in respect of equipment falling within the category of energy measuring meters . The specific entries under which the depreciation was claimed by the assessee during the relevant assessment year reads as under: III. Machinery and Plant .....

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e provides for higher rate of depreciation in respect of 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 a .....

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recation 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 Xxxxxxxxxxxxxxxxxxxxxxxxxxxxx 12.4 The submission of the assessee that specifications contained in the energy meters installed by the assessee company also included the specific features of Time of Day has not been rebutt .....

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e, the authorities below were not justified in disallowing the claimed depreciation on these assets on the ground that the energy meters did not facilitate in conservation of energy. The Assessing Officer had, however, pointed out that more than 60% of the meters are mechanically advanced meters which did not have any special feature. To meet out this objection and its submissions before the Learned CIT(Appeals)that most of the meters are energy saving meters, the Learned AR has referred page No .....

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2.5 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 As .....

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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 am .....

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eposit received by the appellant was in the nature of nonrefundable deposits and therefore, not in the nature of a liability. The assessing officer further alleged that the aforesaid deposits were taxable revenue receipts in view of the fact that the appellant is a service provider and the amount was received in the course of rendering of service. Accordingly, the assessing officer brought to tax the entire amount of service line deposit received by the appellant in the assessment year under con .....

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ion 43(1) of the Act. The parties are thus in their respective appeals against the First Appellate Order. The grievance of Revenue in ground No.1 against the Learned CIT(Appeals) is that the Learned CIT(Appeals) has erred in deleting the addition of ₹ 73,75,590 made on account of security line deposits from customers holding the service line receipts as capital receipts. 14. In support of the additional ground, the Learned AR submitted that in terms of Section 43(1) of the Act and more spe .....

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business or profession. In sections 28 to 41 and in this section, unless the context otherwise requires- actual cost means the actual cost of the assets to the assessee, reduced by that portion of the cost thereof, if any, as has been 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 .....

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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 cost, as is relatable to the subsidy or grant or reimbursement, is not liable to be inc .....

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the case of the appellant, service line deposit is undisputedly received by the appellant from customers towards setting up of service lines , which included the cost of GI pipe, bricks, sand, bus bars, etc. Further, in respect of un-electrified areas, the appellant was also eligible to charge development charges in addition to the service line charges. 14.5 Since the amount received by the appellant is undisputedly relatable to acquisition of a particular asset, such concession/ reimbursement w .....

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6 (Delhi) − Ranchi Electric Supply Co. Ltd. vs. CIT: 16 Taxman 213 (Pat.) 14.7 No estoppels in law to resile from a wrong position: The Learned AR submitted that the Ld. CIT(A) has erred in not directing the assessing officer to reduce the amount received for the cost of assets, merely because the appellant was following erroneous principle of recognizing the same as income over a period of three years. 14.8 In this regard, it was submitted that the method of accounting erroneously followe .....

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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: .....

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ax as income by the appellant, could not, it is submitted, be the basis for treating the said amount to be trading receipt taxable under the provisions of the Act. 14.13 It is settled law that there is no estoppels in law. It is open to the assessee to withdraw from the position wrongly taken while filing the return of income. It is equally open to the assessing officer to disregard the return filed by the assessee where the assessee has mistakenly/ under a wrong impression offered income for ta .....

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404 (All.) − Smt Snehlata Jain vs. CIT: 192 CTR 50 (J&K) − S.R. Koshti vs. CIT: 276 ITR 165 (Guj.) − Ester Industries Ltd. vs. CIT: 316 ITR 260 (Del.) − DCIT vs. Sanmukhdas Wadhwani: 85 ITD 734 (Nag) − Jyotsana Holding (P) Ltd. vs. ITO: 37 ITD 430 (Del.) − Indo Java & Co. vs. IAC: 30 ITD 161 (Delhi SB) 14.15 Further, it is also settled law that the purpose of the assessment is to compute income in accordance with the provisions of the Act. The assessi .....

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R 50 (J&K) 14.16 In view of the aforesaid submissions and the cited decisions, the Learned AR submitted that the assessing officer may kindly be directed 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 Act. 15. The learned CIT(DR) while opposing the additional ground No.1 raised by the assessee and supporting ground No.1 of the appeal preferred by the Revenue, submitted .....

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ervice 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 ass .....

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of Misc. Charges. 16.2 The aforesaid deposits were received by the assessee from its customers towards setting up of service lines , which included cost of GI pipe, bricks, sand, etc. 16.3 Service line, it was submitted, is a connecting line which links the supply system to the premises of the consumer and utilized for the purpose of supplying electricity. The service line charges are charged from the consumer only at the time of providing new connections, to recover the capital expenditure incu .....

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AR submitted that the aforesaid issue, is squarely covered by the landmark decision of the Hon ble Supreme Court in the case of Hoshiarpur Electric Supply Co. vs. CIT: 41 ITR 608, wherein the apex Court has categorically held that the service connection receipts of an electricity company are not receipts incidental to nor carrying on of the assessee s business, but are receipts for bringing into existence capital of lasting value. Since the contributions made were not made merely for services re .....

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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.) 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 receiv .....

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lf, 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 submissions, we find that the Revenue is aggrieved with the First Appellate Order giving relief of ₹ 73,75,590 (as per rectification order dated 5.3.2010) to the assessee holding the service line deposit as capital receipts. The assessee on the other hand is aggrieved with the First App .....

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tual cost and Explanation 10 thereto clearly mandates that where cost of any assets is made directly or indirectly by any person in the form of a subsidy or grant or reimbursement, then, so much of the cost, as is relatable to the subsidy or grant or reimbursement, is not liable to be included in the actual cost of the assets to the assessee. Where the subsidy or grant or reimbursement cannot be related directly to the assets acquired, proportionate amount is to be excluded for computing the act .....

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the purpose of computing the actual cost of the fixed assets acquired by the assessee. We thus find substance in the contention of the Learned AR that merely because the assessee was following erroneous principles of recognizing the amount received from the cost of assets as income over a period of three years, the Learned CIT(Appeals) was not justified in not directing the Assessing Officer to reduce the amount received from the cost of assets. There is no dispute that as per the settled propos .....

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ons 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 b .....

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line deposits from customers considered in the nature of revenue receipt and addition wrongly made of ₹ 16,52,68,284/-which was later rectified to ₹ 7375590.56. 5.1 The facts of the case in brief are that during the year under consideration, the assessee company received a sum of ₹ 156867425/- as service line deposits which has been reflected in the liability side of the balance sheet under the head loan funds. Out of the deposits, 1/3rd of the amount was transferred to the P& .....

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ole of it, no specific reply has been received apart from stating that DERC is a regulatory body which regulates the charging of service line charges. However that does not change the character of these receipt in the co s hands nor did the App. No.187/09-10 10 M/s BSES Rajdhani Power Ltd. A.Y.2005-06; u/s 143(3) definition in the electricity act specify that it is a capital receipt in assessee s hands. C) The co has itself recognized 1/3 of total receipts as rev which establishes that they are .....

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ved during the year to the P & L a/c over a period of three years. In respect of the nature of service line deposits and provisions relating to receiving of service line deposits, 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 .....

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hrough 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 to a single consumer or a group of consumers from the same point of the distributing main. So, the service line is to be drawn fro .....

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on, to recover the Capital Expenditure incurred on such equipments. It is a one time charge levied on the consumers at the time of taking new connections and thereafter it is the responsibility of BRPL for repair/replacement of the service line. The service line charges are therefore Capital in nature and such receipt is directly related to the capital expenditure incurred and capitalized under the head Plant & Machinery . Such Plant & Machinery includes underground/overhead service line .....

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assessee company was charging service line deposit as well as development charges from the consumers as per the Rules and Notification of Delhi Electricity Regulatory Commission(DERC).The capital expenditure incurred in respect of service line deposits on account of service line cables, cost of GI pipes, bricks etc. were capitalized under the head meter accessories (on which depreciation was claimed @ 80% but was reduced to 25% by the DCIT). However, the capital expenditure incurred on developm .....

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ed 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 fr .....

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the consumers needs to be reduced from the cost of the relevant Plant and Machinery With regard to the A.O s observation that only 1/3rd of the total amount on revenue account, and not whole of it, In the reply it is stated that DERC is a regulatory body, which regulates the charging of service line charges. Service Line Deposits are received by the company as per the provisions of the DERC & The Electricity Act for the purposes of incurring the expenditure for laying the service line and o .....

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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 energy meters are eligible for App. No.187/09-10 13 M/s BSES Rajdhani Power Ltd.A.Y.2005-06; u/s 143(3) depreciation at the higher rate of depreciation @ 80%. This is in line with the matching concept an enunciated under AS 1 requiring revenues to be matched with cost. Based upon the matchi .....

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mers from whom it charges fees in the name of energy charges. These energy charges are undisputedly in the nature of revenue receipts. It was submitted that the nature of service line receipts are entirely different from the nature of energy charges. Service line receipts as discussed above deserve to be reduced from the cost of the relevant plant and machinery in accordance with Sec. 43(1) of the I.T.Act, 1961.On the other hand, energy charges are recovered from consumers for the amount of elec .....

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ceipts. 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 &a .....

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receipts and deserves to be reduced from the actual cost of the plant and machinery which has been capitalized for providing the new connections to the consumers. 5.5 I have carefully considered the assessment order as well as the written submission of the appellant. The issue under consideration in the case is whether the service, line deposit cum development charges are capital receipts or revenue receipts. From the facts of the case, it emerges that the service line charges are levied to rec .....

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r Electric Supply Co.v/s CIT 41 ITR 608 Hon ble Supreme Court observed as under:- The amount contributed by the consumer is in direct recoupment of the expenditure for bringing into existence an asset of a lasting character enabling the assessee to conduct its business of supplying electrical energy. By the installation of the service lines, a capital asset is brought into existence. The contribution made by the consumers is substantially as consideration for a joint adventure; the service line .....

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ting 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. Thi .....

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mbay 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 receipt and not a trade receipt. The question of the taxability of the profit element in the contribution received from the Govt. was not expressly determined; but the court in that case held that the entire amount received by the Poona Electric Co. from the Govt. as contribution was a capital receipt. In Monghyr Electric Sup .....

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n the course of the carrying on of the assessee s business; they were receipts for bringing into existence capital of lasting value. Contributions were not made merely for services rendered and to be rendered, but for installation of capital equipment under an agreement for a joint venture. App. No.187/09-10 16 M/s BSES Rajdhani Power Ltd. A.Y.2005-06; u/s 143(3) In the present appeal also, appellant has received the deposits and contribution for the specific purpose of installation of capital. .....

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unts received for installation of service lines are to be treated as capital receipts in the hands of the appellant. Accordingly, the addition made by the AO is herby deleted. 17.2 We find that while dealing with the issue, the Learned CIT(Appeals) has discussed the related provisions of the Electricity Act, 1910 defining service line as per which it is an electric supply line intended to supply energy to a single consumer or a group of consumer from the same point of the distributing main. So t .....

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onnections, 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 respe .....

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capitalized from the plant and machinery @ 25% and service line deposits from plant and machinery (meter) @ 80% in accordance with the provisions of sec. 43(1) of the Act. Against the observation of the Assessing Officer that it is not a deposit but a receipt as it is non-refundable, the contention of the assessee remained that service line charges are being recovered from the customers as per the Electricity Act, 2003 and the regulation framed under the Act by the DERC from time to time. The ch .....

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y 1/3rd of the total amount on revenue account and not whole of it is treated as capital receipts, the contention of the assessee remained that DERC is a regulatory body, which regulates the charges of service line charges. Thus, service line deposits are received by the company as per the provisions of DERC and Electricity Act for the purpose of incurring the expenditure for laying the service line and other related expenses for providing new connection to the customers. It was explained that i .....

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ry (meter) as depreciation over three years based upon the facts that energy meters are eligible for deprecation at the higher rate of 80%. This is in line with the 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 re .....

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vice 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 prevailing tariff, which is of the Revenue nature. Accordingly, both these receipts, namely, energy charges and service line receipts have dif .....

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eated as capital receipts in the hands of the assessee. In result, the Learned CIT(Appeals) was justified in deleting the addition of ₹ 73,75,590 made on account of service line deposits from customers. The same is upheld. The ground No.1 of the appeal preferred by the Revenue is accordingly rejected. 18. Ground No.2 (Revenue): In this ground, the action of the Learned CIT(Appeals) in deleting the addition of ₹ 5,02,00,000 made on account of valuation of closing stock has been questi .....

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hange in the method by the assessee for the valuation of stock was neither bona fide nor regularly followed by the assessee. The relevant excerpts from 3 CD Report clearly states that due to change of valuation of inventories, profit of the company is lower by ₹ 5.02 crores. Thus, the Assessing Officer was correct in making the addition on account of valuation of closing stock. 19. The Learned AR on the other hand tried to justify the First Appellate Order on the issue. He contended that i .....

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d 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 i .....

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ssment year, i.e. AY 2006-07, there was a loss during the year. 19.2 It may, thus, be noted that the assessee neither derived nor could have derived any kind of tax benefit by virtue of the aforesaid bona-fide change in method of valuation of inventory as there was effectively no tax payable in both the assessment years. 19.3 In this regard, the Learned AR submitted that the provisions of the Act nowhere prohibits the use of moving/weighted average for the purpose of valuation of closing stock; .....

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e dealt with in paragraph 14, should be assigned by using the first-in, first-out (FIFO), or weighted average cost formula. The formula used should reflect the fairest possible approximation to the cost incurred in bringing the items of inventory to their present location and condition. 19.5 The Learned AR pointed out that on perusal of the above, it may be noted that the assessee has a choice to value the stock at cost, either by following FIFO or weighted average cost formula. Therefore, the b .....

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t value, whichever is lower, as adopted by the assessee. 19.7 It was further submitted that the provisions of section 145A of the Act nowhere bars the assessee from changing the method of valuation, but only lays down the criteria that the changed method has to be followed regularly, i.e. in subsequent years 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 s .....

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ip;……………….. (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 .....

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of CIT Vs Corporation Bank: 174 ITR 616, where the bank was valuing the securities held as stock in trade as stock in trade on cost basis and subsequently changed the method of valuation to cost or market price whichever is lower. It was held by the Hon ble Court that the assessee has right to change the method of valuation of closing stock provided the change is bona fide and the same method is regularly followed thereafter. 19.12 The plea of the Revenue that change in method of valuation shoul .....

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CIT Vs. Mopeds India Limited: 173 ITR 347 (AP) − CIT vs. Dalmia Cement (Bharat) Ltd.: 215 ITR 441 (Del.) − CIT vs. Modi Rubber Limited: 230 ITR 820 (Del.) − CIT Vs. Delta Plantation Ltd: 71 Taxman 329 (Cal) 19.14 It was further submitted that while making the aforesaid addition of ₹ 5.02 crores, the assessing officer failed to appreciate that the entire exercise is revenue neutral, in view of the fact of change in valuation of closing stock in the assessment year under c .....

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acted 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 .....

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self in the subsequent assessment years. 19.20 The decision in the case of Sanjeev Woollen (supra) proceeded on its peculiar facts since the assessee, by changing the method of valuation of stock, tried to claim higher deduction under section 80HHC of the Act, which was found to be mala-fide. 19.21 It was further submitted that the aforesaid method, having been consistently accepted by the Revenue in the subsequent years, there is no warrant to disturb the same in the year under appeal. 19.22 Re .....

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purpose of determination of cost , the assessee, in the earlier assessment years had adopted First-in-First-Out (FIFO) basis, which was altered to Moving Average basis in the assessment year under consideration. The aforesaid change in basis of valuation of cost of inventories was on account of the transition and implementation of the Systems, Application and Products Package ( SAP ) w.e.f. 01.04.2004, which adopts the Moving Average (weighted average) basis as the most reliable and feasible me .....

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the year under consideration. Further, the moving average (weighted average) method of valuation of inventories has been consistently followed by the assessee in all the subsequent assessment years, which has also been accepted by the assessing officer. 20.3 In the impugned assessment order, the assessing officer alleged that there was no sound reasoning or justification for the change in method of valuation of inventories undertaken by the assessee in the assessment year under consideration, wh .....

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he 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 .....

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he change made by it. Discussing the above submissions, the learned CIT(A) has come to the following finding vide para Nos. 4.3 to 4.5 of the First Appellate Order, reproduced hereunder for a ready reference. 4.3. I have carefully considered the assessment order and the written submission of the appellant. I find that the value of opening stock was taken from the previous year audited balance - sheet. The management has decided to switch over to SAP w.e.f. 01.04.2004 to facilitate better control .....

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aluation of inventories, the opening value of inventory for the next Assessment Year will also be lower by ₹ 5.02 crore, thus resulting in increasing the profit of the assessee company by ₹ 5.02 Crore in the subsequent AY i.e. A.Y. 2006-07. The A.O had observed that the lowering of this profit is due to discrepancy between the opening stock and closing stock valuations as two different methods are followed by the assessee. It is to be appreciated that whenever there is a change in th .....

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e value of the opening stock of the subsequent assessment year. In such 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 .....

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e 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 the stores/spares and not for the A.O to decide as long as the change is bonafide and the assessee is consistently following the same in the subsequent years. The A.O has apart from stating that FIFO method which the appellant h .....

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merce Industries Ltd where it was held that change in the method of valuation is permissible if it is bona fide and followed regularly from year to year. At the same time it is well settled that irrespective of the basis adopted for valuation for earlier years, the assessee has an option to change the method of valuation of closing stock, provided the change is bona fide and followed thereafter. App. No.187/09-108 M/s BSES Rajdhani Power Ltd. A.Y.2005-06; u/s 143(3) In the current assessment yea .....

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for the first year at the ₹ 130per Kg while the opening stock was valued at ₹ 90 per Kg . In the second year opening stock was valued at ₹ 130 per Kg and there was no closing stock that resulted in the abnormal gross profit ratio 2054.60 percent in the first year and loss return in the second year. Judgment The opening stock for the first year was computed at the rate of RS. 90 per kg and the closing stock was computed at the rate of ₹ 130 per kg. This was done because th .....

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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 h .....

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accepted. An assessee is entitled to change his regular method of accounting by another regular method but there cannot be any casual departure in regard to the method adopted by the assessee. Any disturbance, in the valuation of opening stock would have a snow balling effect, in the sense that the closing stock of the immediately preceding year would be affected and the computation of profits of that year would have to undergo a change and this process would go on for a number of years. Based .....

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Assessing Officer and as to how having distinguishable facts they are not applicable in the present case. 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 a .....

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cide 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. 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 w .....

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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 as the applicable Electricity Laws. In .....

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n (2) of section 211 of the Companies Act are applied. It was submitted that the scope of application of provisions of sec. 115JB of the Act has subsequently been widen w.e.f. 01.04.2013, by including within the ambit of the said section, companies to which proviso to sub-section (2) of sec. 211 of the Companies Act are applied. 22. In support of the issue raised in the additional ground No.2, the Learned AR submitted that the assessee, is engaged in the business of distribution of electricity a .....

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ng its audited annual accounts as per Parts II and III of Schedule VI of the said Act. 22.2 The aforesaid fact is evident on perusal of the significant accounting policies adopted by the appellant-company as disclosed in the audited annual accounts for the previous year relevant to the assessment year 2005-06, stating the basis of preparation of financial statements as under: Significant Accounting Policies and Notes to the Accounts: 1. Basis of preparation of financial statements The financial .....

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ments / 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 .....

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Act, 2003 in respect of an Electricity Company vis-à-vis other Acts is specifically provided in section 174 of the Electricity Act, 2003. 22.4 Thus, by virtue of Section 174 of the Electricity Act, 2003, the provisions of the said Act read along with the DERC regulations shall override the provisions of all other Acts, including the Companies Act, 1956. 22.5 Corresponding to the aforesaid, even the Companies Act, 1956 (section 616) and the Companies Act, 2013 (section 1(4) ) also provide .....

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s customers is determined by the DERC on a year to year basis based on the Annual Revenue Requirements (hereinafter ARR ) and True-up petitions filed by the appellant. There is, it may be noted, a large element of estimate involved in determining the tariff based on the ARR and after the end of the financial year, the appellant files a true up petition setting out facts relating to the actual revenue earned and the expenditure incurred, in accordance with the applicable DERC Regulations. It is o .....

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v Custodian, Special Court Act, 1934: 293 ITR 369 (SC) - CIT v India Equipment Leasing Ltd: 293 ITR 350 (Mad) - CIT v Elgi Finance Ltd: 293 ITR 357 (Mad) - VasisthChayVyapar Ltd: 330 ITR 440 (Del) - DCIT vs. BhartiyaSamruddhi Finance Ltd.: 58 SOT 141 (Del) 22.10 In view of the above, it is patently clear that the appellant prepares its annual accounts in accordance with the applicable laws, including provisions of the Delhi Electricity Reforms (Transfer Scheme), Rules, 2001 and is not required .....

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re 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 .....

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rporate surcharge will be temporary. The other is the phenomenon of zero tax companies which, according to many observers, reflects an excessive degree of laxity in the tax regime. I propose to respond to the two issues as follows: (i) I am reducing the rate of surcharge on corporation tax from 15% to 7.5% and hope to take a similar step in my next budget. The reduced tax burden will benefit all companies big and small. (ii) I propose to introduce a Minimum Alternate Tax (MAT) on companies. In a .....

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(emphasis supplied) 22.15 On the basis of the aforesaid, it would be noted that Legislature intended to exclude from the purview of MAT provisions under section 115JA of the Act (which were para-materia to section 115JB of the Act) companies engaged, inter-alia, in the power sector which were governed by a Special statute, which also regulates the manner in which accounts for such companies were to be prepared. 22.16 The appellant, is governed by the provisions of the Electricity Act, 2003 and a .....

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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 t .....

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arned 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 Thus, vide Finance Act, 2012 the scope of section 115JB of the Act was widened so as to include companies preparing profit and loss account in accordance with provisions of the relevant regulatory Act. 22.22 However, it may be noted that amendments by the Finance Act, 2012 imposing new tax burden on companies which was otherwise not provided under the Act, were, in no un .....

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of the Memorandum is reproduced as under: Minimum Alternate Tax (MAT) I. Under the existing provisions of section 115JB of the Act, a company is liable to pay MAT of eighteen and one half per cent of its book profit in case tax on its total income computed under the provisions of the Act is less than the MAT liability. Book profit for this purpose is computed by making certain adjustments to the profit disclosed in the profit and loss account prepared by the company in accordance with the Schedu .....

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amend section 115JB to provide that the companies which are not required under section 211 of the Companies Act to prepare their profit and loss account in accordance with the Schedule VI of the Companies Act, 1956, profit and loss account prepared in accordance with the provisions of their regulatory Acts shall be taken as a basis for computing the book profit under section 115JB. II. It is noted that in certain cases, the amount standing in the revaluation reserve is taken directly to general .....

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I 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, .....

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e effect from assessment year 2013-14 only. 22.25 The Learned AR contended that it is patently clear from the aforesaid amendment that prior to the amendment applicable from assessment year 2013-14, provisions of section 115JB of the Act were not at all applicable to an electricity company, such as the appellant up to the assessment year 2012-13. 22.26 Further, Explanation 3 to section 115JB of the Act, which provides an option to discoms to prepare accounts as per Schedule VI of the Companies A .....

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ct made by the Finance Act, 2012 are, it was submitted, substantive in nature resulting in fresh liability to tax and would therefore, apply only prospectively; the same cannot, unless specifically mandated by the statute, be applied from retrospective effect. 22.27 Reliance in this regard was placed on the decision of the Constitution Bench of the Hon ble Supreme Court in the case of CIT vs. Vatika Township Private Limited: 367 ITR 466 (SC). To the same effect are the following decisions wherei .....

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preted retrospectively unless it is mentioned in the section 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 Ba .....

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T: 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 115JB(2) and Explanation 3 to said sub-section shall come in force with effect from April 1, 2013 and will accordingly apply in relation to the assessment year 2013-14 and onwards. Meaning thereby, the amendment is specifically made applicable prospectively .....

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the event of any doubt in regard to interpretation, particularly in cases of taxation by employing legal fiction, the benefit of doubt, if any, should be given to the assessee and the interpretation beneficial to the taxpayer should be accepted. Reference was made to the following cases: - CIT v. Vegetable Products Ltd.: 88 ITR 192 (SC) - CIT vs. J.K.Hosiery Factory : 159 ITR 85 (SC) - ACIT v. Thanthi Trust: 247 ITR 785 (SC) - UOI v. Onkar Kanwar : 258 ITR 761 (SC) - CIT v. A. J. Abraham Anthrap .....

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il 1, 2013 and thereby the appellant was not liable to pay tax under the provisions of the said section for the assessment year under consideration. Even though the appellant, under a misconception of law, had declared income under the deeming provisions of section 115JB of the Act, still the assessing officer was under duty to correctly assess income of the appellant in accordance with the provisions of the Act. 23. The learned CIT(DR) on the other hand tried to justify the action of the Assess .....

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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 (Supp .....

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r preparation and presentation of accounts would be prescribed by Schedule- VI to the Companies Act. It was submitted that overriding mandate of Electricity Act, 2003 in respect of electricity company vis-à-vis other Acts, is specifically provided in sec. 174 of the Electricity Act, 2003. 24.1 For a ready reference, the provisions laid down under sec. 174 of the Electricity Act, 2003 are reproduced hereunder: S.174 Save as otherwise provided in section 173, the provisions of this Act shal .....

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013 (Section 1(4) ) also provided/provides that the provisions of the said Act would apply in respect of an Electricity Company only in so far as the said provisions are not inconsistent with the Electricity Act. For a ready reference, the aforesaid provisions of the Companies Act, 1956 and the Companies Act, 2013 are being reproduced hereunder: Section 616 of the Companies Act, 1956: 616. Application of Act to insurance, banking, electricity supply and other companies governed by special Acts. .....

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dian Electricity Act, 1910, (9 of 1910) or] the Electricity Supply Act, 1948 ; (54 of 1948.) (d) to any other company governed by any special Act for the 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 adapt .....

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he 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, except in so far as the said provisions are inconsistent with the provisions of the Electricity Act, 2003; (e) any other company governed by any spec .....

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Learned AR that the provisions of the Act would apply in respect of an Electricity Company only in so far as the said provisions are not inconsistent with the Electricity Act. 24.4 The Learned AR has also referred the provisions laid down under sec. 181 of the Electricity Act with this submission that the said provisions provide power to the State Commission to make regulation. For a ready reference, relevant extracts of section 180 of the Electricity Act, 2003 is being reproduced hereunder: 180 .....

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sub-section (1) of section 15; ……………… ……………….. (zc) the terms and conditions for the determination of tariff under section 61; ……………… (zg) issue of tariff order with modifications or conditions under subsection(3) of section 64; (zo) any other matter which is to be, or may be, specified. (3) All regulations made by the State Commission under this Act shall be subject to t .....

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w 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 t .....

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sec. 115JB of the Income-tax Act, 1961, as applicable to the relevant year under consideration, reproduced hereunder: 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 an assessee, being a company, the income-tax, payable on 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, 2001, is l .....

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956 (1 of 1956) ……………….. . 24.7 On the reading of above provisions laid down under sec. 115JB of the Act relevant for the year, we find that the provisions are applied during the relevant year only to the 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. 24.8 The Learned AR in his submission has also reproduced hereinabove the speech of Hon b .....

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eech of the Hon ble Finance Minister, we concur with the above submission of the assessee about the intention of the legislature. 24.9 In view of the above discussion, we agree with the submission of the Learned AR that the assessee is governed by the provisions of the Electricity Act, 2003 and accordingly supposed to prepare its annual accounts in accordance with the applicable Electricity Act/DERC Regulation, which are binding and mandatory to be followed by the assessee. 24.6 The cited decisi .....

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ty 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) No .....

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hall be the amount of income-tax at the rate of eighteen and one-half per cent. (2) Every assessee,- (a) being a company, other than a company referred to in clause (b), shall, for the purposes of this section, prepare its profit and loss account for the relevant previous year in accordance with the provisions of Part II of Schedule VI to the Companies Act, 1956 (1 of 1956); or (b) being a company, to which the proviso to sub-section (2) of section 211 of the Companies Act, 1956 (1 of 1956) is a .....

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proviso to sub-section (2) of section 211 of the Companies Act, 1956 (1 of 1956) is applicable, has, for an assessment year commencing on or before the 1st day of April, 2012, an option to prepare its profit and loss account for the relevant previous year either in accordance with the provisions of Part II and Part III of Schedule VI to the Companies Act, 1956 or in accordance with the provisions of the Act governing such company. 24.8 We thus find that vide Finance Act, 2012, the scope of sect .....

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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 .....

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nce Act, 2012 are substantive in nature resulting in fresh liability to tax and would, therefore, apply only prospectively. The same cannot unless specifically mandated by the statute, be applied from retrospective effect. In this regard, we find support from the ratios laid down by the Hon ble Supreme Court in the case of CIT vs. Vatika Township Pvt. Ltd. (supra), wherein the Hon ble Supreme Court has been pleased to discuss elaborately the general principles concerning interpretation of amendm .....

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appears, a legislation is presumed not to be intended to have a retrospective operation. The idea behind the rule is that a current law should govern current activities. Law passed today cannot apply to the events of the past. If we do something today, we do it keeping in view the law of today and in force and not tomorrow s backward adjustment of it. Our belief in the nature of the law is founded on the bed rock that every human being is entitled to arrange his affairs by relying on the existin .....

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he then existing law. 32. The obvious basis of the principle against retrospectivity is the principle of fairness , which must be the basis of every legal rule as was observed in the decision reported in L Office Cherifien des Phosphates v. Yamashita-Shinnihon Steamship Co.Ltd (1994) 1 AC 486. Thus, legislations which modified accrued rights or which impose obligations or impose new duties or attach a new disability have to be treated as prospective unless the legislative intent is clearly to gi .....

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p;…………….. …………………………………… 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 .....

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licable to declaratory statutes. As stated in CRAIES and approved by the Supreme Court : For modern purposes a declaratory Act may be defined as an Act to remove doubts existing as to the common law, or the meaning or effect of any statute. Such Acts are usually held to be retrospective. The usual reason for passing a declaratory Act is to set aside what Parliament deems to have been a judicial error, whether in the statement of the common law or in the interpretation of statutes. Usually, if no .....

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n an earlier Act, it would be without object unless construed retrospective. An explanatory Act is generally passed to supply an obvious omission or to clear up doubts as to the meaning of the previous Act. It is well settled that if a statute is curative or merely declaratory of the previous law retrospective operation is generally intended. The language shall be deemed always to have meant is declaratory, and is in plain terms retrospective. In the absence of clear words indicating that the am .....

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ed on the judgments of this Court as well as English decisions. A Constitution Bench of this Court in KeshavlalJethalal Shah v. MohanlalBhagwandas&Anr.( 1968) 3 SCR 623, while considering the nature of amendment to Section 29(2) of the Bombay Rents, Hotel and Lodging House Rates Control Act as amended by Gujarat Act 18 of 1965, observed as follows: The amending clause does not seek to explain any pre-existing legislation which was ambiguous or defective. The power of the High Court to entert .....

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ion 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 Inc .....

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d Edn.) and reiterated in several decisions of this Court as well as English courts is that all statutes other than those which are merely declaratory or which relate only to matters of procedure or of evidence are prima facie prospectively and retrospective operation should not be given to a statute so as to affect, alter or destroy an existing right or create a new liability or obligation unless that effect cannot be avoided without doing violence to the language of the enactment. If the enact .....

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cifically made retrospective, does not apply to the assessment for that year……………. 24.6 Similar view has been expressed by the Hon ble Supreme Court in the other cited decisions in the cases of S.S. Gadgil vs. Lal & Co. (supra), Sedco Forex International Drill Inc. vs. CIT (supra) etc. Thus, it is clear and an established position of law that no section can be interpreted retrospectively unless is mentioned in the section itself. 24.7 The Delhi Bench of the .....

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income earned 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 Ins .....

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nce 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. Therefore, this amendment brings substantial change in the taxability of companies governed by the special acts and, therefore, cannot be held to be retrospective. In this regard we also find strength from the ratio laid down by the Supreme Court in its decision dated 16.9.20 .....

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e intended to have retrospective operation, current law ought to govern current activities, law passed today cannot apply to past events. 24.8 The Mumbai Bench of the ITAT in the case of Reliance Instruments Ltd. vs. ACIT & Ors. (supra) has also expressed similar view. Relevant para Nos. 38 and 39 are being reproduced hereunder: 38. Having heard the rival submissions and after perusing the relevant material on record we find that the Tribunal in assessee s own case in assessment year 2001-02 .....

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not be forced. Therefore, in view of the above facts and circumstances and respectfully following the above decisions of the Hon ble Supreme Court and the decision of the Tribunal for A.Y. 88-89, we hold that provisions of sec. 115JB are not applicable on the facts of the relevant case. 39. Similar view has been taken by the Tribunal in assessment years 2002-03 and 2003-04 as has been discussed in para 14 of the said order and also in the order for A.Y. 2004-05. Respectfully following the preced .....

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ung 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 tha .....

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nies Act, and the assessee is to prepare its books of account in terms of the provisions of Banking Regulation Act. It is thus, contended that the provisions of sec. 115JB do not apply in the case of banking companies which are not required to prepare the profit and loss account as per the requirements of Part II and III of Schedule VI to the Companies Act. Since the provisions of sec. 115JB do not apply to the assessee company, the reasons recorded for reopening the assessment are clearly wrong .....

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and plain wording of the statute. 7. The plea of the assessee is indeed well taken, and it meets our approval. The provisions of sec. 115JB can only come into play when the assessee is required to prepare its profit and loss account in accordance with the provisions of Part II and III of Schedule VI to the Companies Act. The starting point of computation of minimum alternate tax under sec.115JB is the result shown by such a profit and loss account. In the case of banking companies, however, the .....

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deliberation and referring the CBDT understanding (Circular No. 762 dated 18.2.1998 - 230 ITR (Statute) - 12 ) that companies engaged in the business of generation and distribution of electricity and 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 .....

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ertain 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, 1988 but before the 1st day of April, 1991 (hereafter in this section referred to as the relevant previous year .....

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this section, book profit means the net profit as shown in the profit and loss account for the relevant previous year prepared under sub-section (1A), as increased by - if any amount referred to in clauses (a ) to (f) is debited or, as the case may be, the amount referred to in clauses (g) and (h) is not credited to the profit and loss account, and as reduced by,- It can be seen from clause (1 ) that the provision creates a legal fiction regarding the total income chargeable to tax. Such a ficti .....

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al income for the purpose of assessment shall be deemed to be 30 per cent of the book profit. In other words, the section prescribes 30 per cent of the book profits of those Companies falling within the purview of the section shall be treated as the total income of the Company for the purpose of Income-tax, irrespective of the fact that according to the accounts of the Company the total income is less than thirty per cent of the book profit. The expression book profit itself is explained in the .....

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erted 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 115J .....

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er that where a company has adopted or adopts the financial year under the Companies Act, 1956 (1 of 1956), which is different from the previous year under the Act, the method and rates for calculation or depreciation shall correspond to the method and rates which have been adopted for calculating the depreciation for such financial year or part of such financial year falling within the relevant previous year. The further details of section 115JA may not be necessary for the present purpose. 13. .....

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year commencing on or after the 1st day of April, 2007 is less than ten per cent of its book profit, such book profit shall be deemed to be the total income of the assessee and the tax payable by the assessee on such total income shall be the amount of income-tax at the rate of ten per cent. (2) Every assessee, being a company shall for the purposes of this section, prepare its profit and loss account for the relevant previous year in accordance with the provisions of Parts II and III of Schedu .....

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ng in accordance with the provisions of section 210 of the Companies Act, 1956 (1 of 1956): Provided further that where the company has adopted or adopts the financial year under the Companies Act, 1956 (1 of 1956), which is different from the previous year under this Act,- (i) the accounting 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 acc .....

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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 the department to resort to the fict .....

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me-tax as well as for the information statutorily required to be placed, before the annual general meeting conducted, in accordance with section 210 of the Companies Act, 1956. 14. It may be mentioned here that under section 166 of the Companies Act every Company is mandated to hold a general meeting in each year. Section 210 mandates that every year the Board of Directors of the Company in the general meeting shall lay before the Company a balance sheet as at the end of the relevant period and .....

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her to convene an annual general meeting or place its profit and loss account in such general meeting. As a matter of fact, a general meeting contemplated under section 166 of the Companies Act is not possible in the case of the appellant as there are no shareholders for the appellant Board. On the other hand, under section 69 of the Electricity Supply Act, the appellant is obliged to keep proper accounts, including the profit and loss account, and prepare an annual statement of accounts, balanc .....

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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 .....

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ust be remembered that section 115JB creates a legal fiction regarding the total income of the assessees which are Companies. The book profit of the Company is deemed to be total income of the assessee in the circumstances specified in the said section, which are already noticed earlier. The expression book profit for the purpose of the said section is explained in the section itself to mean the net profit as increased or decreased by the various amounts shown in the various sub-clauses of the S .....

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ral duty of the appellant for the purpose of Electricity Supply Act. Nothing in theory prevents the Parliament from obligating the appellant to prepare another profit and loss account as prescribed under section 115JB(2) for the purpose of the Income-tax Act. The question is whether such an obligation is created under section 115JB(2) insofar as the appellant is concerned. In examining the said question, the legislative history and the mischief sought to be cured by the Legislature in making the .....

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to section 115JA, though such express exclusion is absent, the Central Board of Direct Taxes issued a Circular No. 762, dated 18th February, 1998 - [which is binding on the Department, see K.P. Varghese v. ITO [1981] 131 ITR 5971 (SC)] * and Ranadey Micronutrients v. Collector of Central Excise 1996 (87) ELT 19 (SC) excluding the bodies like the appellant from the operation of the said section. Though under the normal rules of interpretation of statutes the omission of a clause which existed in .....

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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 c .....

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ax shall be charged on the same. 46.3 The effective minimum alternate tax, at the existing rates of taxation works out to 12 per cent of the book profits. 46.4 Income arising from free trade zone (FTZ), export oriented undertakings (EOUs), charitable activities, investment by a venture capital company and other exempted incomes (section 10) are excluded from the purview of the alternate tax. 46.5 Since the alternate tax is applicable only where the normal total income computed is less than 30 pe .....

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ower and those enterprises engaged in developing, maintaining and operating infrastructure facilities under sub-section (4A) of section 80-IA are exempted from the levy of MAT, so that the incentive given to infrastructure development is not affected. It can be seen from the above that the legislature took note of the fact that a number of Companies paying marginal tax and also zero-tax has grown. Such Companies earned substantial book profits and paid handsome dividends to the shareholders with .....

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neration 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 .....

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dance 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 at all applicable to companies governed by special Acts which also includes power companies, in respect of assessment years falling prior to 01.04.2013 and thereby the assessee was not liable to pay tax under the provisions of the said sections for the assessment years under consideration. The additional ground No. 2 is accor .....

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ligible for depreciation @ 15 % as against the claims @ 80 % . In this regard he 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 energy saving device which is subject to depreciation @ 80%. In view of the above, depreciation allowed @ 15 % as against the 80% claimed on energy meters resul .....

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ciation @ 80%) resulting in disallowance of depreciation to the tune of ₹ 20,69,729. 25.1 Besides above, the assessee has also moved application under Rule 11 of the Income-tax (Appellate Tribunal) Rules, 1963 requesting for admission of the following additional grounds: 1. Service line deposits received from the consumers are of capital nature. The Learned CIT(Appeals) erred in not directing the Assessing Officer to reduce the amount of service line deposits credited to the profit and los .....

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61 (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 gro .....

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n has been made and it has been decided therein that the Learned CIT(Appeals) while treating the service line deposits received from the consumers as 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 (additional ground No.1) and the Assessing Officer was not justified in assessing the income of the assessee for the assessment year under consideration under sec. 115JB of the Act instea .....

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ts by way of service line deposits is capital in nature and that the provisions under sec. 115JB of the Act were not applicable during the assessment year under consideration, hence, the Assessing Officer was not justified in making the assessment there under instead of normal provisions of the Income-tax Act, 1961. The additional grounds are accordingly allowed. 27. Ground No.1 (assessee): Under similar set of facts and circumstances, an identical issue has been decided by us in favour of the a .....

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ng opportunity of being heard to the assessee in this regard. Ground No. 1 is accordingly allowed for statistical purposes. 28. 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 .....

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he 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 assessment year, the same was required to be reduced from both plant and machinery as well as energy meters , particularly when accelerated deprecation @ 80% is allowed on such energy meters resul .....

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directly or indirectly by any person in the form of a subsidy or grant or reimbursement, then, so much of the cost is required to be reduced from the actual cost of the assets to the assessee. He submitted further that the Assessing Officer failed to appreciate that the grant in aid received by the assessee was utilized by the assessee only for the purpose of procuring assets classified under the head plant and machinery and not for purchase of meters. Therefore, the aid received was rightly adj .....

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of the tax audit report for the assessment year 2006-07 reflecting the grant in aid reduced from the respective cost of assets . The Learned AR accordingly submitted that the grant in aid received by the assessee has been rightly reduced from the block of plant and machinery . 30. The learned CIT(DR) on the other hand tried to justify the orders of the authorities below on the issue. 31. After having gone through the Explanation 10 to sec. 43(1) of the Act, we find that the above Explanation man .....

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ment 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 .....

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. 821/Del/2011: (A.Y. 2006-07): 33. The Revenue has questioned First Appellate Order on the following grounds: 1. The Ld. CIT(A) has erred on facts and in law in deleting addition of ₹ 29424126/- made on account of disallowance of depreciation on energy meters purchased from REL since the order of ATE on the basis of which the relief has been allowed to the assessee is under consideration before the Hon ble Supreme Court. 2. The Ltd.CIT(A) has erred on facts and in law in deleting addition .....

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gly 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. e .....

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utilized for this purpose does not explain that how these receipts are capital receipts in its hands. g) The fact that the assessee co itself treated 1/3rd of these receipts as revenue receipts, impliedly, goes on to show that the co. believes 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 ½ or 1/4th or some other proportion as revenue receipts. i) Las .....

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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 Assessment proceedings. 3. The Ld. CIT(A) has erred on facts and in law .....

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ries. 34. Ground No.1: It is regarding deletion of addition of ₹ 2,94,24,126 made on account of disallowance of depreciation on energy meters purchased from REL. 34.1 The facts in brief are that during the year under consideration, the assessee had purchased certain energy meters for total consideration of ₹ 52.31 crores from its sister concern M/s. Reliance Energy Ltd. (REL). The Assessing Officer relying on the order of the Delhi Electricity Regulatory Commission (BERC), alleged th .....

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of the assessee company without specifying any particulars sections under which the disallowance was being made. The Learned CIT(Appeals) has deleted the disallowance of depreciation made by the Assessing Officer on the ground that no corroborative evidence was brought on record by the Assessing Officer to substantiate that the payments made were not at arm s length. The Learned CIT(Appeals) has also observed that the order passed by the DERC could not be considered as conclusive evidence to de .....

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he 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 sched .....

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order passed by ATE (on the basis of which relief has been allowed to the assessee) by the Hon ble Supreme Court or any other appellate authority. 36.1 At the outset, the Learned AR submitted that apart from the provisions of section 40A(2), there is no provision under the Act, which clothes the assessing officer with the power to go into the issue of reasonableness of the expenditure incurred by an assessee, in respect of which deduction has been claimed under the Act. 36.2 Section 40A(2)(a) of .....

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g reliance on the order of the DERC, and completely disregarding the replies/ details filed by the assessee to substantiate the arm s length character of the said transaction. 36.4 It may further be pertinent to note that section 40A(2) envisages only revenue expenditure in the nature of goods, services or facilities incurred by the assessee in respect of which deduction is claimed under the provisions of the Act and does not include within its ambit, determination of reasonableness of payment m .....

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hi) − Saral Motors & General Finance Ltd. vs. ACIT: 121 ITD 50 (Delhi) Even otherwise, in the present case, the following facts would amply demonstrate that the price paid by the assessee to REL for purchase of energy meters was not excessive or unreasonable, but at fair market value: 36.7 In the submissions filed before the assessing officer, it was categorically stated that the assessee-company followed standard procurement procedure as under: − On receipt of internal purchase .....

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dule, 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 t .....

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mitted that the assessing officer grossly erred in drawing adverse inference from the order of the DERC, without independent application of mind and without bringing on record any independent corroborative evidence to substantiate that the price paid by the assessee to REL for purchase of energy meters was excessive or unreasonable. 36.13 It would be pertinent to point out that the reliance placed by the assessing officer on the order of the DERC does not hold good, in view of the fact that the .....

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DERC. 36.15 In view of the aforesaid, it was submitted that the adverse inference drawn by the assessing officer merely on the basis of the DERC order, which has been set aside by ATE, alleging that the purchases made by the assessee from REL were at higher prices is baseless and, therefore, the deletion of disallowance made on that account by the Learned CIT(Appeals) is justified. 36.16 In this regard, the learned AR further submitted that for invoking the provisions of section 40A(2) of the Ac .....

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) Limited 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 Ho .....

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horities, 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 expediency, which stipulates that reasonableness of the expenditure has to be adjudged from the point of view of the businessman, and not of the Revenue. 36.19 In support of above submissions, the Learned AR placed reliance on the following deci .....

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ther submitted, that even if it is assumed without admitting that the energy meters were purchased by the assessee at higher prices, even then the said issue would only remain academic, since ultimately tax has been paid by REL on the consideration received on sale of the energy meters and the entire exercise is revenue neutral. 36.21 Reliance in this regard was placed on the landmark decision of the Hon ble Supreme Court in the case of CIT vs. Glaxo Smithkline Asia (P.) Ltd: 195 Taxmann 35, whe .....

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evenue neutral. 36.22 To the same effect is the decision of Hon ble Bombay High Court in the case of CIT vs. V.S. Dempo & Co. (P.) Ltd.: 196 Taxman 193, submitted the Learned AR. 36.23 In view of the above, the Learned AR submitted that the disallowance of depreciation of ₹ 2,94,24,126/- deleted by the Learned CIT(Appeals) may be upheld. 37. Considering the above submission, we find substance in the above contentions of the Learned AR and fully concur with his submissions that for invo .....

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fficer 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 ma .....

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ing the year, the assessee received ₹ 39.42 crores (as per rectification order dated 24.2.2009) as consumers contribution towards capital work and ₹ 15.28 crores as service line deposits from customers . 38.2 The aforesaid consumers contributions being contribution made by the customers for undertaking capital works, was treated as capital receipts in the books of the assessee in accordance with the Electricity (supply) Annual Account Rules, 1985. In so far the service line deposit i .....

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e balance sheet. Further the expenditure incurred for providing service line was capitalized under the head plant and machinery and full depreciation was claimed by the assessee on the capital assets so acquired out of the said deposits. 38.3 The Assessing Officer held that the service line deposits and consumers contributions are in the nature of non-refundable deposits and therefore, not in the nature of liability. The Assessing Officer further held that the aforesaid deposits were taxable as .....

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ipts. However, since the contribution received was towards acquisition of capital assets, the same was required to be reduced from the cost of such assets as per sec. 43(1) of the Act, which would consequently 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, n .....

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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 Re: Service Line Deposits: The assessee in the year under consideration received a sum of ₹ 15.41crores a .....

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t of un-electrified areas, the assessee was also eligible to charge development charges in addition to the service line charges. 40.3 Service line, it was submitted, is a connecting line which links the supply system to the premises of the consumer and utilized for the purpose of supplying electricity. The service line charges are charged from the consumer only at the time of providing new connections, to recover the capital expenditure incurred on setting up of such lines. Thus, it is a onetime .....

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red by the landmark decision of the Supreme Court in the case of Hoshiarpur Electric Supply Co. vs. CIT: 41 ITR 608, wherein the Hon ble Apex Court has categorically held that the service connection receipts of an electricity company are not receipts incidental to nor carrying on of the assessee s business, but 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 capit .....

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.) − 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 .....

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ed as trading receipt, notwithstanding the mandate of Explanation 10 to section 43(1) of the Act. 40.10 In view of the above, the Learned AR submitted that the service line charges/deposits received by the assessee be directed to be treated as capital receipt, which may be reduced from the cost of relevant block of assets. 40.11 Re: Consumer Contribution: In so far as the consumer contribution is concerned, it was submitted, that the assessee-company received contribution of ₹ 39.42 crores .....

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hts. 40.13 The aforesaid consumer contribution received from consumers for undertaking capital works are accounted for by the assessee-company as per the provisions of the Electricity (Supply) Annual Accounts Rules, 1985, which mandates that such contributions should be treated as capital receipt in the hands of the Electricity Company. 40.14 Further the details of nature of work and estimated cost of electrification schemes in respect of the consumer deposits received by the assessee were also .....

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amount could, at the most, be reduced from the cost of such plant & machinery , in terms of section 43(1) of the Act, as directed by the CIT(Appeals). 41. Considering the above submission as well as having gone through the cited decisions, we find that the Hon ble Supreme Court in the case of Hosiarpur Electric Supply Co. vs. CIT (supra) has been pleased to hold categorically that service connection receipts of an electricity company are not receipts incidental to nor carrying on of the ass .....

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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 .....

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taken by the assessee after charging certain specified amounts in respect of cost to be incurred on HT Feeder, sub-stations including civil work, LP feeders and service line and street lights etc. The aforesaid consumers contribution received from consumers for undertaking capital works are accounted for the assessee as per the provisions of the Electricity (Supply) Annual Accounts Rules, 1985 which mandates that such contribution should be treated as capital receipts in the hands of the electri .....

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contribution as capital in nature. The First Appellate Order deleting the addition of ₹ 1,91,29,36,254 made on account of service line deposits and on account of consumers contribution is thus upheld. The ground No. 2 is accordingly rejected. 42. Ground No.3: In this ground, the Revenue has questioned First Appellate Order in deleting addition of ₹ 44,71,064 made on account of disallowance of legal claims ignoring that payments made by the assessee are penal in nature and hence not a .....

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ade 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 .....

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nt of legal claims amounting to ₹ 1.78 crores. 44.1 The aforesaid payments, it was submitted, were made by the assessee in pursuance of settlement of certain claims made by consumers, in the regular course of business and did not involve any penal element. 44.2 In this regard, the Learned AR submitted, that the payments made were not on account of infraction or violation of law, but merely in the nature of settlement of disputes arising in the regular course of business and could at best b .....

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disallowed under section 37 of the Act. Reliance in this regard has been placed by the Learned AR on the following decisions: − Prakash Cotton Mills vs. CIT: 201 ITR 684 (SC) − CIT vs. Indian Copper Corporation Ltd.: 161 ITR 327 (Pat) − CIT vs. Grand Cashew Corporation: 182 ITR 216 (Ker) − Jama Auto Industries vs. CIT: 299 ITR 92 (P&H) − CIT vs. Hindustan Copper Ltd.: 55 Taxman 392 (Cal) − CIT vs. Todi Tea Col. Ltd: 239 ITR 28 (Cal.) − G.L. Rexroth I .....

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e 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. The First Appellate Order in this regard is thus upheld. Ground No.3 is accordingly rejected. 46. Ground No.4: It .....

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at 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 Lea .....

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gically be applied to any calculating machine. However, in common usage, the definition of a computer has become more limited in a contemporary usage. We now define a computer as an electronic data processing device capable of receiving input, storing sets of instructions for solving problems and generating output with high speed and accuracy. Computers are composed of switches, wires, motors, transistors and integrated circuits assembled on frames. The frames form components such as keyboards, .....

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. 49. Considering the above submission, we find that the issue is fully covered by the above cited decision of Hon ble Delhi High Court in the case of assessee itself in ITA No.1266 of 2010 (supra) holding that printers, scanners and server etc. form integral part of the computer system and, therefore, entitled to depreciation @ 60%. Respectfully following the same, we are of the view that the Learned CIT(Appeals) has rightly deleted the disallowance. The same is upheld. Ground No. 4 is accordin .....

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ed from the cost of plant and machinery in accordance with the provisions of Section 43(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 menti .....

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sion 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 three years. We have dealt with this issue in the appeals for the assessment years 2005-06 and 2006-07 hereinabove and held that the Learned CIT(Appeals) was not justified in not directing the Assessing Officer to reduce the amount o .....

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e deposits credited to the profit and loss account during the year accordingly while computing the total income treating the entire receipts by way of service line deposits as capital in nature. The ground No.1 is accordingly allowed. 52. Ground No.2: In this ground the issue raised is regarding validity of allowance of depreciation at the rate of 15% as against 80% on energy meters, resulting in disallowance of ₹ 32,54,73,974. An identical issue has been decided in the appeals for the ass .....

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Assessing Officer. The ground No.2 is thus allowed for statistical purposes. 150. In result, the appeal is partly allowed. ITA No. 1539/Del/20111: (A.Y. 2007-08): 53. The Revenue has questioned First Appellate Order on the following grounds: 1. The Ld. CIT(A) has erred on facts and in law in deleting addition of ₹ 51,22,43,735/- made on account of disallowance of service line deposits and customer contribution to capital works ignoring that: a) The service line deposits are not in the natu .....

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rgy 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 .....

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eceipts impliedly, goes on to show that the co.believes that they are of revenue nature. h) Further the co. has not submitted any reasoning whatsoever as to why it has treaed specifically 1/3rd of these receipts as revenue receipts and not ½ 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 not sheet entry dt .....

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t 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. k) The assessee company also not provided the information in the tabular form inspite of specifically asked for by the AO during the Assessment proceedings. 2. 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 asse .....

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on of ₹ 51,22,43,735 made on account of service line deposits and on account of consumers contribution for capital works. This ground is connected with ground No.1 of the appeal preferred by the assessee 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 .....

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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. An identical issue has been decided hereinabove in the appeal preferred by the Revenue for the asse .....

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issue is decided in favour of the assessee while upholding the action of the Learned CIT(Appeals) in this regard. The ground No.3 is accordingly rejected. 57. In result, the appeal is dismissed. ITA No. 4780/Del/2013- Assessee s appeal- (A.Y. 2008-09): 58. The assessee has questioned First Appellate Order on the following grounds: 1. Depreciation on energy meters at 15% as against its eligibility of 80%. The Ld. CIT (A)- V has dismissed this ground mentioning that since appellant has claimed 15 .....

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Line Deposit and Consumer Contribution for Capital works from consumers. Without prejudice to the ground that service line deposits and consumer contribution for capital works are capital receipts, in case authorities decide these issue otherwise, the additional depreciation on assets created out of service line deposits and consumer contribution should be allowed. 59. Ground No.1 : An identical issue as raised in this ground regarding eligibility of claiming of depreciation @ 80% on energy met .....

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ding 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 .....

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received from the customers against selling of electricity to the customers for whom the services lines are to be provided and such received during the course of regular business operation. 2. Whether on the facts& circumstances of the case, the learned CIT (A) has erred in deleting the addition of ₹ 11,26,99,307/- made by the AO on account of legal claims without taking into account the fact that the payment made included amounts which were penal in nature and hence not allowable. 3. .....

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lter, add or forego any ground(s) of appeal at any time before or any time during the hearing of this appeal . 63. Issue No.1: An identical issue as to whether the Learned CIT(Appeals) has erred in deleting the addition (of ₹ 1,21,47,44,450) made on account of service line deposits received from the customers, has been decided in favour of the assessee and upholding the finding of the Learned CIT(Appeals) in this regard that the deposits are capital in nature, in the appeals preferred by t .....

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count of disallowance of legal claims has been decided in favour of the assessee by upholding the First Appellate Order in this regard in the appeal for the assessment year 2006-07 preferred by the Revenue. Following the same, the issue No.2 is decided against the Revenue with this finding that the legal claims being not penal in nature are allowable. 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, th .....

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duced 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 char .....

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n of the following two additional grounds: 1. Service Line Deposits received from the Consumers are of Capital nature: The Learned CIT(Appeals) erred in not directing the Assessing Officer to reduce the amount of service line deposits credited to the profit and loss account during the year amounting to ₹ 10,43,80,780 (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 receip .....

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al for the assessment year 2005-06 in the case of BSES Rajdhani Power Ltd. Following the view taken therein, the present application raised for the admission of the above stated additional grounds is allowed. 71. Ground No.1 : An identical issue on the eligibility of claiming depreciation @ 80% on energy meters against 25% allowed by the authorities below under the similar facts has been decided in favour of the assessee in the appeal for the assessment year 2005-06 preferred by the BSES Rajdhan .....

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itional 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 .....

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owing these decisions therein on identical issues, the issues raised in additional grounds in the present appeal are decided in favour of the assessee. The additional grounds are accordingly allowed. The appeal is partly allowed. 73. ITA No. 3660/Del/2011 (Revenue) - (A.Y. 2005-06): The Revenue has questioned First Appellate Order on the following grounds: 1. The Ld. CIT(A) has erred on facts and in law in deleting addition of ₹ 10,94,42,155/- subsequently reduced to ₹ 13033059/- mad .....

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venue receipts. c) Since the assessee co is engaged in selling the energy, therefore for this purpose it has to provide service line connections to all 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. d) The service line receipts simply cannot be treated as capital receipts because their nature would .....

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ares. Under any circumstances FIFO method is more correct & hence more appropriate for the valuation of stores/spares as closing stock as compared to Moving Average method. b) No sound reasoning/acceptable logic is given by the assessee company for change in the cost method from FIFP to Moving Average. c) The order of CIT(A) is not acceptable because the change in the method of valuation is neither bonafide nor regulatory followed by the assessee as required for the change in the method of v .....

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e 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 L .....

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ver 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. The ground No.1 is accordingly rejected. 75. Ground No.2: In this ground, the action of the Learned CIT(Appeals) in deleting the addition of ₹ 2,62,00,000 made on account of valuation of closing stock has been questioned by the Revenue. Under the similar set of facts, an identical issue has been decided in favour of the assessee by upholding t .....

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uestioned First Appellate Order on the following grounds: 1. Service Line deposits from the consumers wrongly upheld as taxable over a period of 3 Years. The learned CIT (A)-VII 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 deserves to be reduced from the cost of plant and machinery in accordance with the provisions of Section 43(1) of the Income Tax Act, 1961. 2. Depre .....

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the characteristics 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 asset .....

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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. 78.1. Similar arguments have been advanced by the parties on the allowability of the present application for admission of the above additional ground as adv .....

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r sec. 115JB of the Act and not under the normal provisions of the Act during the year. The additional ground is accordingly allowed. 79. Ground No.1: The action of the Learned CIT(Appeals) upholding service line deposit from the consumers as taxable over a period of three years has been questioned. During the year, the assessee had received a sum of ₹ 10.44 crores (as per rectification order dated 31.1.2011) as nonrefundable service line deposits from customers as per the provisions of DE .....

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tal in nature. Being aggrieved, the assessee has raised this ground. The issue raised in this ground under the similar set of facts has been decided hereinabove in the case of assessee itself in the appeal preferred by it for the assessment year 2005-06 hereinabove. Following the same, we direct the Assessing Officer to reduce the amount of service line deposit credited to the profit and loss account during the year as per the company s policy of offering the service line deposit for Revenue ove .....

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sessee. 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 asse .....

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the said scheme was reduced from the block of such asset(s). 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 assessment year under consideration, the same was required to be reduced from both plant and machinery as well as energy meters , particularly when accelerated depreciation @ 80% is allowed on such energy meters. 81.1. The Learned CIT(Appeals) held that since the assessee was not e .....

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t in aid received by the assessee from the respective cost of assets(s) as reflected in the tax audit report of the assessee for the years as it has been rightly adjusted by the assessee and not against the meters and allow the claimed relief after affording opportunity of being heard. The ground No.3 is accordingly allowed for statistical purposes. 82. In result, the appeal is partly allowed. ITA No.1438/Del/2011 -Assessee- (A.Y. 2007-08): 83. The assessee has impugned First Appellate Order on .....

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owed at 15% as against 80% resulting in a disallowance of ₹ 33, 28, 96,938. 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 .....

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nds 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 that since the addition on account of deemed dividend had been deleted in the hands of the appellant (based upon the fact that appellant is not a shareholder of BRPL which provided loan t .....

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appellant. 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. 83.1. Besides above, the assessee has also moved an application for admission of the following additional ground: 1. 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 appreci .....

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is decided in favour of the assessee. 84. Ground No.1: It is relating to service line deposits from the consumers wrongly upheld as taxable over a period of three years. Under the similar set of facts in case of the assessee itself in the appeal preferred by it for the assessment year 2005-06 has been decided in favour of the assessee hereinabove. Following the same, we while setting aside orders of the authorities below in this regard direct the Assessing Officer to reduce the amount of servic .....

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llowing 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 elec .....

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ed by virtue of sec. 2(18)(b) (B) and therefore, the provisions of sec. 2(22)(e) of the Act were not applicable to it. The Learned CIT(Appeals) while deleting the addition made by the Assessing Officer however, held that since the assessee is not a shareholder in BRPL(BSES Rajdhani Power Ltd.), the provisions of sec. 2(22)(e) will not be applicable by virtue of the decision of Special Bench of the ITAT in the case of ACIT vs. Bhaumik Colours (P) Ltd. - 118 ITD 1 (Mumbai) (SB). The parties are ac .....

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t of disallowance of deemed dividend under sec. 2(22)(e) of the Act ignoring that the Reliance Energy Ltd., Reliance Global Pvt. Ltd. are common shareholder in the assessee company as well as BSES Rajdhani Pvt. Ltd. from whom the assessee company has received loan and advances. The shareholding of Reliance Energy Ltd. and Reliance Global Pvt. Ltd. is also not less than 10%. We thus decided to deal with ground No.3 of the appeal of the assessee and ground No.4 of the appeal of the Revenue simulta .....

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ce Pvt. Ltd 96,00,000 Reliance Energy Global Pvt. Ltd. 96,00,000 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. L .....

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at the assessee did not have any direct shareholding in BRPL. 86.4 It may also be observed that 49% of the shares of BRPL are held by Delhi Power Co. Ltd., which is a Corporation set up under the Delhi Electricity Reform Act, 2000 (Delhi Act No2 of 2001), i.e. a State Act. 86.5 The assessing officer, in the impugned assessment order, held that the transaction of loan advanced by BRPL to the assessee was in the nature of deemed dividend as defined under section 2(22)(e) of the Act. 86.6 In the im .....

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de by the assessing officer by holding that since the assessee-company did not have any direct share-holding in BRPL, the provisions of section 2(22)(e) of the Act were not applicable. The CIT(A), however, did not examine the fundamental question that the provisions of section 2(22)(e) of the Act were, per se, not applicable in the case of the assessee. 87. In this regard, the Learned AR submitted that section 2(22)(e) of the Act defines deemed dividend as under: (e) any payment by a company, no .....

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holder 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- ………………. (emphasis supplied) 87.1 On perusal of the aforesaid, it may be noted that the provisions of this cl .....

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ssee at the very threshold as BRPL is a company in which public is substantially interested as elaborated hereunder: 87.3 A Company in which public is substantially interested is defined under section 2(18) of the Act, which reads as under: (18) company in which the public are substantially interested -a company is said to be a company in which the public are substantially interested- (a) if it is a company owned by the Government or the Reserve Bank of India or in which not less than forty per .....

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without a further right to participate in profits) were, as on the last day of the relevant previous year, listed in a recognised stock exchange in India in accordance with the Securities Contracts (Regulation) Act, 1956 1 (42 of 1956 ), and any rules made thereunder; (B) shares in the company (not being shares entitled to a fixed rate of dividend whether with or without a further right to participate in profits) carrying not less than fifty per cent of the voting power have been allotted uncond .....

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se business consists mainly in the construction of ships or in the manufacture or processing of goods or in mining or in the generation or distribution of electricity or any other form of power, item (B) shall have effect as if for the words not less than fifty per cent , the words not less than forty per cent had been substituted; (emphasis supplied) 87.4 On perusal of the aforesaid section, it may be noted that if fifty percent of shares a Company, not being a Private Company is held by: (1) t .....

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. 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 i .....

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ion 2(22)(e) of the Act are not attracted at the threshold. 87.9 The assessing officer has, in the impugned assessment order, nowhere disputed the fact that 49% shares of BRPL are held by Delhi Power Co. Ltd., which is a Corporation set under a State Act, but has merely made a bald allegation that there was no evidence to prove that 49% shares of BRPL held by Delhi Power Co. Ltd. were allotted or acquired unconditionally 87.10 In making the aforesaid observation, the assessing officer has not br .....

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der and if it is not so established, the provisions of section 2(22)(e) of the Act are not applicable. Reliance in this regard is placed on the following decisions: − CIT vs. Ankitech (P.) Ltd.: 318 ITR 376 (Del) − CIT v. Universal Medicare (P.) Ltd. : 324 ITR 263 (Bom) − CIT vs. Suram Holdings (P.) Ltd.: 220 Taxman 327 (Raj.) − ACIT vs. Bhaumik Colour (P) Ltd.: 118 ITD 1 (MUM.) (SB) 87.13 In the instant case, the assessee did not have any direct shareholding in BRPL in t .....

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said 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) .....

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es 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 provided loan/advance to the assessee is a company in which public is substantially interested by virtue of provisions of sec. 2(18) (b)(B)(c) of the Act, hence the provisions of section 2(22)(e) of the Act are not attracted on the amount of loan/advance provided by BRPL to the assessee. BRPL is a company which .....

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e second contention of the assessee remained that the assessee company is not a shareholder in BRPL and accordingly cannot be taxed under sec. 2(22)(e) of the Act. 89.4 In support, reliance was placed on the decisions in the cases of ACIT vs. Bhaumik Colour (P) Ltd. (2009) - 313 ITR (AT) 146 (S.B) and DCIT vs. National Travel Services - 31 SOT 76. In view of the above cited decisions on the issue, the Learned CIT(Appeals) agreed with the alternative submissions of the assessee and held that the .....

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ned CIT(Appeals) on the other alternative argument of the assessee is fully covered in favour of the assessee by the above cited decisions, we do not find reason to interfere with the First Appellate Order in this regard. The same is upheld. The ground No.4 of the Revenue s appeal questioning the above finding is thus rejected. 89.5 The Learned CIT(Appeals) has, however, left open the above discussed first contention of the assessee, treating the same as turned academic in view of is above findi .....

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onditions 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 .....

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n to capital works ignoring that: l) The service line deposits are not in the nature of deposits per se they are Nonrefundable as also admitted by the assessee co. m) Once these receipts have been accepted as non-refundable receipts 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. n) Further the assessee co. is engaged in selling electricity t .....

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e 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. q) 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 purpose does not explain that how these receipts are capital receipts in its hands. r) .....

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books even though specific query was raised in this regard vide not 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. u) The service line receipts simply cannot be treated as capital receipts because their nature would not depend upon how the assessee co. is util .....

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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 that as per the IT Rules 60% depreciation is allowable only on computer and computer software and not on computer peripherals and accessories. 92. Ground No.1: The action of t .....

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he assessment year 2006-07, we have already dealt with both the connected grounds. Following the same, the finding of the Learned CIT(Appeals) that service line deposits and consumers contribution for capital works are capital in nature is upheld. The ground No.1 preferred by the Revenue is thus rejected. 93. Ground No.2: It is regarding deletion of addition of ₹ 22,74,094 made on account of disallowance of legal claims. Under similar set of facts, this issue has been decided in favour of .....

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f extra depreciation on computer peripheral. Under the similar set of facts, an identical issue has been decided in the appeal preferred by the Revenue for the assessment year 2006-07 vide ground No.4 therein. Following the same, we affirm the action of the Learned CIT(Appeals) in deleting the addition in question with this finding that the assessee was very much eligible for the claimed depreciation on computer peripherals. The ground No.3 is accordingly rejected. 95. Ground No.4: It is regardi .....

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-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 accorda .....

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then the higher depreciation may be allowed. Accordingly the issue of higher deprecation @ 80% on energy meters still stands. 3. Additional depreciation on assets created out of service line deposit and consumer contribution for capital works from customers. With prejudice to the ground that service line deposits and consumer contribution for capital works are capital receipts, in case authorities decide these issue otherwise, the additional depreciation on assets created out of service line de .....

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61 ( the Act ), without appreciating that the deeming provisions of section 115JB of the Act were not applicable during relevant assessment year. 98.1 The parties have adopted similar arguments as advanced by them on similar application in the appeal of the assessee hereinabove for the assessment year 2007-08. Following the same, the application is allowed. The parties have also advanced a similar arguments on the issue raised on the additional ground as advanced by them in the assessment year 2 .....

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peal of the assessee for the assessment year 2005-06 hereinabove. Following the same and the decision taken in the connected additional ground for the assessment year 2005-06 in the assessee s appeal, we hold that the Learned CIT(Appeals) while holding the service line 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 .....

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