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2017 (8) TMI 565

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..... ff. In our view, these are plausible explanation relating to variation in the accounting policies followed by the assessee company given the nature of business the assessee company is engaged in and related electricity regulations which it must comply with. These are statutory requirements which the assessee company is required to follow while preparing its financial statements. However, the fact remains that there is complete disclosure of all material facts in the financial statements so far as issue relating to determination of actual cost of the assets are concerned. The material facts so disclosed in the financial statements have infact been considered by the AO while recalculating the depreciation claim of the assessee company. Thus respectfully following the decision of the Hon’ble Supreme Court in case of Reliance Petroproducts (2010 (3) TMI 80 - SUPREME COURT) wherein held a mere making of a claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee, we hereby delete the levy of penalty under section 271(1)(c) in respect of disallowance of depreciation under section 32(1)(iii) read with se .....

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..... ssee were present in the court. Ld AR submitted that the Board have filed the return of income for the assessment year 2001-02 and have also provided the chart for depreciation in respect of fixed assets of the assessee. 9.1 Even otherwise Section 80 of the Electricity Supply Act, 1948 provides as under:- 80. Provision relating to Income Tax and Super Tax.- ( 1) For the purposes of the Indian Income-tax Act, 1922 (XI of 1922), 4 the Board shall be deemed to be a company within the meaning of that Act and shall be liable to income tax and super tax accordingly on its income, profits and gains. ( 2) The State Government shall not be entitled to any refund of any such taxes paid by the Board. In view of the specific provisions under the Electricity Supply Act, 1948, a Board constituted under the said Act and the Board is liable to pay tax under the provisions of Income Tax Act, 1961 and therefore, the Board was required to file income tax return and the judgment passed by the Hon ble Rajasthan High Court in the case of Rajasthan State Electricity Board Vs. DCIT (1993) 200 ITR 434 clearly deals that the Rajasthan State Electricity Board is a governmen .....

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..... of the transferor company meaning thereby the block of assets, which was transferred by the Rajasthan Electricity Board with the original cost of acquisition, shall be determined the written down value for the assessee company. The Hon ble Delhi High Court in the case of Dalmia Ceramic Industries Ltd. Vs. CIT (2005) 277 ITR 219 has held that what would be the actual cost of the transferee company on the date of transfer is indicated in Section 43(1), explanation-6, thus the actual cost of transferee company will be written down value of the holding company. 9.4 Since the original cost of acquisition of the transferor company, is determined, similarly, the written down value of the transferor company is also available with the Assessing Officer, therefore, the ld Assessing Officer was only required to allow the application depreciation on the written down value of the assets acquired by the assessee from the transferor company (RACB). The relevant portion of the judgment is reproduced hereinbelow: 8. The only issue before this court is whether the written down value of the holding company is to be taken as actual cost of the assessee or the amount paid by the .....

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..... purpose of its business. 11. There is no dispute that the case falls under clause (iv) of section 47. Therefore, it is clear that the actual cost would be the written down value of the transferor-company. This aspect is required to be borne in mind while considering the question. We will now have to turn to Explanation 6 to section 43(1) which reads as under : Explanation 6 .- When any capital asset is transferred by a hold ing company to its subsidiary company, or by a subsidiary company to its holding company, then, if the conditions of clause (iv) or, as the case may be, of clause (v) of section 47 are satisfied, the actual cost of the transferred capital asset to the transferee-company shall be taken to be the same as it would have been if the transferor-company had continued to hold the capital asset for the purposes of its business. 12. It is clear that what would be the actual cost to the transferee company on the date of transfer is indicated in section 43(1), Explanation 6. Thus, the actual cost to the transferee-company will be the WDV of the holding company (transferor-company). 13. The assessee based its submission relying on Maharan .....

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..... ree situations outlined by counsel where the original figure itself requires a modification. 9.5 In view thereof, this ground of the assessee s appeal is allowed. 5. In light of above, given the fact that the disallowance of depreciation on non-existing fixed assets has been deleted by the Coordinate Bench in all the three years under consideration are concerned, the very basis for levy of penalty doesn t stand. Accordingly, the levy of penalty under section 271(1)(c) is deleted in respect of all the three years under consideration. Levy of penalty on depreciation disallowed under section 32(1)(iii) read with 43 (1) and explanation 10 thereto. 6. Now coming to the second common ground where the penalty has been levied in all the three years in relation to disallowance depreciation u/s 32(1)(iii) read with section 43(1) of the Act. In this regard, the ld. AR fairly submitted that the Tribunal in the quantum proceedings vide its above said order dated 14.07.2016 has decided the matter against the assessee. At the same time, he submitted that since the addition has been made and confirmed by the Tribunal under the normal provisions of the Act and the tax li .....

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..... by the assessee in the form of grant/reimbursement/subsidy from the state Government therefore, in our view, the order passed by the ld CIT(A) is required to be upheld and the value of the assets shall be taken by the ld Assessing Officer after adjusting the subsidy/grant/reimbursement from the State Govt. or the other government departments. Accordingly, this issue is decided against the assessee and in favour of the revenue. 19. We have heard the rival contentions of both the parties and perused the material available on the record. We have also gone through the contention raised by the assessee as well as the order passed by the Advance Rulings (Income Tax), New Delhi. Advance Rulings (Income Tax), New Delhi even in the matter of Jodhpur Vidyut Vitran Nigam Limited, which is situated on the same pedestal as that of the assessee, have been accepted by the revenue and the revenue has not insisted for application of provisions of MAT U/s 115JB of the Act. Therefore respectfully following the order passed by the Advance Rulings (Income Tax), New Delhi and applying the same to the present facts and circumstance of the case, we decide the issues in favour of the assessee. .....

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..... ent dated 26.8.2010 in ITA No. 1420 of 2009 in the case of Nalwa Sons Investment Ltd. (available in NJRS as 2010-LL-0826-2), held that when the tax payable on income computed under normal procedure is less than the tax payable under the deeming provisions of Section 115JB of the Act, then penalty under section 271(1)9c) of the Act could not be imposed with reference to additions/disallowances made under normal provisions. The judgment has attained finality. 4. Subsequently, the provisions of Explanation 4 of sub-section (1) of section 271 of the Act have been substituted by Finance Act, 2015, which provide for the method of calculating the amount of tax sought to be evaded for situations even where the income determined under the general provisions is less than the income declared for the purpose of MAT u/s 115JB of the Act. The substituted Explanation 4 is applicable prospectively w.e.f. 01.04.2016. 5. Accordingly, in view of the Delhi High Court judgment and substitution of Explanation 4 of section 271 of the Act with prospective effect, it is now a settled position that prior to 1/4/2016, where the income tax payable on the total income as computed under the normal provisi .....

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..... ct of the claim of depreciation disallowed by the AO for the purpose of computing total income under the normal provisions of the I.T. Act. No adjustment in the book profit declared by the appellant u/s 115JB was made by the AO in respect of the disallowance of depreciation made by the AO. Therefore, the Hon ble High Court gave the finding that no penalty u/s 271(1)(c) can be levied in respect of the amount of depreciation disallowed for the purpose of computing total income under the normal provisions of the I.T. Act because the books profit of the appellant was considered as deemed income u/s 115JB (and not the total income computed under the normal provisions of the I.T. Act) and no adjustment in respect of the depreciation disallowed by the AO was made by the AO to the book profit declared by the appellant. In the Circular No. 25/2015 of the CBDT, following observations have been made at para 5- Accordingly, in view of the Delhi High Court judgment and substitution of Explanation 4 of Section 271 of the Act with prospective effect, it is now a settled position that prior to 1-4-2016, where the income tax payable on the total income as computed under the normal provisio .....

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..... t in the case of M/s Nalwa Sons Investment Ltd., nowhere it has been mentioned that no penalty u/s 271(1)(c) can be levied even in respect of the adjustments made in the book profit declared by the appellant u/s 115JB. In that case, it was an admitted fact that no adjustment in the book profit declared by the appellant u/s 115JB was made by the AO. Therefore, the Hon ble High Court held that no penalty u/s 271(1)(c) can be levied in respect of the disallowance of depreciation made by the AO only for the purpose of computing the income under the normal provisions of the Act, as the total income was deemed u/s 115JB. In the Circular No. 25/2015/CBDT also, it has been clarified that in cases prior to 01.04.2016, if any adjustment is made in the income computed for the purpose of MAT, then the levy of penalty u/s 271(1)(c) of the Act will depend on the nature of adjustment . Thus, I am of the considered view that neither the Delhi High Court nor the Circular No. 25/2015 of the CBDT has held that no penalty u/s 271(1)(c) can be levied in respect of the adjustments made in the book profit declared by the appellant u/s 115JB. Accordingly the contention of the appellant that in .....

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..... n upheld by the CIT(A), Ajmer observing that the accounts of the appellant have not been maintained properly even according to the Companies Act. In view of these facts, I am of the considered view that the appellant has filed inaccurate particulars of income in respect of the depreciation claimed on the cost of asset not paid by it. Hence, in view of the above discussion, the penalty levied by the AO u/s 271(1)(c) is hereby confirmed. 11. As we have stated above, in the instant case, the facts of the case after taking into consideration the findings of the Coordinate Bench in the quantum proceedings are that there is disallowance of depreciation under the normal provisions of the Act and as a result, loss declared in the return of income under normal provisions of the Act has got reduced. Further, the provisions of MAT are held not applicable in the instant case. The facts of Nalwa Sons are therefore totally distinguishable and don t support the case of the assessee. In that case, though there were additions made under the normal provisions of the Act, income of the assessee was assessed and brought to tax under the provisions of MAT and basis that, the Hon ble Delhi .....

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..... s that whether there are two opinions about the applicability of provisions of section 43(1) read with explanation 10 in the instant case or not. In the quantum proceedings, when the matter reached before the Co-ordinate Bench, the Co-ordinate Bench in its order noted that During the course of argument, a pointed query was asked from the ld AR, to which it was fairly stated that the contribution / grant in the form of subsidy were received from the State Govt./other department towards the cost of capital asset and for replacement of the assets. Thereafter, the Coordinate Bench held that A bare reading of the Explanation 10 of Section 43 of the Act, which clearly provides that 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 in the form of a subsidy or grant or reimbursement, then, so much of the subsidy or grant or reimbursement shall not be included in the actual cost of the asset to the assessee. Admittedly, the amount has been received by the assessee in the form of grant/reimbursement/subsidy from the state Government therefore, in our view, the order passed by the ld CIT(A) i .....

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..... articulars of such income. 15. It is well established that the provisions of section 271(1)(c) being in the nature of penal provisions require a strict interpretation and it must be shown that the instant case falls within four corners of the said provisions and conditions laid therein are specifically fulfilled. The case of the Revenue is that the present case is about furnishing inaccurate particulars of income. Therefore, it has to be examined whether there is furnishing of inaccurate particulars of income by the assessee company in the instant case. 16. In this regard, the ld AR has drawn our reference to the decision of the Hon ble Supreme Court in case of Reliance Petroproducts (322 ITR 158). In that case, the facts of the case were that the assessee company filed its return of income claiming interest expenditure in respect of loan amount for purchasing shares by way of its business policies. The Assessing Officer disallowed said expenditure and simultaneously levied penalty under section 271(1)(c) on account of concealment of income/furnishing of inaccurate particulars of income. The Revenue contended before the Hon ble Supreme Court that the claim of the expendit .....

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..... surplus as per the balance sheet should not be reduced from cost of the assets for purposes of calculation of depreciation in view of section 32(1)(iii) read with section 43(1) and explanation 10 thereto. Thereafter, after taking into consideration the submission and explanation of the assessee, though not agreeing with it, the AO want ahead and recalculated the depreciation claim as made by the assessee in its return of income. It is thus seen that all material facts and figures are duly disclosed in the return of income and the financial statements, and the Assessing officer, on perusal of the same, came to a conclusion that contribution, grants, subsidies towards cost of capital assets received by the assessee company during the year under consideration should be reduced from the total value of the assets for the purposes of determining the depreciation allowance. All the facts relating to claim of depreciation are thus on record. There is no falsity that has been found in the financial statements or in the return of income. At the same time, it is equally relevant to refer to the observations of the auditor which has attracted the attention of the AO. 18. The auditors have .....

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..... of Contribution, Grants and Subsidies towards Cost of Capital Assets shall be credited in accordance with the policies laid down in the following paragraphs. 2.34 Amount receivable as Consumer's Contribution, subsidy are Grant towards Capital Assets shall be credited to appropriate account set out in Chart of Accounts only if the following conditions are satisfied : ( i) The amount is not subject to any conditions to be fulfilled by the Board. Or The conditions attached to the amount have been fulfilled by the Board. ( ii) No Part of the amount is refundable nor is likely to become refundable by the board. 2.35 Consumer's contribution, Subsidies and Grants towards Cost of Capital Assets shall not be treated as a Reduction in the 'cost' but as a Capital Receipt to be credited to Capital Reserve Account. 2.36 Accounting for Cost of a Capital Asset shall be done in the normal course without considering any Contribution, Subsidy are Grants towards the Cost of the Asset, Depreciation shall be charged in the normal course on the 'full cost' of the Asset. b. That the Reserves Surpluses in which these Grants, Subsidies, Contri .....

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..... poration takes Difference is Revenue as Subvention nullified the loss. Thus if this Depreciation is disallowed; Subvention Charges shall also got reduced ultimately the Income/ Loss would be Nil thus in other terms subvention being a Provisional Income already takes care for such variation if any. 20. In our view, the observations of the auditor are in relation to noncompliance with the various accounting standards as prescribed by the ICAI which have to be followed while preparing the financial statements. At the same time, the assessee s explanation is that being a 100% owned undertaking of Rajasthan Government, it is governed by the instructions approved by Government for Rajasthan State Electricity Board's, The Electricity (Supply) Annual Accounts Rules, 1995 and Accounting Instructions which cannot be lost sight off. In our view, these are plausible explanation relating to variation in the accounting policies followed by the assessee company given the nature of business the assessee company is engaged in and related electricity regulations which it must comply with. These are statutory requirements which the assessee company is requi .....

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