TMI Blog2019 (2) TMI 705X X X X Extracts X X X X X X X X Extracts X X X X ..... Allowability of legal claims - deduction of expenditure u/s 37 - Held that:- As decided in assessee's own case e find that the Learned CIT(Appeals) has deleted the addition made on account of disallowance of legal claim on the basis that the Assessing Officer has not highlighted a single instance that the charges were of penal nature. We find that the Assessing Officer has made the disallowance on estimate basis at 25% of the expenditure claimed. No basis has been assigned for making such ad hoc disallowance. Noting these material aspects, we are of the view that the Learned CIT(Appeals) has rightly deleted the disallowance in absence of any instance that there was any penalty which would fall under the Explanation to Sec. 37 of the Income-tax Act, 1961 - Assessee appeal allowed. - ITA No. 3800/Del/2015 - - - Dated:- 8-2-2019 - SMT. BEENA A PILLAI, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER For The Department : Sh. JK Mishra, CIT, DR. For The Assessee : Sh. Rohit Jain, Adv. And Sh.Vibhu Gupta, CA ORDER PER BEENA A PILLAI, JUDICIAL MEMBER Present appeal has been filed by revenue against order dated 21.03.2012 passed by Ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peal before us now. 5. At the outset Ld.AR submitted that both grounds raised by revenue are covered by order of this Tribunal in assessee s own case for preceding assessment years. He filed order in paper book at page 1-52, it is also submitted that said order of this Tribunal has been approved by Hon ble Delhi High Court, which is also part of paper book at page 53-58. 6. Ld.Sr DR though supported order of Ld.AO, could not controvert afore stated argument of Ld.AR. 7. We have perused submissions advanced by both sides in light of records placed before us. 8. Ground No. (i) It is observed that assessee during year under consideration received a sum of ₹ 19,65,18,794/- as service line deposits from customers for setting up service line which include cost of GI pipes, bricks sand etc. The said charges have been received by assessee as per provisions of Electricity Act, 2003, and regulations framed thereunder, by DERC from time to time. It is observed that said issue has been considered by this Tribunal, in assessee s own case in consolidated order dated 05/10/15 for Assessment Years 2005- 06 to 2008-09 as under: 17.2. We find that while deal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , overhead or underground service line cable, meter accessories etc. These charges are taken from the customers only at the time of providing the new connection to recover the expenditure incurred on the equipments and these expenditures are capitalized under the head plant and machinery (meter) and depreciation is claimed thereon. 17.3 With regard to the observations of the Assessing Officer, only 1/3 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 in the absence of a one to one linking of the service line deposit scheme with the capital expenditure incurred on the service line connection, the justification for treating l/3ld of the total amount of receipts in a particular year as Revenue is that by doing so the assessee is offering for R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sits from customers. The same is upheld. The ground No.1 of the appeal preferred by the Revenue is accordingly rejected. 8.1. Further, it is observed that Hon ble Delhi High Court approved order passed by this Tribunal vide order dated 14/09/16. Hon ble Delhi High Court upheld findings of this Tribunal by observing as under: 8. With respect to the ITAT's ruling that the treatment of the service line deposit over the years being capital or revenue is concerned, we notice that the AO refused to recognise the amounts as capital receipts. The assessee offered l/3rd of the amount to the profit and loss account and later explained that these were capital receipts and are not revenue in nature. This volte face of the assessee seems to have triggered the AO's decision that the receipts were not capital but revenue and therefore entirely liable to be taxed. The issue is covered against the revenue in Hoshiarpur Electric Supply Co. vs. CIT {1961} 41 ITR 608 (SC). 9. As far as the change in the method of valuation is concerned, the 1TAT permitted the assessee to adopt the moving average methodology. The ITAT noted that the previous method adopted by the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td.: 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 Industries Ltd. vs. DCIT: 59 TTJ 757 (Ahd.) - CIT vs. Deversons Industries Ltd.: 104 ITD 171 (Ahd.) 45. On perusal of the orders of the authorities below on the issue, in view of the above submissions and the decisions cited, we find that the Learned CIT(Appeals) has deleted the addition made on account of disallowance of legal claim on the basis that the Assessing Officer has not highlighted a single instance that the charges were of penal nature. We find that the Assessing Officer has made the disallowance on estimate basis at 25% of the expenditure claimed. No basis has been assigned for making such ad hoc disallowance. Noting these material aspects, we are of the view that the Learned CIT(Appeals) has rightly deleted the disallowance in absence of any instance that there was any penalty which would fall under the Explanation to Sec. 37 of the Income-tax Act, 1961. The First Appellate Order in this re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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