TMI Blog2019 (6) TMI 1112X X X X Extracts X X X X X X X X Extracts X X X X ..... . Accordingly, we set aside the order of the authority below on this issue and allow the claim of the assessee. Determination of actual cost of acquisition - consideration partly paid by the consumers and some part has been paid by the State Government as subsidy - Disallowance of depreciation by invoking the provisions of Section 43(1) r.w. explanation 10 - HELD THAT:- As regards the deduction received from the consumers, we find that the said amount is nothing but reimbursed of the cost of acquisition of the asset which is used by the assessee for providing the supply to the consumer and therefore, to that extent the provision of Section 43(1) r.w. explanation 10 are application hence, to that extent the order of the authorities below are upheld. It is pertinent to note that if the subsidy is given by the State Government or Central Government in respect of a particular expenditure laid out for acquisition of the assets then the same would be falling in the explanation 10 of Section 43(1) of the Act and required to be reduced from the actual cost of the assets. However if the subsidy is not a specific expenditure or expenses of distribution line or providing supply in a p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (CIT) ORDER PER BENCH: These are 13 appeals by the assessee for the assessment years 2002-03 to 2009-10 and cross appeals by the Department for the assessment years 2002-03 to 2008-09 are directed against the respective orders of the ld. CIT(A), Ajmer arising from assessment orders passed U/s 143(3) as well as reassessment of orders passed U/s 143(3) r.w.s. 147 of the IT Act for the assessment years 2004-05 to 2008-09. Since there are 3 assessment orders being one U/s 143(3) and two orders passed U/s 147 for the assessment years 2005-06 therefore, the assessee has filed three appeals for the assessment year 2005-06 and to two appeals each for the assessment years 2004-05, 2007-08 and 2008-09. 2. All these appeals were earlier disposed off by this Tribunal by various orders and on further appeals by the assessee as well as by the Department the Hon ble High Court vide judgments dated 21.12.2017, 03.04.2018 21.01.2019 has set aside the orders of the Tribunal and remanded these appeals back to the record of the Tribunal for deciding the same afresh except the issue of prior period expenses which was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed on 19.07.2000 vide Rajasthan State extraordinary Gazette notification dated 18.01.2002 whereby the Rajasthan State Power Sector Reforms Transfer Scheme, 2000 came into effect and by virtue of this notification the erstwhile Rajasthan State Electricity Board (RSEB) was converted into 5 distribution companies including assessee. The assets and liabilities of RSEB as well as personnel of the RSEB were transferred to these five distribution companies as per the respective schedule of the notification dated 18.01.2002. Accordingly, as per terms and conditions of the said notification the assessee also received fixed assets and liabilities w.e.f. 19.07.2000. The aggregate of assets and liabilities to be vested to the assessee are given in schedule- D part II of the notification. The assessee filed his return of income on 31.10.2006 declaring total loss of ₹ 41,36,95,558/-. The AO has completed assessment U/s 143(3) of the IT Act on 23.12.2008 and disallowed various expenses and claim of depreciation as well as tax was charged on the book profit U/s 115JB of the Act being Minimum Alterative Tax (MAT). The assessee challenged the action of the AO before the ld. CIT(A) and the ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DEPRECIATION OF ASSETS OWNED WHOLLY OR PARTLY BY THE ASSESSEE AND USED FOR THE PURPOSE OF BUSINESS OR PROFESSION THE DEDUCTION FOR DEPRECIATION AS PER RULE 5(1A) AS APPENDIX 1(A) is to be allowed. The Ld CIT (A) in its order has doubted the basis of issuance of certificate of verification of fixed assets and certificate regarding no loss of assets as issued by Chief Accounts Officer and only for this reason has confirmed the addition for disallowance of depreciation. Even no opportunity was granted to clarify the doubt when the certificate clearly mentions for verification of fixed assets and no loss there in booked of accounts. Further the assets were allocated by the State Government from erstwhile RSEB and its existence in a Government owned company cannot be doubted. Further even the Statutory Auditors in its report has mentioned for no loss of fixed assets. 6. On the other hand, the ld. DR has submitted that there is no dispute that the fixed assets to the tune of ₹ 115.21 crores were not found physically existed and the assessee has also not produced any material to show that these assets are physically verifiable. He has relied upon the orders of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business or commercial rights of similar nature, being intangible assets allowable to the predecessor and the successor in the case of succession referred to in 25[clause (xiii), clause (xiiib) and clause (xiv)]of Transactions not regarded as transfer section 47 or section 170 or to the amalgamating company and the amalgamated company in the case of amalgamation, or to the demerged company and the resulting company in the case of demerger, as the case may be, shall not exceed in any previous year the deduction calculated at the prescribed rates as if the succession or the amalgamation or the demerger, as the case may be, had not taken place, and such deduction shall be apportioned between the predecessor and the successor, or the amalgamating company and the amalgamated company, or the demerged company and the resulting company, as the case may be, in the ratio of the number of days for which the assets were used by them. Therefore, the only rider for allowing the aggregate deduction in respect of depreciation on the assets of the successor or demerger company resulting in the case of demerger is that it shall not exceed in any previous year the deduction calcu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany 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. 7.2 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 in case of Dalmia Ceramic Industries Ltd. vs. CIT(supra) 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 assessee to the holding company? Chapter IV of the Act refers to computation of business income and section 43 is required to be examined for the purpose of deciding this matter. Section 43(1) of the Act which defines actual cost reads as under: ( 1) ' actual cost' means ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en 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 Maharana Mills P. Ltd. v. ITO [1959] 36 ITR 350 (SC) and Saharanpur Electric Supply Co. Ltd. v. CIT [1992] 194 ITR 294 (SC). The assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e original figure itself requires a modification. In view of the above facts and circumstances of the case when the assessee has received these assets being transferred from RSEB at written down value and therefore, when the existence of these assets were not in dispute at the hand of the RSEB as part of the balance sheet of the Board then the assets transferred under the statutory transfer scheme to the assessee at the written down value under the block of assets were eligible for depreciation in the hands of the successor/transferee. Accordingly, we set aside the order of the authority below on this issue and allow the claim of the assessee. 8. Ground no. 2 is regarding disallowance of depreciation by invoking the provisions of Section 43(1) r.w. explanation 10 of Income Tax Act. The issue in ground no. 2 of the assessee s appeal and ground no. 2 of the Revenue appeal is common. The Assessing Officer noted that the addition in the plant and machinery made by the assessee during the year under consideration has been paid partly by the consumers and some part has been paid by the State Government as subsidy. Accordingly, the Assessing officer h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th the assets then it will not fall in the mischief of Section 43(1) r.w. explanation 10 being the portion of the cost of the asset has been met directly or indirectly by the Government or by any person in the form of subsidy, grant/ reimbursement. Thus, the ld. AR has submitted that it is not the cost of the asset as met by the Government or reimbursement of the same but it is a general grant by the Government. 10. On the other hand, ld. DR has submitted that the assessee is charging about 30% of the cost from the consumer and therefore, the actual cost of the acquisition of the assets for the purpose of depreciation would be reduced by the said contribution from the consumers. Further, the State Government grants/subsidies which is aid in respect of specific expenditure then the said grant/subsidy by the Government shall be reduced from the expenditure lay out in acquiring the assets in terms of Section 43(1) r.w. explanation 10. He has relied upon the orders of the authorities below. 11. We have considered the rival submissions as well as the relevant material on record. As regards the assets shown at standard rates as against the actual cost, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsidy/grants were given by the Government to the assessee are not available before us therefore, we direct the AO to verify the same on production of the assessee and then the issue shall be decided in the light of the above observation. 12. Ground no. 3 is regarding the applicability of provisions of Section 115JB of the IT Act for the purpose of MAT. 13. We have heard the ld. AR as well as the ld. DR and considered the relevant material on record. The ld. AR of the assessee has submitted that the assessee is not maintaining its books of account as per schedule-VI of the companies Act but the assessee is required to maintain its accounts as per the Electricity (Supply) Annual Accounts Rules, 1985 and accounting instructions. He has further submitted as per the Electricity (Supply) Act, 1984 the accounts and audit of the assessee shall be in the form as the Central Government may by the notification in official gazette prescribed by rules made in this behalf. Thus the ld. AR as contended that the provisions of Section 115JB of the Act are not applicable in the case of the assessee as the assessee is not required to prepare its accounts as per sch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by Electricity (Supply) Act as well as Rules framed thereunder. As per the Electricity (Supply) Annual Accounts Rules, 1985 and Account Instructions the annual statements of the distribution company are defined as it is prepared as per Rule-5(1) of the Rules. Therefore, the assessee is not required to maintain the books of accounts as per schedule VI of the Companies Act but the accounts are to be maintained as per Electricity (Supply) Annual Accounts Rules, 1985 and Account Instructions. There is no dispute that the account of the assessees are audited through CAG and hence, even as per audit report the accounts of the assessee were examined in light of the Electricity (Supply) Act and Rules. Further, when the authority of advance ruling has already decided this issue in the matter of Jodhpur Vidyut Vitaran Nigam Limited then the provisions of Section 115JB of the Act for the purpose of MAT are not applicable in the case of the assessee. The Revenue was not brought any record before us to show that the ruling of Authority for Advance Ruling (Income Tax), New Delhi has been either reversed or set aside. Accordingly, in the facts and circumstances of the case we hold that the provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ile system of account and expenditure not related to the previous year cannot be allowed to be deducted from income of the subject previous year. It was further stated by the AO that this expenditure also does not fall under the provisions of section 25D of the Act. Regarding assessee company s contention that the issue has been decided in its favour by the ld. CIT(A) for A.Y. 2002-03, the Assessing officer stated that since the Revenue is an appeal before the Tribunal against the said order, he is not in a position to follow the order of the ld. CIT(A). Finally, the Assessing officer, following the past history of the assessee, disallowed the prior period expenditure amount to ₹ 4,64,27,170/-. 5. Now with regard to issue of prior period expenses, the same is concluded in favour of the assessee in view of the decision rendered in ITA No. 333/2009, review application No. 66/2018 against the said decision has been rejected today. Therefore, the issue is now settled and covered by the decisions of Hon ble Jurisdiction High Court in assessee s own case. Accordingly, following the decision of Hon ble jurisdiction High Court this issue is dec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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