ACIT, Circle-2(1), Tirupathi, Tirupathi V. Southern Power Distribution Corporation of AP Ltd. Tirupathi, Hyderabad

CO 41/HYD/2015

• Counselvise Citation: [2018] 123 COUNSELVISE.COM (IT) 3800 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 9 month(s) 24 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 15-05-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 02-02-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 21-07-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: PATHLAVATH PEERYA
• Assessee Lawyers: M CHANDRAMOULESWARA RAO
• Keywords: Capital asset; Depreciation; Capital receipt; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL , HYDERABAD BENCHES CIRCUIT BENCH A AT TIRUPATI BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA. NOS. 840, 841/HYD/2015 & ITA. NO.1625/HYD/2016 ASSESSMENT YEARS: 2010 - 11, 2011 - 12 & 2012 - 13 ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE - 2(1), TIRUPATI. VS M/S. SOUTHERN POWER DISTRIBUTIONS CORPORATION OF AP LTD., D.NO. 19 - 13 - 65/A, SRINIVASAPURAM, TIRUPATI. PAN: AAHCS 4056 1Q (APPELLANT) (RESPONDENT) C.O. NOS.41 AND 42/HYD/2015 (ARISING OUT OF ITA. NOS. 840, 841/HYD/2015 ) ASSESSMENT YEARS: 2010 - 11 & 2011 - 12 M/S. SOUTHERN POWER DISTRIBUTIONS CORPORATION OF AP LTD., D.NO. 19 - 13 - 65/A, SRINIVASAPURAM, TIRUPATI. PAN: AAHCS 4056 1Q VS ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE - 2(1), TIRUPATI. (APPELLANT) (RESPONDENT) ASSESSEE BY SHRI M. CHANDRAMOULESWARA RAO REVENUE BY SHRI PATHLAVATH PEERYA, DR ORDER PER D. MANMOHAN, VP: THESE APPEALS AND CROSS OBJECTIONS ARE DIRECTED AGAINST THE ORDER S OF THE CIT (A), TIRUPATI ; REVENUE FILED APPEALS FOR THE ASSESSMENT YEARS DATE OF HEARING : 15 .05.2018 DATE OF PRONOUNCEMENT : 15 .05.2018 2 2010 - 11 TO 2012 - 13 WHEREAS CROSS OBJECTION NOS.41 AND 42 , PERTAINING TO ASSESSMENT YEARS 2010 - 11 AND 2011 - 12 , WERE FILED BY THE ASSESSEE . 2. AT THE OUTSET, IT MAY BE NOTICED THAT THE APPEALS FILED BY THE REV ENUE ARE BARRED BY LIMITATION BY 6 DAYS. AS USUAL, THE REVENUE SUBMITS THAT IN THE PROCESS OF FILE PUSHING THERE IS A NOMINAL DELAY OF 6 DAYS IN FILING THE APPEALS. LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT HE HAS NO OBJECTION IF THE DELAY IS CONDONED AND APPEALS ARE DISPOSED OF ON MERITS. ACCORDINGLY, WE ADMIT THE APPEALS A N D PROCEED TO DISPOSE OF THE SAME ON MERITS. 3. IN ALL THE APPEALS, COMMON GROUNDS URGED BY THE REVENUE ARE AS UNDER: - 2. THE CIT (A) WAS ERRONEOUS IN TREATING THE CONTRIBUTIONS RECEIVED FROM THE CONSUMERS AS CAPITAL RECEIPTS. THOUGH THE CONTRIBUTIONS RECEIVED FROM THE CONSUMERS ARE USED FOR ERECTION OF POLLS, LINES ETC., THESE CONTRIBUTIONS PAID BY THE CONSUMERS ARE ON DEMAND BUT NOT IN THE NATURE OF VOLUNTARY CONTRIBUTIONS ARE NOT REFUNDABLE AND THE ASSETS FROM OUT OF THE FUND COLL ECTED FROM CONS8UMERS ARE TREAT ED AS ASSETS OF THE ASSESSEE, THE CONTRIBUTIONS RECEIVED ARE TO BE TREATED AS RECEIPTS INCIDENTAL FOR CARRYING OF BUSINESS ACTIVITY. FURTHER, THE ASSESSEE CREDITED THE ABOVE RECEIPTS IN THE P & L ACCOUNT AND HAS REDUCED FROM THE NET PROFIT WHILE COMPUTING THE TOTAL INCOME. HENCE, THE CONTRIBUTIONS RECEIVED ARE TO BE TREATED AS REVENUE RECEIPTS INSTEAD OF CAPITAL RECEIPTS. 3. THE LD CIT (A) OUGHT TO HAVE APPRECIATED THAT THE ASSESSEE - COMPANY IS SELLING ELECTRICITY AND COLLECTING MONEY TOWARDS SALE PROCEEDS, BUT NOT AS CAPITAL CONTRIBUTIONS. 4 . FACTS NECESSARY FOR THE DISPOSAL OF THE APPEAL S ARE STATED IN BRIEF. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF PURCHASE AND DISTRIBUTION OF ELECTRIC POWER TO SIX SOUTHERN CIRCLES VIZ., KRISHNA, GUNTUR, PRAKASAM, NELLORE, CHITTOOR AND KADAPA DISTRICTS. IT HAD RECEIVED CAPITAL CONTRIBUTIONS FROM CONSUMERS TOWARD S NEW CONNECTIONS TO BE SPENT FOR 3 L A YING OF SERVICE LINES, FIXING OF TRANSFORMERS, METERING EQUIPMENTS, CABLES, PLANT AND MACHINERY ETC. THOUGH IT WAS CREDITED TO THE P & L ACCOUNT, THE ASSESSEE CONTENDED THAT IT WAS A CAPITAL RECEIPT IN VIEW OF THE FACT THAT THE CONTRIBUTIONS WERE MADE FOR SERVICES RENDERED OR TO BE RENDERED. IT WAS AL SO CONTENDED THAT IN VIEW OF THE SPECIFIC NATURE OF ASSET ACQUIRED, THE TRANSFER OF THE SAME TO THE CONSUMERS IS NOT POSSIBLE UNDER ELECTRICITY ACT. AO REJECTED THE CONTEN TION OF THE ASSESSEE AND HELD THAT IT SHOULD BE TREATED AS A REVENUE RECEIPT. ASSESSEE PREFERRED APPEALS BEFORE THE CIT (A) IN RESPECT OF THE AY 2010 - 2011. LEARNED CI (A) SET - ASIDE THE ADDITION MADE BY THE AO BY OBSERVING AS UNDER: - 5.3. PERUSED THE SUBMISSIONS OF THE APPELLANT AND THE OBSERVATIONS OF THE ASSESSING OFFICER IN THE ASSESSMENT ORDER. AS COULD BE EXPLAINED THROUGH FACTS OF THE CASE, THE APPELLANT RECEIVED THE CONTRIBUTIONS FROM THE CONSUMERS TOWARDS EXECUTION OF THE PROJECTS FOR THE PURPOSE OF SUPPLYING THE POWER TO CONSUMERS AND IN THE PROCESS THE CORPORATION INCURS HUGE CAPITAL EXPENSES OUT OF WHICH A PART IS COLLECTED FROM THE CONSUMERS. SINCE, THE CONTRIBUTION COLLECTED FROM THE CONSUMER IS INTENDED FOR INCURRING THE COST OF CAPITAL ASSET, THE SAME WAS REQUIRED TO BE TREATED AS CAPITAL RECEIPT, AS PER THE APPELLANT. AS REGARD S ACCOUNTING METHOD, IT WAS EXPLAINED BY THE APPELLANT AS UNDER: TO PREVENT THE OVER - CHARGING OF DEPRECIATION, THE PROPORTIONATE DEPRECIATION ON TH E ASSETS PURCHASED OUT OF CAPITAL CONTRIBUTIONS RECEIVED FROM CONSUMERS AMOUNTING TO RS. 87,30,08,092/ - WAS CREDITED TO THE PROFIT & LOSS ACCOUNT TO THE EXTENT OF ABOVE SUBMITTED PROPORTIONATE DEPRECIATION IS NIL AS THE DEPRECIATION ORIGINALLY CHARGED (ATT RIBUTABLE TO THE COST OF ASSETS PARTLY FUNDED BY THE CAPITAL CONTRIBUTIONS) IS REVERSED ON ACCOUNT OF PASSING A CORRESPONDING ENTRY ON THE CREDIT SIDE. EVEN FOR THE PURPOSE OF INCOME TAX COMPUTATION ALSO, THE APPELLANT COMPANY HAS NOT CLAIMED ANY DEPRECIAT ION ON THE COST OF ASSETS TO EXTENT ACQUIRED OUT OF CONSUMER CONTRIBUTIONS OR GRANTS, AS THE CASE MAY BE. THE CONTRIBUTIONS RECEIVED FROM THE CONSUMERS HAVE BEEN REDUCED FROM THE COST OF THE ASSET ORIGINALLY CAPITALIZED AND THE DEPRECIATION HAS BEEN CHARG ED ON THE REDUCED COST ACCORDINGLY I.E., ORIGINAL COST (LESS) CONTRIBUTIONS RECEIVED. THIS IS IN COMPLIANCE WITH SECTION 43(1) OF THE INCOME TAX ACT. 4 THE LEARNED ASSESSING OFFICER, WITHOUT APPRECIATING THE TREATMENT OF CAPITAL CONTRIBUTIONS RECEIVED BY THE APPELLANT, TREATED THESE CONTRIBUTIONS OF RS. 165,30,29,627/ - AS REVENUE RECEIPTS. AFTER ALLOWING DEPRECIATION OF RS. 18,58,48,928/ - , THE NET ADDITION MADE IS RS. 146,71,80,699/ - . IN A NUTSHELL THE ASSESSEE CLAIMED DEPRECIATION (UNDER IT ACT) ON THE NET VALUE OF ASSET AFTER REDUCING THE CONTRIBUTION FROM CONSUMERS / GRANTS. SINCE THE ASSESSING OFFICER HAD TREATED SUCH CONTRIBUTIONS AS REVENUE RECEIPTS, HE ALLOWED THE DEPRECIATION ON SUCH AMOUNT. THE REASONS GIVEN BY THE ASSESSING OFFICER FOR MAKING S UCH AN ADDITION OF RS. 146,71,80,699/ - GIVEN AT PARAS 7 & 8 OF ASSESSMENT ORDER IN BRIEF ARE: (I) AS PER SECTION 43(1) THE ACTUAL CONSUMERS THE ASSESSEE REDUCED THE COST BY THE CONTRIBUTION RECEIVED. SINCE THE ASSESSEE REDUCED THE SUM OF RS. 82.18 CRORES IN THE COMPUTATION THEIR CLAIM IS CONTRADICTORY. (II) THESE WERE NOT VOLUNTARY CONTRIBUTIONS AND WERE GIVEN BY THE CONSUMERS ON DEMAND. (III) THESE AMOUNTS ARE NOT RETURNABLE AND (IV) THE ASSETS ACQUIRED OUT OF THESE CONTRIBUTIONS ARE THE ASSETS OF THE APPELLANT ITSELF. (V) T HE CONSUMER PAYING THE AMOUNT IS IN NO WAY CONNECTED WITH THE CAPITAL WORKS IN ANY TIME. IN THIS REGARD, IT IS RELEVANT TO REFER TO THE DECISION OF MY PREDECESSOR, ON THE SAME ISSUE, WHEREIN IT HAS BEEN HELD THAT: TO SUM UP THE AMOUNT OF DEPRECIATION CLA IMED ON ASSETS GENERATED OUT OF THE CAPITAL CONTRIBUTIONS / SUBSIDY AND HAD BEEN CREDITED TO THE P & L ACCOUNT SINCE THE P & L ACCOUNT HAD BEEN DEBITED BY GROSS DEPRECIATION AND NOT DEPRECIATION AS PER ACTUAL COST. SUBSEQUENTLY, WHILE COMPUTING INCOME, GR OSS DEPRECIATION WAS ADDED BACK AND DEPRECIATION AS PER IT ACT WAS REDUCED. THIS DEPRECIATION AS PER IT ACT TOOK INTO ACCOUNT THE PROVISIONS OF SECTION 43(10 AND EXPLANATION 10) AND HENCE, THE DEPRECIATION WAS PROPORTIONATELY REDUCED AMOUNT TAKING INTO ACCOUNT CAPITAL CONTRIBUTIONS. IN VIEW OF THE SAME THE DEPRECIATION ON CAPITAL CONTRIBUTIONS CREDITED TO THE P & L ACCOUNT WAS ALSO REDUCED IN THE COMPUTATION OF INCOME AND CORRECTLY SO. THE ACCOUNTING METHOD FOLLOWED BY THE APPELLANT IS NOT ONLY CORRECT BUT ALSO AS PER PROVISIONS OF THE I.T. ACT AND ACCOUNTING STANDARDS AND THE ADDITION MADE IS DELETED. FOR THE YEAR UNDER REFERENCE ALSO, THE ASSESSEE FOLLOWED THE SAME PROCEDURE, WHEREAS THE ASSESSING OFFICER ALLOWED THE FULL DEPRECIATION ON THE VALUE O F THE ASETS ACQUIRED WITH THE HELP OF CONTRIBUTIONS BY THE 5 CONSUMERS, WHILE TREATING THE GROSS AMOUNTS RECEIVED AS INCOME IN THE HANDS OF THE ASSESSEE. WITH THE FACTS REMAINING THE SAME, I DO NOT HAVE ANY REASON TO AGREE WITH THE ASSESSING OFFICER, TO T REAT THE AMOUNTS RECEIVED FROM CONSUMERS AS REVENUE RECEIPTS. ACCORDINGLY, IT IS REASONABLE TO HOLD THAT THE APPELLANT IS FOLLOWING THE METHOD OF ACCOUNTING CORRECTLY AND NO NEED TO TREAT THE NET DEPOSITS OF RS. 146,71,80,699/ - AS REVENUE RECEIPTS. ACCOR DINGLY, THE ADDITION OF RS. 146,71,80,699/ - , HELD TO BE UNSUSTAINABLE AND THIS GROUND OF APPEAL TREATED AS ALLOWED. 5. AS COULD BE NOTICED FROM THE ORDER PASSED BY THE LD CIT (A), A DECISION OF HIS PREDECESSOR IN THE ASSESSEES OWN CASE FOR THE EARLIER YEAR WAS FOLLOWED. 6. AGGRIEVED, REVENUE IS IN APPEAL BEFORE US. 7. ASSESSEE, ON THE OTHER HAND, FILED CROSS OBJECTIONS MERELY SUPPORTING THE ORDERS PASSED BY THE LD CIT (A) WHEREIN IT WAS CONTENDED THAT SIMILAR VIEW WAS TAKEN BY THE REVENUE IN THE CASE OF OTHER ASSESSEE , IN THE SIMILAR LINE OF ACTIVITY , AND HENCE AO IS NOT JUSTIFIED IN TAKING A DIFFERENT VIEW IN THE ASSESSEES CASE. 8. WE HAVE HEARD THE LEARNED DEPARTMENTAL REPRESENTATIVE AS WELL AS THE LEARNED COUNSEL FOR THE ASSESSEE. LEARNED COUNSEL FO R THE ASSESSEE PLACED BEFORE US A COPY OF THE ORDER OF THE ITAT, HYDERABAD B BENCH IN THE ASSESSEES OWN CASE FOR THE AY 2009 - 10 (ITA NOS.1460 & 1533/HYD/2013) , DATED 04.07.2017 WHEREIN THE BENCH ACCEPTED THE PLEA OF THE ASSESSEE THAT THE AMOUNT OF EXPEN DITURE SHOULD BE TREATED AS A CAPITAL EXPENDITURE. 9. HAVING REGARD TO THE CIRCUMSTANCES OF THE CASE, WE ARE OF THE VIEW THAT THE ORDERS PASSED BY THE LD CIT (A) ARE IN CONSONANCE WITH THE DECISION TAKEN BY THE ITAT IN ASSESSEES OWN CASE FOR THE AY 2009 - 10 (SUPRA) AND THEREFORE, THE ORDERS PASSED BY THE LD CIT (A) DO NOT CALL FOR 6 ANY INTERFERENCE. UNDER THESE CIRCUMSTANCES, WE DISMISS THE APPEALS FILED BY THE REVENUE AND CONSEQUENTLY DISMISS THE CROSS OBJECTIONS OF THE ASSESSEE AS INFRUCTUOUS. PRONOUN CED ACCORDINGLY IN THE OPEN COURT ON 15 TH MAY, 2018. S D / - S D / - (B. RAMAKOTAIAH) (D. MANMOHAN) ACCOUNTAT MEMBER VICE PRESIDENT TIRUPATI , DATED: 1 5 T H MAY, 2018. OKK, SR.PS COPY TO 1. M/S. SOUTHERN POWER DISTRIBUTION CORPORATION OF AP LTD., D.NO. 19 - 13 - 65/A, SRINIVASAPURAM, TIRUPATI 2. ASST. COMMISSIONER OF INCOME TAX, CIRCLE - 2(11), 3 RD FLOOR, AAYAKAR BHAVAN, K.T. ROAD, TIRUPATI. 3. CIT (A) - , TIRUPATI. 4. PRINCIPAL COMMISSIONER OF INCOME TAX, TIRUPATI. 5. DR, ITAT, HYDERABAD. 6. GUARD FILE