M/s Mangalore Electricity Supply Compnay Ltd., Mangalore V. DCIT, Mangalore

ITA 1118/BANG/2009

• Counselvise Citation: 111821114 RSA 2009
• Duration Of Justice: 2 year(s) 11 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 15-10-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 27-11-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SHRI S K AMBASTHA CIT IDR
• Assessee Lawyers: SHRI B P SACHINKUMAR
• Keywords: Capital asset; Depreciation; Retrospective amendment

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH A BEFORE SHRI N. BARAT H VAJA SANKAR, VICE - PRESIDENT A ND SHRI N.V.VASUDEVAN , JUDICIAL MEMBER ITA NO.1118/BANG/2009 (ASSESSMENT YEAR: 2006-07) M/S. MANGALORE ELECTRICITY SUPPLY COMPANY LTD., PARADIGM PLAZA, A.B.SHETTY CIRCLE, PANDESHWAR, MANGALORE. PAN: AADCM 7029H APPELLANT VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 2(1), MANGALORE. RESPONDENT A PPELLANT BY: SHR I SHRI B.P.SACHINKUMAR, C.A. RESPONDENT BY : SHRI SHRI S.K. AMBASTHA, CIT - I(DR) DATE OF HEARING: 15 - 10 - 2012 DATE OF PRONOUNCEMENT: 31 - 10 - 2012 O R D E R PER N.V.VASUDEVAN, JM : THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER DA TED 22.10.2009 OF THE CIT(APPEALS), MANGALURU, RELATING TO ASSESSMENT YEAR 2006-07. 2. THE ASSESSEE HAS FILED REVISED GROUNDS OF APPEAL AN D THOSE GROUNDS ARE CONSIDERED FOR ADJUDICATION. GROUND NO .1 RAISED BY THE ASSESSEE IS GENERAL IN NATURE AND CALLS FOR NO SPECIFIC ITA NO.1118/BANG/2009 PAGE 2 OF 20 ADJUDICATION. GROUND NO.2 RAISED BY THE ASSESSEE I S WITH REGARD TO THE CLAIM FOR DEDUCTION U/S.80-IA(4)(IV) OF THE OF THE INCOME- TAX ACT, 1961 (THE ACT). 3. THE ASSESSEE IS A WHOLLY OWNED GOVERNMENT OF KARNAT AKA UNDERTAKING. IT IS AN ELECTRICITY DISTRIBUTION COM PANY. THE ASSESSEE CLAIMED DEDUCTION 80-IA(4)(IV)(C) OF THE A CT IN RESPECT OF THE PROFITS DERIVED FROM THE DISTRIBUTION OF POWER AT 100% OF THE GROSS TOTAL INCOME. SECTION 80-IA PROVIDES THAT WH ERE THE GROSS TOTAL INCOME OF THE ASSESSEE INCLUDES ANY PROFITS A ND GAINS DERIVED BY AN UNDERTAKING OR AN ENTERPRISE FROM ANY BUSINES S REFERRED TO IN SUB-SECTION (4), THERE SHALL, IN ACCORDANCE WITH AND SUBJECT TO THE PROVISIONS OF SECTION 80-IA, BE ALLOWED, IN COM PUTING THE TOTAL INCOME OF THE ASSESSEE, A DEDUCTION OF AN AMOUNT EQ UAL TO 100% OF THE PROFITS AND GAINS DERIVED FROM SUCH BUSINESS FOR TEN CONSECUTIVE ASSESSMENT YEARS. THE ASSESSEE CLAIMED DEDUCTION UNDER SECTION 80-IA(4)(IV)(C) OF THE ACT. THOSE PR OVISIONS READ AS FOLLOWS:- (4) THIS SECTION APPLIES TO . . . . . (IV) AN UNDERTAKING WHICH,. . . . . (C) UNDERTAKES SUBSTANTIAL RENOVATION AND MODERNIZATION OF THE EXISTING NETWORK OF TRANSMISSI ON OR DISTRIBUTION LINES AT ANY TIME DURING THE PERIOD BEGINNING ON THE 1ST DAY OF APRIL 2004, AND ENDING ON 31ST DAY OF MARCH, 2010. EXPLANATION: FOR THE PURPOSES OF THIS SUB-CLAUSE, SUBSTANTIAL RENOVATION AND MODERNIZATION MEANS AN INCREASE IN THE PLANT AND MACHINERY IN THE NETWORK OF TRANSMISSION OR DISTRIBUTION LINES BY AT LEAST FIFT Y PER CENT OF THE BOOK VALUE OF SUCH PLANT AND MACHINERY AS ON TH E 1 ST DAY OF APRIL, 2004. ITA NO.1118/BANG/2009 PAGE 3 OF 20 4. THE ASSESSEE CLAIMED THAT IT HAD, DURING THE PREVIO US YEAR RELEVANT TO AY 05-06, UNDERTAKEN SUBSTANTIAL RENOVA TION AND MODERNIZATION AND THEREFORE WAS ENTITLED TO CLAIM D EDUCTION U/S.80-IA(4)(IV)(C) OF THE ACT. TO CLAIM DEDUCTION U/S.80-IA(4)(IV)( C) OF THE ACT, THE ASSESSEE HAD T O ACHIEVE AN INCREASE IN THE BOOK VALUE OF THE FIXED ASSETS - PL ANT & MACHINERY BY AT LEAST 50% OF THE BOOK VALUE OF SUCH PLANT & M ACHINERY AS ON 01.04.2004. AS ON 1.4.2004, THE VALUE OF THE PLANT AND MACHINERY WAS RS.1011 CRORES. THE ASSESSEE CLAIMED THAT THE COMPANY HAS UNDERTAKEN TO MAKE FOLLOWING INVESTMENTS IN PLANT A ND MACHINERY: I. AY 2004-05 RS.193.87 CRORES II. AY 2005-06 RS.360.50 CRORES ------------ TOTAL RS.554.37 CRORES ====== THE ASSESSEE THUS SUBMITTED THAT THERE WOULD BE AN INCREASE OF 54.83% OF THE VALUE OF PLANT AND MACHINERY AS ON 1. 4.2004. 5. IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSES SEE ADMITTED THAT THE INVESTMENTS IN PLANT AND MACHINER Y AS GIVEN ABOVE WERE ONLY PROPOSED CAPITAL INVESTMENTS BUT IN REALITY THE INVESTMENTS IN FIXED ASSETS IN AY 04-05 WERE ONLY RS.76,35,34,448 AND IN AY 06-07 RS.69,33,29,133/-. THE ABOVE FIGURES WERE ALONE REFLECTED IN THE AUDITED BALANCE SHEET FOR THE RELEVANT FINANCIAL YEARS AS ADDITION TO FIXED ASSET S. THE AO THUS CONCLUDED THAT THE ASSESSEE HAD JUST MADE BUDGETARY ALLOCATION FOR PROPOSED CAPITAL INVESTMENTS AND HAS NOT MADE T HE ACTUAL ITA NO.1118/BANG/2009 PAGE 4 OF 20 INVESTMENT. HE HELD THAT BUDGETARY ALLOCATION OF F UNDS DOES NOT TANTAMOUNT TO AN INCREASE IN BOOK VALUE OF ASSETS U NLESS THE ACTUAL INVESTMENT IS MADE. HE THEREFORE REJECTED T HE CLAIM OF THE ASSESSEE FOR DEDUCTION U/S.80-IA(4)(IV) ( C ) OF TH E ACT. 6. THE CIT(APPEALS)CONFIRMED THE ORDER OF THE AO INSOF AR AS THE CLAIM OF THE ASSESSEE FOR DEDUCTION U/S 80-IV(4 )(C) OF THE ACT. BEFORE THE CIT(APPEALS), THE ASSESSEE MADE AN ALTER NATIVE CLAIM FOR DEDUCTION U/S 80-IV(4)(IV)(B) OF THE ACT. THE S AID PROVISION PROVIDES AS FOLLOWS: 80-IA(4) THIS SECTION APPLIES TO - (A) . (B) STARTS TRANSMISSION OR DISTRIBUTION BY LAYING A NETWORK OF NEW TRANSMISSION OR DISTRIBUTION LINES AT ANY TIME DURING THE PERIOD BEGINNING ON THE 1 ST DAY OF APRIL, 1999 AND ENDING ON THE 31 ST DAY OF MARCH, 2012: PROVIDED THAT THE DEDUCTION UNDER THIS SECTION TO AN UNDERTAKING UNDER SUB- CLAUSE(B) SHALL BE ALLOWED ONLY IN RELATION TO THE PROFITS DERIVED FROM LAYING OF SUCH NETWORK OF NEW LINES FOR TRANSMISSION OR DISTRIBUTION; THE ALTERNATIVE CLAIM OF THE ASSESSEE WAS EXAMINED BY THE CIT(APPEALS) AS UNDER: 21. IT WAS CONTENDED BEFORE ME THAT THE ASSESSEE COMPANY WAS COVERED UNDER SECTION 80-IA(4)(IV)(B), AS IT HA D BEEN SETUP ON 01.06.2002 BY TRANSFER OF ASSETS FROM THE ERSTWHILE KARNATAKA ELECTRICITY BOARD AND WAS SINCE ENGAGED I N THE DISTRIBUTION OF ELECTRIC POWER. THE AUDIT REPORT HA D CLEARLY MENTIONED THAT THE COMPANY UNDERTOOK THE DISTRIBUTI ON OF POWER. THUS EVEN IF THE ASSESSING OFFICER WAS RIGHT IN HIS CONTENTION THAT THE CONDITION OF SUBSTANTIAL RENOVA TION AND MODERNIZATION AS STIPULATED UNDER SECTION 80-IA(4)( IV)(C) WAS NOT MET, THE COMPANY WAS ELIGIBLE FOR THE DEDUCTION UNDER SECTION 80-IA(4)(IV)(B). 22. THIS CONTENTION LEADS ONE TO THE QUESTION WHE THER THE THREE CLAUSES ENUMERATED IN SUB SECTION 4(IV) OF SE CTION 80-LA ITA NO.1118/BANG/2009 PAGE 5 OF 20 ARE MUTUALLY EXCLUSIVE. CONSIDERING THE BACKDROP IN WHICH MOST STATE ELECTRICITY BOARDS HAVE RE-ORGANIZED THE IR FUNCTIONS AND SET UP SEPARATE ENTITIES TO CARRY ON THE GENERATION, TRANSMISSION AND DISTRIBUTION FUNCTIONS , IT WOULD APPEAR THAT THE LEGISLATIVE INTENTION WAS TO AFFORD THE TAX TO ALL UNDERTAKINGS WHICH WERE ENGAGED IN ANY OF THE T HREE ACTIVITIES. THE LEGISLATIVE INTENT CAN BE UNDERSTOO D FROM THE BUDGET SPEECH RENDERED IN PARLIAMENT ON 27.02.1999 BY THE THEN FINANCE MINISTER, WHO STATED AS FOLLOWS: I PROPOSE TO TREAT THE ACTIVITIES OF TRANSMISSION AND DISTRIBUTION OF POWER, SET UP AFTER 1.4.1999, AS EL IGIBLE ACTIVITIES FOR FISCAL INCENTIVES AVAILABLE TO INFRA STRUCTURE UNITS. I AM SANGUINE THAT THIS PROPOSAL WILL FACILI TATE THE RESTRUCTURING AND REHABILITATION OF THE STATE ELECT RICITY BOARDS. 23. THE VIEW THAT THE THREE CLAUSES ARE MUTUALLY E XCLUSIVE FINDS SUPPORT FROM THE DECISION OF THE JAIPUR BENCH OF THE HONBLE ITAT IN THE CASE OF DCIT VS. MAHARAJA SHREE UMAID MILLS LTD., REPORTED IN (2009) 29 SOT 278. THE HON BLE BENCH HAS OBSERVED THAT THESE THREE TYPES OF UNDERTAKINGS REFERRED TO IN T HE SAID SUB-CLAUSES (A), (B) AND (C) ARE DIFFERENT AND INDEPENDENT OF EACH OTHER. THUS WHILE DEALING WITH ONE SUB-CLAUSE, INFERENCE NEED NOT AND CANNOT BE DRAWN FROM THE OTHER SUB- CLAUSE. CONSIDERING THIS VIEW AND TAKING INTO ACCOUNT THE A PPELLANT COMPANYS BACKGROUND, I AM INCLINED TO ACCEPT THE PROPOSITION THAT CLAUSES (A), (B) AND (C) OF SUB-SE CTION (4) OF SECTION 80-IA ARE MUTUALLY EXCLUSIVE. 24. HAVING ACCEPTED THAT CONTENTION, A MORE RELEV ANT ISSUE FOR CONSIDERATION IN THE CONTEXT OF THIS APPELLANT IS WHETHER THE APPELLANT SATISFIED THE CONDITIONS OF ALL OR AN Y OF THE THREE SUB-CLAUSES (A), (B) AND (C) OF SUB-SECTION 4(IV) O F SECTION 80-LA. AS THE APPELLANT DOES NOT UNDERTAKE GENERATI ON OF POWER, APPLICATION OF SUB-CLAUSE (A) OF SUB-SECTION (4) IS EVIDENTLY RULED OUT. SUB-CLAUSE (B) OF THE SUB-SECT ION REQUIRES THAT THE UNDERTAKING MUST START TRANSMISSION OR DIS TRIBUTION BY LAYING A NETWORK OF NEW TRANSMISSION OR DISTRIBU TION LINES DURING THE SPECIFIED PERIOD. AS THE DISTRIBUTION LI NES OWNED BY THE APPELLANT COMPANY ARE MOSTLY THOSE INHERITED FR OM THE ERSTWHILE KARNATAKA -ELECTRICITY BOARD -OR KPTCL, T HE QUESTION TO BE ANSWERED HERE IS WHETHER THE APPELLANT SATISF IES SUB- CLAUSE (B) OF SUB SECTION (4). 25. SUB-SECTION (3) PROVIDES THAT THE TAX HOLIDAY U NDER SECTION 80-LA IS AVAILABLE ONLY IF THE ELIGIBLE BUS INESS IS NOT FORMED BY SPLITTING UP, OR THE RECONSTRUCTION, OF A BUSINESS ALREADY IN EXISTENCE. SECOND PROVISO TO THIS SUB-SE CTION MAKES AN EXCEPTION TO THE CONDITION LAID DOWN IN SU B-SECTION (3). THIS PROVISO WAS INSERTED IN TERMS OF AN AMEND MENT ITA NO.1118/BANG/2009 PAGE 6 OF 20 INTRODUCED IN SECTION 80-IA(3) BY FINANCE (NO. 2) A CT, 2004, WITH EFFECT FROM 01.04.2005, AND STATES THAT PROVIDED THAT NOTHING CONTAINED IN THIS SUB-SECTIO N SHALL APPLY IN THE CASE OF TRANSFER, EITHER IN WHOL E OR IN PART, OF MACHINERY OR PLANT PREVIOUSLY USED BY A ST ATE ELECTRICITY BOARD REFERRED TO IN CLAUSE (7) OF SECT ION 2 OF THE ELECTRICITY ACT, 2003 (36 OF 2003), WHETHER OR NOT SUCH TRANSFER IS IN PURSUANCE OF THE SPLITTING UP O R RECONSTRUCTION OR REORGANIZATION OF THE BOARD UNDER PART XIII OF THAT ACT. 26. THE APPELLANTS CONTENTION IS THAT SINCE THE COMPANY WAS USING THE DISTRIBUTION LINES WHICH WERE PREVIOU SLY USED BY THE KARNATAKA ELECTRICITY BOARD, THE RESTRICTION IM POSED BY SUB-SECTION (3) DID NOT APPLY TO IT IN TERMS OF THE EXCEPTION MADE BY THE SECOND PROVISO QUOTED ABOVE. ALTHOUGH T HE AMENDMENT CAME INTO EFFECT FROM 01.04.2005, WHEREAS THE APPELLANT COMPANY CAME INTO EXISTENCE ON 01.06.2002 , I.E., MUCH BEFORE THE AMENDMENT CAME INTO FORCE, THE EXCE PTION PROVIDED BY THE SECOND PROVISO WAS AVAILABLE TO THE COMPANY BECAUSE THE CLAIM FOR DEDUCTION WAS MADE FOR THE FI RST TIME ONLY IN THIS ASSESSMENT YEAR AND NOT BEFORE THE AME NDMENT CAME INTO FORCE. 27. SINCE THE ASSESSEE COMPANY HAD, IN TERMS OF S ECTION 80-IA(2), THE OPTION TO CLAIM DEDUCTION UNDER SECTI ON 80-LA FOR ANY TEN CONSECUTIVE ASSESSMENT YEARS OUT OF FIF TEEN YEARS BEGINNING FROM THE YEAR OF COMMENCEMENT OF DISTRIBU TION OF ELECTRICITY, ITS ELIGIBILITY FOR THE DEDUCTION OUGH T TO BE DETERMINED WITH REFERENCE TO THE LAW IN FORCE AS ON THE DATE OF MAKING THE CLAIM, AND NOT WITH REFERENCE TO THE DATE OF INCORPORATION OF THE COMPANY. MOREOVER, THERE IS NO THING IN THE PROVISO TO SUGGEST THAT THE TRANSFER ITSELF MUS T HAVE TAKEN PLACE AFTER 01.04.2005. 28 I DO NOT FIND ANY FORCE IN THE ABOVE ARGUMENT. HAVE, IN TERMS OF PARAGRAPH 23 ABOVE, ACCEPTED THE PROPOSITI ON THAT THERE MAY BE NO REQUIREMENT THAT AN ASSESSEE MUST S ATISFY ALL OF THE SUB-CLAUSES (A), (B) AND (C) OF SUB-SECT ION (4) AND THAT THESE SUB-CLAUSES ARE INTENDED TO BE MUTUALLY INDEPENDENT AND EXCLUSIVE OF EACH OTHER. HOWEVER, I T DOES NOT NATURALLY FOLLOW FROM THIS THAT THE APPELLANT I S COVERED UNDER THE EXCEPTION MADE BY THE SECOND PROVISO TO S UB- SECTION (3), SINCE THE TRANSFER OF ASSETS BY THE ER STWHILE KARNATAKA ELECTRICITY BOARD TO THE APPELLANT COMPAN Y HAS HAPPENED MUCH EARLIER THAN THE EFFECTIVE DATE OF AM ENDMENT TO SUB-SECTION (3) THE SECOND PROVISO TO SUB-SECTI ON (3) WAS NOT INTRODUCED WITH RETROSPECTIVE EFFECT. THUS THE APPELLANT DOES NOT APPEAR TO BE COVERED BY THE EXCEPTION MADE UNDER THE PROVISO, AND I THEREFORE HOLD THAT THE COMPANY IS NOT ELIGIBLE FOR THE DEDUCTION UNDER SUB-CLAUSE (B) OF SUB-SECTION (4) OF SECTION 80-LA. THE ASSESSING OFFICER WAS RIG HT IN NOT ITA NO.1118/BANG/2009 PAGE 7 OF 20 ALLOWING THE CLAIM UNDER SECTION 80-IA(4)(C) AND I CONFIRM THE DISALLOWANCE. 7. AGGRIEVED BY THE ORDER OF THE CIT(APPEALS), THE ASSESSEE HAS PREFERRED GROUND NO.2 BEFORE THE TRIBUNAL. AS FAR AS THE CLAIM OF THE ASSESSEE FOR DEDUCTION U/S 80-IA(4)(IV)(C) OF T HE ACT IS CONCERNED, THE ISSUE WAS EXAMINED BY THIS TRIBUNAL IN ITA NO.359/BANG/2009 FOR ASSESSMENT YEAR 2005-06 IN THE CASE OF M/S.BANGALORE ELECTRICITY COMPANY LTD., VS. DCIT, C IRCLE 11(2), BANGALORE. THE TRIBUNAL VIDE ITS ORDER DATED 4-7-2012 HELD A S FOLLOWS: 14. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. A S WE HAVE ALREADY SEEN, THE DEDUCTION U/S. 80-IA(4)(IV)(C) IS ALLOWED FOR A PERIOD OF TEN YEARS. THE DISPUTE IN THE PRESENT APPEAL IS AS TO WHETHER ASSESSMENT YEAR 2005-06 SHOULD BE THE FI RST YEAR IN WHICH THE DEDUCTION SHOULD BE ALLOWED. IT WAS C LARIFIED AT THE TIME OF HEARING OF THE APPEAL THAT FROM THE A.Y . 2006-07, THE ASSESSEE HAS BEEN GETTING THE DEDUCTION U/S. 80 -IA(4). IT IS NO DOUBT TRUE THAT THE PROVISIONS TALK ABOUT UND ERTAKING SUBSTANTIAL RENOVATION AND MODERNIZATION OF EXISTIN G NETWORK OF TRANSMISSION OR DISTRIBUTION LINES BY THE ELECTR ICITY DISTRIBUTION COMPANY. THE EXPLANATION, HOWEVER, D EFINES WHAT IS SUBSTANTIAL RENOVATION AND MODERNIZATION AN D IT LAYS DOWN THAT THE VALUE OF TRANSMISSION AND DISTRIBUTIO N LINES SHOULD INCREASE AS PER THE BOOKS, AT LEAST BY 50%, COMPARED TO THE BOOK VALUE AS ON 01.04.2004. ADMITTEDLY, A S PER THE BOOKS OF ACCOUNT, THIS CRITERION WAS NOT SATISFIED. THE ASSESSEE HOWEVER SEEKS TO RELY ON THE EXPENDITURE I NCURRED DURING THE PREVIOUS YEAR WHICH WERE IN CONNECTION W ITH RENOVATION AND MODERNIZATION OF CABLE AND TRANSMISS ION LINE WHICH WERE NOT COMPLETE AND WERE IN PROGRESS AND TH EREFORE CLASSIFIED AS CWIP. THE FACT THAT THEY WERE SHOWN AS CWIP IN THE BOOKS OF ACCOUNT WOULD ONLY MEAN THAT RENOVATIO N AND MODERNIZATION OF THE EXISTING TRANSMISSION OR DISTR IBUTION LINES HAD NOT BEEN RECOGNIZED AS COMPLETE. WE ACCE PT THE SUBMISSION OF THE LD. DR THAT THE PROVISIONS OF SEC TION 80- IA(4)(IV)(C) OF THE ACT ARE MEANT TO ENCOURAGE MODE RNIZATION AND UPGRADATION OF PLANT & MACHINERY IN POWER SECT OR WITHIN A SPECIFIED PERIOD IN ORDER TO ENSURE WIDER NETWORK AND PREVENTION OF TRANSMISSION LOSSES. THIS OBJECTIVE IS SOUGHT TO BE ACHIEVED BY PRESCRIBING A CRITERION OF INCREASE IN THE BOOK VALUE OF THE TRANSMISSION OR DISTRIBUTION LINES, WH ICH ARE TREATED AS PLANT & MACHINERY BY THE ELECTRICITY SUP PLY COMPANY, COMPARED TO THE BOOK VALUE AS ON 01.04.200 4. WE ARE, THEREFORE, OF THE OPINION THAT THE CAPITALIZAT ION OF THE ITA NO.1118/BANG/2009 PAGE 8 OF 20 EXPENDITURE ON RENOVATION AND MODERNIZATION IN THE BOOKS OF ACCOUNT IS A CONDITION PRECEDENT FOR ALLOWING CLAIM OF DEDUCTION U/S. 80-IA(4)(IV)(C) OF THE ACT. THE FUR THER CONDITION THAT THE SAME SHOULD BE PUT TO USE, IN OU R OPINION IS NOT CORRECT AS THERE IS NO SUCH CONDITION IN THOSE PROVISIONS. SUCH CONDITION IS EXPRESSLY PROVIDED FOR ALLOWING D EPRECIATION U/S.32 OF THE ACT. THERE IS NO SUCH SPECIFIC CONDIT ION IN SEC.80-IA(4)(IV)(C) OF THE ACT. RELIANCE PLACED BY THE LD. COUNSEL FOR THE ASSESSEE ON THE ACCOUNTING STANDARD AND THE REASONS FOR CLASSIFYING CERTAIN ITEMS OF EXPENDITUR E AS CWIP, CANNOT BE ACCEPTED AND IN ANY EVENT, THE PROVISIONS OF THE ACT DO NOT CONTEMPLATE SUCH EXPENDITURE BEING TREAT ED AS SUBSTANTIAL RENOVATION & MODERNIZATION. AS ALREADY STATED ABOVE, THE EXPRESSION UNDERTAKES SUBSTANTIAL RENO VATION AND MODERNIZATION CANNOT BE READ IN ISOLATION AND HAS TO BE READ ALONG WITH EXPLANATION TO SECTION 80-IA(4)(IV)(C) O F THE ACT AND IF SO READ, KEEPING IN MIND THE LEGISLATURES I NTENTION BEHIND ALLOWING THE DEDUCTION, WE ARE OF THE VIEW T HAT THE REVENUE AUTHORITIES WERE JUSTIFIED IN HOLDING THAT THE ASSESSEE HAS NOT SATISFIED THE CONDITION FOR ALLOWING THE DE DUCTION. WE DO NOT FIND ANY GROUND TO INTERFERE WITH THE ORD ER OF THE LD. CIT(APPEALS). 8. LEARNED COUNSEL FOR THE ASSESSEE, HOWEVER, R EITERATED THE STAND OF THE ASSESSEE THAT ON UNDERTAKING SUBSTANTI AL EXPANSION THE ASSESSEE SHOULD GET THE BENEFIT. IN THIS REGAR D, SEVERAL JUDICIAL PRONOUNCEMENTS AS WELL AS THE MEANING OF T HE WORD UNDERTAKE AS PER THE OXFORD ADVANCED LEARNERS DIC TIONARY WAS ALSO BROUGHT TO OUR NOTICE. IN SHORT, THE SUBMISSI ON WAS THAT THE PROVISIONS OF SECTION 80-IA(4)(IV)(C) WERE INTRODUC ED TO PROVIDE AN IMPETUS TO THE GROWTH OF INFRASTRUCTURE IN THE NATI ON. THE PROVISIONS ARE, THEREFORE, BENEFICIAL PROVISIONS WH ICH SHOULD NOT BE CONSTRUED RESTRICTIVELY. IT WAS ALSO SUBMITTED THA T THE VIEW TAKEN BY THE ITAT IN THE CASE OF M/S.BANGALORE ELECTRICITY COMPANY LTD (SUPRA) WHEREIN THE VIEW WAS HELD THAT THE WORD UN DERTAKE SHOULD BE INTERPRETED TO MEAN COMPLETE IS NOT COR RECT. ITA NO.1118/BANG/2009 PAGE 9 OF 20 9. WE HAVE CONSIDERED THE ABOVE SUBMISSIONS AND ARE UNABLE TO AGREE. IN THE CASE OF M/S.BANGALORE ELECTRICITY COMPANY LTD (SUPRA), WE HAVE ALREADY TAKEN A VIEW THAT THE WORD UNDERTAKE IN SECTION 80-IV(4)(IV)(C) TO MEAN THAT THERE SHOUL D BE AN INCREASE IN THE PLANT AND MACHINERY BY AT LEAST 50% OF THE BOOK VALUE OF SUCH PLANT AND MACHINERY AS ON 1-4-2004 ME ANING THEREBY THAT THERE SHOULD BE CAPITALIZATION OF THE PLANT AND MACHINERY ON COMPLETION OF INSTALLATION OF PLANT AN D MACHINERY. THE TRIBUNAL HAS TAKEN THE VIEW THAT THE PURPOSE OF INTRODUCTION OF THE AFORESAID PROVISION WAS TO ACHIEVE MODERNIZA TION IN OPERATION OF ELECTRICITY COMPANY CONSEQUENT TO UNDE RTAKING SUBSTANTIAL EXPANSION AND THE BENEFIT CANNOT FLOW T O THE ASSESSEE UNLESS SUBSTANTIAL EXPANSION IS COMPLETED WHICH WOU LD RESULT OPERATIONAL EFFICIENCY OF THE ELECTRICITY COMPANY. IN VIEW OF THE AFORESAID DECISION OF THE TRIBUNAL, WE CONFIRM THE ORDER OF THE CIT(APPEALS) ON THIS ISSUE AND DISMISS THE CLAIM OF THE ASSESSEE IN THIS REGARD. 10. AS FAR A DEDUCTION U/S 80-IA(4)(IV)(B) OF THE A CT IS CONCERNED, THE FACTUAL SITUATION IS THAT THE ASSESS EE-COMPANY CAME INTO EXISTENCE AS ON 1-4-2002 CONSEQUENT TO TH E SPLITTING UP OF THE KARNATAKA ELECTRICITY BOARD. OUR ATTENTION WAS DRAWN TO THE PROVISIONS OF SECTION 80-IA(3) WHICH LAY DOWN THE C ONDITION THAT THE BENEFIT OF THE PROVISIONS OF SEC.80-IA WILL NOT BE AVAILABLE TO A UNDERTAKING WHICH IS FORMED BY SPLITTING UP OF BUSI NESS ALREADY IN EXISTENCE. OUR ATTENTION WAS DRAWN TO THE PROVISO WHICH WAS ITA NO.1118/BANG/2009 PAGE 10 OF 20 INTRODUCED BY THE FINANCE ACT, 2004 W.E.F. 1-4-2005 WHEREBY IT WAS PROVIDED THAT THE AFORESAID RESTRICTION IMPOSED BY SEC.80-IA SHALL NOT APPLY TO TRANSFER OF PLANT & MACHINERY PR EVIOUSLY USED BY STATE ELECTRICITY BOARD AND WHERE SUCH TRANSFER ACC RUES AS A RESULT OF SPLITTING UP OR RECONSTRUCTION OR RE-ORGANIZATIO N OF THE BOARD. IT WAS THE SUBMISSION OF THE LEARNED COUNSEL FOR THE A SSESSEE THAT U/S 80-IA(2), DEDUCTION U/S 80-IA(1) READ WITH SEC. 80-IA(4)(IV)(B) OF THE ACT WILL BE AVAILABLE FOR TEN CONSECUTIVE AS SESSMENT YEARS OUT OF 15 YEARS (AT THE OPTION OF THE ASSESSEE) BEG INNING FROM THE YEAR IN WHICH THE ASSESSEE COMMENCES TRANSMISSION. THE LEARNED COUNSEL FOR THE ASSESSEE DREW OUR ATTENTION TO THE FIXED ASSETS SCHEDULE AT PAGE 2 OF THE PAPER BOOK AND SUBMITTED THAT IN RESPECT OF INCREASE IN THE VALUE OF CABLE NETWORK, THE ASSESSEE SHOULD BE GIVEN THE BENEFIT OF SEC.80-IA(40(IV)(B). IN THIS REGARD, A QUERY WAS PUT TO THE LEARNED COUNSEL FOR THE ASSE SSEE AS TO WHETHER ANY SEPARATE COMPUTATION HAS BEEN MADE BY H IM TO JUSTIFY THE AFORESAID CLAIM. THE LEARNED COUNSEL FO R THE ASSESSEE SUBMITTED THAT NO SUCH COMPUTATION WAS MADE BUT THE SAME CAN BE CULLED OUT FROM THE FINANCIAL STATEMENTS WHICH A RE ALREADY FILED BEFORE THE AO IN THE COURSE OF ASSESSMENT PROCEEDIN GS. THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED ON T HE ORDER OF THE CIT(APPEALS) INSOFAR AS THE CLAIM OF T HE ASSESSEE U/S 80IA(4)(IV)(B) IS CONCERNED. 11. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. T O CLAIM DEDUCTION U/S 80IA(4)(IV)(B) THE CONDITIONS ARE THA T THE ASSESSEE ITA NO.1118/BANG/2009 PAGE 11 OF 20 SHOULD START TRANSMISSION OR DISTRIBUTION BY LAYING A NEW NETWORK OF NEW TRANSMISSION OR DISTRIBUTION LINE. IT IS AN ADMITTED POSITION THAT THE ASSESSEE DID NOT MAKE ANY SUCH CLAIM BEFOR E THE AO IN THE COURSE OF ASSESSMENT PROCEEDINGS. IT IS ONLY B EFORE THE CIT(APPEALS) THE ASSESSEE MADE THE AFORESAID CLAIM. EVEN IN THE SUBMISSIONS BEFORE THE CIT(A), THERE IS NO REFERENC E TO WHAT IS THE NETWORK OF NEW TRANSMISSION OR DISTRIBUTION LINES T HAT WERE LAID BY THE ASSESSEE BETWEEN 1-4-1999 AND 1-4-2006. EVEN A PERUSAL OF THE BALANCE-SHEET OF THE ASSESSEE AT PAGE 2 OF THE ASSESSEES PAPER BOOK WHICH GIVES THE SCHEDULE OF FIXED ASSETS ONLY TALKS OF LINES CABLE NET WORK. THE OPENING WRITTEN DOWN VAL UE (WDV) OF THE SAME WAS RS.837,41,39,851/- AND THERE WERE ADDI TIONS TO THE TUNE OF RS.48,03,76,632/-. AS TO WHETHER THESE WER E ADDITIONS BECAUSE OF LAYING OF NETWORK OF NEW TRANSMISSION OR DISTRIBUTION LINES OR SIMPLE ADDITIONS TO EXISTING LINE CABLE NE TWORK IS NOT KNOWN. IN SUCH CIRCUMSTANCES, THE CLAIM MADE BY TH E ASSESSEE WITHOUT A SOUND BASIS AND WITHOUT PROPER FACTS AVAI LABLE ON RECORD DESERVES TO BE REJECTED AT THE OUTSET. WE DO SO AC CORDINGLY. NEVERTHELESS, WE ARE OF THE VIEW THAT PROVISO TO SE C.80-IA(3) WHICH IS INTRODUCED BY THE FINANCE ACT 2004 W.E.F. 1-4-2005 GIVES THE BENEFIT TO A NEW ENTITY WHICH IS FORMED BY SPLI TTING UP OF AN EXISTING STATE ELECTRICITY BOARD. IF THE ENTITY WH ICH IS FORMED BY SO SPLITTING UP UNDERTAKES LAYING OF NETWORK OF NEW TRANSMISSION OR DISTRIBUTION LINES AFTER SUCH SPLIT UP, THEN THE Y SHOULD BE ENTITLED TO THE BENEFIT OF SEC.80IA(4)(IV)(B) OF TH E ACT. IN OTHER WORDS, THE PROVISO REFERRED TO ABOVE OPERATES PROSP ECTIVELY. IF A ITA NO.1118/BANG/2009 PAGE 12 OF 20 NETWORK OF A NEW TRANSMISSION OR DISTRIBUTION LINE IS MADE ON OR AFTER 1-4-2005, THEN THE BENEFIT OF SEC. 80IA(4)(IV )(B) OF THE ACT CAN BE AVAILED BY AN ASSESSEE. AS ALREADY STATED, IN THE PRESENT CASE, THERE ARE NO FACTS WHICH JUSTIFY EVEN REMANDI NG THE MATTER TO THE AO FOR FRESH CONSIDERATION. THE ASSESSEE CA NNOT BE HEARD TO SAY THAT THE DETAILS CAN BE CULLED OUT FROM THE FINANCIAL STATEMENTS AND ASK FOR A REMAND ON SUCH GENERAL AND VAGUE STATEMENTS. FOR THE REASONS GIVEN ABOVE, WE REJECT THE CLAIM OF THE ASSESSEE FOR DEDUCTION U/S 80IA(4)(IV)(B) OF TH E ACT ALSO. 12. IN THE RESULT, THE GRIEVANCE PROJECTED BY THE ASSESSEE IN GROUND NO.2.1 OF THE REVISED GROUNDS OF APPEAL IS D ISMISSED. 13. GROUND NO.4 RAISED BY THE ASSESSEE READS AS FOLLOWS: LEARNED CIT(A) ERRED IN CONFIRMING THE ADDITIONS MADE BY THE AO ON ACCOUNT OF LOSS ON SALE OF FIXED ASSETS. FROM SCHEDULE-23 TO THE BALANCE-SHEET, THE AO NOTIC ED THAT THE ASSESSEE COMPANY HAS CLAIMED AN AMOUNT OF RS.51,38, 812/- UNDER THE HEAD LOSS RELATED TO FIXED ASSETS. FROM THIS, AN AMOUNT OF RS.11,49,688/- BEING GAIN ON SALE OF ASSE TS WAS REDUCED AND NET RS.39,89,124/- WAS DEBITED TO THE P &L A/C. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS ASKED TO EXPLAIN THE ABOVE CLAIM. THE ASSESSEE VIDE ITS LETT ER DATED 23-10-2008, STATED THAT THE LOSSES RELATED TO FIXED ASSETS TO TUNE OF RS.51,38,812/- AND THE GAIN ON SALE OF ASSETS OF RS.11,49,688/- WERE BOOKED TO PROFIT & LOSS ACCOUNT AND SAME MAY B E TREATED AS PER PREVAILING LAW. THE AO HELD THAT LOSS OF SALE OF FIXED ASSETS ITA NO.1118/BANG/2009 PAGE 13 OF 20 CANNOT BE CONSIDERED AS A BUSINESS EXPENSE AS IT IS RELATING TO CAPITAL ASSETS AND THE ASSESSEE HAS ALREADY CONSIDE RED THE SALE PROCEEDS IN WORKING OF THE DEPRECIATION OF THE CAPI TAL ASSETS. HENCE, THE LOSS CLAIM RELATING TO FIXED ASSETS WAS DISALLOWED AND THE GAIN ON SALE OF FIXED ASSETS ACCOUNTED WAS ALSO REDUCED FROM THE TOTAL INCOME. THUS, THE NET ADDITION TO THE TOT AL INCOME WAS MADE OF RS.39,89,124/-. 14. ON APPEAL BY THE ASSESSEE, THE CIT(A) CONFI RMED THE ORDER OF THE AO. BEFORE THE CIT(APPEALS), THE ASSESSEE S UBMITTED THAT IT WAS ONLY AN INTERNAL BOOK ADJUSTMENT AND NO SALE OF THE ASSET HAD ACTUALLY TAKEN PLACE. IT WAS POINTED OUT BEFOR E THE CIT(APPEALS) THAT THE ASSESSEE, BEING AN UNDERTAKIN G OF GOVERNMENT OF KARNATAKA, HAS TO FOLLOW THE PROCEDUR E AS LAID DOWN IN THE KEB ACCOUNTS VOLUME/CIRCULAR WITH REGAR D TO THE ACCOUNTING OF THE FIXED ASSETS. THE ASSESSEE POINT ED OUT THAT THE TRANSFORMERS WHICH WERE NOT REPAIRABLE AND WERE NOT SOLD, TREATED THE SAME AS SCRAPPED TRANSFORMERS IN THE BOOKS OF T HE ACCOUNT AND LOSS IS RECORDED IN THE BOOKS OF ACCOUNT. THE SCRAPPED TRANSFORMERS ARE SOLD LATER AFTER FOLLOWING FORMALI TIES AND THE ACTUAL LOSS WILL BE KNOWN ONLY WHEN SALE OF SCRAPPE D TRANSFORMERS TAKES PLACE. THE CIT(APPEALS) WAS OF THE VIEW THAT PROPER RECOURSE OPEN TO THE ASSESSEE WAS TO REDUCE THE WDV OF THE RELEVANT BLOCK OF ASSETS BY THE AMOUNT OF LOSS INCU RRED ON ACTUAL SALE OF ASSETS RATHER THAN CLAIMING LOSS IN THE PRO FIT AND LOSS ITA NO.1118/BANG/2009 PAGE 14 OF 20 ACCOUNT. AGGRIEVED BY THE ORDER OF THE CIT(APPEALS ), THE ASSESSEE HAS RAISED GROUND NO.4 BEFORE US. 15. WE HAVE HEARD THE SUBMISSIONS OF THE LEARNED COUNSEL FOR THE ASSESSEE WHO REITERATED THE STAND OF THE ASSESS EE AS PUT FORTH BEFORE THE CIT(APPEALS). WE ARE OF THE VIEW THAT T HE REASONS GIVEN BY THE AO AND THE CIT(APPEALS) ARE PROPER AND DO NOT CALL FOR ANY INTERFERENCE. AFTER THE CONCEPT OF BLOCK O F ASSETS INTRODUCED IN THE INCOME-TAX ACT, 1961, ANY SALE OR DISCARDING OF AN ASSET WHICH HAS ALREADY ENTERED BLOCK OF ASSETS FOR ALLOWING DEPRECIATION, THE SALE VALUE HAS TO BE SIMPLY REDUC ED FROM THE BLOCK OF ASSETS. ANY PROFITS OR LOSS ON SALE OF NE W ASSETS ARE NOT CAPABLE OF COMPUTATION AFTER INTRODUCTION OF THE CO NCEPT OF BLOCK OF ASSETS. WE, THEREFORE, CONCUR WITH THE VIEW OF THE CIT(APPEALS) ON THIS ISSUE AND DISMISS THE GROUND NO.4 RAISED BY THE ASSESSEE. 16. GROUND NO.3 RAISED BY THE ASSESSEE READS AS UNDER: LEARNED CIT(A) OUGHT TO HAVE HELD THAT THE ASSESSEE IS ENTITLED FOR DEPRECIATION ON ASSETS HANDED OVER TO THE APPELLANT BY CONSUMERS FOR THEIR RUNNING AND MAINTENANCE. THE ASSESSEE HAD COLLECTED RS. 7,93,58,686/- TOWARD S CAPITAL ASSETS AS FOLLOWS: ITA NO.1118/BANG/2009 PAGE 15 OF 20 1. CONSUMERS CONTRIBUTION TOWARDS COST OF CAPITAL ASSETS. :RS.4,12,31,397/- 2. CAPITAL COST COLLECTED FROM CONSUMERS OF LAY OUTS ABANDONED BY PROMOTERS :RS. 49,79,215/- 3. DEVELOPMENT CHARGES/ADDITIONAL DEVELOPMENT CHARGES COLLECTED FROM CONSUMERS :RS.3,30,99,148/- 4. INFRASTRUCTURE CHARGES FROM H.T. CONSUMERS OF 13.2 KV AND BELOW :RS. 48,926/- ------------------ RS. 7,93,58,686/- ------------------- HOWEVER, THE SAME HAS NOT BEEN CREDITED TO THE P&L A/C AND INSTEAD, TAKEN TO BALANCE SHEET AS PART OF ASSETS. BUT, DEPRECIATION CLAIMED ON THIS AT RS. 59,51,901/- BEI NG 7.5% OF RS.7,93,58,686/- WAS CLAIMED BY THE ASSESSEE. THE AO FOUND THAT SIMILAR ISSUE WAS SUBJECT MATTER IN EARLIER YEARS A LSO AND THE CLAIM OF DEPRECIATION WAS DISALLOWED. THE AO ALSO FOUND THAT THE ASSESSEE HAS NOT CONTESTED THIS POINT IN APPEAL IN THE PAST. THE AO FOUND THAT THE ASSESSEE USED TO CLAIM DEPRECIATI ON YEAR TO YEAR ON ADDITION MADE TO THESE NON-DEPRECIABLE ASSE TS AND THE SAME WAS DISALLOWED. AT THE TIME OF ASSESSMENT PRO CEEDINGS, THE AO CALLED UPON THE ASSESSEE TO WORK OUT THE DEPRECI ATION ALLOWABLE WITHOUT CONSIDERING NON-DEPRECIABLE ASSET S. ACCORDINGLY, THE ASSESSEE HAS FURNISHED A CHART VIDE ITS LETTER DATED 23-10-2008 AND ALSO WORKED OUT THE DEPRECIATION ALL OWABLE WITHOUT CONSIDERING THE NON-DEPRECIABLE ASSETS. AS PER THE DETAILED FURNISHED, THE DEPRECIATION ALLOWABLE WAS AT RS.20,85,25,686/- AS AGAINST THE DEPRECIATION CLAIM ED OF RS.24,13,96,009/-. THUS, THE DIFFERENCE OF EXCESS D EPRECIATION ITA NO.1118/BANG/2009 PAGE 16 OF 20 CLAIMED WAS AT RS.3,28,70,323/-, THE DETAILS OF WHI CH ARE AS UNDER: CONSUMER CONTRIBUTION DURING AY. 2003-04 OPENING BALANCE AS ON 1.4.2005 DEPRECIATION CLAIMED @ 15% FOR THE ASST.YEAR 2006-07 : :RS. 3,23,19,592/- :RS. 48,47,939/- CONSUMER CONTRIBUTION DURING A.Y. 2004-05 OPENING BALANCE AS ON 1.4.2005 DEPRECIATION CLAIMED @ 15% FOR THE ASST.YEAR 2006-07 :RS. 5,91,96,278/- :RS. 88,79,442/- CONSUMER CONTRIBUTION DURING A.Y. 2005-06 OPENING BALANCE AS ON 1.4.20005 DEPRECIATION CLAIMED @ 15% FOR THE ASST.YEAR 2006-07 :RS. 8,79,40,279/- :RS. 1,31,91,042/- CONSUMER CONTRIBUTION DURING A.Y. 2006-07 CONSUMER CONTRIBUTION COLLECTED DURING THE YEAR DEPRECIATION CLAIMED @ 7.5% FOR THE ASST.YEAR 2006-07 :RS. 7,93,58,686/- :RS. 59,51 ,901/- THUS, THE TOTAL DEPRECIATION CLAIMED ON CONSUMER CO NTRIBUTION WORKS OUT TO RS. 3,28,70,323/- (RS.48,47,939/- + RS . 88,79,442/- + RS. 1,31,91,042/- + RS.59,51,901/-) WHICH WAS TO BE DISALLOWED AND ADDED TO THE TOTAL INCOME. 17. ON APPEAL BEFORE THE CIT(APPEALS) IT WAS ARGU ED THAT THE COMPANY WAS ELIGIBLE FOR DEPRECIATION SINCE THE ASS ETS WERE SUBSEQUENTLY TRANSFERRED BY CONSUMERS TO THE ASSESS EE AND THE ASSESSEE THEREAFTER MAINTAINED THE ASSETS, IN TERMS OF CIRCULAR NO. C(A/CS)/AO (A/CS)/SN.LV/CYS 10/92-93, DATED 20.04.1 992, ISSUED BY ITS ERSTWHILE PARENT ASSESSEE, M/S KARNATAKA ELE CTRICITY BOARD. A COPY OF THE CIRCULAR WAS SUBMITTED. THE CIT(APPE ALS) CONFIRMED THE ORDER OF THE AO OBSERVING AS UNDER: ITA NO.1118/BANG/2009 PAGE 17 OF 20 10. I HAVE GONE THROUGH THE ASSESSING OFFICERS CONTENTIONS AND THE APPELLANTS SUBMISSIONS. IN THE FIRST PLACE, IF THE APPELLANT DOES NOT CONTEST THE ASSESS ING OFFICERS FINDING OF FACT THAT THE ASSETS IN QUESTION ARE NOT DEPRECIABLE, THERE CAN BE NO QUESTION OF ALLOWING DEPRECIATION O N SUCH ASSETS. NO SUCH GROUND OF APPEAL HAS BEEN RAISED EI THER. EVEN IF THE ASSETS WERE DEPRECIABLE, THE CLAIM OF D EPRECIATION HAS TO BE ON THE ACTUAL COST OF THE ASSETS, AS DE FINED IN SECTION 43(1). EXPLANATION 10 TO SECTION 43(1) PROV IDES THAT 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 STATE GOVER NMENT OR ANY AUTHORITY ESTABLISHED UNDER ANY LAW OR BY AN Y OTHER PERSON, IN THE FORM OF A SUBSIDY OR GRANT OR REIMBU RSEMENT (BY WHATEVER NAME CALLED), THEN, SO MUCH OF THE COS T AS IS RELATABLE TO SUCH SUBSIDY OR GRANT OR REIMBURSEMENT SHALL NOT BE INCLUDED IN THE ACTUAL COST OF THE ASSET TO THE ASSESSEE.... 11. IT IS CLEAR FROM THE ABOVE PROVISION THAT AN ASSESSEE CAN CLAIM DEPRECIATION ON AN ASSET ONLY TO THE EXTENT T HAT THE ACTUAL COST OF SUCH ASSET WAS ACTUALLY MET BY HIMSE LF AND NOT ON THE COST MET BY ANY OTHER PERSON. THE ASSETS IN QUESTION HERE HAPPEN TO BE TRANSFORMERS WHICH ARE INSTALLED AT CONSUMERS PREMISES AT THEIR OWN COST AND THE WHOLE OF THE COST OF THE ASSETS ARE MET BY THEM. III SUCH A SCEN ARIO, EVEN THE BASIC CRITERIA OF SECTION 32, NAMELY, THAT THE ASSETS MUST BE OWNED AND USED BY THE ASSESSEE FOR HIS BUSINESS, ARE NOT SATISFIED. OWNERSHIP OF THE TRANSFORMERS CONTINUES TO BE WITH CONSUMERS, REGARDLESS OF THE FACT THAT THE ASSETS A RE HANDED OVER TO THE APPELLANT FOR THE PURPOSE OF MAINTENANC E. USER OF THE ASSETS IS CLEARLY BY INDIVIDUAL CONSUMERS AT TH EIR OWN PREMISES AND NOT FOR THE BUSINESS OF THE APPELLANT COMPANY. THE ACTUAL COST OF THE ASSETS TO THE APPELLANT COMP ANY IS NIL. THE CIRCULAR RELIED UPON BY THE APPELLANT ONLY PRES CRIBES THE METHOD OF ACCOUNTING FOR THE INVENTORY OF ASSETS TR ANSFERRED BY CONSUMERS AND HAS NO BEARING WHATSOEVER ON THE ADMISSIBILITY OF DEPRECIATION UNDER THE INCOME-TAX ACT, WHOSE PROVISIONS THE CIRCULAR CANNOT OVERRIDE. I TH EREFORE DISMISS THIS GROUND OF APPEAL. 18. AGGRIEVED BY THE ORDER OF THE CIT(APPEALS), THE ASSESSEE HAS RAISED GROUND NO.3 BEFORE THE TRIBUNAL. LEARNE D COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS AS WERE MAD E BEFORE THE CIT(APPEALS) AND FURTHER SUBMITTED BY WAY OF ALTERN ATIVE ARGUMENT AS FOLLOWS: EVEN ASSUMING BUT NOT CONCEDIN G THE ITA NO.1118/BANG/2009 PAGE 18 OF 20 DEPARTMENTS STAND, THE DISALLOWANCE SHOULD HAVE BE EN RESTRICTED ONLY TO RS.1,87,72,394 AND NOT RS.3,28,70,323/- AS ADOPTED BY THE LEARNED CIT(A) IN HIS ORDER. THE FOLLOWING TABL E SHOWS THE FACTS REGARDING THE DISALLOWANCE. PARTICULARS AMOUNT DEPRECIATION CLAIMED AS PER RETURN IN AY 2006-07 24,13,96,008 LESS: DEPRECIATION FOR AY 2006-07 EXCLUDING CONSUMER CONTRIBUTION AS PER DEPRECIATION SCHEDULE 22,26,23,615 DEPRECIATION ON CONSUMER CONTRIBUTION. A 1,87,72,393 CONSUMER CONTRIBUTION AS ON 31-3-2005 25,63,72,231 LESS: TRANSFERRED TO CESCO AS PER GOVERNMENT ORDER 8,90,72,452 ---------------- CONSUMER CONTRIBUTION EXCLUSIVELY PERTAINING TO MESCOM AS ON 31-3-2005 16,72,99,779 ADD: ADDITION TO CONSUMER CONTRIBUTION IN AY 2006-07 7,93,58,686 -------------- BALAN CE OF CONSUMER CONTRIBUTION AS ON 31-3-2006 B 24,66,58,465 ACTUAL DEPRECIATION FOR AY 2006-07 @ 7.5 ON CONSUMER CONTRIBUTION-C (B*75.%) 1,84,99,385 EXCESS DEPRECIATION ON CONSUMER CONTRIBUTION CLAIMED BY APPELLANT.(A-C) 2,73,008 IT WAS SUBMITTED THAT THE ACTUAL DEPRECIATION ON CO NSUMER CONTRIBUTION FOR AY 2006-07 (INCLUDING EXCESS CLAIM ED BY ITA NO.1118/BANG/2009 PAGE 19 OF 20 APPELLANT) WAS RS.1,87,72,393/-. IF AT ALL THE DIS ALLOWANCE HAS TO BE MADE IT SHOULD BE RS.1,87,72,393 AND NOT RS.3,28 ,70,323/-. 19. WE HAVE CONSIDERED THE SUBMISSIONS OF THE L EARNED COUNSEL FOR THE ASSESSEE AND ARE OF THE VIEW THAT THE SAME IS NOT ACCEPTABLE. THE COST OF CERTAIN ASSETS COLLECTED B Y THE ASSESSEE FROM ITS CONSUMER, CAN BY NO STRETCH OF IMAGINATION , BE CONSIDERED AS COST OF ASSET ON WHICH DEPRECIATION C AN BE CLAIMED BY THE ASSESSEE. THE FACT THAT THE ASSETS ARE SUBS EQUENTLY TRANSFERRED BY THE CONSUMER TO THE ASSESSEE AND THE REAFTER THE ASSESSEE MAINTAINS THE ASSETS ARE ALL FACTS FOR WHI CH THE ASSESSEE HAS NOT GIVEN ANY BASIS IN THE FORM OF ENTRIES IN T HE BOOKS OF ACCOUNT. MAKING SUCH A GENERAL STATEMENT WILL NOT BE SUFFICIENT TO ACCEPT THE CLAIM OF THE ASSESSEE. THE ALTERNATIVE GROUND ON WHICH THE CIT(APPEALS) REJECTED THE CLAIM OF THE ASSESSEE BY INVOKING EXPLANATION 10 TO SEC.43(1) OF THE ACT, IN OUR VIEW IS NOT PROPER AS THE MONEY COLLECTED BY THE ASSESSEE FROM THE CUSTOM ER CAN NEVER BE SAID TO BE SUBSIDY OR GRANT OR REIMBURSEMENT. W E, THEREFORE, CONFIRM THE ORDER OF THE CIT(APPEALS) FOR THE OTHER REASONS GIVEN BY HIM. WE, HOWEVER, FIND MERITS IN THE ALTERNATIV E SUBMISSION RAISED BY THE ASSESSEE. THE ACTUAL QUANTUM OF DISA LLOWANCE OF DEPRECIATION BASED ON THE SUBMISSION MADE BY THE AS SESSEE BY WAY OF ALTERNATIVE ARGUMENT IS REMANDED TO THE AO F OR FRESH CONSIDERATION. ITA NO.1118/BANG/2009 PAGE 20 OF 20 20. IN THE RESULT, THE APPEAL OF THE ASSESSEE I S TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST OCTOBER, 2012 . SD/- SD/- (N.BARATHVAJA SANKAR) VICE- PRESIDENT (N.V.VASUDEVAN) JUDICIAL MEMBER EKS COPY TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A) CONCERNED 4. CIT 5. DR, ITAT, BANGALORE 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY INCOME-TAX APPELLATE TRIBU NAL, BANGALORE