Hyderabad Metropolitan Water Supply & Sewerage, Hyderabad V. The Addl.CIT, Range-6, Hyderabad

ITA 2047/HYD/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 66132 (ITAT-HYDERABAD)
• Duration Of Justice: 7 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-08-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2004-2005
• Appeal Filed On: 08-12-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAO
• Assessee Lawyers: K VASANT KUMAR
• Keywords: Reopening of assessment; Depreciation; Retrospective amendment; Cost of acquisition; Tangible material; Difference of opinion; Change of opinion
• Section: 143(3); 147; 148; 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO. 2047/HYD/2011 ASSESSMENT YEAR: 2004-05 HYDERABAD METRO POLITAN WATER SUPPLY & SEWERAGE, APPELLANT HYDERABAD (PAN AAALH0186J) VS. ADDL. COMMISSIONER OF INCOME-TAX, RESPOND ENT RANGE 6, HYDERABAD. APPELLANT BY : SHRI K. VASANT KUMAR RESPONDENT BY : SHRI M.S. RAO DATE OF HEARING : 14/05/2012 DATE OF PRONOUNCEMENT : 06/08/ 2012 ORDER PER ASHA VIJAYARAGHAVAN, J.M.: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF CIT(A)-IV, HYDERABAD, DATED 28/09/2011 FOR THE ASSESSMENT YEAR 2004-05. 2. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSES SEE IS HYDERABAD METROPOLITAN WATER SUPPLY AND SEWERAGE BO ARD (HMSSWB). FOR THE AY 2004-05 THE APPELLANT FILED RE TURN OF THEIR INCOME ON 30.10.2004 DECLARING A LOSS OF RS. 79,88, 25,411/-. AFTER CALLING FOR VARIOUS DETAILS, THE ORDER U/S 14 3(3) OF THE ACT WAS PASSED ON 27.11.2006 ACCEPTING THE RETURNED LOS S. HOWEVER IN VIEW OF THE OBSERVATIONS OF THE IAP AUDIT, THE A SSESSMENT WAS REOPENED, AFTER RECORDING THE ASSESSING OFFICERS S ATISFACTION AS PER ORDER SHEET ENTRY DATED 27.3.2008. AFTER REOPEN ING THE CASE ITA NO.2047/HYD/11 HYDERABAD METROPOLITAN WATER SUPPLY & SEWERAGE BOAR D. 2 WAS REFERRED TO SPECIAL AUDIT U/S 142(2A). THE DEPR ECIATION ALLOWABLE TO THE ASSESSEE WAS REWORKED BY REDUCING FROM THE COST OF ACQUISITION AMOUNTS TREATED BY THE GOVT OF ANDHR A PRADESH AS GRANTS TO THE ASSESSEE. THE AO REWORKED THE TOTAL I NCOME VIDE HIS ORDER U/S 147 READ WITH 143(3) DATED 25.5.2010 AT RS. 13,46,31,752/-. 3. ON APPEAL BEFORE THE CIT(A), THE ASSESSEE OBJEC TED TO THE REOPENING OF ASSESSMENT AS WELL AS REFERENCE TO SPE CIAL AUDIT U/S 142(2A). THE CIT(A) REJECTED THE SUBMISSIONS OF THE ASSESSEE BY OBSERVING THAT INITIATION OF PROCEEDINGS U/S 147 WA S AFTER CONSIDERING THE OBSERVATIONS OF IAP. THE CIT(A) REL IED UPON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F CIT VS. PVS BEEDIES P. LTD., 237 ITR 13 AND POINTED OUT THAT TH E REPORT OF INTERNAL AUDIT PARTY IS VALID FOR REOPENING THE AS SESSMENT. AS REGARDS THE CONTENTION OF THE AR OF THE ASSESSEE TH AT THERE WAS A VIOLATION OF THE PROVISIONS OF THE IT ACT IN DIRECT ING THE SPECIAL AUDIT TO ARRIVE AT THE WDV RIGHT FROM 01/04/89, THE CIT(A) HELD THAT IN THE ABSENCE OF CORRECT WDV OF VARIOUS ASSET S, THE AO HAD TO RECALCULATE THE WDV OF VARIOUS BLOCK OF ASSETS S INCE INCEPTION OF THE BOARD. 4. AGGRIEVED THE ASSESSEE IS ON APPEAL AGAINST THE REOPENING OF THE ASSESSMENT, BEFORE US AS WELL AS ON MERITS. 5. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE AS UNDER: 1. THE ORDER OF THE LEARNED CIT(A) IS NOT ONLY ERRO NEOUS BOTH ON FACTS AND IN LAW BUT IS PERVERSE. 2. THE LEARNED CIT(A) ERRED IN UPHOLDING INITIATION OF PROCEEDINGS U/S 147 RELYING ON A DECISION WHICH IS UNDER THE OLD PROVISIONS OF SEC. 147(B) IGNORING THE LATER DE CISION OF SUPREME COURT IN KELVINATOR INDIA WHICH ON THE NEW PROVISIONS OF SECTION 147. ITA NO.2047/HYD/11 HYDERABAD METROPOLITAN WATER SUPPLY & SEWERAGE BOAR D. 3 3. THE LEARNED CIT(A) ERRED IN HOLDING THAT CORRECT WDV OF VARIOUS ASSETS IS NOT AVAILABLE AND HENCE REFERENCE TO SPECIAL AUDIT U/S 142(2A) FROM 01/04/89 IS VALID IG NORING THE FACT THAT THE LEGISLATURE IN ITS WISDOM HAS INTRODU CED EXPLANATION 6 TO SUBSECTION 6 OF SECTION 43 WITH RETROSPECTIVE EFFECT IN THE CASES OF THE TYPE OF TH IS ASSESSEE WHERE THE INCOMES ARE NOT TAXABLE PRIOR TO AY 2003- 04 TO ADOPT THE BOOK VALUE AS WDV AND FURTHER IGNORING TH E FACT THAT THE SPECIAL AUDIT ALSO HAS CONSIDERED THE WDV FROM BOOKS OF THE ASSESSEE AS ON 01/04/89 AND WENT ON TO REDUCE GRANTS FROM SUCH WDV AND THEREBY ERRED IN UPHOLDING THE ACTION OF THE AO IN ADOPTING WDV AS ARRIVED AT BY T HE SPECIAL AUDIT IGNORING THE PROVISIONS OF LAW. 4. THE LEARNED CIT(A) FAILED TO APPRECIATE THE FACT THAT THERE IS NO FINDING TO THE EFFECT THAT THE GRANTS RECEIVE D FROM GOVT., WERE USED IN ACQUIRING THE ASSETS AND THEREB Y ERRED IN UPHOLDING THE ACTION OF AO IN ADOPTING THE DEPRE CIATION WORKED OUT BY THE SPECIAL AUDIT AFTER REDUCING SUCH GRANTS TO ARRIVE AT WDV. 6. BEFORE US, IT WAS SUBMITTED BY THE LEARNED COUNS EL FOR THE ASSESSEE AS FOLLOWS: THAT THE ISSUE IN RESPECT OF WHICH THE NOTICE FOR REOPENING HAS BEEN ISSUED HAS BEEN ENQUIRED ABOUT BY THE AO A ND BASED ON THE REPLY BY THE ASSESSEE, NO ADDITION HAS BEEN MADE. THAT AFTER HAVING CLARIFIED THE ISSUE REGARDI NG THE INTEREST INCOME AND BASED ON THE EXPLANATION OF THE ASSESSEE, THE ASSESSING OFFICER NOT HAVING MADE ANY ADDITION IN THE ORDER OF ASSESSMENT, THE ASSESSMENT WAS REOPENED PRECISELY FOR THE SAME ISSUE. THE ASSESSEE AGAIN REPLIED VIDE THEIR LETTER DATED 20.9.2008 (PAGE 116 ,117 OF THE PAPER BOOK-1) THAT INTEREST PAID IS MORE THAN T HE INTEREST RECEIVED AND HENCE THERE IS NO INCOME ESCA PING ASSESSMENT. THIS FACT IS EVIDENT FROM THE STATEMENT S FILED WITH THE RETURN. THEREAFTER THE AO WITHOUT MAKING A NY REFERENCE TO THE REASON FOR REOPENING, SEEKS CLARIF ICATION IN RESPECT OF OTHER MATTERS, IN HIS LETTER DT 14.8.200 9 (PAGE ITA NO.2047/HYD/11 HYDERABAD METROPOLITAN WATER SUPPLY & SEWERAGE BOAR D. 4 118 OF PAPER BOOK-1). THE AO WANTED TO RE-DETERMIN E THE WDV OF THE ASSETS FOR COMPUTING THE DEPRECIATION. IN THE RETURN OF INCOME THE ASSESSEE HAS GIVEN PART ICULARS OF GRANTS FROM THE AP GOVERNMENT AND HAS FURNISHED THE METHOD OF COMPUTATION OF DEPRECIATION. IN HIS LETTE R DATED 15.11.2006 (PAGE 110 OF PAPER BOOK-1) , THE AO HAD ASKED FOR EXPENSES MET OUT OF GOVERNMENT GRANT. THIS WAS ALSO EXPLAINED BY THE ASSESSEE IN HIS REPLY (PAGE 111 OF PAPER BOOK-1). CLAUSE 5(B) OF THE NOTES ON ACCOUNTS (PAGE 8 OF PAPER BOOK-1) STATES CLEARLY THE METHOD OF ACCOUNTI NG THE GRANTS RECEIVED FROM THE GOVERNMENT. AFTER HAVING R ECEIVED CLARIFICATIONS FROM THE ASSESSEE, THE ASSESSING OFF ICER HAS COMPLETED THE ASSESSMENT U/S 143(3). BUT THEREAFTER THE AO SUDDENLY FINDS THE ACCOUNTS COMPLEX AND REQUIRES AN EXTERNAL AUDIT TO BE CARRIED OUT U/S 142(2A) (AOS LETTER DATED 10.11.2009). THE SPECIAL AUDIT WAS CARRIED OU T. ON THE BASIS OF THE SPECIAL AUDIT THE WDV THE ASSETS W ERE REWORKED. IT IS THE CONTENTION OF THE ASSESSEE THAT THEY WERE NOT SUBJECT TO TAX TILL THE AY 2002-03 AND HAV E FILED THEIR RETURN FOR THE FIRST TIME FOR AY 2003-04. IN THE CIRCUMSTANCES NO DEPRECIATION CAN BE DEEMED TO HAVE BEEN ALLOWED FOR ALL THESE YEARS. EXPLANATION 6 TO SEC 4 3(6) CLEARLY PROVIDES THAT IN CASES WHERE THE ASSESSEE W AS NOT REQUIRED TO FILE RETURNS IN THE EARLIER YEARS, THE DEPRECIATION DEEMED TO HAVE BEEN ALLOWED WILL BE THE DEPRECIATIO N PROVIDED FOR IN THE BOOKS. IN OTHER WORDS, THE WDV OF THE ASSETS SHALL BE TAKEN AT THE BOOK VALUE (SUBJECT TO ADJUSTMENT IN RESPECT OF REVALUATION IF ANY). IN SU CH A CASE THERE IS NO QUESTION OF REWORKING ACTUAL COST RELAT ING TO THE PERIOD WHEN THE INCOME OF THE ASSESSEE WAS EXEMPT U /S 10(20) OF THE IT ACT AND REWORKING THE WDV. ITA NO.2047/HYD/11 HYDERABAD METROPOLITAN WATER SUPPLY & SEWERAGE BOAR D. 5 7. THE DR RELIED ON EXPLANATION 2(C) TO SEC 147, WH ICH READS AS UNDER: (C) WHERE AN ASSESSMENT HAS BEEN MADE, BUT- (I) INCOME CHARGEABLE TO TAX HAS BEEN UNDERASSESSED; OR (II) SUCH INCOME HAS BEEN ASSESSED AT TOO LOW A RATE; OR (III) SUCH INCOME HAS BEEN MADE THE SUBJECT OF EXCESSIVE RELIEF UNDER THIS ACT; OR (IV) EXCESSIVE LOSS OR DEPRECIATION ALLOWANCE OR ANY OTH ER ALLOWANCE UNDER THIS ACT HAS BEEN COMPUTED. 8. THE DR RELIED ON THE DECISION OF THE COORDINATE BENCH IN THE CASE OF M/S KERNEX MICRO SYSTEMS VS. DCIT IN ITA NO S 882 TO 885/HYD/2006 FOR AY 1999-00 TO 2002-03 AND AN UNREP ORTED DECISION OF THE MUMBAI TRIBUNAL IN THE CASE OF H.V. TRANSMISSIONS LTD IN ITA NO 2230,2476/M/2010 FOR THE AY 2001-02 W HEREIN IT HAS BEEN HELD THAT REOPENING EVEN IF THE RETURN WAS PROCESSED ONLY U/S 143(1), IS WITHOUT JURISDICTION IF THERE A RE NO FRESH TANGIBLE MATERIAL WAS ALSO BROUGHT TO OUR NOTICE. 9. THE LEARNED COUNSEL FOR THE ASSESSEE SHRI K. VAS ANT KUMAR SUBMITTED THAT THE AO WAS SATISFIED WITH THE EXPLAN ATION OF THE ASSESSEE AND DID NOT MAKE ANY ADDITION ON THIS COUN T IN THE ASSESSMENT ORDER MADE U/S 143(3) OF THE ACT. HE FUR THER SUBMITTED THAT WHEN THE AO HAD SPECIFICALLY RAISED A QUERY AND OBTAINED INFORMATION, IT CANNOT BE CONCLUDED THAT T HE AO HAD NOT APPLIED HIS MIND TO THE SAME WHILE COMPLETING THE A SSESSMENT. HENCE, THE PROPOSAL TO REOPEN THE ASSESSMENT ON THE VERY SAME ISSUE IS NOTHING BUT CHANGE OF OPINION. THE LEARNED COUNSEL FOR THE ASSESSEE HAS RELIED UPON THE DECISION IN THE CA SE OF KELVINATOR INDIA LTD., 321 ITR 561 (SC). ITA NO.2047/HYD/11 HYDERABAD METROPOLITAN WATER SUPPLY & SEWERAGE BOAR D. 6 9. WE HAVE HEARD THE ARGUMENTS OF BOTH THE PARTIES AND PERUSED THE RECORD AS WELL AS GONE THROUGH THE ORDE RS OF THE AUTHORITIES BELOW. WE FIND THAT THE COORDINATE BENC H IN THE CASE OF KERNEX MICRO SYSTEMS VS. DCIT IN ITA NOS. 882 TO 885/HYD/06 FOR AY 1999-00 TO 2002-03 HELD THAT CLAUSE (B) TO E XPLANATION 2 TO PROVISO 2 OF SECTION 147 CLEARLY AUTHORISES THE AO TO REOPEN THE ASSESSMENT. THE DR ALSO RELIED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. PVS BEEDIES P. LTD., 237 ITR 13 POINTING OUT THAT THE OBJECTION BY INTERNAL AUDIT PARTY IS A VALID BASIS FOR REOPENING THE ASSESSMENT. 10. IN THE CASE OF ACIT VS. RAJESH JHAVERI STOCKBRO KERS PVT. LTD., THE HONBLE APEX COURT HELD THAT THE AO IS H AVING JURISDICTION TO ISSUE NOTICE U/S 148 FOR BRINGING T O TAX INCOME ESCAPING ASSESSMENT ON THE GROUND THAT THE ASSESSEE CLAIMED EXCESSIVE RELIEF OR DEDUCTION. THEREFORE, THE GROUN D RELATING TO REOPENING OF ASSESSMENT IS DECIDED AGAINST THE ASSE SSEE AND WE CONFIRM THE ORDER OF THE CIT(A) ON THIS ISSUE. 11. COMING TO THE MERITS OF THE CASE, THE ASSESSEE HAD OBJECTED TO THE AOS DIRECTION FOR SPECIAL AUDIT IN TERMS OF PROVISIONS OF SECTION 142(2A) OF THE ACT. IN ORDER TO ARRIVE THE CORRECT POSITION THE ACCOUNT OF THE ASSESSEE FOR THE AY 2004-05 WAS REFERRED TO SPECIAL AUDIT U/S 142(2A) OF THE ACT, ON THE FOLLOW ING TERMS: 1) WDV OF THE RESERVOIRS TO BE RECALCULATED IN THE CORRECT WAY SINCE THE INCEPTION OF THE BOARD AS ON 1 ST APRIL OF EACH FINANCIAL YEAR THEREAFTER TILL 01/04/2004. 2) WDV OF THE VARIOUS BLOCK OF ASSETS TO BE RECALCU LATED IN THE CORRECT WAY SINCE THE INCEPTION OF THE BOARD AS PER SEC. 43(1) OF THE IT ACT FOR THE CORRECT CALCULATION OF DEPRECIATION AND AS ON 1 ST APRIL, OF EACH FINANCIAL YEAR THEREAFTER TILL 01/04/2004. 3) TO AUDIT HMWSSB FOR THE AY 2004-05 AND DRAWN THE ACCOUNTS ON MERCANTILE BASIS FOR THE AY 2004-05. ITA NO.2047/HYD/11 HYDERABAD METROPOLITAN WATER SUPPLY & SEWERAGE BOAR D. 7 4) TO SUBMIT THE REPORT IN THE PRESCRIBED PROFORMA U/S 142(2A) OF THE INCOME TAX ACT. 12. ON APPEAL BEFORE THE CIT(A), THE ASSESSEE OBJE CTED TO REFERENCE TO SPECIAL AUDIT ON THE GROUND THAT THERE WAS A VIOLATION OF PROVISIONS OF IT ACT IN DIRECTING THE SPECIAL AU DIT TO ARRIVE AT THE WDV RIGHT FROM 01/04/1989. THE CIT(A) HELD THAT THE OBJECTION RAISED BY THE ASSESSEE IS NOT SUSTAINABLE . 13. THE SPECIAL AUDIT REPORT AFTER EXAMINING THE DO CUMENTS PRODUCED BY THE ASSESSEE OBSERVED AS UNDER: FROM THE ABOVE IT IS CLEAR THAT WHEN THE GRANT IS D IRECTLY ATTRIBUTABLE TO A PARTICULAR ASSET/PROJECT, THEN IT IS TO BE DEDUCTED WHOLLY FROM THAT PARTICULAR ASSET/PROJECT. FURTHER, IT IS OBSERVED THAT THE ASSESSEE HAS NEITHER FOLLOW ED THE ACCOUNTING STANDARDS NOR ADHERED TO THE DEFINITION OF COST AS PER THE PROVISIONS OF THE INCOME TAX ACT, 1961. 14. THE CIT(A) HELD AS FOLLOWS:- 6.5 IN VIEW OF THE ABOVE CATEGORICAL REPORT OF THE SPECIAL AUDIT, IT WAS CLEAR THAT THE OPENING WDV AS PER THE RETURN OF INCOME FILED FOR THE AY 2003-04 COULD NOT HAVE BEEN TREATED AS CORRECT WDV OF THE ASSETS. ON THE OTHER HAND, TH E SPECIAL AUDIT DETERMINED THE COST OF ASSETS RIGHT FROM THE INCEPTION OF THE BOARD, I.E. 1989 ONWARDS, AND THEREBY ARRIVE D AT THE WDV AS ON 01/04/2002. THE AVAILABLE DEPRECIATION AS PER THE IT ACT, 1961 WAS ALSO DETERMINED. ACCORDINGLY, NO INFIRMITY CAN BE FOUND IN ADOPTION OF THE CORRECT W DV AS ARRIVED AT IN THE SPECIAL AUDIT REPORT, AS AGAINST THE WDV AS PER THE ASSESSMENT ORDER U/S 143(3) FOR THE AY 2003 -04, WHICH HAD INDEED BEEN FOUND TO BE CORRECT. 15. FURTHER, THE CIT(A) OBSERVED THAT THE ASSESSEE HAS NOT FURNISHED ANY FURTHER INFORMATION OR EVIDENCE TO PR OVE THAT THE GRANTS RECEIVED FROM THE GOVERNMENT WERE NOT UTILIZ ED FOR ACQUISITION OF ASSETS OR HAVE SHOWN THAT THE GRANTS WERE UTILIZED FOR ANY OTHER PURPOSE. THE CIT(A) ALSO HELD THAT TH E BOOKS OF ACCOUNT OF THE ASSESSEE ITSELF WERE FOUND TO BE INC ORRECT AND THE WDV OF VARIOUS ASSETS HAVE NOT BEEN CORRECTLY TAKEN IN THE BOOKS ITA NO.2047/HYD/11 HYDERABAD METROPOLITAN WATER SUPPLY & SEWERAGE BOAR D. 8 WHEREAS THE WDV WAS CALCULATED BY THE SPECIAL AUDIT CONSIDERING THE FACTS RIGHT FROM 01/04/1989 AND ALSO CONSIDERIN G THE ALLOWABLE DEPRECIATION. THE CIT(A) CONFIRMED THE OR DER OF THE AO. 16. WE HAVE HEARD THE ARGUMENTS OF BOTH THE PARTIES AND PERUSED THE RECORD. THE LEARNED COUNSEL FOR THE ASS ESSEE SHRI K. VASANT KUMAR SUBMITTED THAT THE AO HAD REFERRED THE CASE TO SPECIAL AUDIT ON THE GROUND THAT THE GRANTS RECEIVE D BY THE ASSESSEE FROM THE GOVERNMENT WERE TO BE REDUCED FRO M THE COST OF THE ASSET TO ARRIVE AT THE WDV, HOWEVER, THE AO NOWHERE DEMONSTRATED THAT GRANTS RECEIVED HAD GONE INTO ACQ UISITION OF ASSETS. THE LEARNED COUNSEL FOR THE ASSESSEE CONTEN DED THAT MERELY BECAUSE THE ASSESSEE IS IN RECEIPT OF GRANTS , THE AO CAME TO SUCH A CONCLUSION AND DIRECTED A SPECIAL AUDIT T O ARRIVE AT THE WDV AFTER EXCLUDING THE GRANTS. THE LEARNED COUNSEL ARGUED THAT AS PER THE PROVISIONS OF LAW, ONLY WHEN THE COST OF THE ASSET IS MET DIRECTLY OR INDIRECTLY BY OTHERS THAT THE SAME IS TO BE REDUCED, AND NOT OTHERWISE. HE CONTENDED THAT NONE OF THE GRANTS WERE GIVEN IN SUCH A MANNER AS TO HOLD THAT THEY HA D GONE INTO ACQUISITION OF ASSETS. THE LEARNED COUNSEL AVERRED THAT THE ASSESSEE HAD FILED COPIES OF G.O.S THROUGH WHICH GR ANTS WERE RECEIVED TO DEMONSTRATE THIS FACT. HE POINTED OUT T HAT BOTH AO AND CIT(A) DID NOT GIVE ANY FINDING ON THE SAME. IT IS NOT CLEAR THAT THE GRANT IS DIRECTLY ATTRIBUTABLE TO THE ASSE T FOR IT TO BE DEDUCTED WHOLLY FROM THE PARTICULAR ASSET. IT WAS C ONTENDED BY THE LEARNED COUNSEL FOR THE ASSESSEE THAT REDUCING THE GRANT FROM THE COST OF THE ASSET TO ARRIVE AT WDV WAS NOT CORR ECT. 17. IT WAS ALSO CONTENDED BY THE LEARNED COUNSEL FO R THE ASSESSEE SHRI VASANT KUMAR THAT THERE WAS A CLEAR V IOLATION OF THE PROVISIONS OF THE IT ACT BY THE AO IN DIRECTING THE SPECIAL AUDIT TO ARRIVE AT THE WDV RIGHT FROM 01/04/1989. H E MENTIONED ITA NO.2047/HYD/11 HYDERABAD METROPOLITAN WATER SUPPLY & SEWERAGE BOAR D. 9 THAT UNDISPUTEDLY THE ASSESSEE WAS NOT A TAXABLE EN TITY TILL THE AY 2002-03. IT BECAME A TAXABLE ENTITY ONLY FROM THE A Y 2003-04. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT FOR SUCH CASES THE PROVISIONS OF EXPLANATION 6 TO SECTION 43 (6)(C) APPLY. SUBMITTING THAT THE ABOVE PROVISIONS WAS INTRODUCED WITH RETROSPECTIVE EFFECT ONLY FOR THE ASSESSEE OF THE A SSESSEES TYPE, AND AS PER THE SAME THE WDV FOR THE AY 2003-04 SHOU LD BE AS PER THE BOOKS OF ACCOUNTS OF THE ASSESSEE AND NOT A S ARRIVED AT BY THE SPECIAL AUDIT FROM 01/04/1989. HE ARGUED THA T THE AO IGNORED THIS PROVISION TOTALLY, DIRECTED THE SPECIA L AUDIT, AND LATER ADOPTED THE SAME AS WDV. HE FURTHER MAINTAINED THAT THE ACTION OF THE AO IN NOT ADOPTING THE WDV, AS ARRIVED AT FO R THE AY 2003- 04 IN THE ORDER U/S 143(3) AFTER SCRUTINY, AND FUR THER NOT ALLOWING SET OFF OF DETERMINED LOSSES IS CONTRARY T O THE PROVISIONS OF LAW. THE LEARNED COUNSEL FOR THE ASSESSEE CLARIF IED THAT THE ASSESSMENT FOR AY 2003-04 HAD BEEN COMPLETED AT THE TIME WHEN THE PROVISIONS TO EXPLANATION (VI) TO SECTION 43(6) (C) HAD NOT BEEN INSERTED WITH RETROSPECTIVE EFFECT. 18. IN THESE CIRCUMSTANCES, IN OUR OPINION, SINCE C IT(A) HAS NOT EXAMINED AS TO WHETHER THE GRANTS RECEIVED FROM THE GOVERNMENT WERE USED IN ACQUIRING THE ASSETS, BUT, HAS UPHELD THE DEPRECIATION WORKED OUT BY THE SPECIAL AUDIT AFTER REDUCING SUCH GRANTS TO ARRIVE AT WDV. FURTHER, THE CIT(A) HAS AL SO NOT APPRECIATED THAT THE PROVISIONS OF EXPLANATION 6 TO SUBSECTION 6 OF SECTION 43 WITH RETROSPECTIVE EFFECT WHICH WILL APPLY TO THE ASSESSEE WHERE THE INCOME IS NOT TAXABLE PRIOR TO A Y 2003-04 TO ADOPT THE BOOK VALUE AS WDV. IT WAS ALSO BROUGHT TO OUR NOTICE THAT THE SPECIAL AUDIT ALSO HAS CONSIDERED THE WDV FROM THE BOOKS OF THE ASSESSEE AS ON 01/04/1989, WHICH WAS A DOPTED BY THE AO AND THE AO HAD REDUCED THE GRANTS FROM SUCH WDV. ITA NO.2047/HYD/11 HYDERABAD METROPOLITAN WATER SUPPLY & SEWERAGE BOAR D. 10 19. IN THESE CIRCUMSTANCES, WE DEEM IT FIT AND PRO PER TO RESTORE THE ISSUE TO THE FILE OF THE CIT(A) TO DECIDE THE I SSUE AFTER ANALYSING THE RECEIPT OF GRANTS AND SECONDLY THE IM PLICATION ON THE PROVISIONS OF LAW BY THE INTRODUCTION OF EXPLAN ATION 6 TO SUBSECTION 6 OF SECTION 43 WITH RETROSPECTIVE EFFEC T, KEEPING IN MIND THAT THE INCOME OF THE ASSESSEE WAS NOT TAXABL E PRIOR TO 2003-04. IT IS NEEDLESS TO SAY THAT THE CIT(A) SHAL L PROVIDE A REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. 20. IN THE RESULT, APPEAL OF THE ASSESSEE IS TREATE D AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 6 TH AUGUST, 2012. SD/- SD/- ( CHANDRA POOJARI) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEM BER HYDERABAD, DATED: 6 TH AUGUST, 2012. KV COPY TO:- 1) M/S HYDERABAD METROPOLITAN WATER SUPPLY & SEWERAGE BOARD, C/O K. VASANTKUMAR & A.V. RAGHURAM, ADVOCATES, 610, 6 TH FLOOR, BABUKHAN ESTATE, BASHEERBAGH, HYDERABAD 500 001. 2) ADDL.CIT, RANGE 6, , HYDERBAD 3) THE CIT (A)-IV, HYDERABAD 4) THE CIT-III, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDERABA D.