AJMER VIDHYUT VITRAN NIGAM LTD., Ajmer V. ACIT, Ajmer

ITA 306/JPR/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 2130 (ITAT-JAIPUR)
• Duration Of Justice: 1 year(s) 4 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-08-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2002-2003
• Appeal Filed On: 04-04-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R A VERMA; VERINDER MEHTA
• Keywords: Capital asset; Business income; Depreciation; Deemed to accrue or arise in india; Advance ruling; Cost of acquisition; Capital receipt
• Section: 115JB; 32; 11

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S, JAIPUR JH DQY HKKJR] U;KF;D LNL; ,OA JH FOE FLAG ;KNO] YS [KK LNL; DS LE{K BEFORE: SHRI KUL BHARAT, JM & SHRI VIKRAM SINGH YAD AV, AM VK;DJ VIHY LA-@ ITA NO. 306/JP/16 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2002-03 M/S AJMER VIDYUT VITRAN NIGAM LTD., VIDYUT BHAWAN, PANCHSHEEL NAGAR, MAKARWALI ROAD, AJMER. CUKE VS. THE ACIT CIRCLE - 2 AJMER. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN NO.: AACCA8562E VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT VK;DJ VIHY LA-@ ITA NO. 307/JP/16 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2003-04 M/S AJMER VIDYUT VITRAN NIGAM LTD., VIDYUT BHAWAN, PANCHSHEEL NAGAR, MAKARWALI ROAD, AJMER. CUKE VS. THE ACIT CIRCLE - 2 AJMER. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN NO.: AACCA8562E VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT VK;DJ VIHY LA-@ ITA NO. 308/JP/16 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2006-07 M/S AJMER VIDYUT VITRAN NIGAM LTD., VIDYUT BHAWAN, PANCHSHEEL NAGAR, MAKARWALI ROAD, AJMER. CUKE VS. THE ACIT CIRCLE - 2 AJMER. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN NO.: AACCA8562E VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRHDH VKSJ LS@ ASSESSEE BY : SHRI SUNIL PORWAL JKTLO DH VKSJ LS@ REVENUE BY : SHRI VERINDER MEHTA AND SHRI R.A .VERMA (ADDL.CIT ) ITA NO. 306 TO 308/JP/16 AJMER VIDYUT VITRAN NIGAM VS. ACIT,AJMER 2 LQUOKBZ DH RKJH[K@ DATE OF HEARING : 01/08/2017 ?KKS'K .KK DH RKJH[K @ DATE OF PRONOUNCEMENT: 09/08/2017. VKNS'K@ ORDER PER BENCH THESE ARE THREE APPEALS FILED BY THE ASSESSEE AGAIN ST THE LEVY OF PENALTY U/S 271(1)(C) OF THE ACT WHICH HAS BEEN CON FIRMED BY THE LD. CIT(A), AJMER VIDE HIS ORDERS OF EVEN DATE 28.01.2016 FOR A .Y. 2002-03, 2003-04 &2006-07 RESPECTIVELY. 2. AT THE OUTSET, THE LD. AR SUBMITTED THAT ALL THE TH REE APPEALS INVOLVED THE TWO COMMON ISSUES ON WHICH PENALTY HAVE BEEN LE VIED. THE FIRST ISSUE RELATES TO LEVY OF PENALTY ON DEPRECIATION DISALLOW ED ON NON-EXISTING ASSETS. THE SECOND ISSUE RELATES TO LEVY OF PENALTY ON DEPR ECIATION DISALLOWED UNDER SECTION 32(1)(III) READ WITH 43 (1) AND EXPLANATION 10 THERETO. LEVY OF PENALTY ON DEPRECIATION DISALLOWED ON NON-E XISTING ASSETS 3. THE LD. AR SUBMITTED THAT AS FAR AS THE FIRST ISSUE CONCERNING DEPRECIATION ON NON EXISTING ASSETS IS CONCERNED, T HE SAME HAS BEEN DECIDED IN QUANTUM PROCEEDINGS IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL VIDE ITS CONSOLIDATED ORDER DATED 14.07.2016. IT WAS ACCORDI NGLY SUBMITTED THAT SINCE THE ADDITION HAS BEEN DELETED BY THE TRIBUNAL IN TH E QUANTUM PROCEEDINGS, THE NECESSARY RELIEF MAY BE GRANTED IN TERMS OF CON SEQUENT LEVY OF PENALTY. 4. THE RELEVANT FINDING OF THE COORDINATE BENCH IN ITA NO. 283/JP/2009 AND OTHERS DATED 14.07.2016 ARE AS UNDER:- 9. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. WE HA VE HEARD THE MATTER ON 16/6/2016. DURING THE COURSE OF HEARING, IT WAS SUBMITTED ON BEHALF OF THE ASSESSEE THAT THE ERSTWHILE RAJASTHAN STATE ELECTRICITY BOARD WAS ITA NO. 306 TO 308/JP/16 AJMER VIDYUT VITRAN NIGAM VS. ACIT,AJMER 3 NOT ASSESSABLE TO INCOME TAX AND THEREFORE, IT WAS NOT FILING THE INCOME TAX RETURN. HOWEVER, THEREAFTER ON GOING THROUGH TH E RECORD AND THE JUDGMENT PASSED BY THE HON'BLE HIGH COURT AND HON'B LE SUPREME COURT, IT TRANSPIRES THAT THE RAJASTHAN STATE ELECT RICITY BOARD IS AN TAXABLE ENTITY AND THEREFORE THE MATTER WAS FIXED F OR HEARING ON 29/6/2016 FOR THE PURPOSES OF CLARIFICATION. ON 29/ 6/2016, THE LD AR ALONGWITH REPRESENTATIVES OF THE ASSESSEE WERE PRES ENT IN THE COURT. LD AR SUBMITTED THAT THE BOARD HAVE FILED THE RETURN O F INCOME FOR THE ASSESSMENT YEAR 2001-02 AND HAVE ALSO PROVIDED THE CHART FOR DEPRECIATION IN RESPECT OF FIXED ASSETS OF THE ASSE SSEE. 9.1 EVEN OTHERWISE SECTION 80 OF THE ELECTRICITY SU PPLY ACT, 1948 PROVIDES AS UNDER:- 80. PROVISION RELATING TO INCOME TAX AND SUPER TAX .- (1) FOR THE PURPOSES OF THE INDIAN INCOME-TAX ACT, 1922 (XI OF 1922), 4 THE BOARD SHALL BE DEEMED TO BE A COMPANY WITHIN THE MEANING OF THAT ACT AND SHALL BE LIABLE TO INCOME T AX AND SUPER TAX ACCORDINGLY ON ITS INCOME, PROFITS AND GAINS. (2) THE STATE GOVERNMENT SHALL NOT BE ENTITLED TO A NY REFUND OF ANY SUCH TAXES PAID BY THE BOARD. IN VIEW OF THE SPECIFIC PROVISIONS UNDER THE ELECTR ICITY SUPPLY ACT, 1948, A BOARD CONSTITUTED UNDER THE SAID ACT AND THE BOAR D IS LIABLE TO PAY TAX UNDER THE PROVISIONS OF INCOME TAX ACT, 1961 AND TH EREFORE, THE BOARD WAS REQUIRED TO FILE INCOME TAX RETURN AND THE JUDG MENT PASSED BY THE HONBLE RAJASTHAN HIGH COURT IN THE CASE OF RAJASTH AN STATE ELECTRICITY BOARD VS. DCIT (1993) 200 ITR 434 CLEARLY DEALS THA T THE RAJASTHAN STATE ELECTRICITY BOARD IS A GOVERNMENT COMPANY ASS ESSABLE UNDER THE I.T. ACT. FURTHER IN THE MATTER OF CIT VS. RAJASTHA N STATE ELECTRICITY BOARD (2007) 160 TAXMAN 19, THE HONBLE JURISDICTIO NAL HIGH COURT HAS DEALT RAJASTHAN STATE ELECTRICITY BOARD AS A GOVERN MENT COMPANY AND IS ALSO SUBJECT TO THE RIGOROUS OF THE INCOME TAX ACT. THEREFORE, WE ARE OF THE VIEW THAT THE RAJASTHAN STATE ELECTRICITY BOARD WAS A GOVERNMENT COMPANY AND WAS SUBJECT TO THE INCOME TAX ACT. 9.2 SINCE THE RAJASTHAN STATE ELECTRICITY BOARD WAS A GOVERNMENT UNDERTAKING AND WAS AN INCOME TAX ENTITY, THEREFORE , IT WAS HAVING ITA NO. 306 TO 308/JP/16 AJMER VIDYUT VITRAN NIGAM VS. ACIT,AJMER 4 BLOCK OF ASSETS AND FIXED ASSETS. ADMITTEDLY BY THE GAZETTE NOTIFICATION DATED 18/1/2002, THE RAJASTHAN STATE ELECTRICITY BO ARD WAS DIVIDED INTO FIVE UNDERTAKINGS AND THE TOTAL ASSETS OF THE RAJAS THAN STATE ELECTRICITY BOARD WERE DIVIDED IN VARIOUS COMPANIES AND THE GRO SS FIXED ASSETS OF RS. 1029 CRORES CAME TO THE SHARE OF THE ASSESSEE. IT IS THE CONTENTION OF THE LD AR THAT IT IS NOT POSSIBLE FOR THE ASSESS EE TO PHYSICALLY VERIFY THE INDIVIDUAL ASSETS AS SOUGHT BY THE LD ASSESSING OFFICER AS THE FIXED ASSETS TRANSFERRED TO THE ASSESSEE WERE FORMING PAR T OF THE BLOCK OF ASSETS PRIOR TO ITS TRANSFER WITH THE RACB. AS PER THE BALANCE SHEET OF THE RAJASTHAN STATE ELECTRICITY BOARD, THE ALLOWABL E DEPRECIATION UP TO 19/7/2000 WAS MENTIONED AS RS.1,04,82,30,121/-.SINC E BLOCK OF ASSETS WERE TRANSFERRED TO THE ASSESSEE, THEREFORE, THE IN SISTENCE OF THE LD ASSESSING OFFICER FOR PHYSICAL VERIFICATION OF THE ASSETS FOR THE PURPOSES OF DEPRECIATION, IN OUR VIEW, WAS NOT WARRANTED. IN OUR VIEW, ONCE THE ASSETS ARE FORMING PART AND PARCEL OF THE BLOCK OF ASSETS, WHICH WERE TRANSFERRED TO THE ASSESSEE FROM RAJASTHAN STATE EL ECTRICITY BOARD, THE PHYSICAL VERIFICATION FOR THE PURPOSES OF DEPRECIAT ION MAY NOT BE REQUIRED AND THEREFORE, THE ASSESSEE IS ENTITLED TO DEPRECIATION ON THE WRITTEN DOWN VALUE OF THE ASSETS A PER INCOME TAX A CT 1961, SUBSEQUENT TO THE TRANSFER FROM THE ASSETS FROM RAJ ASTHAN STATE ELECTRICITY BOARD. 9.3 IT IS AN ADMITTED CASE THAT THE ASSESSEE COMPAN Y WAS CONSTITUTED UNDER THE ACT OF RAJASTHAN AND UNDER THE STATUTORY TRANSFER SCHEME, THEREFORE, IN VIEW OF SECTION 43 OF THE ACT, TRANSF ER OF ASSETS HAD BEEN FALL WITHIN THE REALM OF TRANSFER AS ENVISAGED UNDE R THE ACT. AS PER EXPLANATION-6 OF SECTION 43(1), THE ACTUAL BASIS OF TRANSFEREE COMPANY WOULD HAVE TO BE WRITTEN DOWN VALUE OF THE TRANSFER OR COMPANY MEANING THEREBY THE BLOCK OF ASSETS, WHICH WAS TRAN SFERRED BY THE RAJASTHAN ELECTRICITY BOARD WITH THE ORIGINAL COST OF ACQUISITION, SHALL BE DETERMINED THE WRITTEN DOWN VALUE FOR THE ASSESSEE COMPANY. THE HONBLE DELHI HIGH COURT IN THE CASE OF DALMIA CERA MIC INDUSTRIES LTD. VS. CIT (2005) 277 ITR 219 HAS HELD THAT WHAT WOUL D BE THE ACTUAL COST OF THE TRANSFEREE COMPANY ON THE DATE OF TRANS FER IS INDICATED IN SECTION 43(1), EXPLANATION-6, THUS THE ACTUAL COST OF TRANSFEREE COMPANY WILL BE WRITTEN DOWN VALUE OF THE HOLDING C OMPANY. ITA NO. 306 TO 308/JP/16 AJMER VIDYUT VITRAN NIGAM VS. ACIT,AJMER 5 9.4 SINCE THE ORIGINAL COST OF ACQUISITION OF THE T RANSFEROR COMPANY, IS DETERMINED, SIMILARLY, THE WRITTEN DOWN VALUE OF TH E TRANSFEROR COMPANY IS ALSO AVAILABLE WITH THE ASSESSING OFFICER, THERE FORE, THE LD ASSESSING OFFICER WAS ONLY REQUIRED TO ALLOW THE APPLICATION DEPRECIATION ON THE WRITTEN DOWN VALUE OF THE ASSETS ACQUIRED BY THE AS SESSEE FROM THE TRANSFEROR COMPANY (RACB). THE RELEVANT PORTION OF THE JUDGMENT 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 COS T OF THE ASSESSEE OR THE AMOUNT PAID BY THE ASSESSEE TO THE HOLDING COMPANY? CHAPTER IV OF THE ACT REFERS TO COMPUTATIO N OF BUSINESS INCOME AND SECTION 43 IS REQUIRED TO BE EXAMINED FOR THE PURPOSE OF DECIDING THIS MATTER. SECTION 43(1) OF THE ACT WH ICH DEFINES ACTUAL COST READS AS UNDER: ' (1) ' ACTUAL COST' MEANS THE ACTUAL COST OF THE A SSETS TO THE ASSESSEE, REDUCED BY THAT PORTION OF THE COST THEREOF, IF ANY , AS HAS BEEN MET DIRECTLY OR INDIRECTLY BY ANY OTHER PERSON OR A UTHORITY : PROVIDED THAT WHERE THE ACTUAL COST OF AN ASSET, B EING A MOTOR-CAR WHICH IS ACQUIRED BY THE ASSESSEE AFTER THE 31ST DAY OF MARCH, 1967 BUT BEFORE THE 1ST DAY OF MARCH, 1975, AND IS USED O THERWISE THAN IN A BUSINESS OF RUNNING IT ON HIRE FOR TOURIS TS, EXCEEDS TWENTY-FIVE THOU SAND RUPEES, THE EXCESS OF THE ACT UAL COST OVER SUCH AMOUNT SHALL BE IGNORED, AND THE ACTUAL COST T HEREOF SHALL BE TAKEN TO BE TWENTY-FIVE THOUSAND RUPEES.' 9. WHAT IS WRITTEN DOWN VALUE IS DEFINED IN CLAUSE (6) OF SECTION 43 WHICH READS AS UNDER : ' ' WRITTEN-DOWN VALUE' MEANS (A) IN THE CASE OF ASSETS ACQUIRED IN THE PREVIOUS YEAR, THE ACTUAL COST TO THE ASSESSEE ; (B) IN THE CASE OF ASSETS ACQUIRED BEFORE THE PREV IOUS YEAR, THE ACTUAL COST TO THE ASSESSEE LESS ALL DEPRECIATION A CTUALLY ALLOWED TO HIM UNDER THIS ACT, OR UNDER THE INDIAN INCOME-TAX ACT, 1922 (11 OF 1922), OR ANY ACT REPEALED BY THAT ACT, OR UNDER AN Y EXECUTIVE ORDERS ISSUED WHEN THE INDIAN INCOME-TAX ACT, 1886 (2 O F 1886), WAS IN FORCE.' 10. IT MAY BE NOTED THAT SUB-CLAUSE (A) OF CLAUSE (6 ) WOULD NOT APPLY IN THE INSTANT CASE AS THAT WOULD APPLY FOR THE ASS ESSMENT YEAR ITA NO. 306 TO 308/JP/16 AJMER VIDYUT VITRAN NIGAM VS. ACIT,AJMER 6 1975-76. SUB- CLAUSE (B) CLEARLY INDICATES THAT THE WRIT TEN DOWN VALUE MEANS THE ACTUAL COST TO THE ASSESSEE LESS AL L DEPRECIATION ACTUALLY ALLOWED TO HIM UNDER THE ACT. IN THE INSTA NT CASE EXPLANATION 2 TO CLAUSE (6) OF SECTION 43 IS RELEVANT AND IS REPRODUCED HEREUNDER : ' EXPLANATION 2.WHEN ANY CAPITAL ASSET IS TRANSFE RRED BY A HOLD- ING COMPANY TO ITS SUBSIDIARY COMPANY OR BY A SUBSI DIARY COMPANY TO ITS HOLDING COMPANY, THEN, IF THE CONDIT IONS OF CLAUSE (IV), OR, AS THE CASE MAY BE, OF CLAUSE (V) OF SECT ION 47, ARE SATISFIED, THE WRITTEN DOWN VALUE OF THE TRANSFERRE D CAPITAL ASSET TO THE TRANSFEREE-COMPANY SHALL BE TAKEN TO BE THE SAM E AS IT WOULD HAVE BEEN IF THE TRANSFEROR-COM PANY HAD CONTINUED TO HOLD THE CAPITAL ASSET FOR THE PURPOSE OF ITS BUSINESS.' 11. THERE IS NO DISPUTE THAT THE CASE FALLS UNDER CL AUSE (IV) OF SECTION 47. THEREFORE, IT IS CLEAR THAT THE ACTUAL COST WOULD BE THE WRITTEN DOWN VALUE OF THE TRANSFEROR-COMPANY. THIS ASPECT I S 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 TRANSFER RED BY A HOLD ING COMPANY TO ITS SUBSIDIARY COMPANY, OR BY A SUBS IDIARY COMPANY TO ITS HOLDING COMPANY, THEN, IF THE CONDIT IONS OF CLAUSE (IV) OR, AS THE CASE MAY BE, OF CLAUSE (V) OF SECTI ON 47 ARE SATISFIED, THE ACTUAL COST OF THE TRANSFERRED CAPIT AL ASSET TO THE TRANSFEREE-COMPANY SHALL BE TAKEN TO BE THE SAME AS IT WOULD HAVE BEEN IF THE TRANSFEROR-COMPANY HAD CONTINUED T O HOLD THE CAPITAL ASSET FOR THE PURPOSES OF ITS BUSINESS.' 12. IT IS CLEAR THAT WHAT WOULD BE THE ACTUAL COST T O THE TRANSFEREE COMPANY ON THE DATE OF TRANSFER IS INDICATED IN SEC TION 43(1), EXPLANATION 6. THUS, THE ACTUAL COST TO THE TRANSFER EE-COMPANY WILL BE THE WDV OF THE HOLDING COMPANY (TRANSFEROR- COMPANY). 13. THE ASSESSEE BASED ITS SUBMISSION RELYING ON MAH ARANA 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 HAS ALSO RELIED ON CIBA OF INDIA LTD. V. CIT [1993] 202 ITR 1 (BOM) AS ALSO ON CIT V. HIDES AND LEATHER PRODUCTS P. LTD. [1975] 101 ITR 61 (GUJ). IT IS REQUIRED TO BE NOTED THAT THE REVENUE AS WELL AS THE ASSESSEE PLACED RELIANCE ON THE DECISION OF THE APEX COURT I N THE CASE OF SAHARANPUR ELECTRIC SUPPLY CO. LTD. V. CIT [1992] 194 ITR 294 . THE APEX COURT CONSIDERED THE DECISIONS IN MAHARANA MIL LS P. LTD. V. ITA NO. 306 TO 308/JP/16 AJMER VIDYUT VITRAN NIGAM VS. ACIT,AJMER 7 ITO [1959] 36 ITR 350 (SC) AND CIT V. HIDES AND LEATHER PRODUCTS P. LTD. [1975] 101 ITR 61 (GUJ) AMONGST OTHER CASES. THE APEX COURT AFTER EXAMINING THE PROVISIONS IN DETAIL POIN TED OUT AT PAGE 315 AS UNDER : ' EXPLANATION 6 OFFERS NO DIFFICULTY AS THE RELATIO NSHIP OF ' PARENT' AND ' SUBSIDIARY' BETWEEN THE COMPANIES INVOLVED IN THE TRANSFER, FOR THE PURPOSES OF THIS CLAUSE, HAS TO BE DETERMIN ED AS AT THE TIME OF THE TRANSFER OF THE ASSET AND WILL NOT BE A WOBBLING OR FLUCTUATING ONE AS SUGGESTED BY COUNSEL FOR THE ASS ESSEE. . .' 14. THUS IN VIEW OF EXPLANATION 6 THE WRITTEN DOWN V ALUE OF THE HOLDING COMPANY IS REQUIRED TO BE TAKEN INTO CONSID ERATION. 15. LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE DIFFERENCE BETWEEN THE WDV AND THE PRICE RECEIVED FOR THE PROP ERTY HAS BEEN TAXED IN THE HANDS OF THE HOLDING COMPANY IN T HE RELEVANT ASSESSMENT YEARS AND THERE IS NO DISPUTE ON THIS IS SUE. IN VIEW OF THIS, IT WAS SUBMITTED THAT THE REVENUE CANNOT HAVE TAX BENEFIT AT BOTH THE PLACES, NAMELY, IN THE HANDS OF THE PARENT COMPANY AND AT THE HANDS OF THE ASSESSEE. IT WAS THUS SUBMITTED THAT THERE IS NO EVASION OF TAX. 16. ON BEHALF OF THE ASSESSEE IT WAS CONTENDED THAT ACTUAL COST IS NOT STATIC AND IT IS REQUIRED TO BE DETERMINED YEAR TO YEAR. NO DOUBT THERE MAY BE A SITUATION WHICH MAY REQUIRE THE ASSE SSING OFFICER TO EXAMINE THE CASE AND RE-DETERMINE THE ACTUAL COS T. IN FACT THE APEX COURT HAS CONSIDERED THIS ASPECT AT PAGE 306 AND POINTED OUT INSTANCES. THE APEX COURT AT PAGE 309 (SEE [1992] 194 ITR) AS UNDER: 'IN PRINCIPLE, THEREFORE, WE ARE UNABLE TO ACCEPT THE CONTENTION THAT THE ACTUAL COST CANNOT BE DETERMINED YEAR AFTE R YEAR ON THE FACTUAL OR LEGAL POSITION APPLICABLE FOR THE RELEVA NT PREVIOUS YEAR AND THAT THE ACTUAL COST ONCE DETERMINED CANNOT BE ALTERED EXCEPT IN THE THREE SITUATIONS OUTLINED BY COUNSEL WHERE T HE ORIGINAL FIGURE ITSELF REQUIRES A MODIFICATION.' 9.5 IN VIEW THEREOF, THIS GROUND OF THE ASSESSEES APPEAL IS ALLOWED. 5. IN LIGHT OF ABOVE, GIVEN THE FACT THAT THE D ISALLOWANCE OF DEPRECIATION ON NON-EXISTING FIXED ASSETS HAS BEEN DELETED BY THE C OORDINATE BENCH IN ALL THE THREE YEARS UNDER CONSIDERATION ARE CONCERNED, THE VERY BASIS FOR LEVY OF ITA NO. 306 TO 308/JP/16 AJMER VIDYUT VITRAN NIGAM VS. ACIT,AJMER 8 PENALTY DOESNT STAND. ACCORDINGLY, THE LEVY OF PEN ALTY UNDER SECTION 271(1)(C) IS DELETED IN RESPECT OF ALL THE THREE YEARS UNDER CONSIDERATION. LEVY OF PENALTY ON DEPRECIATION DISALLOWED UNDER SE CTION 32(1)(III) READ WITH 43 (1) AND EXPLANATION 10 THERETO. 6. NOW COMING TO THE SECOND COMMON GROUND WHERE THE PENALTY HAS BEEN LEVIED IN ALL THE THREE YEARS IN RELATION TO DISALL OWANCE DEPRECIATION U/S 32(1)(III) READ WITH SECTION 43(1) OF THE ACT. IN THIS REGARD, THE LD. AR FAIRLY SUBMITTED THAT THE TRIBUNAL IN THE QUANTUM PROCEEDI NGS VIDE ITS ABOVE SAID ORDER DATED 14.07.2016 HAS DECIDED THE MATTER AGAIN ST THE ASSESSEE. AT THE SAME TIME, HE SUBMITTED THAT SINCE THE ADDITION HAS BEEN MADE AND CONFIRMED BY THE TRIBUNAL UNDER THE NORMAL PROVISIO NS OF THE ACT AND THE TAX LIABILITY HAS BEEN DETERMINED UNDER THE MAT PROVISI ONS, THE LEVY OF PENALTY IS NOT JUSTIFIED IN LIGHT OF THE CBDT CIRCULAR NO. 25/ 2015 DATED 31.12.2015 AND THE DECISION OF HONBLE DELHI HIGH COURT IN CASE OF NALWA SONS INVESTMENT LTD. AND THE SAME MAY KINDLY BE DELETED. THE LD. AR ALSO RELIED ON THE WRITTEN SUBMISSIONS WHICH HAVE BEEN REFERRED IN THE SUBSEQU ENT PARAGRAPHS. 7. FIRSTLY, WE REFER TO THE RELEVANT FINDING OF THE COORDINATE BENCH IN ITA NO. 283/JP/2009 AND OTHERS DATED 14.07.2016 IN THE QUANTUM PROCEEDINGS WHICH ARE REPRODUCED AS UNDER:- 14. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH TH E PARTIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. DURIN G THE COURSE OF ARGUMENT, A POINTED QUERY WAS ASKED FROM THE LD AR, TO WHICH IT WAS FAIRLY STATED THAT THE CONTRIBUTION / GRANT IN THE FORM OF SUBSIDY WERE RECEIVED FROM THE STATE GOVT./OTHER DEPARTMENT TOWA RDS THE COST OF CAPITAL ASSET AND FOR REPLACEMENT OF THE ASSETS. EX PLANATION 10 TO SECTION 43 OF THE ACT PROVIDES AS UNDER:- [EXPLANATION 10.- WHERE A PORTION OF THE COST OF A N ASSET ACQUIRED BY THE ASSESSEE HAS BEEN MET DIRECTLY OR INDIRECTLY B Y THE CENTRAL GOVERNMENT OR A STATE GOVERNMENT OR ANY ITA NO. 306 TO 308/JP/16 AJMER VIDYUT VITRAN NIGAM VS. ACIT,AJMER 9 AUTHORITY ESTABLISHED UNDER ANY LAW OR BY ANY OTHER PERSON, IN THE FORM OF A SUBSIDY OR GRANT OR REIMBURSEMENT (BY WHATEVER NAME CALLED), THEN, SO MUCH OF THE COST AS IS RELATABLE TO SUCH SUBSIDY OR GRANT OR REIMBURSEMENT SHALL NOT BE INCLUDED IN THE ACTUA L COST OF THE ASSET TO THE ASSESSEE : PROVIDED THAT WHERE SUCH SUBSIDY OR GRANT OR REIMBURSEMENT IS OF SUCH NATURE THAT IT CANNOT BE DIRECTLY RELATABLE TO THE ASSET ACQUIRED SO MUCH OF THE AMOUNT WHICH BEARS TO THE TOTAL SUBSIDY OR REIMBURSEMENT OR GRANT THE SAME PROPORTION AS SUCH ASSET BEARS TO ALL THE ASSETS IN RESPECT OF OR WITH REFERENCE TO WHICH THE SUBSIDY OR GRANT OR REIMBURSEMENT IS SO RECEIVED, SHALL NOT BE INCLUDED IN THE ACTUAL COST OF THE ASSET TO THE ASSESSEE. A BARE READING OF THE EXPLANATION 10 OF SECTION 43 OF THE ACT, WHICH CLEARLY PROVIDES THAT WHERE A PORTION OF THE COST O F AN ASSET ACQUIRED BY THE ASSESSEE HAS BEEN MET DIRECTLY OR INDIRECTLY BY THE CENTRAL GOVERNMENT OR A STATE GOVERNMENT IN THE FORM OF A S UBSIDY OR GRANT OR REIMBURSEMENT, THEN, SO MUCH OF THE SUBSIDY OR GRAN T OR REIMBURSEMENT SHALL NOT BE INCLUDED IN THE ACTUAL C OST OF THE ASSET TO THE ASSESSEE. ADMITTEDLY, THE AMOUNT HAS BEEN RECEI VED BY THE ASSESSEE IN THE FORM OF GRANT/REIMBURSEMENT/SUBSIDY FROM THE STATE GOVERNMENT THEREFORE, IN OUR VIEW, THE ORDER PASSE D BY THE LD CIT(A) IS REQUIRED TO BE UPHELD AND THE VALUE OF THE ASSET S SHALL BE TAKEN BY THE LD ASSESSING OFFICER AFTER ADJUSTING THE SUBSIDY/GRANT/REIMBURSEMENT FROM THE STATE GOVT. OR THE OTHER GOVERNMENT DEPARTMENTS. ACCORDINGLY, THIS ISSUE IS DECIDED AGAINST THE ASSESSEE AND IN FAVOUR OF THE REVENUE. 19. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH TH E PARTIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. WE HA VE ALSO GONE THROUGH THE CONTENTION RAISED BY THE ASSESSEE AS WE LL AS THE ORDER PASSED BY THE ADVANCE RULINGS (INCOME TAX), NEW DEL HI. ADVANCE RULINGS (INCOME TAX), NEW DELHI EVEN IN THE MATTER OF JODHPUR VIDYUT VITRAN NIGAM LIMITED, WHICH IS SITUATED ON THE SAME PEDESTAL AS THAT OF THE ASSESSEE, HAVE BEEN ACCEPTED BY THE REVENUE AND THE REVENUE HAS NOT INSISTED FOR APPLICATION OF PROVISIONS OF MAT U /S 115JB OF THE ACT. ITA NO. 306 TO 308/JP/16 AJMER VIDYUT VITRAN NIGAM VS. ACIT,AJMER 10 THEREFORE RESPECTFULLY FOLLOWING THE ORDER PASSED B Y THE ADVANCE RULINGS (INCOME TAX), NEW DELHI AND APPLYING THE SA ME TO THE PRESENT FACTS AND CIRCUMSTANCE OF THE CASE, WE DECIDE THE I SSUES IN FAVOUR OF THE ASSESSEE. WE ALSO HELD THAT THE BENEFIT AS HAS BEEN GIVEN TO JODHPUR VIDYUT VITRAN NIGAM LIMITED UNDER THE PROVI SIONS OF THE ELECTRICITY ACT AND THE COMPANIES ACT BE ALSO EXTEN D IT TO THE ASSESSEE WITHOUT INSISTING FOR THE APPLICATION OF SECTION 11 5JB OF THE ACT IN THE LIGHT OF THE ABOVE, THE ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. ACCORDINGLY, THIS GROUND OF AP PEAL OF THE ASSESSEE IS ALLOWED. 8. ON PERUSAL OF ABOVE ORDER OF THE COORDINATE BE NCH WHICH HAS BEEN RENDERED IN THE CONTEXT OF QUANTUM PROCEEDINGS, IT IS NOTED THAT DISALLOWANCE OF DEPRECIATION INVOKING PROVISIONS OF SECTION 43(1 ) READ WITH EXPLANATION 10 HAS BEEN DECIDED AGAINST THE ASSESSEE WHILE COMPUTI NG THE INCOME UNDER THE NORMAL PROVISIONS OF THE ACT. AT THE SAME TIME, TH OUGH SIMILAR ADJUSTMENT TO BOOK PROFITS HAS BEEN MADE BY THE AO WHILE DETERMIN ING THE TAX LIABILITY UNDER THE PROVISIONS OF MAT U/S 115JB, THE COORDINA TE BENCH, FOLLOWING THE AAR RULING IN CASE OF JODHPUR VIDYUT VITRAN NIGAM L IMITED, HAS HELD THAT THE PROVISIONS OF MAT U/S 115JB ARE NOT APPLICABLE IN C ASE OF ASSESSEE AND HENCE, DECIDED THE MATTER IN FAVOUR OF THE ASSESSEE. NOW, THE POSITION THAT EMERGES IS THAT THERE IS DISALLOWANCE OF DEPRECIATION WHILE DETERMINING THE INCOME UNDER THE NORMAL PROVISIONS OF THE ACT AND THE PROV ISIONS OF MAT ARE HELD NOT APPLICABLE IN THE INSTANT CASE. 9. IN THE ABOVE BACKGROUND, WE NOW REFER TO THE CB DT CIRCULAR NO. 25/2015 DATED 31.12.2015 WHICH IS REPRODUCED AS UND ER:- SUBJECT U/S 271(1)(C) WHEREIN ADDITIONS/DISALLOWAN CES MADE UNDER NORMAL PROVISIONS OF THE INCOME TAX ACT, 1961 BUT TAX LEVI ED UNDER MAT PROVISIONS U/S115JB/115JC, FOR CASES PRIOR TO A.Y. 2016-17-REG .- SECTION 115JB OF THE ACT IS A SPECIAL PROVISION FOR LEVY OF MINIMUM ALTERNATE TAX ON COMPANIES, INSERTED BY FINANCE ACT 2000 WITH EFFECT FROM 1-4-2001. ITA NO. 306 TO 308/JP/16 AJMER VIDYUT VITRAN NIGAM VS. ACIT,AJMER 11 2. UNDER CLAUSE (III) OF SUB-SECTION (1) OF SECTION 271 OF THE ACT, PENALTY FOR CONCEALMENT OF INCOME OR FURNISHING INACCURATE PART ICULARS OF INCOME IS DETERMINED BASED ON THE AMOUNT OF TAX SOUGHT TO BE EVADED WHICH HAS BEEN DEFINED INTER-ALIA, AS THE DIFFERENCE BETWEEN THE TAX DUE ON THE INCOME ASSESSED AND THE TAX WHICH WOULD HAVE BEEN CHARGEAB LE HAD SUCH TOTAL INCOME BEEN REDUCED BY THE AMOUNT OF CONCEALED INCO ME OR INCOME IN RESPECT OF WHICH INACCURATE PARTICULARS HAD BEEN FI LED. 3. IN THIS CONTEXT, HONBLE DELHI HIGH COURT IN ITS JUDGMENT DATED 26.8.2010 IN ITA NO. 1420 OF 2009 IN THE CASE OF NALWA SONS INVE STMENT LTD. (AVAILABLE IN NJRS AS 2010-LL-0826-2), HELD THAT WHEN THE TAX PAY ABLE ON INCOME COMPUTED UNDER NORMAL PROCEDURE IS LESS THAN THE TA X PAYABLE UNDER THE DEEMING PROVISIONS OF SECTION 115JB OF THE ACT, THE N PENALTY UNDER SECTION 271(1)9C) OF THE ACT COULD NOT BE IMPOSED WITH REFE RENCE TO ADDITIONS/DISALLOWANCES MADE UNDER NORMAL PROVISION S. THE JUDGMENT HAS ATTAINED FINALITY. 4. SUBSEQUENTLY, THE PROVISIONS OF EXPLANATION 4 OF SUB-SECTION (1) OF SECTION 271 OF THE ACT HAVE BEEN SUBSTITUTED BY FINANCE ACT , 2015, WHICH PROVIDE FOR THE METHOD OF CALCULATING THE AMOUNT OF TAX SOUGHT TO BE EVADED FOR SITUATIONS EVEN WHERE THE INCOME DETERMINED UNDER T HE GENERAL PROVISIONS IS LESS THAN THE INCOME DECLARED FOR THE PURPOSE OF MA T U/S 115JB OF THE ACT. THE SUBSTITUTED EXPLANATION 4 IS APPLICABLE PROSPEC TIVELY W.E.F. 01.04.2016. 5. ACCORDINGLY, IN VIEW OF THE DELHI HIGH COURT JUD GMENT AND SUBSTITUTION OF EXPLANATION 4 OF SECTION 271 OF THE ACT WITH PROSPE CTIVE EFFECT, IT IS NOW A SETTLED POSITION THAT PRIOR TO 1/4/2016, WHERE THE INCOME TAX PAYABLE ON THE TOTAL INCOME AS COMPUTED UNDER THE NORMAL PROVISION S OF THE ACT IS LESS THAN ITA NO. 306 TO 308/JP/16 AJMER VIDYUT VITRAN NIGAM VS. ACIT,AJMER 12 THE TAX PAYABLE ON THE BOOK PROFITS U/S 115JB OF TH E ACT, THEN PENALTY UNDER 271(1)(C) OF THE ACT, IS NOT ATTRACTED WITH REFEREN CE TO ADDITIONS/DISALLOWANCES MADE UNDER NORMAL PROVISIONS. IT IS FURTHER CLARIFI ED THAT IN CASES PRIOR TO 1.4.2016, IF ANY ADJUSTMENT IS MADE IN THE INCOME C OMPUTED FOR THE PURPOSE OF MAT, THEN THE LEVY OF PENALTY U/S 271(1)(C) OF T HE ACT WILL DEPEND ON THE NATURE OF ADJUSTMENT. 6. THE ABOVE SETTLED POSITION IS TO BE FOLLOWED IN RESPECT OF SECTION 115JC OF THE ACT ALSO. 7. ACCORDINGLY, THE BOARD HEREBY DIRECTS THAT NO AP PEALS MAY HENCEFORTH BE FILED ON THIS GROUND AND APPEALS ALREADY FILED, IF ANY, ON THIS ISSUE BEFORE VARIOUS COURTS/TRIBUNALS MAY BE WITHDRAWN/NOT PRESS ED UPON. THIS MAY BE BROUGHT TO THE NOTICE OF ALL CONCERNED. 10. WE NOW REFER TO THE FINDINGS OF THE LD. CIT(A) WHO HAS CONSIDERED THE IMPACT OF ABOVE-SAID CIRCULAR IN THE INSTANT CASE A ND HAS ALSO REFERRED TO THE DECISION OF THE HONBLE DELHI HIGH COURT IN CASE OF NALWA SONS. THE RELEVANT FINDINGS OF LD CIT(A) ARE REPRODUCED AS UNDER:- 4.3 I HAVE GONE THROUGH THE PENALTY ORDER, STATEME NT OF FACTS, GROUNDS OF APPEAL AND WRITTEN SUBMISSION CAREFULLY. IT IS S EEN THAT ONE OF THE ARGUMENT OF THE APPELLANT IS THAT IN VIEW OF THE CI RCULAR NO. 25/2015 (F. NO. 279/MISC/140/2015/ITJ) OF THE CBDT AND THE DECI SION OF DELHI HIGH COURT IN THE CASE OF M/S NALWA SONS INVESTMENT LTD. VS. CIT (ITA NO. 1420/2009), NO PENALTY U/S 271(1)(C) CAN BE LEVIED UPON THE ASSESSEE AS THE TAX HAS BEEN PAID BY THE ASSESSEE U/S 115JB BECAUSE THE INCOME TAX PAYABLE ON THE TOTAL INCOME AS COMPUTED UNDER T HE NORMAL PROVISIONS OF THE I.T. ACT WAS LESS THAN THE 7.5% O F BOOK PROFIT AND THE BOOKS PROFIT WAS DEEMED TO BE THE TOTAL INCOME OF T HE ASSESSEE AND TAX WAS SHOWN AS PAYABLE BY THE ASSESSEE ON SUCH TOTAL INCOME @ 7.5%. ACCORDING TO THE ASSESSEE, IN VIEW OF THE CIRCULAR NO. 25/2015 OF THE CBDT AND DECISION OF DELHI HIGH COURT IN THE CASE O F M/S NALWA SONS INVESTMENT LTD., REFERRED ABOVE, NO PENALTY U/S 271 (1)(C) CAN BE LEVIED ITA NO. 306 TO 308/JP/16 AJMER VIDYUT VITRAN NIGAM VS. ACIT,AJMER 13 UPON THE ASSESSEE AS THE TOTAL INCOME DEEMED U/S 11 5JB IS MORE THAN THE TOTAL INCOME COMPUTED UNDER THE NORMAL PROVISIO NS OF THE I.T. ACT. I HAVE GONE THROUGH THE JUDGMENT OF DELHI HIGH COUR T AND CIRCULAR REFERRED BY THE APPELLANT CAREFULLY. IN THE JUDGMEN T OF DELHI HIGH COURT REFERRED BY THE APPELLANT, THE PENALTY WAS LEVIED I N RESPECT OF THE CLAIM OF DEPRECIATION DISALLOWED BY THE AO FOR THE PURPOS E OF COMPUTING TOTAL INCOME UNDER THE NORMAL PROVISIONS OF THE I.T. ACT. NO ADJUSTMENT IN THE BOOK PROFIT DECLARED BY THE APPELLANT U/S 115JB WAS MADE BY THE AO IN RESPECT OF THE DISALLOWANCE OF DEPRECIATION M ADE BY THE AO. THEREFORE, THE HONBLE HIGH COURT GAVE THE FINDING THAT NO PENALTY U/S 271(1)(C) CAN BE LEVIED IN RESPECT OF THE AMOUNT OF DEPRECIATION DISALLOWED FOR THE PURPOSE OF COMPUTING TOTAL INCOM E UNDER THE NORMAL PROVISIONS OF THE I.T. ACT BECAUSE THE BOOKS PROFIT OF THE APPELLANT WAS CONSIDERED AS DEEMED INCOME U/S 115JB (AND NOT THE TOTAL INCOME COMPUTED UNDER THE NORMAL PROVISIONS OF THE I.T. AC T) AND NO ADJUSTMENT IN RESPECT OF THE DEPRECIATION DISALLOWE D BY THE AO WAS MADE BY THE AO TO THE BOOK PROFIT DECLARED BY THE A PPELLANT. IN THE CIRCULAR NO. 25/2015 OF THE CBDT, FOLLOWING OBSERVA TIONS HAVE BEEN MADE AT PARA 5- ACCORDINGLY, IN VIEW OF THE DELHI HIGH COURT JUDGM ENT AND SUBSTITUTION OF EXPLANATION 4 OF SECTION 271 OF THE ACT WITH PRO SPECTIVE EFFECT, IT IS NOW A SETTLED POSITION THAT PRIOR TO 1-4-2016, WHER E THE INCOME TAX PAYABLE ON THE TOTAL INCOME AS COMPUTED UNDER THE N ORMAL PROVISIONS OF THE ACT IS LESS THAN THE TAX PAYABLE ON THE BOOK PROFITS U/S 115JB OF THE ACT, THEN PENALTY UNDER SECTION 271(1)(C) OF TH E ACT, IS NOT ATTRACTED WITH REFERENCE TO ADDITIONS/ DISALLOWANCES MADE UND ER NORMAL PROVISIONS. IT IS FURTHER CLARIFIED THAT IN CASES P RIOR TO 1-4-2016, IF ANY ADJUSTMENT IS MADE IN THE INCOME COMPUTED FOR THE P URPOSE OF MAT, THEN THE LEVY OF PENALTY U/S 271(1)(C) OF THE ACT, WILL DEPEND ON THE NATURE OF ADJUSTMENT. FROM THE ABOVE PARAGRAPH NUMBER 5 OF THE CIRCULAR, IT IS CLEAR THAT THE CBDT HAS CLARIFIED THAT IF ANY ADJUSTMENT IS MADE I N THE INCOME COMPUTED FOR THE PURPOSE OF MAT, THEN THE LEVY U/S 271(1)(C) OF THE I.T. ACT WILL DEPEND ON THE NATURE OF ADJUSTMENT. IN VIEW OF THE ABOVE OBSERVATION MADE IN THE CIRCUL AR NO. 25 OF CBDT AND FACTS OF THE CASE OF M/S NALWA SONS INVESTMENT LTD., THE CASE OF ITA NO. 306 TO 308/JP/16 AJMER VIDYUT VITRAN NIGAM VS. ACIT,AJMER 14 THE APPELLANT IS REQUIRED TO BE EXAMINED. I HAVE SE EN THE ASSESSMENT ORDER MADE BY THE AO. IT IS SEEN THAT THE AO HAS AL SO MADE THE ADJUSTMENT IN RESPECT OF BOTH THE DISALLOWANCE OF D EPRECIATION CLAIMED ON NON-EXISTING ASSETS AND DISALLOWANCE OF DEPRECIA TION CLAIMED ON EXCESS COST OF THE ASSET (IN VIEW OF THE EXPLANATIO N 10 TO SUB SECTION 1 OF SECTION 43) IN THE BOOK PROFIT DECLARED BY THE A PPELLANT U/S 115JB. THE SAME DISALLOWANCES WERE MADE BY THE AO WHILE CO MPUTING THE TOTAL INCOME UNDER THE NORMAL PROVISIONS OF THE I.T . ACT. THE ADJUSTMENTS MADE BY THE AO IN THE BOOK PROFIT DECLA RED BY THE APPELLANT U/S 115JB HAVE BEEN UPHELD BY THE CIT(A) AJMER ON THE GROUND THAT FROM THE OBSERVATIONS MADE BY THE AUDIT ORS OF THE APPELLANT COMPANY, IT WAS CLEAR THAT THE ACCOUNTS H AVE NOT BEEN MAINTAINED PROPERLY EVEN ACCORDING TO THE COMPANIES ACT, AS THERE WERE VIOLATIONS OF VARIOUS ACCOUNTING STANDARDS (AS 16, AS17, AS12, AS10 ETC.) AND THE AUDITORS HAVE THEMSELVES MENTION ED THAT NET EFFECT OF THE VARIOUS QUALIFICATION MADE BY THEM COULD NOT BE GIVEN. THEREFORE, IT WAS HELD BY THE CIT(A) THAT THE AO WA S JUSTIFIED TO MAKE THE CHANGES IN THE BOOKS PROFIT DECLARED BY THE ASS ESSEE U/S 115JB. THUS, IT CAN BE SAID THAT IN THE CASE UNDER CONSIDE RATION, THE AO HAS MADE ADJUSTMENTS IN RESPECT OF THE DISALLOWANCE OF DEPRECIATION MADE BY HIM, IN THE BOOK PROFIT DECLARED BY THE APPELLAN T U/S 115JB. THE PENALTY U/S 271(1)(C) HAS ALSO BEEN LEVIED IN RESPE CT OF THE DISALLOWANCE OF DEPRECIATION MADE BY THE AO. IN THE DECISION OF DELHI HIGH COURT IN THE CASE OF M/S NALWA SONS INVESTMENT LTD., NOWHERE IT HAS BEEN MENTIONED THAT NO PENALTY U/S 271(1)(C) CA N BE LEVIED EVEN IN RESPECT OF THE ADJUSTMENTS MADE IN THE BOOK PROFIT DECLARED BY THE APPELLANT U/S 115JB. IN THAT CASE, IT WAS AN ADMITT ED FACT THAT NO ADJUSTMENT IN THE BOOK PROFIT DECLARED BY THE APPEL LANT U/S 115JB WAS MADE BY THE AO. THEREFORE, THE HONBLE HIGH COURT H ELD THAT NO PENALTY U/S 271(1)(C) CAN BE LEVIED IN RESPECT OF THE DISAL LOWANCE OF DEPRECIATION MADE BY THE AO ONLY FOR THE PURPOSE OF COMPUTING THE INCOME UNDER THE NORMAL PROVISIONS OF THE ACT, AS T HE TOTAL INCOME WAS DEEMED U/S 115JB. IN THE CIRCULAR NO. 25/2015/CBDT ALSO, IT HAS BEEN CLARIFIED THAT IN CASES PRIOR TO 01.04.2016, IF AN Y ADJUSTMENT IS MADE IN THE INCOME COMPUTED FOR THE PURPOSE OF MAT, THEN TH E LEVY OF PENALTY U/S 271(1)(C) OF THE ACT WILL DEPEND ON THE NATURE OF ADJUSTMENT. THUS, I AM OF THE CONSIDERED VIEW THAT NEITHER THE DELHI HIGH COURT NOR ITA NO. 306 TO 308/JP/16 AJMER VIDYUT VITRAN NIGAM VS. ACIT,AJMER 15 THE CIRCULAR NO. 25/2015 OF THE CBDT HAS HELD THAT NO PENALTY U/S 271(1)(C) CAN BE LEVIED IN RESPECT OF THE ADJUSTME NTS MADE IN THE BOOK PROFIT DECLARED BY THE APPELLANT U/S 115JB. ACCORDI NGLY THE CONTENTION OF THE APPELLANT THAT IN VIEW OF THE DECISION OF DE LHI HIGH COURT IN THE CASE OF M/S NALWA SONS INVESTMENT LTD. AND CIRCULAR NO. 25/2015 OF CBDT, NO PENALTY U/S 271(1)(C) CAN BE LEVIED UPON T HE APPELLANT, IS REJECTED. ON MERIT ALSO, THE APPELLANT HAS ARGUED THAT THE AP PELLANT HAS NOT FILED ANY INACCURATE PARTICULAR OF INCOME NOR HAS IT CONC EALED ANY PARTICULAR OF INCOME. THEREFORE, ACCORDING TO THE APPELLANT, N O PENALTY U/S 271(1)(C) CAN BE LEVIED UPON THE APPELLANT. I HAVE CONSIDERED THE ARGUMENT OF THE APPELLANT CAREFULLY. THE APPELLANT EITHER DURING THE COURSE OF ASSESSMENT PROCEEDINGS, APPELLATE PROCEED INGS OR PENALTY PROCEEDINGS COULD NOT PROVE THAT THE FINDING GIVEN BY THE AO THAT IT HAS CLAIMED DEPRECIATION ON NON-EXISTING ASSETS OF RS. 115.21 CRORE IS WRONG. THE STATUTORY AUDITORS OF THE APPELLANT THEM SELVES HAVE MENTIONED IN THE STATUTORY AUDIT REPORT THAT THE F IXED ASSETS OF RS. 115.21 CRORE TRANSFERRED THROUGH FRB WERE NOT PHYSI CALLY AVAILABLE AT THE HEAD OFFICE LOCATION. THE APPELLANT HAS CLAIME D DEPRECIATION ON THE NON-EXISTING ASSETS, WHICH WAS NOT ADMISSIBLE U /S 32 OF THE I.T. ACT, COMPANIES ACT OR AS PER ANY ACCOUNTING STANDARD ISS UED BY ICAI. THEREFORE, I AM OF THE CONSIDERED VIEW THAT THE APP ELLANT HAS FILED INACCURATE PARTICULARS OF INCOME BY CLAIMING DEPREC IATION ON NON- EXISTING ASSETS. THE APPELLANT HAS ALSO CLAIMED DEPRECIATION ON THE COST OF ASSETS MET BY THE GOVERNMENT OR CONSUMERS IN THE FORM OF SUBSI DIES, GRANTS AND CONTRIBUTIONS. FURTHER, THE ASSESSEE HAS ALSO CLAIM ED DEPRECIATION ON THE COST OF THE ASSET WHICH WAS NOT PAID BY IT AT A LL AND BOOKED IN THE BOOKS OF ACCOUNTS UNDER THE HEAD COST VARIANCE RES ERVE. AS DEPRECIATION IS ADMISSIBLE ONLY IN RESPECT OF THE C OST OF THE ASSET BORNE BY THE APPELLANT, THEREFORE THE AO DISALLOWED THE D EPRECIATION CLAIMED BY THE APPELLANT IN RESPECT OF THE COST OF THE ASSE T MET BY THE GOVERNMENT OR CONSUMERS IN THE FORM OF GRANT, SUBSI DIES AND CONTRIBUTION. THE AO ALSO DISALLOWED THE DEPRECIATI ON ON THE EXCESS COST WHICH WAS NOT PAID AT ALL BY THE APPELLANT (AP PEARING IN THE FORM OF COST VARIANCE RESERVE). THE ADJUSTMENT MADE BY THE AO IN THE BOOK ITA NO. 306 TO 308/JP/16 AJMER VIDYUT VITRAN NIGAM VS. ACIT,AJMER 16 PROFIT DECLARED BY THE APPELLANT U/S 115JB, IN RESP ECT OF THE DISALLOWANCE OF DEPRECIATION CLAIMED BY THE APPELLA NT IN RESPECT OF THE COST OF THE ASSETS MET BY THE GOVERNMENT AND THE CO NSUMERS AND THE COST NOT PAID AT ALL BY THE APPELLANT, HAVE BEEN UP HELD BY THE CIT(A), AJMER OBSERVING THAT THE ACCOUNTS OF THE APPELLANT HAVE NOT BEEN MAINTAINED PROPERLY EVEN ACCORDING TO THE COMPANIES ACT. IN VIEW OF THESE FACTS, I AM OF THE CONSIDERED VIEW THAT THE A PPELLANT HAS FILED INACCURATE PARTICULARS OF INCOME IN RESPECT OF THE DEPRECIATION CLAIMED ON THE COST OF ASSET NOT PAID BY IT. HENCE, IN VIEW OF THE ABOVE DISCUSSION, THE PENALTY LEVIED BY THE AO U/S 271(1)(C) IS HEREBY CONFIRMED. 11. AS WE HAVE STATED ABOVE, IN THE INSTANT CASE , THE FACTS OF THE CASE AFTER TAKING INTO CONSIDERATION THE FINDINGS OF THE COORD INATE BENCH IN THE QUANTUM PROCEEDINGS ARE THAT THERE IS DISALLOWANCE OF DEPRE CIATION UNDER THE NORMAL PROVISIONS OF THE ACT AND AS A RESULT, LOSS DECLARE D IN THE RETURN OF INCOME UNDER NORMAL PROVISIONS OF THE ACT HAS GOT REDUCED. FURTHER, THE PROVISIONS OF MAT ARE HELD NOT APPLICABLE IN THE INSTANT CASE. THE FACTS OF NALWA SONS ARE THEREFORE TOTALLY DISTINGUISHABLE AND DONT SUP PORT THE CASE OF THE ASSESSEE. IN THAT CASE, THOUGH THERE WERE ADDITION S MADE UNDER THE NORMAL PROVISIONS OF THE ACT, INCOME OF THE ASSESSEE WAS A SSESSED AND BROUGHT TO TAX UNDER THE PROVISIONS OF MAT AND BASIS THAT, THE HONBLE DELHI HIGH COURT HAS DECIDED THE MATTER. THE RELEVANT FINDINGS OF T HE HONBLE DELHI HIGH COURT ARE AS FOLLOWS: 24. THE INCOME OF THE ASSESSEE WAS THUS ASSESSED U NDER SECTION 115JB AND NOT UNDER THE NORMAL PROVISIONS. IT IS IN THIS CONT EXT THAT WE HAVE TO SEE AND EXAMINE THE APPLICATION OF EXPLANATION 4. 25. JUDGMENT IN THE CASE OF GOLD COIN HEALTH FOOD ( P.) LTD. (SUPRA), OBVIOUSLY, DOES NOT DEAL WITH SUCH A SITUATION. WHA T IS HELD BY THE SUPREME COURT IN THAT CASE IS THAT EVEN IF IN THE INCOME-TA X RETURN FILED BY THE ASSESSEE LOSSES ARE SHOWN, PENALTY CAN STILL BE IMP OSED IN A CASE WHERE ON ITA NO. 306 TO 308/JP/16 AJMER VIDYUT VITRAN NIGAM VS. ACIT,AJMER 17 SETTING OFF THE CONCEALED INCOME AGAINST ANY LOSS I NCURRED BY THE ASSESSEE UNDER OTHER HEAD OF INCOME OR BROUGHT FORWARD FROM EARLIER YEARS, THE TOTAL INCOME IS REDUCED TO A FIGURE LOWER THAN THE CONCEA LED INCOME OR EVEN A MINUS FIGURE. THE COURT WAS OF THE OPINION THAT 'TH E TAX SOUGHT TO BE EVADED' WILL MEAN THE TAX CHARGEABLE NOT AS IF IT WERE THE TOTAL INCOME. ONCE, WE APPLY THIS RATIONALE TO EXPLANATION 4 GIVEN BY THE SUPREME COURT, IN THE PRESENT CASE, IT WILL BE DIFFICULT TO SUSTAIN THE P ENALTY PROCEEDINGS. REASON IS SIMPLE. NO DOUBT, THERE WAS CONCEALMENT BUT THAT HA D ITS REPERCUSSIONS ONLY WHEN THE ASSESSMENT WAS DONE UNDER THE NORMAL PROCE DURE. THE ASSESSMENT AS PER THE NORMAL PROCEDURE WAS, HOWEVER, NOT ACTED UPON. ON THE CONTRARY, IT IS THE DEEMED INCOME ASSESSED UNDER SECTION 115J B OF THE ACT WHICH HAS BECOME THE BASIS OF ASSESSMENT AS IT WAS HIGHER OF THE TWO. TAX IS THUS, PAID ON THE INCOME ASSESSED UNDER SECTION 115JB OF THE A CT. HENCE, WHEN THE COMPUTATION WAS MADE UNDER SECTION 115JB OF THE ACT , THE AFORESAID CONCEALMENT HAD NO ROLE TO PLAY AND WAS TOTALLY IRR ELEVANT. THEREFORE, THE CONCEALMENT DID NOT LEAD TO TAX EVASION AT ALL. SIMILARLY, CIRCULAR NO. 25/2015 DATED 31.12.2015 DO ESNT COME TO SUPPORT THE POSITION OF THE ASSESSEE. 12. NOW COMING TO OTHER CONTENTIONS OF THE LD AR. O N MERITS, THE CONTENTION OF THE LD AR IS THAT THE ASSESSEE UNDER GOOD FAITH AND AS PER ELECTRICITY (SUPPLY) ANNUAL ACCOUNT RULE, 1985 AND ACCOUNTING INSTRUCTIONS, PREPARED ITS ACCOUNTS AND THERE WAS NO HIDING OR CO NCEALMENT OF FACTS. IT IS MERELY AN OPINION ON THE SUBJECT FOR SAKE OF ADDITI ON BY THE AO AND THE SAME CANNOT BE TERMED AS FURNISHING OF INACCURATE PARTIC ULARS OF INCOME OR CONCEALMENT OF FACTS. 13. IN THIS REGARD, THE QUESTION THAT ARISES IS THA T WHETHER THERE ARE TWO OPINIONS ABOUT THE APPLICABILITY OF PROVISIONS OF S ECTION 43(1) READ WITH ITA NO. 306 TO 308/JP/16 AJMER VIDYUT VITRAN NIGAM VS. ACIT,AJMER 18 EXPLANATION 10 IN THE INSTANT CASE OR NOT. IN THE QUANTUM PROCEEDINGS, WHEN THE MATTER REACHED BEFORE THE CO-ORDINATE BENCH, TH E CO-ORDINATE BENCH IN ITS ORDER NOTED THAT DURING THE COURSE OF ARGUMENT, A POINTED QUERY WAS ASKED FROM THE LD AR, TO WHICH IT WAS FAIRLY STATED THAT THE CONTRIBUTION / GRANT IN THE FORM OF SUBSIDY WERE RECEIVED FROM THE STATE GOVT./ OTHER DEPARTMENT TOWARDS THE COST OF CAPITAL ASSET AND FOR REPLACEMENT OF TH E ASSETS. THEREAFTER, THE COORDINATE BENCH HELD THAT A BARE READING OF THE E XPLANATION 10 OF SECTION 43 OF THE ACT, WHICH CLEARLY PROVIDES THAT WHERE A PORTION OF THE COST OF AN ASSET ACQUIRED BY THE ASSESSEE HAS BEEN MET DIRECTL Y OR INDIRECTLY BY THE CENTRAL GOVERNMENT OR A STATE GOVERNMENT IN THE FOR M OF A SUBSIDY OR GRANT OR REIMBURSEMENT, THEN, SO MUCH OF THE SUBSIDY OR G RANT OR REIMBURSEMENT SHALL NOT BE INCLUDED IN THE ACTUAL COST OF THE ASS ET TO THE ASSESSEE. ADMITTEDLY, THE AMOUNT HAS BEEN RECEIVED BY THE ASS ESSEE IN THE FORM OF GRANT/REIMBURSEMENT/SUBSIDY FROM THE STATE GOVERNME NT THEREFORE, IN OUR VIEW, THE ORDER PASSED BY THE LD CIT(A) IS REQUIRED TO BE UPHELD AND THE VALUE OF THE ASSETS SHALL BE TAKEN BY THE LD ASSESSING OF FICER AFTER ADJUSTING THE SUBSIDY/GRANT/REIMBURSEMENT FROM THE STATE GOVT. OR THE OTHER GOVERNMENT DEPARTMENTS. ACCORDINGLY, THIS ISSUE IS DECIDED AGA INST THE ASSESSEE AND IN FAVOUR OF THE REVENUE. IN LIGHT OF ABOVE, IN THE FACTS OF THE PRESENT CASE AND IN LIGHT OF CLEAR ADMISSION BY THE LD AR THAT T HE CONTRIBUTION / GRANT IN THE FORM OF SUBSIDY WERE RECEIVED FROM THE STATE GOVT. /OTHER DEPARTMENT TOWARDS THE COST OF CAPITAL ASSET AND FOR REPLACEME NT OF THE ASSETS, THERE DOESNT APPEAR TO BE TWO OPINIONS THAT EMERGES REGA RDING APPLICABILITY OF SECTION 43(1) READ WITH EXPLANATION 10 IN THE INSTA NT CASE. THE ASSESSEE HAS SIMPLY FOLLOWED THE ELECTRICITY (SUPPLY) ANNUAL ACC OUNT RULE, 1985 AND ACCOUNTING INSTRUCTIONS. THESE ACCOUNTING RULES AN D INSTRUCTIONS ARE NOT DOUBT BINDING ON THE ASSESSEE AS FAR AS PREPARING I TS FINANCIAL STATEMENTS IS CONCERNED AND INFACT, THE COORDINATE BENCH IN THE Q UANTUM PROCEEDINGS HAS AGREED TO THIS CONTENTION WHILE UPHOLDING NON-APPLI CABILITY OF MAT PROVISIONS. ITA NO. 306 TO 308/JP/16 AJMER VIDYUT VITRAN NIGAM VS. ACIT,AJMER 19 HOWEVER, BEING A TAXABLE ENTITY, THE ASSESSEE IS EQ UALLY GOVERNED BY THE REGULAR PROVISIONS OF INCOME TAX ACT AND HAS TO COM PUTE ITS INCOME AND OFFER THE SAME TO TAX TAKING INTO CONSIDERATION THE RELEV ANT PROVISIONS OF THE ACT. IT CANNOT THEREFORE BE SAID THAT THE ASSESSEE BEING GO VERNED BY THE ELECTRICITY RULES AND REGULATIONS WILL NOT FOLLOW THE INCOME TA X ACT OR THE ELECTRICITY RULES AND REGULATIONS OVERRIDE THE INCOME TAX ACT. IN OU R VIEW, IN THE INSTANT CASE, THE ASSESSEE COMPANY HAS SIMPLY FAILED TO APPLY THE PROVISIONS OF THE ACT WHILE DETERMINING THE ACTUAL COST OF THE ASSETS AND COMPUTING THE DEPRECIATION ALLOWANCE THEREON. 14. THE NEXT QUESTION THAT ARISES IS WHERE THE ASSESS EE COMPANY HAS FAILED TO GIVE EFFECT TO AND TAKE INTO CONSIDERATION THE P ROVISIONS OF SECTION 43(1) READ WITH EXPLANATION 10, WHILE DETERMINING THE ACT UAL COST AND CLAIMED EXCESS DEPRECIATION THEREON, CAN IT BE SAID THAT TH E ASSESSEE COMPANY HAS FURNISHED INACCURATE PARTICULARS OF INCOME UNDER SE CTION 271(1)(C) WHICH READS AS UNDER: '271.(1) IF THE ASSESSING OFFICER OR THE COMMISSION ER (APPEALS) OR THE PRINCIPAL COMMISSIONER OR COMMISSIONER IN THE COURS E OF ANY PROCEEDINGS UNDER THIS ACT, IS SATISFIED THAT ANY PERSON- (C) HAS CONCEALED THE PARTICULARS OF HIS INCOME OR FURNISHED INACCURATE PARTICULARS OF SUCH INCOME. 15. IT IS WELL ESTABLISHED THAT THE PROVISIONS O F SECTION 271(1)(C) BEING IN THE NATURE OF PENAL PROVISIONS REQUIRE A STRICT INT ERPRETATION AND IT MUST BE SHOWN THAT THE INSTANT CASE FALLS WITHIN FOUR CORNE RS OF THE SAID PROVISIONS AND CONDITIONS LAID THEREIN ARE SPECIFICALLY FULFILLED. THE CASE OF THE REVENUE IS THAT THE PRESENT CASE IS ABOUT FURNISHING INACCURAT E PARTICULARS OF INCOME. ITA NO. 306 TO 308/JP/16 AJMER VIDYUT VITRAN NIGAM VS. ACIT,AJMER 20 THEREFORE, IT HAS TO BE EXAMINED WHETHER THERE IS F URNISHING OF INACCURATE PARTICULARS OF INCOME BY THE ASSESSEE COMPANY IN TH E INSTANT CASE. 16. IN THIS REGARD, THE LD AR HAS DRAWN OUR REF ERENCE TO THE DECISION OF THE HONBLE SUPREME COURT IN CASE OF RELIANCE PETROPROD UCTS (322 ITR 158). IN THAT CASE, THE FACTS OF THE CASE WERE THAT THE ASSESSEE COMPANY FILED ITS RETURN OF INCOME CLAIMING INTEREST EXPEND ITURE IN RESPECT OF LOAN AMOUNT FOR PURCHASING SHARES BY WAY OF ITS BUSINESS POLICIES. THE ASSESSING OFFICER DISALLOWED SAID EXPENDITURE AND SIMULTANEOU SLY LEVIED PENALTY UNDER SECTION 271(1)(C) ON ACCOUNT OF CONCEALMENT OF INCO ME/FURNISHING OF INACCURATE PARTICULARS OF INCOME. THE REVENUE CONTE NDED BEFORE THE HONBLE SUPREME COURT THAT THE CLAIM OF THE EXPENDITURE WAS TOTALLY WITHOUT ANY LEGAL BASIS AND WAS MADE WITH MALAFIDE INTENTIONS AND IT WAS A CLEAR CASE OF FURNISHING INACCURATE PARTICULARS OF INCOME. IT WA S FURTHER CONTENDED BY THE REVENUE THAT SINCE THE ASSESSEE HAD CLAIMED EXCESSI VE DEDUCTIONS KNOWING THAT THEY ARE INCORRECT; IT AMOUNTED TO CONCEALMENT OF INCOME. IT WAS CONTENDED BY THE REVENUE IN THAT CASE THAT THE FALS EHOOD IN ACCOUNTS CAN TAKE EITHER OF THE TWO FORMS; (I) AN ITEM OF RECEIP T MAY BE SUPPRESSED FRAUDULENTLY; (II) AN ITEM OF EXPENDITURE MAY BE FA LSELY (OR IN AN EXAGGERATED AMOUNT) CLAIMED, AND BOTH TYPES ATTEMPT TO REDUCE T HE TAXABLE INCOME AND, THEREFORE, BOTH TYPES AMOUNT TO CONCEALMENT OF PART ICULARS OF ONE'S INCOME AS WELL AS FURNISHING OF INACCURATE PARTICULARS OF INC OME. THE HONBLE SUPREME COURT HOWEVER NEGATED THE CONTENTIONS OF THE REVENU E AND HELD AS UNDER: SINCE THE ASSESSEE HAD FURNISHED ALL THE DETAILS O F ITS EXPENDITURE AS WELL AS INCOME IN ITS RETURN, WHICH DETAILS, IN THEMSELVES, WERE NOT FOUND TO BE INACCURATE NOR COULD BE VIEWED AS THE CONCEALMENT O F INCOME ON ITS PART. IT WAS UP TO THE AUTHORITIES TO ACCEPT ITS CLAIM IN TH E RETURN OR NOT. MERELY BECAUSE THE ASSESSEE HAD CLAIMED THE EXPENDITURE, W HICH CLAIM WAS NOT ACCEPTED OR WAS NOT ACCEPTABLE TO THE REVENUE, THAT BY ITSELF WOULD NOT, IN OUR OPINION, ATTRACT THE PENALTY UNDER SECTION 271(1)(C ). ITA NO. 306 TO 308/JP/16 AJMER VIDYUT VITRAN NIGAM VS. ACIT,AJMER 21 THE LEARNED COUNSEL ARGUED THAT 'SUBMITTING AN INC ORRECT CLAIM IN LAW FOR THE EXPENDITURE ON INTEREST WOULD AMOUNT TO GIVING INAC CURATE PARTICULARS OF SUCH INCOME'. WE DO NOT THINK THAT SUCH CAN BE THE INTER PRETATION OF THE CONCERNED WORDS. THE WORDS ARE PLAIN AND SIMPLE. IN ORDER TO EXPOSE THE ASSESSEE TO THE PENALTY UNLESS THE CASE IS STRICTLY COVERED BY THE PROVISION, THE PENALTY PROVISION CANNOT BE INVOKED. BY ANY STRETCH OF IMAG INATION, MAKING AN INCORRECT CLAIM IN LAW CANNOT TANTAMOUNT TO FURNISH ING INACCURATE PARTICULARS. 17. IN THE INSTANT CASE, THE ASSESSEE COMPANY H AS DULY FILED ITS RETURN OF INCOME ALONG WITH AUDITED BALANCE SHEET AND PROFIT/ LOSS ACCOUNT. IN SCHEDULE 2 RESERVE AND SURPLUSES OF ITS BALANCE SHEET, THE ASSESSEE COMPANY HAS DISCLOSED CONTRIBUTION, GRANTS, SUBSIDIES TOWARDS C OST OF CAPITAL ASSETS. THE ASSESSING OFFICER DRAWING REFERENCE TO SCHEDULE 2 O F THE BALANCE SHEET AS FURNISHED, ASKED THE ASSESSEE COMPANY TO SUBMIT ITS EXPLANATION AS TO WHY INCREASE IN RESERVE AND SURPLUS AS PER THE BALANCE SHEET SHOULD NOT BE REDUCED FROM COST OF THE ASSETS FOR PURPOSES OF CAL CULATION OF DEPRECIATION IN VIEW OF SECTION 32(1)(III) READ WITH SECTION 43(1) AND EXPLANATION 10 THERETO. THEREAFTER, AFTER TAKING INTO CONSIDERATION THE SUB MISSION AND EXPLANATION OF THE ASSESSEE, THOUGH NOT AGREEING WITH IT, THE AO W ANT AHEAD AND RECALCULATED THE DEPRECIATION CLAIM AS MADE BY THE ASSESSEE IN ITS RETURN OF INCOME. IT IS THUS SEEN THAT ALL MATERIAL FACTS AN D FIGURES ARE DULY DISCLOSED IN THE RETURN OF INCOME AND THE FINANCIAL STATEMENTS, AND THE ASSESSING OFFICER, ON PERUSAL OF THE SAME, CAME TO A CONCLUSION THAT C ONTRIBUTION, GRANTS, SUBSIDIES TOWARDS COST OF CAPITAL ASSETS RECEIVED B Y THE ASSESSEE COMPANY DURING THE YEAR UNDER CONSIDERATION SHOULD BE REDUC ED FROM THE TOTAL VALUE OF THE ASSETS FOR THE PURPOSES OF DETERMINING THE DEPR ECIATION ALLOWANCE. ALL THE FACTS RELATING TO CLAIM OF DEPRECIATION ARE THUS ON RECORD. THERE IS NO FALSITY THAT HAS BEEN FOUND IN THE FINANCIAL STATEMENTS OR IN THE RETURN OF INCOME. AT THE SAME TIME, IT IS EQUALLY RELEVANT TO REFER TO T HE OBSERVATIONS OF THE AUDITOR WHICH HAS ATTRACTED THE ATTENTION OF THE AO. ITA NO. 306 TO 308/JP/16 AJMER VIDYUT VITRAN NIGAM VS. ACIT,AJMER 22 18. THE AUDITORS HAVE STATED IN THEIR AUDIT REPO RT THAT: (1) CONTRIBUTIONS. GRANTS & SUBSIDIES TOWARDS COST OF CAPITAL ASSETS THE GRANTS/ CONTRIBUTION RECEIVED FROM STATE GOVT. / OTHER GOVT. DEPARTMENTS TOWARDS THE COST OF FIXES ASSETS IS SHOWN SEPARATEL Y UNDER THE HEADS CONTRIBUTIONS, GRANTS, SUBSIDIES TOWARDS COST OF CA PITAL ASSETS AND IS NEITHER DEDUCTED FROM THE GROSS VALUE OF THE ASSETS NOR IT IS TREATED AS A DEFERRED INCOME ON THE SYSTEMATIC AND RATIONAL BASIS OVER TH E USEFUL LIFE OF THE ASSET. THUS BOTH THE FIXED ASSETS AND GRANTS ARE OVERSTATE D BY THE AMOUNT OF GRANTS; THIS SHOULD HAVE BEEN TAKEN AS PER THE PROV ISIONS OF AS-12. (2) IN CASE REPLACEMENT OF ASSETS. WDV OF THE ASSET DISCARDED SHOULD BE REDUCED FROM THE TOTAL FIXED ASSETS AND LOSSES ARIS ING FROM THE RETIREMENT OR GAINS OR LOSSES ARISING FROM DISPOSAL OF THE FIXED ASSETS, WHICH IS CARRIED AT COST SHOULD BE RECOGNIZED IN THE PROFIT & LOSS ACCO UNT. HOWEVER THIS IS NOT BEING DONE. ALSO SCRAP IS ACCOUNTED FOR AT NIL VALU E AND NET REALIZABLE VALUE WHILE AS PER THE PROVISIONS OF AS-10 CLAUSE-24 MATE RIAL ITEMS FROM ACTIVE USE AND HELD FOR DISPOSAL SHOULD BE STATED AT THE LOWER OF THEIR NET BOOKS VALUE AND NET BOOK VALUE AND SHOWN SEPARATELY IN THE FINA NCIAL STATEMENTS. THE SAME HAS NOT BEEN DONE THUS LEADING TO THE VIOLATIO N OF AS-10. (3) IN THE ABSENCE OF CONTRIBUTION, GRANTS, SUBSID IES TOWARDS THE COST OF CAPITAL ASSETS BEING DEDUCTED FROM THE GROSS VALUE OF ASSET AS ALSO IN CASE OF REPLACEMENT OF ASSET, WDV OF THE ASSET, WDV OF THE ASSET DISCARDED IS NOT REDUCED FROM THE GROSS VALUE OF THE ASSET, DEPRECIA TION IS CHARGED ON THE FULL GROSS VALUE OF THE ASSET. THIS IS AGAINST THE PROVI SIONS OF AS-6. THUS, DEPRECIATION IS OVERSTATED AND NET LOSS, WHICH IS S HOWN AS SUBSIDY RECEIVABLE FROM GOVT. IS OVERSTATED BY THE AMOUNT THE QUANTIFI CATION OF WHICH IS NOT POSSIBLE IN THE ABSENCE OF FULL DETAILS OF DISCARDE D ASSETS AND THE ALLOCATION OF CONTRIBUTION & TOWARDS THE RESPECTIVE ASSET. ITA NO. 306 TO 308/JP/16 AJMER VIDYUT VITRAN NIGAM VS. ACIT,AJMER 23 19. IN RESPONSE TO THE ABOVE OBSERVATIONS OF THE AUDITOR, THE ASSESSEE COMPANY HAS SUBMITTED THAT: A. THAT THE COMPANY IS A 100% OWNED UNDERTAKING OF RAJASTHAN GOVERNMENT AND IS GOVERNED BY THE INSTRUCTIONS APPR OVED BY GOVERNMENT FOR RAJASTHAN STATE ELECTRICITY BOARD'S THE ELECTRICITY (SUPPLY) ANNUAL ACCOUNTS RULES, 1995 AND ACCOUNTING INSTRUCTIONS. ACCORDING TO RULES PAGE NO. 252 & 253 THE TREATMENT OF CONTRIBUTION, GRANTS AND SUBSI DIES TOWARDS COST OF CAPITAL ASSETS SHALL BE CREDITED IN ACCORDANCE WITH THE POLICIES LAID DOWN IN THE FOLLOWING PARAGRAPHS. 2.34 AMOUNT RECEIVABLE AS CONSUMER'S CONTRIBUTION, SUBSIDY ARE GRANT TOWARDS CAPITAL ASSETS SHALL BE CREDITED TO APPROPR IATE ACCOUNT SET OUT IN CHART OF ACCOUNTS ONLY IF THE FOLLOWING CONDITIONS ARE SATISFIED : (I) THE AMOUNT IS NOT SUBJECT TO ANY CONDITIONS TO BE FULFILLED BY THE BOARD. OR THE CONDITIONS ATTACHED TO THE AMOUNT HAVE BEEN FUL FILLED BY THE BOARD. (II) NO PART OF THE AMOUNT IS REFUNDABLE NOR IS LIK ELY TO BECOME REFUNDABLE BY THE BOARD. 2.35 CONSUMER'S CONTRIBUTION, SUBSIDIES AND GRANTS TOWARDS COST OF CAPITAL ASSETS SHALL NOT BE TREATED AS A REDUCTION IN THE ' COST' BUT AS A CAPITAL RECEIPT TO BE CREDITED TO CAPITAL RESERVE ACCOUNT. 2.36 ACCOUNTING FOR COST OF A CAPITAL ASSET SHALL B E DONE IN THE NORMAL COURSE WITHOUT CONSIDERING ANY CONTRIBUTION, SUBSID Y ARE GRANTS TOWARDS THE COST OF THE ASSET, DEPRECIATION SHALL BE CHARGED IN THE NORMAL COURSE ON THE 'FULL COST' OF THE ASSET. ITA NO. 306 TO 308/JP/16 AJMER VIDYUT VITRAN NIGAM VS. ACIT,AJMER 24 B. THAT THE RESERVES & SURPLUSES IN WHICH THESE GRA NTS, SUBSIDIES, CONTRIBUTION ARE CREDITED ARE IN FORM OF DEPOSITS F ROM CUSTOMERS ARE IN ACTUAL THE LIABILITIES AND COULD NOT BE REDUCED FROM THE C OST OF ASSETS FOR THE PURPOSE OF CALCULATION OF DEPRECIATION SINCE THEY ARE IN TH E NATURE OF ' CAPITAL RECEIPT'. C. FURTHER THESE CAPITAL RECEIPTS ARE NOT DIRECTLY REL ATABLE TO THE ASSETS ACQUIRED OUT OF WHICH THE SAME DEDUCTED TO REDUCE T HE BLOCK. FURTHER ALREADY ADHOC DISALLOWANCE OF FIXED ASSETS OUT OF FRP TRANS FERS ALREADY MADE OF 20% OF ASSETS WITHOUT ANY BREAKUP AS ABOVE AND FURTHER DISALLOWANCE OF DEPRECIATION ON THE SAME BLOCK OF ASSETS IS A 'DOUB LE DISALLOWANCE / DOUBLE ADDITION'. D. THAT THE COMPANY HAS TO FOLLOW THE INSTRUCTION O F ACCOUNTING AS APPROVED AND THE ACCOUNTS HAS BEEN PREPARED ON THE BASIS AND AS PER THE BYE LAWS THE TREATMENT OF CONSUMERS CONTRIBUTION, S UBSIDIES AND GRANTS HAS BEEN MADE IN THE BOOKS ACCORDINGLY BY CREATING THE RESERVES AND THE A.O. HAS ERRED TO REDUCE THE SAME FROM THE COST AND DISA LLOW PORTION DEPRECIATION. THE COMPANY CANNOT ACT BEYOND THE ACCOUNTING NORMS APPROVED FOR THEM AND IS ALSO GOVERNED BY ACCOUNTING FOR ELECTRICITY COMPANIES AND ACCORDINGLY THE TREATMENT HAS BEEN MADE IN BOOKS AND THE A.O. H AS MADE DISALLOWANCE WITHOUT CONSIDERING THE ACCOUNTING APPLICABLE TO EL ECTRICITY COMPANIES. E. ALTERNATIVELY THE A.O. WHILE MAKING THE DEDUCTIO N FROM FIXED ASSETS BLOCK FOR RESERVES & SURPLUS HAS NOT FOLLOWED CONSI STENT METHOD I.E. IN A.Y. 2001-02 AND 2002-03 HAS NOT DEDUCTED AMOUNTS FOR MA TERIAL COST VARIANCE UNDER THE HEAD RESERVES & SURPLUS BUT IN THE LATER YEARS FOR DEDUCTION OF RESERVES & SURPLUS FROM FIXED ASSETS THE AMOUNT OF MATERIAL COST VARIANCE HAS ALSO BEEN DEDUCTED WHICH IS NOT IN RELEVANCE WI TH THE FIXED ASSETS COST AND IS RATHER RELATED TO MATERIAL COST AND THUS THE BLOCK OF ASSETS HAS REDUCED FOR DEPRECIATION BY THIS AMOUNT AND THE ELIGIBLE DE PRECIATION HAS ALSO REDUCED. ITA NO. 306 TO 308/JP/16 AJMER VIDYUT VITRAN NIGAM VS. ACIT,AJMER 25 FURTHER THE ADDITION TO FIXED ASSETS AS PER BOOKS H AS BEEN TAKEN BY A.O. AT OTHER ARBITRARY FIGURES WHICH HAVE ALSO BEEN CORREC TED IN CHART. THUS AS PER THE CHART ON THE THEORY OF A.O. THE DEPRECIATION DI SALLOWABLE COME TO RS. 11,63,37,224.00 FOR THE YEAR AGAINST TAKEN BY A.O. AT RS. 18,99,41,047/-. F. FURTHER ANY LOSS/ SHORT FALL IN REVENUE IS SUBJE CT TO SUB-VENTION CHARGES AS RECEIVABLE FROM STATE GOVERNMENT SUBJECT TO VERI FICATION; HOWEVER TO CLOSE THE ACCOUNTS, THE CORPORATION TAKE S 'DIFFERENCE IS REVENUE' AS 'SUBVENTION'& NULLIFIED THE LOSS. THUS IF THIS D EPRECIATION IS DISALLOWED; SUBVENTION CHARGES SHALL ALSO GOT REDUCED & ULTIMAT ELY THE INCOME/ LOSS WOULD BE NIL & THUS IN OTHER TERMS SUBVENTION BEING A 'PROVISIONAL INCOME' ALREADY TAKES CARE FOR SUCH VARIATION IF ANY. 20. IN OUR VIEW, THE OBSERVATIONS OF THE AUDITOR ARE IN RELATION TO NON- COMPLIANCE WITH THE VARIOUS ACCOUNTING STANDARDS AS PRESCRIBED BY THE ICAI WHICH HAVE TO BE FOLLOWED WHILE PREPARING THE FINAN CIAL STATEMENTS. AT THE SAME TIME, THE ASSESSEES EXPLANATION IS THAT BEING A 100% OWNED UNDERTAKING OF RAJASTHAN GOVERNMENT, IT IS GOVERNED BY THE INSTRUCTIONS APPROVED BY GOVERNMENT FOR RAJASTHAN STATE ELECTRIC ITY BOARD'S, THE ELECTRICITY (SUPPLY) ANNUAL ACCOUNTS RULES, 1995 AN D ACCOUNTING INSTRUCTIONS WHICH CANNOT BE LOST SIGHT OFF. IN OUR VIEW, THESE ARE PLAUSIBLE EXPLANATION RELATING TO VARIATION IN THE ACCOUNTING POLICIES FO LLOWED BY THE ASSESSEE COMPANY GIVEN THE NATURE OF BUSINESS THE ASSESSEE C OMPANY IS ENGAGED IN AND RELATED ELECTRICITY REGULATIONS WHICH IT MUST C OMPLY WITH. THESE ARE STATUTORY REQUIREMENTS WHICH THE ASSESSEE COMPANY I S REQUIRED TO FOLLOW WHILE PREPARING ITS FINANCIAL STATEMENTS. HOWEVER, THE FACT REMAINS THAT THERE IS COMPLETE DISCLOSURE OF ALL MATERIAL FACTS IN THE FINANCIAL STATEMENTS SO FAR AS ISSUE RELATING TO DETERMINATION OF ACTUAL COST OF T HE ASSETS ARE CONCERNED. THE MATERIAL FACTS SO DISCLOSED IN THE FINANCIAL ST ATEMENTS HAVE INFACT BEEN ITA NO. 306 TO 308/JP/16 AJMER VIDYUT VITRAN NIGAM VS. ACIT,AJMER 26 CONSIDERED BY THE AO WHILE RECALCULATING THE DEPREC IATION CLAIM OF THE ASSESSEE COMPANY. 21. IN THE ENTIRETY OF FACTS AND CIRCUMSTANCES OF THE CASE AND RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE SUPREME COURT IN CASE OF RELIANCE PETROPRODUCTS (SUPRA), WE HEREBY DELETE THE LEVY OF PENALTY UNDER SECTION 271(1)(C) IN RESPECT OF DISALLOWANCE OF DEPRECIATIO N UNDER SECTION 32(1)(III) READ WITH SECTION 43(1) AND EXPLANATION 10 THERETO IN RESPECT OF ALL THREE YEARS UNDER CONSIDERATION. 22. IN THE RESULT, ALL THREE APPEALS OF THE ASSES SEE COMPANY FOR THE IMPUGNED ASSESSMENT YEARS ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 09/08/2017. SD/- SD/- DQY HKKJR FOE FLAG ;KNO (KUL BHARAT) (VIKRAM SINGH YADAV) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER JAIPUR DATED:- 09/08/2017 SANTOSH* VKNS'K DH IZFRFYFI VXZSF'KR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT - M/S AJMER VIDYUT VITRAN NIGAM LTD., VIDYUT BHAWAN, PANCHSHEEL NAGAR, MAKARWALI ROAD, AJMER. 2. IZR;FKHZ@ THE RESPONDENT- ACIT CIRCLE-2 AJMER. 3. VK;DJ VK;QDR@ CIT 4. VK;DJ VK;QDRVIHY@ THE CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, 6. XKMZ QKBZY@ GUARD FILE (ITA NO.306 TO 308/JP/2016) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASSISTANT REGISTRAR.