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

ITA 357/JPR/2016

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 9949 (ITAT-JAIPUR)
• Duration Of Justice: 3 year(s) 1 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2019
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2004-2005
• Appeal Filed On: 08-04-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: BK GUPTA
• Assessee Lawyers: ASHIK GUPTA
• Keywords: Capital asset; Business income; Depreciation; Advance ruling; Cost of acquisition; Wrong claim; Set aside
• Section: 143(3); 234B; 115JB; 80IA; 32

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S,B JAIPUR JH FOT; IKY JKO] U;KF;D LNL; ,OA JH FOE FLAG ;KNO] YS[KK LNL; DS LE{K BEFORE: SHRI VIJAY PAL RAO, JM & SHRI VIKRAM SINGH YADAV, AM VK;DJ VIHY LA-@ ITA NO. 283, 284 & 390/JP/2009 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2002-03, 2003-04 & 2006-7 M/S AJMER VIDYUT VITRAN NIGAM LTD., CITY POWER HOUSE, JAIPUR ROAD, AJMER. CUKE VS. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-2, AJMER. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AACCA 8562 E VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT VK;DJ VIHY LA-@ ITA NO. 385, 386 & 549/JP/2009 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2002-03, 2003-04 & 2006-07 THE ACIT, CIRCLE-2/ DCIT,CIRCLE-2, AJMER. CUKE VS. M/S AJMER VIDYUT VITRAN NIGAM LTD., CITY POWER HOUSE, JAIPUR ROAD, AJMER. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AACCA 8562 E VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT VK;DJ VIHY LA-@ ITA NO. 361 TO 370/JP/2016 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2004-05, 2005-06,2007-08 TO 2009-10 M/S AJMER VIDYUT VITRAN NIGAM LTD., CITY POWER HOUSE, JAIPUR ROAD, AJMER. CUKE VS. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-2, / JCIT, RANGE-2, AJMER. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AACCA 8562 E VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT ITA NO. 283/JP/2009 WITH OTHER CASES AJMER VVNL VS. ACIT/DCIT/JCIT 2 VK;DJ VIHY LA-@ ITA NO. 357 TO 360/JP/2016 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2004-05, 2005-06,2007-08 & 2008-09 DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-2, AJMER. CUKE VS. M/S AJMER VIDYUT VITRAN NIGAM LTD., CITY POWER HOUSE, JAIPUR ROAD, AJMER. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AACCA 8562 E VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ L S@ ASSESSEE BY : SHRI SUNIL PORWAL (C.A.) & SHRI ASHIK GUPTA (C.A) JKTLO DH VKSJ LS @ REVENUE BY : SHRI B.K. GUPTA (CIT) LQUOKBZ DH RKJH[ K@ DATE OF HEARING : 29/05/2019 MN?KKS'K.KK DH RKJH[ K@ DATE OF PRONOUNCEMENT: 31/05/2019 VKNS'K@ ORDER PER BENCH: THESE ARE 13 APPEALS BY THE ASSESSEE FOR THE ASSES SMENT YEARS 2002-03 TO 2009-10 AND CROSS APPEALS BY THE DEPARTM ENT FOR THE ASSESSMENT YEARS 2002-03 TO 2008-09 ARE DIRECTED AG AINST THE RESPECTIVE ORDERS OF THE LD. CIT(A), AJMER ARISING FROM ASSESSMENT ORDERS PASSED U/S 143(3) AS WELL AS REASSESSMENT OF ORDERS PASSED U/S 143(3) R.W.S. 147 OF THE IT ACT FOR THE ASSESSMENT YEARS 2004-05 TO 2008-09. SINCE THERE ARE 3 ASSESSMENT ORDERS BEING ONE U/S 143(3) AND TWO ORDERS PASSED U/S 147 FOR THE ASSESSMENT YEARS 2005-06 THEREFORE, THE ASSESSEE HAS FILED THREE APPEALS FOR THE ASSESS MENT YEAR 2005-06 ITA NO. 283/JP/2009 WITH OTHER CASES AJMER VVNL VS. ACIT/DCIT/JCIT 3 AND TO TWO APPEALS EACH FOR THE ASSESSMENT YEARS 20 04-05, 2007-08 AND 2008-09. 2. ALL THESE APPEALS WERE EARLIER DISPOSED OFF BY T HIS TRIBUNAL BY VARIOUS ORDERS AND ON FURTHER APPEALS BY THE ASSESS EE AS WELL AS BY THE DEPARTMENT THE HONBLE HIGH COURT VIDE JUDGMENTS DA TED 21.12.2017, 03.04.2018 & 21.01.2019 HAS SET ASIDE THE ORDERS OF THE TRIBUNAL AND REMANDED THESE APPEALS BACK TO THE RECORD OF THE TR IBUNAL FOR DECIDING THE SAME AFRESH EXCEPT THE ISSUE OF PRIOR PERIOD EX PENSES WHICH WAS DECIDED IN FAVOUR OF THE ASSESSEE. HENCE, THESE GRO UP OF APPEALS HAVE BEEN PLACED BEFORE US FOR FRESH HEARING AND ADJUDIC ATION. SINCE, COMMON ISSUES ARE ARISING IN THESE APPEALS FOR ALL THESE ASSESSMENT YEARS THEREFORE, FOR THE SAKE OF CONVENIENCE THESE APPEALS ARE CLUBBED TOGETHER FOR THE PURPOSE OF HEARING AND ARE BEING D ISPOSED OFF BY THIS COMPOSITE ORDER. THE LD. AR AS WELL AS LD. DR HAS P OINTED THAT THE GROUNDS AND ISSUES RAISED IN THE CROSS APPEALS FOR THE ASSESSMENT YEAR 2006-07 COVER ALL THE ISSUES RAISED IN THE REST OF THE APPEALS. THEREFORE, FOR THE PURPOSE OF RECORDING FACTS AND GROUNDS THE CROSS APPEAL IN ITA NO. 390/JP/2016 AND 549/JP/2009 FOR THE ASSESSMENT YEAR 2006-07 ARE TAKEN AS LEAD CASE. THE GROUNDS RAISED BY THE ASSES SEE AS WELL AS REVENUE ARE AS UNDER:- ITA NO. 283/JP/2009 WITH OTHER CASES AJMER VVNL VS. ACIT/DCIT/JCIT 4 GROUNDS OF ASSESSEES APPEAL (ITA NO. 390/JP/2009 A .Y. 2006-07):- UNDER THE FACTS AND THE CIRCUMSTANCES OF THE CASE THE LD CIT(A), HAS ERRED IN MAKING THE FULL ADDITIONS/ACTI ONS CONFIRMED:- 1. DISALLOWANCE THE DEPRECIATION OF RS.4,10,11,314 /- ON NON EXISTING ASSETS. 2. DISALLOWANCE OF DEPRECIATION OF RS. 15,24,53,227 /- U/S 43(1) EXPLANATION 10 OF INCOME TAX ACT. 3. THAT FURTHER UNDER THE GIVEN CIRCUMSTANCES THE PROVISIONS OF MAT (SEC. 115JB OF INCOME TAX ACT, 1961) ARE ALSO NOT APPLICABLE. FURTHER ALTERNATIVELY THE QUANTUM OF DEPRECIATING CONSIDERED FOR DISALLOWANCE SHOULD ALSO BE CONSIDERED AS PER BOOKS AS CLAIMED AND NOT AS PER INCOME TAX RETURNS/RATES. 4. THAT FURTHER IN VIEW OF DECISION OF M/S KWALITY BISCUITS LTD. VS. CIT (284 ITR 434 (SC) CHARGING OF INTEREST U/S 234B ON MAT TAX IS ALSO BAD IN LAW. GROUNDS OF REVENUES APPEAL (ITA NO. 549/JP/2009 A. Y. 2006-07):- IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE , THE LD. CIT(A), AJMER HAS ERRED IN : 1. DELETING THE DISALLOWANCE OF RS. 9,32,66,120/- ON ACCOUNT OF PRIOR PERIOD EXPENSES. 2. RESTRICTING THE DISALLOWANCE OF RS. 15,24,53,227/- ON NON EXISTING ASSETS AS AGAINST DISALLOWANCE OF RS. 37,77,40,749/- MADE BY THE A.O. U/S 43(1) OF THE I.T. ACT WHICH IS TO BE TAKEN FOR CALCULATION OF BOOK PROFIT U/S 115JB. ITA NO. 283/JP/2009 WITH OTHER CASES AJMER VVNL VS. ACIT/DCIT/JCIT 5 3. THE ASSESSEE IS A STATE GOVERNMENT COMPANY, AND WAS INCORPORATED ON 19.07.2000 VIDE RAJASTHAN STATE EXT RAORDINARY GAZETTE NOTIFICATION DATED 18.01.2002 WHEREBY THE RAJASTHAN STATE POWER SECTOR REFORMS TRANSFER SCHEME, 2000 CAME INTO EFFE CT AND BY VIRTUE OF THIS NOTIFICATION THE ERSTWHILE RAJASTHAN STATE ELECTRICITY BOARD (RSEB) WAS CONVERTED INTO 5 DISTRIBUTION COMPANIES INCLUDING ASSESSEE. THE ASSETS AND LIABILITIES OF RSEB AS WELL AS PERSO NNEL OF THE RSEB WERE TRANSFERRED TO THESE FIVE DISTRIBUTION COMPANIES AS PER THE RESPECTIVE SCHEDULE OF THE NOTIFICATION DATED 18.01.2002. ACCO RDINGLY, AS PER TERMS AND CONDITIONS OF THE SAID NOTIFICATION THE ASSESSE E ALSO RECEIVED FIXED ASSETS AND LIABILITIES W.E.F. 19.07.2000. THE AGGRE GATE OF ASSETS AND LIABILITIES TO BE VESTED TO THE ASSESSEE ARE GIVEN IN SCHEDULE- D PART II OF THE NOTIFICATION. THE ASSESSEE FILED HIS RETURN OF INCOME ON 31.10.2006 DECLARING TOTAL LOSS OF RS. 41,36,95,55 8/-. THE AO HAS COMPLETED ASSESSMENT U/S 143(3) OF THE IT ACT ON 23 .12.2008 AND DISALLOWED VARIOUS EXPENSES AND CLAIM OF DEPRECIATI ON AS WELL AS TAX WAS CHARGED ON THE BOOK PROFIT U/S 115JB OF THE ACT BEING MINIMUM ALTERATIVE TAX (MAT). THE ASSESSEE CHALLENGED THE A CTION OF THE AO BEFORE THE LD. CIT(A) AND THE LD. CIT(A) HAS GRANTE D PART RELIEF TO THE ASSESSEE IN RESPECT OF DISALLOWANCE OF DEPRECIATION AND BY DELETING THE ITA NO. 283/JP/2009 WITH OTHER CASES AJMER VVNL VS. ACIT/DCIT/JCIT 6 ADDITION ON ACCOUNT OF PRIOR PERIOD OF EXPENSES AS WELL AS COST OF ACQUISITION/WRITTEN DOWN VALUE OF THE ASSET FOR THE PURPOSE OF DEPRECIATION BUT CONFIRMED THE OTHER ADDITION MADE BY THE AO ON ACCOUNT OF DEPRECIATION ON NON EXISTING ASSET AND D ISALLOWANCE OF DEPRECIATION U/S 43(1) OF THE ACT AS WELL AS APPLIC ABILITY OF PROVISIONS OF SECTION 115JB. THEREFORE, BOTH THE ASSESSEE AND REV ENUE HAVE CHALLENGED THE IMPUGNED ORDER OF THE LD. CIT(A). 4. GROUND NO. 1 OF THE ASSESSEES APPEAL IS REGARD ING DISALLOWANCE OF DEPRECIATION ON NON EXISTING ASSETS. THE ASSESSI NG OFFICER HAS DISALLOWED THE DEPRECIATION ON THE FIXED ASSETS WOR TH RS. 115.21 CRORES CONSIDERING THE SAME AS NOT PHYSICALLY AVAILABLE. S INCE THESE ASSETS ARE APPEARING IN LIST THE FIXED ASSETS BUT THE PHYSICAL VERIFICATION WAS YET TO BE FINALIZED BY THE ASSESSEE THEREFORE, AO IN THE A BSENCE OF PHYSICAL VERIFICATION HAS DISALLOWED THE DEPRECIATION ON THE SE ASSETS WORTH RS. 115.21 CRORES. THE LD. CIT(A) WHILE PASSING THE IMP UGNED ORDER DATED 14.09.2007 CONFIRMED THE ADDITION OF THE AO. 5. BEFORE US, THE LD. AR OF THE ASSESSEE HAS SUBMIT TED THAT THE FIXED ASSETS WERE VALUED WORTH RS. 115.21 CRORE WERE ALSO TRANSFERRED THROUGH FRP (FINANCIAL RESTRUCTURING PLAN) BEING ON ACCOUNT OF CAPITALIZATION OF INTEREST & FINANCIAL CHARGES AMOU NT ON FIXED ASSETS ITA NO. 283/JP/2009 WITH OTHER CASES AJMER VVNL VS. ACIT/DCIT/JCIT 7 VALUE. THE LD. AR FURTHER SUBMITTED THAT THE STATUT ORY AUDITOR FOR THE FINANCIAL YEAR 2002-03 (ASST, YEAR 2003-04) OF THE COMPANY, PAGE 29(10)(B) OF THE STATUTORY AUDIT REPORT FILED ALONG WITH THE RETURN HAS REPORTED THAT 'THE FIXED ASSETS OF RS. 115.21 CRORE TRANSFER THROUGH FRP WAS PHYSICALLY NOT AVAILABLE AT THE HEAD OFFICE LOC ATION.' IN A.Y. 2003- 04 THE THEN LD. A.O. CONSIDERED THIS ISSUE & DISALL OWED A SUM OF RS. 23.04 CRORE BEING 20% DEPRECIATION ON FIXED ASSET W ORTH RS. 115.21 CRORE CONSIDERING THE SAME AS NOT PHYSICALLY AVAILA BLE. THE ASSESSEE COMPANY SUBMITTED THE CERTIFICATE OF VERIFICATION O F FIXED ASSETS OF ALL CIRCLES BY CSE AND THE SAME CANNOT BE DENIED. IT IS WORTH TO NOTE THAT AS PER AUDITED ACCOUNTS & AS PER STATUTORY AUDITORS REPORT IT IS CLEAR THAT NO 'LOSS OF FIXED ASSETS' ARE THERE. FURTHER A S PER SECTION 32 OF INCOME TAX ACT, 1961 IT HAS BEEN MADE CLEAR THAT 'IN RESPECT OF DEPRECIATION OF ASSETS OWNED WHOLLY OR PARTLY BY TH E ASSESSEE AND USED FOR THE PURPOSE OF BUSINESS OR PROFESSION THE DEDUCTION FOR DEPRECIATION AS PER RU LE 5(1A) AS APPENDIX 1(A)' IS TO BE ALLOWED. THE LD CI T (A) IN ITS ORDER HAS DOUBTED THE BASIS OF ISSUANCE OF CERTIFICATE OF VERIFICATION OF FIXED ASSETS AND CERTIFICATE REGARDING NO LOSS OF ASSETS AS ISSUED BY CHIEF ACCOUNTS OFFICER AND ONLY FOR THIS REASON HAS CONFI RMED THE ADDITION FOR ITA NO. 283/JP/2009 WITH OTHER CASES AJMER VVNL VS. ACIT/DCIT/JCIT 8 DISALLOWANCE OF DEPRECIATION. EVEN NO OPPORTUNITY W AS GRANTED TO CLARIFY THE DOUBT WHEN THE CERTIFICATE CLEARLY MENTIONS FOR VERIFICATION OF FIXED ASSETS AND NO LOSS THERE IN BOOKED OF ACCOUNTS. FUR THER THE ASSETS WERE ALLOCATED BY THE STATE GOVERNMENT FROM ERSTWHILE RS EB AND ITS EXISTENCE IN A GOVERNMENT OWNED COMPANY CANNOT BE D OUBTED. FURTHER EVEN THE STATUTORY AUDITORS IN ITS REPORT HAS MENTI ONED FOR NO LOSS OF FIXED ASSETS. 6. ON THE OTHER HAND, THE LD. DR HAS SUBMITTED THAT THERE IS NO DISPUTE THAT THE FIXED ASSETS TO THE TUNE OF RS. 11 5.21 CRORES WERE NOT FOUND PHYSICALLY EXISTED AND THE ASSESSEE HAS ALSO NOT PRODUCED ANY MATERIAL TO SHOW THAT THESE ASSETS ARE PHYSICALLY V ERIFIABLE. HE HAS RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT ONCE THE ASSETS ARE NOT PHYSICALLY VERIFIABLE THEN THE D EPRECIATION ON SUCH ASSETS IS NOT ALLOWABLE AS THESE ASSETS ARE NOT USE D FOR THE ASSESSEE BUSINESS. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD. THE LIST OF ASSETS AND LIABILIT IES VESTED TO THE ASSESSEE BY VIRTUE OF THE NOTIFICATION DATED 18.01. 2002 IS GIVEN IN SCHEDULE -D PART II OF THE NOTIFICATION AS UNDER:- ITA NO. 283/JP/2009 WITH OTHER CASES AJMER VVNL VS. ACIT/DCIT/JCIT 9 THEREFORE, SO FAR AS THE FIXED ASSETS VESTED TO THE ASSESSEE IN THE PROCESS OF CONVERTING THE RAJASTHAN STATE ELECTRICI TY BOARD INTO 5 DISTRIBUTION COMPANIES AND DIVIDING THE ASSETS AND LIABILITIES AMONG ITA NO. 283/JP/2009 WITH OTHER CASES AJMER VVNL VS. ACIT/DCIT/JCIT 10 THESE 5 DISTRIBUTION COMPANIES IS CONCERNED THE SAM E IS A MATTER OF RECORD. THE ASSESSING OFFICER HAS DISALLOWED THE DE PRECIATION ON THE FIXED ASSETS OF RS. 115.21 CRORES ON THE GROUND OF NOT PHYSICALLY VERIFIABLE. WE FIND THAT THE WRITTEN DOWN VALUE OF THESE ASSETS IS ADDED TO THE BLOCK OF ASSETS AND CORRESPONDING SHARES WER E ISSUED TO THE GOVERNMENT THEN THE ASSET TO THE TUNE OF RS. 115.21 CRORES TRANSFERRED THROUGH FINANCIAL RESTRUCTURE PLAN (FRP) WHEREBY TH E CAPITALIZATION OF INTEREST AND FINANCIAL CHARGES WERE MOUNTED ON THE FIXED ASSETS VALUE. THESE ASSETS WERE ACQUIRED BY THE ASSESSEE IN THE P ROCESS OF DIVISION AND TRANSFER OF THE ASSETS AND LIABILITIES OF THE E RSTWHILE OF RAJASTHAN STATE ELECTRICITY BOARD BETWEEN 5 DISTRIBUTION COMP ANIES AND THEREFORE, IT CANNOT BE A CASE OF MAKING BOGUS CLAIM ON NON EX ISTING ASSETS BUT THE ASSETS WERE DULY TRANSFERRED BY THE GAZETTE NOT IFICATION. IT IS CLEARED FROM THE SCHEDULE-D THAT GROSS FIXED ASSETS OF RS. 1029 CRORES WERE VESTED TO THE ASSESSEE AND THE TRANSFERRED ASSETS W ERE PART OF BLOCK OF ASSETS OF THE RSEB PRIOR TO THE SAID TRANSFER AS SH OWN IN THE BALANCE SHEET OF THE RSEB. ONCE THE ASSETS WHICH WERE VESTE D TO THE ASSESSEE COMPANY WERE ALREADY PART OF THE BLOCK ASSETS OF TH E RSEB THEN THE DEPRECIATION ON SUCH ASSETS IN CASE OF DEMERGER OR SUCCESSION CAN BE ITA NO. 283/JP/2009 WITH OTHER CASES AJMER VVNL VS. ACIT/DCIT/JCIT 11 RESTRICTED ONLY IN TERMS OF 5 TH PROVISIONS TO SECTION 32(1) OF THE ACT WHICH READS AS UNDER:- [ PROVIDED ALSO THAT THE AGGREGATE DEDUCTION, IN RESPECT OF DEPRECIATION OF BUILDINGS, MACHINERY, PLANT OR FURN ITURE, BEING TANGIBLE ASSETS OR KNOW-HOW, PATENTS, COPYRIGHTS, T RADEMARKS, LICENCES, FRANCHISES OR ANY OTHER BUSINESS OR COMME RCIAL RIGHTS OF SIMILAR NATURE, BEING INTANGIBLE ASSETS ALLOWABLE T O THE PREDECESSOR AND THE SUCCESSOR IN THE CASE OF SUCCES SION REFERRED TO IN 25 [CLAUSE (XIII), CLAUSE (XIIIB) AND CLAUSE (XIV)]OF TRANSACTIONS NOT REGARDED AS TRANSFER SECTION 47 OR SECTION 170 OR TO THE AMALGAMATING COMPANY AND THE AMALGAMATED COMPANY IN THE CASE OF AMALGAMATION, OR TO THE DEMERGED COMPANY AND THE RESULTING COMPANY IN THE C ASE OF DEMERGER, AS THE CASE MAY BE, SHALL NOT EXCEED IN A NY PREVIOUS YEAR THE DEDUCTION CALCULATED AT THE PRESCRIBED RAT ES AS IF THE SUCCESSION OR THE AMALGAMATION OR THE DEMERGER, AS THE CASE MAY BE, HAD NOT TAKEN PLACE, AND SUCH DEDUCTION SHA LL BE APPORTIONED BETWEEN THE PREDECESSOR AND THE SUCCESS OR, OR THE AMALGAMATING COMPANY AND THE AMALGAMATED COMPANY, O R THE DEMERGED COMPANY AND THE RESULTING COMPANY, AS THE CASE MAY BE, IN THE RATIO OF THE NUMBER OF DAYS FOR WHICH TH E ASSETS WERE USED BY THEM. THEREFORE, THE ONLY RIDER FOR ALLOWING THE AGGREGAT E DEDUCTION IN RESPECT OF DEPRECIATION ON THE ASSETS OF THE SUCCES SOR OR DEMERGER COMPANY RESULTING IN THE CASE OF DEMERGER IS THAT I T SHALL NOT EXCEED IN ANY PREVIOUS YEAR THE DEDUCTION CALCULATED AT THE P RESCRIBED RATE AS IF THE SUCCESSION OR THE DEMERGER ETC. AS THE CASE MAY BE, HAD NOT TAKEN PLACED. IN OTHER WORDS THE CLAIM OF DEPRECIATION IN AGGREGATE SHALL NOT EXCEED THE ELIGIBLE CLAIM IN THE HANDS OF THE ERSTW HILE COMPANY I.E. ITA NO. 283/JP/2009 WITH OTHER CASES AJMER VVNL VS. ACIT/DCIT/JCIT 12 RAJASTHAN STATE ELECTRICITY BOARD. IT IS PERTINENT TO NOTE THAT THE HONBLE JURISDICTION HIGH COURT IN CASE OF CIT VS. RAJASTHAN STATE ELECTRICITY BOARD 160 TAXMAN 19 HAS HELD THAT RSEB IS A GOVERNMENT CO MPANY AND IS SUBJECT TO RIGOROUS OF INCOME TAX ACT THEREF ORE, THE ERSTWHILE RSEB WAS ENTITY SUBJECT TO INCOME TAX ACT. ONCE THE FIXED ASSETS VESTED WITH THE ASSESSEES WERE PART OF THE BLOCK OF ASSETS OF THE ERSTWHILE RSEB THEN THE DEPRECIATION ON SUCH ASSETS CANNOT BE DISALLOWED ON THE GROUND THAT SOME OF THE ASSETS WE RE NOT PHYSICAL VERIFIABLE. THE ASSESSEE RECEIVED THESE ASSETS UNDE R THE PROCESS OF DISTRIBUTION OF THE ASSETS OF THE RSEB VIDE NOTIFIC ATION DATED 18.01.2002 AND THEREFORE, THE ASSESSEE CLAIMED DEPRECIATION ON THE ASSETS WHICH WERE VESTED TO THE ASSESSEE AS PER THE WRITTEN DOWN VALUE OF BLOCK OF ASSETS SHOWN IN THE BALANCE SHEET OF THE RSEB. EVEN OTHERWISE, THE COST OF THESE ASSETS AS PER THE WRITTEN DOWN VALUE AS EXISTED IN THE BALANCE SHEET OF THE RSEB WAS PAID BY THE ASSESSEE BY ISSUING THE SHARES TO THE STATE GOVERNMENT AND HENCE THIS CLAIM OF DEPRECIATION IS BASED ON THE WRITTEN DOWN VALUE AS EXISTED IN THE R ECORD OF THE RSEB AS WELL AS IN THE BOOKS OF THE ASSESSEE AND IN CASE IF SOME OF THE ASSETS ARE NOT PHYSICALLY VERIFIABLE OR NOT FOUND TO BE PH YSICALLY EXISTED THE OVERALL COST OF FIXED ASSET REMAINS THE SAME. ITA NO. 283/JP/2009 WITH OTHER CASES AJMER VVNL VS. ACIT/DCIT/JCIT 13 7.1 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. 7.2 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 ITA NO. 283/JP/2009 WITH OTHER CASES AJMER VVNL VS. ACIT/DCIT/JCIT 14 TRANSFEROR COMPANY (RACB). THE RELEVANT PORTION OF THE JUDGMENT IN CASE OF DALMIA CERAMIC INDUSTRIES LTD. VS. CIT(SUPR A) IS REPRODUCED HEREINBELOW: 8. THE ONLY ISSUE BEFORE THIS COURT IS WHETHER TH E WRITTEN DOWN VALUE OF THE HOLDING COMPANY IS TO BE TAKEN AS ACTU AL COST OF THE ASSESSEE OR THE AMOUNT PAID BY THE ASSESSEE TO THE HOLDING COMPANY? CHAPTER IV OF THE ACT REFERS TO COMPUTATION OF BUSINESS INCOME AND SECTION 43 IS RE QUIRED TO BE EXAMINED FOR THE PURPOSE OF DECIDING THIS MATTER . SECTION 43(1) OF THE ACT WHICH DEFINES ACTUAL COST READS AS UNDER: ' (1) ' ACTUAL COST' MEANS THE ACTUAL COST OF THE A SSETS TO THE ASSESSEE, REDUCED BY THAT PORTION OF THE COST THERE OF, IF ANY, AS HAS BEEN MET DIRECTLY OR INDIRECTLY BY ANY OTHER PERSON OR AUTHORITY : PROVIDED THAT WHERE THE ACTUAL COST OF AN ASSET, B EING A MOTOR-CAR WHICH IS ACQUIRED BY THE ASSESSEE AFTER T HE 31ST DAY OF MARCH, 1967 BUT BEFORE THE 1ST DAY OF MARCH, 1975, AND IS USED OTHERWISE THAN IN A BUSINESS OF RUNNING IT ON HIRE FOR TOURISTS, EXCEEDS TWENTY-FIVE THOU SAND RUPEES, THE EXCESS OF THE ACTUAL COST OVER SUCH AMOUNT SHALL BE IGNORED, AND THE ACTUAL COST THEREOF SHALL BE TAKEN TO BE TW ENTY-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 DEPRECIATI ON ACTUALLY ITA NO. 283/JP/2009 WITH OTHER CASES AJMER VVNL VS. ACIT/DCIT/JCIT 15 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 ANY EXECUTIVE ORDERS ISSUED WHEN THE INDIA N INCOME-TAX ACT, 1886 (2 OF 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 T HE ASSESSMENT YEAR 1975-76. SUB- CLAUSE (B) CLEARLY IN DICATES THAT THE WRITTEN DOWN VALUE MEANS THE ACTUAL COST T O THE ASSESSEE LESS ALL DEPRECIATION ACTUALLY ALLOWED TO HIM UNDER THE ACT. IN THE INSTANT CASE EXPLANATION 2 TO CLAUS E (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 SUBSIDIARY COMPANY TO ITS HOLDING COMPANY, THEN, IF THE CONDITIONS OF CLAUSE (IV), OR, AS THE CASE MAY BE, OF CLAUSE (V) OF SECTION 47, ARE SATISFIED, THE WRITTEN DOWN VALUE OF THE TRANSFERRED CAPITAL ASSET TO THE TRANSFEREE-COMPANY SHALL BE TAKEN TO BE THE SAME AS IT WOULD HAVE BEEN IF THE T RANSFEROR- COM PANY HAD CONTINUED TO HOLD THE CAPITAL ASSET FO R THE PURPOSE OF ITS BUSINESS.' 11. THERE IS NO DISPUTE THAT THE CASE FALLS UNDER CLAUSE (IV) OF SECTION 47. THEREFORE, IT IS CLEAR THAT THE ACTUAL COST WOULD BE THE WRITTEN DOWN VALUE OF THE TRANSFEROR-COMPANY . THIS ASPECT IS REQUIRED TO BE BORNE IN MIND WHILE CONSID ERING 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 TRANSFE RRED BY A HOLD ING COMPANY TO ITS SUBSIDIARY COMPANY, OR BY A SUBSIDIARY COMPANY TO ITS HOLDING COMPANY, THEN, IF THE CONDITIONS OF CLAUSE (IV) OR, AS THE CASE MAY BE, O F CLAUSE (V) OF SECTION 47 ARE SATISFIED, THE ACTUAL COST OF THE TRANSFERRED CAPITAL ASSET TO THE TRANSFEREE-COMPANY SHALL BE TA KEN TO BE ITA NO. 283/JP/2009 WITH OTHER CASES AJMER VVNL VS. ACIT/DCIT/JCIT 16 THE SAME AS IT WOULD HAVE BEEN IF THE TRANSFEROR-CO MPANY HAD CONTINUED TO HOLD THE CAPITAL ASSET FOR THE PUR POSES OF ITS BUSINESS.' 12. IT IS CLEAR THAT WHAT WOULD BE THE ACTUAL COST TO THE TRANSFEREE COMPANY ON THE DATE OF TRANSFER IS INDIC ATED IN SECTION 43(1), EXPLANATION 6. THUS, THE ACTUAL COST TO THE TRANSFEREE-COMPANY WILL BE THE WDV OF THE HOLDING C OMPANY (TRANSFEROR-COMPANY). 13. THE ASSESSEE BASED ITS SUBMISSION RELYING ON M AHARANA 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. C IT [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 PLAC ED RELIANCE ON THE DECISION OF THE APEX COURT IN THE C ASE OF SAHARANPUR ELECTRIC SUPPLY CO. LTD. V. CIT [1992] 194 ITR 294 . THE APEX COURT CONSIDERED THE DECISIONS IN MAHARA NA MILLS P. LTD. V. 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 POINTED OUT AT PAGE 315 AS UND ER : ' EXPLANATION 6 OFFERS NO DIFFICULTY AS THE RELATI ONSHIP OF ' PARENT' AND ' SUBSIDIARY' BETWEEN THE COMPANIES INV OLVED IN THE TRANSFER, FOR THE PURPOSES OF THIS CLAUSE, HAS TO BE DETERMINED AS AT THE TIME OF THE TRANSFER OF THE AS SET AND WILL NOT BE A WOBBLING OR FLUCTUATING ONE AS SUGGES TED BY COUNSEL FOR THE ASSESSEE. . .' 14. THUS IN VIEW OF EXPLANATION 6 THE WRITTEN DOWN VALUE OF THE HOLDING COMPANY IS REQUIRED TO BE TAKEN INTO CONSID ERATION. ITA NO. 283/JP/2009 WITH OTHER CASES AJMER VVNL VS. ACIT/DCIT/JCIT 17 15. LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THA T THE DIFFERENCE BETWEEN THE WDV AND THE PRICE RECEIVED F OR THE PROPERTY HAS BEEN TAXED IN THE HANDS OF THE HOLDING COMPANY IN THE RELEVANT ASSESSMENT YEARS AND THERE IS NO DISPUTE ON THIS ISSUE. IN VIEW OF THIS, IT WAS SUBM ITTED THAT THE REVENUE CANNOT HAVE TAX BENEFIT AT BOTH THE PLA CES, NAMELY, IN THE HANDS OF THE PARENT COMPANY AND AT T HE HANDS OF THE ASSESSEE. IT WAS THUS SUBMITTED THAT T HERE IS NO EVASION OF TAX. 16. ON BEHALF OF THE ASSESSEE IT WAS CONTENDED THA T ACTUAL COST IS NOT STATIC AND IT IS REQUIRED TO BE DETERMINED Y EAR TO YEAR. NO DOUBT THERE MAY BE A SITUATION WHICH MAY REQUIRE THE ASSESSING OFFICER TO EXAMINE THE CASE AND RE-DETERM INE THE ACTUAL COST. IN FACT THE APEX COURT HAS CONSIDERED THIS ASPECT AT PAGE 306 AND POINTED OUT INSTANCES. THE APEX COU RT AT PAGE 309 (SEE [1992] 194 ITR) AS UNDER: 'IN PRINCIPLE, THEREFORE, WE ARE UNABLE TO ACCEPT T HE 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.' IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES OF THE CASE WHEN THE ASSESSEE HAS RECEIVED THESE ASSETS BEING TRANSFERRE D FROM RSEB AT WRITTEN DOWN VALUE AND THEREFORE, WHEN THE EXISTENC E OF THESE ASSETS WERE NOT IN DISPUTE AT THE HAND OF THE RSEB AS PART OF THE BALANCE SHEET OF THE BOARD THEN THE ASSETS TRANSFERRED UNDE R THE STATUTORY TRANSFER SCHEME TO THE ASSESSEE AT THE WRITTEN DOWN VALUE UNDER THE ITA NO. 283/JP/2009 WITH OTHER CASES AJMER VVNL VS. ACIT/DCIT/JCIT 18 BLOCK OF ASSETS WERE ELIGIBLE FOR DEPRECIATION IN T HE HANDS OF THE SUCCESSOR/TRANSFEREE. ACCORDINGLY, WE SET ASIDE THE ORDER OF THE AUTHORITY BELOW ON THIS ISSUE AND ALLOW THE CLAIM O F THE ASSESSEE. 8. GROUND NO. 2 IS REGARDING DISALLOWANCE OF DEPREC IATION BY INVOKING THE PROVISIONS OF SECTION 43(1) R.W. EXPLA NATION 10 OF INCOME TAX ACT. THE ISSUE IN GROUND NO. 2 OF THE ASSESSEE S APPEAL AND GROUND NO. 2 OF THE REVENUE APPEAL IS COMMON. THE ASSESSIN G OFFICER NOTED THAT THE ADDITION IN THE PLANT AND MACHINERY MADE B Y THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION HAS BEEN PAID P ARTLY BY THE CONSUMERS AND SOME PART HAS BEEN PAID BY THE STATE GOVERNMENT AS SUBSIDY. ACCORDINGLY, THE ASSESSING OFFICER HAS RE- COMPUTED THE COST OF ACQUISITION BY REDUCING THE PORTION WHICH IS CONTRI BUTED BY THE CONSUMERS AND THE AMOUNT OF SUBSIDY GIVEN BY THE ST ATE GOVERNMENT. HENCE, THE AO HAS DISALLOWED THE DEPRECIATION OF RS . 15,24,53,227/- BY INVOKING THE PROVISIONS OF SECTION 43(1) R.W. EXPLA NATION 10 OF THE SAID SECTION. THE LD. CIT(A) HAS CONFIRMED THE SAID ADDI TION THOUGH THE RELIEF WAS GRANTED TO THE EXTENT OF STANDARD COST TAKEN BY THE ASSESSEE IN THE BOOKS OF ACCOUNTS AS AGAINST THE EXACT/ACTUAL COST OF THE EACH OF THE ASSET. ITA NO. 283/JP/2009 WITH OTHER CASES AJMER VVNL VS. ACIT/DCIT/JCIT 19 9. BEFORE US, THE LD. AR OF THE ASSESSEE HAS SUBMIT TED THAT SINCE THE ASSESSEE IS RECEIVING SOME PART OF THE COST OF THE ASSETS AS CONTRIBUTION FROM CONSUMERS AND THE SAID AMOUNT IS TAKEN TO THE RESERVE AND THEREFORE, THE ASSESSEE SHOWING THE ASSET AT THE AC TUAL COST. HE HAS FURTHER CONTENDED THAT THE PROVISIONS OF SECTION 43 (1) R.W. EXPLANATION 10 OF THE I.T ACT IS NOT APPLICABLE IN THE CASE OF THE ASSESSEE AS THE COST OF THE ASSET IS FULLY INCURRED BY THE ASSESSEE AND IT IS ONLY UNDER THE SCHEME OF PROVIDING SUPPLY TO THE CONSUMERS THE ASSESSEE IS RECEIVING THE PART OF THE ESTIMATED EXPENDITURE FRO M THE CONSUMER. AS REGARDS THE VARIATION IN THE ACTUAL COST AND STANDA RD COST THE LD. AR HAS SUBMITTED THAT SINCE AT THE TIME OF RECEIVING PART OF THE EXPENDITURE FROM THE CONSUMER IT IS ONLY ESTIMATED EXPENDITURE BASED ON THE STANDARD COST APPLY BY THE ASSESSEE. IT IS STANDARD FORMULA FOR THE PURPOSE OF ISSUING THE MATERIAL FROM HEAD OFFICE CI RCLE AND RECOVERING PART OF THE SAME FROM THE CONSUMER. THE DIFFERENCE BETWEEN THE STANDARD COST AND ACTUAL COST HAS BEEN CREDITED/DEB ITED TO THE VALUATION RESERVE. THE ASSESSEE AS WELL AS ERSTWHIL E RSEB HAS BEEN FOLLOWING THIS METHOD CONSISTENTLY. THEREFORE, IT D OES NOT AFFECT THE REVENUE AS THE STANDARD COST MAY NOT BE HIGHER THAN THE ACTUAL COST ITA NO. 283/JP/2009 WITH OTHER CASES AJMER VVNL VS. ACIT/DCIT/JCIT 20 BUT IT MAY BE LESS THAN THE ACTUAL COST THEREFORE, THE VARIATION IS TRANSFERRED TO THE COST OF VALUATION RESERVE. 9.1 AS REGARDS THE SUBSIDY RECEIVED FROM THE STATE GOVERNMENT THE LD. AR SUBMITTED THAT THE SUBSIDY GRANT RECEIVED FR OM THE GOVERNMENT IS NOT TOWARDS THE SPECIFIC ASSET BUT IT IS SEPARAT ELY SHOWN UNDER THE HEAD CONTRIBUTION/GRANTS AND THEREFORE, THE SAID AM OUNT CANNOT BE REDUCED FROM THE COST OF THE ASSET. HE HAS THUS, CO NTENDED THAT WHEN THE SUBSIDY RECEIVED FROM THE STATE GOVERNMENT WHIC H HAS NOT DIRECT NEXUS WITH THE ASSETS THEN IT WILL NOT FALL IN THE MISCHIEF OF SECTION 43(1) R.W. EXPLANATION 10 BEING THE PORTION OF THE COST O F THE ASSET HAS BEEN MET DIRECTLY OR INDIRECTLY BY THE GOVERNMENT OR BY ANY PERSON IN THE FORM OF SUBSIDY, GRANT/ REIMBURSEMENT. THUS, THE LD . AR HAS SUBMITTED THAT IT IS NOT THE COST OF THE ASSET AS MET BY THE GOVERNMENT OR REIMBURSEMENT OF THE SAME BUT IT IS A GENERAL GRANT BY THE GOVERNMENT. 10. ON THE OTHER HAND, LD. DR HAS SUBMITTED THAT TH E ASSESSEE IS CHARGING ABOUT 30% OF THE COST FROM THE CONSUMER AN D THEREFORE, THE ACTUAL COST OF THE ACQUISITION OF THE ASSETS FOR TH E PURPOSE OF DEPRECIATION WOULD BE REDUCED BY THE SAID CONTRIBUT ION FROM THE CONSUMERS. FURTHER, THE STATE GOVERNMENT GRANTS/SUB SIDIES WHICH IS AID ITA NO. 283/JP/2009 WITH OTHER CASES AJMER VVNL VS. ACIT/DCIT/JCIT 21 IN RESPECT OF SPECIFIC EXPENDITURE THEN THE SAID GR ANT/SUBSIDY BY THE GOVERNMENT SHALL BE REDUCED FROM THE EXPENDITURE LA Y OUT IN ACQUIRING THE ASSETS IN TERMS OF SECTION 43(1) R.W. EXPLANATI ON 10. HE HAS RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 11. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WEL L AS THE RELEVANT MATERIAL ON RECORD. AS REGARDS THE ASSETS SHOWN AT STANDARD RATES AS AGAINST THE ACTUAL COST, WE FIND THAT AS A MATTER O F POLICY THE ASSESSEE IS ISSUING THE MATERIAL FROM THE HEAD OFFICE TO VAR IOUS DIVISIONS/CIRCLES AT A STANDARD RATE ROUTED THROUGH AN ACCOUNT OF MATER IAL COST OF VARIANCE IN THE PROFIT AND LOSS ACCOUNT AND RESERVE FOR MAT ERIAL COST OF VARIANCE IN THE BALANCE SHEET. THE LD. AR HAS REFERRED TO TH E DEBIT BALANCE OF RS. 41766091.63 AS AT 31.03.2006 NO LONGER A RESERVE AN D SURPLUS. WE FIND THAT A DEBIT BALANCE IN THE SAID RESERVE MATERIAL C OST OF VARIANCE MANIFEST THE FACT THAT THE STANDARD RATES ARE NOT A LWAYS MORE THAN THE ACTUAL COST BUT IT IS ONLY FOR CONVENIENCE AND SMOO TH FUNCTIONING AND EXECUTION OF WORK TO AVOID THE DELAY IN ASCERTAININ G THE ACTUAL COST OF A PARTICULAR MATERIAL AT THE TIME OF ISSUING FROM THI S STORES. THIS PRACTICE HAS BEEN CONSISTENTLY FOLLOWED THEN IN LONGER RUN I T IS REVENUE NEUTRAL AND NOT A DEVICE OR MODUS-OPPRENDI TO AVOID THE TAX . HENCE, TO THAT ITA NO. 283/JP/2009 WITH OTHER CASES AJMER VVNL VS. ACIT/DCIT/JCIT 22 EXTENT WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESS EE AND AGAINST THE REVENUE. 11.1 AS REGARDS THE DEDUCTION RECEIVED FROM THE CON SUMERS, WE FIND THAT THE SAID AMOUNT IS NOTHING BUT REIMBURSED OF T HE COST OF ACQUISITION OF THE ASSET WHICH IS USED BY THE ASSES SEE FOR PROVIDING THE SUPPLY TO THE CONSUMER AND THEREFORE, TO THAT EXTE NT THE PROVISION OF SECTION 43(1) R.W. EXPLANATION 10 ARE APPLICATION H ENCE, TO THAT EXTENT THE ORDER OF THE AUTHORITIES BELOW ARE UPHELD. 11.2. AS REGARDS THE SUBSIDY/GRANTS RECEIVED FROM T HE STATE GOVERNMENT THOUGH THE AO HAS STATED THE SAME IS TO MEET THE COST OF ASSETS DIRECTLY OR INDIRECTLY BY THE GOVERNMENT IN TERMS OF EXPLANATION 10 HOWEVER, IN THE ABSENCE OF THE SCHEME OF THE STA TE GOVERNMENT UNDER WHICH THE SUBSIDY WAS GIVEN TO THE ASSESSEE I T IS NOT POSSIBLE TO GIVE THE CONCLUDING FINDING. IT IS PERTINENT TO NOT THAT IF THE SUBSIDY IS GIVEN BY THE STATE GOVERNMENT OR CENTRAL GOVERNMENT IN RESPECT OF A PARTICULAR EXPENDITURE LAID OUT FOR ACQUISITION OF THE ASSETS THEN THE SAME WOULD BE FALLING IN THE EXPLANATION 10 OF SECT ION 43(1) OF THE ACT AND REQUIRED TO BE REDUCED FROM THE ACTUAL COST OF THE ASSETS. HOWEVER IF THE SUBSIDY IS NOT A SPECIFIC EXPENDITURE OR EXP ENSES OF DISTRIBUTION LINE OR PROVIDING SUPPLY IN A PARTICULAR CASE THEN THE SAME CANNOT BE ITA NO. 283/JP/2009 WITH OTHER CASES AJMER VVNL VS. ACIT/DCIT/JCIT 23 CONSIDERED AS DIRECTLY OR INDIRECTLY MEETING THE CO ST OF ASSET OR REIMBURSEMENT OF COST OF THE ASSET. SINCE, THE SCH EME UNDER WHICH THE SUBSIDY/GRANTS WERE GIVEN BY THE GOVERNMENT TO THE ASSESSEE ARE NOT AVAILABLE BEFORE US THEREFORE, WE DIRECT THE AO TO VERIFY THE SAME ON PRODUCTION OF THE ASSESSEE AND THEN THE ISSUE SHALL BE DECIDED IN THE LIGHT OF THE ABOVE OBSERVATION. 12. GROUND NO. 3 IS REGARDING THE APPLICABILITY OF PROVISIONS OF SECTION 115JB OF THE IT ACT FOR THE PURPOSE OF MAT. 13. WE HAVE HEARD THE LD. AR AS WELL AS THE LD. DR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE LD. AR OF THE ASSESSEE HAS SUBMITTED THAT THE ASSESSEE IS NOT MAINTAINING ITS BOOKS OF ACCOUNT AS PER SCHEDULE-VI OF THE COMPANIES ACT BUT THE ASSESS EE IS REQUIRED TO MAINTAIN ITS ACCOUNTS AS PER THE ELECTRICITY (SUPPL Y) ANNUAL ACCOUNTS RULES, 1985 AND ACCOUNTING INSTRUCTIONS. HE HAS FUR THER SUBMITTED AS PER THE ELECTRICITY (SUPPLY) ACT, 1984 THE ACCOUNTS AND AUDIT OF THE ASSESSEE SHALL BE IN THE FORM AS THE CENTRAL GOVERN MENT MAY BY THE NOTIFICATION IN OFFICIAL GAZETTE PRESCRIBED BY RULE S MADE IN THIS BEHALF. THUS THE LD. AR AS CONTENDED THAT THE PROVISIONS OF SECTION 115JB OF THE ACT ARE NOT APPLICABLE IN THE CASE OF THE ASSES SEE AS THE ASSESSEE IS NOT REQUIRED TO PREPARE ITS ACCOUNTS AS PER SCHEDUL E-VI OF COMPANY ACT. ITA NO. 283/JP/2009 WITH OTHER CASES AJMER VVNL VS. ACIT/DCIT/JCIT 24 IN SUPPORT OF HIS CONTENTION, HE HAS RELIED UPON TH E VARIOUS DECISIONS INCLUDING THE RULING OF AUTHORITY FOR ADVANCE RULIN G, NEW DELHI IN CASE OF JODHPUR VIDHYUT VITRARAN NIGAM LTD. WHICH HAS BE EN ACCEPTED BY THE REVENUE REGARDING THE APPLICABILITY OF THE PROVISIO NS OF SECTION 115JB OF THE ACT. HE HAS ALSO RELIED UPON THE DECISION OF HO NBLE SUPREME COURT IN CASE OF APOLLO TYRES LTD. VS. CIT 255 ITR 273 WHEREIN IT WAS HELD THAT THE AO WHILE COMPUTING THE BOOK PROFIT HAS ONL Y THE POWER OF EXAMINING WHETHER THE BOOKS OF ACCOUNTS ARE CERTIFI ED BY THE AUTHORITIES UNDER THE COMPANIES ACT AS HAVING BEING PROPERLY MAINTAIN IN ACCORDANCE WITH THE COMPANIES ACT AND THE AO HAS NO JURISDICTION TO TINKER WITH NET PROFIT SHOWN IN THE PROFIT AND LOSS ACCOUNT EXCEPT TO THE EXTENT OF ADJUSTMENT PROVIDED U/S 115JB OF THE ACT. THE ASSESSEE HAS BEEN MAINTAINING THE ACCOUNTS AS PER ELECTRICITY (S UPPLY) ACT READ WITH ELECTRICITY (SUPPLY) ANNUAL ACCOUNTS RULES 1985 AND THEREFORE, WHEN THE BOOKS ARE NOT PREPARED AS SCHEDULE VI OF THE CO MPANY ACT THEN THE PROVISIONS OF SECTION 115JB OF THE ACT ARE NOT APPL ICABLE. 14. ON THE OTHER HAND, LD. DR HAS SUBMITTED THAT AS PER PROVISIONS OF SECTION 115JB OF THE ACT THERE IS NO EXCLUSION OF T HE ASSESSEE FROM THE APPLICABILITY OF THE SAID PROVISION AND FURTHER AS PER THE CIRCULAR NO. 762 DATED 18.02.1998 ISSUED BY THE CBDT ONLY COMPANIES ENGAGED IN THE ITA NO. 283/JP/2009 WITH OTHER CASES AJMER VVNL VS. ACIT/DCIT/JCIT 25 BUSINESS OF GENERATION AND DISTRIBUTION OF POWER AN D THOSE ENTERPRISES ENGAGED IN DEVELOPING, MAINTAINING AND OPERATING IN FRASTRUCTURE FACILITIES UNDER SUB-SECTION (4A) OF SECTION 80IA A RE EXEMPTED FROM THE LEVY OF MAT, SO THAT THE INCENTIVES GIVEN TO INFRA STRUCTURE DEVELOPMENT IS NOT AFFECTED. HE HAS FURTHER REFERRED TO THE ANN UAL REPORT OF THE ASSESSEE AND SUBMITTED THAT THE ANNUAL GENERAL MEET ING OF THE ASSESSEE COMPANY WAS CONVEYED AS PER PROVISIONS OF THE COMPANIES ACT THEREFORE, THE PROVISIONS OF COMPANY ACT ARE AP PLICABLE FOR MAINTAINING THE ACCOUNTS BY THE ASSESSEE. HE HAS RE LIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 15. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WEL L AS THE RELEVANT MATERIAL ON RECORD. WE FIND THAT AS PER THE NOTIFIC ATION DATED 18.01.2002 THE ASSESSEE WAS REQUIRED TO OBTAIN THE LICENCE U/S 80 OF THE ELECTRICITY (SUPPLY) ACT, 1948 AND THEREFORE, T HE FUNCTION OF THE ASSESSEES ARE GOVERNED BY ELECTRICITY (SUPPLY) ACT AS WELL AS RULES FRAMED THEREUNDER. AS PER THE ELECTRICITY (SUPPLY) ANNUAL ACCOUNTS RULES, 1985 AND ACCOUNT INSTRUCTIONS THE ANNUAL STA TEMENTS OF THE DISTRIBUTION COMPANY ARE DEFINED AS IT IS PREPARED AS PER RULE-5(1) OF THE RULES. THEREFORE, THE ASSESSEE IS NOT REQUIRED TO MAINTAIN THE BOOKS OF ACCOUNTS AS PER SCHEDULE VI OF THE COMPANIES ACT BUT THE ACCOUNTS ITA NO. 283/JP/2009 WITH OTHER CASES AJMER VVNL VS. ACIT/DCIT/JCIT 26 ARE TO BE MAINTAINED AS PER ELECTRICITY (SUPPLY) AN NUAL ACCOUNTS RULES, 1985 AND ACCOUNT INSTRUCTIONS. THERE IS NO DISPUTE THAT THE ACCOUNT OF THE ASSESSEES ARE AUDITED THROUGH CAG AND HENCE, EV EN AS PER AUDIT REPORT THE ACCOUNTS OF THE ASSESSEE WERE EXAMINED I N LIGHT OF THE ELECTRICITY (SUPPLY) ACT AND RULES. FURTHER, WHEN T HE AUTHORITY OF ADVANCE RULING HAS ALREADY DECIDED THIS ISSUE IN TH E MATTER OF JODHPUR VIDYUT VITARAN NIGAM LIMITED THEN THE PROVISIONS OF SECTION 115JB OF THE ACT FOR THE PURPOSE OF MAT ARE NOT APPLICABLE I N THE CASE OF THE ASSESSEE. THE REVENUE WAS NOT BROUGHT ANY RECORD BE FORE US TO SHOW THAT THE RULING OF AUTHORITY FOR ADVANCE RULING (IN COME TAX), NEW DELHI HAS BEEN EITHER REVERSED OR SET ASIDE. ACCORDINGLY, IN THE FACTS AND CIRCUMSTANCES OF THE CASE WE HOLD THAT THE PROVISIO NS OF SECTION 115JB OF THE ACT AS EXISTED AT THE RELEVANT POINT OF TIME FOR THE YEARS UNDER CONSIDERATION PRIOR TO THE AMENDMENT BY FINANCE ACT , 2012 ARE NOT APPLICABLE IN THE CASE OF THE ASSESSEE. 16. GROUND NO. 4 OF THE ASSESSEES APPEAL IS REGARD ING INTEREST U/S 234B WHICH IS CONSEQUENTIAL IN NATURE. 17. GROUND NO. 1 OF THE REVENUES APPEAL IS REGARDI NG DISALLOWANCE OF PRIOR PERIOD EXPENSES WHICH WERE DELETED BY THE LD. CIT(A). ITA NO. 283/JP/2009 WITH OTHER CASES AJMER VVNL VS. ACIT/DCIT/JCIT 27 18. WE HAVE HEARD THE LD. DR AS WELL AS LD. AR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET, WE NOTE THAT THIS ISSUE IS COMMON IN ALL THE APPEAL AND THE HONBLE HIGH COURT IN THE CASE OF THE ASSESSEE HAS ALREADY DECIDED THIS ISSUE IN FAVOUR O F THE ASSESSEE VIDE DECISION DATED 29.05.2017 IN ITA NO. 333/2009. THE ISSUE WAS AGAIN CONSIDERED BY THE HONBLE HIGH COURT IN THE SUBSEQU ENT ASSESSMENT YEARS INCLUDING THE ASSESSMENT YEAR 2007-08 AND VID E JUDGMENT DATED 03.04.2018 IN D.B. INCOME TAX APPEAL NO. 25/2018 IT HAS BEEN HELD IN PARA 04 AND 5 AS UNDER:- 4 THE FACTS OF THE CASE ARE THAT THE ASSESSEE COMP ANY HAS CLAIMED PRIOR PERIOD EXPENSES AMOUNTING TO RS. 4,64,27,170/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE COMPANY SUBMITTED THAT IT IS A PUBLIC SECTOR UNDERTAKING CARRYING ON THE BUSINESS OF TRANSMISSION, DISTRIBUTION AND SUPPLY OF ELECTRICIT Y. THE COMPANY WAS FORMED AFTER RESTRUCTURING OF RAJASTHAN STATE ELECTRICITY BOARD (RSEB) ON 19.06.2000 AND AT THAT TIME, CERTAIN ASSETS, LIABILITIES, COMMON EXPENDITURE WER E ALSO TRANSFERRED FROM RSEB WHICH WERE SUBJECT TO RECONCI LIATION. THE ASSESSMENT YEAR UNDER CONSIDERATION IS FOURTH Y EAR OF ITS OPERATION AND CERTAIN EXPENSES AND INCOME BEING IN THE NATURE OF PRIOR PERIOD ITEMS WERE CLAIMED AS PER NO RMAL ACCOUNTING NORMS AND ON THE BELIEF THAT THESE EXPEN SES THOUGH PERTAINING TO THE PREVIOUS YEARS ARE ADMISSI BLE ONLY IN THE YEAR IN WHICH IT CRYSTALLIZED AND ACCOUNTED FOR ON THE BASIS OF SYSTEM OF ACCOUNTING REGULARLY FOLLOWED BY THE ASSESSEE. FURTHER DETAILS OF SUCH INCOME AND EXPENS ES WERE SUBMITTED DURING THE ASSESSMENT PROCEEDING. TH E ITA NO. 283/JP/2009 WITH OTHER CASES AJMER VVNL VS. ACIT/DCIT/JCIT 28 ASSESSING OFFICER DID NOT AGREE TO THE SUBMISSION O F THE ASSESSEE AND HELD THAT THE NET PRIOR PERIOD EXPENSE S OF RS. 4,64,27,170/- DEBITED DURING THE YEAR HAS DISTORTED THE PROFITS OF THE YEAR AS THE ASSESSEE IS FOLLOWING ME RCANTILE SYSTEM OF ACCOUNT AND EXPENDITURE NOT RELATED TO TH E PREVIOUS YEAR CANNOT BE ALLOWED TO BE DEDUCTED FROM INCOME OF THE SUBJECT PREVIOUS YEAR. IT WAS FURTHER STATED BY THE AO THAT THIS EXPENDITURE ALSO DOES NOT FALL UNDER THE PROVISIONS OF SECTION 25D OF THE ACT. REGARDING ASS ESSEE COMPANYS CONTENTION THAT THE ISSUE HAS BEEN DECIDE D IN ITS FAVOUR BY THE LD. CIT(A) FOR A.Y. 2002-03, THE ASSE SSING OFFICER STATED THAT SINCE THE REVENUE IS AN APPEAL BEFORE THE TRIBUNAL AGAINST THE SAID ORDER, HE IS NOT IN A POSITION TO FOLLOW THE ORDER OF THE LD. CIT(A). FINALLY, THE ASSESSING OFFICER, FOLLOWING THE PAST HISTORY OF THE ASSESSEE , DISALLOWED THE PRIOR PERIOD EXPENDITURE AMOUNT TO R S. 4,64,27,170/-. 5. NOW WITH REGARD TO ISSUE OF PRIOR PERIOD EXPENSE S, THE SAME IS CONCLUDED IN FAVOUR OF THE ASSESSEE IN VIEW OF THE DECISION RENDERED IN ITA NO. 333/2009, REVIEW APPLI CATION NO. 66/2018 AGAINST THE SAID DECISION HAS BEEN REJE CTED TODAY. THEREFORE, THE ISSUE IS NOW SETTLED AND COVERED BY THE DECISIONS OF HONBLE JURISDICTION HIGH COURT IN ASSESSEES OWN C ASE. ACCORDINGLY, FOLLOWING THE DECISION OF HONBLE JURISDICTION HIGH COURT THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE AGAINST THE REVEN UE. 19. THE ABOVE DISCUSSED 3 ISSUES ARE INVOLVED IN AL L THESE APPEALS AND THEREFORE, IN VIEW OF OUR FINDINGS ON THESE 3 I SSUES ALL THE APPEALS OF THE ASSESSEE AND CROSS APPEALS OF THE REVENUE ST AND DISPOSED OFF. ITA NO. 283/JP/2009 WITH OTHER CASES AJMER VVNL VS. ACIT/DCIT/JCIT 29 IN THE RESULT, THE APPEALS OF THE ASSESSEE AS WELL AS CROSS APPEALS OF THE REVENUE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 31/05/2019. SD/- SD/- FOE FLAG ;KNO FOT; IKY JKO (VIKRAM SINGH YADAV) (VIJAY PAL RAO) YS[KK LNL;@ ACCOUNTANT MEMBER U;KF;D LNL;@ JUDICIAL MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 31/05/2019. * SANTOSH. VKNS'K DH IZFRFYFI VXZSFKR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- M/S AJMER VIDYUT VITRAN NIGAM LTD., AJMER 2. IZR;FKHZ@ THE RESPONDENT- ACIT/DCIT/JCIT, CIRCLE-2/RANGE-2, AJMER. 3. VK;DJ VK;QDR@ CIT 4. VK;DJ VK;QDR@ CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR. 6. XKMZ QKBZY@ GUARD FILE {ITA NO. 283, 284/JP/09, 390/JP/09, 385, 386 & 549/JP/2009 & 361 TO 370/JP/2016 & 357 TO 360 /JP/2016} VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASST. REGISTRAR