Bangalore Electricity Supply Company Limited, Bangalore V. DCIT, Bangalore

ITA 359/BANG/2009

• Counselvise Citation: 35921114 RSA 2009
• Duration Of Justice: 3 year(s) 2 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-07-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 19-06-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 21-04-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: S K AMBASTHA CITIDR
• Keywords: Capital asset; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI N. BARATHVAJA SANKAR, VICE PRESIDENT AND SHRI N.V. VASUDEVAN, JUDICIAL MEMBER ITA NO. 359/BANG/2009 ASSESSMENT YEAR : 2005-06 M/S. BANGALORE ELECTRIC SUPPLY COMPANY LTD., CORPORATE OFFICE, IVTH FLOOR, K.R. CIRCLE, BANGALORE 56 0001. PAN : AACCB 1412G VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 11(2), BANGALORE. APPELLANT RESPONDENT APPELLANT BY : SHRI V. SRIDHAR, C.A. RESPONDENT BY : SHRI S.K. AMBASTHA, CIT-I(DR) DATE OF HEARING : 27.06.2012 DATE OF PRONOUNCEMENT : 04.07.2012 O R D E R PER N.V. VASUDEVAN, JUDICIAL MEMBER THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER DATED 10.02.2009 OF THE CIT(APPEALS)-I, BANGALORE RELATING TO ASSESS MENT YEAR 2005-06. 2. THE ONLY ISSUE THAT ARISES FOR CONSIDERATION IN THIS APPEAL IS AS TO WHETHER THE ASSESSEE IS ENTITLED TO CLAIM DEDUCTION U/S. 80-IA(4)(IV)(C) OF THE INCOME-TAX ACT, 1961 (THE ACT). ITA NO.359/BANG/09 PAGE 2 OF 12 3. THE ASSESSEE IS A WHOLLY OWNED GOVERNMENT OF KAR NATAKA UNDERTAKING. IT IS AN ELECTRICITY DISTRIBUTION COM PANY. THE ASSESSEE CLAIMED DEDUCTION 80-IA(4)(IV)(C) OF THE ACT IN RES PECT OF THE PROFITS DERIVED FROM THE DISTRIBUTION OF POWER AT 100% OF THE GROSS TOTAL INCOME. SECTION 80-IA PROVIDES THAT WHERE THE GROSS TOTAL INCOME OF THE ASSESSEE INCLUDES ANY PROFITS AND GAINS DERIVED BY AN UNDERTAKING OR AN ENTERPRISE FROM ANY BUSINESS REFERRED TO IN SUB-SECTION (4), THERE SHAL L, IN ACCORDANCE WITH AND SUBJECT TO THE PROVISIONS OF SECTION 80-IA, BE ALLO WED, IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE, A DEDUCTION OF AN AMOUNT EQ UAL TO 100% OF THE PROFITS AND GAINS DERIVED FROM SUCH BUSINESS FOR TE N CONSECUTIVE ASSESSMENT YEARS. THE ASSESSEE CLAIMED DEDUCTION U NDER SECTION 80- IA(4)(IV)(C) OF THE ACT. THOSE PROVISIONS READ AS FOLLOWS:- (4) THIS SECTION APPLIES TO . (IV) AN UNDERTAKING WHICH, . (C) UNDERTAKES SUBSTANTIAL RENOVATION AND MODERNIZ ATION OF THE EXISTING NETWORK OF TRANSMISSION OR DISTRIBUTIO N LINES AT ANY TIME DURING THE PERIOD BEGINNING ON THE 1ST DAY OF APRIL 2004, AND ENDING ON 31ST DAY OF MARCH, 2010. EXPLANATION: FOR THE PURPOSES OF THIS SUB-CLAUSE, SUBSTANTIAL RENOVATION AND MODERNISATION MEANS AN INCREASE IN THE PLANT AND MACHINERY IN THE NETWORK OF TRANSMISSION OR DIS TRIBUTION LINES BY AT LEAST FIFTY PER CENT OF THE BOOK VALUE OF SUCH PLANT AND MACHINERY AS ON THE 1 ST DAY OF APRIL, 2004 . 4. THE ASSESSEE CLAIMED THAT IT HAD DURING THE PREV IOUS YEAR RELEVANT TO AY 05-06 UNDERTAKEN SUBSTANTIAL RENOVATION AND M ODERNIZATION AND THEREFORE WAS ENTITLED TO CLAIM DEDUCTION U/S.80-IA (4)(IV)( C) OF THE ACT. ITA NO.359/BANG/09 PAGE 3 OF 12 THERE IS NO DISPUTE THAT THE BOOK VALUE OF LINES, C ABLE NETWORKS AS ON 1.4.2004 WAS AS UNDER: --------------------------------------------------- ----------------------------------------- PARTICULAR AMOUNT RS. IN CRORES --------------------------------------------------- ----------------------------------------- THE AMOUNT DISCLOSED UNDER SCHEDULE 6 OF THE LINES, CABLE NETWORK 523.02 OUT OF THE AMOUNT DISCLOSED UNDER SCH.7 AS CAPITAL WORKS-IN-PROGRESS(WIP) OF RS.45.10 CRORES -DISCLOSED AS PART OF THE FIXED ASSETS 20.68 -------------- TOTAL 543.70 --------------------------------------------------- ----------------------------------------- 5. TO CLAIM DEDUCTION U/S.80-IA(4)(IV)( C) OF THE A CT, THE ASSESSEE HAD TO ASSESSEE HAD TO ACHIEVE AN INCREASE IN THE BOOK VALUE OF THE FIXED ASSETS - PLANT & MACHINERY VIZ., LINES, CABLE NETWO RK BY AT LEAST 50% OF THE BOOK VALUE OF SUCH PLANT & MACHINERY AS ON 01.0 4.2004 I.E., AN MINIMUM INCREASE OF RS.271.85 CRORES. (A) AS ON 31.3.2005, THE ADDITIONS TO THE LINES, C ABLE NETWORK AS PER THE BOOKS OF ACCOUNTS WAS AS FOLLOWS: --------------------------------------------------- ----------------------------------------- PARTICULARS AMOUNT (RS.IN CRORES) --------------------------------------------------- ----------------------------------------- IMPROVEMENT, MODERNIZATION AND RENOVATION WORKS ON THE EXISTING NETWORK OF LINES, CABLE NETWORK. -CAPITALISED DURING THE YEAR 163.33 OTHER WORKS IN LINES, CABLE NETWORK CAPITALISED DURING THE YEAR 31.07 ------------ TOTAL 194.40 --------------------------------------------------- ----------------------------------------- ITA NO.359/BANG/09 PAGE 4 OF 12 (B) CAPITAL WORKS-IN-PROGRESS (CWIP) (ASSETS OF CA PITAL WORKS IN THE COURSE OF CONSTRUCTION OR ACQUISITION) SCHEDULE 7 T O THE AUDITED BALANCE SHEET --------------------------------------------------- ----------------------------------------- PARTICULARS AMOUNT RS.IN CRORES --------------------------------------------------- ----------------------------------------- IMPROVEMENT, MODERNIZATION AND RENOVATION WORKS ON THE EXISTING NETWORK OF LINES, CABLE NETWO RK -ADDITIONS DURING THE YEAR (OUT OF TOTAL CWIP OF RS.158.10 CRORES). SCHEDULE 7 OF BALANCE SHEET 118.84 --------------------------------------------------- ----------------------------------------- (C) TOTAL GROSS BLOCK OF LINES CABLE, NEWORK ( A + B) --------------------------------------------------- ----------------------------------------- PARTICULAR AMOUNT RS.IN CRORES --------------------------------------------------- ----------------------------------------- TOTAL- LINES, CABLE NETWORK CAPITALIZED AND ADDED TO THE CWIP DURING THE YEAR PERTAINING TO OTHER LINES, CABLE NETWORK 313.24 LESS: OTHER USUAL WORKS RELATING TO NEW LINES CABLES, SERVICE CONNECTIONS EXTENSIONS ETC. 31. 07 ------------- 282.17 --------------------------------------------------- ----------------------------------------- ACCORDING TO THE ASSESSEE THE INCREASE IN BOOK VALU E AS AFORESAID WAS MORE THAN 50% OF THE BOOK VALUE AS CONTEMPLATED BY THE PROVISIONS OF SEC.80-IA(4)(IV)(C) OF THE ACT AND THEREFORE DEDUCT ION AS CLAIMED BY THE ASSESSEE SHOULD BE ALLOWED. 6. SHRED OF ALL TECHNICALITIES, THE CLAIM OF THE A SSESSEE WAS THAT CWIP TO THE EXTENT OF RS.118.84 CRORES, SHOULD ALSO BE C ONSIDERED AS INCREASE IN THE PLANT AND MACHINERY IN THE NETWORK OF TRANSMISS ION OR DISTRIBUTION LINES. THE REVENUES CLAIM IS THAT WHEN AN ITEM OF EXPENDI TURE IS TREATED AS ITA NO.359/BANG/09 PAGE 5 OF 12 CAPITAL WORKS IN PROGRESS IN THE BOOKS OF ACCOUNTS IT CANNOT BE SAID TO BE AN INCREASE IN THE PLANT AND MACHINERY. THE SITUAT ION IS THAT THE ASSESSEE HAS PLACED ORDERS FOR PURCHASE OF CABLES AND AWARDE D CONTRACTS FOR CARRYING OUT CIVIL WORK FOR ERECTION OF TRANSMISSIO N AND DISTRIBUTION LINES BUT THE WORK IS NOT COMPLETE AND IS IN PROGRESS. HENCE IN THE BOOKS OF ACCOUNTS THE SAID EXPENDITURE (WHICH IS A SUM OF RS .118.84 CRORES GIVEN IN THE TABLE IN THE EARLIER PARA OF THIS ORDER) IS NOT CAPITALIZED AND SHOWN AS VALUE OF PLANT AND MACHINERY BUT IS SHOWN AS CAPITA L WORK IN PROGRESS. THE QUESTION IS WHETHER CAPITAL WORK IN PROGRESS CAN AL SO BE CONSIDERED AS BOOK VALUE OF PLANT AND MACHINERY FOR ALLOWING DEDU CTION U/S.80-IA(4)( C) OF THE ACT. 7. THE CASE OF THE ASSESSEE IS THAT THE PROVISIONS OF SEC.80-IA(4)(C) OF THE ACT CONTEMPLATES DEDUCTION TO AN ASSESSEE WHO UNDERTAKES. ACCORDING TO THE ASSESSEE BY PLACING ORDER FOR PURC HASE OF CABLE AND TRANSMISSION LINES AND ENTERING INTO CONTRACT FOR C ARRYING OUT CIVIL WORK, THE ASSESSEE HAS UNDERTAKEN SUBSTANTIAL RENOVATION AND THEREFORE THE DEDUCTION SHOULD BE ALLOWED. THE CASE OF THE REVEN UE IS THAT THE PROVISIONS OF SEC.80-IA(4)(C) OF THE ACT SAYS THAT THERE SHOULD BE INCREASE IN THE VALUE OF PLANT AND MACHINERY IN THE BOOKS OF ACCOUNTS AND SUCH INCREASE CAN BE SAID TO BE REAL ONLY WHEN THE RENOV ATION OR MODERNIZATION IS COMPLETE AND NOT WHEN THE SAME IS IN PROGRESS. IN THIS REGARD, IT IS RELEVANT TO POINT OUT THAT THE AFORESAID DEDUCTION IS AVAILABLE FOR A PERIOD OF 10 YEARS FROM THE YEAR IN WHICH THE RENOVATION AND MODERNIZATION TAKES PLACE. ANOTHER REASONING OF THE REVENUE IS THAT TH E DEDUCTION IN QUESTION IS ALLOWED ONLY TO ENCOURAGE MODERNIZATION SO THAT TRA NSMISSION LOSSES ARE ITA NO.359/BANG/09 PAGE 6 OF 12 REDUCED AND OPERATIONAL EFFICIENCY INCREASES AND TH EREFORE THE DEDUCTION SHOULD BE ALLOWED ONLY WHEN THE RENOVATION IS COMPL ETED AND PUT TO USE. THE REVENUE HAS ALLOWED DEDUCTION TO THE ASSESSEE I N THE SUBSEQUENT A.Y. AND FOR 10 YEARS FROM AY 06-07, THE ASSESSEE W ILL GET DEDUCTION. THE ASSESSEE HOWEVER WANTS TO CLAIM THE DEDUCTION FROM AY 05-06. THE DISPUTE THEREFORE BOILS DOWN TO THE FIRST YEAR IN W HICH DEDUCTION HAS TO BE ALLOWED. ULTIMATELY, NEITHER THE REVENUE NOR THE A SSESSEE WILL BE AT ANY LOSS. NEVERTHELESS THE QUESTION AS TO WHETHER THE CONDITIONS LAID DOWN IN SEC.80-IA(4)(IV)( C) ARE SATISFIED OR NOT HAS TO BE DECIDED. 8. BEFORE CIT(A), THE ASSESSEE POINTED OUT THAT IT HAD UNDERTAKEN CONTRACT WORK UNDER THE ACCELERATED POWER DEVELOPME NT REFORMS PROGRAMME (APDRP) AS PER THE GUIDELINES FRAMED BY T HE MINISTRY OF POWER, GOVERNMENT OF INDIA FOR STRENGTHENING, UPGRA DATION AND MODERNIZATION OF EXISTING LINES AND CABLE NETWORK S YSTEM TO THE EXTENT OF RS.339.16 CRORES DURING THE FY RELEVANT TO AY 05-06 . IT WAS FURTHER SUBMITTED THAT THE NATURE OF RENOVATION AND MODERNI ZATION WORKS IN THE LINES AND CABLE NETWORK OF DISTRIBUTION LINES AND T HE PROGRESS OF WORKS AT VARIOUS STAGES FOR WHICH THE ASSESSEE HAD SUBSTANTI ALLY INCURRED AMOUNTS BY WAY OF PAYMENTS TO CONTRACT SUPPLIERS AS ADVANCE OR BY WAY OF CAPITAL WORK-IN-PROGRESS OR CAPITAL GOODS STOCK APART FROM CAPITALIZATION OF SUCH LINES AND CABLES IN THE BLOCK OF FIXED ASSETS WAS T O THE EXTENT OF RS.194.40 CRORES. IT WAS CLAIMED BY THE ASSESSEE T HAT THOUGH A SUM OF RS.118.84 CRORES WAS SHOWN AS CAPITAL ASSETS WORK I N PROGRESS IN THE BALANCE SHEET THE SAME HAD TO BE CONSIDERED AS PART OF THE FIXED ASSETS. IT WAS THE CLAIM OF THE ASSESSEE THAT AS PER AS-10 ISSUED BY THE ICAI ITA NO.359/BANG/09 PAGE 7 OF 12 (INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA), ACCO UNTING FOR FIXED ASSETS, STATES THAT CAPITAL WORK-IN-PROGRESS FOR CAPITAL EX PENDITURE INCURRED ON ACCOUNT OF FIXED ASSETS DURING THE COURSE OF CONSTR UCTION OR ACQUISITION HAS TO BE SEPARATELY SHOWN UNDER THE GROSS BLOCK OF FIX ED ASSETS. THE ASSESSEE ALSO RELIED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. KARNATAKA POWER CORPORATION LTD. 247 ITR 26 8 (SC) WHEREIN THE HONBLE SUPREME COURT IN THE CONTEXT OF RELIEF U/S.80J OF THE ACT HELD THAT CAPITAL WORK IN PROGRESS IS TO BE TRE ATED AS CAPITAL WORKS OF FIXED ASSETS. 9. THE CIT(A) HOWEVER CONCURRED WITH THE VIEW OF TH E AO. HE ALSO HELD THAT THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF KARNATAKA POWER CORPORATION LTD. ( SUPRA ) WAS IN THE CONTEXT OF THE PROVISION OF SEC.80J OF THE ACT WHERE DEDUCTION WAS ALLOWED AS A PERCENTAGE OF CAPITAL EMPLOYED IN THE INDUSTRIAL U NDERTAKING AND IN THAT CONTEXT THE HONBLE APEX COURT HELD THAT THE MOMENT AN ASSET IS ACQUIRED OR PURCHASED IT HAS BE CONSIDERED AS EMPLOYED IN BU SINESS. THE CIT(A) HELD THAT THE AFORESAID DECISION WOULD THEREFORE NO T BE RELEVANT IN THE PRESENT CASE. 10. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSES SEE HAS PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. THE ISSUE THAT ARISES FOR CONSIDERATION IN THIS APPEAL IS AS TO WHETHER THE S UM WHICH IS SHOWN AS CWIP IN THE BALANCE SHEET CAN BE CONSIDERED AS PLAN T & MACHINERY AS PER THE BOOKS FOR THE PURPOSE OF ALLOWING DEDUCTION U/S . 80-IA(4)(IV)(C) OF THE ACT. IN THIS REGARD, OUR ATTENTION WAS DRAWN TO SC HEDULE-06 AND 7 OF THE ITA NO.359/BANG/09 PAGE 8 OF 12 BALANCE SHEET. SCHEDULE-7 TO THE BALANCE SHEET, S HOWS THE VALUE OF CWIP AS FOLLOWS:- SCHEDULE: 07 CAPITAL WORKS IN PROGRESS AMOUNT IN RUPEES PARTICULARS ACCOUNT CODE CURRENT YEAR 2004-05 PREVIOUS YEAR 2003-04 CAPITAL WORK IN PROGRESS 14 73,35,25,166 41,97,5 2,769 INTEREST DURING IMPLEMENTATION PERIOD 10,48,64,661 1,33,67,882 CONTRACT IN PROGRESS 15.12 48,53,610 3 8,47,411 PROVISION FOR WORKS 15.500 73,77,86,096 1,40, 78,993 TOTAL 158,10,29,533 45, 10,47,005 11. THE CLAIM OF THE ASSESSEE IS THAT A SUM OF RS.1 18.84 CRORES OUT OF THE ABOVE IS CAPITAL EXPENDITURE INCURRED FOR MODER NIZATION AND RENOVATION OF THE EXISTING CABLE/NETWORK AND THEY WERE TO BE C ONSIDERED AS PART OF THE FIXED ASSETS. IT WAS SUBMITTED THAT IN SCHEDULE-11 TO THE BALANCE SHEET, ADVANCE TO SUPPLIERS AND ADVANCE TO CONTRACTORS HAV E BEE SHOWN AS LOANS & ADVANCES. OUR ATTENTION WAS DRAWN TO ACCOUNTING STANDARD (AS-10) OF INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA (ICAI) WHEREIN, IT HAS BEEN OPINED AS FOLLOWS:- DETERMINATION AND DISCLOSURE OF CAPITAL WIP WHEN O UTSIDE CONTRACTOR IS HIRED: THE AMOUNT AT WHICH CAPITAL WORK-IN-PROGRESS SHOULD BE RECOGNISED BY THE COMPANY SHOULD REFLECT THE STAGE OF CONTRACT PERFORMANCE. AS THE PROGRESS PAYMENTS TO THE CONTRA CTOR MAY NOT NECESSARILY REFLECT THE STAGE OF CONTRACT PERFORMAN CE, ACCOUNTING FOR CAPITAL WORK-IN-PROGRESS BASED ON PROGRESS PAYM ENTS WOULD NOT BE APPROPRIATE. IN ORDER TO RECOGNISE CAPITAL W ORK-IN-PROGRESS BASED ON THE STAGE OF CONTRACT PERFORMANCE, IT IS E SSENTIAL THAT SUCH STAGE SHOULD BE CAPABLE OF BEING REASONABLY ES TIMATED. THE STAGE OF CONTRACT PERFORMANCE AT A GIVEN POINT OF T IME MAY COMPRISE TWO ELEMENTS: WORK CERTIFIED BY THE COMPAN Y AND WORK NOT YET SO CERTIFIED. AS FAR AS THE WORK NOT CERTIF IED IS CONCERNED, IT SHOULD BE INCLUDED IN CAPITAL WORK-IN-PROGRESS O NLY IF A RELIABLE ITA NO.359/BANG/09 PAGE 9 OF 12 ESTIMATE THEREOF CAN BE MADE. IF SUCH IS NOT THE CA SE, THE CAPITAL WORK-IN-PROGRESS SHOULD BE RECOGNISED BASED ON THE WORK CERTIFIED ONLY. PROGRESS PAYMENTS AND ADVANCES PAID TO THE CONTRACTOR NOT SO FAR ADJUSTED TO CAPITAL WORK-IN-P ROGRESS SHOULD BE REFLECTED AS CAPITAL ADVANCES IN THE FINANCIAL S TATEMENTS. 12. IT WAS SUBMITTED THAT IN CASE OF THE ASSESSEE, THE CWIP HAD BEEN CERTIFIED AND IN VIEW OF THE AFORESAID ACCOUNTING S TANDARD, THE SAME WAS SHOWN AS CWIP, BUT OTHERWISE IT IMPLIES THAT THERE WAS SUBSTANTIAL COMPLETION. APART FROM THE ABOVE, IT WAS SUBMITTED THAT THE PROVISIONS OF SECTION 80-IA(4)(IV)(C) TALKS ABOUT THE ASSESSEE UN DERTAKING SUBSTANTIAL RENOVATION. THE MEANING OF THE WORD UNDERTAKING AS PER THE LAW LEXICON WAS QUOTED AND IT SAYS:- UNDERTAKE: TO ENGAGE TO LOOK AFTER OR ATTEND TO. TO ENDEAVOR TO PERFORM OR TRY, TO PROMISE, TO FINALISE, ENGAGE, AG REE OR ASSUME AN OBLIGATION. TO LAY ONESELF UNDER AN OBLIGATION OR TO ENTER INTO STIPULATION, TO PERFORM OR TO EXECUTE, TO CONVENIEN T, TO CONTRACT. IT WAS THEREFORE SUBMITTED THAT THE DEDUCTION CLAIM ED OUGHT TO HAVE BEEN ALLOWED. IT WAS SUBMITTED THAT IT WAS NOT THE INTEN TION OF THE LEGISLATURE THAT THE ENTIRE RENOVATION AND MODERNISATION OF THE EXIS TING LINES AND CABLE NETWORK HAS TO BE COMPLETED AND PUT TO USE. 13. THE LD. DR WAS RELYING ON THE ORDER OF THE LD. CIT(APPEALS) AND SUBMITTED THAT THE INTENTION OF THE LEGISLATURE WAS ONLY TO GIVE DEDUCTION AFTER INCREASE IN THE VALUE OF PLANT & MACHINERY AS RECOGNIZED IN THE BOOKS OF ACCOUNT. IT WAS SUBMITTED BY HIM THAT RELIANCE PLACED BY THE LD. COUNSEL FOR THE ASSESSEE ON THE PROVISIONS OF SECTION 80J A ND DRAWING A PARALLEL BETWEEN THOSE PROVISIONS AND SECTION 80-IA(4)(IV)(C ) OF THE ACT WAS NOT ITA NO.359/BANG/09 PAGE 10 OF 12 JUSTIFIED, AS THE PROVISIONS OF SECTION 80J WERE IN TENDED TO ENCOURAGE CAPITAL INVESTMENT AND IT WAS NOT RELATED TO THE PR OFITS OF THE UNDERTAKING. 14. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. AS WE HAVE ALREADY SEEN, THE DEDUCTION U/S. 80-IA(4)(IV)(C) IS ALLOWED FOR A PERIOD OF TEN YEARS. THE DISPUTE IN THE PRESENT APPEAL IS AS TO WHETHER ASSESSMENT YEAR 2005- 06 SHOULD BE THE FIRST YEAR IN WHICH THE DEDUCTION SHOULD BE ALLOWED. IT WAS CLARIFIED AT THE TIME OF HEARING OF THE APPEAL THAT FROM THE A.Y. 2006-07, THE ASSESSEE HAS BEEN GETTING THE DEDUCTION U/S. 80-IA( 4). IT IS NO DOUBT TRUE THAT THE PROVISIONS TALK ABOUT UNDERTAKING SUBSTANT IAL RENOVATION AND MODERNISATION OF EXISTING NETWORK OF TRANSMISSION O R DISTRIBUTION LINES BY THE ELECTRICITY DISTRIBUTION COMPANY. THE EXPLANA TION, HOWEVER, DEFINES WHAT IS SUBSTANTIAL RENOVATION AND MODERNISATION AN D IT LAYS DOWN THAT THE VALUE OF TRANSMISSION AND DISTRIBUTION LINES SHOULD INCREASE AS PER THE BOOKS, AT LEAST BY 50%, COMPARED TO THE BOOK VALUE AS ON 01.04.2004. ADMITTEDLY, AS PER THE BOOKS OF ACCOUNT, THIS CRITE RION WAS NOT SATISFIED. THE ASSESSEE HOWEVER SEEKS TO RELY ON THE EXPENDITU RE INCURRED DURING THE PREVIOUS YEAR WHICH WERE IN CONNECTION WITH RENOVAT ION AND MODERNIZATION OF CABLE AND TRANSMISSION LINE WHICH WERE NOT COMPL ETE AND WERE IN PROGRESS AND THEREFORE CLASSIFIED AS CWIP. THE FAC T THAT THEY WERE SHOWN AS CWIP IN THE BOOKS OF ACCOUNT WOULD ONLY MEAN THA T RENOVATION AND MODERNISATION OF THE EXISTING TRANSMISSION OR DISTR IBUTION LINES HAD NOT BEEN RECOGNIZED AS COMPLETE. WE ACCEPT THE SUBMISSION O F THE LD. DR THAT THE PROVISIONS OF SECTION 80-IA(4)(IV)(C) OF THE ACT AR E MEANT TO ENCOURAGE MODERNISATION AND UPGRADATION OF PLANT & MACHINERY IN POWER SECTOR WITHIN A SPECIFIED PERIOD IN ORDER TO ENSURE WIDER NETWORK AND PREVENTION OF ITA NO.359/BANG/09 PAGE 11 OF 12 TRANSMISSION LOSSES. THIS OBJECTIVE IS SOUGHT TO B E ACHIEVED BY PRESCRIBING A CRITERION OF INCREASE IN THE BOOK VALUE OF THE TR ANSMISSION OR DISTRIBUTION LINES, WHICH ARE TREATED AS PLANT & MACHINERY BY TH E ELECTRICITY SUPPLY COMPANY, COMPARED TO THE BOOK VALUE AS ON 01.04.200 4. WE ARE, THEREFORE, OF THE OPINION THAT THE CAPITALISATION O F THE EXPENDITURE ON RENOVATION AND MODERNISATION IN THE BOOKS OF ACCOUN T IS A CONDITION PRECEDENT FOR ALLOWING CLAIM OF DEDUCTION U/S. 80-I A(4)(IV)(C) OF THE ACT. THE FURTHER CONDITION THAT THE SAME SHOULD BE PUT T O USE, IN OUR OPINION IS NOT CORRECT AS THERE IS NO SUCH CONDITION IN THOSE PROVISIONS. SUCH CONDITION IS EXPRESSLY PROVIDED FOR ALLOWING DEPREC IATION U/S.32 OF THE ACT. THERE IS NO SUCH SPECIFIC CONDITION IN SEC.80-IA(4) (IV)(C) OF THE ACT. RELIANCE PLACED BY THE LD. COUNSEL FOR THE ASSESSEE ON THE ACCOUNTING STANDARD AND THE REASONS FOR CLASSIFYING CERTAIN IT EMS OF EXPENDITURE AS CWIP, CANNOT BE ACCEPTED AND IN ANY EVENT, THE PROV ISIONS OF THE ACT DO NOT CONTEMPLATE SUCH EXPENDITURE BEING TREATED AS S UBSTANTIAL RENOVATION & MODERNISATION. AS ALREADY STATED ABOVE, THE EXPRES SION UNDERTAKES SUBSTANTIAL RENOVATION AND MODERNISATION CANNOT BE READ IN ISOLATION AND HAS TO BE READ ALONG WITH EXPLANATION TO SECTION 80 -IA(4)(IV)(C) OF THE ACT AND IF SO READ, KEEPING IN MIND THE LEGISLATURES I NTENTION BEHIND ALLOWING THE DEDUCTION, WE ARE OF THE VIEW THAT THE REVENUE AUTHORITIES WERE JUSTIFIED IN HOLDING THAT THE ASSESSEE HAS NOT SATISFIED THE CONDITION FOR ALLOWING THE DEDUCTION. WE DO NOT FIND ANY GROUND TO INTERFERE WITH THE ORDER OF THE LD. CIT(APPEALS). ITA NO.359/BANG/09 PAGE 12 OF 12 15. CONSEQUENTLY, THE APPEAL BY THE ASSESSEE IS DIS MISSED. PRONOUNCED IN THE OPEN COURT ON THIS 04 TH DAY OF JULY, 2012. SD/- SD/- ( N. BARATHVAJA SANKAR ) ( N.V. VASU DEVAN ) VICE PRESIDENT JUDICIAL MEMB ER BANGALORE, DATED, THE 04 TH JULY , 2012. DS/- COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY ITAT, BANGALORE.