BSES Rajdhani Power Ltd., New Delhi V. ACIT, New Delhi

ITA 3688/DEL/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 97474 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 2 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-10-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 08-07-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 01-08-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAVI JAIN
• Assessee Lawyers: AJAY VOHRA SR ADV ROHIT JAIN
• Keywords: Capital asset; Depreciation; Rectification of order; Opportunity of being heard; Additional depreciation; Retrospective amendment; Question of law; Cost of acquisition; Fair market value; Corroborative evidences; Deemed dividend; Capital receipt; Commercial expediency; Revised return; Unabsorbed depreciation; Revenue expenditure; Reassessment proceedings; Capital expenditure
• Section: 143(3); 80HHC; 115JB; 32; 145; 28; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH F NEW DELHI) BEFORE SHRI I.C. SUDHIR AND SHRI INTURI RAMA RAO ITA NO. 3688/DEL/2011 ASSESSMENT YEAR : 2005-06 BSES RAJDHANI POWER LTD., VS. ASSISTANT CIT, BSES BHAWAN, NEHRU PLACE, CIRCLE-3(1), NEW DELHI. NEW DELHI. (PAN: AAGCS3187H) (APPELLANT) (RESPONDENT) ITA NO. 3661/DEL/2011 ASSESSMENT YEAR: 2005-06 DEPUTY CIT, VS. BSES RAJDHANI POWER LTD., CIRCLE 3(1), BSES BHAVAN, NEHRU PLACE, NEW DELHI. NEW DELHI. (PAN: AAGCS3187H) (APPELLANT) (RESPONDENT) ITA NO. 606/DEL/2011 ASSESSMENT YEAR : 2006-07 BSES RAJDHANI POWER LTD., VS. ASSISTANT CIT, BSES BHAWAN, NEHRU PLACE, CIRCLE-3(1), NEW DELHI. NEW DELHI. (PAN: AAGCS3187H) (APPELLANT) (RESPONDENT) ITA NO. 821/DEL/2011 ASSESSMENT YEAR: 2006-07 DEPUTY CIT, VS. BSES RAJDHANI POWER LTD., CIRCLE 3(1), BSES BHAVAN, NEHRU PLACE, NEW DELHI. NEW DELHI. (PAN: AAGCS3187H) (APPELLANT) (RESPONDENT) 2 ITA NO. 1437/DEL/2011 ASSESSMENT YEAR : 2007-08 BSES RAJDHANI POWER LTD., VS. ASSISTANT CIT, BSES BHAWAN, NEHRU PLACE, CIRCLE-3(1), NEW DELHI. NEW DELHI. (PAN: AAGCS3187H) (APPELLANT) (RESPONDENT) ITA NO. 1539/DEL/2011 ASSESSMENT YEAR: 2007-08 DEPUTY CIT, VS. BSES RAJDHANI POWER LTD., CIRCLE 3(1), BSES BHAVAN, NEHRU PLACE, NEW DELHI. NEW DELHI. (PAN: AAGCS3187H) (APPELLANT) (RESPONDENT) ITA NO. 4780/DEL/2013 ASSESSMENT YEAR : 2008-09 BSES RAJDHANI POWER LTD., VS. ASSISTANT CIT, BSES BHAWAN, NEHRU PLACE, CIRCLE-3(1), NEW DELHI. NEW DELHI. (PAN: AAGCS3187H) (APPELLANT) (RESPONDENT) ITA NO. 5075/DEL/2013 ASSESSMENT YEAR: 2008-09 DEPUTY CIT, VS. BSES RAJDHANI POWER LTD., CIRCLE 3(1), BSES BHAVAN, NEHRU PLACE, NEW DELHI. NEW DELHI. (PAN: AAGCS3187H) (APPELLANT) (RESPONDENT) ITA NO. 3689/DEL/2011 ASSESSMENT YEAR : 2005-06 BSES YAMUNA POWER LTD., VS. ASSISTANT CIT, SHAKTI KIRAN BUILDING, CIRCLE-3(1), KARKARDOOMA, NEW DELHI. NEW DELHI. (PAN: AABCC8569N) 3 (APPELLANT) (RESPONDENT) ITA NO. 3660/DEL/2011 ASSESSMENT YEAR: 2005-06 DEPUTY CIT, VS. BSES YAMUNA POWER LTD., CIRCLE 3(1), SHAKTI KIRAN BUILDING, NEW DELHI. KAKKARDOOMA, NEW DELHI. (PAN: AABCC8569N) (APPELLANT) (RESPONDENT) ITA NO. 404/DEL/2012 ASSESSMENT YEAR : 2006-07 BSES YAMUNA POWER LTD., VS. ASSISTANT CIT, SHAKTI KIRAN BUILDING, CIRCLE-3(1), KARKARDOOMA, NEW DELHI. NEW DELHI. (PAN: AABCC8569N) (APPELLANT) (RESPONDENT) ITA NO. 584/DEL/2012 ASSESSMENT YEAR: 2006-07 DEPUTY CIT, VS. BSES RAJDHANI POWER LTD., CIRCLE 3(1), SHAKTI KIRAN BUILDING, NEW DELHI. KARKARDOOMA, NEW DELHI. (PAN: AABCC8569N ) (APPELLANT) (RESPONDENT) ITA NO. 1438/DEL/2011 ASSESSMENT YEAR : 2007-08 BSES YAMUNA POWER LTD., VS. ASSISTANT CIT, SHAKTI KIRAN BUILDING, CIRCLE-3(1), KARKARDOOMA, NEW DELHI. NEW DELHI. (PAN: AABCC8569N) (APPELLANT) (RESPONDENT) 4 ITA NO. 1538/DEL/2011 ASSESSMENT YEAR: 2007-08 DEPUTY CIT, VS. BSES RAJDHANI POWER LTD., CIRCLE 3(1), SHAKTI KIRAN BUILDING, NEW DELHI. KARKARDOOMA, NEW DELHI. (PAN: AABCC8569N ) (APPELLANT) (RESPONDENT) ITA NO. 3922/DEL/2012 ASSESSMENT YEAR : 2008-09 BSES YAMUNA POWER LTD., VS. ASSISTANT CIT, SHAKTI KIRAN BUILDING, CIRCLE-3(1), KARKARDOOMA, NEW DELHI. NEW DELHI. (PAN: AABCC8569N ) (APPELLANT) (RESPONDENT) ASSESSEE BY : S/SHRI AJAY V OHRA,SR. ADV., ROHIT JAIN, ADV. & SHRI DEEPASHREE RAO, CA DEPARTMENT BY: SHRI RAVI JAIN, C IT(DR) DATE OF HEARING : 08 .07.2015 DATE OF PRONOUNCEMENT: 05.10.2015 ORDER PER I.C. SUDHIR: JUDICIAL MEMBER THESE ARE THE CROSS APPEALS BY THE PARTIES AGAINST THE FIRST APPELLATE ORDER FOR THE ASSESSMENT YEARS 2005-06, 2006-07 AND 2007-08. ITA NO. 3688 & 3661/DEL/2011 : (A.Y. 2005-06) : ITA NO. 3688/DEL/2011: (ASSESSEE): 2. THE ASSESSEE HAS QUESTIONED FIRST APPELLATE ORDE R ON THE FOLLOWING GROUNDS: 5 1. DEPRECIATION ON ENERGY METERS WRONGLY ALLOWED A T 25% AS AGAINST 80% RESULTING IN A DISALLOWANCE OF RS.30,60,30,810 (SUBSEQUENTLY REDUCED TO RS.21,33,46,193 BY WAY OF RECTIFICATION ORDER DATED 05.03.2010 U/S. 154 OF THE INCOME-TAX ACT, 1961.) THE LEARNED CIT(APPEALS)-V HAS WRONGLY UPHELD THAT THE ENERGY METERS ARE ELIGIBLE FOR DEPRECIATION @ 25% AS AGAI NST THE CLAIMS @ 80%. IN THIS REGARD SHE HAS IGNORED THE FACTS THAT THESE METERS ARE FOR MEASURING ELECTRIC ENERGY WHICH HAS BEEN SPECIFICAL LY MENTIONED AS ELIGIBLE FOR 80% DEPRECIATION IN THE DEPRECIATION S CHEDULE OF THE INCOME-TAX RULES, 1962. FURTHER THESE METERS ALSO H AVE THE CHARACTERISTICS OF ENERGY SAVING DEVICE WHICH IS SU BJECT TO DEPRECIATION @ 80%. IN VIEW OF THE ABOVE, DEPRECIATION @ 25% AS AGAINST THE 80% CLAIM ON ENERGY METERS RESULTING IN A DISALLOWANCE OF RS. 21,33,46,193, IS WRONG, AGAINST THE FACTS OF THE CASE AND UNSUSTAINA BLE IN THE EYES OF LAW. 3. THE ASSESSEE HAS ALSO MOVED APPLICATIONS FOR ADM ISSION OF THE FOLLOWING ADDITIONAL GROUNDS FOR THE ADJUDICATION O F THE BENCH: ADDITIONAL GROUND OF APPEAL: 1. SERVICE LINE DEPOSITS RECEIVED FROM THE CONSUME RS ARE OF CAPITAL NATURE : THE LEARNED CIT(APPEALS) ERRED IN NOT DIRECTING THE ASSESSING OFFICER TO REDUCE THE AMOUNT OF SERVICE LINE DEPOSI TS CREDITED TO THE PROFIT AND LOSS ACCOUNT DURING THE YEAR AMOUNTING T O RS.14,94,91,835 6 (AS PER THE COMPANYS POLICY OF OFFERING THE SERVIC E LINE DEPOSITS FOR REVENUE OVER A PERIOD OF THREE YEARS), WHILE CO MPUTING THE TOTAL INCOME AFTER HOLDING THAT ENTIRE RECEIPT BY WAY OF SERVICE LINE DEPOSIT IS CAPITAL IN NATURE. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE ASSESSING OFFICER ERRED IN ASSESSING THE INCOME OF THE APPELLANT UNDER SEC. 115B AND NOT UNDER THE NORMAL PROVISIONS OF TH E INCOME-TAX ACT, 1961 (THE ACT), WITHOUT APPRECIATING THAT THE DEE MING PROVISIONS OF SECTION 115JB OF THE ACT WERE NOT APPLICABLE DURING RELEVANT ASSESSMENT YEAR. 4. IN SUPPORT OF THE ABOVE APPLICATIONS, THE LEARNE D AR SUBMITTED THAT THE ISSUES RAISED THEREIN IN THE ADDITIONAL GROUNDS ARE LEGAL IN NATURE AND FOR ADJUDICATION OF THE SAME, NO FRESH MATERIAL OUTSIDE THE RECORD IS REQUIRED TO BE CONSIDERED. IN SUPPORT, HE PLACED RELIANCE ON TH E DECISION OF HON'BLE SUPREME COURT IN THE CASE OF NATIONAL THERMAL POWER CO. LTD. VS. CIT 229 ITR 383 (S.C). 5. THE LEARNED CIT(DR) OPPOSED THE APPLICATIONS. 6. CONSIDERING THE ABOVE SUBMISSIONS MADE BY THE PA RTIES, WE FIND THAT THE ISSUES RAISED IN THE PROPOSED ADDITIONAL GROUND S ARE LEGAL IN NATURE WHICH GO TO THE ROOT OF THE MATTER AND ADJUDICATION OF TH E SAME DOES NOT NEED CONSIDERATION OF FRESH MATERIAL OUTSIDE THE RECORD. HON'BLE SUPREME COURT IN THE CASE OF NATIONAL THERMAL POWER CO. LTD. VS. CIT (SUPRA) HAS BEEN PLEASED TO HOLD AS UNDER: UNDOUBTEDLY, THE TRIBUNAL WILL HAVE THE DISCRETION TO ALLOW OR NOT ALLOW A NEW GROUND TO BE RAISED. BUT WHERE THE TRIB UNAL IS ONLY REQUIRED TO CONSIDER A QUESTION OF LAW ARISING FROM THE FACTS WHICH ARE ON RECORD IN THE ASSESSMENT PROCEEDINGS WE FAIL TO SEE WHY SUCH A 7 QUESTION SHOULD NOT BE ALLOWED TO BE RAISED WHEN IT IS NECESSARY TO CONSIDER THAT QUESTION IN ORDER TO CORRECTLY ASSESS THE TAX LIABILITY OF AN ASSESSEE. AGAIN IN ITS RECENT DECISION, THE HON'BLE GUJARAT H IGH COURT IN THE CASE OF CIT VS. MITESH IMPEX (2014) 270 ITR 66 (GUJ.) AFT ER DISCUSSING THE ISSUE IN DETAIL IN VIEW OF SEVERAL DECISIONS INCLUDING DE CISIONS OF HON'BLE SUPREME COURT IN THE CASES OF GOETZ (INDIA) VS. CIT (2006) 284 ITR 323 (S.C), ITO VS. ARIHANT TILES & MARBLES (P) LTD. (2 010) 320 ITR 79 (S.C), NTPC LTD. VS.CIT (1998)- 229 ITR 383 (S.C) AS WELL AS ITS OWN DECISION IN THE CASE OF CIT VS. CELLULOSE PRODUCTS OF INDIA LTD . (1985) 151 ITR 499 (GUJ.) (FB) HAS BEEN PLEASED TO HOLD THAT MERELY BE CAUSE A GROUND HAS NOT BEEN RAISED THOUGH IT COULD HAVE BEEN RAISED IN SUP PORT OF THE RELIEF SOUGHT IN THE APPEAL, IT CANNOT BE SAID THAT SUCH GROUND C ANNOT BE RAISED BEFORE THE ITAT. THE RELEVANT PARA NOS. 38 & 39 OF THIS DECISI ON ARE BEING REPRODUCED HEREUNDER: 38. IT THUS BECOMES CLEAR THAT THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF GOETZE (INDIA) LTD. (SUPRA) IS CONFINED TO THE POWERS OF THE ASSESSING OFFICER AND ACCEPTING A CLA IM WITHOUT REVISED RETURN. THIS IS WHAT HON'BLE SUPREME COURT OBSERVED IN THE SAID JUDGMENT WHILE DISTINGUISHING THE JUDGMENT IN THE C ASE OF NTPC LTD. (SUPRA). WHEN IT COMES TO THE POWER OF APPELLATE CO MMISSIONER OR THE TRIBUNAL, THE COURTS HAVE RECOGNIZED THEIR JURISDIC TION TO ENTERTAIN A 8 NEW GROUND OR A LEGAL CONTENTION. A GROUND WOULD HA VE A REFERENCE TO AN ARGUMENT TOUCHING A QUESTION OF FACT OR A QUESTI ON OF LAW OR MIXED QUESTION OF LAW OR FACTS. A LEGAL CONTENTION WOULD ORDINARILY BE A PURE QUESTION OF LAW WITHOUT RAISING ANY DISPUTE ABOUT T HE FACTS. NOT ONLY SUCH ADDITIONAL GROUND OR CONTENTION, THE COURTS HA VE ALSO, AS NOTED ABOVE, RECOGNIZED THE POWERS OF THE APPELLATE COMMI SSIONER AND THE TRIBUNAL TO ENTERTAIN A NEW CLAIM FOR THE FIRST TIM E THOUGH NOT MADE BEFORE THE ASSESSING OFFICER. INCOME-TAX PROCEEDING S ARE NOT STRICTLY SPEAKING ADVERSARIAL IN NATURE AND THE INTENTION OF THE REVENUE WOULD BE TO TAX REAL INCOME. 39. THIS PRIMARILY ON THE PREMISE THAT IF A CLAIM T HOUGH AVAILABLE IN LAW IS NOT MADE EITHER INADVERTENTLY OR ON ACCOU NT OF ERRONEOUS BELIEF OF COMPLEX LEGAL POSITION, SUCH CLAIM CANNOT BE SHUT OUT FOR ALL TIMES TO COME, MERELY BECAUSE IT IS RAISED FOR THE FIRST TIME BEFORE THE APPELLATE AUTHORITY WITHOUT RESTORING TO REVISING T HE RETURN BEFORE THE ASSESSING OFFICER. 6.1 WE THUS RESPECTFULLY FOLLOWING THE RATIO LAID D OWN BY THE HON'BLE SUPREME COURT IN THE ABOVE CITED CASE OF NATIONAL T HERMAL POWER CO. LTD. VS. CIT (SUPRA) AND THE RECENT DECISION OF HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. MITESH IMPEX (SUPRA) WHEREIN LATER DECISIONS OF HON'BLE SUPREME COURT AND HON'BLE HIGH COURTS HAVE BEEN DIS CUSSED, ALLOW THE APPLICATIONS AND ADMIT THE ABOVE STATED ADDITIONAL GROUNDS FOR OUR ADJUDICATION. 9 7. THE REVENUE ON THE OTHER HAND HAS QUESTIONED FIR ST APPELLATE ORDER ON THE FOLLOWING GROUNDS: 1. THE LEARNED CIT(APPEALS) HAS ERRED ON FACTS AND IN LAW IN DELETING THE ADDITION OF RS.7375590 MADE ON ACCOUNT OF SECURITY LINE DEPOSITS FROM CUSTOMERS IGNORING THAT: A) THE WHOLE OF THESE SERVICE LINE RECEIPTS ARE IN FAC T NOT A LIABILITY OF THE COMPANY BUT ARE REVENUE RECEIPTS ACCRUED/RECEIVED DURING THE YEAR ON RUNNING OF BUSI NESS OPERATIONS OF THE ASSESSEE COMPANY AND HENCE ARE TA XABLE IN ITS HANDS. B) FURTHER THE ASSESSEE CO IS ENGAGED IN SELLING ELECT RICITY TO THE CONSUMERS FROM WHOM IT CHARGES FEES IN THE NAME OF ENERGY CHARGES. THESE ENERGY CHARGES ARE UNDISPUTEDLY IN T HE NATURE OF REVENUE RECEIPTS. C) SINCE THE ASSESSEE CO. IS ENGAGED IN SELLING THE EN ERGY, THEREFORE, FOR THIS PURPOSE IT HAS TO PROVIDE SERVI CE LINE CONNECTIONS TO THE CONSUMERS FOR WHICH IT CHARGES S ERVICE LINE DEPOSITS. HENCE, IT CAN BE SEEN THAT THESE SER VICE LINE RECEIPTS ARE RECEIVABLE BY THE CO. DURING THE COURS E OF ITS REGULAR BUSINESS/COMMERCIAL OPERATIONS. HENCE, THEY ARE IN THE NATURE OF REVENUE RECEIPTS. D) THE SERVICE LINE RECEIPTS SIMPLY CANNOT BE TREATED AS CAPITAL RECEIPTS BECAUSE THEIR NATURE WOULD NOT DEPEND UPON HOW THE ASSESSEE COMPANY IS UTILIZING THEM BUT IN WHAT CAPACITY THEY HAVE BEEN RECEIVED BY THE COMPANY. AND THE FAC T IS THAT THEY HAVE BEEN RECEIVED BY THE CO. IN THE COURSE OF RUNNING ITS REGULAR BUSINESS OPERATIONS. 2. THE LEARNED CIT(APPEALS) HAS ERRED ON FACTS AND IN LAW IN DELETING THE ADDITION OF RS.50200000 MADE ON ACC OUNT OF VALUATION OF CLOSING STOCK IGNORING THAT: 10 A) IN THIS PARTICULAR CASE THE ASSESSEE WAS EARLIER FOLLOWING FIRST IN FIRST OUT (FIFO) METHOD FOR VALUATION OF S TORES/SPARES. UNDER ANY CIRCUMSTANCES FIFO METHOD IS MORE CORRECT & HENCE MORE APPROPRIATE FOR THE VALUATION OF STORES/SPARES AS CLOSING STOCK AS COMPARED TO MOVING AVERAGE METHOD. B) NO SOUND REASONING/ACCEPTABLE LOGIC IS GIVEN BY THE ASSESSEE COMPANY FOR CHANGE IN THE COST METHOD FROM FIFO TO MOVING AVERAGE. C) THE ORDER OF CIT(A) IS NOT ACCEPTABLE BECAUSE TH E CHANGE IN THE METHOD OF VALUATION IS NEITHER BONA FIDE NOR REGULARLY FOLLOWED BY THE ASSESSEE AS REQUIRED FOR THE CHANGE IN THE METHOD OF VALUATION. D) FURTHER, NO PERUSAL OF THE ACCOUNTING STANDARD-2 , PROVISIONS OF THE IT ACT, CASE LAWS & RELEVANT EXTR ACTS FROM 3CD REPORT WHICH CLEARLY STATES THAT DUE TO CHANGE OF VALUATION OF INVENTORIES, PROFIT OF THE COMPANY IS LOWER BY R S.5.02 CRORES, IT CAN BE SOUNDLY CONCLUDED THAT A.O. IS CORRECT WH ILE MAKING THE ADDITION ON ACCOUNT OF VALUATION OF CLOSING STO CK. GROUND NO.1 (ASSESSEES APPEAL) : 8. THE GRIEVANCE OF THE ASSESSEE IN THIS GROUND IS THAT THE LEARNED CIT(APPEALS) HAS WRONGLY ALLOWED DEPRECIATION ON EN ERGY METERS AT 25% AS AGAINST THE CLAIMED 80%, RESULTING IN DISALLOWANCE OF RS.30,60,30,810 (SUBSEQUENTLY REDUCED TO RS.21,33,46,193 BY WAY OF RECTIFICATION ORDER DATED 03.03.2010 UNDER SEC. 154 OF THE INCOME-TAX A CT, 1961). 11 8.1 THE FACTS IN BRIEF ARE THAT THE ASSESSEE COMPAN Y IS ENGAGED IN THE BUSINESS OF DISTRIBUTION OF ELECTRICITY/POWER. ERST WHILE, DELHI VIDYUT BOARD (DVB) WAS UNBUNDLED INTO SIX ENTITIES AND DISTRIBUT ION BUSINESS WAS PRIVATIZED IN JULY, 2002. AS PER THE ASSESSMENT ORD ER, THE DETAILS OF THESE SIX ENTITIES ARE AS UNDER: GENCOL (POWER GENERATING COMPANY) IT GENERATES P OWER AND STEPS IT UP TO 33/66 KV AND THEN TO 220 KV BEFORE S ENDING IT TO THE TRANSMISSION COMPANY. TRANSCO: (POWER TRANSMISSION COMPANY) IT RECEIVES POWER AT 220KV AND STEPS IT DOWN TO 66/33 KV BEFORE SENDING IT TO THE DISTRIBUTING COMPANIES. HOLDING COMPANY: (DELHI POWER COMPANY LTD.) WITH TH E PRINCIPAL OBJECT OF HOLDING SHARES IN G ENCO, TRNAC O, DISCOMS AND THE LIABILITIES OF THE BOARD. DISCOMS (POWER DISTRIBUTION COMPANIES) IT RECEIVE S POWER AT 66/33 KV AND STEPS IT DOWN TO 11 KV BEFORE FEEDING IT TO THE DISTRIBUTION TRANSFORMER, WHICH FURTHER STEPS DOWN TO 04. KV AND REACHES TO THE CONSUMERS. THERE ARE THREE DISTRIBUTION COMPANIES :- BRPL: (BSES RAJDHANI POWER LTD.): IT DISTRIBUTES TO THE SOUTH AND WEST REGION OF DELHI, (IT HAS 19 DIVISIONS) 12 BYPL: (BSES YAMUNA POWER LTD.) IT DISTRIBUTES TO THE EAST AND CENTRAL REGION OF DELHI) IT HAS 14 DIVISIONS. NDPL: (NORTH DELHI POWER LTD.): IT DISTRIBUTES TO T HE NORTH AND NORTH-WEST REGION OF DELHI AND BELONGS TO TATA GROU P. THE REGISTERED OFFICE OF THE BSES RAJDHANI POWER L TD. IS: BSES BHAWAN, NEHRU PLACE, NEW DELHI-1100 19. 8.2 THE RELEVANT FACTS RELATING TO THE ISSUE RAISED IN GROUND NO.1 OF THE APPEAL OF THE ASSESSEE IS THAT DURING THE YEAR THE ASSESSEE CLAIMED DEPRECIATION ON ENERGY METERS WHICH ACCORDING TO AS SESSEE FELL UNDER THE CATEGORY OF ASSETS PROVIDED UNDER ITEM (III)(8)(IX) (B) (E) OF THE TABLE OF RATES OF DEPRECIATION IN APPENDIX-1 TO THE INCOME-TAX RUL ES, 1962 AND WERE ELIGIBLE FOR DEPRECIATION @ 80%. THE ASSESSEE CONTE NDED THAT AFORESAID METERS WERE UTILIZED FOR MEASURING ELECTRIC ENERGY BUT AT THE SAME TIME VARIOUS ADVANCED FEATURES OF THE METERS ALSO FACILI TATE SAVINGS IN CONSUMPTION OF ENERGY. THE ASSESSING OFFICER DID NO T AGREE WITH AND REJECTED THE CLAIMED DEPRECIATION AT THE RATE OF 80 % IN RESPECT OF THE AFORESAID METERS. THE REASONS SHOWN BY THE ASSESSIN G OFFICER FOR DISALLOWANCE REMAINED THAT THE EQUIPMENTS WERE PRIM ARILY READING METERS FOR MEASURING ENERGY, INDIRECT ENERGY SAVING FEATUR ES WERE NOT ENOUGH TO REGARD THE METERS AS ENERGY SAVING DEVICES, 60% O F THE METERS WERE 13 MECHANICAL METERS WHICH DID NOT HAVE ADVANCED FEATU RES AS AVAILABLE IN OTHER ELECTRONIC/SMART METERS AND ASSESSEE HAD ALSO CLAIMED HIGHER DEPRECIATION ON BUS BAR CHAMBERS, WHICH ARE DEVICES THROUGH WHICH CONNECTION FROM OVERHEAD LINES/UNDER GROUND CABLE I S PROVIDED TO THE METERS. 8.3 THE LEARNED CIT(APPEALS) AFFIRMED THE ASSESSMEN T ORDER WITH THE FINDING THAT THE SAID EQUIPMENTS WERE MERELY READIN G METERS AND THEY DID NOT FACILITATE IN ENERGY CONSERVATION. THIS FIRST A PPELLATE ORDER HAS BEEN QUESTIONED IN GROUND NO.1 OF THE APPEAL PREFERRED B Y THE ASSESSEE. 9. IN SUPPORT OF THE GROUND, THE LEARNED AR CONTEND ED THAT THE DENIAL OF DEPRECIATION AT THE PRESCRIBED RATE OF 80% IN RESPE CT OF THE ABOVE METERS IS NOT LEGALLY SUSTAINABLE FOR THE REASONS STATED HERE UNDER: - ADVANCED FEATURE OF AUTOMATIC ELECTRIC LOAD MONITO R, TIME OF DAY (TOD) DISPLAYS, WHICH INDICATES CONSUMPTION AT THE PARTIC ULAR POINT OF TIME DURING THE DAY THAT IS RELEVANT/ HELPFUL IN COLLECTING DATA AN D DEVISING RELIABLE TECHNICAL SOLUTIONS; - ELECTRICITY LEAKAGE DISPLAY (ELD) INDICATOR, WHICH GLOWS IN CASE OF EARTH LEAKAGE/ FAULTY WIRING AT CUSTOMERS PREMISES; - FEATURE OF INDICATING THE MAXIMUM DEMAND WHICH HELP S IN REGULATING TOTAL ENERGY LOAD ON THE DISTRIBUTION TRANSFORMERS; IN CASE THE TRANSFORMERS ARE OVERLOADED, IT WILL RESULT IN INCREASED TECHNICAL LOSSES - ACCURATE MEASUREMENT OF ENERGY CONSUMPTION, WHICH A RRESTS LOSSES DUE TO POWER THEFT; 14 - PROVIDE LOAD AND ENERGY DATA FOR PROPER MANAGEMENT OF ENERGY/ POWER 9.1 THE AFORESAID METERS ARE CLEARLY ELIGIBLE FOR HIGHER RATE OF DEPRECIATION @80% IN THE LIGHT OF THE LEGAL POSITIO N DISCUSSED HEREUNDER: 9.2 SECTION 32 OF THE ACT PROVIDES FOR ALLOWANCE OF DEPRECIATION IN RESPECT OF BLOCK OF ASSETS AT SUCH PERCENTAGE OF TH E WRITTEN DOWN VALUE AS MAY BE PRESCRIBED. THE RELEVANT PORTIONS OF SECTION 32 OF THE ACT READ AS UNDER: (1) IN RESPECT OF DEPRECIATION OF (I) BUILDINGS, MACHINERY, PLANT OR FURNITURE BEING TANG IBLE ASSETS; (II) KNOW-HOW, PATENTS, COPYRIGHTS, TRADE MARKS, LICENSE S, FRANCHISE OR ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE, BEING INTANGIBLE ASSETS ACQUIRED ON OR AFTER THE 1ST DAY OF APRIL, 1998, OWNED WHOLLY OR PARTLY, BY THE ASSESSEE AND USED FO R THE PURPOSES OF THE BUSINESS OR PROFESSION, THE FOLLOWING DEDUCTIONS SHALL BE A LLOWED: (I) XXXX XXXX XXXX XXXX (II) IN THE CASE OF ANY BLOCK OF ASSETS, SUCH PERCE NTAGE ON THE WRITTEN DOWN VALUE THEREOF AS MAY BE PRESCRIBED. XXXX XXXX XXXX XX XX 9.3 UNDER ITEM III (8) OF THE TABLE OF RATES OF DE PRECIATION IN OLD APPENDIX 1 TO THE INCOME-TAX RULES, 1962 WHICH IS RELEVANT FOR THE AS SESSMENT YEAR 2005-06, DEPRECIATION @ 80% IS AVAILABLE IN RESPECT OF EQUIPMENT FALLING WITHIN THE CATEGORY OF ENERGY MEASURING METERS. THE SPECIFIC ENTRIES UNDER WHICH THE DEPRECIATION WAS CLAIMED BY THE APPELLANT DURING THE RELEVANT ASSESSMENT YEAR READS AS UNDER: 15 III. MACHINERY AND PLANT XXXXXX (8) (IX) ENERGY SAVING DEVICES, BEING- A. XXXX B. INSTRUMENTATION AND MONITORING SYSTEM FOR MONITORIN G ENERGY FLOWS : (A) AUTOMATIC ELECTRICAL LOAD MONITORING SYSTEMS; (B) DIGITAL HEAT LOSS METERS; XXXXXXXXX (E) METERS FOR MEASURING HEAT LOSSES, FURNACE OIL FLOW, STREAM FLOW, ELECTR IC ENERGY AND POWER FACTOR METERS (F) MAXIMUM DEMAND INDICATOR AND CLAMP ON POWER METERS XXXXXXXXXX (EMPHASIS SUPPLIED) 9.4 ON PERUSAL OF THE AFORESAID, IT WILL KINDLY BE APPRECIATED THAT ITEM III (8)(IX)(B) OF THE DEPRECIATION SCHEDULE PROVIDES FOR HIGHER RATE OF DEPRECIATION IN RESPECT OF METERS FOR MEASURING.. ELECTRIC ENERGY . 9.5 IT IS EMPHATICALLY SUBMITTED THAT THERE IS, AS SUCH, NO FURTHER/ ADDITIONAL CONDITION REQUIRING THE ASSESSEE TO ACTUALLY ESTABLISH ANY DI RECT RELATIONSHIP OF THE METERS WITH THE ENERGY SAVED. THE SAID SCHEDULE ALSO DOES NOT MANDA TE THAT THE ENERGY METERS SHOULD BE ELECTRICAL OR MECHANICAL DEVICES, AND MERELY PR OVIDES THAT THE METERS SHOULD BE ELECTRICITY/ ENERGY MEASURING DEVICES. 9.6 IT IS, THUS, RESPECTFULLY SUBMITTED THAT ELECTR ICITY MEASURING METERS ARE PER SE RECOGNIZED AS ENERGY SAVING DEVICE BY THE AFORESAID SCHEDULE, SINCE EVEN IF THE METER DOES NOT HAVE ANY SPECIAL FEATURE, ACCURATE MEASURE MENT OF ENERGY CONSUMPTION BY ITSELF, RESULTS IN CONSERVING ENERGY IN AS MUCH AS IT ENABL ES REGULATION OF ENERGY CONSUMPTION AND ARRESTS LOSSES DUE TO POWER THEFT. 9.7 IN VIEW OF THE AFORESAID, AND WITHOUT ANYTHING MORE, IT IS RESPECTFULLY SUBMITTED THAT THE METERS INSTALLED BY THE APPELLANT, WHICH W ERE UNDISPUTEDLY USED FOR MEASURING ENERGY CONSUMPTION ARE CLEARLY ELIGIBLE FOR DEPRECI ATION AT THE PRESCRIBED RATE OF 80%. 9.8 APART FROM THE ABOVE, IT IS FURTHER SUBMITTED T HAT IN NEW APPENDIX 1 TO THE INCOME-TAX RULES, 1962 WHICH IS RELEVANT FOR ASSESS MENT YEAR 2006-07 AND ONWARDS, DEPRECIATION @ 80% IS ALSO AVAILABLE IN RESPECT OF ELECTRICAL EQUIPMENTS HAVING THE SPECIFIC FEATURE OF TIME OF DAY, AS PROVIDED HERE UNDER: .. E. ELECTRICAL EQUIPMENT XXXXXXXXXXXXXXXX (I) TIME OF DAY (TOD) ENERGY METERS XXXXXXXXXXXXXXX (EMPHASIS SUPPLIED) 16 9.9 IN THIS REGARD, IT IS SUBMITTED THAT THE SPECI FICATIONS CONTAINED IN THE ENERGY METERS INSTALLED BY THE APPELLANT COMPANY ALSO INCLUDED TH E SPECIFIC FEATURE OF TIME OF DAY , WHICH IS, AS STATED ABOVE, ALSO SPECIFICALLY/ SEPAR ATELY COVERED UNDER ITEM III (8)(IX)E(I) OF THE DEPRECIATION SCHEDULE (FOR ASSESSMENT YEARS 2006-07 AND ONWARDS). 9.10 FURTHERMORE, IN THE CASE OF THE APPELLANT, THE ENERGY METERS INSTALLED IN THE ASSESSMENT YEAR UNDER CONSIDERATION ARE, AS A MATTE R OF FACT, NOT ONLY UTILIZED FOR MEASURING ELECTRICITY CONSUMPTION, BUT ALSO ENABLED ENERGY SAVING DUE TO VARIOUS FEATURES DISCUSSED ABOVE. IT IS RESPECTFULLY SUBMITTED THAT THE ENERGY METERS INSTALLED BY THE APPELLANT HELPED IN MONITORING AND METERING THE ELE CTRICITY CONSUMPTION ACROSS VARIOUS LOCATIONS FOR OPTIMIZING ENERGY CONSUMPTION. 9.11 THE ASSESSING OFFICER, WITHOUT APPRECIATING TH E AFORESAID FEATURES OF THE METERS, DISALLOWED DEPRECIATION OF RS. 21,33,46,193/- ON TH ESE ASSETS ON THE GROUND THAT THE ENERGY METERS DID NOT FACILITATE IN CONSERVATION OF ENERGY. THE SAID CONTENTION OF THE ASSESSING OFFICER IS, IN OUR RESPECTFUL SUBMISSION, FACTUALLY INCORRECT AND WITHOUT ANY COGENT BASIS. 9.12 AS REGARDS THE CONTENTION OF THE ASSESSING OFF ICER THAT THE APPELLANT HAD ALSO CLAIMED HIGHER DEPRECIATION ON BUS BAR CHAMBER, WHI CH ARE DEVICES THROUGH WHICH CONNECTION FROM OVERHEAD LINE/ UNDERGROUND CABLE IS PROVIDED TO THE METERS, IT IS SUBMITTED THAT THE ASSESSING OFFICER FAILED TO APPR ECIATE THAT THE SAID DEVICE FORMS INTEGRAL/ INEXTRICABLE PART OF THE METERS, WITHOUT WHICH THE METER CANNOT FUNCTION. 9.13 KIND ATTENTION, IN THIS REGARD, IS INVITED TO THE FOLLOWING DECISIONS WHEREIN THE COURTS HAVE HELD THAT CABLES CONNECTED TO THE MACHI NE WOULD FORM INTEGRAL PART OF THE MACHINE AND WOULD ACCORDINGLY, BE ELIGIBLE FOR DEPR ECIATION AS PART OF THE MACHINE: - CIT VS. ELECON ENGG. CO. LTD. : 166 ITR 66 (SC) - CIT VS. BIRLA JUTE & INDUSTRIES LTD.: 260 ITR 55 (C AL) - CIT VS. OSWAL WOOLLEN MILL LTD.: 289 ITR 261 (P&H) - CIT VS. METALMAN AUTO (P.) LTD: 336 ITR 434 (P&H) - CIT V. INDIA TURPENTINE & ROSIN CO. LTD.: 75 ITR 53 3 (ALL.) - DCIT VS. UAL INDUSTRIES: 31 TAXMANN.COM 111 (KOLKAT A - TRIB.) (TM) - GHAZIABAD FOOTWEAR (P.) LTD VS. DCIT: 142 TAXMAN 18 (DEL TRI.) - MADHU INDUSTRIES LTD, AHMEDABAD VS. ITO: 132 TTJ 23 3 (AHD) IN VIEW OF THE ABOVE, IT IS RESPECTFULLY SUBMITTED THAT METERS ACQUIRED AND INSTALLED BY THE APPELLANT WERE CAPABLE OF PERFORMING SPECIFIC FUNCT IONS AS AFORESAID AND WERE COVERED UNDER THE SPECIFIC ENTRIES APPEARING IN APPENDIX TO INCOME TAX RULES, ELIGIBLE FOR HIGHER RATE OF DEPRECIATION @ 80%. 10. THE LEARNED CIT(DR) ON THE OTHER HAND PLACED RE LIANCE ON THE ORDERS OF THE AUTHORITIES BELOW ON THE ISSUE. HE SUBMITTED THAT THE LEARNED 17 CIT(APPEALS) AFTER DISCUSSING THE ISSUE IN DETAIL H AS RIGHTLY COME TO THE CONCLUSION THAT THE METERS ARE MORE TECHNOLOGICALLY ADVANCED AND DO HAVE FEATURES WHICH CAN HELP CONSUMERS SAVE ENERGY BUT W ITH HUMAN INTERVENTION. THE METERS PER SE DO NOT ON ITS OWN HELP IN SAVING ENERGY AND THUS CANNOT BE SAID TO BE ENERGY SAVING DEVICES. THE LEARNED CIT(D R) SUBMITTED FURTHER THAT THE ASSESSEE ITSELF HAS CONTENDED THAT MOST OF THE METERS ARE ENERGY SAVING METERS BUT THE EXACT BIFURCATION HAS NOT BEE N GIVEN. THE AUTHORITIES BELOW THUS WERE JUSTIFIED IN DENYING THE CLAIMED 80 % DEPRECIATION. 11. THE LEARNED AR REJOINED WITH THE SUBMISSION THA T BIFURCATION OF EXPENDITURE INCURRED ON ELECTRONIC/ENERGY METERS AN D MANUAL METERS IS VERY MUCH REFLECTED IN THE AUDIT REPORT MADE AVAILABLE A T PAGE NO. 75 OF THE SUPPLEMENTARY PAPER BOOK FILED BY THE ASSESSEE. 12. CONSIDERING THE ABOVE SUBMISSION, WE FIND THAT THE LEARNED CIT(APPEALS) HAS AGREED WITH THE SUBMISSIONS OF THE ASSESSEE TO THIS EXTENT THAT THE METERS ARE TECHNOLOGICALLY ADVANCED AND AR E HAVING FEATURES WHICH CAN HELP CONSUMERS SAVE ENERGY BUT WITH HUMAN INTER VENTION. THE CONTENTION OF THE ASSESSEE ON THE OTHER HAND REMAIN ED THAT THE ENERGY METERS ACQUIRED BY THE ASSESSEE ARE IN THE NATURE OF ENERG Y SAVING 18 EQUIPMENT/DEVICES HAVING INTER ALIA THE FOLLOWING A DVANCED FEATURES HELPING IN CONSERVATION OF ENERGY: I) ADVANCED FEATURE OF AUTOMATIC ELECTRIC LOAD MO NITOR, TIME OF DAY (TOD) DISPLAYS, WHICH INDICATES CONSUMPTION AT THE PA RTICULAR POINT OF TIME DURING THE DAY THAT IS RELEVANT/ HELPFUL IN COLLECTING DATA AND DEVISING RELIABLE TECHNICAL SOLUTIONS; II) ELECTRICITY LEAKAGE DISPLAY (ELD) INDICATOR, WHICH GLOWS IN CASE OF EARTH LEAKAGE/ FAULTY WIRING AT CUSTOMERS PREMISES; III) FEATURE OF INDICATING THE MAXIMUM DEMAND WHICH HELPS IN REGULATING TOTAL ENERGY LOAD ON THE DISTRIBUTION TRANSFORMERS; IN C ASE THE TRANSFORMERS ARE OVERLOADED, IT WILL RESULT IN INCREASED TECHNICAL LOSSES IV) ACCURATE MEASUREMENT OF ENERGY CONSUMPTION, WHI CH ARRESTS LOSSES DUE TO POWER THEFT; V) PROVIDE LOAD AND ENERGY DATA FOR PROPER MANAGEME NT OF ENERGY/ POWER 12.1 SECTION 32 OF THE INCOME-TAX ACT, 1961 PROVIDE S FOR ALLOWANCE OF DEPRECIATION IN RESPECT OF BLOCK OF ASSETS AT SUCH PERCENTAGE OF THE WRITTEN DOWN VALUE AS MAY BE PRESCRIBED. UNDER ITEM-III(8) OF THE TABLE RATES OF DEPRECIATION IN OLD APPENDIX-I TO THE INCOME-TAX RULES, 1962 IS RELEVANT FOR THE ASSESSMENT YEAR 2005-06 WHEREIN DEPRECIATIO N @ 80% IS AVAILABLE IN RESPECT OF EQUIPMENT FALLING WITHIN THE CATEGORY OF ENERGY MEASURING METERS. THE SPECIFIC ENTRIES UNDER WHICH THE DEPRE CIATION WAS CLAIMED BY THE ASSESSEE DURING THE RELEVANT ASSESSMENT YEAR RE ADS AS UNDER: III. MACHINERY AND PLANT XXXXXX (8) (IX) ENERGY SAVING DEVICES, BEING- 19 A. XXXX B. INSTRUMENTATION AND MONITORING SYSTEM FOR MONITORIN G ENERGY FLOWS : (A) AUTOMATIC ELECTRICAL LOAD MONITORING SYSTEMS; (B) DIGITAL HEAT LOSS METERS; XXXXXXXXX (E) METERS FOR MEASURING HEAT LOSSES, FURNACE OIL FLOW, STREAM FLOW, ELECTR IC ENERGY AND POWER FACTOR METERS (F) MAXIMUM DEMAND INDICATOR AND CLAMP ON POWER METERS XXXXXXXXXX 12.2 THE PERUSAL OF AFORESAID PROVISIONS MAKE IT CL EAR THAT ITEM- III(8)(IX)(B)(E) OF THE DEPRECIATION SCHEDULE PROVI DES FOR HIGHER RATE OF DEPRECIATION IN RESPECT OF METERS FOR MEASURING.E LECTRIC ENERGY. 12.3 THE SUBMISSION OF THE ASSESSEE THAT THERE IS N O FURTHER/ADDITIONAL CONDITION REQUIRING THE ASSESSEE TO ACTUALLY ESTABL ISH ANY DIRECT RELATIONSHIP OF THE METERS WITH THE ENERGY SAVED NOR THE SAID SC HEDULE ALSO MANDATE THAT THE ENERGY METERS SHOULD BE ELECTRICAL OR MECHAN ICAL DEVICES AND MERELY PROVIDES THAT THE METERS SHOULD BE ELECTRICITY/ENER GY MEASURING DEVICES FINDS SUBSTANCE. IN THE AFORESAID SCHEDULE, THE ELECTRIC ITY MEASURING METERS HAVE BEEN RECOGNIZED AS ENERGY SAVING DEVICES. WE ALSO F IND SUBSTANCE IN THE CONTENTION OF THE ASSESSEE THAT EVEN IF METER DOES NOT HAVE ANY SPECIAL FEATURES, ACCURATE MEASUREMENT OF ENERGY CONSUMPTIO N BY ITSELF RESULTS IN CONSERVING ENERGY IN AS MUCH AS IT ENABLES REGULATI ON OF ENERGY CONSUMPTION 20 AND ARRESTS LOSSES DUE TO POWER THEFT. THE NEW APP ENDIX-I TO THE INCOME- TAX RULES, 1962 WHICH IS RELEVANT FOR ASSESSMENT YE AR 2006-07 AND ONWARDS, DEPRECATION AT THE RATE OF 80% IS ALSO AVAILABLE IN RESPECT OF ELECTRICAL EQUIPMENT HAVING BEEN SPECIFIC FEATURES OF TIME OF DAY, AS PROVIDED HEREUNDER: .. E. ELECTRICAL EQUIPMENT XXXXXXXXXXXXXXXXX (I)TIME OF DAY (TOD) ENERGY METERS XXXXXXXXXXXXXXXXXXXXXXXXXXXXX 12.4 THE SUBMISSION OF THE ASSESSEE THAT SPECIFICAT IONS CONTAINED IN THE ENERGY METERS INSTALLED BY THE ASSESSEE COMPANY ALS O INCLUDED THE SPECIFIC FEATURES OF TIME OF DAY HAS NOT BEEN REBUTTED BY THE REVENUE. WE FIND THAT IN THE DEPRECIATION SCHEDULE FOR THE ASSESSMEN T YEAR 2006-07 AND ONWARDS SPECIFICALLY/SEPARATELY COVERS FEATURE OF TIME OF DAY UNDER ITEM III(8)(IX)-E(I). UNDER THE ABOVE FACTS AND CIRCUMST ANCES ESPECIALLY IN VIEW OF ABOVE REFERRED SCHEDULE READ WITH SEC. 32 OF THE INCOME-TAX ACT, WE FIND THAT THE ASSESSEE HAS BEEN SUCCESSFULLY ABLE TO DEM ONSTRATE THAT IT WAS VERY MUCH ENTITLED TO CLAIM DEPRECIATION ON ENERGY METER S @ 80% AND WITHOUT 21 APPRECIATING THE ABOVE SCHEDULE, THE AUTHORITIES BE LOW WERE NOT JUSTIFIED IN DISALLOWING THE CLAIMED DEPRECIATION ON THESE ASSET S ON THE GROUND THAT THE ENERGY METERS DID NOT FACILITATE IN CONSERVATION OF ENERGY. THE ASSESSING OFFICER HAD, HOWEVER, POINTED OUT THAT MORE THAN 60 % OF THE METERS ARE MECHANICALLY ADVANCED METERS WHICH DID NOT HAVE ANY SPECIAL FEATURE. TO MEET OUT THIS OBJECTION AND ITS SUBMISSIONS BEFORE THE LEARNED CIT(APPEALS) THAT MOST OF THE METERS ARE ENERGY SAVING METERS, T HE LEARNED AR HAS REFERRED PAGE NO.75 OF THE SUPPLEMENTARY PAPER BOOK I.E. COPY OF THE RELEVANT EXTRACTS OF THE TAX AUDIT REPORT OF THE AS SESSEE FOR THE ASSESSMENT YEAR UNDER CONSIDERATION REFLECTING STATEMENT OF PA RTICULARS INCLUDING BIFURCATION OF EXPENSES BETWEEN NORMAL METER AND EL ECTRONIC METERS. WE THUS SET ASIDE THE MATTER TO THE FILE OF THE ASSESS ING OFFICER TO VERIFY AND ALLOW THE CLAIMED DEPRECIATION AT THE RATE OF 80% O N ELECTRONIC METERS/ENERGY METERS ONLY AFTER AFFORDING OPPORTUNI TY OF BEING HEARD TO THE ASSESSEE. 12.5 REGARDING THE CLAIMED HIGHER DEPRECIATION ON T HE BUS BAR CHAMBER, THE LEARNED AR SUBMITTED THAT THESE ARE DEVICES THR OUGH WHICH CONNECTION FROM OVERHEAD LINE/UNDERGROUND CABLE IS PROVIDED TO THE METERS AND THE SAID DEVICE FORMS INTEGRAL/INEXTRICABLE PART OF THE METE RS WITHOUT WHICH THE METER 22 CANNOT FUNCTION. THE AUTHORITIES BELOW HAVE DENIED THE CLAIMED HIGHER DEPRECIATION ON THIS INSTRUMENT ON THE BASIS THAT T HESE ARE NOT ENERGY SAVING DEVICE. WE SET ASIDE THIS MATTER TO THE FILE OF T HE ASSESSING OFFICER TO VERIFY THE ABOVE CLAIM OF THE ASSESSEE THAT BUS BAR CHAMB ER FORMS INTEGRAL/INEXTRICABLE PART OF THE METERS WITHOUT WH ICH A METER CANNOT FUNCTION AND ALLOW THE DEPRECIATION THEREUPON ACCOR DINGLY AFTER AFFORDING OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THE GRO UND NO.1 OF THE APPEAL PREFERRED BY THE ASSESSEE IS ACCORDINGLY ALLOWED FO R STATISTICAL PURPOSES. 13. ADDITIONAL GROUND NO.1(ASSESSEE ) AND GROUND NO .1 (REVENUE) : THE FACTS IN BRIEF ARE THAT IN THE ASSESSMENT YEAR UNDE R CONSIDERATION, THE APPELLANT RECEIVED A SUM OF RS.15.68 CRORES AS NON- REFUNDABLE SERVICE LINE DEPOSITS FROM CUSTOMERS AS PER THE PROVISIONS OF THE DERC A ND THE ELECTRICITY ACT FOR THE PURPOSE OF INCURRING EXPEND ITURE FOR LAYING SERVICE LINE AND OTHER RELATED EXPENSES FOR PROVIDING NEW C ONNECTIONS TO CUSTOMERS. THE AMOUNT SO RECEIVED BY THE APPELLANT WAS RECOGNI ZED AS INCOME OVER A PERIOD OF 3 YEARS, I.E. 1/3 RD OF THE SERVICE LINE DEPOSIT IS RECOGNIZED AS INCOME EVERY YEAR AND THE BALANCE AMOUNT IS SHOWN A S LIABILITY IN THE BALANCE SHEET. IN THE ASSESSMENT YEAR UNDER CONSIDE RATION, AN AMOUNT OF RS.14.94 CRORES WAS RECOGNIZED AS INCOME AND TRANSF ERRED TO P&L ACCOUNT. 23 FURTHER, THE EXPENDITURE INCURRED FOR PROVIDING SER VICE LINE WAS CAPITALIZED UNDER THE HEAD PLANT AND MACHINERY AND FULL DEPRECI ATION WAS CLAIMED BY THE APPELLANT ON THE CAPITAL ASSETS SO ACQUIRED OUT OF THE SAID DEPOSITS. 13.1 IN THE IMPUGNED ASSESSMENT ORDER, THE ASSESSIN G OFFICER HELD THAT THE SERVICE LINE DEPOSIT RECEIVED BY THE APPELLANT WAS IN THE NATURE OF NON- REFUNDABLE DEPOSITS AND THEREFORE, NOT IN THE NATU RE OF A LIABILITY. THE ASSESSING OFFICER FURTHER ALLEGED THAT THE AFORESAI D DEPOSITS WERE TAXABLE REVENUE RECEIPTS IN VIEW OF THE FACT THAT THE APPEL LANT IS A SERVICE PROVIDER AND THE AMOUNT WAS RECEIVED IN THE COURSE OF RENDER ING OF SERVICE. ACCORDINGLY, THE ASSESSING OFFICER BROUGHT TO TAX T HE ENTIRE AMOUNT OF SERVICE LINE DEPOSIT RECEIVED BY THE APPELLANT IN T HE ASSESSMENT YEAR UNDER CONSIDERATION. 13.4 ON APPEAL AGAINST THE AFORESAID ORDER OF THE A SSESSING OFFICER, THE LEARNED CIT(APPEALS) AGREED, IN PRINCIPLE THAT SERV ICE LINE DEPOSITS WERE CAPITAL RECEIPTS , AND NOT A TRADING RECEIPT. HOWEVER, THE LD. CIT(A) HAS NEITHER DIRECTED THE ASSESSING OFFICER TO REDUCE TH E 1/3 RD AMOUNT RECOGNIZED AS INCOME AND CREDITED TO THE P&L ACCOUNT IN THE AS SESSMENT YEAR UNDER CONSIDERATION NOR DIRECTED TO REDUCE THE SAME FROM THE BLOCK OF ASSETS AS PER THE MANDATE OF EXPLANATION 10 TO SECTION 43(1) OF T HE ACT. THE PARTIES ARE 24 THUS IN THEIR RESPECTIVE APPEALS AGAINST THE FIRST APPELLATE ORDER. THE GRIEVANCE OF REVENUE IN GROUND NO.1 AGAINST THE LE ARNED CIT(APPEALS) IS THAT THE LEARNED CIT(APPEALS) HAS ERRED IN DELETING THE ADDITION OF RS.73,75,590 MADE ON ACCOUNT OF SECURITY LINE DEPOS ITS FROM CUSTOMERS HOLDING THE SERVICE LINE RECEIPTS AS CAPITAL RECEIP TS. 14. IN SUPPORT OF THE ADDITIONAL GROUND, THE LEARNE D AR SUBMITTED THAT IN TERMS OF SECTION 43(1) OF THE ACT AND MORE SPECIFIC ALLY IN TERMS OF EXPLANATION 10, IF COST OF ANY ASSET, IS DIRECTLY O R INDIRECTLY MET BY ANY OTHER PERSON, THEN, THE ACTUAL COST TO BE ADJUSTED FOR PU RPOSES OF DEPRECIATION SHOULD BE THE AMOUNT INCURRED FOR ACQUISITION OF TH E ASSET AS REDUCED BY THE COST MET BY ANY OTHER PERSON. HE REFERRED THE FOLLO WING PROVISIONS OF THE ACT: SECTION 43(1) OF THE ACT DEFINING ACTUAL COST AND EXPLANATION 10 THERETO READS AS UNDER: 43. DEFINITIONS OF CERTAIN TERMS RELEVANT TO INCOM E FROM PROFITS AND GAINS OF BUSINESS OR PROFESSION. IN SECTIONS 28 TO 41 AND IN THIS SECTION, UNLESS TH E CONTEXT OTHERWISE REQUIRES- ACTUAL COST' MEANS THE ACTUAL COST OF THE ASSETS T O THE ASSESSEE, REDUCED BY THAT PORTION OF THE COST THEREOF, IF ANY, AS HAS BEEN MET DIRECTLY OR INDIRECTLY BY ANY OTHER PERSON OR AUTHORITY: EXPLANATION 10.-WHERE A PORTION OF THE COST OF AN A SSET ACQUIRED BY THE ASSESSEE HAS BEEN MET DIRECTLY OR INDIRECTLY BY THE CENTRAL GOVERNMENT 25 OR A STATE GOVERNMENT OR ANY 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 INCL UDED IN THE ACTUAL COST OF THE ASSET TO THE ASSESSEE : PROVIDED THAT WHERE SUCH SUBSIDY OR GRANT OR REIMBU RSEMENT IS OF SUCH NATURE THAT IT CAN NOT BE DIRECTLY RELATABLE TO THE ASSET ACQUIRED, SO MUCH OF THE AMOUNT WHICH BEARS TO THE TOTAL SUBSIDY OR R EIMBURSEMENT 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 REI MBURSEMENT IS SO RECEIVED, SHALL NOT BE INCLUDED IN THE ACTUAL COST OF THE ASSET TO THE ASSESSEE (EMPHASIS SUPPLIED) 14.2 THE AFORESAID SECTION CLEARLY MANDATES THAT WH ERE COST OF ANY ASSET IS MET DIRECTLY OR INDIRECTLY BY ANY PERSON IN THE FOR M OF A SUBSIDY OR GRANT OR REIMBURSEMENT, THEN, SO MUCH OF THE COST, AS IS REL ATABLE TO THE SUBSIDY OR GRANT OR REIMBURSEMENT, IS NOT LIABLE TO BE INCLUDE D IN THE ACTUAL COST OF THE ASSET TO THE ASSESSEE. WHERE THE SUBSIDY OR GRANT O R REIMBURSEMENT CANNOT BE RELATED DIRECTLY TO THE ASSET ACQUIRED, PROPORTIONA TE AMOUNT IS TO BE EXCLUDED FOR COMPUTING THE ACTUAL COST OF THE ASSET TO THE A SSESSEE. 14.3 THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF DCIT V. DALMIA CEMENT (BHARAT) LTD: 115 ITD 208 (DEL.), HELD THAT SUBSIDY RECEIVED BEING CAPITAL RECEIPT HAS TO BE ADJUSTED AGAINST COST OF ASSETS IN TERMS OF EXPLANATION 10 TO SECTION 43(1). 26 14.4 IN THE CASE OF THE APPELLANT, SERVICE LINE DEP OSIT IS UNDISPUTEDLY RECEIVED BY THE APPELLANT FROM CUSTOMERS TOWARDS SE TTING UP OF SERVICE LINES, WHICH INCLUDED THE COST OF GI PIPE, BRICKS, SAND, BUS BARS, ETC. FURTHER, IN RESPECT OF UN-ELECTRIFIED AREAS, THE AP PELLANT WAS ALSO ELIGIBLE TO CHARGE DEVELOPMENT CHARGES IN ADDITION TO THE SERVI CE LINE CHARGES. 14.5 SINCE THE AMOUNT RECEIVED BY THE APPELLANT IS UNDISPUTEDLY RELATABLE TO ACQUISITION OF A PARTICULAR ASSET, SUCH CONCESSION/ REIMBURSEMENT WOULD, IT IS SUBMITTED, HAVE TO BE REDUCED FOR THE PURPOSE OF CO MPUTING THE ACTUAL COST OF THE FIXED ASSETS ACQUIRED BY THE APPELLANT. 14.6 RELIANCE IN THIS REGARD WAS PLACED ON THE FOLL OWING DECISIONS, WHEREIN THE COURTS HAVE CATEGORICALLY HELD THAT SERVICE LIN E DEPOSITS RECEIVED BY ELECTRICITY COMPANIES TOWARDS CAPITAL WORKS SHOULD BE REDUCED FROM THE COST OF ASSETS ACQUIRED AS PER SECTION 43(1) OF THE ACT: ROHTAK & HISSAR DISTRICTS ELECTRIC SUPPLY CO. (P.) LTD. VS. CIT: 5 TAXMAN 116 (DELHI) RANCHI ELECTRIC SUPPLY CO. LTD. VS. CIT: 16 TAXMAN 213 (PAT.) 14.7 NO ESTOPPELS IN LAW TO RESILE FROM A WRONG POS ITION: THE LEARNED AR SUBMITTED THAT THE LD. CIT(A) HAS ERRED IN NOT DIRE CTING THE ASSESSING OFFICER TO REDUCE THE AMOUNT RECEIVED FOR THE COST OF ASSET S, MERELY BECAUSE THE 27 APPELLANT WAS FOLLOWING ERRONEOUS PRINCIPLE OF RECO GNIZING THE SAME AS INCOME OVER A PERIOD OF THREE YEARS. 14.8 IN THIS REGARD, IT WAS SUBMITTED THAT THE METH OD OF ACCOUNTING ERRONEOUSLY FOLLOWED BY THE APPELLANT OF RECOGNIZIN G SERVICE LINE DEPOSITS AS INCOME, OVER A PERIOD OF THREE YEARS, COULD NOT BE THE BASIS OF BRINGING TO TAX THE ENTIRE AMOUNT RECEIVED AS TRADING RECEIPT, NOTW ITHSTANDING THE MANDATE OF EXPLANATION 10 TO SECTION 43(1) OF THE ACT. 14.9 IT IS SETTLED PROPOSITION OF LAW THAT NO TAX C AN BE LEVIED OR RECOVERED WITHOUT AUTHORITY OF LAW. ARTICLE 265 OF THE CONSTI TUTION OF INDIA IMPOSES AN EMBARGO ON IMPOSITION AND COLLECTION OF TAX IF THE SAME IS WITHOUT AUTHORITY OF LAW. 14.10 RELIANCE, IN THIS REGARD, WAS PLACED ON THE D ECISION OF HONBLE SUPREME COURT IN THE CASE OF LILY THOMAS V. U.O.I.: AIR 2000 SC 1650, WHERE THE HONBLE COURT OBSERVED AS UNDER: IT CANNOT BE DENIED THAT JUSTICE IS A VIRTUE WHIC H TRANSCENDS ALL BARRIERS AND THE RULES OR PROCEDURES OR TECHNICALIT IES OF LAW CANNOT STAND IN THE WAY OF ADMINISTRATION OF JUSTICE. LAW HAS TO BEND BEFORE JUSTICE (EMPHASIS SUPPLIED) 14.11 THE HONBLE SUPREME COURT IN THE CASE OF CIT V. SHELLY PRODUCTS AND ANOTHER: 261 ITR 367 OBSERVED THAT IF THE ASSES SEE HAS BY MISTAKE OR 28 INADVERTENCE OR ON ACCOUNT OF IGNORANCE, INCLUDED I N HIS INCOME ANY AMOUNT WHICH IS EXEMPTED FROM PAYMENT OF TAX OR IS NOT INC OME WITHIN THE CONTEMPLATION OF LAW, THE ASSESSEE MAY BRING THE SA ME TO THE NOTICE OF THE ASSESSING OFFICER, WHICH IF SATISFIED, MAY GRANT TH E ASSESSEE NECESSARY RELIEF AND REFUND THE TAX PAID IN EXCESS, IF ANY. 14.12 THUS, MERELY BECAUSE CAPITAL RECEIPT TOWARDS SERVICE LINE DEPOSITS WAS ERRONEOUSLY OFFERED FOR TAX AS INCOME BY THE APPELL ANT, COULD NOT, IT IS SUBMITTED, BE THE BASIS FOR TREATING THE SAID AMOUN T TO BE TRADING RECEIPT TAXABLE UNDER THE PROVISIONS OF THE ACT. 14.13 IT IS SETTLED LAW THAT THERE IS NO ESTOPPELS IN LAW. IT IS OPEN TO THE ASSESSEE TO WITHDRAW FROM THE POSITION WRONGLY TAKE N WHILE FILING THE RETURN OF INCOME. IT IS EQUALLY OPEN TO THE ASSESSING OFFI CER TO DISREGARD THE RETURN FILED BY THE ASSESSEE WHERE THE ASSESSEE HAS MISTAK ENLY/ UNDER A WRONG IMPRESSION OFFERED INCOME FOR TAX, WHICH IS OTHERWI SE NOT LIABLE TO TAX. IT IS INDEED THE DUTY OF THE ASSESSING OFFICER TO BRING T HE CORRECT LEGAL POSITION TO THE NOTICE OF THE ASSESSEE AND NOT TO TAKE ADVANTAG E OF THE WRONG COMMITTED BY THE ASSESSEE WHILE FILING THE RETURN OF INCOME. 14.14 RELIANCE, IN THIS REGARD, HAS BEEN PLACED ON THE FOLLOWING DECISIONS: 29 PT. SHEO NATH PRASAD SHARMA VS. CIT: 66 ITR 647 (AL L.) CIT VS. BHARAT GENERAL RE-INSURANCE CO. LTD.: 81 IT R 303(DEL.) ABDUL QAYUME V. CIT: 184 ITR 404 (ALL.) SMT SNEHLATA JAIN VS. CIT: 192 CTR 50 (J&K) S.R. KOSHTI VS. CIT: 276 ITR 165 (GUJ.) ESTER INDUSTRIES LTD. VS. CIT: 316 ITR 260 (DEL.) DCIT VS. SANMUKHDAS WADHWANI: 85 ITD 734 (NAG) JYOTSANA HOLDING (P) LTD. VS. ITO: 37 ITD 430 (DEL. ) INDO JAVA & CO. VS. IAC: 30 ITD 161 (DELHI SB) 14.15 FURTHER, IT IS ALSO SETTLED LAW THAT THE PURP OSE OF THE ASSESSMENT IS TO COMPUTE INCOME IN ACCORDANCE WITH THE PROVISIONS OF THE ACT. THE ASSESSING OFFICER IS THEREFORE, EVEN OTHERWISE, DUTY BOUND TO GRANT RELIEF, WHICH THE ASSESSEE MAY NOT HAVE CLAIMED IN THE RETURN OF INCO ME: - CIT VS. MAHALAXMI SUGAR MILLS CO. LTD: 160 ITR 920 (SC) - NATIONAL THERMAL POWER LIMITED V. CIT: 229 ITR 383 (SC) - ASSAM COMPANY (INDIA) LTD. VS. CIT: 256 ITR 423 (GA U.) - NATHMAL BANKATLAL PARIKH & CO. V. CIT: 122 ITR 168 (AP FB) - CIT V. SMT. ARCHANA R. DHANSWATAY: 136 ITR 355 (BOM ) - SMT. SHEN LATA JAIN V. CIT: 192 CTR 50 (J&K) 14.16 IN VIEW OF THE AFORESAID SUBMISSIONS AND THE CITED DECISIONS, THE LEARNED AR SUBMITTED THAT THE ASSESSING OFFICER MAY KINDLY BE DIRECTED TO REDUCE THE SERVICE LINE DEPOSITS FROM THE COST OF A SSETS FALLING UNDER THE PLANT AND MACHINERY IN ACCORDANCE WITH THE MANDAT E OF EXPLANATION 10 TO SECTION 43(1) OF THE ACT. 30 15. THE LEARNED CIT(DR) WHILE OPPOSING THE ADDITION AL GROUND NO.1 RAISED BY THE ASSESSEE AND SUPPORTING GROUND NO.1 O F THE APPEAL PREFERRED BY THE REVENUE, SUBMITTED THAT THE LEARNED CIT(APPEALS ) WAS NOT JUSTIFIED IN DELETING THE ADDITION OF RS.73,75,590 MADE ON ACCOU NT OF SECURITY LINE DEPOSIT FROM CUSTOMERS. HE SUBMITTED THAT THESE SER VICE LINE RECEIPTS ARE NOT A LIABILITY OF THE ASSESSEE BUT ARE REVENUE RECEIPT S RECEIVED DURING THE YEAR ON RUNNING OF BUSINESS OPERATIONS OF THE ASSESSEE C OMPANY. THE ASSESSEE IS ENGAGED IN SELLING ELECTRICITY TO THE CONSUMERS FRO M WHOM IT CHARGES FEES IN THE NAME OF ENERGY CHARGES. FOR THIS PURPOSE, IT HA S TO PROVIDE SERVICE LINE CONNECTIONS TO THE CONSUMERS FROM WHOM IT CHARGES S ERVICE LINE DEPOSITS. HE CONTENDED THAT THE SERVICE LINE RECEIPTS CANNOT BE TREATED AS CAPITAL RECEIPTS BECAUSE THEIR NATURE WOULD NOT DEPEND UPON HOW THE ASSESSEE COMPANY IS UTILIZING THEM BUT IN WHAT CAPACITY THEY HAVE BEEN RECEIVED BY THE ASSESSEE. 16. IN REPLY TO THE SUBMISSION OF THE LEARNED CIT(D R) ON GROUND NO. 1 OF THE APPEAL PREFERRED BY THE REVENUE, THE LEARNED AR SUBMITTED THAT THE SERVICE LINE DEPOSITS RECEIVED BY THE ASSESSEE IN T HE ASSESSMENT YEAR UNDER CONSIDERATION ARE IN THE NATURE OF CAPITAL RECEIPT, AS ELABORATED HEREUNDER: 31 16.1 THE ASSESSEE IN THE YEAR UNDER CONSIDERATION R ECEIVED A SUM OF RS.15.68 CRORES AS SERVICE LINE DEPOSITS. THE SAID CHARGES/DEPOSITS WERE RECEIVED BY THE ASSESSEE AS PER THE PROVISIONS OF T HE ELECTRICITY ACT, 2003 READ WITH THE REGULATION FRAMED THERE UNDER BY THE DERC FROM TIME TO TIME. THE RELEVANT RULES OF DERC RELATING TO SERVICE LINE DEPOSITS ARE LAID DOWN IN THE SCHEDULE OF MISC. CHARGES. 16.2 THE AFORESAID DEPOSITS WERE RECEIVED BY THE AS SESSEE FROM ITS CUSTOMERS TOWARDS SETTING UP OF SERVICE LINES, WH ICH INCLUDED COST OF GI PIPE, BRICKS, SAND, ETC. 16.3 SERVICE LINE, IT WAS SUBMITTED, IS A CONNECTIN G LINE WHICH LINKS THE SUPPLY SYSTEM TO THE PREMISES OF THE CONSUMER AND U TILIZED FOR THE PURPOSE OF SUPPLYING ELECTRICITY. THE SERVICE LINE CHARGES ARE CHARGED FROM THE CONSUMER ONLY AT THE TIME OF PROVIDING NEW CONNECTI ONS, TO RECOVER THE CAPITAL EXPENDITURE INCURRED ON SETTING UP OF SUCH LINES. THUS, IT IS A ONE- TIME CHARGE LEVIED ON THE CUSTOMER/ CONSUMER AT THE TIME OF TA KING NEW CONNECTIONS AND THEREAFTER, IT IS THE RESPONSIBILIT Y OF THE ASSESSEE COMPANY FOR SETTING UP AND MAINTENANCE OF THE SERVICE LINES . 32 16.4 IT WAS SUBMITTED THAT THE SERVICE LINE DEPOSIT S/CHARGES RECEIVED BY THE ASSESSEE ARE CAPITAL IN NATURE AND AS SUCH IS DIRECTLY RELATED TO THE C APITAL EXPENDITURE INCURRED AND CAPITALIZED UNDER THE HEAD PLANT & MACHINERY. 16.5 THE LEARNED AR SUBMITTED THAT THE AFORESAID IS SUE, IS SQUARELY COVERED BY THE LANDMARK DECISION OF THE HONBLE SUP REME COURT IN THE CASE OF HOSHIARPUR ELECTRIC SUPPLY CO. VS. CIT: 41 ITR 6 08, WHEREIN THE APEX COURT HAS CATEGORICALLY HELD THAT THE SERVICE CONNE CTION RECEIPTS OF AN ELECTRICITY COMPANY ARE NOT RECEIPTS INCIDENTAL TO NOR CARRYIN G ON OF THE ASSESSEES BUSINESS, BUT ARE RECEIPTS FOR BRINGING INTO EXISTENCE CAPITAL OF LASTING VALUE. SINCE THE CONTRIBUTIONS MADE WERE NO T MADE MERELY FOR SERVICES RENDERED AND TO BE RENDERED, BUT FOR INSTA LLATION OF CAPITAL EQUIPMENT, THE SAME CONSTITUTED CAPITAL RECEIPT. THE HONBLE APEX COURT FURTHER HELD THAT EVEN THE BALANCE AMOUNT RETAINED BY THE ASSESSEE, WHICH HAD NOT BEEN EXPENDED, COULD NOT ALSO BE CONSIDERED TO BE A REVENUE RECEIPT. 16.6 IN SUPPORT OF ABOVE, THE LEARNED AR CITED FOLL OWING DECISIONS: ROHATAK & HISSAR DISTRICTS ELECTRIC SUPPLY CO. (P.) LTD. VS. CIT: 5 TAXMAN 116 (DEL) RANCHI ELECTRIC SUPPLY CO. LTD. VS. CIT: 16 TAXMAN 213 (PAT.) CIT VS. COCHIN ELECTRIC CO: 57 ITR 82 (KER.) 33 CIT VS. POONA ELECTRIC SUPPLY CO. LTD.: 14 ITR 622 (BOM) MONGHYR ELECTRIC SUPPLY CO. VS. CIT: 26 ITR 15 (ORI SSA.) 16.7. FURTHER, EVEN IN THE IMPUGNED ASSESSMENT ORDE R, THE ASSESSING OFFICER HAS MERELY EMPHASIZED ON THE POINT THAT SINCE THE A SSESSEE-COMPANY IS PRIMARILY A SERVICE PROVIDER, THE CHARGES RECEIVED FROM CONSUMERS WERE REVENUE IN NATURE, WITHOUT APPRECIATING THAT THE SA ID CHARGES WERE ACTUALLY RECEIVED AS REIMBURSEMENT TOWARDS INCURRING CAPITAL EXPENDITURE AND NOT FOR RENDERING OF ANY SERVICE PER SE. 16.8 IT MAY ALSO BE PERTINENT TO NOTE THAT IT IS NO T EVEN THE CASE OF THE ASSESSING OFFICER, THAT THE DEPOSITS/CHARGES WERE N OT UTILIZED FOR UNDERTAKING CAPITAL WORKS. 16.9 IN THIS REGARD, THE LEARNED AR FURTHER SUBMITT ED, THAT MERELY BECAUSE THE ASSESSEE FOLLOWED THE ERRONEOUS PRINCIPLE OF RE COGNIZING SERVICE LINE DEPOSITS AS INCOME, THOUGH OVER A PERIOD OF THREE Y EARS, THE SAID FACT, BY ITSELF, COULD NOT HAVE BEEN THE BASIS OF BRINGING T O TAX THE ENTIRE AMOUNT RECEIVED AS TRADING RECEIPT, NOTWITHSTANDING THE MA NDATE OF EXPLANATION 10 TO SECTION 43(1) OF THE ACT. 34 17. AFTER CONSIDERING THE ABOVE SUBMISSIONS, WE FIN D THAT THE REVENUE IS AGGRIEVED WITH THE FIRST APPELLATE ORDER GIVING REL IEF OF RS.73,75,590 (AS PER RECTIFICATION ORDER DATED 5.3.2010) TO THE ASSE SSEE HOLDING THE SERVICE LINE DEPOSIT AS CAPITAL RECEIPTS. THE ASSESSEE ON T HE OTHER HAND IS AGGRIEVED WITH THE FIRST APPELLATE ORDER TO THIS EXTENT THAT WHILE AGREEING IN PRINCIPLE THAT SERVICE LINE DEPOSITS ARE CAPITAL RECEIPTS, TH E LEARNED CIT(APPEALS) HAS NEITHER DIRECTED THE ASSESSING OFFICER TO REDUCE TH E 1/3 RD AMOUNT RECOGNIZED AS INCOME AND CREDITED TO THE PROFIT AND LOSS ACCOU NT IN THE ASSESSMENT YEAR UNDER CONSIDERATION NOR DIRECTED TO REDUCE THE SAME FROM THE BLOCK OF ASSETS AS PER THE MANDATE OF EXPLANATION-10 TO SECTION 43( 1) OF THE ACT. THE PROVISIONS LAID DOWN UNDER SEC. 43(1) OF THE ACT DE FINING ACTUAL COST AND EXPLANATION 10 THERETO CLEARLY MANDATES THAT WHERE COST OF ANY ASSETS IS MADE DIRECTLY OR INDIRECTLY BY ANY PERSON IN THE FO RM OF A SUBSIDY OR GRANT OR REIMBURSEMENT, THEN, SO MUCH OF THE COST, AS IS REL ATABLE TO THE SUBSIDY OR GRANT OR REIMBURSEMENT, IS NOT LIABLE TO BE INCLUDE D IN THE ACTUAL COST OF THE ASSETS TO THE ASSESSEE. WHERE THE SUBSIDY OR GRANT OR REIMBURSEMENT CANNOT BE RELATED DIRECTLY TO THE ASSETS ACQUIRED, PROPORT IONATE AMOUNT IS TO BE EXCLUDED FOR COMPUTING THE ACTUAL COST OF THE ASSET S TO THE ASSESSEE. THE DELHI BENCH OF THE ITAT IN THE CASE OF DCIT VS. DAL MIA CEMENT (BHARAT) LTD. (SUPRA) HAS HELD THAT SUBSIDY RECEIVED BEING C APITAL RECEIPT HAS TO BE 35 ADJUSTED AGAINST COST OF ASSETS IN TERMS OF EXPLANA TION 10 TO SECTION 43(1). SINCE THE AMOUNT RECEIVED BY THE ASSESSEE IN THE PR ESENT CASE WAS UNDISPUTEDLY RELATABLE TO ACQUISITION OF GI PIPES, BRICKS, SAND, BUS BAR ETC. FOR SETTING UP SERVICE LINE, SUCH CONCESSION/REIMBU RSEMENT WOULD HAVE TO BE REDUCED FOR THE PURPOSE OF COMPUTING THE ACTUAL COS T OF THE FIXED ASSETS ACQUIRED BY THE ASSESSEE. WE THUS FIND SUBSTANCE IN THE CONTENTION OF THE LEARNED AR THAT MERELY BECAUSE THE ASSESSEE WAS FOL LOWING ERRONEOUS PRINCIPLES OF RECOGNIZING THE AMOUNT RECEIVED FROM THE COST OF ASSETS AS INCOME OVER A PERIOD OF THREE YEARS, THE LEARNED CI T(APPEALS) WAS NOT JUSTIFIED IN NOT DIRECTING THE ASSESSING OFFICER TO REDUCE THE AMOUNT RECEIVED FROM THE COST OF ASSETS. THERE IS NO DISPUTE THAT A S PER THE SETTLED PROPOSITION OF LAW, NO TAX CAN BE LEVIED OR RECOVERED WITHOUT A UTHORITY OF LAW AND THUS THE MANDATE OF EXPLANATION 10 TO SECTION 43(1) OF T HE ACT CANNOT BE IGNORED ONLY BECAUSE THE METHOD OF ACCOUNTING WAS ERRONEOUS LY FOLLOWED BY THE ASSESSEE OF RECOGNIZING SERVICE LINE DEPOSITS AS IN COME OVER A PERIOD OF THREE YEARS. OF COURSE, THERE IS NO ESTOPPELS IN LA W AND WE FULLY CONCUR WITH THIS CONTENTION OF THE LEARNED AR. THE VERY PURPOSE OF THE ASSESSMENT IS TO COMPUTE INCOME IN ACCORDANCE WITH THE PROVISIONS OF THE ACT. WE THUS WHILE SETTING ASIDE THE ORDERS OF THE AUTHORITIES B ELOW ON THE ISSUE RAISED BY THE ASSESSEE IN THE ADDITIONAL GROUND NO.1 DIRECT T HE ASSESSING OFFICER TO 36 REDUCE THE SERVICE LINE DEPOSITS FROM THE COST OF A SSETS FALLING UNDER THE PLANT AND MACHINERY IN ACCORDANCE WITH THE MANDAT E OF EXPLANATION-10 TO SECTION 43(1) OF THE INCOME-TAX ACT, 1961. THE ADDI TIONAL GROUND NO.1 RAISED BY THE ASSESSEE IS ACCORDINGLY ALLOWED. 17.1 SO FAR AS DELETION OF ADDITION OF RS.73,75,590 BY THE LEARNED CIT(APPEALS) IS CONCERNED, THE ADDITION WAS MADE BY THE ASSESSING OFFICER ON ACCOUNT OF SECURITY LINE DEPOSIT FROM CUSTOMERS TREATING THE SAME IN THE NATURE OF REVENUE RECEIPTS, HENCE, TAXABLE IN THE H ANDS OF THE ASSESSEE. WE FIND THAT THE LEARNED CIT(APPEALS) HAS DEALT WITH T HE ISSUE IN DETAIL IN PARA NOS. 5 TO 5.5 OF THE FIRST APPELLATE ORDER. THE SAI D PARAGRAPHS OF THE FIRST APPELLATE ORDER ARE BEING REPRODUCED HEREUNDER FOR A READY REFERENCE: 5. GROUND NO 3 IS REGARDING SERVICE LINE DEPOSITS FROM CUSTOMERS CONSIDERED IN THE NATURE OF REVENUE RECEIPT AND ADD ITION WRONGLY MADE OF RS 16,52,68,284/-WHICH WAS LATER RECTIFIED TO RS 7375590.56. 5.1 THE FACTS OF THE CASE IN BRIEF ARE THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE COMPANY RECEIVED A SUM OF RS156867425/- AS SERVICE LINE DEPOSITS WHICH HAS BE EN REFLECTED IN THE LIABILITY SIDE OF THE BALANCE SHEET UNDER THE HEAD LOAN FUNDS. OUT OF THE DEPOSITS, 1/3RD OF THE AMOUNT WAS TRANSFERRED TO TH E P&L A/C AS REVENUE RECEIPTS AND BALANCE SUM HAS BEEN SHOWN AS LIABILITY. THE ACIT IN HIS ORDER HAD CONSIDERED THE SERVICE LI NE DEPOSIT AS REVENUE RECEIPT NOT ACCEPTING THE CLAIM OF THE APPE LLANT THAT IT IS A CAPITAL RECEIPT WHICH HAS BEEN RECEIVED FROM THE CU STOMERS FOR THE NEW CONNECTION BY GIVING THE FOLLOWING REASONS; A) IT IS NOT A DEPOSIT BUT A RECEIPT AS IT IS NON R EFUNDABLE. 37 B) WITH REGARD TO QUERY AS TO HOW THE CO HAS TREATE D ONLY 1/3RD OF TOTAL AMOUNT IN REVENUE ACCOUNT AND NOT THE WHOLE O F IT, NO SPECIFIC REPLY HAS BEEN RECEIVED APART FROM STATING THAT DER C IS A REGULATORY BODY WHICH REGULATES THE CHARGING OF SERVICE LINE C HARGES. HOWEVER THAT DOES NOT CHANGE THE CHARACTER OF THESE RECEIPT IN THE CO'S HANDS NOR DID THE APP. NO.187/09-10 10 M/S BSES RAJDHANI POWER LTD. A.Y.2005-06; U/S 143(3) DEFINITION IN THE ELECTRICI TY ACT SPECIFY THAT IT IS A CAPITAL RECEIPT IN ASSESSEE'S HANDS. C) THE CO HAS ITSELF RECOGNIZED 1/3 OF TOTAL RECEIP TS AS REV WHICH ESTABLISHES THAT THEY ARE IN THE NATURE OF RE V RECEIPTS. D) THE CO IS A SERVICE PROVIDER FOR PROVIDING SERV ICES TO THE CONSUMERS. IT MAY HAVE TO INCUR CAPITAL EXPENDITURE FOR PROVIDING SERVICES TO THE CONSUMER BUT THAT DOES NOT MAKE THE RECEIPTS ON TRADING ACCOUNT IN LIEU OF THIS EXPENDITURE FROM CU STOMER IN ITS HANDS AS CAPITAL RECEIPTS. 5.2 IN APPEAL BEFORE ME, THE A/R'S PRESENT FOR THE APPELLANT SUBMITTED THAT AS PER THE CONSISTENT POLICY FOLLOWE D BY THE CO, THE ASSESSEE IS TRANSFERRING THE SERVICE LINE DEPOSITS RECEIVED DURING THE YEAR TO THE P & L A/C OVER A PERIOD OF THREE YEARS. IN RESPECT OF THE NATURE OF SERVICE LINE DEPOSITS AND PROVISIONS RELA TING TO RECEIVING OF SERVICE LINE DEPOSITS, THE A/RS REFERRED TO THE REL ATED PROVISIONS OF THE DERC AND ELECTRICITY ACT AND SUBMITTED THAT THE ASS ESSEE COMPANY IS GOVERNED BY RULES AND REGULATIONS AS LAID DOWN BY D ELHI ELECTRICITY REGULATORY COMMISSION (DERC). THE RELEVANT RULES OF DERC RELATING TO SERVICE LINE DEPOSITS ARE LAID DOWN IN THE SCHEDULE OF MISC CHARGES AS FINALIZED BY DERC ON 16.06.2003.IN ACCORDANCE WITH THE ABOVE NOTIFICATION/RULES AND REGULATIONS O F DERC, THE ASSESSEE WAS CHARGING SERVICE LINE AS WELL AS DEVEL OPMENT CHARGES AS THE CASE MAY BE AND BOTH WERE ACCOUNTED FOR UNDER T HE HEAD SERVICE LINE DEPOSITS. IN THE ELECTRICITY ACT 1910 SERVICE LINE HAS BEEN DEFINED AS UNDER: 'SERVICE LINE' IS A SUPPLY-LINE INTENDED TO SERVE A CONSUMER OR A GROUP OF CONSUMERS. THE 'DISTRIBUTING MAIN' IS OR I S INTENDED TO BE CONNECTED TO THE 'SERVICE LINE' THROUGH WHICH TH E CONSUMER IS SUPPLIED ELECTRICITY. 'SERVICE LINE' IS THUS A CONN ECTING LINK BETWEEN LICENSEE'S SUPPLY SYSTEM AND THE CONSUMER'S INTERIOR WIRING SYSTEM. A SERVICE LINE IS A PART OF AN ELECT RIC SUPPLY-LINE, BUT IT IS ESSENTIALLY A LINE FROM THE DISTRIBUTING MAIN TO THE PREMISES OF CONSUMER. SERVICE LINE IS AN ELECTRIC S UPPLY LINE INTENDED TO SUPPLY ENERGY TO A SINGLE CONSUMER OR A GROUP OF 38 CONSUMERS FROM THE SAME POINT OF THE DISTRIBUTING M AIN. SO, THE SERVICE LINE IS TO BE DRAWN FROM THE DISTRIBUTING A PP. NO.187/09-10 11 M/S BSES RAJDHANI POWER LTD. A.Y.2005-06; U/S 143(3) MAIN. THE LINES DRAWN WITH THE HELP OF ELECTRIC POSTS ARE ELECTRIC SUPPLY LINES AND CONNEC TION TAKEN FROM THE POST TO THE BUILDING ARE SERVICE LINES. 5.3 THE SERVICE LINE CHARGES ARE LEVIED TO RECOVER THE COST OF SERVICE LINE WHICH INCLUDES COST OF GI PIPES, BRICK S, SAND, OVERHEAD OR UNDERGROUND CABLES, ETC. THE SERVICE LINE CHARGES A RE CHARGED FROM THE CONSUMER ONLY AT THE TIME OF PROVIDING NEW CONNECTI ON, TO RECOVER THE CAPITAL EXPENDITURE INCURRED ON SUCH EQUIPMENTS. IT IS A ONE TIME CHARGE LEVIED ON THE CONSUMERS AT THE TIME OF TAKIN G NEW CONNECTIONS AND THEREAFTER IT IS THE RESPONSIBILITY OF BRPL FOR REPAIR/REPLACEMENT OF THE SERVICE LINE. THE SERVICE LINE CHARGES ARE T HEREFORE CAPITAL IN NATURE AND SUCH RECEIPT IS DIRECTLY RELATED TO THE CAPITAL EXPENDITURE INCURRED AND CAPITALIZED UNDER THE HEAD 'PLANT & MA CHINERY'. SUCH PLANT & MACHINERY INCLUDES UNDERGROUND/OVERHEAD SER VICE LINE CABLES. THE SUM REPRESENTING THE COST OF SERVICE CO NNECTION RECEIVED BY AN ELECTRICITY SUPPLY COMPANY FROM DIFFERENT CON SUMERS IS A CAPITAL RECEIPT AND NOT A REVENUE RECEIPT IN THE HANDS OF T HE COMPANY. RELIANCE WAS PLACED ON THE FOLLOWING CASES; I) HOSHIARPUR ELECTRIC SUPPLY CO. V. CIT {1961} 41 ITR 608 (SC), II) MONGHYR ELECTRICITY SUPPLY CO. VS. CIT(BIHAR & ORISSA) 26 ITR 15, III) CIT V. POONA ELECTRIC SUPPLY CO. LTD. {1946} 14 ITR 622 IT WAS ALSO SUBMITTED THAT TILL 17TH APRIL, 2007 TH E ASSESSEE COMPANY WAS CHARGING SERVICE LINE DEPOSIT AS WELL AS DEVELO PMENT CHARGES FROM THE CONSUMERS AS PER THE RULES AND NOTIFICATION OF DELH I ELECTRICITY REGULATORY COMMISSION(DERC).THE CAPITAL EXPENDITURE INCURRED I N RESPECT OF SERVICE LINE DEPOSITS ON ACCOUNT OF SERVICE LINE CABLES, CO ST OF GI PIPES, BRICKS ETC. WERE CAPITALIZED UNDER THE HEAD METER ACCESSORIES ( ON WHICH DEPRECIATION WAS CLAIMED @ 80% BUT WAS REDUCED TO 25% BY THE DCI T). HOWEVER, THE CAPITAL EXPENDITURE INCURRED ON DEVELOPMENT CHARGES WERE DULY INCLUDED UNDER THE HEAD (PLANT AND MACHINERY) WHICH WAS SUBJ ECT TO THE NORMAL DEPRECIATION @25%. ACCORDINGLY THE DEVELOPMENT CHAR GES ARE REQUIRED TO BE DE-CAPITALIZED FROM THE PLANT AND MACHINERY @ 2 5% AND SERVICE LINE DEPOSITS FROM PLANT AND MACHINERY (METER) @ 80%, IN ACCORDANCE WITH THE 39 PROVISIONS OF SECTION 43(1). APP. NO.187/09-10 12 M /S BSES RAJDHANI POWER LTD. A.Y.2005-06; U/S 143(3) 5.4 THE APPELLANT ALSO OBJECTED TO VARIOUS OBSERVA TION OF THE A.O AND IT WAS SUBMITTED THAT THE A.O HAS OBSERVED THAT IT IS NOT A DEPOSIT BUT A RECEIPT AS IT IS NON-REFUNDABLE. IN REBUTTAL THE APPELLANT ARGUED THAT SERVICE LINE CHARGES ARE BEING RECOVERED FROM THE CUSTOMERS AS P ER THE ELECTRICITY ACT, 2003 AND THE REGULATIONS FRAMED UNDER THE ACT BY TH E DERC FROM TIME TO TIME. THESE CHARGES ARE LEVIED TO RECOVER THE COST OF SERVICE LINE WHICH INCLUDES COST OF GI PIPES, BRICKS, SAND, OVERHEAD O R UNDERGROUND SERVICE LINE CABLES, METER ACCESSORIES ETC. THESE CHARGES ARE CH ARGED FROM THE CUSTOMERS ONLY AT THE TIME OF PROVIDING THE NEW CONNECTION TO RECOVER THE CAPITAL EXPENDITURE INCURRED ON THE EQUIPMENTS. THESE EXPEN DITURE ARE CAPITALIZED UNDER THE HEAD ''PLANT & MACHINERY' (METER) AND DEP RECIATION IS CLAIMED THEREON. WITH REGARD TO THE CAPITALIZATION OF ASSET S IT WAS SUBMITTED THAT AS PER PROVISION OF SECTION 43 (1) OF THE INCOME TAX A CT, THE COST OF LAYING DOWN THE NEW CONNECTION HAVING BEEN PARTLY RECOVERE D FROM THE CONSUMER, THE SERVICE LINE DEPOSITS RECOVERED FROM THE CONSUM ERS NEEDS TO BE REDUCED FROM THE COST OF THE RELEVANT PLANT AND MACHINERY W ITH REGARD TO THE A.O'S OBSERVATION THAT ONLY 1/3RD OF THE TOTAL AMOUNT ON REVENUE ACCOUNT, AND NOT WHOLE OF IT, IN THE REPLY IT IS STATED THAT DER C IS A REGULATORY BODY, WHICH REGULATES THE CHARGING OF SERVICE LINE CHARGE S. SERVICE LINE DEPOSITS ARE RECEIVED BY THE COMPANY AS PER THE PROVISIONS O F THE DERC & THE ELECTRICITY ACT FOR THE PURPOSES OF INCURRING THE E XPENDITURE FOR LAYING THE SERVICE LINE AND OTHER RELATED EXPENSES FOR PROVIDI NG NEW CONNECTIONS TO THE CONSUMERS. THE EXPENDITURE SO INCURRED IS CAPITALIZ ED UNDER THE HEAD PLANT & MACHINERY (METER).IN THE ABSENCE OF A ONE TO ONE LINKING OF THE SERVICE LINE DEPOSITS RECEIVED WITH THE CAPITAL EXPENDITURE INCURRED ON THE SERVICE LINE CONNECTIONS, THE JUSTIFICATION FOR TREATING 1/ 3RD OF THE TOTAL AMOUNT OF RECEIPTS IN A PARTICULAR YEAR AS REVENUE IS THAT BY DOING SO THE COMPANY IS OFFERING FOR REVENUE ALL SERVICE LINE RECEIPTS OVER THREE YEARS. AT THE SAME TIME THE COMPANY IS CLAIMING 99% OF THE COST INCUR RED ON CAPITALIZING SERVICE LINE CONNECTIONS UNDER PLANT & MACHINERY (M ETERS) AS DEPRECIATION OVER THREE YEARS BASED UPON THE FACT THAT ENERGY ME TERS ARE ELIGIBLE FOR APP. NO.187/09-10 13 M/S BSES RAJDHANI POWER LTD.A.Y.200 5-06; U/S 143(3) DEPRECIATION AT THE HIGHER RATE OF DEPRECIAT ION @ 80%. THIS IS IN LINE WITH THE MATCHING CONCEPT AN ENUNCIATED UNDER AS 1 REQUIRING REVENUES TO BE MATCHED WITH COST. BASED UPON THE MATCHING CO NCEPT AND REVENUE FRIENDLY CONCEPT, THE OFFERING OF SERVICE LINE DEPO SITS (WHICH ARE IN THE NATURE OF CAPITAL RECEIPTS) OVER A PERIOD OF THREE YEARS IS NOT PREJUDICIAL TO THE INTEREST OF THE REVENUE. HOWEVER, THE SERVICE L INE RECEIPTS ARE OF CAPITAL 40 NATURE AND IS REQUIRED TO BE REDUCED FROM THE RELEV ANT COST OF PLANT AND MACHINERY IN ACCORDANCE WITH SECTION 43 (1) OF THE I.T. ACT, 1961. AS REGARDS THE A.O'S OBSERVATION THAT THE ASSESSEE COM PANY IS ENGAGED IN SELLING ELECTRICITY TO THE CONSUMERS FROM WHOM IT C HARGES FEES IN THE NAME OF ENERGY CHARGES. THESE ENERGY CHARGES ARE UNDISPUTED LY IN THE NATURE OF REVENUE RECEIPTS. IT WAS SUBMITTED THAT THE NATURE OF SERVICE LINE RECEIPTS ARE ENTIRELY DIFFERENT FROM THE NATURE OF ENERGY CHARGE S. SERVICE LINE RECEIPTS AS DISCUSSED ABOVE DESERVE TO BE REDUCED FROM THE COST OF THE RELEVANT PLANT AND MACHINERY IN ACCORDANCE WITH SEC. 43(1) OF THE I.T.ACT, 1961.ON THE OTHER HAND, ENERGY CHARGES ARE RECOVERED FROM CONSU MERS FOR THE AMOUNT OF ELECTRICITY CONSUMED BY THEM AT THE PREVAILING TARI FF, WHICH IS OF THE REVENUE NATURE. ACCORDINGLY, BOTH THESE RECEIPTS, NAMELY EN ERGY CHARGES AND SERVICE LINE RECEIPTS HAVE DIFFERENT CHARACTERISTICS AND TH EREFORE COULD NOT BE MEASURED WITH THE SAME YARDSTICK. WITH REGARD TO T HE A.O'S OBSERVATION THAT THE COMPANY HAS NOT SUBMITTED ANY REASONING WH ATSOEVER AS TO WHY IT HAS TREATED SPECIFICALLY 1/3RD OF THESE RECEIPTS AS REVENUE RECEIPTS AND NOT 1/2 OR 1/4TH OR SOME OTHER PROPORTION AS REVENUE RE CEIPTS. IT WAS SUBMITTED THAT IN THE ABSENCE OF A ONE TO ONE LINKING OF THE SERVICE LINE DEPOSITS RECEIVED WITH THE CAPITAL EXPENDITURE INCURRED ON T HE SERVICE LINE CONNECTIONS, THE JUSTIFICATION FOR TREATING 1/3RD OF THE TOTAL AMOUNT OF RECEIPTS IN A PARTICULAR YEAR AS REVENUE IS THAT BY DOING SO THE COMPANY IS OFFERING FOR REVENUE ALL SERVICE LINE RECEIPTS OVER THREE YEARS. AT THE SAME TIME THE COMPANY IS CLAIMING 99% OF THE COST INCURR ED ON CAPITALIZING SERVICE LINE CONNECTIONS UNDER PLANT & MACHINERY (M ETERS) AS DEPRECIATION OVER THREE YEARS BASED UPON THE FACT THAT ENERGY ME TERS ARE ELIGIBLE FOR DEPRECIATION AT THE HIGHER RATE APP. NO.187/09-10 1 4 M/S BSES RAJDHANI POWER LTD. A.Y.2005-06; U/S 143(3) OF DEPR ECIATION @ 80% . THIS IS IN LINE WITH THE MATCHING CONCEPT AN ENUNCI ATED UNDER AS 1 REQUIRING REVENUES TO BE MATCHED WITH COST. IT WAS THUS SUBMI TTED THAT BASED ON THE ABOVE FACTS AND THE CIRCUMSTANCES AND DECIDED CASE LAWS, SERVICE LINE DEPOSITS ARE IN THE NATURE OF CAPITAL RECEIPTS AND DESERVES TO BE REDUCED FROM THE ACTUAL COST OF THE PLANT AND MACHINERY WHICH HA S BEEN CAPITALIZED FOR PROVIDING THE NEW CONNECTIONS TO THE CONSUMERS. 5.5 I HAVE CAREFULLY CONSIDERED THE ASSESSMENT ORD ER AS WELL AS THE WRITTEN SUBMISSION OF THE APPELLANT. THE ISSUE UNDER CONSID ERATION IN THE CASE IS WHETHER THE SERVICE, LINE DEPOSIT CUM DEVELOPMENT C HARGES ARE CAPITAL RECEIPTS OR REVENUE RECEIPTS. FROM THE FACTS OF THE CASE, IT EMERGES THAT THE SERVICE LINE CHARGES ARE LEVIED TO RECOVER THE COST OF SERVICE LINE AND OTHER RELATED EXPENSES FOR PROVIDING NEW CONNECTIONS TO T HE CONSUMERS. IT IS A ONE TIME CHARGES LEVIED ON THE CONSUMERS AT THE TIME OF TAKING A NEW CONNECTION. 41 IT IS NOT IN DISPUTE THAT THE ASSESSEE BOOKS 1/3RD OF THE AMOUNT AS REVENUE RECEIPT AND THE BALANCE IS SHOWN AS A LIABILITY IN THE BALANCE SHEET. IT IS ALSO NOT IN DISPUTE THAT THIS LEVY OF SERVICE CHARGE IS BASED ON THE REGULATIONS MADE BY DERC. I FIND THAT ON THE IDENTICAL ISSUE IN THE CASE OF HOSHIARPUR ELECTRIC SUPPLY CO.V/S CIT 41 ITR 608 HON'BLE SUPRE ME COURT OBSERVED AS UNDER:- THE AMOUNT CONTRIBUTED BY THE CONSUMER IS IN DIREC T RECOUPMENT OF THE EXPENDITURE FOR BRINGING INTO EXISTENCE AN ASSE T OF A LASTING CHARACTER ENABLING THE ASSESSEE TO CONDUCT ITS BUSI NESS OF SUPPLYING ELECTRICAL ENERGY. BY THE INSTALLATION OF THE SERVI CE LINES, A CAPITAL ASSET IS BROUGHT INTO EXISTENCE. THE CONTRIBUTION M ADE BY THE CONSUMERS IS SUBSTANTIALLY AS CONSIDERATION FOR A J OINT ADVENTURE; THE SERVICE LINE WHEN INSTALLED BECOMES AN APPENDAGE OF THE MAINS OF THE ASSESSEE, AND BY THE PROVISIONS OF THE ELECTRICITY ACT, THE ASSESSEE IS OBLIGED TO MAINTAIN IT IN PROPER REPAIRS FOR ENSURI NG EFFICIENT SUPPLY OF ENERGY. THE ASSUMPTION MADE BY THE DEPT. THAT THE E XCESS REMAINING IN THE HANDS OF THE ASSESSEE, AFTER DEFRAYING THE I MMEDIATE COST OF INSTALLATION OF A SERVICE LINE MUST BE REGARDED AS A TRADING PROFIT OF THE COMPANY IS NOT CORRECT. THE ASSESSEE IS UNDOUBTEDLY CARRYING ON THE BUSINESS OF DISTRIBUTING ELECTRICAL ENERGY TO I NAG AR, APP. NO.187/09- 10 15 M/S BSES RAJDHANI POWER LTD. A.Y.2005-06; U/S 143(3) THE CONSUMERS. INSTALLATION OF SERVICE LINES IS NOT AN ISOLATED OR CASUAL ACT; IT IS AN INCIDENT OF THE BUSINESS OF THE ASSES SEE. BUT IF THE AMOUNT CONTRIBUTED BY THE CONSUMERS FOR INSTALLATION OF SH AT IS ESSENTIALLY REIMBURSEMENT OF CAPITAL EXPENDITURE, THE EXCESS RE MAINING AFTER EXPENDING THE COST OF INSTALLATION OUT OF THE AMOUN T CONTRIBUTED IS NOT CONVERTED INTO A TRADING RECEIPT. THIS EXCESS-WHICH IS CALLED BY THE TRIBUNAL 'PROFIT ELEMENT' WAS NOT RECEIVED IN THE F ORM OF PROFIT OF THE BUSINESS; IT WAS PART OF A CAPITAL RECEIPT IN THE H ANDS OF THE ASSESSEE AND IT WAS NOT CONVERTED INTO A TRADING PROFIT BECA USE THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF DISTRIBUTION OF ELECTRIC AL ENERGY, WITH WHICH THE RECEIPT WAS CONNECTED. IN CIT V/S POONA E LECTRIC SUPPLY CO.LTD. 14 ITR 622 IT WAS HELD BY A DIVISION BENCH OF THE BOMBAY HIGH COURT THAT THE AMOUNT RECEIVED FROM THE GOVT. OF BOMBAY BY THE POONA ELECTRIC CO. IN REIMBURSEMENT O F EXPENSES INCURRED FOR CONSTRUCTING NEW SUPPLY LINES FOR SUPP LYING ENERGY TO NEW AREAS NOT PREVIOUSLY SERVED WAS A CAPITAL RECEI PT AND NOT A TRADE RECEIPT. THE QUESTION OF THE TAXABILITY OF THE 'PRO FIT ELEMENT' IN THE CONTRIBUTION RECEIVED FROM THE GOVT. WAS NOT EXPRES SLY DETERMINED; BUT THE COURT IN THAT CASE HELD THAT THE ENTIRE AMO UNT RECEIVED BY THE 42 POONA ELECTRIC CO. FROM THE GOVT. AS CONTRIBUTION W AS A CAPITAL RECEIPT. IN MONGHYR ELECTRIC SUPPLY CO.LTD. V/S CI T 26 ITR15 IT WAS HELD THAT THE AMOUNT PAID BY THE CONSUMERS OF E LECTRICITY FOR MEETING THE COST OF SERVICE CONNECTIONS WAS A CAPIT AL RECEIPT IN THE HANDS OF THE ELECTRICITY UNDERTAKING AND NOT A REVE NUE RECEIPT AND THE DIFFERENCE BETWEEN THE AMOUNT RECEIVED ON A/C OF SE RVICE CONNECTION CHARGES AND THE AMOUNT IMMEDIATELY NOT EXPENDED WAS NOT TAXABLE AS REVENUE. THE RECEIPT THOUGH RELATED TO THE BUSINESS OF THE ASSESSEE AS DISTRIBUTORS OF ELECTRICITY WERE NOT INCIDENTAL TO NOR IN THE COURSE OF THE CARRYING ON OF THE ASSESSEE'S BUSINESS; THEY WE RE RECEIPTS FOR BRINGING INTO EXISTENCE CAPITAL OF LASTING VALUE. C ONTRIBUTIONS WERE NOT MADE MERELY FOR SERVICES RENDERED AND TO BE RENDERE D, BUT FOR INSTALLATION OF CAPITAL EQUIPMENT UNDER AN AGREEMEN T FOR A JOINT VENTURE. APP. NO.187/09-10 16 M/S BSES RAJDHANI POW ER LTD. A.Y.2005-06; U/S 143(3) IN THE PRESENT APPEAL ALSO, APPELLANT HAS RECEIVED THE DEPOSITS AND CONTRIBUTION FOR THE SPEC IFIC PURPOSE OF INSTALLATION OF CAPITAL. RESPECTFULLY, FOLLOWING TH E DECISION OF HON'BLE SUPREME COURT IN THE ABOVE SAID CASE, THESE RECEIPT S CANNOT BE TREATED AS TRADING RECEIPTS. I FURTHER FIND THAT SIMILAR IS SUE WAS INVOLVED IN THE CASE OF M/S BSES RAJDHANI POWER LTD. FOR AY 2006-07 , WHEREIN THE CIT(A)-IV, NEW DELHI HAS HELD THAT THE RECEIPTS WER E CAPITAL IN NATURE AND IN THE CASE OF BSES YAMUNA POWER LTD FOR A.Y 07 -08 ON AN IDENTICAL ISSUE, THE CIT(A)-VI HAS HELD THE RECEIPT S TO BE CAPITAL IN NATURE UNDER THE CIRCUMSTANCES; THE AMOUNTS RECEIVE D FOR INSTALLATION OF SERVICE LINES ARE TO BE TREATED AS CAPITAL RECEI PTS IN THE HANDS OF THE APPELLANT. ACCORDINGLY, THE ADDITION MADE BY THE AO IS HERBY DELETED. 17.2 WE FIND THAT WHILE DEALING WITH THE ISSUE, THE LEARNED CIT(APPEALS) HAS DISCUSSED THE RELATED PROVISIONS OF THE ELECTRI CITY ACT, 1910 DEFINING SERVICE LINE AS PER WHICH IT IS AN ELECTRIC SUPPL Y LINE INTENDED TO SUPPLY ENERGY TO A SINGLE CONSUMER OR A GROUP OF CONSUMER FROM THE SAME POINT OF THE DISTRIBUTING MAIN. SO THE SERVICE LINE IS TO BE DRAWN FROM THE DISTRIBUTING MAIN. THE LINES DRAWN WITH THE HELP OF ELECTRIC POS TS ARE ELECTRIC SUPPLY LINES 43 AND CONNECTION TAKEN FROM THE POST TO THE BUILDING ARE SERVICE LINE. HE HAS NOTED FURTHER THAT SERVICE LINE CHARGES ARE LEVIED TO RECOVER THE COST OF SERVICE LINE WHICH INCLUDES THE COST OF GI PIPES, B RICKS, SAND, OVERHEADS OR UNDER GROUND CABLES ETC. THERE IS NO DISPUTE THAT T HE SERVICE LINE CHARGES ARE CHARGED FROM THE CONSUMER ONLY AT THE TIME OF PROVI DING NEW CONNECTIONS, TO RECOVER THE EXPENDITURE INCURRED ON SUCH EQUIPME NTS AND IT IS A ONE TIME CHARGE LEVIED ON THE CONSUMERS AT THE TIME OF TAKIN G NEW CONNECTIONS AND THEREAFTER IT IS THE RESPONSIBILITY OF THE BRPL FOR REPAIR/REPLACEMENT OF THE SERVICE LINE. IT HAS BEEN NOTED THAT THE ASSESSEE W AS CHARGING SERVICE LINE DEPOSITS AS WELL AS DEVELOPMENT CHARGES FROM THE CO NSUMERS AS PER THE RULES AND NOTIFICATION OF DELHI ELECTRICITY REGULATORY CO MMISSION (BERC). THE CAPITAL EXPENDITURE INCURRED IN RESPECT OF SERVICE LINE DEPOSITS ON ACCOUNT OF SERVICE LINE CABLES, COST OF G.I. PIPES, BRICKS ETC . WERE CAPITALIZED UNDER THE HEAD METER ACCESSORIES (ON WHICH DEPRECATION WAS CLAIMED AT THE RATE OF 80% BUT WAS REDUCED BY THE ASSESSING OFFICER TO 25% ). HOWEVER, THE CAPITAL EXPENDITURE INCURRED ON DEVELOPMENT CHARGES WERE DULY INCLUDED UNDER THE HEAD PLANT AND MACHINERY, WHICH WAS SUB JECT TO THE NORMAL DEPRECIATION @ 25%. IT WAS ACCORDINGLY SUBMITTED TH AT THE DEVELOPMENT CHARGES ARE REQUIRED TO BE D-CAPITALIZED FROM THE P LANT AND MACHINERY @ 25% AND SERVICE LINE DEPOSITS FROM PLANT AND MACHIN ERY (METER) @ 80% IN 44 ACCORDANCE WITH THE PROVISIONS OF SEC. 43(1) OF THE ACT. AGAINST THE OBSERVATION OF THE ASSESSING OFFICER THAT IT IS NOT A DEPOSIT BUT A RECEIPT AS IT IS NON-REFUNDABLE, THE CONTENTION OF THE ASSESSEE R EMAINED THAT SERVICE LINE CHARGES ARE BEING RECOVERED FROM THE CUSTOMERS AS P ER THE ELECTRICITY ACT, 2003 AND THE REGULATION FRAMED UNDER THE ACT BY THE DERC FROM TIME TO TIME. THE CHARGES ARE LEVIED TO RECOVER THE COST OF SERVICE LINE WHICH INCLUDES COST OF G.I. PIPES, BRICKS, SAND, OVERHEAD OR UNDERGROUND SERVICE LINE CABLE, METER ACCESSORIES ETC. THESE CHARGES AR E TAKEN FROM THE CUSTOMERS ONLY AT THE TIME OF PROVIDING THE NEW CONNECTION TO RECOVER THE EXPENDITURE INCURRED ON THE EQUIPMENTS AND THESE EXPENDITURES A RE CAPITALIZED UNDER THE HEAD PLANT AND MACHINERY (METER) AND DEPRECIATION IS CLAIMED THEREON. 17.3 WITH REGARD TO THE OBSERVATIONS OF THE ASSESSI NG OFFICER, ONLY 1/3 RD OF THE TOTAL AMOUNT ON REVENUE ACCOUNT AND NOT WHOLE O F IT IS TREATED AS CAPITAL RECEIPTS, THE CONTENTION OF THE ASSESSEE REMAINED T HAT DERC IS A REGULATORY BODY, WHICH REGULATES THE CHARGES OF SERVICE LINE C HARGES. THUS, SERVICE LINE DEPOSITS ARE RECEIVED BY THE COMPANY AS PER THE PRO VISIONS OF DERC AND ELECTRICITY ACT FOR THE PURPOSE OF INCURRING THE EX PENDITURE FOR LAYING THE SERVICE LINE AND OTHER RELATED EXPENSES FOR PROVIDI NG NEW CONNECTION TO THE CUSTOMERS. IT WAS EXPLAINED THAT IN THE ABSENCE OF A ONE TO ONE LINKING OF THE 45 SERVICE LINE DEPOSIT SCHEME WITH THE CAPITAL EXPEND ITURE INCURRED ON THE SERVICE LINE CONNECTION, THE JUSTIFICATION FOR TREA TING 1/3 RD OF THE TOTAL AMOUNT OF RECEIPTS IN A PARTICULAR YEAR AS REVENUE IS THAT BY DOING SO THE ASSESSEE IS OFFERING FOR REVENUE ALL SERVICE LINE RECEIPTS OVER THREE YEARS. IT WAS SUBMITTED THAT AT THE SAME TIME THE ASSESSEE IS CLA IMING 99% OF THE COST INCURRED ON CAPITALIZATION SERVICE LINE CONNECTIONS UNDER PLANT AND MACHINERY (METER) AS DEPRECIATION OVER THREE YEARS BASED UPON THE FACTS THAT ENERGY METERS ARE ELIGIBLE FOR DEPRECATION AT THE H IGHER RATE OF 80%. THIS IS IN LINE WITH THE MATCHING CONCEPT AS ENUNCIATED UND ER AS-I REQUIRING REVENUE TO BE MATCHED WITH COST. BASED UPON THE MA TCHING CONCEPT AND REVENUE FRIENDLY CONCEPT, THE OFFERING OF SERVICE L INE DEPOSITS (WHICH ARE IN THE NATURE OF CAPITAL RECEIPTS) OVER A PERIOD OF TH REE YEARS IS NOT PREJUDICIAL TO THE INTEREST OF REVENUE, HOWEVER, THE SERVICE LI NE RECEIPTS ARE OF CAPITAL NATURE AND IS REQUIRED TO BE REDUCED FROM THE RELEV ANT COST OF PLANT AND MACHINERY IN ACCORDANCE WITH SEC. 43(1) OF THE INCO ME-TAX ACT, 1961, EXPLAINED THE ASSESSEE. 17.4 WITH REGARD TO THE OBSERVATION OF THE ASSESSIN G OFFICER THAT THE ASSESSEE IS ENGAGED IN SELLING ELECTRICITY TO THE C ONSUMERS FROM WHOM IT CHARGES FEES IN THE NAME OF ENERGY CHARGES AND THES E ENERGY CHARGES ARE IN 46 THE NATURE OF REVENUE RECEIPTS, THE SUBMISSION OF T HE ASSESSEE REMAINED THAT THE NATURE OF SERVICE LINE RECEIPTS ARE ENTIRELY DI FFERENT FROM THE NATURE OF THE ENERGY CHARGES AND THE SERVICE LINE RECEIPTS DESERV E TO BE REDUCED FROM THE COST OF THE RELEVANT PLANT AND MACHINERY IN ACCORDA NCE WITH SEC. 43(1) OF THE INCOME-TAX ACT, 1961. ON THE OTHER HAND, ENERGY CHA RGES ARE RECOVERED FROM CONSUMERS FOR THE AMOUNT OF ELECTRICITY CONSUMED BY THEM AT THE PREVAILING TARIFF, WHICH IS OF THE REVENUE NATURE. ACCORDINGLY , BOTH THESE RECEIPTS, NAMELY, ENERGY CHARGES AND SERVICE LINE RECEIPTS HA VE DIFFERENT CHARACTERISTIC AND THEREFORE, COULD NOT BE MEASURED WITH THE SAME YARD-STICK. WE FIND SUBSTANCE IN THE SUBMISSION OF THE ASSESSEE AS THER E IS NO DISPUTE ON THE FACTS OF THE CASE. DISCUSSING THESE SUBMISSIONS OF THE AS SESSEE AND MEETING OUT THE OBSERVATIONS OF THE ASSESSING OFFICER, WE ARE O F THE VIEW THAT THE LEARNED CIT(APPEALS) FOLLOWING THE RATIOS LAID DOWN IN THE CITED DECISIONS HAS RIGHTLY COME TO THE CONCLUSION THAT THE AMOUNTS RECEIVED FOR INSTALLATION OF SERVICE LINES ARE TO BE TREATED AS CAPITAL RECEI PTS IN THE HANDS OF THE ASSESSEE. IN RESULT, THE LEARNED CIT(APPEALS) WAS J USTIFIED IN DELETING THE ADDITION OF RS.73,75,590 MADE ON ACCOUNT OF SERVICE LINE DEPOSITS FROM CUSTOMERS. THE SAME IS UPHELD. THE GROUND NO.1 OF T HE APPEAL PREFERRED BY THE REVENUE IS ACCORDINGLY REJECTED. 47 18. GROUND NO.2 (REVENUE) : IN THIS GROUND, THE ACTION OF THE LEARNED CIT(APPEALS) IN DELETING THE ADDITION OF RS.5,02,00 ,000 MADE ON ACCOUNT OF VALUATION OF CLOSING STOCK HAS BEEN QUESTIONED. IN SUPPORT OF THIS GROUND, THE LEARNED CIT(DR) HAS BASICALLY PLACED RELIANCE ON TH E ASSESSMENT ORDER. HE SUBMITTED THAT THE ASSESSEE WAS EARLIER FOLLOWING F IRST-IN-FIRST-OUT (FIFO) METHOD FOR VALUATION OF STORES/SPARES AND THE FIFO METHOD IS MORE CORRECT AND APPROPRIATE FOR THE VALUATION OF STORES/SPARES AS CLOSING STOCK AS COMPARED TO MOVING AVERAGE METHOD. HE SUBMITTED THAT ASSESSEE HAS FAILED TO FURNISH ANY SOUND REASONING FOR CHANGE IN THE COST METHOD FROM FIFO TO MOVING AVERAGE. THE CHANGE IN THE METHOD BY THE ASSESSEE FOR THE VALUATION OF STOCK WAS NEITHER BONA FIDE NOR REGULA RLY FOLLOWED BY THE ASSESSEE. THE RELEVANT EXCERPTS FROM 3 CD REPORT CL EARLY STATES THAT DUE TO CHANGE OF VALUATION OF INVENTORIES, PROFIT OF THE C OMPANY IS LOWER BY RS.5.02 CRORES. THUS, THE ASSESSING OFFICER WAS CORRECT IN MAKING THE ADDITION ON ACCOUNT OF VALUATION OF CLOSING STOCK. 19. THE LEARNED AR ON THE OTHER HAND TRIED TO JUSTI FY THE FIRST APPELLATE ORDER ON THE ISSUE. HE CONTENDED THAT IN THE ASSESS MENT YEAR UNDER CONSIDERATION, THE ASSESSEE TRANSITED ITS ACCOUNTIN G PACKAGE TO SAP, WHICH ADOPTS MOVING AVERAGE (WEIGHTED AVERAGE) METHOD A S THE MOST RELIABLE 48 AND FEASIBLE METHOD FOR VALUATION OF CLOSING STOCK, ON ACCOUNT OF THE FOLLOWING REASONS: (A) MOVING AVERAGE (WEIGHTED AVERAGE) METHOD WAS CONS IDERED AS THE MOST APPROPRIATE METHOD FOR VALUATION OF CLOSING ST OCK CONSIDERING THAT THE STORES AND SPARES OF THE ASSESSEE-COMPANY COMPRISE MAINLY OF CABLES, CONDUCTORS, TRANSFORMERS AND OTHER METAL BA SED ITEMS, WHOSE VALUE KEEPS FLUCTUATING CONSIDERABLY AND ARE EXTREM ELY VOLATILE BASED ON THE MARKET VALUE OF IRON/ALUMINUM/COPPER, ETC. T HUS, IT WAS MORE LOGICAL/REASONABLE TO ADOPT THE WEIGHTED/MOVING AV ERAGE METHOD, WHICH HAS BEEN CONSISTENTLY FOLLOWED IN THE SUBSEQU ENT ASSESSMENT YEARS; (B) THE AFORESAID TRANSITION IN THE ACCOUNTING PACKAGE WAS UNDERTAKEN BY THE ASSESSEE W.E.F. 01.04.2004, WITH THE BONA-FIDE INTENTION OF FACILITATING BETTER CONTROL AND ACCOUNTABILITY, WHI CH IS MORE RELIABLE/ FEASIBLE AND RECOMMENDED METHOD FOR IMPLEMENTING SA P; (C) CHANGE IN THE METHOD ALSO FACILITATED ALIGNMENT OF ITS POLICY WITH GROUP COMPANY, M/S. RELIANCE ENERGY LIMITED (REL) . 19.1 IT IS FURTHER OF UTMOST IMPORTANCE TO NOTE THA T IN THE ASSESSMENT YEAR UNDER CONSIDERATION THE ASSESSEE FILED RETURN OF IN COME DECLARING THE INCOME OF RS. NIL/- AFTER SETTING OFF OF BROUGHT FORWARD U NABSORBED BUSINESS LOSS/DEPRECIATION AMOUNTING TO RS. 50,99,52,366/-. EVEN IN THE SUBSEQUENT ASSESSMENT YEAR, I.E. AY 2006-07, THERE WAS A LOSS DURING THE YEAR. 49 19.2 IT MAY, THUS, BE NOTED THAT THE ASSESSEE NEITH ER DERIVED NOR COULD HAVE DERIVED ANY KIND OF TAX BENEFIT BY VIRTUE OF THE AF ORESAID BONA-FIDE CHANGE IN METHOD OF VALUATION OF INVENTORY AS THERE WAS EFFEC TIVELY NO TAX PAYABLE IN BOTH THE ASSESSMENT YEARS. 19.3 IN THIS REGARD, THE LEARNED AR SUBMITTED THAT THE PROVISIONS OF THE ACT NOWHERE PROHIBITS THE USE OF MOVING/WEIGHTED A VERAGE FOR THE PURPOSE OF VALUATION OF CLOSING STOCK; THE ONLY REQUIREMENT IS TO VALUE THE STOCK AT COST OR MARKET VALUE WHICHEVER IS LOWER. TO ARRIVE AT C OST, BOTH THESE METHODS, I.E., FIFO OR WEIGHTED AVERAGE COST, ARE W ELL RECOGNIZED AND ACCEPTED METHODS OF VALUATION. 19.4 IN SUPPORT, THE LEARNED AR PLACED RELIANCE ON PARA 16 OF ACCOUNTING STANDARD 2 (AS-2) PRESCRIBED BY INSTITUTE OF CHARTE RED ACCOUNTANTS OF INDIA (ICAI) AND ACCEPTED BY INCOME- TAX ACT IN SECTION 1 45 OF THE ACT, WHICH READS AS UNDER:- '16. THE COST OF INVENTORIES, OTHER THAN THOSE DEAL T WITH IN PARAGRAPH 14, SHOULD BE ASSIGNED BY USING THE FIRST-IN, FIRST-OUT (FIFO), OR WEIGHTED AVERAGE COST FORMULA . THE FORMULA USED SHOULD REFLECT THE FAIREST POSSI BLE 50 APPROXIMATION TO THE COST INCURRED IN BRINGING THE ITEMS OF INVENTORY TO THEIR PRESENT LOCATION AND CONDITION.' 19.5 THE LEARNED AR POINTED OUT THAT ON PERUSAL OF THE ABOVE, IT MAY BE NOTED THAT THE ASSESSEE HAS A CHOICE TO VALUE THE S TOCK AT COST, EITHER BY FOLLOWING FIFO OR WEIGHTED AVERAGE COST FORMULA. TH EREFORE, THE BASIC FUNDAMENTAL OF ACCOUNTING, I.E. THE VALUATION OF IN VENTORY SHOULD BE AT COST OR NET REALIZABLE VALUE WHICHEVER IS LOWER AND IF O NE FOLLOWS EITHER OF THESE THERE IS NO CHANGE IN METHOD OF VALUATION. 19.6 THEREFORE, THE BASIC FUNDAMENTAL OF ACCOUNTING FOR VALUING INVENTORY AT COST OR NET REALIZABLE VALUE WHICHEVER IS LESS I S FULLY MET IF EITHER OF THE AFORESAID METHODS IS FOLLOWED. THUS, TECHNICALLY SP EAKING THERE HAS BEEN NO CHANGE IN THE METHOD OF VALUATION OF CLOSING STOCK AT COST OR MARKET VALUE, WHICHEVER IS LOWER, AS ADOPTED BY THE ASSESSEE. 19.7 IT WAS FURTHER SUBMITTED THAT THE PROVISIONS O F SECTION 145A OF THE ACT NOWHERE BARS THE ASSESSEE FROM CHANGING THE METHOD OF VALUATION, BUT ONLY LAYS DOWN THE CRITERIA THAT THE CHANGED METHOD HAS TO BE FOLLOWED REGULARLY, I.E. IN SUBSEQUENT YEARS AS WELL. 19.8 THE RELEVANT PROVISIONS OF SECTION 145A OF THE ACT READS AS UNDER: 51 145A. NOTWITHSTANDING ANYTHING TO THE CONTRARY CON TAINED IN SECTION 145, (A) THE VALUATION OF PURCHASE AND SALE OF GOODS A ND INVENTORY FOR THE PURPOSES OF DETERMINING THE INCOME CHARGEAB LE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION SHALL BE (I) IN ACCORDANCE WITH THE METHOD OF ACC OUNTING REGULARLY EMPLOYED BY THE ASSESSEE ; AND (II) FURTHER ADJUSTED TO INCLUDE THE AMOU NT OF ANY TAX, DUTY, CESS OR FEE (BY WHATEVER NAME CALLED) ACTUALLY PAID OR INCURRED BY THE ASSESSEE TO BRING THE GOODS TO THE PLACE OF ITS LOCATION AND CONDITION AS ON THE DATE OF VALUAT ION. .. (EMPHASIS SUPPLIED) 19.9 ON PERUSAL OF THE ABOVE, IT MAY BE NOTED THAT THE SECTION NOWHERE PROHIBITS THE ASSESSEE FROM CHANGING ITS METHOD OF VALUATION OF STOCK, BUT MERELY STIPULATES A CONDITION THAT THE METHOD MUST BE EMPLOYED REGULARLY. 19.10 A CHANGE IN ACCOUNTING POLICY REGARDING VALUA TION OF INVENTORIES IS ALLOWABLE IF THE PROPOSED CHANGE IS AS PER THE REQU IREMENT OF STATUE AND/ OR IS BONA-FIDE. THUS, IF THE ASSESSEE WAS EARLIER USI NG A PARTICULAR METHOD OF VALUATION, WHICH, IN THE CHANGED CIRCUMSTANCES, IS NOT A RATIONAL /RECOGNISED METHOD OF VALUATION OR AS PER PREVALENT BUSINESS PR ACTICES IN VOGUE AND THE ASSESSEE BONAFIDELY WISHES TO SWITCH OVER TO A NEW AND BETTER METHOD OF VALUATION TO BE REGULARLY FOLLOWED THEREAFTER IN PR EPARATION AND PRESENTATION OF FINANCIAL STATEMENTS, THERE IS NO BAR/ PROHIBITI ON UNDER THE ACT. 52 19.11 RELIANCE IN THIS REGARD WAS PLACED ON THE DEC ISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS CORPORAT ION BANK: 174 ITR 616, WHERE THE BANK WAS VALUING THE SECURITIES HELD AS STOCK IN TRADE AS STOCK IN TRADE ON COST BASIS AND SUBSEQUENTLY CHANGED T HE METHOD OF VALUATION TO COST OR MARKET PRICE WHICHEVER IS LOWER. IT WAS HEL D BY THE HONBLE COURT THAT THE ASSESSEE HAS RIGHT TO CHANGE THE METHOD OF VALUATION OF CLOSING STOCK PROVIDED THE CHANGE IS BONA FIDE AND THE SAME METHO D IS REGULARLY FOLLOWED THEREAFTER. 19.12 THE PLEA OF THE REVENUE THAT CHANGE IN METHOD OF VALUATION SHOULD BE ADOPTED FOR BOTH OPENING AND CLOSING STOCK WAS REJE CTED BY THE HONBLE COURT. THE COURT CATEGORICALLY OBSERVED THAT IN THE YEAR OF CHANGE OF METHOD OF VALUATION OF STOCKS THERE IS BOUND TO BE SOME IM PACT UPON THE PROFITS OF THE COMPANY BUT THE SAME SHALL BE IRONED OUT IN THE SUBSEQUENT YEARS DUE TO ADOPTION OF NEW METHOD OF VALUATION ON PERMANENT BA SIS THEREAFTER. 19.13 TO THE SAME EFFECT ARE THE FOLLOWING DECISION S: FOREST INDUSTRIES TRAVANCORE LTD. VS CIT: 51 ITR 32 9 (KER) CIT VS. MOPEDS INDIA LIMITED: 173 ITR 347 (AP) CIT VS. DALMIA CEMENT (BHARAT) LTD.: 215 ITR 441 (D EL.) CIT VS. MODI RUBBER LIMITED: 230 ITR 820 (DEL.) CIT VS. DELTA PLANTATION LTD: 71 TAXMAN 329 (CAL) 53 19.14 IT WAS FURTHER SUBMITTED THAT WHILE MAKING TH E AFORESAID ADDITION OF RS.5.02 CRORES, THE ASSESSING OFFICER FAILED TO APP RECIATE THAT THE ENTIRE EXERCISE IS REVENUE NEUTRAL, IN VIEW OF THE FACT OF CHANGE IN VALUATION OF CLOSING STOCK IN THE ASSESSMENT YEAR UNDER CONSIDER ATION, THE SAME HAD CONSEQUENTIAL EFFECT OF REDUCING THE VALUE OF OPENI NG STOCK FOR THE SUBSEQUENT ASSESSMENT YEAR I.E. AY 2006-07, WHICH R ESULTED IN INCREASED PROFIT TO THAT EXTENT. 19.15 FURTHER, IN HOLDING THAT THE ASSESSEE HAD ADO PTED TWO DIFFERENT METHODS OF VALUATION TO VALUE ITS CLOSING AND OPENI NG STOCK, THE ASSESSING OFFICER FAILED TO APPRECIATE THAT SINCE THE OPENING STOCK PERTAINED TO THE PREVIOUS ASSESSMENT YEAR, THE SAME COULD NOT HAVE B EEN TINKERED WITH, WHICH WOULD HAVE IMPACTED THE PROFITABILITY OF ASSE SSMENT YEAR 2005-06 AND THEREBY THE OPENING STOCK REMAINED TO BE VALUED AT FIFO. 19.16 FURTHERMORE, IN HOLDING THAT MOVING AVERAGE METHOD WAS NOT AN APPROPRIATE METHOD FOR VALUATION OF STOCK, THE ASSE SSING OFFICER FAILED TO PROVIDE ANY REASON/ LOGIC IN THE IMPUGNED ASSESSMEN T ORDER. 54 19.17 RELIANCE PLACED BY THE ASSESSING OFFICER ON THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. BHA RAT COMMERCE INDUSTRIES LTD.: 240 ITR 256 AND THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. SANJEEV WOOLLEN MILLS: 127 TAXMAN 2 09 IS MISPLACED. 19.18 IN THE CASE OF BHARAT COMMERCE (SUPRA), THE H ONBLE COURT CATEGORICALLY HELD THAT CHANGE IN METHOD OF VALUATI ON IS PERMISSIBLE IF IT IS BONA-FIDE AND FOLLOWED REGULARLY FROM YEAR TO YEAR. 19.19 IN THE INSTANT CASE, THE ASSESSING OFFICER HA S FAILED TO ESTABLISH THAT THE CHANGE IN METHOD OF VALUATION OF CLOSING STOCK WAS NOT BONA-FIDE, MORE SO WHEN THIS METHOD HAS BEEN ACCEPTED BY THE ASSESSING OFFICER HIMSELF IN THE SUBSEQUENT ASSESSMENT YEARS. 19.20 THE DECISION IN THE CASE OF SANJEEV WOOLLEN ( SUPRA) PROCEEDED ON ITS PECULIAR FACTS SINCE THE ASSESSEE, BY CHANGING THE METHOD OF VALUATION OF STOCK, TRIED TO CLAIM HIGHER DEDUCTION UNDER SECTIO N 80HHC OF THE ACT, WHICH WAS FOUND TO BE MALA-FIDE. 55 19.21 IT WAS FURTHER SUBMITTED THAT THE AFORESAID M ETHOD, HAVING BEEN CONSISTENTLY ACCEPTED BY THE REVENUE IN THE SUBSEQU ENT YEARS, THERE IS NO WARRANT TO DISTURB THE SAME IN THE YEAR UNDER APPEA L. 19.22 RELIANCE IN THIS REGARD HAS BEEN PLACED ON TH E FOLLOWING DECISIONS: - CIT V. EXCEL INDUSTRIES LTD.: 358 ITR 295 (SC) - CIT V. REALEST BUILDERS AND SERVICES: 307 ITR 202 ( SC) 20. HAVING GONE THROUGH THE ORDERS OF THE AUTHORITI ES BELOW, WE FIND THAT THE RELEVANT FACTS ARE THAT IN THE ASSESSMENT YEAR UNDER CONSIDERATION, THE ASSESSEE-COMPANY HAS CONSISTENTLY FOLLOWED THE METH OD OF VALUATION OF STOCK COMPRISING OF STORES AND SPARES AT COST OR NE T REALIZABLE VALUE, WHICHEVER WAS LOWER. HOWEVER, FOR THE PURPOSE OF DE TERMINATION OF COST, THE ASSESSEE, IN THE EARLIER ASSESSMENT YEARS HAD A DOPTED FIRST-IN-FIRST-OUT (FIFO) BASIS, WHICH WAS ALTERED TO MOVING AVERAGE BASIS IN THE ASSESSMENT YEAR UNDER CONSIDERATION. THE AFORESAID CHANGE IN BASIS OF VALUATION OF COST OF INVENTORIES WAS ON ACCOUNT OF THE TRANSITION AND IMPLEMENTATION OF THE SYSTEMS, APPLICATION AND PROD UCTS PACKAGE (SAP) W.E.F. 01.04.2004, WHICH ADOPTS THE MOVING AVERAGE (WEIGHTED AVERAGE) BASIS AS THE MOST RELIABLE AND FEASIBLE METHOD FOR DETERMINING THE COST OF INVENTORY. 56 20.1 ON ACCOUNT OF CHANGE IN THE METHOD OF VALUATIO N OF INVENTORY, THE VALUE OF CLOSING STOCK FOR THE ASSESSMENT YEAR UNDE R CONSIDERATION WAS LOWER BY RS. 5.02 CRORES AS COMPARED TO THE VALUATION MET HOD ADOPTED IN EARLIER YEARS. HOWEVER, SINCE THE OPENING INVENTORIES PERTA INED TO THE EARLIER YEAR, THE SAME REMAINED VALUED AT FIFO. 20.2 THE AFORESAID FACT WAS DULY DISCLOSED BY THE A SSESSEE IN ITS FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR 2004-05, THE YEAR UNDER CONSIDERATION. FURTHER, THE MOVING AVERAGE (WEIGHTED AVERAGE) ME THOD OF VALUATION OF INVENTORIES HAS BEEN CONSISTENTLY FOLLOWED BY THE A SSESSEE IN ALL THE SUBSEQUENT ASSESSMENT YEARS, WHICH HAS ALSO BEEN AC CEPTED BY THE ASSESSING OFFICER. 20.3 IN THE IMPUGNED ASSESSMENT ORDER, THE ASSESSIN G OFFICER ALLEGED THAT THERE WAS NO SOUND REASONING OR JUSTIFICATION FOR T HE CHANGE IN METHOD OF VALUATION OF INVENTORIES UNDERTAKEN BY THE ASSESSEE IN THE ASSESSMENT YEAR UNDER CONSIDERATION, WHICH RESULTED IN REDUCTION OF PROFIT TO THE TUNE OF RS.5.02 CRORES IN THE SAID YEAR. ACCORDINGLY, THE A SSESSING OFFICER BROUGHT TO TAX RS.5.02 CRORES, BEING THE DIFFERENCE ON ACCOUNT OF CHANGE IN METHOD OF 57 VALUATION OF INVENTORIES BY CONCLUDING THAT MOVING AVERAGE METHOD IS NOT AN APPROPRIATE METHOD FOR VALUATION OF INVENTORIES. 20.4 ON APPEAL AGAINST THE AFORESAID ASSESSMENT ORD ER, THE LD.CIT(A) DELETED THE ADDITION OF RS.5.02 CRORES MADE BY THE ASSESSING OFFICER BY HOLDING THAT THE CHANGE IN METHOD OF VALUATION OF I NVENTORIES UNDERTAKEN BY THE ASSESSEE IN THE ASSESSMENT YEAR UNDER CONSIDERA TION WAS ON ACCOUNT OF BONA-FIDE REASONS, WHICH DID NOT RESULT IN ANY KIND OF TAX ADVANTAGE TO THE ASSESSEE AND THE CHANGED METHOD WAS ALSO BEING CONS ISTENTLY FOLLOWED BY THE ASSESSEE IN THE SUBSEQUENT ASSESSMENT YEARS. TH E LEARNED CIT(APPEALS) HAS DISCUSSED THE OBJECTIONS RAISED BY THE ASSESSIN G OFFICER AND EXPLANATION OF THE ASSESSEE MEETING OUT THOSE OBJECTIONS. THE A SSESSEE TRIED TO ESTABLISH ITS BONA FIDE BEHIND THE CHANGE IN THE METHOD OF VA LUATION. IT WAS SUBMITTED THAT WHENEVER THERE IS A CHANGE IN THE METHOD OF VA LUATION, THERE IS BOUND TO BE SOME DISTORTION IN THE CALCULATION OF PROFIT IN THE YEAR IN WHICH THE CHANGE TAKES PLACE. BUT IF THE CHANGE IS BROUGHT ABOUT BON A FIDE AND IS IN ACCORDANCE WITH THE NORMALLY ACCEPTED ACCOUNTING PR ACTICE, THERE IS NO REASON WHY SUCH CHANGE SHOULD NOT BE PERMITTED. SEV ERAL DECISIONS HAVE BEEN CITED BY THE ASSESSEE IN SUPPORT OF THE CHANG E MADE BY IT. DISCUSSING THE ABOVE SUBMISSIONS, THE LEARNED CIT(A) HAS COME TO THE FOLLOWING 58 FINDING VIDE PARA NOS. 4.3 TO 4.5 OF THE FIRST APPE LLATE ORDER, REPRODUCED HEREUNDER FOR A READY REFERENCE. 4.3. I HAVE CAREFULLY CONSIDERED THE ASSESSMENT ORDER AND THE WRITTEN SUBMISSION OF THE APPELLANT. I FIND THAT THE VALUE OF OPENING STOCK WAS TAKEN FROM THE PREVIOUS YEAR AUDITED BALANCE - SHEE T. THE MANAGEMENT HAS DECIDED TO SWITCH OVER TO SAP W.E.F. 01.04.2004 TO FACILITATE BETTER CONTROL AND ACCOUNTABILITY. FROM CURRENT FINANCIAL YEAR, THE COMPANY HAS CHANGED THE METHOD OF VALUATI ON OF INVENTORIES COMPRISING STORES AND SPARES FROM FIRST IN FIRST OU T (FIFO) BASIS TO MOVING AVERAGE BASIS. THUS, WHERE THE CHANGE HAS BE EN EFFECTED BY ADOPTING THE NEW CHANGED METHOD FOR VALUING THE CLO SING STOCK OF A PARTICULAR ASSESSMENT YEAR, THE VALUE SO ARRIVED AT WILL IN ITS TURN, BECOME THE VALUE OF THE OPENING STOCK OF THE SUBSEQ UENT ASSESSMENT YEAR. DUE TO THE ABOVE CHANGE IN THE METHOD OF VALU ATION OF INVENTORIES, THE OPENING VALUE OF INVENTORY FOR THE NEXT ASSESSMENT YEAR WILL ALSO BE LOWER BY RS. 5.02 CRORE, THUS RES ULTING IN INCREASING THE PROFIT OF THE ASSESSEE COMPANY BY RS . 5.02 CRORE IN THE SUBSEQUENT AY I.E. A.Y. 2006-07. THE A.O HAD OBSERVED THAT THE LOWERING OF THIS PROFIT IS DUE TO DISCREPANCY B ETWEEN THE OPENING STOCK AND CLOSING STOCK VALUATIONS AS TWO DIFFERENT METHODS ARE FOLLOWED BY THE ASSESSEE. IT IS TO BE APPRECIATED T HAT WHENEVER THERE IS A CHANGE IN THE METHOD OF VALUATION, THERE IS BOUND TO BE SOME DISTORTION IN THE CALCULATION OF PROFIT IN THE YEAR IN WHICH THE CHANGE TAKES PLACE. BUT IF THE CHANGE IS BROUGHT ABOUT BON A FIDE AND IS IN ACCORDANCE WITH THE NORMALLY ACCEPTED ACCOUNTING PR ACTICE, THERE IS NO REASON WHY SUCH A CHANGE SHOULD NOT BE PERMITTED . THUS, WHERE THE CHANGE HAS BEEN EFFECTED BY ADOPTING THE NEW CH ANGED METHOD FOR VALUING THE CLOSING STOCK OF A PARTICULAR ASSESSMEN T YEAR, THE VALUE SO ARRIVED AT WILL IN ITS TURN, BECOME THE VALUE OF TH E OPENING STOCK OF THE SUBSEQUENT ASSESSMENT YEAR. IN SUCH A CASE, A PROCE DURE CANNOT BE APP. NO.187/09-10 7 M/S BSES RAJDHANI POWER LTD. A.Y.2005-06; U/S 143(3) ADOPTED FOR CHANGING THE VA LUE OF THE OPENING STOCK OF THAT PARTICULAR ASSESSMENT YEAR AS PER THE CHANGED METHOD, FOR IT WILL LEAD TO A CHAIN REACTION OF CHA NGES IN THE SENSE THAT THE CLOSING VALUE OF THE STOCK OF THE YEAR PRECEDIN G WILL ALSO HAVE TO CHANGE AND CORRESPONDINGLY THE VALUE OF THE OPENING STOCK OF THAT 59 YEAR AND SO ON. I ALSO FIND THAT IN THE INCOME TAX, IT HAS NOT BEEN PRESCRIBED THAT FOR ARRIVING AT THE COST OF CLOSING STOCK OF INVENTORY WHICH METHOD IS TO BE TAKEN INTO CONSIDERATION WHET HER FIFO, WEIGHTED AVERAGE, LIFO OR ANY OTHER METHOD. BUT UND ER AS2 IT HAS BEEN MADE CLEAR THAT THE COST OF INVENTORIES SHOULD BE ARRIVED AT BY USING THE FIRST IN FIRST OUT (FIFO), OR WEIGHTED AV ERAGE COST FORMULA. AFTER MAKING THE CHANGE IN THE METHOD OF VALUATION OF CLOSING STOCK OF INVENTORY FROM FIFO METHOD TO THE WEIGHTED AVERA GE METHOD IN THE AY 2005-06, THE SAME HAS BEEN CONSISTENTLY FOLL OWED BY THE ASSESSEE FROM THE AY 2005-06 ONWARDS. FURTHER, I AM OF THE VIEW THAT, IT IS FOR THE ASSESSEE TO DECIDE WHICH METHOD IS MORE CORRECT AND HENCE MORE APPROPRIATE FOR THE VALUATION OF THE STO RES/SPARES AND NOT FOR THE A.O TO DECIDE AS LONG AS THE CHANGE IS BONA FIDE AND THE ASSESSEE IS CONSISTENTLY FOLLOWING THE SAME IN THE SUBSEQUENT YEARS. THE A.O HAS APART FROM STATING THAT FIFO METHOD WHI CH THE APPELLANT HAS BEEN FOLLOWING EARLIER WAS MORE APPROPRIATE HAS NOT GIVEN ANY REASONS AS TO WHY THE FIFO METHOD WAS CONSIDERED MO RE APPROPRIATE BY HIM. I FIND THE REASONS GIVEN BY THE APPELLANT F OR THE CHANGE IN THE METHOD TO BE LOGICAL. MOREOVER, CONSIDERING THE FAC T THAT THE APPELLANT HAS BROUGHT FORWARD LOSSES, THERE CANNOT BE ANY REA SON TO PRESUME THAT THE APPELLANT HAD CHANGED THE METHOD OF VALUAT ION IN ORDER TO REDUCE ITS TAXABLE INCOME. 4.4. THE A.O HAS PLACED RELIANCE IN THE CASE OF CIT VS BHARAT COMMERCE INDUSTRIES LTD WHERE IT WAS HELD THAT CHAN GE IN THE METHOD OF VALUATION IS PERMISSIBLE IF IT IS BONA FIDE AND FOLLOWED REGULARLY FROM YEAR TO YEAR. AT THE SAME TIME IT IS WELL SETT LED THAT IRRESPECTIVE OF THE BASIS ADOPTED FOR VALUATION FOR EARLIER YEAR S, THE ASSESSEE HAS AN OPTION TO CHANGE THE METHOD OF VALUATION OF CLOSING STOCK, PROVIDED THE CHANGE IS BONA FIDE AND FOLLOWED THEREAFTER. AP P. NO.187/09-108 M/S BSES RAJDHANI POWER LTD. A.Y.2005-06; U/S 143(3 ) IN THE CURRENT ASSESSMENT YEAR,THE ASSESSEE COMPANY HAS CH ANGED THE METHOD OF VALUATION OF CLOSING STOCK OF STORES/SPAR ES AND IS CONSISTENTLY FOLLOWING THE SAME CHANGED METHOD FROM YEAR AFTER YEAR. ACCORDINGLY THE RELIANCE PLACED BY THE ACIT ON THE CIT VS BHARAT COMMERCE INDUSTRIES LTD DOES NOT SUPPORT HIS VIEWS. THE A.O HAS ALSO PLACED RELIANCE IN THE CASE OF CIT VS. SANJEEV WOOLLEN MILLS. THE FACTS OF THE CASE IN BRIEF WAS THAT FOR THE AY 1992-93(FIRST YEAR) AND 1993-94(SECOND YEAR), THE ASSESSEE VALUED THE C LOSING STOCK FOR THE FIRST YEAR AT THE RS.130PER KG WHILE THE OPENIN G STOCK WAS VALUED AT RS.90 PER KG . IN THE SECOND YEAR OPENING STOCK WAS VALUED AT RS. 60 130 PER KG AND THERE WAS NO CLOSING STOCK THAT RESU LTED IN THE ABNORMAL GROSS PROFIT RATIO 2054.60 PERCENT IN THE FIRST YEAR AND LOSS RETURN IN THE SECOND YEAR. JUDGMENT THE OPENING STO CK FOR THE FIRST YEAR WAS COMPUTED AT THE RATE OF RS. 90 PER KG AND THE CLOSING STOCK WAS COMPUTED AT THE RATE OF RS. 130 PER KG. THIS WA S DONE BECAUSE THERE WERE EXPORT SALES WHEREAS IN THE SECOND YEAR THERE WERE NO EXPORT SALES . THEREFORE THE ENTIRE DEVICE WAS TO C LAIM THE MAXIMUM DEDUCTION UNDER SECTION 80 HHC IN THE FIRST YEAR AN D IN THE SECOND YEAR THE ATTEMPT IS TO SUPPRESS THE PROFITS.THUS TH E ENTIRE DEVICE ADOPTED BY THE ASSESSEE WAS TO INFLATE THE DEDUCTIO N UNDER SECTION 80 HHC IN THE FIRST YEAR AND TO SUPPRESS THE PROFIT IN THE SECOND YEAR. 4.5 I FIND THAT THE RATIO OF THE ABOVE CASE IS NOT APPLICABLE TO THE ASSESSEE COMPANY IN VIEW OF THE FACT THAT THE ASSES SEE COMPANY IS NOT CLAIMING DEDUCTION U/S 80 HHC OR UNDER ANY OTHER SE CTION OF THE INCOME TAX ACT, 1961.FURTHER IT CAN BE SAID THAT TH ERE IS INTENTION TO REDUCE THE TAXABLE PROFITS BY SHIFTING THE PROFITS TO THE NEXT YEAR AS IT HAS ALREADY BROUGHT FORWARD UNABSORBED DEPRECIATION & LOSSES OF THE EARLIER YEARS. FURTHER, THE ASSESSEE COMPANY ALSO H AS THE CARRY FORWARD OF UNABSORBED DEPRECIATION AND LOSSES IN THE AY 200 6-07. IN MY VIEW THE ASSESSEE IS ENTITLED TO CHANGE HIS METHOD OF AC COUNTING AND REPLACE THE REGULAR METHOD BY ANOTHER. THOUGH IT IS ESSENTIAL THAT A METHOD ONCE CHOSEN SHOULD BE APPLIED CONSISTENTLY T HROUGH THE YEARS. SO THAT IN CASE OF ANY DEVIATION FROM THE PROPER VA LUE APP. NO.187/09-10 9 M/S BSES RAJDHANI POWER LTD. A.Y.200 5- 06; U/S 143(3) AT THE CLOSE OF ONE YEAR, IT MAY BE RECTIFIED BY THE ACCOUNTS IN THE NEXT YEAR; IT HAS BEEN HELD THAT A BONA FIDE CHANGE IN THE METHOD OF ACCOUNTING MEANT TO BE CONSISTENTLY F OLLOWED IN THE FUTURE SHOULD BE ACCEPTED. AN ASSESSEE IS ENTITLED TO CHANGE HIS REGULAR METHOD OF ACCOUNTING BY ANOTHER REGULAR MET HOD BUT THERE CANNOT BE ANY CASUAL DEPARTURE IN REGARD TO THE MET HOD ADOPTED BY THE ASSESSEE. ANY DISTURBANCE, IN THE VALUATION OF OPEN ING STOCK WOULD HAVE A SNOW BALLING EFFECT, IN THE SENSE THAT THE C LOSING STOCK OF THE IMMEDIATELY PRECEDING YEAR WOULD BE AFFECTED AND TH E COMPUTATION OF PROFITS OF THAT YEAR WOULD HAVE TO UNDERGO A CHANGE AND THIS PROCESS WOULD GO ON FOR A NUMBER OF YEARS. BASED UPON THE A BOVE FACTS AND CIRCUMSTANCES AND DECIDED CASE LAWS,I AM OF THE VIE W THAT THE A.O IS NOT JUSTIFIED IN MAKING THE ADDITION OF RS. 5.02 CR ORE AND THE SAME IS DIRECTED TO BE DELETED. 61 20.5 HAVING GONE THROUGH THE IMPUGNED FIRST APPELLA TE ORDER ON THE ISSUE, WE FIND THAT THE FIRST APPELLATE ORDER IN THIS REGA RD IS COMPREHENSIVE AND REASONED ONE AS WELL AS SUPPORTED BY THE DECISIONS RELIED UPON BY THE LEARNED AR. THE LEARNED CIT(APPEALS) HAS ALSO DISCU SSED THE DECISIONS RELIED UPON BY THE ASSESSING OFFICER AND AS TO HOW HAVING DISTINGUISHABLE FACTS THEY ARE NOT APPLICABLE IN THE PRESENT CASE. IT IS ALSO AN UNDISPUTED FACT THAT IN THE INCOME-TAX ACT, 1961, IT HAS NOT BEEN P RESCRIBED THAT FOR ARRIVING AT THE COST OF CLOSING STOCK INVENTORY WHICH METHOD IS TO BE TAKEN INTO CONSIDERATION, WHETHER FIFO, WEIGHTED AVERAGE, LIFO OR ANY OTHER METHOD. BUT UNDER AS2, IT HAS BEEN MADE CLEAR THAT THE COST OF INVENTORY SHOULD BE ARRIVED AT BY USING THE FIRST IN FIRST OUT (FIFO), OR WEIGHTED AVERAGE COST FORMULA. AFTER MAKING THE CHANGE IN THE METHOD OF V ALUATION OF CLOSING OF INVENTORY FROM FIFO METHOD TO THE WEIGHT AVERAGE ME THOD IN THE ASSESSMENT YEAR 2005-06, THE SAME HAS BEEN CONSISTE NTLY FOLLOWED BY THE ASSESSEE FROM THE ASSESSMENT YEAR 2005-06 ONWARD. W E ALSO CONCUR WITH THE VIEW OF THE LEARNED CIT(APPEALS) THAT IT IS FOR THE ASSESSEE TO DECIDE WHICH METHOD IS MORE CORRECT AND HENCE MORE APPROPRIATE F OR THE VALUATION OF THE STORES/SPARES AND NOT FOR THE ASSESSING OFFICER TO DECIDE AS LONG AS THE CHANGE IS BONA FIDE AND THE ASSESSEE IS CONSISTENTL Y FOLLOWING THE SAME IN THE SUBSEQUENT YEARS. WE THUS DO NOT FIND INFIRMITY IN THE FIRST APPELLATE ORDER 62 ON THE ISSUE AS THERE WAS NO ANY CASUAL DEPARTURE I N REGARD TO THE METHOD ADOPTED BY THE ASSESSEE. THE SAME IS UPHELD. THE GR OUND NO.2 OF THE APPEAL PREFERRED BY THE REVENUE IS ACCORDINGLY REJECTED. 21. ADDL. GROUND NO.2 (ASSESSEE): THE ISSUE RAISED IS AS TO WHETHER PROVISIONS OF SECTION 115JB OF THE INCOME-TAX ACT, 1961 WERE NOT APPLICABLE DURING THE RELEVANT ASSESSMENT YEAR AND THUS THE AS SESSING OFFICER WAS NOT JUSTIFIED IN ASSESSING THE INCOME OF THE ASSESSEE U NDER SEC. 115JB OF THE ACT AND NOT UNDER NORMAL PROVISIONS OF THE ACT. THE RE LEVANT FACTS ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF DISTRIBUTION OF ELECTRICITY AND IS GOVERNED BY THE PROVISIONS OF THE ELECTRICITY ACT, 2003. IT CLAIMS THAT IT PREPARES ITS ANNUAL ACCOUNT IN ACCORDANCE WITH THE APPLICABLE ELECTRICITY LAWS INCLUDING THE PROVISIONS OF DELHI ELECTRICITY REFORMS (TRANSFER SCHEME), RULES, 2001. THE SUBMISSION OF THE ASSESSE E IS THAT IN ACCORDANCE WITH PROVISO TO SUB-SECTIONS (1) AND (2) OF SECTION 211 OF THE THEN APPLICABLE COMPANIES ACT, 1956 (COMPANIES ACT), THE ASSESSEE P REPARES ITS AUDITED ANNUAL ACCOUNT IN ACCORDANCE WITH THE GENERALLY ACC EPTED ACCOUNTING PRINCIPLES IN INDIA AND PROVISIONS OF THE COMPANIES ACT, 1956 READ WITH THE COMPANIES (ACCOUNTING STANDARD) RULES, 2006 AS WELL AS THE APPLICABLE ELECTRICITY LAWS. IN ADDITION, PROVISIONS OF THE DE LHI ELECTRICITY REFORMS 63 (TRANSFER SCHEME) RULES, 2001 (HEREINAFTER REFERRED TO AS TRANSFER SCHEME) AND OTHER RELEVANT DOCUMENTS/AGREEMENTS HAVE ALSO B EEN TAKEN INTO ACCOUNT WHILE PREPARING THE FINANCIAL STATEMENT. IN THE AFO RESAID CONTEXT, IT WAS SUBMITTED BY THE ASSESSEE THAT PRIOR TO THE AMENDME NT TO SUB-SECTION (2) OF SECTION 115JB OF THE INCOME-TAX ACT, 1961, THE DEEM ING PROVISIONS OF THE SAID SECTION WERE NOT APPLICABLE TO COMPANY TO WHIC H PROVISO TO SUB-SECTION (2) OF SECTION 211 OF THE COMPANIES ACT ARE APPLIED . IT WAS SUBMITTED THAT THE SCOPE OF APPLICATION OF PROVISIONS OF SEC. 115J B OF THE ACT HAS SUBSEQUENTLY BEEN WIDEN W.E.F. 01.04.2013, BY INCLU DING WITHIN THE AMBIT OF THE SAID SECTION, COMPANIES TO WHICH PROVISO TO SUB -SECTION (2) OF SEC. 211 OF THE COMPANIES ACT ARE APPLIED. 22. IN SUPPORT OF THE ISSUE RAISED IN THE ADDIT IONAL GROUND NO.2, THE LEARNED AR SUBMITTED THAT THE ASSESSEE, IS ENGAGED IN THE BUSINESS OF DISTRIBUTION OF ELECTRICITY AND IS GOVERNED BY PROV ISIONS OF THE ELECTRICITY ACT, 2003. THE ASSESSEE PREPARES ITS ANNUAL ACCOUNT S IN ACCORDANCE WITH THE APPLICABLE LAWS, INCLUDING PROVISIONS OF THE DELHI ELECTRICITY REFORMS (TRANSFER SCHEME), RULES, 2001. 22.1 THAT LEARNED AR SUBMITTED THAT IT IS OF UTMO ST IMPORTANCE TO NOTE THAT IN ACCORDANCE WITH PROVISO TO SUB-SECTIONS (1) AND (2) OF SECTION 211 OF THE 64 THEN APPLICABLE COMPANIES ACT, 1956 ( COMPANIES ACT ), THE ASSESSEE IS NOT REQUIRED TO AND HAS NOT BEEN STRICTLY PREPARING ITS AUDITED ANNUAL ACCOUNTS AS PER PARTS II AND III OF SCHEDULE VI OF THE SAID ACT. 22.2 THE AFORESAID FACT IS EVIDENT ON PERUSAL OF THE SIGNIFICANT ACCOUNTING POLICIES ADOPTED BY THE APPELLANT-COMPANY AS DISCLO SED IN THE AUDITED ANNUAL ACCOUNTS FOR THE PREVIOUS YEAR RELEVANT TO THE ASSE SSMENT YEAR 2005-06, STATING THE BASIS OF PREPARATION OF FINANCIAL STATE MENTS AS UNDER: SIGNIFICANT ACCOUNTING POLICIES AND NOTES TO THE A CCOUNTS: 1. BASIS OF PREPARATION OF FINANCIAL STATEMENTS THE FINANCIAL STATEMENTS ARE PREPARED UNDER THE HIS TORICAL COST CONVENTION, ON THE ACCRUAL BASIS OF ACCOUNTING, AND IN ACCORDANCE WITH THE PROVISIONS OF THE COMPANIES ACT, 1956 AS WELL AS THOSE OF THE REPEALE D ELECTRICITY (SUPPLY) ACT, 1948 AND COMPLY WITH THE ACCOUNTING STANDARDS ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA WHEREVER APPLICABLE . IN ADDITION PROVISIONS OF THE DELHI ELECTRICITY REFORM (TRANSFER SCHEME) RULES, 2 001 (HEREINAFTER REFERRED TO AS TRANSFER SCHEME) AND OTHER RELEVANT DOCUMENTS / AGREEMENTS HAVE BEEN TAKEN INTO ACCOUNT WHILE PREPARING THE FINANCIAL ST ATEMENTS 22.3 THUS, IT MAY BE PERTINENT TO NOTE THAT THE BO OKS OF ACCOUNTS OF THE APPELLANT-COMPANY ARE DRAWN IN ACCORDANCE WITH THE STATUTORY PROVISIONS AS APPLICABLE TO AN ELECTRICITY COMPANY, I.E., THE REP EALED ELECTRICITY (SUPPLY) ACT, 1948 AND THE DELHI ELECTRICITY REFORM (TRANSFE R SCHEME) RULES, 2001(HEREINAFTER REFERRED TO AS ELECTRICITY ACT/DE RC REGULATIONS) AND PROVISIONS OF THE COMPANIES ACT, 1956, TO THE EXTEN T THE SAME ARE NOT 65 INCONSISTENT WITH THE ELECTRICITY ACT/ DERC REGULAT IONS. IN OTHER WORDSIN CASE OF ANY VARIATION/CONFLICT IN THE AFORESAID PRO VISIONS, THE APPELLANT IS BOUND TO MANDATORILY FOLLOW/ADOPT THE SPECIFIC PROV ISIONS OF THE ELECTRICITY ACT/DERC REGULATIONS, WHICH ARE SPECIFICALLY RELATE D TO ITS AREA OF OPERATIONS , ALTHOUGH THE BASIC FORM FOR PREPARATION AND PRESE NTATION OF ACCOUNTS WOULD BE PRESCRIBED BY SCHEDULE VI TO THE COMPANIES ACT. THE OVER-RIDING MANDATE OF THE ELECTRICITY ACT, 200 3 IN RESPECT OF AN ELECTRICITY COMPANY VIS--VIS OTHER ACTS IS SPECIFI CALLY PROVIDED IN SECTION 174 OF THE ELECTRICITY ACT, 2003. 22.4 THUS, BY VIRTUE OF SECTION 174 OF THE ELECTR ICITY ACT, 2003, THE PROVISIONS OF THE SAID ACT READ ALONG WITH THE DERC REGULATIONS SHALL OVERRIDE THE PROVISIONS OF ALL OTHER ACTS, INCLUDIN G THE COMPANIES ACT, 1956. 22.5 CORRESPONDING TO THE AFORESAID, EVEN THE COM PANIES ACT, 1956 (SECTION 616) AND THE COMPANIES ACT, 2013 (SECTION 1(4) ) ALSO PROVIDED/PROVIDES THAT THE PROVISIONS OF THE SAID A CT WOULD APPLY IN RESPECT OF AN ELECTRICITY COMPANY ONLY IN SO FAR AS THE SAI D PROVISIONS ARE NOT INCONSISTENT WITH THE ELECTRICITY ACT. 66 22.6 THE LEARNED AR SUBMITTED THAT USEFUL REFEREN CE IN THIS REGARD MAY BE MADE TO THE PROVISIONS OF SECTION 181 OF THE ELECTR ICITY ACT, 2003 WHICH PROVIDES POWER TO THE STATE COMMISSION TO MAKE REGU LATIONS. 22.7 IT WILL KINDLY BE APPRECIATED THAT THE APPE LLANT IS A REGULATED ENTITY AND THE TARIFF THAT IT CHARGES TO ITS CUSTOMERS IS DETERMINED BY THE DERC ON A YEAR TO YEAR BASIS BASED ON THE ANNUAL REVENUE REQU IREMENTS (HEREINAFTER ARR) AND TRUE-UP PETITIONS FILED BY THE APPELLANT . THERE IS, IT MAY BE NOTED, A LARGE ELEMENT OF ESTIMATE INVOLVED IN DETE RMINING THE TARIFF BASED ON THE ARR AND AFTER THE END OF THE FINANCIAL YEAR, TH E APPELLANT FILES A TRUE UP PETITION SETTING OUT FACTS RELATING TO THE ACTU AL REVENUE EARNED AND THE EXPENDITURE INCURRED, IN ACCORDANCE WITH THE APPLIC ABLE DERC REGULATIONS. IT IS ON THE BASIS OF THE SAID TRUE UP PETITION AND AFTER A DETAILED HEARING, THE DERC PASSES AN ORDER DETERMINING THE REVENUE SURPLU S OR THE REVENUE GAP. 22.8 IT MAY, THUS, BE NOTED THAT EVEN THE VERY BA SIS OF RECOGNITION OF REVENUE AND EXPENSE IS REGULATED STRICTLY BY THE DE RC AND NOT STRICTLY AS PER THE PROVISIONS OF THE COMPANIES ACT. 22.9 FURTHER, IT IS TRITE LAW THAT THE PROVISIONS OF A SPECIFIC ACT WOULD OVERRIDE THE PROVISIONS OF ALL OTHER ACTS AS HAS BE EN HELD IN THE FOLLOWING DECISIONS: 67 - TRO V CUSTODIAN, SPECIAL COURT ACT, 1934: 293 ITR 369 (SC) - CIT V INDIA EQUIPMENT LEASING LTD: 293 ITR 350 (MAD) - CIT V ELGI FINANCE LTD: 293 ITR 357 (MAD) - VASISTHCHAYVYAPAR LTD: 330 ITR 440 (DEL) - DCIT VS. BHARTIYASAMRUDDHI FINANCE LTD.: 58 SOT 141 (DEL) 22.10 IN VIEW OF THE ABOVE, IT IS PATENTLY CLEAR THAT THE APPELLANT PREPARES ITS ANNUAL ACCOUNTS IN ACCORDANCE WITH THE APPLICAB LE LAWS, INCLUDING PROVISIONS OF THE DELHI ELECTRICITY REFORMS (TRANSF ER SCHEME), RULES, 2001 AND IS NOT REQUIRED TO AND HAS NOT BEEN STRICTLY PR EPARING ITS AUDITED ANNUAL ACCOUNTS AS PER PARTS II AND III OF SCHEDULE VI OF THE COMPANIES ACT, 1956. 22.11 IN THE AFORESAID CONTEXT, IT MAY ALSO BE PE RTINENT TO NOTE THAT PRIOR TO THE AMENDMENT TO SUB-SECTION (2) OF SECTION 115JB O F THE INCOME-TAX ACT, 1961 (THE ACT), THE DEEMING PROVISIONS OF THE SAI D SECTION WERE NOT APPLICABLE TO COMPANIES TO WHICH PROVISO TO SUB-SECTION (2) O F SECTION 211 OF THE COMPANIES ACT APPLIED. 22.12 THIS IS CLEARLY EVIDENT FROM A BARE READING OF THE PROVISIONS OF SECTION 115JB OF THE ACT, AS APPLICABLE TO THE RELE VANT YEAR UNDER CONSIDERATION. 68 22.13 THE LEARNED AR SUBMITTED THAT ON PERUSAL O F THE AFORESAID, IT WILL KINDLY BE NOTICED THAT THE PROVISIONS OF SECTION 11 5JB OF THE ACT APPLIED DURING THE RELEVANT YEAR ONLY TO COMPANIES REQUIRED , UNDER THE LAW, TO PREPARE ITS PROFIT AND LOSS ACCOUNT IN ACCORDANCE W ITH PARTS II AND III OF SCHEDULE VI OF THE COMPANIES ACT AND NOT OTHERWISE. 22.14. IT IS OF UTMOST IMPORTANCE TO NOTE THAT THE LEGISLATURE RE-INTRODUCED THE MAT PROVISIONS VIDE FINANCE BILL, 1996: 220 ITR (ST.) 107 AND THE HON'BLE FINANCE MINISTER WHILE INTRODUCING THIS PRO VISION, INTER-ALIA, STATED AS UNDER: 90. CORPORATE TAX RATES HAVE BEEN REDUCED AND SIMPL IFIED OVER THE PAST FEW YEARS AND THE RESULTS HAVE BEEN VERY ENCOURAGING WITH A S IGNIFICANT INCREASE IN CORPORATE TAXES AS A PERCENTAGE OF GDP. HOWEVER, THERE ARE TW O ISSUES WHICH NEED TO BE ADDRESSED. THE FIRST IS THE PROMISE MADE IN THE PAS T THAT THE CORPORATE SURCHARGE WILL BE TEMPORARY. THE OTHER IS THE PHENOMENON OF ZERO T AX COMPANIES WHICH, ACCORDING TO MANY OBSERVERS, REFLECTS AN EXCESSIVE DEGREE OF LAXITY IN THE TAX REGIME. I PROPOSE TO RESPOND TO THE TWO ISSUES AS FOLLOWS: (I) I AM REDUCING THE RATE OF SURCHARGE ON CORPORAT ION TAX FROM 15% TO 7.5% AND HOPE TO TAKE A SIMILAR STEP IN MY NEXT BUDGET. THE REDUCED TAX BURDEN WILL BENEFIT ALL COMPANIES BIG AND SMALL. (II) I PROPOSE TO INTRODUCE A MINIMUM ALTERNATE TA X (MAT) ON COMPANIES. IN A CASE WHERE THE TOTAL INCOME OF THE COMPANY, AS COMP UTED UNDER THE INCOME TAX ACT AFTER AVAILING OF ALL ELIGIBLE DEDUCTIONS, IS LESS THAN 30 PER CENT OF THE BOOK PROFIT, THE TOTAL INCOME OF SUCH A COMPANY SHALL BE DEEMED TO B E 30 PER CENT OF THE BOOK PROFIT AND SHALL BE CHARGED TO TAX ACCORDINGLY. THE EFFECT IVE RATE WORKS OUT TO 12 PER CENT OF BOOK PROFIT CALCULATED UNDER THE COMPANIES ACT. COMPANIES ENGAGED IN THE POWER AND INFRASTRUCTURE SECTOR WILL, HOWEVER, BE EXEMPTE D FROM THE LEVY OF MAT . (EMPHASIS SUPPLIED) 69 22.15 ON THE BASIS OF THE AFORESAID, IT WOULD BE NOTED THAT LEGISLATURE INTENDED TO EXCLUDE FROM THE PURVIEW OF MAT PROVISI ONS UNDER SECTION 115JA OF THE ACT (WHICH WERE PARA-MATERIA TO SECTIO N 115JB OF THE ACT) COMPANIES ENGAGED, INTER-ALIA, IN THE POWER SECTOR WHICH WERE GOVERNED BY A SPECIAL STATUTE, WHICH ALSO REGULATES THE MANNER IN WHICH ACCOUNTS FOR SUCH COMPANIES WERE TO BE PREPARED. 22.16 THE APPELLANT, IS GOVERNED BY THE PROVISIO NS OF THE ELECTRICITY ACT, 2003 AND ACCORDINGLY PREPARESITS ANNUAL ACCOUNTS IN ACCORDANCE WITH THE APPLICABLE ELECTRICITY ACT/ DERC REGULATIONS, WHICH ARE BINDING AND MANDATORILY TO BE FOLLOWED BY THE APPELLANT. 22.17 IT IS WAS SUBMITTED THAT VARIOUS BENCHES OF THE TRIBUNAL HAVE HELD THAT PROVISIONS OF SECTION 115JB OF THE ACT SHALL N OT APPLY TO COMPANIES REFERRED IN PROVISO TO SUB-SECTIONS (1) AND (2) OF SECTION 211 OF THE COMPANIES ACT, I.E., COMPANIES GOVERNED BY SPECIAL ACTS VIZ.,. BANKING REGULATION ACT, 1949, ELECTRICITY ACT, 2003, INSURA NCE REGULATORY ACT, 1999 ETC. REFERENCE, IN THIS REGARD, MADE TO THE FOLLOWI NG DECISIONS:- - KERALA STATE ELECTRICITY BOARD V. DCIT: ITA NOS. 17 03/1710 AND 1716 OF 2009 (KER) - MAHARASHTRA STATE ELECTRICITY BOARD V. JCIT: 82 ITD 422 (MUM.) - RELIANCE ENERGY LTD. VS. ACIT: ITA NO. 218/MUM/2005 (MUM.) - KRUNG THAI BANK PCL V. JDIT: 133 TTJ 435 (MUM.) 70 22.18 ACCORDINGLY, THE PROVISIONS OF SECTION 11 5JB OF THE ACT WERE, DURING THE RELEVANT YEAR, NOT APPLICABLE TO THE APP ELLANT, CONTENDED THE LEARNED AR. 22.19 THE LEARNED AR SUBMITTED THAT THE AFORESAID CONTENTION OF THE APPELLANT, IS FORTIFIED BY SUBSTANTIVE AMENDMENTS I N SECTION 115JB OF THE ACT MADE BY THE FINANCE ACT, 2012, WITH EFFECT FROM APR IL 1, 2013, WHICH ARE DISCUSSED HEREUNDER: 22.20 THE SCOPE OF THE DEEMING PROVISIONS OF SE CTION 115JB OF THE ACT WAS WIDENED W.E.F. 01.04.2013, BY INCLUDING WITHIN THE AMBIT OF THE SAID SECTION, COMPANIES TO WHICH PROVISO TO SUB-SECTION (2) OF SECTION 211 OF COMPANIES ACT APPLIED. THE LEARNED AR REFERRED SUB- SECTION (2) TO SECTION 115JB OF THE ACT AS SUBSTITUTED BY THE FINANCE ACT, 2012 W.E.F. 01.04.2013. 71 22.21 THUS, VIDE FINANCE ACT, 2012 THE SCOPE OF S ECTION 115JB OF THE ACT WAS WIDENED SO AS TO INCLUDE COMPANIES PREPARING PR OFIT AND LOSS ACCOUNT IN ACCORDANCE WITH PROVISIONS OF THE RELEVANT REGULATO RY ACT. 22.22 HOWEVER, IT MAY BE NOTED THAT AMENDMENTS BY THE FINANCE ACT, 2012 IMPOSING NEW TAX BURDEN ON COMPANIES WHICH WAS OTHE RWISE NOT PROVIDED UNDER THE ACT, WERE, IN NO UNCERTAIN TERMS, MADE IN PROVISIONS OF SECTION 115JB(2) WITH EFFECT FROM APRIL 1, 2013, MEANING TH EREBY THAT THE DEEMING PROVISIONS ARE APPLICABLE TO COMPANIES GOVERNED BY SPECIAL ACTS ONLY FROM ASSESSMENT YEAR 2013-14 AND ONWARDS. 22.23 MEMORANDUM EXPLAINING THE PROVISIONS OF TH E FINANCE BILL, 2012: 342 ITR (ST.) 288, WHEREBY SUB-SECTION (2) OF SECTI ON 115JB WAS SUBSTITUTED PROVIDES THAT THE AMENDMENT IS APPLICABLE W.E.F. 01 .04.2013, THAT IS FOR ASSESSMENT YEARS 2013-14 ONWARDS. RELEVANT EXTRACT OF THE MEMORANDUM IS REPRODUCED AS UNDER: MINIMUM ALTERNATE TAX (MAT) I. UNDER THE EXISTING PROVISIONS OF SECTION 115JB O F THE ACT, A COMPANY IS LIABLE TO PAY MAT OF EIGHTEEN AND ONE HALF PER CENT OF ITS BO OK PROFIT IN CASE TAX ON ITS TOTAL INCOME COMPUTED UNDER THE PROVISIONS OF THE ACT IS LESS THAN THE MAT LIABILITY. BOOK PROFIT FOR THIS PURPOSE IS COMPUTED BY MAKING CERTAIN ADJUSTMENTS TO THE PROFIT DISCLOSED IN THE PROFIT AND LOSS ACCOUNT PREPARED B Y THE COMPANY IN ACCORDANCE WITH THE SCHEDULE VI OF THE COMPANIES ACT, 1956. AS PER SECTION 115JB, EVERY COMPANY IS REQUIRED TO PREPARE ITS ACCOUNTS AS PER SCHEDULE VI OF THE COMPANIES ACT, 1956. HOWEVER, AS PER THE PROVISIONS OF THE CO MPANIES ACT, 1956, CERTAIN 72 COMPANIES, E.G. INSURANCE, BANKING OR ELECTRICITY C OMPANY, ARE ALLOWED TO PREPARE THEIR PROFIT AND LOSS ACCOUNT IN ACCORDANCE WITH TH E PROVISIONS SPECIFIED IN THEIR REGULATORY ACTS. IN ORDER TO ALIGN THE PROVISIONS O F INCOME-TAX ACT WITH THE COMPANIES ACT, 1956, IT IS PROPOSED TO AMEND SECTIO N 115JB TO PROVIDE THAT THE COMPANIES WHICH ARE NOT REQUIRED UNDER SECTION 211 OF THE COMPANIES ACT TO PREPARE THEIR PROFIT AND LOSS ACCOUNT IN ACCORDANCE WITH THE SCHEDULE VI OF THE COMPANIES ACT, 1956, PROFIT AND LOSS ACCOUNT PREPAR ED IN ACCORDANCE WITH THE PROVISIONS OF THEIR REGULATORY ACTS SHALL BE TAKEN AS A BASIS FOR COMPUTING THE BOOK PROFIT UNDER SECTION 115JB. II. IT IS NOTED THAT IN CERTAIN CASES, THE AMOUNT S TANDING IN THE REVALUATION RESERVE IS TAKEN DIRECTLY TO GENERAL RESERVE ON DISPOSAL OF A REVALUED ASSET. THUS, THE GAINS ATTRIBUTABLE TO REVALUATION OF THE ASSET IS NOT SUB JECT TO MAT LIABILITY. IT IS, THEREFORE, PROPOSED TO AMEND SECTION 115JB TO PROVI DE THAT THE BOOK PROFIT FOR THE PURPOSE OF SECTION 115JB SHALL BE INCREASED BY THE AMOUNT STANDING IN THE REVALUATION RESERVE RELATING TO THE REVALUED ASSET WHICH HAS BEEN RETIRED OR DISPOSED, IF THE SAME IS NOT CREDITED TO THE PROFIT AND LOSS ACCOUNT. III. IT IS ALSO PROPOSED TO OMIT THE REFERENCE OF P ART III OF THE SCHEDULE VI OF THE COMPANIES ACT, 1956 FROM SECTION 115JB IN VIEW OF O MISSION OF PART III IN THE REVISED SCHEDULE VI UNDER THE COMPANIES ACT, 1956. THESE AMENDMENTS WILL TAKE EFFECT FROM 1ST APRIL, 2 013 AND WILL, ACCORDINGLY, APPLY IN RELATION TO THE ASSESSMENT YEAR 2013-14 AND SUBS EQUENT ASSESSMENT YEARS . [CLAUSE 46] (EMPHASIS SUPPLIED) 22.24 ON PERUSAL OF THE AFORESAID, IT WILL KINDLY BE A PPRECIATED THAT THE LEGISLATURE RECOGNIZED THAT AS PER THE PROVISIONS OF THE COMPANIES ACT, 1956, CERTAIN COMPANIES, E.G. INSURANCE, BANKING OR ELECTRICITY COMPANY, ARE ALLOWED TO PREPARE THEIR PROFIT AND LOSS ACCOUNT IN ACCORDANCE WITH THE PROVISIONS SPECIFIED IN THEIR REGULATORY ACTS . IN THESE CIRCUMSTANCES, SINCE THE PROVISIONS OF SECTION 115JB OF THE ACT WERE NOT APPLICABLE TO SUCH SPECIAL CATEGORY OF COMPANIES, THE LEGISLATURE MADE SUBSTANTIVE AMENDMENTS THEREIN SO AS TO MAKE THE SAID SECTION A PPLICABLE TO SUCH SPECIAL 73 CATEGORY COMPANIES, INCLUDING ELECTRICITY COMPANY, WITH PROSPECTIVE EFFECT FROM ASSESSMENT YEAR 2013-14 ONLY . 22.25 THE LEARNED AR CONTENDED THAT IT IS PATENT LY CLEAR FROM THE AFORESAID AMENDMENT THAT PRIOR TO THE AMENDMENT APP LICABLE FROM ASSESSMENT YEAR 2013-14, PROVISIONS OF SECTION 115J B OF THE ACT WERE NOT AT ALL APPLICABLE TO AN ELECTRICITY COMPANY, SUCH AS T HE APPELLANT UP TO THE ASSESSMENT YEAR 2012-13. 22.26 FURTHER, EXPLANATION 3 TO SECTION 115JB OF THE ACT, WHICH PROVIDES AN OPTION TO DISCOMS TO PREPARE ACCOUNTS AS PER SCH EDULE VI OF THE COMPANIES ACT OR THE GOVERNING LAW/SPECIAL ACT IN R ESPECT OF ASSESSMENT YEARS PRIOR TO 2013-14, HAS ALSO BEEN INSERTED AS P ART OF THE SUBSTANTIVE AMENDMENTS APPLICABLE FROM ASSESSMENT YEAR 2013-14 AND ONWARDS. THE SAID EXPLANATION, CANNOT BE GIVEN SUCH RETROSPECTIV E EFFECT RESULTING IN IMPOSITION OF FRESH LEVY FOR ASSESSMENT YEARS UP TO AY 2012-13, WHICH WAS NOT IN ACCORDANCE WITH THE LANGUAGE OF SECTION 115J B OF THE ACT, AS IT THEN STOOD AND THE LEGISLATIVE INTENT. THE AMENDMENTS TO SECTION 115JB OF THE ACT MADE BY THE FINANCE ACT, 2012 ARE, IT WAS SUBMITTED , SUBSTANTIVE IN NATURE RESULTING IN FRESH LIABILITY TO TAX AND WOULD THERE FORE, APPLY ONLY 74 PROSPECTIVELY; THE SAME CANNOT, UNLESS SPECIFICALLY MANDATED BY THE STATUTE, BE APPLIED FROM RETROSPECTIVE EFFECT. 22.27 RELIANCE IN THIS REGARD WAS PLACED ON THE D ECISION OF THE CONSTITUTION BENCH OF THE HONBLE SUPREME COURT IN THE CASE OF C IT VS. VATIKA TOWNSHIP PRIVATE LIMITED: 367 ITR 466 (SC). TO THE SAME EFFECT ARE THE FOLLOWING DECISIONS WHEREIN IT HAS BEEN HELD THAT A PROVISION IMPOSING LIABILITY IS GOVERNED BY THE NORMAL PRESUMPTION THA T IS NOT RETROSPECTIVE: - S.S.GADGIL VS. LAL AND CO. (1964) 53 ITR 231 (SC) - K.M.SHARMA VS. ITO (2002) 254 ITR 772 (SC) - GEM GRANITES VS. CIT (2004) 271 ITR 322 (SC) - SEDCO FOREX INTERNATIONAL DRILL INC. VS. CIT (2005) 279 ITR 310 (SC). 22.28 THE FUNDAMENTAL PRINCIPLE REITERATED IN THE AFORES AID DECISION IS LEXPROSPICIT NON RESPICIT : I.E., LAWS LOOK FORWARD AND NOT BACKWARD. NO SECTION CAN BE INTERPRETED RETROSPECTIVELY UNLESS I T IS MENTIONED IN THE SECTION ITSELF. 22.29 SPECIFIC RELIANCE IN THIS REGARD WAS PLAC ED ON THE DECISION OF THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF BANK OF TOKYO MITSUBISHI UFJ LTD. VS. ADIT: ITA NO.5364 OF 2010 WHEREIN THE TRIB UNAL WAS ADJUDICATING 75 THE ISSUE REGARDING APPLICABILITY OF PROVISIONS OF SECTION 115JB TO A FOREIGN BANK WHICH WAS SUBJECT TO TAX IN INDIA ON INCOME EA RNED BY THE BRANCH IN INDIA (PE)AND PREPARING ITS ACCOUNTS AS PER REQUIRE MENTS OF BANKING REGULATION ACT. THE TRIBUNAL WHILE FOLLOWING THE PR INCIPLES LAID DOWN BY THE SUPREME COURT IN VATIKA TOWNSHIP (SUPRA) OBSERV ED THAT THE AMENDMENT TO SECTION 115JB OF THE ACT BY THE FINANCE ACT, 201 2 WAS PROSPECTIVE SINCE THE SAME RESULTED IN SUBSTANTIAL CHANGE IN COMPUTAT ION PROVISIONS. 22.30 TO THE SAME EFFECT ARE THE FOLLOWING DECIS IONS, WHEREIN AMENDMENT TO SUB-SECTION (2) OF SECTION 115JB OF THE ACT VIDE FINANCE ACT 2012 HAS BEEN HELD TO BE PROSPECTIVE: - STATE BANK OF HYDERABAD V. DCIT: ITA NO. 578/HYD./2 010 (HYD.) - ICICI LOMBART GENERAL INSURANCE CO. LTD. V. ACIT: 5 4 SOT 538 (MUM.) 22.31 APPLYING THE AFORESAID LEGAL PRINCIPLES, T HE FINANCE ACT, 2012, IN NO UNCERTAIN TERMS, CLEARLY PROVIDES THAT THE PROVISIO N OF SECTION 115JB(2) AND EXPLANATION 3 TO SAID SUB-SECTION SHALL COME IN FOR CE WITH EFFECT FROM APRIL 1, 2013 AND WILL ACCORDINGLY APPLY IN RELATION TO T HE ASSESSMENT YEAR 2013- 14 AND ONWARDS. MEANING THEREBY, THE AMENDMENT IS S PECIFICALLY MADE APPLICABLE PROSPECTIVELY AND NOT RETROSPECTIVELY, C ONTENDED THE LEARNED AR. 76 22.32 FURTHERMORE, SECTION 115JB OF THE ACT IS A DEEMING PROVISION WHICH RESULTS IN AN ASSESSEE HAVING TO PAY TAX, OTHERWISE NOT PAYABLE, ON ARTIFICIAL INCOME. THE SAID SECTION SHOULD, THEREFORE, BE CONS TRUED AND INTERPRETED STRICTLY, VIZ, IN A MANNER THAT LEAVES THE ASSESSEE WITH A LOWER BURDEN OF HAVING TO BEAR AN ARTIFICIAL TAX LIABILITY CONTENDE D THE LEARNED AR. 22.33 IT IS A WELL-KNOWN PRINCIPLE OF INTERPRETA TION OF FISCAL STATUTES THAT IN THE EVENT OF ANY DOUBT IN REGARD TO INTERPRETATION, PARTICULARLY IN CASES OF TAXATION BY EMPLOYING LEGAL FICTION, THE BENEFIT OF DOUBT, IF ANY, SHOULD BE GIVEN TO THE ASSESSEE AND THE INTERPRETATION BENEFI CIAL TO THE TAXPAYER SHOULD BE ACCEPTED. REFERENCE WAS MADE TO THE FOLLOWING CA SES: - CIT V. VEGETABLE PRODUCTS LTD.: 88 ITR 192 (SC) - CIT VS. J.K.HOSIERY FACTORY : 159 ITR 85 (SC) - ACIT V. THANTHI TRUST: 247 ITR 785 (SC) - UOI V. ONKAR KANWAR : 258 ITR 761 (SC) - CIT V. A. J. ABRAHAM ANTHRAPER : 268 ITR 417 (KER) - VIJAY OMPRAKASH BANSAL V. CIT : 257 ITR 649 (BOM) - CIT V. L.G BALAKRISHNAN: 255 ITR 339 (MAD) - CIT V. QUANTAS AIRLINES LTD.: 256 ITR 84 (DEL) SOUTHERN ROADWAYS LTD. VS. CWT: 251 ITR 213 (MAD) 22.34 HAVING REGARD TO THE LEGAL POSITION DISCUSSED SUPRA , THE LEARNED AR SUBMITTED THAT THE PROVISIONS OF SECTION 115JB OF T HE ACT WERE NOT AT ALL APPLICABLE TO COMPANIES GOVERNED BY SPECIAL ACTS (W HICH INCLUDES POWER 77 COMPANIES) IN RESPECT OF ASSESSMENT YEARS FALLING P RIOR TO APRIL 1, 2013 AND THEREBY THE APPELLANT WAS NOT LIABLE TO PAY TAX UND ER THE PROVISIONS OF THE SAID SECTION FOR THE ASSESSMENT YEAR UNDER CONSIDER ATION. EVEN THOUGH THE APPELLANT, UNDER A MISCONCEPTION OF LAW, HAD DECLAR ED INCOME UNDER THE DEEMING PROVISIONS OF SECTION 115JB OF THE ACT, STI LL THE ASSESSING OFFICER WAS UNDER DUTY TO CORRECTLY ASSESS INCOME OF THE AP PELLANT IN ACCORDANCE WITH THE PROVISIONS OF THE ACT. 23. THE LEARNED CIT(DR) ON THE OTHER HAND TRIED TO JUSTIFY THE ACTION OF THE ASSESSING OFFICER IN FRAMING THE ASSESSMENT UND ER SEC. 115JB OF THE ACT. HE SUBMITTED THAT THE DECISIONS RELIED UPON BY THE LEARNED AR HAVING DISTINGUISHABLE FACTS ARE NOT APPLICABLE IN THE CAS E OF THE ASSESSEE. HE POINTED OUT THAT THE ASSESSEE ITSELF HAD DECLARED I NCOME UNDER THE DEEMING PROVISIONS OF SEC. 115JB OF THE ACT, THUS, THE ASSE SSEE HAS NO GRIEVANCE IN THIS REGARD AND THE ISSUE RAISED IN THE ADDITIONAL GROUND MAY BE DECIDED IN FAVOUR OF THE REVENUE. 24. WE FIND THAT IN SUPPORT OF THE ISSUE THAT DEEMI NG PROVISIONS OF SEC. 115JB OF THE ACT WERE NOT APPLICABLE IN THE CASE OF THE ASSESSEE DURING THE ASSESSMENT YEAR UNDER CONSIDERATION, THE LEARNED AR HAS CITED PROVISIONS OF 78 DIFFERENT LAWS AND HAS PLACED RELIANCE ON SEVERAL D ECISIONS. WE THUS PREFER TO EXAMINE PROVISIONS OF DIFFERENT LAWS ON THE ISSUE F IRST. IT WAS CLAIMED THAT BOOKS OF ACCOUNT OF THE ASSESSEE ARE DRAWN IN ACCOR DANCE WITH THE STATUTORY PROVISIONS AS APPLIED TO AN ELECTRICITY COMPANY, I. E. THE REPEALED ELECTRICITY (SUPPLY) ACT, 1948 AND THE DELHI ELECTRICITY REFORM S (TRANSFER SCHEME) RULES, 2001 AND PROVISIONS OF THE COMPANIES ACT, 19 56 TO THE EXTENT THE SAME ARE NOT INCONSISTENT WITH THE ELECTRICITY ACT/ DERC REGULATION. IT WAS SUBMITTED IN OTHER WORDS THAT IN CASE OF ANY VARIAT ION/CONFLICT IN THE AFORESAID PROVISIONS, THE ASSESSEE IS BOUND TO MAND ATORILY FOLLOW/ADOPT THE SPECIFIC PROVISIONS OF ELECTRICITY ACT/DERC REGULAT ION, WHICH ARE SPECIFICALLY RELATED TO ITS AREA OF OPERATIONS, ALT HOUGH THE BASIC FORM FOR PREPARATION AND PRESENTATION OF ACCOUNTS WOULD BE P RESCRIBED BY SCHEDULE- VI TO THE COMPANIES ACT. IT WAS SUBMITTED THAT OVER RIDING MANDATE OF ELECTRICITY ACT, 2003 IN RESPECT OF ELECTRICITY COM PANY VIS--VIS OTHER ACTS, IS SPECIFICALLY PROVIDED IN SEC. 174 OF THE ELECTRI CITY ACT, 2003. 24.1 FOR A READY REFERENCE, THE PROVISIONS LAID DOW N UNDER SEC. 174 OF THE ELECTRICITY ACT, 2003 ARE REPRODUCED HEREUNDER: S.174 SAVE AS OTHERWISE PROVIDED IN SECTION 173, THE PROV ISIONS OF THIS ACT SHALL HAVE EFFECT NOTWITHSTANDING ANYTHING INCONSISTENT T HEREWITH CONTAINED IN ANY OTHER LAW FOR THE TIME BEING IN FORCE OR IN ANY INSTRUMEN T HAVING EFFECT BY VIRTUE OF ANY LAW OTHER THAN THIS ACT. 79 24.2 PERUSAL OF THE ABOVE PROVISIONS MAKE IT CLEAR THAT THESE PROVISIONS SHALL OVERRIDE THE PROVISIONS OF ALL OTHER ACTS. TH E LEARNED AR HAS ALSO REFERRED THE PROVISIONS LAID DOWN UNDER SEC. 616 OF THE COMPANIES ACT, 1956 TO SUPPORT HIS CONTENTION THAT EVEN THE COMPANIES A CT, 1956 AND THE COMPANIES ACT, 2013 (SECTION 1(4) ) ALSO PROVIDED/P ROVIDES THAT THE PROVISIONS OF THE SAID ACT WOULD APPLY IN RESPECT O F AN ELECTRICITY COMPANY ONLY IN SO FAR AS THE SAID PROVISIONS ARE NOT INCON SISTENT WITH THE ELECTRICITY ACT. FOR A READY REFERENCE, THE AFORESAID PROVISION S OF THE COMPANIES ACT, 1956 AND THE COMPANIES ACT, 2013 ARE BEING REPRODUC ED HEREUNDER: SECTION 616 OF THE COMPANIES ACT, 1956 : 616. APPLICATION OF ACT TO INSURANCE, BANKING, ELEC TRICITY SUPPLY AND OTHER COMPANIES GOVERNED BY SPECIAL ACTS. THE PROVISIONS OF THIS ACT SHALL APPLY -- (A) TO INSURANCE COMPANIES, EXCEPT IN SO FAR AS THE SAID PROVISIONS ARE INCONSISTENT WITH THE PROVISIONS OF THE INSURANCE ACT, 1938 ; (4 OF 1938 .) (B) TO BANKING COMPANIES, EXCEPT IN SO FAR AS THE S AID PROVISIONS ARE INCONSISTENT WITH THE PROVISIONS OF THE BANK- ING COMPANIES ACT, 1949 ; (10 OF 1949 .) (C) TO COMPANIES ENGAGED IN THE GENERATION OR SUPPL Y OF ELECTRICITY, EXCEPT IN SO FAR AS THE SAID PROVISIONS ARE INCONSISTENT WITH TH E PROVISIONS OF THE INDIAN ELECTRICITY ACT, 1910, (9 OF 1910) OR] THE ELECTRIC ITY SUPPLY ACT, 1948 ; (54 OF 1948 .) (D) TO ANY OTHER COMPANY GOVERNED BY ANY SPECIAL AC T FOR THE TIME BEING IN FORCE, EXCEPT IN SO FAR AS THE SAID PROVISIONS ARE INCONSI STENT WITH THE PROVISIONS OF SUCH SPECIAL ACT; (E) TO SUCH BODY CORPORATE, INCORPORATED BY ANY ACT FOR THE TIME BEING IN FORCE, AS THE CENTRAL GOVERNMENT MAY, BY NOTIFICATION IN THE OFFICIAL GAZETTE, SPECIFY IN THIS BEHALF, SUBJECT TO SUCH EXCEPTIONS, MODIFICATIONS O R ADAPTATIONS, AS MAY BE SPECIFIED IN THE NOTIFICATION.] APPLICATION OF ACT TO GOVERNMENT COMPANIES FURTHER, SECTION 1(4) OF THE COMPANIES ACT, 2013 RE ADS AS UNDER: 1. SHORT TITLE, EXTENT, COMMENCEMENT AND APPLICATI ON 80 (1) THIS ACT MAY BE CALLED THE COMPANIES ACT, 2013. .. (4) THE PROVISIONS OF THIS ACT SHALL APPLY TO (A) COMPANIES INCORPORATED UNDER THIS ACT OR UNDER ANY PREVIOUS COMPANY LAW; (B) INSURANCE COMPANIES, EXCEPT IN SO FAR AS THE SA ID PROVISIONS ARE INCONSISTENT WITH THE PROVISIONS OF THE INSURANCE ACT, 1938 OR T HE INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY ACT, 1999; (C) BANKING COMPANIES, EXCEPT IN SO FAR AS THE SAID PROVISIONS ARE INCONSISTENT WITH THE PROVISIONS OF THE BANKING REGULATION ACT, 1949; (D) COMPANIES ENGAGED IN THE GENERATION OR SUPPLY O F ELECTRICITY, EXCEPT IN SO FAR AS THE SAID PROVISIONS ARE INCONSISTENT WITH THE PR OVISIONS OF THE ELECTRICITY ACT, 2003; (E) ANY OTHER COMPANY GOVERNED BY ANY SPECIAL ACT F OR THE TIME BEING IN FORCE, EXCEPT IN SO FAR AS THE SAID PROVISIONS ARE INCONSI STENT WITH THE PROVISIONS OF SUCH SPECIAL ACT; AND (F) SUCH BODY CORPORATE, INCORPORATED BY ANY ACT FO R THE TIME BEING IN FORCE, AS THE CENTRAL GOVERNMENT MAY, BY NOTIFICATION, SPECIFY IN THIS BEHALF, SUBJECT TO SUCH EXCEPTIONS, MODIFICATIONS OR ADAPTATION, AS MAY BE SPECIFIED IN THE NOTIFICATION. 24.3 ON PERUSAL OF THE ABOVE PROVISIONS OF THE COMP ANIES ACT, WE FIND SUBSTANCE IN THE CONTENTION OF THE LEARNED AR THAT THE PROVISIONS OF THE ACT WOULD APPLY IN RESPECT OF AN ELECTRICITY COMPANY ON LY IN SO FAR AS THE SAID PROVISIONS ARE NOT INCONSISTENT WITH THE ELECTRICIT Y ACT. 24.4 THE LEARNED AR HAS ALSO REFERRED THE PROVISION S LAID DOWN UNDER SEC. 181 OF THE ELECTRICITY ACT WITH THIS SUBMISSION THA T THE SAID PROVISIONS PROVIDE POWER TO THE STATE COMMISSION TO MAKE REGUL ATION. FOR A READY REFERENCE, RELEVANT EXTRACTS OF SECTION 180 OF THE ELECTRICITY ACT, 2003 IS BEING REPRODUCED HEREUNDER: 180. POWERS OF STATE COMMISSIONS TO MAKE REGULATION S . 81 (1) THE STATE COMMISSIONS MAY, BY NOTIFICATION, MAK E REGULATIONS CONSISTENT WITH THIS ACT AND THE RULES GENERALLY TO CARRY OUT THE P ROVISIONS OF THIS ACT. (2) IN PARTICULAR AND WITHOUT PREJUDICE TO THE GENE RALITY OF THE POWER CONTAINED IN SUB-SECTION (1), SUCH REGULATIONS MAY PROVIDE FOR A LL OR ANY OF THE FOLLOWING MATTERS, NAMELY: (A) PERIOD TO BE SPECIFIED UNDER THE FIRST PROVISO OF SECTION 14; (B) THE FORM AND THE MANNER OF APPLICATION UNDER SU B-SECTION (1) OF SECTION 15; .. (ZC) THE TERMS AND CONDITIONS FOR THE DETERMINATION OF TARIFF UNDER SECTION 61; (ZG) ISSUE OF TARIFF ORDER WITH MODIFICATIONS OR CO NDITIONS UNDER SUBSECTION(3) OF SECTION 64; (ZO) ANY OTHER MATTER WHICH IS TO BE, OR MAY BE, SP ECIFIED. (3) ALL REGULATIONS MADE BY THE STATE COMMISSION UN DER THIS ACT SHALL BE SUBJECT TO THE CONDITION OF PREVIOUS PUBLICATION. 24.5 ON PERUSAL OF THE ABOVE PROVISIONS, WE CONCUR WITH THE SUBMISSION OF THE ASSESSEE THAT UNDER THE ELECTRICITY ACT, 2003, THE STATE COMMISSION IS EMPOWERED TO MAKE REGULATIONS. IN VIEW OF THE ABOVE DISCUSSED PROVISIONS OF ELECTRICITY ACT, 2003 AND COMPANIES ACT, IT IS C LEAR THAT THE VERY BASIS OF RECOGNITION OF REVENUE AND EXPENSE IS REGULATED BY THE DERC AND NOT STRICTLY AS PER THE PROVISIONS OF THE COMPANIES ACT . IT IS ALSO AN ESTABLISHED POSITION OF LAW THAT PROVISIONS OF A SPECIFIC ACT W OULD OVERRIDE THE PROVISIONS OF ALL OTHER ACTS, WHICH IS SUPPORTED BY THE DECISIONS RELIED UPON BY THE ASSESSEE INCLUDING THE DECISION SO HON'BLE S UPREME COURT IN THE CASE OF TRO VS. CUSTODIAN SPECIAL COURT AT 934 (SUPR A). THUS, IT CAN BE SAFELY ARRIVED AT A CONCLUSION THAT THE ASSESSEE PREPARES ITS ANNUAL ACCOUNT IN ACCORDANCE WITH THE APPLICABLE LAWS INCLUDING PROVI SIONS OF THE DELHI 82 ELECTRICITY REFORMS (TRANSFER SCHEME), RULE 2001 AN D IS NOT REQUIRED TO AND HAS NOT BEEN STRICTLY PREPARING ITS AUDITED ANNUAL ACCOUNT AS PER PARTS II AND III OF SCHEDULE-6 OF THE COMPANIES ACT, 1956. 24.6 FURTHER CONTENTION OF THE LEARNED AR REMAINED THAT PRIOR TO THE AMENDMENT TO SUB-SECTION (2) OF SEC. 115JB OF THE I NCOME-TAX ACT, 1961, THE DEEMING PROVISIONS OF THE SAID SECTION WERE NOT APP LICABLE TO COMPANIES TO WHICH PROVISO TO SUB-SECTION (2) OF SEC. 211 OF THE COMPANIES ACT WERE ABOLISHED. TO EXAMINE THIS CONTENTION, WE HAVE GONE THROUGH THE PROVISIONS OF SEC. 115JB OF THE INCOME-TAX ACT, 1961, AS APPLI CABLE TO THE RELEVANT YEAR UNDER CONSIDERATION, REPRODUCED HEREUNDER: SPECIAL PROVISION FOR PAYMENT OF TAX BY CERTAIN CO MPANIES. 115JB. (1) NOTWITHSTANDING ANYTHING CONTAINED IN A NY OTHER PROVISION OF THIS ACT, WHERE IN THE CASE OF AN ASSESSEE, BEING A COMPANY, THE INCOME-TAX, PAYABLE ON THE TOTAL INCOME AS COMPUTED UNDER THIS ACT IN RESPECT OF ANY PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR COMMENCING ON OR AFTER THE 1ST DAY OF APRIL, 2001, IS LESS THAN SEVEN AND ONE-HALF PER CENT OF ITS BOOK PROFIT ,SUCH BOOK PROFIT SHALL BE DEEMED TO BE THE TOTAL INCOME OF THE ASSESSEE AND THE TAX PAYABLE BY THE ASSESSEE ON SUCH TOTAL INCOME SHALL BE THE AMOUNT OF INCOME-TAX AT T HE RATE OF SEVEN AND ONE-HALF PER CENT. (2) EVERY ASSESSEE, BEING A COMPANY, SHALL, FOR THE PURPOSES OF THIS SECTION, PREPARE ITS PROFIT AND LOSS ACCOUNT FOR THE RELEVANT PREVIO US YEAR IN ACCORDANCE WITH THE PROVISIONS OF PARTS II AND III OF SCHEDULE VI TO TH E COMPANIES ACT, 1956 (1 OF 1956) .. . 83 24.7 ON THE READING OF ABOVE PROVISIONS LAID DOWN U NDER SEC. 115JB OF THE ACT RELEVANT FOR THE YEAR, WE FIND THAT THE PROVISI ONS ARE APPLIED DURING THE RELEVANT YEAR ONLY TO THE COMPANIES REQUIRED UNDER THE LAW, TO PREPARE ITS PROFIT AND LOSS ACCOUNT IN ACCORDANCE WITH PARTS-II AND III OF SCHEDULE-VI OF THE COMPANIES ACT AND NOT OTHERWISE. 24.8 THE LEARNED AR IN HIS SUBMISSION HAS ALSO REPR ODUCED HEREINABOVE THE SPEECH OF HONBLE FINANCE MINISTER WHILE REINTR ODUCING THE MAT PROVISIONS VIDE FINANCE BILL, 1996 220 ITR (STATU TE) 107 WITH THE SUBMISSION THAT THE LEGISLATURE INTENDED TO EXCLUDE IT FROM THE PURVIEW OF MAT PROVISIONS UNDER SEC. 115JA OF THE ACT (WHICH W ERE PARA MATERIA TO SEC. 115JB OF THE ACT ) COMPANIES ENGAGED, INTER AL IA, IN THE POWER SECTOR WHICH WERE GOVERNED BY A SPECIAL STATUTE, WHICH ALS O REGULATES THE MANNER IN WHICH ACCOUNTS FOR SUCH COMPANIES WERE TO BE PRE PARED. HAVING GONE THROUGH THE SAID SPEECH OF THE HONBLE FINANCE MINI STER, WE CONCUR WITH THE ABOVE SUBMISSION OF THE ASSESSEE ABOUT THE INTENTIO N OF THE LEGISLATURE. 24.9 IN VIEW OF THE ABOVE DISCUSSION, WE AGREE WITH THE SUBMISSION OF THE LEARNED AR THAT THE ASSESSEE IS GOVERNED BY THE PRO VISIONS OF THE ELECTRICITY ACT, 2003 AND ACCORDINGLY SUPPOSED TO PREPARE ITS A NNUAL ACCOUNTS IN 84 ACCORDANCE WITH THE APPLICABLE ELECTRICITY ACT/DERC REGULATION, WHICH ARE BINDING AND MANDATORY TO BE FOLLOWED BY THE ASSESSE E. 24.6 THE CITED DECISIONS BY THE LEARNED AR IN THE C ASES OF KERALA STATE ELECTRICITY BOARD, VS. DCIT (SUPRA), MAHARASHTRA ST ATE ELECTRICITY BOARD VS. JCIT (SUPRA), RELIANCE ENERGY LTD. VS. ACIT (SUPRA) AND CRUNG THAI BANK PCL VS. JDIT (SUPRA) ALSO SUPPORT THE CONTENTION OF THE ASSESSEE THAT PROVISIONS OF SEC. 115JB OF THE ACT SHALL NOT APPLY TO COMPANIES REFERRED IN PROVISO TO SUB-SECTIONS (1) AND (2) OF SEC. 211 OF THE COMPANIES ACT, I.E. COMPANIES COVERED BY SPECIAL ACTS VIZ. BANKING REGU LATION ACT, 1949, ELECTRICITY ACT, 2003, INSURANCE REGULATORY ACT, 19 99 ETC. WE ACCORDINGLY HOLD THAT PROVISIONS OF SEC. 115JB OF THE ACT WERE NOT APPLICABLE TO THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION AS THE SAME IS ALSO FORTIFIED BY SUBSTANTIVE AMENDMENTS IN SECTION 115JB OF THE ACT BY THE FINANCE ACT, 2012 W.E.F. 01.04.2013. SUB-SECTION (2) TO SECTION 115JB OF THE ACT AS SUBSTITUTED BY THE FINANCE ACT, 2012 W.E.F. 01.04.2 013 READS AS UNDER: SPECIAL PROVISION FOR PAYMENT OF TAX BY CERTAIN CO MPANIES 115JB. (1) NOTWITHSTANDING ANYTHING CONTAINED IN AN Y OTHER PROVISION OF THIS ACT, WHERE IN THE CASE OF AN ASSESSEE, BEING A COMPANY, THE INCOME-TAX, PAYABLE ON THE TOTAL INCOME AS COMPUTED UNDER THIS ACT IN RESPECT OF ANY PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR COMMENCING ON OR AFTER THE 1ST DAY OF APRIL, 2012, IS LESS THAN EIGHTEEN AND ONE-HALF PER CENT OF ITS BOOK PRO FIT, SUCH BOOK PROFIT SHALL BE DEEMED TO BE THE TOTAL INCOME OF THE ASSESSEE AND T HE TAX PAYABLE BY THE ASSESSEE ON SUCH TOTAL INCOME SHALL BE THE AMOUNT OF INCOME- TAX AT THE RATE OF EIGHTEEN AND ONE-HALF PER CENT. (2) EVERY ASSESSEE, 85 (A) BEING A COMPANY, OTHER THAN A COMPANY REFERRED TO IN CLAUSE (B), SHALL, FOR THE PURPOSES OF THIS SECTION, PREPARE ITS PROFIT AND LO SS ACCOUNT FOR THE RELEVANT PREVIOUS YEAR IN ACCORDANCE WITH THE PROVISIONS OF PART II OF SCHEDULE VI TO THE COMPANIES ACT, 1956 (1 OF 1956); OR (B) BEING A COMPANY, TO WHICH THE PROVISO TO SUB-SE CTION (2) OF SECTION 211 OF THE COMPANIES ACT, 1956 (1 OF 1956) IS APPLICABLE, SHAL L, FOR THE PURPOSES OF THIS SECTION, PREPARE ITS PROFIT AND LOSS ACCOUNT FOR TH E RELEVANT PREVIOUS YEAR IN ACCORDANCE WITH THE PROVISIONS OF THE ACT GOVERNING SUCH COMPANY . 24.7 SIMULTANEOUSLY, EXPLANATION 3 TO AFORESAID S UB-SECTION (2) OF SECTION 115JB OF THE ACT WAS INSERTED BY FINANCE ACT, 2012 W.E.F. 01.04.2013 WHICH READS AS UNDER: EXPLANATION 3.FOR THE REMOVAL OF DOUBTS, IT IS HE REBY CLARIFIED THAT FOR THE PURPOSES OF THIS SECTION, THE ASSESSEE, BEING A COM PANY TO WHICH THE PROVISO TO SUB-SECTION (2) OF SECTION 211 OF THE COMPANIES ACT , 1956 (1 OF 1956) IS APPLICABLE, HAS, FOR AN ASSESSMENT YEAR COMMENCING ON OR BEFORE THE 1ST DAY OF APRIL, 2012, AN OPTION TO PREPARE ITS PROFIT AND LO SS ACCOUNT FOR THE RELEVANT PREVIOUS YEAR EITHER IN ACCORDANCE WITH THE PROVISI ONS OF PART II AND PART III OF SCHEDULE VI TO THE COMPANIES ACT, 1956 OR IN ACCORD ANCE WITH THE PROVISIONS OF THE ACT GOVERNING SUCH COMPANY . 24.8 WE THUS FIND THAT VIDE FINANCE ACT, 2012, THE SCOPE OF SECTION 115JB OF THE ACT WAS WIDEN SO AS TO INCLUDE COMPANIES PRE PARING PROFIT AND LOSS ACCOUNT IN ACCORDANCE WITH PROVISIONS OF THE RELEVA NT REGULATORY ACT. HOWEVER, THE AMENDMENTS BY THE FINANCE ACT, 2012 IM POSING NEW TAX BURDEN ON COMPANIES WHICH WAS OTHERWISE NOT PROVIDE D UNDER THE ACT, 86 WERE, IN NO UNCERTAIN TERMS, MADE IN PROVISIONS OF SEC.115JB (2) W.E.F. 01.04.2013. IN OTHER WORDS, THE DEEMING PROVISIONS ARE APPLICABLE TO COMPANIES GOVERNED BY SPECIAL ACT ONLY FROM ASSESSM ENT YEAR 2013-14 AND ONWARDS. THE MEMORANDUM EXPLAINING THE PROVISIONS O F THE FINANCE BILL, 2012- 240 ITR (ST.) 288 WHEREBY SUB-SECTION (2) OF SEC. 115JB WAS SUBSTITUTED PROVIDES THAT THE AMENDMENT IS APPLICAB LE W.E.F. 01.0.2013 I.E. FOR THE ASSESSMENT YEAR 2013-14 ONWARDS. THE RELEVA NT EXTRACTS OF THE MEMORANDUM HAS BEEN REPRODUCED HEREINABOVE IN THE S UBMISSIONS OF THE LEARNED AR. FROM THE AFORESAID AMENDMENTS, IT IS CL EAR THAT PRIOR TO AMENDMENT APPLICABLE FROM THE ASSESSMENT YEAR 2013- 14, PROVISIONS OF SEC. 115JB OF THE ACT WERE NOT APPLICABLE TO AN ELECTRIC ITY COMPANY SUCH AS THE ASSESSEE UP TO THE ASSESSMENT YEAR 2012-13. 24.9 THE EXPLANATION-3 TO SECTION 115JB OF THE ACT WHICH PROVIDES AN OPTION TO PREPARE ITS ACCOUNTS AS PER SCHEDULE-VI O F THE COMPANIES ACT OR THE GOVERNING LAW/SPECIAL ACT IN RESPECT OF ASSESSM ENT YEAR PRIOR TO 2013- 14, HAS ALSO BEEN INSERTED AS PER THE SUBSTANTIVE A MENDMENTS APPLICABLE FROM ASSESSMENT YEAR 2013-14 AND ONWARDS. THE AMEND MENTS TO SECTION 115JB OF THE ACT MADE BY FINANCE ACT, 2012 ARE SUBS TANTIVE IN NATURE RESULTING IN FRESH LIABILITY TO TAX AND WOULD, THER EFORE, APPLY ONLY 87 PROSPECTIVELY. THE SAME CANNOT UNLESS SPECIFICALLY MANDATED BY THE STATUTE, BE APPLIED FROM RETROSPECTIVE EFFECT. IN THIS REGAR D, WE FIND SUPPORT FROM THE RATIOS LAID DOWN BY THE HON'BLE SUPREME COURT IN TH E CASE OF CIT VS. VATIKA TOWNSHIP PVT. LTD. (SUPRA), WHEREIN THE HON'BLE SUP REME COURT HAS BEEN PLEASED TO DISCUSS ELABORATELY THE GENERAL PRINCIPL ES CONCERNING INTERPRETATION OF AMENDMENTS WITH RETROSPECTIVE EFF ECT. THE RELEVANT EXCERPTS OF THE OBSERVATIONS OF THE HON'BLE SUPREME COURT AR E BEING REPRODUCED HEREUNDER: GENERAL PRINCIPLES CONCERNING RETROSPECTIVITY .. 31. OF THE VARIOUS RULES GUIDING HOW A LEGISLATION HAS TO BE INTERPRETED, ONE ESTABLISHED RULE IS THAT UNLESS A CONTRARY INTENTIO N APPEARS, A LEGISLATION IS PRESUMED NOT TO BE INTENDED TO HAVE A RETROSPECTIVE OPERATION. THE IDEA BEHIND THE RULE IS THAT A CURRENT LAW SHOULD GOVERN CURRENT AC TIVITIES. LAW PASSED TODAY CANNOT APPLY TO THE EVENTS OF THE PAST. IF WE DO SOMETHING TODAY, WE DO IT KEEPING IN VIEW THE LAW OF TODAY AND IN FORCE AND NOT TOMORROWS BA CKWARD ADJUSTMENT OF IT. OUR BELIEF IN THE NATURE OF THE LAW IS FOUNDED ON THE B ED ROCK THAT EVERY HUMAN BEING IS ENTITLED TO ARRANGE HIS AFFAIRS BY RELYING ON THE E XISTING LAW AND SHOULD NOT FIND THAT HIS PLANS HAVE BEEN RETROSPECTIVELY UPSET. THIS PRI NCIPLE OF LAW IS KNOWN AS LEXPROSPICIT NON RESPICIT: LAW LOOKS FORWARD NOT BA CKWARD. AS WAS OBSERVED IN PHILLIPS VS. EYRE (1870) LR 6 QB 1, A RETROSPECTIVE LEGISLATION IS CONTRARY TO THE GENERAL PRINCIPLE THAT LEGISLATION BY WHICH THE CON DUCT OF MANKIND IS TO BE REGULATED WHEN INTRODUCED FOR THE FIRST TIME TO DEA L WITH FUTURE ACTS OUGHT NOT TO CHANGE THE CHARACTER OF PAST TRANSACTIONS CARRIED O N UPON THE FAITH OF THE THEN EXISTING LAW. 32. THE OBVIOUS BASIS OF THE PRINCIPLE AGAINST RETR OSPECTIVITY IS THE PRINCIPLE OF 'FAIRNESS, WHICH MUST BE THE BASIS OF EVERY LEGAL RULE AS WAS OBSERVED IN THE DECISION REPORTED IN LOFFICE CHERIFIEN DES PHOSPHA TES V. YAMASHITA-SHINNIHON STEAMSHIP CO.LTD (1994) 1 AC 486. THUS, LEGISLATION S WHICH MODIFIED ACCRUED RIGHTS OR WHICH IMPOSE OBLIGATIONS OR IMPOSE NEW DU TIES OR ATTACH A NEW DISABILITY HAVE TO BE TREATED AS PROSPECTIVE UNLESS THE LEGISL ATIVE INTENT IS CLEARLY TO GIVE THE ENACTMENT A RETROSPECTIVE EFFECT; UNLESS THE LEGISL ATION IS FOR PURPOSE OF SUPPLYING AN OBVIOUS OMISSION IN A FORMER LEGISLATION OR TO E XPLAIN A FORMER LEGISLATION . WE NEED NOT NOTE THE CORNUCOPIA OF CASE LAW AVAILABLE ON THE SUBJECT BECAUSE AFORESAID LEGAL POSITION CLEARLY EMERGES FROM THE V ARIOUS DECISIONS AND THIS LEGAL 88 POSITION WAS CONCEDED BY THE COUNSEL FOR THE PARTIE S. IN ANY CASE, WE SHALL REFER TO FEW JUDGMENTS CONTAINING THIS DICTA, A LITTLE LATER . .. THUS, THE RULE AGAINST RETROSPECTIVE OPERATION IS A FUNDAMENTAL RULE OF LAW THAT NO STATUTE SHALL BE CONSTRUED TO HAVE A RETROSPECTIVE OPERATION UNLESS SUCH A CONSTRUCTION APPEARS VERY CLEARLY IN THE TERMS OF T HE ACT, OR ARISES BY NECESSARY AND DISTINCT IMPLICATION. DOGMATICALLY FRAMED, THE RULE IS NO MORE THAN A PRESUMPTION, AND THUS COULD BE DISPLACED BY OUT WEI GHING FACTORS. 35. LET US SHARPEN THE DISCUSSION A LITTLE MORE. WE MAY NOTE THAT UNDER CERTAIN CIRCUMSTANCES, A PARTICULAR AMENDMENT CAN BE TREATE D AS CLARIFICATORY OR DECLARATORY IN NATURE. SUCH STATUTORY PROVISIONS AR E LABELED AS DECLARATORY STATUTES. THE CIRCUMSTANCES UNDER WHICH A PROVISIO N CAN BE TERMED AS DECLARATORY STATUTES IS EXPLAINED BY JUSTICE G.P. SINGH7 IN THE FOLLOWING MANNER: DECLARATORY STATUTES: THE PRESUMPTION AGAINST RETR OSPECTIVE OPERATION IS NOT APPLICABLE TO DECLARATORY STATUTES. AS STATED IN CR AIES AND APPROVED BY THE SUPREME COURT : FOR MODERN PURPOSES A DECLARATORY ACT MAY BE DEFINED AS AN ACT TO REMOVE DOUBTS EXISTING AS TO THE COMMON LAW, OR THE MEANING OR EFFECT OF ANY STATUTE. SUCH ACTS ARE USUALLY HELD TO BE RETROSPEC TIVE. THE USUAL REASON FOR PASSING A DECLARATORY ACT IS TO SET ASIDE WHAT PARLIAMENT D EEMS TO HAVE BEEN A JUDICIAL ERROR, WHETHER IN THE STATEMENT OF THE COMMON LAW O R IN THE INTERPRETATION OF STATUTES. USUALLY, IF NOT INVARIABLY, SUCH AN ACT C ONTAINS A PREAMBLE, AND ALSO THE WORD 'DECLARED' AS WELL AS THE WORD 'ENACTED'. BUT THE USE OF THE WORDS 'IT IS DECLARED' IS NOT CONCLUSIVE THAT THE ACT IS DECLARA TORY FOR THESE WORDS MAY, AT TIMES, BE USED TO INTRODUCED NEW RULES OF LAW AND THE ACT IN THE LATTER CASE WILL ONLY BE AMENDING THE LAW AND WILL NOT NECESSARILY BE RETROS PECTIVE. IN DETERMINING, THEREFORE, THE NATURE OF THE ACT, REGARD MUST BE HA D TO THE SUBSTANCE RATHER THAN TO THE FORM. IF A NEW ACT IS 'TO EXPLAIN' AN EARLIER A CT, IT WOULD BE WITHOUT OBJECT UNLESS CONSTRUED RETROSPECTIVE. AN EXPLANATORY ACT IS GENERALLY PASSED TO SUPPLY AN OBVIOUS OMISSION OR TO CLEAR UP DOUBTS AS TO THE ME ANING OF THE PREVIOUS ACT. IT IS WELL SETTLED THAT IF A STATUTE IS CURATIVE OR MEREL Y DECLARATORY OF THE PREVIOUS LAW RETROSPECTIVE OPERATION IS GENERALLY INTENDED. THE LANGUAGE 'SHALL BE DEEMED ALWAYS TO HAVE MEANT' IS DECLARATORY, AND IS IN PLA IN TERMS RETROSPECTIVE. IN THE ABSENCE OF CLEAR WORDS INDICATING THAT THE AMENDING ACT IS DECLARATORY, IT WOULD NOT BE SO CONSTRUED WHEN THE PRE-AMENDED PROVISION WAS CLEAR AND UNAMBIGUOUS. AN AMENDING ACT MAY BE PURELY CLARIFICATORY TO CLEA R A MEANING OF A PROVISION OF THE PRINCIPAL ACT WHICH WAS ALREADY IMPLICIT. A CLA RIFICATORY AMENDMENT OF THIS NATURE WILL HAVE RETROSPECTIVE EFFECT AND, THEREFOR E, IF THE PRINCIPAL ACT WAS EXISTING LAW WHICH THE CONSTITUTION CAME INTO FORCE, THE AME NDING ACT ALSO WILL BE PART OF THE EXISTING LAW. THE ABOVE SUMMING UP IS FACTUALLY BASED ON THE JUDG MENTS OF THIS COURT AS WELL AS ENGLISH DECISIONS. 89 A CONSTITUTION BENCH OF THIS COURT IN KESHAVLALJETH ALAL SHAH V. MOHANLALBHAGWANDAS&ANR.( 1968) 3 SCR 623, WHILE CON SIDERING THE NATURE OF AMENDMENT TO SECTION 29(2) OF THE BOMBAY RENTS, HOT EL AND LODGING HOUSE RATES CONTROL ACT AS AMENDED BY GUJARAT ACT 18 OF 1965, O BSERVED AS FOLLOWS: THE AMENDING CLAUSE DOES NOT SEEK TO EXPLAIN ANY P RE-EXISTING LEGISLATION WHICH WAS AMBIGUOUS OR DEFECTIVE. THE POWER OF THE HIGH C OURT TO ENTERTAIN A PETITION FOR EXERCISING REVISIONAL JURIS-DICTION WAS BEFORE THE AMENDMENT DERIVED FROM S. 115, CODE OF CIVIL PROCEDURE, AND THE LEGISLATURE HAS BY THE AMENDING ACT ATTEMPTED TO EXPLAIN THE MEANING OF THAT PROVISION. AN EXPLANATO RY ACT IS GENERALLY PASSED TO SUPPLY AN OBVIOUS OMISSION OR TO CLEAR UP DOUBTS AS TO THE MEANING OF THE PREVIOUS ACT. 36. IT WOULD ALSO BE PERTINENT TO MENTION THAT ASSE SSMENT CREATES A VESTED RIGHT AND AN ASSESSEE CANNOT BE SUBJECTED TO REASSESSMENT UNL ESS A PROVISION TO THAT EFFECT INSERTED BY AMENDMENT IS EITHER EXPRESSLY OR BY NEC ESSARY IMPLICATION RETROSPECTIVE. (SEE CONTROLLER OF ESTATE DUTY GUJAR AT-I V. M.A. MERCHANT 1989 SUPP (1) SCC 499. WE WOULD ALSO LIKE TO REPRODUCE H EREUNDER THE FOLLOWING OBSERVATIONS MADE BY THIS COURT IN THE CASE OF GOVI NDDASV. INCOME-TAX OFFICER (1976) 1 SCC 906, WHILE HOLDING SECTION 171 (6) OF THE INCOME- TAX ACT TO BE PROSPECTIVE AND INAPPLICABLE FOR ANY ASSESSMENT YEA R PRIOR TO 1 ST APRIL, 1962, THE DATE ON WHICH THE INCOME TAX ACT CAME INTO FORCE: 11. NOW IT IS A WELL SETTLED RULE OF INTERPRETATIO N HALLOWED BY TIME AND SANCTIFIED BY JUDICIAL DECISIONS THAT, UNLESS THE TERMS OF A S TATUTE EXPRESSLY SO PROVIDE OR NECESSARILY REQUIRE IT, RETROSPECTIVE OPERATION SHO ULD NOT BE GIVEN TO A STATUTE SO AS TO TAKE AWAY OR IMPAIR AN EXISTING RIGHT OR CREATE A NEW OBLIGATION OR IMPOSE A NEW LIABILITY OTHERWISE THAN AS REGARDS MATTERS OF PROC EDURE. THE GENERAL RULE AS STATED BY HALSBURY IN VOL. 36 OF THE LAWS OF ENGLAND (3RD EDN.) AND REITERATED IN SEVERAL DECISIONS OF THIS COURT AS WELL AS ENGLISH COURTS I S THAT ALL STATUTES OTHER THAN THOSE WHICH ARE MERELY DECLARATORY OR WHICH RELATE ONLY T O MATTERS OF PROCEDURE OR OF EVIDENCE ARE PRIMA FACIE PROSPECTIVELY AND RETROSPE CTIVE OPERATION SHOULD NOT BE GIVEN TO A STATUTE SO AS TO AFFECT, ALTER OR DESTRO Y AN EXISTING RIGHT OR CREATE A NEW LIABILITY OR OBLIGATION UNLESS THAT EFFECT CANNOT B E AVOIDED WITHOUT DOING VIOLENCE TO THE LANGUAGE OF THE ENACTMENT. IF THE ENACTMENT IS EXPRESSED IN LANGUAGE WHICH IS FAIRLY CAPABLE OF EITHER INTERPRETATION, IT OUGHT T O BE CONSTUED AS PROSPECTIVE ONLY. 37. IN THE CASE OF C.I.T., BOMBAY V. SCINDIA STEAM NAVIGATION CO. LTD. (1962) 1 SCR 788, THIS COURT HELD THAT AS THE LIABILITY TO P AY TAX IS COMPUTED ACCORDING TO THE LAW IN FORCE AT THE BEGINNING OF THE ASSESSMENT YEAR, I.E., THE FIRST DAY OF APRIL, ANY CHANGE IN LAW AFFECTING TAX LIABILITY AFTER THA T DATE THOUGH MADE DURING THE CURRENCY OF THE ASSESSMENT YEAR, UNLESS SPECIFICALL Y MADE RETROSPECTIVE, DOES NOT APPLY TO THE ASSESSMENT FOR THAT YEAR. 90 24.6 SIMILAR VIEW HAS BEEN EXPRESSED BY THE HON'BLE SUPREME COURT IN THE OTHER CITED DECISIONS IN THE CASES OF S.S. GADGIL V S. LAL & CO. (SUPRA), SEDCO FOREX INTERNATIONAL DRILL INC. VS. CIT (SUPRA) ETC. THUS, IT IS CLEAR AND AN ESTABLISHED POSITION OF LAW THAT NO SECTION CAN BE INTERPRETED RETROSPECTIVELY UNLESS IS MENTIONED IN THE SECTION ITSELF. 24.7 THE DELHI BENCH OF THE ITAT IN THE CASE OF BAN K OF TOKYO MITSUBISHI UFJ LTD. VS. ADIT (SUPRA) WHILE FOLLOWIN G THE PRINCIPLES LAID DOWN BY THE HON'BLE SUPREME COURT IN VATIKA TOWNSHI P (SUPRA) OBSERVED THAT THE AMENDMENT TO SEC. 115JB OF THE ACT BY FINA NCE ACT, 2012 WAS PROSPECTIVE SINCE THE SAME RESULTED IN SUBSTANTIAL CHANGE IN COMPUTATION PROVISIONS. IN THAT CASE, THE ITAT WAS ADJUDICATIN G THE ISSUE REGARDING APPLICABILITY OF PROVISIONS OF SEC. 115JB OF THE AC T TO A FOREIGN BANK WHICH WAS SUBJECT TO TAX IN INDIA ON INCOME EARNED BY THE BRANCH IN INDIA (P.E) AND PREPARING ITS ACCOUNTS AS PER REQUIREMENTS OF B ANKING REGULATION ACT. THE RELEVANT FINDING IN THAT CASE ARE BEING REPRODU CED HEREUNDER: 74.IN OUR OPINION THIS EXPLANATION CANNOT BE HE LD TO BE RETROSPECTIVE IN OPERATION BECAUSE IT HAS BROUGHT I N A SUBSTANTIAL CHANGE IN THE COMPUTATION PROVISION. TILL THE INSER TION OF THIS AMENDMENT, VARIOUS DECISIONS CLEARLY HELD THAT IN C ASE OF BANKING COMPANIES, ELECTRICITY COMPANIES AND INSURANCE COMP ANIES, SINCE THEY WERE GOVERNED BY SPECIAL ACTS AND THE PROFIT A ND LOSS ACCOUNT WAS NOT PREPARED AS PER PART II OF SCHEDULE VI TO T HE COMPANIES ACT, THEREFORE, THE COMPUTATION PROVISIONS FAILED . ACCORDINGLY, IN VIEW OF 91 THE DECISION OF SUPREME COURT IN THE CASE OF B.C. S RINIVASA SETTY (SUPRA), THE LAW TILL THE INSERTION OF THIS EXPLANA TION WAS THAT THE PROVISIONS OF SECTION 115JB WERE NOT APPLICABLE ON ACCOUNT OF IMPOSSIBILITY OF COMPUTATION AS THE ACCOUNTS WERE N OT PREPARED IN ACCORDANCE WITH PART II, SCHEDULE VI TO THE COMPANI ES ACT. NOW BY INCORPORATING EXPLANATION 3, THE COMPANIES GOVERNED BY SPECIAL ACTS WHICH COME WITHIN THE AMBIT OF COMPANY U/S 2(17) AR E COVERED BY THE PROVISIONS OF SECTION 115JB. THEREFORE, THIS AMENDM ENT BRINGS SUBSTANTIAL CHANGE IN THE TAXABILITY OF COMPANIES G OVERNED BY THE SPECIAL ACTS AND, THEREFORE, CANNOT BE HELD TO BE R ETROSPECTIVE. IN THIS REGARD WE ALSO FIND STRENGTH FROM THE RATIO LAID DO WN BY THE SUPREME COURT IN ITS DECISION DATED 16.9.2014 IN THE CASE O F CIT V. VATIKA TOWNSHIP (P.) LTD. IN CIVIL APPEALS ARISING OUT OF SLP(C) NO. 1362 OF 2009 AND OTHERS. THE FIVE JUDGES BENCH OF THE SUPREME COURT STRIKES DOWN DIVISION BENCH RULING ON RETROSPECTIVE APPLICA BILITY OF PROVISO TO SECTION 113 OF THE INCOME TAX ACT HOLDING THE PR OVISO TO OPERATE PROSPECTIVELY. LAYING DOWN PERUSAL PRINCIPLES GOVER NING RETROSPECTIVITY, THE SUPREME COURT HAS BEEN PLEASED TO RULE THAT UNLESS CONTRARY INTENTION APPEARS, A LEGISLATION IS PRESUMED NOT TO BE INTENDED TO HAVE RETROSPECTIVE OPERATION, CURRENT L AW OUGHT TO GOVERN CURRENT ACTIVITIES, LAW PASSED TODAY CANNOT APPLY T O PAST EVENTS . 24.8 THE MUMBAI BENCH OF THE ITAT IN THE CASE OF R ELIANCE INSTRUMENTS LTD. VS. ACIT & ORS. (SUPRA) HAS ALSO EXPRESSED SIM ILAR VIEW. RELEVANT PARA NOS. 38 AND 39 ARE BEING REPRODUCED HEREUNDER: 38. HAVING HEARD THE RIVAL SUBMISSIONS AND AFTER P ERUSING THE RELEVANT MATERIAL ON RECORD WE FIND THAT THE TRIBUN AL IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2001-02 IN PARA 29 HAS HELD AS UNDER: AS DISCUSSED ABOVE, THE ASSESSEE IS FOLLOWING THE ACCOUNTING POLICIES WIDER THE ELECTRICITY SUPPLY ACT AND PREPA RED ITS ACCOUNTS IN VIEW OF THOSE VERY POLICIES. FOLLOWING THOSE VERY POLICIES, THE ACCOUNTS IN ACCORDANCE WITH PART II & III OF SCHEDULE VI OF THE COMPANIES ACT ARE NOT APPLICABLE AT ALL. ONCE THERE IS NO POSSIBILITY FOR PREPARING THE ACCO UNTS IN ACCORDANCE WITH THE PART II AND II OF SCHEDULE VI O F COMPANIES ACT THEN THE PROVISIONS OF SEC. 115JB CANNOT BE FOR CED. 92 THEREFORE, IN VIEW OF THE ABOVE FACTS AND CIRCUMSTA NCES AND RESPECTFULLY FOLLOWING THE ABOVE DECISIONS OF THE H ON'BLE SUPREME COURT AND THE DECISION OF THE TRIBUNAL FOR A.Y. 88-89, WE HOLD THAT PROVISIONS OF SEC. 115JB ARE NOT APPLI CABLE ON THE FACTS OF THE RELEVANT CASE. 39. SIMILAR VIEW HAS BEEN TAKEN BY THE TRIBUNAL IN ASSESSMENT YEARS 2002-03 AND 2003-04 AS HAS BEEN DISCUSSED IN PARA 14 OF THE SAID ORDER AND ALSO IN THE ORDER FOR A.Y. 2004-05. RESPECTFULLY FOLLOWING THE PRECEDENTS, WE ACCEPT THE ASSESSEES CLAIM AND HOLD THAT THE PROVISIONS OF SEC. 115JB CANNOT BE UPHELD. AGAIN THE BANGALORE BENCH OF THE ITAT IN THE CASE O F SYNDICATE BANK VS. DCIT (SUPRA) HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE, A BANKING COMPANY. RELEVANT PARA NOS. 98 & 99 THEREOF ARE BEI NG REPRODUCED HEREUNDER: 98. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF TH E LEARNED COUNSEL FOR THE ASSESSEE. WE FIND THAT THIS ISSUE W AS CONSIDERED BY THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF KRUNG T HAI BANK PCL (SUPRA) AND ON THE ABOVE ISSUE HELD AS FOLLOWS: 5. LEARNED COUNSEL FOR THE ASSESSEE, HOWEVER, CON TENDS THAT THE PROVISIONS OF MAT DO NOT APPLY TO THE ASSESSEE, AND, FOR THIS REASON, VERY FOUNDATION OF IMPUGNED REASSESSME NT PROCEEDINGS IS DEVOID OF LEGALLY SUSTAINABLE MERIT S. HIS LINE OF REASONING IS THIS. THE PROVISIONS OF MAT CAN COME I NTO PLAY ONLY WHEN THE ASSESSEE PREPARES ITS PROFIT AND LOSS ACCOUNT IN ACCORDANCE WITH SCHEDULE VI TO THE COMPANIES ACT. I T IS POINTED OUT THAT, IN TERMS OF THE PROVISIONS OF SEC . 115JB(2), EVERY ASSESSEE IS REQUIRED TO PREPARE ITS PROFIT AN D LOSS ACCOUNT IN TERMS OF THE PROVISIONS OF PART II AND III OF SC HEDULE VI TO THE COMPANIES ACT. UNLESS THE PROFIT AND LOSS IS SO PREPARED, THE PROVISIONS OF SEC. 115JB CANNOT COME INTO PLAY AT ALL. HOWEVER, THE ASSESSEE IS A BANKING COMPANY AND UNDE R PROVISO 93 TO SEC. 211(2) OF THE ACT, THE ASSESSEE IS EXEMPTED FROM PREPARING ITS BOOKS OF ACCOUNT IN TERMS OF REQUIREM ENTS OF SCHEDULE VI TO THE COMPANIES ACT, AND THE ASSESSEE IS TO PREPARE ITS BOOKS OF ACCOUNT IN TERMS OF THE PROVIS IONS OF BANKING REGULATION ACT. IT IS THUS, CONTENDED THAT THE PROVISIONS OF SEC. 115JB DO NOT APPLY IN THE CASE O F BANKING COMPANIES WHICH ARE NOT REQUIRED TO PREPARE THE PRO FIT AND LOSS ACCOUNT AS PER THE REQUIREMENTS OF PART II AND III OF SCHEDULE VI TO THE COMPANIES ACT. SINCE THE PROVISIONS OF SE C. 115JB DO NOT APPLY TO THE ASSESSEE COMPANY, THE REASONS RECO RDED FOR REOPENING THE ASSESSMENT ARE CLEARLY WRONG AND INSU FFICIENT. WE ARE URGED TO QUASH THE REASSESSMENT PROCEEDINGS ON THIS SHORT GROUND. 6. LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHE R HAND, VEHEMENTLY RELIES UPON THE ORDERS OF THE AUTHORITIE S BELOW AND SUBMITS THAT THERE IS NO SPECIFIC EXCLUSION CLAUSE FOR THE BANKING COMPANIES, AND IN THE ABSENCE OF SUCH A CLA USE, IT IS NOT OPEN TO US TO INFER THE SAME. THE SUBMISSION OF THE LEARNED COUNSEL, ACCORDING TO THE DEPARTMENTAL REPRESENTATI VE, ARE CLEARLY CONTRARY TO THE LEGISLATIVE INTENT AND PLAI N WORDING OF THE STATUTE. 7. THE PLEA OF THE ASSESSEE IS INDEED WELL TAKEN, AND IT MEETS OUR APPROVAL. THE PROVISIONS OF SEC. 115JB CA N ONLY COME INTO PLAY WHEN THE ASSESSEE IS REQUIRED TO PRE PARE ITS PROFIT AND LOSS ACCOUNT IN ACCORDANCE WITH THE PROV ISIONS OF PART II AND III OF SCHEDULE VI TO THE COMPANIES ACT . THE STARTING POINT OF COMPUTATION OF MINIMUM ALTERNATE TAX UNDER SEC.115JB IS THE RESULT SHOWN BY SUCH A PROFIT AND LOSS ACCOUNT. IN THE CASE OF BANKING COMPANIES, HOWEVER, THE PROV ISIONS OF SCHEDULE VI ARE NOT APPLICABLE IN VIEW OF EXEMPTION SET OUT UNDER PROVISO TO SEC. 211(2) OF THE COMPANIES ACT. THE FINAL ACCOUNTS OF THE BANKING COMPANIES ARE REQUIRED TO B E PREPARED IN ACCORDANCE WITH THE PROVISIONS OF THE BANKING RE GULATION ACT. THE PROVISIONS OF SECTION 115JB CANNOT THUS BE APPLIED TO THE CASE OF BANKING COMPANY. 94 THE HON'BLE KERALA HIGH COURT IN ITS RECENT DECISIO N IN THE CASE OF KERALA STATE ELECTRICITY BOARD VS. DCIT (2010) 329 ITR 9 1 (KER.) AFTER DETAILED DELIBERATION AND REFERRING THE CBDT UNDERSTANDING (CIRCULAR NO. 762 DATED 18.2.1998 230 ITR (STATUTE) - 12 ) THAT COMPANIES ENGAGED IN THE BUSINESS OF GENERATION AND DISTRIBUTION OF ELECTRICITY AND E NTERPRISES ENGAGED IN DEVELOPING, MAINTAINING AND OPERATING INFRA-STRUCTU RE FACILITY AS A MATTER OF POLICY, ARE NOT BROUGHT WITHIN THE PURVIEW OF THE A MENDMENT (115JA) FOR THE REASON THAT SUCH A POLICY WOULD PROMOTE THE INFRA-S TRUCTURAL DEVELOPMENT OF THE COUNTRY AND THAT SUCH AN UNDERSTANDING OF THE C BDT IS BINDING ON THE DEPARTMENT, HAS ALSO BEEN PLEASED TO ARRIVE AT A CO NCLUSION, RELEVANT PARAGRAPHS THEREOF ARE BEING REPRODUCED HEREUNDER: 11. BEFORE WE EXAMINE THE FIRST QUESTION A BRIEF SURVE Y OF THE HISTORY OF SECTION 115JB IS NECESSARY. CHAPTER XII-B WAS INSER TED BY THE FINANCE ACT OF 1987 IN THE INCOME-TAX ACT. SECTION 115J WAS INT RODUCED FOR THE FIRST TIME BY THE SAID CHAPTER. THE RELEVANT PORTION OF THE SA ID SECTION READS AS FOLLOWS: SECTION 115J. SPECIAL PROVISIONS RELATING TO CERTA IN COMPANIES.(1) NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PRO VISION OF THIS ACT, WHERE IN THE CASE OF AN ASSESSEE BEING A COMPANY (O THER THAN A COMPANY ENGAGED IN THE BUSINESS OF GENERATION OR DI STRIBUTION OF ELECTRICITY), THE TOTAL INCOME, AS COMPUTED UNDER T HIS ACT IN RESPECT OF ANY PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR C OMMENCING ON OR AFTER THE 1ST DAY OF APRIL, 1988 BUT BEFORE THE 1ST DAY OF APRIL, 1991 (HEREAFTER IN THIS SECTION REFERRED TO AS THE RELEV ANT PREVIOUS YEAR), IS LESS THAN THIRTY PER CENT OF ITS BOOK PROFIT, THE T OTAL INCOME OF SUCH ASSESSEE CHARGEABLE TO TAX FOR THE RELEVANT PREVIOU S YEAR SHALL BE DEEMED TO BE AN AMOUNT EQUAL TO THIRTY PER CENT OF SUCH BOOK PROFIT. 95 (1A) EVERY ASSESSEE, BEING A COMPANY, SHALL, FOR TH E PURPOSES OF THIS SECTION, PREPARE ITS PROFIT AND LOSS ACCOUNT FOR TH E RELEVANT PREVIOUS YEAR IN ACCORDANCE WITH THE PROVISIONS OF PARTS II AND III OF SCHEDULE VI TO THE COMPANIES ACT, 1956 (1 OF 1956) EXPLANATION.FOR THE PURPOSES OF THIS SECTION, BOO K PROFIT MEANS THE NET PROFIT AS SHOWN IN THE PROFIT AND LOSS ACCO UNT FOR THE RELEVANT PREVIOUS YEAR PREPARED UNDER SUB-SECTION (1A), AS I NCREASED BY IF ANY AMOUNT REFERRED TO IN CLAUSES (A ) TO (F) IS DEBITED OR, AS THE CASE MAY BE, THE AMOUNT REFERRED TO IN CLAUSES (G) AND ( H) IS NOT CREDITED TO THE PROFIT AND LOSS ACCOUNT, AND AS REDUCED BY,- IT CAN BE SEEN FROM CLAUSE (1 ) THAT THE PROVISION CREATES A LEGAL FICTION REGARDING THE TOTAL INCOME CHARGEABLE TO TAX. SUCH A FICTION IS APPLICABLE ONLY TO THOSE ASSESSEES WHICH - (A) ARE COMPANIES E XCEPT THE COMPANIES ENGAGED IN THE BUSINESS OF EITHER GENERATION OR DIS TRIBUTION OF ELECTRICITY, (B) THAT SUCH A FICTION IS MADE APPLICABLE TO THE COMPA NIES ONLY WITH REFERENCE TO THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEA R COMMENCING AFTER 1-4- 1988 AND ENDING WITH THE 1-4-1991, (C) THE TOTAL I NCOME OF THE COMPANY AS COMPUTED UNDER THE ACT IS LESS THAN THIRTY PER C ENT OF ITS BOOK PROFIT. THE FICTION BEING THAT THE TOTAL INCOME FOR THE PUR POSE OF ASSESSMENT SHALL BE DEEMED TO BE 30 PER CENT OF THE BOOK PROFIT. IN OTH ER WORDS, THE SECTION PRESCRIBES 30 PER CENT OF THE BOOK PROFITS OF THOSE COMPANIES FALLING WITHIN THE PURVIEW OF THE SECTION SHALL BE TREATED AS THE TOTAL INCOME OF THE COMPANY FOR THE PURPOSE OF INCOME-TAX, IRRESPECTIVE OF THE FACT THAT ACCORDING TO THE ACCOUNTS OF THE COMPANY THE TOTAL INCOME IS LESS THAN THIRTY PER CENT OF THE BOOK PROFIT. THE EXPRESSION BOOK PROFIT ITSELF IS EXPLAINED IN THE SECTION AS MEANING, THE NET PROFIT AS SHOWN IN THE PROFIT AND LOSS ACCOUNT FOR THE RELEVANT PREVIOUS YEAR PREPARE D AS PER THE PRESCRIPTION UNDER SUB-SECTION (1A) AND EITHER INCREASED OR DECR EASED BY VARIOUS AMOUNTS SPECIFIED IN THE VARIOUS SUBSEQUENT SUB-CLA USES APPENDED TO THE EXPLANATION, THE DETAILS OF WHICH ARE NOT NECES SARY FOR THE PURPOSE OF THIS CASE. HOWEVER, THE OPERATION OF SECTION 115J C AME TO AN END WITH 1991- 92 ASSESSMENT YEAR ONWARDS. 12. SUBSEQUENTLY, SECTION 115JA CAME TO BE INSERTED IN THE INCOME-TAX ACT BY FINANCE ACT 2 OF 1996, WITH EFFECT FROM 1-4-1997 . THE SCHEME OF SECTION 115JA IS ALMOST SIMILAR TO THE SCHEME OF SECTION 11 5J. TWO MAJOR POINTS OF 96 DIFFERENCE ARE THAT THE NEW SECTION IS APPLICABLE W ITH REFERENCE TO THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR COMME NCING FROM 1-4-1997 AND ENDING WITH 1-4-2001. SECONDLY, THE EXPRESS EXC LUSION OF THE COMPANIES ENGAGED IN THE BUSINESS OF EITHER GENERATION OR DIS TRIBUTION OF ELECTRICITY IS ABSENT UNDER SECTION 115JA. THE THIRD AND MOST IMPO RTANT CHANGE IS THAT TWO PROVISOS ARE ADDED TO SUB-SECTION (2) STIPULATI NG THAT : PROVIDED THAT WHILE PREPARING PROFIT AND LOSS ACCOUNT, THE DEPRECIATION SHALL BE CALCULATED ON THE SAME METHOD AND RATES WHICH HAVE BEEN ADOPTED FOR CALCULATING THE DEPRECIATION FOR THE PURPOSE OF PREPARING THE PROFIT AND LOSS ACCOUNT LAID BEFORE T HE COMPANY AT ITS ANNUAL GENERAL MEETING IN ACCORDANCE WITH THE PROVI SIONS OF SECTION 210 OF THE COMPANIES ACT, 1956 (1 OF 1956): PROVIDED FURTHER THAT WHERE A COMPANY HAS ADOPTED OR ADOPTS THE FINANCIAL YEAR UNDER THE COMPANIES ACT, 1956 (1 OF 1956), WHICH IS DIFFERENT FROM THE PREVIOUS YEAR UNDER THE ACT, THE METHOD AND RATES FOR CALCULATION OR DEPRECIATION SHALL CORRESPOND TO THE METHOD AND RATES WHICH HAVE BEEN ADOPTED FOR CALCULATING THE D EPRECIATION FOR SUCH FINANCIAL YEAR OR PART OF SUCH FINANCIAL YEAR FALLING WITHIN THE RELEVANT PREVIOUS YEAR. THE FURTHER DETAILS OF SECTION 115JA MAY NOT BE NEC ESSARY FOR THE PRESENT PURPOSE. 13. THEN CAME TO SECTION 115JB, WHICH WAS INSERTED IN THE INCOME-TAX ACT BY FINANCE ACT OF 2000 WITH EFFECT FROM 1-4-2001. T HE RELEVANT PORTION AS IT STANDS TODAY READS AS FOLLOWS: 115JB. SPECIAL PROVISION FOR PAYMENT OF TAX BY CER TAIN COMPANIES. (1) NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PROVISION OF THIS ACT, WHERE IN THE CASE OF AN ASSESSEE, BEING A COMP ANY, THE INCOME- TAX, PAYABLE ON THE TOTAL INCOME AS COMPUTED UNDER THIS ACT IN RESPECT OF ANY PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEA R COMMENCING ON OR AFTER THE 1ST DAY OF APRIL, 2007 IS LESS THAN TE N PER CENT OF ITS BOOK PROFIT, SUCH BOOK PROFIT SHALL BE DEEMED TO BE THE TOTAL INCOME OF THE ASSESSEE AND THE TAX PAYABLE BY THE ASSESSEE ON SUC H TOTAL INCOME SHALL BE THE AMOUNT OF INCOME-TAX AT THE RATE OF TEN PER CENT. (2) EVERY ASSESSEE, BEING A COMPANY SHALL FOR THE P URPOSES OF THIS SECTION, PREPARE ITS PROFIT AND LOSS ACCOUNT FOR TH E RELEVANT PREVIOUS 97 YEAR IN ACCORDANCE WITH THE PROVISIONS OF PARTS II AND III OF SCHEDULE VI TO THE COMPANIES ACT, 1956 (1 OF 1956): PROVIDED THAT WHILE PREPARING THE ANNUAL ACCOUNTS INCLUDING PROFIT AND LOSS ACCOUNT, (I )THE ACCOUNTING POLICIES; (II )THE ACCOUNTING STANDARDS FOLLOWED FOR PREPARIN G SUCH ACCOUNTS INCLUDING PROFIT AND LOSS ACCOUNT; (III)THE METHOD AND RATES ADOPTED FOR CALCULATING T HE DEPRECIATION SHALL BE THE SAME AS HAVE BEEN ADOPTED FOR THE PURP OSE OF PREPARING SUCH ACCOUNTS INCLUDING PROFIT AND LOSS A CCOUNT AND LAID BEFORE THE COMPANY AT ITS ANNUAL GENERAL MEETI NG IN ACCORDANCE WITH THE PROVISIONS OF SECTION 210 OF TH E COMPANIES ACT, 1956 (1 OF 1956): PROVIDED FURTHER THAT WHERE THE COMPANY HAS ADOPTED OR ADOPTS THE FINANCIAL YEAR UNDER THE COMPANIES ACT, 1956 (1 OF 1956), WHICH IS DIFFERENT FROM THE PREVIOUS YEAR UNDER THIS ACT, (I )THE ACCOUNTING POLICIES; (II )THE ACCOUNTING STANDARDS ADOPTED FOR PREPARING SUCH ACCOUNTS INCLUDING PROFIT AND LOSS ACCOUNT; (III)THE METHOD AND RATES ADOPTED FOR CALCULATING T HE DEPRECIATION, SHALL CORRESPOND TO THE ACCOUNTING POLICIES, ACCOUN TING STANDARDS AND THE METHOD AND RATES FOR CALCULATING THE DEPREC IATION WHICH HAVE BEEN ADOPTED FOR PREPARING SUCH ACCOUNTS INCLU DING PROFIT AND LOSS ACCOUNT FOR SUCH FINANCIAL YEAR OR PART OF SUCH FINANCIAL YEAR FAILING WITHIN THE RELEVANT PREVIOUS YEAR. THE SCHEME OF THE SECTION 115JB IS SIMILAR TO SECTI ON 115J AND SECTION 115JA. THE DIFFERENCE INSOFAR AS IT IS RELEVANT FOR THE PRESENT PURPOSE BETWEEN SECTION 115JB AND ITS FORE-RUNNERS (SECTION S 115J AND 115 JA) IS AS FOLLOWS: ALL THE 3 SECTIONS (SS.115J, 115JA AND 115JB) CREAT E LEGAL FICTIONS REGARDING THE TOTAL INCOME (A DEFINED EXPRESSION UNDER SECTION 2(45) OF THE ACT) OF THE COMPANIES. WHILE THE EARLIER TWO SECTIO NS MANDATE THE DEPARTMENT TO MAKE THE ASSESSMENT ON A FICTITIOUS A MOUNT OF TOTAL INCOME WHERE THE ACTUAL AMOUNT OF TOTAL INCOME COMPUTED IN ACCORDANCE WITH THE 98 INCOME-TAX ACT IS LESS THAN 30 PER CENT OF THE BOOK PROFITS OF THE COMPANY, SECTION 115JB MANDATES THE DEPARTMENT TO RESORT TO THE FICTION IN THOSE CASES WHERE THE TAX PAYABLE ON THE BASIS OF THE TOTAL IN COME COMPUTED IN ACCORDANCE WITH THE INCOME-TAX ACT IS LESS THAN A S PECIFIED PERCENTAGE (7- PER CENT FOR THE YEARS IN ISSUE) OF THE BOOK PROFIT . FURTHER, SECTIONS 115JA AND 115JB ALSO STIPULATE A DEFINITE MANNER OF PREPA RING THE ANNUAL ACCOUNTS INCLUDING THE PROFIT AND LOSS ACCOUNTS. MORE SPECIF ICALLY, SECTION 115JB STIPULATES THAT THE ACCOUNTING POLICIES, ACCOUNTING STANDARDS, ETC. SHALL BE UNIFORM BOTH FOR THE PURPOSE OF INCOME-TAX AS WELL AS FOR THE INFORMATION STATUTORILY REQUIRED TO BE PLACED, BEFORE THE ANNUA L GENERAL MEETING CONDUCTED, IN ACCORDANCE WITH SECTION 210 OF THE CO MPANIES ACT, 1956. 14. IT MAY BE MENTIONED HERE THAT UNDER SECTION 166 OF THE COMPANIES ACT EVERY COMPANY IS MANDATED TO HOLD A GENERAL MEETING IN EACH YEAR. SECTION 210 MANDATES THAT EVERY YEAR THE BOARD OF DIRECTORS OF THE COMPANY IN THE GENERAL MEETING SHALL LAY BEFORE THE COMPANY A BALA NCE SHEET AS AT THE END OF THE RELEVANT PERIOD AND ALSO A PROFIT AND LOSS A CCOUNT FOR THE PERIOD. PARTS II AND III OF SCHEDULE VI TO THE COMPANIES AC T SPECIFY THE METHOD AND MANNER OF MAINTAINING THE PROFIT AND LOSS ACCOUNT. 15. HOWEVER, THE APPELLANT THOUGH IS BY DEFINITION A C OMPANY UNDER THE INCOME-TAX ACT AND DEEMED TO BE A COMPANY FOR THE P URPOSE OF INCOME-TAX ACT, (BY VIRTUE OF THE DECLARATION UNDER SECTION 80 OF THE ELECTRICITY SUPPLY ACT) IT IS NOT A COMPANY FOR THE PURPOSE OF COMPANI ES ACT. THEREFORE, THE APPELLANT IS NOT OBLIGED TO EITHER TO CONVENE AN AN NUAL GENERAL MEETING OR PLACE ITS PROFIT AND LOSS ACCOUNT IN SUCH GENERAL M EETING. AS A MATTER OF FACT, A GENERAL MEETING CONTEMPLATED UNDER SECTION 166 OF THE COMPANIES ACT IS NOT POSSIBLE IN THE CASE OF THE APPELLANT AS THERE ARE NO SHAREHOLDERS FOR THE APPELLANT BOARD. ON THE OTHER HAND, UNDER SECTION 6 9 OF THE ELECTRICITY SUPPLY ACT, THE APPELLANT IS OBLIGED TO KEEP PROPER ACCOUNTS, INCLUDING THE PROFIT AND LOSS ACCOUNT, AND PREPARE AN ANNUAL STAT EMENT OF ACCOUNTS, BALANCE SHEET, ETC. IN SUCH FORM AS MAY BE PRESCRIB ED BY THE CENTRAL GOVERNMENT AND NOTIFIED IN THE OFFICIAL GAZETTE. TH E PRESCRIPTION OF THE RULES IN THIS REGARD IS REQUIRED TO BE MADE IN CONS ULTATION WITH THE COMPTROLLER AND AUDITOR-GENERAL OF INDIA AND ALSO T HE STATE GOVERNMENTS. SUCH ACCOUNTS OF THE APPELLANT ARE REQUIRED TO BE A UDITED BY THE COMPTROLLER AND AUDITOR-GENERAL OF INDIA OR SUCH OT HER PERSON DULY AUTHORISED BY THE COMPTROLLER AND AUDITOR-GENERAL O F INDIA. THE ACCOUNTS 99 SO PREPARED ALONG WITH THE AUDIT REPORT IS REQUIRED TO BE LAID ANNUALLY BEFORE THE STATE LEGISLATURE AND ALSO TO BE PUBLISH ED IN THE PRESCRIBED MANNER AND COPIES OF SUCH PUBLICATION SHALL BE MADE AVAILABLE FOR SALE AT A REASONABLE PRICE, OBVIOUSLY FOR THE BENEFIT OF THE GENERAL PUBLIC WHO WISH TO SCRUTINISE THE ACCOUNTS. 16. THUS, IT CAN BE SEEN THAT COMING TO THE MAINTENANC E OF THE ACCOUNTS, THE APPELLANT THOUGH IS DEEMED TO BE A COMPANY - BOTH BY VIRTUE OF OPERATION OF SECTION 80 OF THE INCOME-TAX ACT FOR THE PURPOSE OF INCOME-TAX ACT AND BY VIRTUE OF THE DEFINITION OF THE EXPRESSION COMPANY UNDER THE INCOME-TAX ACT (WHICH IS ALREADY EXAMINED EARLIER) - THE APPEL LANT IS REQUIRED TO KEEP AND MAINTAIN ITS ACCOUNTS IN A MANNER SPECIFIED BY THE CENTRAL GOVERNMENT, BUT NOT IN THE MANNER SPECIFIED IN THE COMPANIES AC T. THEREFORE, THE QUESTION IS WHETHER THE LEGAL FICTION CONTEMPLATED UNDER SECTION 115JB CAN BE PRESSED INTO SERVICE WHILE MAKING THE ASSESSMENT OF INCOME-TAX PAYABLE BY THE APPELLANT. 17. IT MUST BE REMEMBERED THAT SECTION 115JB CREATES A LEGAL FICTION REGARDING THE TOTAL INCOME OF THE ASSESSEES WHICH A RE COMPANIES. THE BOOK PROFIT OF THE COMPANY IS DEEMED TO BE TOTAL INCOME OF THE ASSESSEE IN THE CIRCUMSTANCES SPECIFIED IN THE SAID SECTION, WHICH ARE ALREADY NOTICED EARLIER. THE EXPRESSION BOOK PROFIT FOR THE PURPO SE OF THE SAID SECTION IS EXPLAINED IN THE SECTION ITSELF TO MEAN THE NET PRO FIT AS INCREASED OR DECREASED BY THE VARIOUS AMOUNTS SHOWN IN THE VARIO US SUB-CLAUSES OF THE SECTION. THE NET PROFIT ITSELF MUST BE THE NET PR OFIT AS SHOWN IN THE PROFIT AND LOSS ACCOUNT OF THE COMPANY. SUB-SECTION (2) MA NDATES THAT THE PROFIT AND LOSS ACCOUNT OF THE COMPANY IS REQUIRED TO BE P REPARED IN THE MANNER SPECIFIED THEREIN. THOUGH IN VIEW OF THE REQUIREMEN T UNDER SECTION 69 OF THE ELECTRICITY SUPPLY ACT THE APPELLANT IS REQUIRED TO MAINTAIN ACCOUNTS IN A DIFFERENT FORM THAN THE ONE CONTEMPLATED UNDER SECT ION 115JB(2), THE PRESCRIPTION UNDER SECTION 69 IS ONLY REGARDING THE GENERAL DUTY OF THE APPELLANT FOR THE PURPOSE OF ELECTRICITY SUPPLY ACT . NOTHING IN THEORY PREVENTS THE PARLIAMENT FROM OBLIGATING THE APPELLA NT TO PREPARE ANOTHER PROFIT AND LOSS ACCOUNT AS PRESCRIBED UNDER SECTION 115JB(2) FOR THE PURPOSE OF THE INCOME-TAX ACT. THE QUESTION IS WHET HER SUCH AN OBLIGATION IS CREATED UNDER SECTION 115JB(2) INSOFAR AS THE APPEL LANT IS CONCERNED. IN EXAMINING THE SAID QUESTION, THE LEGISLATIVE HISTOR Y AND THE MISCHIEF SOUGHT TO BE CURED BY THE LEGISLATURE IN MAKING THE SPECIA L DEEMING PROVISION, IN OUR OPINION, WOULD BE RELEVANT. 100 18. COMING TO THE LEGISLATIVE HISTORY OF SECTION 115JB AND ITS FORE-RUNNERS - SECTIONS 115J AND 115JA - WE HAVE ALREADY NOTICED T HAT THEY PROVIDED FOR THE DETERMINATION OF THE TOTAL INCOME OF THE COMPAN IES BY A FICTITIOUS PROCESS. HOWEVER, AT THE EARLIEST POINT OF TIME WHE N SUCH A FICTITIOUS PROCESS IS INVENTED, I.E. WHEN SECTION 115J WAS INTRODUCED, THE SECTION EXPRESSLY EXCLUDED FROM ITS OPERATION BODIES LIKE THE APPELLA NT. COMING TO SECTION 115JA, THOUGH SUCH EXPRESS EXCLUSION IS ABSENT, THE CENTRAL BOARD OF DIRECT TAXES ISSUED A CIRCULAR NO. 762, DATED 18TH FEBRUAR Y, 1998 - [WHICH IS BINDING ON THE DEPARTMENT, SEE K.P. VARGHESE V. ITO [1981] 131 ITR 597 1 (SC)] * AND RANADEY MICRONUTRIENTS V. COLLECTOR OF CENTRAL EXCISE 1996 (87) ELT 19 (SC) EXCLUDING THE BODIES L IKE THE APPELLANT FROM THE OPERATION OF THE SAID SECTION. THOUGH UNDER THE NORMAL RULES OF INTERPRETATION OF STATUTES THE OMISSION OF A CLAUSE WHICH EXISTED IN THE STATUTE AT SOME POINT OF TIME BY A SUBSEQUENT AMENDMENT WOU LD INDICATE THAT THE LEGISLATURE INTENDED NOT TO GIVE THE BENEFIT OF SUC H CLAUSE ANY MORE TO THOSE WHO WERE GETTING THE BENEFIT OF SUCH EXCLUSION CLAU SE, IN OUR OPINION, IT IS NOT AN ABSOLUTE RULE. THE OTHER ATTENDANT CIRCUMSTA NCES, THE CONTEXT, THE HISTORY AND THE MISCHIEF SOUGHT TO BE REMEDIED BY T HE AMENDMENT ARE ALL REQUIRED TO BE EXAMINED BEFORE REACHING AT DEFINITE CONCLUSION. 19. THE CIRCULAR NO. 762 NOT ONLY IS BINDING ON THE RE SPONDENTS, BUT ALSO EXPLAINS THE PURPOSE IN INTRODUCING SECTION 115JA. THE RELEVANT PORTION READS AS FOLLOWS: 46.1 IN RECENT TIMES, THE NUMBER OF ZERO-TAX COMPA NIES AND COMPANIES PAYING MARGINAL TAX HAS GROWN. STUDIES HA VE SHOWN THAT IN SPITE OF THE FACT THAT COMPANIES HAVE EARNED SUBSTA NTIAL BOOK PROFITS AND HAVE PAID HANDSOME DIVIDENDS, NO TAX HAS BEEN P AID BY THEM TO THE EXCHEQUER. 46.2 THE FINANCE ACT HAS INSERTED A NEW SECTION 115 JA OF THE INCOME- TAX ACT, SO AS TO LEVY A MINIMUM TAX ON COMPANIES W HO ARE HAVING BOOK PROFITS AND PAYING DIVIDENDS BUT ARE NOT PAYIN G ANY TAXES. THE SCHEME ENVISAGES THE PAYMENT OF A MINIMUM TAX BY DE EMING 30 PER CENT OF THE BOOK PROFITS COMPUTED UNDER THE COMPANI ES ACT, AS TAXABLE INCOME, IN A CASE WHERE THE TOTAL INCOME AS COMPUTE D UNDER THE PROVISIONS OF THE INCOME-TAX ACT, IS LESS THAN 30 P ER CENT OF THE BOOK PROFIT. WHERE THE TOTAL INCOME AS COMPUTED UNDER TH E NORMAL 101 PROVISIONS OF THE INCOME-TAX ACT, IS MORE THAN 30 P ER CENT OF THE BOOK PROFIT, TAX SHALL BE CHARGED ON THE SAME. 46.3 THE EFFECTIVE MINIMUM ALTERNATE TAX, AT THE EX ISTING RATES OF TAXATION WORKS OUT TO 12 PER CENT OF THE BOOK PROFI TS. 46.4 INCOME ARISING FROM FREE TRADE ZONE (FTZ), EXP ORT ORIENTED UNDERTAKINGS (EOUS), CHARITABLE ACTIVITIES, INVESTM ENT BY A VENTURE CAPITAL COMPANY AND OTHER EXEMPTED INCOMES (SECTION 10) ARE EXCLUDED FROM THE PURVIEW OF THE ALTERNATE TAX. 46.5 SINCE THE ALTERNATE TAX IS APPLICABLE ONLY WHE RE THE NORMAL TOTAL INCOME COMPUTED IS LESS THAN 30 PER CENT OF THE BOO K PROFITS, SO LONG AS THE ENTERPRISES (OTHER THAN FTZ UNITS AND EOUS) EARNING INCOME FROM EXPORT PROFITS DO NOT HAVE THEIR COMPONENT OF EXPORT INCOME HIGHER THAN 70 PER CENT OF THE BOOK PROFITS, THE PR OVISIONS OF SECTION 115JA WILL NOT BE ATTRACTED. IN OTHER WORDS, THE MA T WILL APPLY ONLY TO SUCH CASES WHERE EXPORT PROFITS FORMING PART OF BOO K PROFITS OF AN ASSESSEE EXCEED 7 PER CENT OF THE TOTAL PROFITS. 46.6 COMPANIES ENGAGED IN THE BUSINESS OF GENERATIO N AND DISTRIBUTION OF POWER AND THOSE ENTERPRISES ENGAGED IN DEVELOPIN G, MAINTAINING AND OPERATING INFRASTRUCTURE FACILITIES UNDER SUB-S ECTION (4A) OF SECTION 80-IA ARE EXEMPTED FROM THE LEVY OF MAT, SO THAT THE INCENTIVE GIVEN TO INFRASTRUCTURE DEVELOPMENT IS NOT AFFECTED . IT CAN BE SEEN FROM THE ABOVE THAT THE LEGISLATURE TOOK NOTE OF THE FACT THAT A NUMBER OF COMPANIES PAYING MARGINAL TAX AND ALSO ZE RO-TAX HAS GROWN. SUCH COMPANIES EARNED SUBSTANTIAL BOOK PROFITS AND PAID HANDSOME DIVIDENDS TO THE SHAREHOLDERS WITHOUT PAYING ANY TA X TO THE EXCHEQUER. SUCH A RESULT WAS ACHIEVED BY SUCH COMPANIES BY TAKING A DVANTAGE OF THE THEN EXISTING LEGAL POSITION WHICH PERMITTED THE ADOPTIO N OF DUAL ACCOUNTING POLICIES AND PRACTICES, ONE FOR THE PURPOSE OF COMP UTATION OF INCOME-TAX AND ANOTHER FOR THE PURPOSE OF DETERMINING THE BOOK PROFITS FOR THE PURPOSE OF PAYMENT OF DIVIDENDS. THEREFORE, THE AMENDMENT W AS MADE TO PLUG THE LOOPHOLE IN THE LAW. HOWEVER, THE CBDT UNDERSTOOD T HAT COMPANIES ENGAGED IN THE BUSINESS OF GENERATION AND DISTRIBUT ION OF ELECTRICITY AND ENTERPRISES ENGAGED IN DEVELOPING, MAINTAINING AND OPERATING INFRASTRUCTURE FACILITIES, AS A MATTER OF POLICY, A RE NOT BROUGHT WITHIN THE PURVIEW OF THE AMENDMENT (SECTION 115JA) FOR THE RE ASON THAT SUCH A POLICY 102 WOULD PROMOTE THE INFRASTRUCTURAL DEVELOPMENT OF TH E COUNTRY. SUCH AN UNDERSTANDING OF THE CBDT IS BINDING ON THE DEPARTM ENT. 20. IF THAT IS THE BACKGROUND IN WHICH SECTION 115JA I S INTRODUCED INTO THE INCOME-TAX ACT, SECTION 115JB, WHICH IS SUBSTANTIAL LY SIMILAR TO SECTION 115JA, IN OUR OPINION, CANNOT HAVE A DIFFERENT PURP OSE AND NEED NOT BE INTERPRETED IN A MANNER DIFFERENT FROM THE UNDERSTA NDING OF THE CBDT OF SECTION 115JA. 24.8 UNDER THE ABOVE FACTS AND CIRCUMSTANCES, WE TH US HOLD THAT EVEN THOUGH THE ASSESSEE, UNDER A MISCONCEPTION OF LAW, HAD DECLARED INCOME UNDER THE DEEMING PROVISIONS OF SEC. 115JB OF THE A CT, STILL THE ASSESSING OFFICER WAS UNDER ITS DUTY BOUND TO MAKE CORRECT AS SESSMENT OF INCOME OF THE ASSESSEE IN ACCORDANCE WITH THE PROVISIONS OF T HE ACT. AS PER ABOVE DISCUSSION AND THE RATIOS LAID DOWN IN THE CITED DE CISIONS, WE HOLD THAT THE PROVISIONS OF SEC. 115JB OF THE ACT WERE NOT AT ALL APPLICABLE TO COMPANIES GOVERNED BY SPECIAL ACTS WHICH ALSO INCLUDES POWER COMPANIES, IN RESPECT OF ASSESSMENT YEARS FALLING PRIOR TO 01.04.2013 AND THEREBY THE ASSESSEE WAS NOT LIABLE TO PAY TAX UNDER THE PROVISIONS OF THE S AID SECTIONS FOR THE ASSESSMENT YEARS UNDER CONSIDERATION. THE ADDITION AL GROUND NO. 2 IS ACCORDINGLY DECIDED IN FAVOUR OF THE ASSESSEE AND T HE SAME IS AS SUCH ALLOWED. 24.9 IN RESULT, THE APPEAL PREFERRED BY THE ASSESSE E IS PARTLY ALLOWED AND THAT PREFERRED BY THE REVENUE IS DISMISSED. 25. ITA NO.606/DEL/2011 : (A.Y. 2006-07) : THE ASSESSEE HAS QUESTIONED FIRST APPELLATE ORDER ON THE FOLLOWING GROUNDS: 1. DEPRECIATION ON ENERGY METERS WRONGLY ALLOWED A T 15% AS AGAINST 80% RESULTING IN A DISALLOWANCE OF RS. 46,13,99,792. THE LD.CIT(A)- IV HAS WRONGLY UPHELD THAT THE EN ERGY METERS ARE ELIGIBLE FOR DEPRECIATION @ 15 % AS AGAINST THE CLAIMS @ 80 % . IN THIS REGARD HE HAS IGNORED THE FACTS THAT THESE METERS ARE FOR MEASURI NG ELECTRIC ENERGY WHICH HAS 103 BEEN SPECIFICALLY MENTIONED AS ELIGIBLE FOR 80% DEP RECIATION IN THE DEPRECIATION SCHEDULE OF THE INCOME TAX RULES 1962. FURTHER, TH ESE METERS ALSO HAVE THE CHARACTERISTICS OF ENERGY SAVING DEVICE WHICH IS SU BJECT TO DEPRECIATION @ 80%. IN VIEW OF THE ABOVE, DEPRECIATION ALLOWED @ 15 % AS AGAINST THE 80% CLAIMED ON ENERGY METERS RESULTING IN A DISALLOWANCE OF RS. 46,13,99,792, IS WRONG, AGAINST THE FACTS OF THE CASE AND UNSUSTAINABLE IN THE EYES OF LAW. 2. GRANT IN AID FOR FIXED ASSETS AND DISALLOWANCE O F DEPRECIATION TO THE TUNE OF RS. 20, 69,729. THE LD.CIT(A)- IV HAS WRONGLY U PHELD THE CONTENTION OF THE ACIT THAT ADJUSTMENT OF GRANTS IN AID FOR FIXED AS SETS IS TO BE MADE IN THE RATIO OF ADDITION TO PLANT AND MACHINERY WHICH IS (SUBJE CT TO DEPRECIATION @ 15%) AND ADDITION TO ENERGY METERS WHICH IS (SUBJECT TO DEPR ECIATION @ 80%) RESULTING IN DISALLOWANCE OF DEPRECIATION TO THE TUNE OF RS. 20, 69,729. 25.1 BESIDES ABOVE, THE ASSESSEE HAS ALSO MOVED APP LICATION UNDER RULE 11 OF THE INCOME-TAX (APPELLATE TRIBUNAL) RULES, 1963 REQUESTING FOR ADMISSION OF THE FOLLOWING ADDITIONAL GROUNDS: 1. SERVICE LINE DEPOSITS RECEIVED FROM THE CONSUM ERS ARE OF CAPITAL NATURE. THE LEARNED CIT(APPEALS) ERRED IN NOT DIRECTING THE ASSESSING OFFICER TO REDUCE THE AMOUNT OF SERVICE L INE DEPOSITS CREDITED TO THE PROFIT AND LOSS ACCOUNT DURING THE YEAR AMOUNTING TO RS.16,39,25,174 (AS PER THE COMPANYS POLICY OF OFF ERING THE SERVICE LINE DEPOSIT FOR REVENUE OVER A PERIOD OF THREE YEA RS) WHILE COMPUTING THE TOTAL INCOME AFTER HOLDING THAT ENTIR E RECEIPTS BY WAY OF SERVICE LINE DEPOSIT IS CAPITAL IN NATURE. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE ASSESSING OFFICER ERRED IN ASSESSING THE INCOME OF THE APPELLANT UNDER SEC. 115JB AND NOT UNDER THE NORMAL PROVISIONS OF T HE INCOME-TAX ACT, 1961 (THE ACT) WITHOUT APPRECIATING THAT THE D EEMING PROVISIONS OF SEC. 115JB OF THE ACT WERE NOT APPLICABLE DURING RELEVANT ASSESSMENT YEAR. 25.2 SIMILAR ARGUMENTS HAVE BEEN ADVANCED BY THE PA RTIES AS ADVANCED BY THEM ON THE ALLOWABILITY OF THE SIMILAR ADDITIONAL GROUNDS IN THE ASSESSMENT YEAR 2005-06 HEREINABOVE. FOLLOWING THE DECISION TA KEN THEREIN, WE ALLOW 104 THE PRESENT APPLICATION AND ADMIT THE ABOVE STATED ADDITIONAL GROUNDS FOR OUR ADJUDICATION. 26. ON THE ISSUES RAISED IN THE ADDITIONAL GROUNDS REGARDING THE ISSUES OF (I) NOT DIRECTING THE ASSESSING OFFICER TO REDUCE T HE AMOUNT OF SERVICE LINE DEPOSIT CREDITED TO THE PROFIT AND LOSS ACCOUNT DUR ING THE YEAR BY THE LEARNED CIT(APPEALS) WHILE DECIDING SERVICE LINE DEPOSITS R ECEIVED FROM THE CONSUMERS ARE OF CAPITAL NATURE (ADDITIONAL GROUND NO.1) AND (II) APPLICABILITY OF THE PROVISIONS OF SEC. 115JB OF TH E ACT DURING THE ASSESSMENT YEAR UNDER CONSIDERATION IN THE ASSESSME NT YEAR 2005-06 (ADDITIONAL GROUND NO.2), A DETAILED DISCUSSION HAS BEEN MADE AND IT HAS BEEN DECIDED THEREIN THAT THE LEARNED CIT(APPEALS) WHILE TREATING THE SERVICE LINE DEPOSITS RECEIVED FROM THE CONSUMERS A S OF CAPITAL NATURE SHOULD HAVE DIRECTED THE ASSESSING OFFICER TO REDUCE THE AMOUNT OF SERVICE LINE DEPOSITS CREDITED TO THE PROFIT AND LOSS ACCOUNT DU RING THE YEAR (ADDITIONAL GROUND NO.1) AND THE ASSESSING OFFICER WAS NOT JUST IFIED IN ASSESSING THE INCOME OF THE ASSESSEE FOR THE ASSESSMENT YEAR UNDE R CONSIDERATION UNDER SEC. 115JB OF THE ACT INSTEAD OF NORMAL PROVISIONS OF THE INCOME-TAX ACT, 1961 (ADDITIONAL GROUND NO.2). FOLLOWING THE SAME, WE DECIDE THE ISSUES RAISED IN THE ADDITIONAL GROUNDS IN FAVOUR OF THE A SSESSEE WITH THIS FINDINGS THAT THE ASSESSING OFFICER WILL REDUCE THE AMOUNT O F SERVICE LINE DEPOSITS CREDITED TO THE PROFIT AND LOSS ACCOUNT DURING THE YEAR AS PER THE COMPANYS POLICY OF OFFERING THE SERVICE LINE DEPOSITS FOR RE VENUE OVER A PERIOD OF THREE YEARS, WHILE COMPUTING THE TOTAL INCOME AFTER HOLDING THAT ENTIRE RECEIPTS BY WAY OF SERVICE LINE DEPOSITS IS CAPITAL IN NATURE AND THAT THE PROVISIONS UNDER SEC. 115JB OF THE ACT WERE NOT APP LICABLE DURING THE ASSESSMENT YEAR UNDER CONSIDERATION, HENCE, THE ASS ESSING OFFICER WAS NOT 105 JUSTIFIED IN MAKING THE ASSESSMENT THERE UNDER INST EAD OF NORMAL PROVISIONS OF THE INCOME-TAX ACT, 1961. THE ADDITIONAL GROUNDS ARE ACCORDINGLY ALLOWED. 27. GROUND NO.1 (ASSESSEE) : UNDER SIMILAR SET OF FACTS AND CIRCUMSTANCES, AN IDENTICAL ISSUE HAS BEEN DECIDED BY US IN FAVOUR OF THE ASSESSEE WHILE DISPOSING OFF A SIMILAR GROUND NO.1 OF THE APPEAL P REFERRED BY THE ASSESSEE IN THE ASSESSMENT YEAR 2005-06 . FOLLOWING THE SAME , WE HOLD THAT ENERGY METERS ARE ELIGIBLE FOR DEPRECIATION @ 80% AND SET ASIDE THE MATTER TO THE FILE OF THE ASSESSING OFFICER TO ALLOW SUCH DEPRECA TION ON ELECTRONIC/ENERGY METER AS REFLECTED IN THE BIFURCATION OF EXPENDITUR E BETWEEN ELECTRONIC METERS AND MANUAL METERS IN THE AUDIT REPORT (PAGE 75 OF THE SUPPLEMENTARY PAPER BOOK OF ASSESSEE), AFTER AFFORDING OPPORTUNIT Y OF BEING HEARD TO THE ASSESSEE IN THIS REGARD. GROUND NO. 1 IS ACCORDINGL Y ALLOWED FOR STATISTICAL PURPOSES. 28. GROUND NO2 (ASSESSEE) : IT IS REGARDING THE DISALLOWANCE OF DEPRECIATION TO THE TUNE OF RS.20,69,729 UPHELD BY THE LEARNED CIT(APPEALS). 28.1 THE FACTS IN BRIEF ARE THAT DURING THE YEAR TH E ASSESSEE HAD RECEIVED GRANT-IN-AD OF RS.18.63 CRORES FROM THE MINISTRY OF POWER UNDER THE ACCELERATED POWER DEVELOPMENT REFORMS PROGRAM FOR T HE PURPOSE OF UP- GRADATION OF SUB-TRANSMISSION AND DISTRIBUTION IN D ENSELY ELECTRIFIED ZONES IN THE URBAN AND INDUSTRIAL AREAS AND IMPROVEMENT IN T HE COMMERCIAL VIABILITY OF THE S.E.VS/DISCOM. 28.2 THE AFORESAID AID PRIMARILY HAD TWO MAIN COMPO NENTS AS UNDER: I) INVESTMENT COMPONENT FOR STRENGTHENING AND UP-GR ADATION OF THE SUB-TRANSMISSION AND DISTRIBUTION SYSTEM; 106 II) INCENTIVE COMPONENTS TO ENCOURAGE/MOTIVATE UTIL ITIES TO REDUCE CASH LOSSES. 28.3 THE EXPENDITURE INCURRED ON UP-GRADATION OF TH E SYSTEM WAS DULY CAPITALIZED BY THE ASSESSEE UNDER THE HEAD PLANT A ND MACHINERY AND THE GRANT/AID RECEIVED UNDER THE SAID SCHEME WAS REDUCE D FROM THE BLOCK OF SUCH ASSETS (S). 28.4 THE ASSESSING OFFICER HELD THAT SINCE THE GRAN T IN AID RECEIVED BY THE ASSESSEE COULD NOT BE DIRECTLY ATTRIBUTED TO THE SP ECIFIC ASSETS ACQUIRED DURING THE ASSESSMENT YEAR, THE SAME WAS REQUIRED T O BE REDUCED FROM BOTH PLANT AND MACHINERY AS WELL AS ENERGY METERS, P ARTICULARLY WHEN ACCELERATED DEPRECATION @ 80% IS ALLOWED ON SUCH EN ERGY METERS RESULTING IN REDUCED CLAIM OF DEPRECIATION TO THE EXTENT OF R S.20,69,729. SINCE THE ASSESSEE WAS HELD NOT TO BE ELIGIBLE FOR CLAIMING A CCELERATED DEPRECIATION @ 80% ON THE ENERGY METERS, THE LEARNED CIT(APPEALS) DID NOT INTERFERE WITH THE FINDINGS OF THE ASSESSING OFFICER, AS THE SAME WAS ONLY CONSEQUENTIAL. 29. IN SUPPORT OF THE GROUND, THE LEARNED AR REFERR ED EXPLANATION-10 TO SECTION 43(1) OF THE ACT AND SUBMITTED THAT THE SAI D EXPLANATION CLEARLY MANDATES THAT WHERE COST OF ANY ASSET IS MET DIRECT LY OR INDIRECTLY BY ANY PERSON IN THE FORM OF A SUBSIDY OR GRANT OR REIMBUR SEMENT, THEN, SO MUCH OF THE COST IS REQUIRED TO BE REDUCED FROM THE ACTUAL COST OF THE ASSETS TO THE ASSESSEE. HE SUBMITTED FURTHER THAT THE ASSESSING O FFICER FAILED TO APPRECIATE THAT THE GRANT IN AID RECEIVED BY THE ASSESSEE WAS UTILIZED BY THE ASSESSEE ONLY FOR THE PURPOSE OF PROCURING ASSETS CLASSIFIED UNDER THE HEAD PLANT AND MACHINERY AND NOT FOR PURCHASE OF METERS. THEREFOR E, THE AID RECEIVED WAS RIGHTLY ADJUSTED AGAINST THE COST OF ACQUISITION OF PLANT AND MACHINERY AND NOT METERS. THE AFORESAID FACTS HAVE ALSO BEEN DULY CERTIFIED BY THE TAX AUDITOR IN THE TAX AUDIT REPORT OF THE ASSESSEE FOR THE ASSESSMENT YEAR UNDER 107 CONSIDERATION, WHEREIN ON DETAILED VERIFICATION OF RECORDS, A ONE TO ONE RELATION HAS BEEN DRAWN BETWEEN THE ASSETS WHICH HA VE BEEN PURCHASED AND THE GRANT IN AID RECEIVED BY THE ASSESSEE. IN THIS REGARD, HE REFERRED PAGE NO. 78 OF THE SUPPLEMENTARY PAPER BOOK I.E. RELEVANT EX TRACTS OF THE TAX AUDIT REPORT FOR THE ASSESSMENT YEAR 2006-07 REFLECTING T HE GRANT IN AID REDUCED FROM THE RESPECTIVE COST OF ASSETS. THE LEARNED A R ACCORDINGLY SUBMITTED THAT THE GRANT IN AID RECEIVED BY THE ASSESSEE HAS BEEN RIGHTLY REDUCED FROM THE BLOCK OF PLANT AND MACHINERY. 30. THE LEARNED CIT(DR) ON THE OTHER HAND TRIED TO JUSTIFY THE ORDERS OF THE AUTHORITIES BELOW ON THE ISSUE. 31. AFTER HAVING GONE THROUGH THE EXPLANATION 10 TO SEC. 43(1) OF THE ACT, WE FIND THAT THE ABOVE EXPLANATION MANDATES THAT WH ERE COST OF ANY ASSETS IS MET DIRECTLY OR INDIRECTLY BY ANY PERSON IN THE FOR M OF A SUBSIDY OR GRANT OR REIMBURSEMENT, THEN, SO MUCH OF THE COST IS REQUIRE D TO BE REDUCED FROM THE ACTUAL COST OF THE ASSETS TO THE ASSESSEE. FOR A RE ADY REFERENCE, THE SAID EXPLANATION-10 TO SEC. 43(1) OF THE ACT IS BEING RE PRODUCED HEREUNDER: EXPLANATION 10- WHERE A PORTION OF THE COST OF AN ASSETS ACQUIRED BY THE ASSESSEE HAS BEEN MET DIRECTLY OR INDIRECTLY BY THE CENTRAL GOVERNMENT OR A STATE GOVERNMENT OR ANY AUTHORITY E STABLISHED UNDER ANY LAW OR BY ANY OTHER PERSON, IN THE FORM OF A SU BSIDY OR GRANT OR REIMBURSEMENT (BY WHATEVER NAME CALLED), THEN, SO M UCH OF THE COST AS IS RELATED TO SUCH SUBSIDY OR GRANT OR REIMBURSE MENT SHALL NOT BE INCLUDED IN THE ACTUAL COST OF THE ASSETS TO THE AS SESSEE. 31.1 IN VIEW OF THE ABOVE DISCUSSION, WE SET ASIDE THE MATTER TO THE FILE OF THE ASSESSING OFFICER TO VERIFY THE CONTENTS OF PAG E NO. 78 OF THE 108 SUPPLEMENTARY PAPER BOOK I.E. THE RELEVANT EXTRACTS OF THE TAX AUDIT REPORT OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2006-07 REFLEC TING THE GRANT IN AID REDUCED FROM THE RESPECTIVE COST OF ASSETS AND AL LOW THE CLAIMED RELIEF AFTER AFFORDING OPPORTUNITY OF BEING HEARD TO THE A SSESSEE TO THIS EFFECT THAT THE AID RECEIVED BY THE ASSESSEE WAS RIGHTLY ADJUST ED AGAINST THE COST OF ACQUISITION OF PLANT AND MACHINERY AND NOT AGAINST METERS. THE GROUND NO.2 IS ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSES. 32. IN RESULT, THE APPEAL IS PARTLY ALLOWED. ITA NO. 821/DEL/2011: (A.Y. 2006-07) : 33. THE REVENUE HAS QUESTIONED FIRST APPELLATE ORDE R ON THE FOLLOWING GROUNDS: 1. THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN DE LETING ADDITION OF RS. 29424126/- MADE ON ACCOUNT OF DISALLOWANCE OF DEPRE CIATION ON ENERGY METERS PURCHASED FROM REL SINCE THE ORDER OF ATE ON THE BA SIS OF WHICH THE RELIEF HAS BEEN ALLOWED TO THE ASSESSEE IS UNDER CONSIDERATION BEFORE THE HONBLE SUPREME COURT. 2. THE LTD.CIT(A) HAS ERRED ON FACTS AND IN LAW IN DEL ETING ADDITION OF RS. 1912936254/-MADE ON ACCOUNT OF DISALLOWANCE OF SERV ICE LINE DEPOSITS AND CUSTOMER CONTRIBUTION TO CAPITAL WORKS IGNORING THA T: A) THE SERVICE LINE DEPOSITS ARE NOT IN THE NATURE OF DEPOSITS PER SE AS THEY ARE NON-REFUNDABLE AS ALSO ADMITTED BY THE ASSESSEE CO. B) ONCE THESE RECEIPTS HAVE BEEN ACCEPTED AS NON-REFUN DABLE RECEIPTS THEY ARE NO MORE A LIABILITY ON THE COMPANY. HENCE THE TREATMEN T GIVEN BY THE ASSESSEE CO, TO SERVICE LINE DEPOSIT BY TREATING THEM AS LOA N FUNDS AND ACCORDINGLY AS LIABILITIES IS ALL TOGETHER INCORRECT. C) FURTHER THE ASSESSEE CO IS ENGAGED IN SELLING ELECT RICITY TO THE CONSUMERS FROM WHOM IT CHARGES FEES IN THE NAME OF ENERGY CHARGES. THESE ENERGY CHARGES ARE UNDISPUTEDLY IN THE NATURE OF REVENUE RECEIPTS. D) THE ASSESSEE CO. IS A SERVICE PROVIDER CO. AND IS E NGAGED IN THE BUSINESS OF DISTRIBUTION OF ELECTRICITY TO DIFFERENT CATEGORIES OF CUSTOMERS AS PER THEIR REQUIREMENTS. HENCE IT IS IN THE NATURE OF SERVICE PROVIDER. 109 E) SINCE THE ASSESSEE CO. ENGAGED IN SELLING THE ENERG Y, THEREFORE FOR THIS PURPOSE IT HAS TO PROVIDE SERVICE LINE CONNECTIONS TO THE C ONSUMERS FOR WHICH IT CHARGES SERVICE LINE DEPOSITS. HENCE IT CAN BE SEEN THAT THESE SERVICE LINE RECEIPTS ARE RECEIVED BY THE CO. DURING THE COURSE OF ITS REGULAR BUSINESS/COMMERCIAL OPERATIONS. HENCE, THEY ARE IN THE NATURE OF REVENUE RECEIPTS. F) THE REASONING GIVEN BY THE ASSESSEE CO. THAT IT INC URS CAPITAL EXPENDITURE FOR EXTENDING SERVICE LINES TO THE CONSUMERS AND THESE RECEIPTS ARE UTILIZED FOR THIS PURPOSE DOES NOT EXPLAIN THAT HOW THESE RECEIPTS AR E CAPITAL RECEIPTS IN ITS HANDS. G) THE FACT THAT THE ASSESSEE CO ITSELF TREATED 1/3 RD OF THESE RECEIPTS AS REVENUE RECEIPTS, IMPLIEDLY, GOES ON TO SHOW THAT THE C O. BELIEVES THAT THEY ARE OF REVENUE NATURE. H) FURTHER THE CO. HAS NOT SUBMITTED ANY REASONING WHA TSOEVER AS TO WHY IT HAS TREATED SPECIFICALLY 1/3 RD OF THESE RECEIPTS AS REVENUE RECEIPTS AND NOT OR 1/4 TH OR SOME OTHER PROPORTION AS REVENUE RECEIPTS. I) LASTLY, THE ASSESSEE CO. HAS NOT PROVIDED THE DETAI LS OF THESE RECEIPTS INCLUDING THEIR RECONCILIATION WITH ITS BOOKS EVEN THOUGH SPE CIFIC QUERY WAS RAISED IN THIS REGARD VIDE NOTE SHEET ENTRY DT. 21.11.2008. H OWEVER A SAMPLE VOUCHER OF RECEIPT WAS SUBMITTED WHICH REVEALS THAT APART FROM SERVICE LINE CHARGES, THE CO. IS LEVYING DEVELOPMENT CHARGES FROM THE CUSTOME RS FOR A NEW CONNECTION. THUS THE CO. IS ALREADY COLLECTING FUNDS FOR INCURR ING CAPITAL EXPENDITURE. J) THE SERVICE LINE RECEIPTS SIMPLY CANNOT BE TREATED AS CAPITAL RECEIPTS BECAUSE THEIR NATURE WOULD NOT DEPEND UPON HOW THE ASSESSEE CO. IS UTILIZING THEM BUT IN WHAT CAPACITY THEY HAVE BEEN RECEIVED BY THE COM PANY. AND THE FACT IS THAT THEY HAVE BEEN RECEIVED BY THE CO. IN THE COURSE OF RUNNING ITS REGULAR BUSINESS OPERATIONS. K) THE ASSESSEE COMPANY ALSO NOT PROVIDED THE INFORMAT ION IN THE TABULAR FORM INSPITE OF SPECIFICALLY ASKED FOR BY THE AO DURING THE ASSESSMENT PROCEEDINGS. 3. THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN DEL ETING ADDITION OF RS.4471064/- MADE ON ACCOUNT OF DISALLOWANCE OF LEGAL CLAIMS IGN ORING THAT PAYMENTS MADE BY THE ASSESSEE ARE PENAL IN NATURE AND HENCE NOT ALLO WABLE. 4. THE LTD.CIT(A) HAS ERRED ON FACTS AND IN LAW IN DEL ETING ADDITION OF RS. 1211462/- MADE ON ACCOUNT OF DISALLOWANCE OF EXTRA DEPRECIATION ON COMPUTER PERIPHERALS/ACCESSORIES IGNORING THAT AS PER IT RUL ES 60% DEPRECIATION IS ALLOWABLE ONLY ON COMPUTER AND COMPUTER SOFTWARE AN D NOT ON COMPUTER PERIPHERALS AND ACCESSORIES. 110 34. GROUND NO.1 : IT IS REGARDING DELETION OF ADDITION OF RS.2,94,2 4,126 MADE ON ACCOUNT OF DISALLOWANCE OF DEPRECIATION ON ENERGY METERS PURCHASED FROM REL. 34.1 THE FACTS IN BRIEF ARE THAT DURING THE YEAR UN DER CONSIDERATION, THE ASSESSEE HAD PURCHASED CERTAIN ENERGY METERS FOR TO TAL CONSIDERATION OF RS.52.31 CRORES FROM ITS SISTER CONCERN M/S. RELIAN CE ENERGY LTD. (REL). THE ASSESSING OFFICER RELYING ON THE ORDER OF THE D ELHI ELECTRICITY REGULATORY COMMISSION (BERC), ALLEGED THAT THE PRIC E AT WHICH THE ENERGY METERS WERE PURCHASED FROM REL WAS NOT AT ARMS LEN GTH AND THAT REL HAD SOLD THE SAID PRODUCT AT AN EXORBITANT PRICE WHICH WAS 68% HIGHER THAN THEIR PURCHASE PRICE. THE ASSESSING OFFICER ACCORDINGLY D ENIED DEPRECIATION TO THE EXTENT OF RS.2.94 CRORES (AS PER RECTIFICATION ORDE R DATED 24.2.2009) ON THE AFORESAID PURCHASE OF ENERGY METERS (I.E. AFTER RED UCING AN AMOUNT OF RS.50.69 CRORES FROM THE COST OF ENERGY METERS), WH ICH WERE CAPITALIZED IN THE BOOKS OF THE ASSESSEE COMPANY WITHOUT SPECIFYIN G ANY PARTICULARS SECTIONS UNDER WHICH THE DISALLOWANCE WAS BEING MAD E. THE LEARNED CIT(APPEALS) HAS DELETED THE DISALLOWANCE OF DEPREC IATION MADE BY THE ASSESSING OFFICER ON THE GROUND THAT NO CORROBORATI VE EVIDENCE WAS BROUGHT ON RECORD BY THE ASSESSING OFFICER TO SUBSTANTIATE THAT THE PAYMENTS MADE WERE NOT AT ARMS LENGTH. THE LEARNED CIT(APPEALS) HAS ALSO OBSERVED THAT THE ORDER PASSED BY THE DERC COULD NOT BE CONSIDERE D AS CONCLUSIVE EVIDENCE TO DETERMINE THE REASONABLENESS OF THE TRA NSACTION, MORE SO WHEN THE SAID ORDER HAD BEEN SET ASIDE BY THE ATE. 35. IN SUPPORT OF THE GROUND, THE LEARNED CIT(DR) H AS PLACED RELIANCE ON THE ASSESSMENT ORDER. HE SUBMITTED THAT THE ORDER O F ATE (APPELLATE 111 TRIBUNAL FOR ELECTRICITY) ON THE BASIS OF WHICH REL IEF HAS BEEN ALLOWED TO THE ASSESSEE IS UNDER CONSIDERATION BEFORE THE HON'BLE SUPREME COURT. 36. THE LEARNED AR ON THE OTHER HAND PLACED RELIANC E ON THE FIRST APPELLATE ORDER WITH THE SUBMISSION THAT THE AFORES AID PURCHASES WERE MADE BY THE ASSESSEE THROUGH A COMPETITIVE BID, WHEREIN TENDERS WERE FLOATED TO EIGHT VENDORS WHICH INCLUDED REL. HOWEVER, OUT OF E IGHT VENDORS, ONLY FOUR VENDORS QUALIFIED ON TECHNICAL VALUATION AND ULTIMA TELY THE CONTRACT WAS AWARDED TO REL, CONSIDERING THAT REL HAD PROVIDED T HE LOWEST BID MEETING ALL THE TECHNICAL REQUIREMENT. THUS, THE ENERGY MET ERS WERE PROCURED FROM REL AT THE MOST COMPETITIVE PRICE AND SUPERIOR TECH NICAL SPECIFICATION MEETING THE DELIVERY SCHEDULE OF THE ASSESSEE. HE C ONTENDED THAT WHILE ARRIVING AT THE CONCLUSION THAT THE PRICE AT WHICH THE ENERGY METERS WERE PURCHASED FROM REL WAS NOT AT ARMS LENGTH AND THAT REL HAD SOLD THE SAID PRODUCT AT AN EXORBITANT PRICE, THE ASSESSING OFFIC ER FAILED TO BRING ON RECORD ANY INDEPENDENT CORROBORATIVE EVIDENCE TO SUBSTANTI ATE THAT THE PRICE AT WHICH THE ENERGY METERS WERE SOLD BY REL TO THE ASS ESSEE WAS NOT AT FAIR MARKET VALUE. THE LEARNED AR SUBMITTED THAT THERE IS NO STAY OF OPERATION OF THE ORDER PASSED BY ATE (ON THE BASIS OF WHICH R ELIEF HAS BEEN ALLOWED TO THE ASSESSEE) BY THE HON'BLE SUPREME COURT OR ANY O THER APPELLATE AUTHORITY. 112 36.1 AT THE OUTSET, THE LEARNED AR SUBMITTED THAT A PART FROM THE PROVISIONS OF SECTION 40A(2), THERE IS NO PROVISION UNDER THE ACT, WHICH CLOTHES THE ASSESSING OFFICER WITH THE POWER TO GO INTO THE ISS UE OF REASONABLENESS OF THE EXPENDITURE INCURRED BY AN ASSESSEE, IN RESPECT OF WHICH DEDUCTION HAS BEEN CLAIMED UNDER THE ACT. 36.2 SECTION 40A(2)(A) OF THE ACT PROVIDES FOR DISA LLOWANCE OF PART OF THE EXPENDITURE INCURRED BY AN ASSESSEE IN RESPECT OF W HICH PAYMENT HAS BEEN MADE TO A RELATED PARTY, IF THE ASSESSING OFFICER I S OF THE OPINION THAT SUCH EXPENDITURE IS EXCESSIVE OR UNREASONABLE, HAVING RE GARD TO THE FAIR MARKET VALUE OF GOODS OR THE LEGITIMATE NEEDS OF THE BUSIN ESS OF THE ASSESSEE. 36.3 IN THE CASE OF THE ASSESSEE, THE ASSESSING OFF ICER HAS ALLEGED THAT THE PURCHASE OF ENERGY METERS FROM REL WAS NOT AT ARMS LENGTH BY MERELY PLACING RELIANCE ON THE ORDER OF THE DERC, AND COMP LETELY DISREGARDING THE REPLIES/ DETAILS FILED BY THE ASSESSEE TO SUBSTANTI ATE THE ARMS LENGTH CHARACTER OF THE SAID TRANSACTION. 36.4 IT MAY FURTHER BE PERTINENT TO NOTE THAT SECTI ON 40A(2) ENVISAGES ONLY REVENUE EXPENDITURE IN THE NATURE OF GOODS, SERVICE S OR FACILITIES INCURRED BY 113 THE ASSESSEE IN RESPECT OF WHICH DEDUCTION IS CLAIM ED UNDER THE PROVISIONS OF THE ACT AND DOES NOT INCLUDE WITHIN ITS AMBIT, DETE RMINATION OF REASONABLENESS OF PAYMENT MADE FOR ACQUISITION OF CAPITAL ASSETS. 36.5 THE LEARNED AR SUBMITTED THAT CAPITAL EXPENDIT URE PAYMENTS ELIGIBLE FOR DEPRECIATION ARE NOT COVERED UNDER SECTION 40A( 2) OF THE ACT, BY VIRTUE OF THE FACT THAT DEPRECIATION IS NOT A DEDUCTION B UT ONLY AN ALLOWANCE. 36.6 THE LEARNED AR PLACED RELIANCE ON THE FOLLOWI NG DECISIONS, WHERE IT HAS BEEN HELD THAT THE TERM EXPENDITURE ENVISAGED IN SECTION 40A OF THE ACT DOES NOT INCLUDE CAPITAL EXPENDITURE: KANSI RAM MADAN LAL VS. ITO: 3 ITD 290 (DELHI) SARAL MOTORS & GENERAL FINANCE LTD. VS. ACIT: 121 I TD 50 (DELHI) EVEN OTHERWISE , IN THE PRESENT CASE, THE FOLLOWING FACTS WOULD AM PLY DEMONSTRATE THAT THE PRICE PAID BY THE ASSESSEE TO REL FOR PURCHASE OF ENERGY METERS WAS NOT EXCESSIVE OR UNREASONABLE, BU T AT FAIR MARKET VALUE: 36.7 IN THE SUBMISSIONS FILED BEFORE THE ASSESSING OFFICER, IT WAS CATEGORICALLY STATED THAT THE ASSESSEE-COMPANY FOLL OWED STANDARD PROCUREMENT PROCEDURE AS UNDER: 114 ON RECEIPT OF INTERNAL PURCHASE REQUISITION ALONG W ITH TECHNICAL SPECIFICATIONS FROM USER GROUPS, TENDERS ARE FLOATED TO APPROVED VENDORS WHO ARE REGISTERED WITH THE COMPANY; COMMERCIAL BIDS ARE RECEIVED FROM SUCH VENDORS, WHI CH ARE THEN COMPARED WITH THE TECHNICAL REQUIREMENTS OF THE USE RS; ON EVALUATION, VENDORS ARE APPROVED ON FULFILLMENT OF TECHNICAL SPECIFICATIONS; ON COMMERCIAL DISCUSSIONS, THE BEST BIDDER IS APPRO VED BY THE MANAGEMENT AFTER CONSIDERING VARIOUS FACTORS SUCH A S PRICE, DELIVERY SCHEDULE, WARRANTY ETC. 36.8 WITH RESPECT TO THE PURCHASE OF ELECTRIC ENERG Y METERS FROM REL, THE ASSESSEE-COMPANY ADOPTED THE SAME STANDARD PROCUREM ENT PROCEDURE, WHICH INVOLVED COMPETITIVE BIDDING WITH THE PARTICIPATION OF ALL MAJOR VENDORS LIKE L&T, GENUS, EMCO LTD, SECURE LTD, ETC. 36.9 ON ENQUIRY FLOATED BY THE COMPANY, BIDS WERE R ECEIVED FROM 8 VENDORS, OUT OF WHICH 4 BIDDERS WERE TECHNICALLY QU ALIFIED, SINCE THE METERS TO BE SUPPLIED WERE REQUIRED TO MEET TECHNICAL SPEC IFICATIONS AS PER THE CEA REGULATIONS. 36.10 OUT OF THESE 4 BIDDERS, THE BID QUOTED BY RE L WAS OBSERVED, AS MOST COMPETITIVE IN TERMS OF TECHNICAL SPECIFICATIONS, PRICE AND DELIVERY SCHEDUL E. 115 36.11 TO SUMMARIZE, THE TRANSACTION UNDERTAKEN BY THE ASSESSEE WITH REL WAS PURELY ON COMMERCIAL TERMS AND AT FAIR MARKET V ALUE. IT MAY ALSO NOT BE OUT OF PLACE TO STATE HERE THAT THE PROCUREMENT AND INSTALLATION OF THESE METERS ENABLED THE ASSESSEE-COMPANY TO REDUCE ITS A T&C LOSSES SIGNIFICANTLY. 36.12 THE LEARNED AR SUBMITTED THAT THE ASSESSING O FFICER GROSSLY ERRED IN DRAWING ADVERSE INFERENCE FROM THE ORDER OF THE DER C, WITHOUT INDEPENDENT APPLICATION OF MIND AND WITHOUT BRINGING ON RECORD ANY INDEPENDENT CORROBORATIVE EVIDENCE TO SUBSTANTIATE THAT THE PRI CE PAID BY THE ASSESSEE TO REL FOR PURCHASE OF ENERGY METERS WAS EXCESSIVE OR UNREASONABLE. 36.13 IT WOULD BE PERTINENT TO POINT OUT THAT THE RELIANCE PLACED BY THE ASSESSING OFFICER ON THE ORDER OF THE DERC DOES NOT HOLD GOOD, IN VIEW OF THE FACT THAT THE SAID ORDER HAS BEEN SET ASIDE BY THE ATE VIDE ITS ORDER DATED 06.10.2009. 36.14 IT IS OF UTMOST IMPORTANCE TO NOTE AT THIS S TAGE THAT THE PRICE AT WHICH SIMILAR ENERGY METERS, HAVING SAME TECHNICAL SPECIF ICATIONS, WERE PROCURED 116 BY NEW DELHI POWER LIMITED (NDPL), AN UNRELATED E NTERPRISE DISTRIBUTING ELECTRICITY IN THE STATE OF DELHI, IS COMPARABLE TO THE PRICE AT WHICH SUCH METERS WERE PURCHASED BY THE ASSESSEE FROM REL. IT WAS ON CONSIDERING THIS ASPECT THAT THE ATE SET ASIDE THE ORDER OF THE DERC . 36.15 IN VIEW OF THE AFORESAID, IT WAS SUBMITTED T HAT THE ADVERSE INFERENCE DRAWN BY THE ASSESSING OFFICER MERELY ON THE BASIS OF THE DERC ORDER, WHICH HAS BEEN SET ASIDE BY ATE, ALLEGING THAT THE PURCHASES MADE BY THE ASSESSEE FROM REL WERE AT HIGHER PRICES IS BASELESS AND, THEREFORE, THE DELETION OF DISALLOWANCE MADE ON THAT ACCOUNT BY TH E LEARNED CIT(APPEALS) IS JUSTIFIED. 36.16 IN THIS REGARD, THE LEARNED AR FURTHER SUBMI TTED THAT FOR INVOKING THE PROVISIONS OF SECTION 40A(2) OF THE ACT, THE ONUS L IES UPON THE ASSESSING OFFICER TO PROVE THAT THE PAYMENT IS EXCESSIVE OR U NREASONABLE HAVING REGARD TO THE FAIR MARKET VALUE OF GOODS OR LEGITIMATE NEE DS OF THE BUSINESS, AS HAS BEEN HELD IN THE FOLLOWING DECISIONS: CIT VS. MODI REVLON (P.) LTD.:210 TAXMAN 161 (DEL) CIT VS. NESTLE INDIA LTD: 337 ITR 103 (DEL.) CIT VS. FORBES TEA BROKERS: 315 ITR 405 (MAD.) CIT V. MODI XEROX LTD.: ITA NO.31/2001/ LEX DOC ID 405888 (ALL.) 117 VOLTAMP TRANSFORMERS (P) LIMITED V. CIT: 129 ITR 10 5 (GUJ.) CIT V. ADITYA MEDISALES LTD.: ITA NO. 559/2009 (GUJ .) CIT V. GOPALA POLYPLAST LTD. : ITA NO. 265/2009 (GU J.) JCIT V. ITC LTD.: 112 ITD 57 (KOL.)(SB) JAGDAMBA ROLLERS FLOUR MILL LTD. VS ACIT: 117 ITD 2 60(TM) (NAG.) ARADHANA BEVERAGES & FOODS CO. (P.) LTD VS. DCIT:51 SOT 426 (DEL) S.K. ENGG VS. JCIT: 103 ITD 97 (BANG.) RANGOON CHEMICAL WORKS (P) LIMITED: 100 TAXMAN163 ( AHD.) (MAG) KINETIC HONDA MOTOR LTD V. JCIT 77 ITD 393 SHYAM OIL CAKE LTD V. ACIT: 83 TTJ 414 (JD.) VIKSHARA TRADING & INVESTMENT (P) LIMITED: 61 TTJ 6 (AHD.) BETA NAPHTHOL (P) LIMITED: 50 TTJ 375 (IND.) 36.17 IN THE INSTANT CASE, THE ASSESSING OFFICER H AS FAILED TO BRING ON RECORD ANY CORROBORATIVE EVIDENCE TO ESTABLISH THAT THE PR ICE PAID TO REL FOR PURCHASE OF ENERGY METERS WAS UNREASONABLE AND EXCE SSIVE. FURTHER, EVEN IN THE DERC ORDER, MERELY BALD ALLEGATIONS HAVE BEEN M ADE BY THE AUTHORITIES, WITHOUT ANY SUPPORTING EVIDENCE WITH RESPECT TO EXC ESSIVENESS OF THE PAYMENTS MADE AS COMPARED TO THE MARKET VALUE. 36.18 IN ORDER TO DETERMINE WHETHER EXPENDITURE IS EXCESSIVE OR UNREASONABLE, RELIANCE MUST BE PLACED ON THE TEST O F COMMERCIAL EXPEDIENCY, 118 WHICH STIPULATES THAT REASONABLENESS OF THE EXPENDI TURE HAS TO BE ADJUDGED FROM THE POINT OF VIEW OF THE BUSINESSMAN, AND NOT OF THE REVENUE. 36.19 IN SUPPORT OF ABOVE SUBMISSIONS, THE LEARNED AR PLACED RELIANCE ON THE FOLLOWING DECISIONS: - CIT VS. WALCHAND AND CO. PRIVATE LTD.: 65 ITR 381 ( SC) - J.K. WOOLLEN MANUFACTURERS VS. CIT: U.P: 72 ITR 612 (SC) - ALUMINIUM CORPN. OF INDIA LTD. VS. CIT: 86 ITR 11 ( SC ) - CIT VS. UNITED HOTELS LTD.: 177 TAXMAN 417 (DELHI) - CIT VS S. KRISHNA RAO : 76 ITR 664 (AP) - CIT V. UDAIPUR DISTILLERY CO. LTD: 316 ITR 426 (RAJ . HC) - ACIT VS. DOON VALLEY MOTORS: 10 SOT 525 (DEL TR.) - HERO MOTOR CORP LTD. VS. ACIT: 156 TTJ 139 (DEL. TR I.) 36.20 WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED AR FURT HER SUBMITTED, THAT EVEN IF IT IS ASSUMED WITHOUT ADMITTING THAT T HE ENERGY METERS WERE PURCHASED BY THE ASSESSEE AT HIGHER PRICES, EVEN TH EN THE SAID ISSUE WOULD ONLY REMAIN ACADEMIC, SINCE ULTIMATELY TAX HAS BEEN PAID BY REL ON THE CONSIDERATION RECEIVED ON SALE OF THE ENERGY METERS AND THE ENTIRE EXERCISE IS REVENUE NEUTRAL. 36.21 RELIANCE IN THIS REGARD WAS PLACED ON THE LA NDMARK DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. GLAXO SMITHKLINE ASIA (P.) 119 LTD: 195 TAXMANN 35 , WHERE THE KEY QUESTION FOR DETERMINATION BEFORE T HE REVENUE AUTHORITIES WAS WHETHER THE ASSESSEE-COMPA NY AND ITS SERVICE PROVIDER WERE RELATED COMPANIES IN TERMS OF SECTION 40A(2) OF THE ACT, WHETHER ALLOCATION OF CROSS-CHARGES PAID BY THE ASS ESSEE COULD BE DISALLOWED ON THE ALLEGED GROUND THAT THE SAME WERE EXCESSIVE OR UNREASONABLE. DISMISSING THE SPECIAL LEAVE PETITION OF THE DEPART MENT, HON'BLE SUPREME COURT HELD THAT NO INTERFERENCE WAS CALLED FOR IN THE SAID CASE, AS THE ENTIRE EXERCISE WAS REVENUE NEUTRAL. 36.22 TO THE SAME EFFECT IS THE DECISION OF HONBL E BOMBAY HIGH COURT IN THE CASE OF CIT VS. V.S. DEMPO & CO. (P.) LTD.: 196 TAXMAN 193 , SUBMITTED THE LEARNED AR. 36.23 IN VIEW OF THE ABOVE, THE LEARNED AR SUBMITT ED THAT THE DISALLOWANCE OF DEPRECIATION OF RS.2,94,24,126/- DELETED BY THE LEARNED CIT(APPEALS) MAY BE UPHELD. 37. CONSIDERING THE ABOVE SUBMISSION, WE FIND SUBST ANCE IN THE ABOVE CONTENTIONS OF THE LEARNED AR AND FULLY CONCUR WITH HIS SUBMISSIONS THAT FOR INVOKING THE PROVISIONS OF SEC. 40A(2) OF THE A CT, THE ONUS LIES UPON THE ASSESSING OFFICER TO PROVE THAT PAYMENT IS EXCESSIV E OR UNREASONABLE HAVING 120 REGARD TO THE FAIR MARKET VALUE OF THE GOODS OR LEG ITIMATE NEED OF THE BUSINESS. IN THE PRESENT CASE, THE ASSESSING OFFICE R HAS FAILED TO BRING ON RECORD ANY CORROBORATIVE EVIDENCE TO ESTABLISH THAT THE PRICE PAID TO REL FOR PURCHASE OF ENERGY METERS WAS UNREASONABLE AND EXCE SSIVE. AND ABOVE ALL THE SAID DERC ORDER ON THE BASIS OF WHICH THE ASSES SING OFFICER CAME TO THE CONCLUSION THAT EXCESSIVE PRICE HAS BEEN PAID TO RE L HAS ALREADY BEEN SET ASIDE BY THE ATE AND OPERATION OF THAT ORDER GIVING RELIEF TO THE ASSESSEE HAS NOT BEEN STAYED BY ANY APPELLATE AUTHORITY AS PER T HE LEARNED AR. WE ALSO CONCUR WITH THE SUBMISSIONS OF THE ASSESSEE THAT CA PITAL EXPENDITURE PAYMENTS ELIGIBLE FOR DEPRECIATION ARE NOT COVERED UNDER SEC. 40A(2) OF THE ACT BY VIRTUE OF THE FACT THAT DEPRECATION IS NOT A DEDUCTION BUT ONLY AN ALLOWANCE. CONSIDERING ALL THESE MATERIAL ASPECTS O F THE ISSUE, WE ARE OF THE VIEW THAT THE LEARNED CIT(APPEALS) HAS RIGHTLY DELE TED THE ADDITION OF RS.2,94,24,126 MADE ON ACCOUNT OF DISALLOWANCE OF D EPRECIATION ON ENERGY METERS PURCHASED FROM REL. THE SAME IS UPHELD. THE GROUND NO.1 IS ACCORDINGLY REJECTED. 38. GROUND NO.2 : IT IS REGARDING THE DELETION OF ADDITION OF RS.1,91,29,36,254 MADE ON ACCOUNT OF SERVICE LINE D EPOSITS AND ON ACCOUNT OF CONSUMER CONTRIBUTION FOR CAPITAL WORKS. 121 38.1 THE FACTS IN BRIEF ARE THAT DURING THE YEAR, T HE ASSESSEE RECEIVED RS.39.42 CRORES (AS PER RECTIFICATION ORDER DATED 2 4.2.2009) AS CONSUMERS CONTRIBUTION TOWARDS CAPITAL WORK AND RS.15.28 CROR ES AS SERVICE LINE DEPOSITS FROM CUSTOMERS. 38.2 THE AFORESAID CONSUMERS CONTRIBUTIONS BEING CO NTRIBUTION MADE BY THE CUSTOMERS FOR UNDERTAKING CAPITAL WORKS, WAS TREATE D AS CAPITAL RECEIPTS IN THE BOOKS OF THE ASSESSEE IN ACCORDANCE WITH THE EL ECTRICITY (SUPPLY) ANNUAL ACCOUNT RULES, 1985. IN SO FAR THE SERVICE LINE DEP OSIT IS CONCERNED, THE SAME WAS RECEIVED AS NON-REFUNDABLE DEPOSITS FROM C USTOMERS AS PER THE PROVISIONS OF DERC AND THE ELECTRICITY ACT FOR THE PURCHASE OF INCURRING THE EXPENDITURE FOR LAYING THE SERVICE LINE AND OTHER R ELATED EXPENSES FOR PROVIDING NEW CONNECTIONS TO THE CUSTOMERS. THE AMO UNT SO RECEIVED BY THE ASSESSEE WAS RECOGNIZED AS INCOME OVER A PERIOD OF THREE YEARS, I.E. 1/3R OF THE SERVICE LINE DEPOSITS WAS RECOGNIZED AS INCOME EVERY YEAR AND THE BALANCE AMOUNT WAS SHOWN AS LIABILITY IN THE BALANC E SHEET. FURTHER THE EXPENDITURE INCURRED FOR PROVIDING SERVICE LINE WAS CAPITALIZED UNDER THE HEAD PLANT AND MACHINERY AND FULL DEPRECIATION WA S CLAIMED BY THE ASSESSEE ON THE CAPITAL ASSETS SO ACQUIRED OUT OF T HE SAID DEPOSITS. 122 38.3 THE ASSESSING OFFICER HELD THAT THE SERVICE LI NE DEPOSITS AND CONSUMERS CONTRIBUTIONS ARE IN THE NATURE OF NON-RE FUNDABLE DEPOSITS AND THEREFORE, NOT IN THE NATURE OF LIABILITY. THE ASSE SSING OFFICER FURTHER HELD THAT THE AFORESAID DEPOSITS WERE TAXABLE AS REVENUE RECEIPTS IN VIEW OF THE FACT THAT THE ASSESSEE IS A SERVICE PROVIDER AND TH E AMOUNT WAS RECEIVED IN THE COURSE OF RENDERING OF SERVICE. ACCORDINGLY, TH E ASSESSING OFFICER BROUGHT TO TAX THE ENTIRE AMOUNT OF SERVICE LINE DE POSITS AND CONSUMER CONTRIBUTIONS RECEIVED BY THE ASSESSEE IN THE ASSES SMENT YEAR UNDER CONSIDERATION. 38.4 THE LEARNED CIT(APPEALS) HELD THAT BOTH ((I) C ONSUMER CONTRIBUTION AND (II) SERVICE LINE DEPOSITS WERE CAPITAL RECEIPT S AND WERE NOT IN THE NATURE OF TRADING RECEIPTS. HOWEVER, SINCE THE CONTRIBUTIO N RECEIVED WAS TOWARDS ACQUISITION OF CAPITAL ASSETS, THE SAME WAS REQUIRE D TO BE REDUCED FROM THE COST OF SUCH ASSETS AS PER SEC. 43(1) OF THE ACT, W HICH WOULD CONSEQUENTLY HAVE THE IMPACT OF REDUCING THE CLAIM OF DEPRECIATI ON ON SUCH ASSETS. 3805. FURTHER, IN RESPECT OF SERVICE LINE DEPOSITS, THE LEARNED CIT(APPEALS) HELD THAT SINCE THE ASSESSEE WAS FOLLOWING A CONSIS TENT ACCOUNTING PRINCIPLES OF RECOGNIZING THE SAME AS INCOME OVER A PERIOD OF THREE YEARS, NO INTERFERENCE WAS REQUIRED SINCE THE ENTIRE EXERCISE WAS REVENUE NEUTRAL. 123 39. IN SUPPORT OF THE GROUND, THE LEARNED CIT(DR) P LACED RELIANCE ON THE ASSESSMENT ORDER. HE CONTENDED THAT CONSIDERING THI S ASPECT THAT SERVICE LINE DEPOSIT AND CONSUMER CONTRIBUTION ARE IN THE NATURE OF NON-REFUNDABLE DEPOSITS AND, THEREFORE, NOT IN THE NATURE OF LIABI LITY, THE ASSESSING OFFICER HAS RIGHTLY HELD THAT THE AFORESAID DEPOSITS WERE T AXABLE AS REVENUE RECEIPTS KEEPING IN VIEW THAT THE ASSESSEE IS A SERVICE PROV IDER AND THE AMOUNT WAS RECEIVED IN THE COURSE OF RENDERING OF SERVICES. 40. THE LEARNED AR ON THE OTHER HAND TRIED TO JUSTI FY THE RELIEF GIVEN BY THE FIRST APPELLATE AUTHORITY. HE SUBMITTED THAT T HE SERVICE LINE DEPOSITS AND CONSUMER CONTRIBUTIONS RECEIVED BY THE ASSESSEE IN THE ASSESSMENT YEAR UNDER CONSIDERATION ARE IN THE NATURE OF CAPITAL RE CEIPT, AS ELABORATED HEREUNDER: 40.1 RE: SERVICE LINE DEPOSITS : THE ASSESSEE IN THE YEAR UNDER CONSIDERATION RECEIVED A SUM OF RS.15.41CRORES AS S ERVICE LINE DEPOSITS. THE SAID CHARGES/DEPOSITS WERE RECEIVED BY THE ASSESSEE AS PER THE PROVISIONS OF THE ELECTRICITY ACT, 2003 READ WITH THE REGULATION FRAMED THERE UNDER BY THE 124 DERC FROM TIME TO TIME. THE RELEVANT RULES OF DERC RELATING TO SERVICE LINE DEPOSITS ARE LAID DOWN IN THE SCHEDULE OF MISC. CHA RGES. 40.2 THE AFORESAID DEPOSITS WERE RECEIVED BY THE AS SESSEE FROM ITS CUSTOMERS TOWARDS SETTING UP OF SERVICE LINES, WH ICH INCLUDED COST OF GI PIPE, BRICKS, SAND, ETC. FURTHER, IN RESPECT OF UN-ELECTRIFIED AREAS, THE AS SESSEE WAS ALSO ELIGIBLE TO CHARGE DEVELOPMENT CHARGES IN ADDITION TO THE SERVI CE LINE CHARGES. 40.3 SERVICE LINE, IT WAS SUBMITTED, IS A CONNECTIN G LINE WHICH LINKS THE SUPPLY SYSTEM TO THE PREMISES OF THE CONSUMER AND U TILIZED FOR THE PURPOSE OF SUPPLYING ELECTRICITY. THE SERVICE LINE CHARGES ARE CHARGED FROM THE CONSUMER ONLY AT THE TIME OF PROVIDING NEW CONNECTI ONS, TO RECOVER THE CAPITAL EXPENDITURE INCURRED ON SETTING UP OF SUCH LINES. THUS, IT IS A ONE- TIME CHARGE LEVIED ON THE CUSTOMER/ CONSUMER AT THE TIME OF TA KING NEW CONNECTIONS AND THEREAFTER, IT IS THE RESPONSIBILIT Y OF THE ASSESSEE COMPANY FOR SETTING UP AND MAINTENANCE OF THE SERVICE LINES . 125 40.4 IT IS RESPECTFULLY SUBMITTED THAT THE SERVICE LINE DEPOSITS/CHARGES RECEIVED BY THE ASSESSEE ARE CAPITAL IN NATURE AND AS SUCH IS DIRECTLY RELATED TO THE CAPITAL EXPENDITURE INCURRED AND CAPITALIZED UNDER THE HEAD PLANT & MACHINERY. 40.5 THE AFORESAID ISSUE, IT WAS SUBMITTED, IS SQUA RELY COVERED BY THE LANDMARK DECISION OF THE SUPREME COURT IN THE CASE OF HOSHIARPUR ELECTRIC SUPPLY CO. VS. CIT: 41 ITR 608, WHEREIN THE HONBLE APEX COURT HAS CATEGORICALLY HELD THAT THE SERVICE CONNECTION RECEIPTS OF AN ELECTRICITY COMPANY ARE NOT RECEIPTS INCIDENTAL TO NOR CARRYIN G ON OF THE ASSESSEES BUSINESS, BUT ARE RECEIPTS FOR BRINGING INTO EXISTE NCE CAPITAL OF LASTING VALUE. SINCE THE CONTRIBUTIONS MADE WERE NOT MADE MERELY F OR SERVICES RENDERED AND TO BE RENDERED, BUT FOR INSTALLATION OF CAPITAL EQUIPMENT, THE SAME CONSTITUTED CAPITAL RECEIPT. THE HONBLE SUPREME COURT FURTHER HELD THAT EVEN THE BALANCE AMOUNT RETAINED BY THE ASSESSEE, W HICH HAD NOT BEEN EXPENDED, COULD NOT ALSO BE CONSIDERED TO BE A REVE NUE RECEIPT. 40.6 TO THE SAME EFFECT ARE THE FOLLOWING DECISIONS : ROHATAK & HISSAR DISTRICTS ELECTRIC SUPPLY CO. (P.) LTD. VS. CIT: 5 TAXMAN 116 (DEL) RANCHI ELECTRIC SUPPLY CO. LTD. VS. CIT: 16 TAXMAN 213 (PAT.) 126 CIT VS. COCHIN ELECTRIC CO: 57 ITR 82 (KER.) CIT VS. POONA ELECTRIC SUPPLY CO. LTD.: 14 ITR 622 (BOM) MONGHYR ELECTRIC SUPPLY CO. VS. CIT: 26 ITR 15 (ORI SSA.) 40.7 FURTHER, EVEN IN THE IMPUGNED ASSESSMENT ORDER , THE ASSESSING OFFICER HAS MERELY EMPHASIZED ON THE POINT THAT SINCE THE A SSESSEE-COMPANY IS PRIMARILY A SERVICE PROVIDER, THE CHARGES RECEIVED FROM CONSUMERS WERE REVENUE IN NATURE, WITHOUT APPRECIATING THAT THE SA ID CHARGES WERE ACTUALLY RECEIVED AS REIMBURSEMENT TOWARDS INCURRING CAPITAL EXPENDITURE AND NOT FOR RENDERING OF ANY SERVICE PER SE. 40.8 IT MAY ALSO BE PERTINENT TO NOTE THAT IT IS NO T EVEN THE CASE OF THE ASSESSING OFFICER, THAT THE DEPOSITS/CHARGES WERE N OT UTILIZED FOR UNDERTAKING CAPITAL WORKS. 40.9 IN THIS REGARD, IT WAS FURTHER SUBMITTED, THAT MERELY BECAUSE THE ASSESSEE FOLLOWED THE ERRONEOUS PRINCIPLE OF RECOGN IZING SERVICE LINE DEPOSITS AS INCOME, THOUGH OVER A PERIOD OF THREE Y EARS, THE SAID FACT, BY ITSELF, COULD NOT HAVE BEEN THE BASIS OF BRINGING T O TAX THE ENTIRE AMOUNT RECEIVED AS TRADING RECEIPT, NOTWITHSTANDING THE MA NDATE OF EXPLANATION 10 TO SECTION 43(1) OF THE ACT. 127 40.10 IN VIEW OF THE ABOVE, THE LEARNED AR SUBMIT TED THAT THE SERVICE LINE CHARGES/DEPOSITS RECEIVED BY THE ASSESSEE BE DIRECT ED TO BE TREATED AS CAPITAL RECEIPT, WHICH MAY BE REDUCED FROM THE COST OF RELE VANT BLOCK OF ASSETS. 40.11 RE: CONSUMER CONTRIBUTION: IN SO FAR AS THE CONSUMER CONTRIBUTION IS CONCERNED, IT WAS SUBMITTED, THAT THE ASSESSEE-C OMPANY RECEIVED CONTRIBUTION OF RS.39.42 CRORES FROM CONSUMERS IN R ESPECT OF CAPITAL WORKS TO BE UNDERTAKEN. THE SAID AMOUNT WAS RECEIVED AS P ER DERC REGULATIONS, FOR THE PURPOSE OF ELECTRIFICATION OF AREAS DEVELOP ED AND SPONSORED BY VARIOUS DEVELOPMENT AGENCIES. 40.12 AS PER THE DERC PROVISIONS, THE ELECTRIFICA TION OF CERTAIN AREAS ARE TO BE UNDERTAKEN BY THE ASSESSEE-COMPANY AFTER CHAR GING CERTAIN SPECIFIED AMOUNTS IN RESPECT OF COSTS TO BE INCURRED ON HT FE EDER, SUB-STATIONS INCLUDING CIVIL WORK, LT FEEDERS AND SERVICE LINE A ND STREET LIGHTS. 40.13 THE AFORESAID CONSUMER CONTRIBUTION RECEIVE D FROM CONSUMERS FOR UNDERTAKING CAPITAL WORKS ARE ACCOUNTED FOR BY THE ASSESSEE-COMPANY AS PER THE PROVISIONS OF THE ELECTRICITY (SUPPLY) ANNUAL A CCOUNTS RULES, 1985, 128 WHICH MANDATES THAT SUCH CONTRIBUTIONS SHOULD BE TR EATED AS CAPITAL RECEIPT IN THE HANDS OF THE ELECTRICITY COMPANY. 40.14 FURTHER THE DETAILS OF NATURE OF WORK AND ES TIMATED COST OF ELECTRIFICATION SCHEMES IN RESPECT OF THE CONSUMER DEPOSITS RECEIVED BY THE ASSESSEE WERE ALSO FURNISHED DURING THE PROCEEDINGS BEFORE THE CIT(A). RELIANCE IN THIS REGARD WAS PLACED ON THE DECISIONS REFERRED SUPRA WHEREIN IT HAS BEEN HELD THAT CONTRIBUTION(S) RECEIVED BY ELEC TRICITY COMPANIES FOR UNDERTAKING CAPITAL WORKS IS IN THE NATURE OF CAPI TAL RECEIPT. 40.15. WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED AR FURTHER SUBMITTED THAT SINCE THE AFORESAID CONTRIBUTIONS WERE RECEIVE D BY THE ASSESSEE FOR MEETING CERTAIN COST OF ASSETS CAPITALIZED UNDER TH E HEAD PLANT AND MACHINERY, THE SAID AMOUNT COULD, AT THE MOST, BE REDUCED FROM THE COST OF SUCH PLANT & MACHINERY, IN TERMS OF SECTION 43(1) OF THE ACT, AS DIRECTED BY THE CIT(APPEALS). 41. CONSIDERING THE ABOVE SUBMISSION AS WELL AS HAV ING GONE THROUGH THE CITED DECISIONS, WE FIND THAT THE HON'BLE SUPREME C OURT IN THE CASE OF HOSIARPUR ELECTRIC SUPPLY CO. VS. CIT (SUPRA) HAS B EEN PLEASED TO HOLD 129 CATEGORICALLY THAT SERVICE CONNECTION RECEIPTS OF A N ELECTRICITY COMPANY ARE NOT RECEIPTS INCIDENTAL TO NOR CARRYING ON OF THE A SSESSEES BUSINESS, ARE RECEIPTS FOR BRINGING INTO EXISTENCE CAPITAL OF LAS TING VALUE. SINCE THE CONTRIBUTIONS MADE WERE NOT MADE MERELY FOR SERVICE S RENDERED AND TO BE RENDERED, BUT FOR INSTALLATION OF CAPITAL EQUIPMENT , THE SAME CONSTITUTED CAPITAL RECEIPTS. IT WAS FURTHER HELD THAT EVEN THE BALANCE AMOUNT RETAINED BY THE ASSESSEE WHICH HAD NOT BEEN EXPENDED COULD NOT ALSO BE CONSIDERED TO BE A REVENUE RECEIPTS. SIMILAR VIEW HAS BEEN EXPRESSED BY HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. ELECTRIC SUPPLY C O. LTD. (SUPRA) AND BY THE HON'BLE KERALA HIGH COURT IN THE CASE OF CIT VS. CO CHING ELECTRIC CO. (SUPRA). THE SERVICE LINE DEPOSITS RECEIVED BY THE ASSESSEE FROM THE CONSUMERS FOR CONNECTING LINE WHICH LINKS THE SUPPL Y SYSTEM TO THE PREMISES OF THE CONSUMERS AND UTILIZED FOR THE PURPOSE OF SU PPLYING ELECTRICITY AND ARE CHARGED FROM THE CONSUMERS ONLY AT THE TIME OF PROV IDING NEW CONNECTIONS TO RECOVER THE CAPITAL EXPENDITURE INCURRED ON SETT ING UP OF SUCH LINES, IN OUR VIEW, HAS RIGHTLY BEEN HELD BY THE LEARNED CIT(APPE ALS) AS CAPITAL IN NATURE. THE SAME HAS ALSO BEEN CAPITALIZED BY THE A SSESSEE UNDER THE HEAD PLANT AND MACHINERY. SIMILAR IS THE NATURE OF CO NSUMERS CONTRIBUTION RECEIVED BY THE ASSESSEE IN RESPECT OF CAPITAL WORK S TO BE UNDERTAKEN. THE AMOUNT WAS RECEIVED AS PER DERC REGULATIONS FOR THE PURPOSE OF 130 ELECTRIFICATION OF AREA DEVELOPED AND SPONSORED BY VARIOUS DEVELOPMENT AGENCIES. AS PER DERC PROVISIONS, THE ELECTRIFICATI ON OF CERTAIN AREAS ARE TO BE UNDERTAKEN BY THE ASSESSEE AFTER CHARGING CERTAI N SPECIFIED AMOUNTS IN RESPECT OF COST TO BE INCURRED ON HT FEEDER, SUB-ST ATIONS INCLUDING CIVIL WORK, LP FEEDERS AND SERVICE LINE AND STREET LIGHTS ETC. THE AFORESAID CONSUMERS CONTRIBUTION RECEIVED FROM CONSUMERS FOR UNDERTAKING CAPITAL WORKS ARE ACCOUNTED FOR THE ASSESSEE AS PER THE PRO VISIONS OF THE ELECTRICITY (SUPPLY) ANNUAL ACCOUNTS RULES, 1985 WHICH MANDATES THAT SUCH CONTRIBUTION SHOULD BE TREATED AS CAPITAL RECEIPTS IN THE HANDS OF THE ELECTRICITY COMPANY. THE DETAILS OF NATURE OF WORK AND ESTIMATED COST OF ELECTRIFICATION SCHEMES IN RESPECT OF THE CONSUMER DEPOSITS RECEIVED BY THE ASSESSEE WERE ALSO FURNISHED BEFORE THE AUTHORITIES BELOW. WE HAVE ALSO DISCUSSED IN IDENTICAL ISSUE HEREINABOVE IN THE APP EALS FOR THE ASSESSMENT YEAR 2005-06 AND HAVE DECIDED IT IN FAVOUR OF THE A SSESSEE. THUS, IN VIEW OF THE RATIOS LAID DOWN IN THE ABOVE CITED DECISIONS, WE ARE OF THE VIEW THAT THE LEARNED CIT(APPEALS) HAS RIGHTLY TREATED THE CONSUM ERS CONTRIBUTION AS CAPITAL IN NATURE. THE FIRST APPELLATE ORDER DELETI NG THE ADDITION OF RS.1,91,29,36,254 MADE ON ACCOUNT OF SERVICE LINE DEPOSITS AND ON ACCOUNT OF CONSUMERS CONTRIBUTION IS THUS UPHELD. THE GRO UND NO. 2 IS ACCORDINGLY REJECTED. 131 42. GROUND NO.3 : IN THIS GROUND, THE REVENUE HAS QUESTIONED FIRST APPELLATE ORDER IN DELETING ADDITION OF RS.44,71,06 4 MADE ON ACCOUNT OF DISALLOWANCE OF LEGAL CLAIMS IGNORING THAT PAYMENTS MADE BY THE ASSESSEE ARE PENAL IN NATURE AND HENCE NOT ALLOWABLE. 42.1 THE RELEVANT FACTS ARE THAT THE ASSESSEE CLAIM ED DEDUCTION FOR EXPENDITURE AMOUNTING TO RS.1,78,84,256 UNDER THE H EAD LEGAL CLAIMS AS PER PROVISIONS OF SEC. 37 OF THE ACT. THE ASSESSEE SUBMITTED THAT THE SAID EXPENSES WERE INCURRED IN THE REGULAR COURSE OF ITS BUSINESS TO DEAL WITH CASES ARISING ON ACCOUNT OF ITS ENFORCEMENT INITIAT IVES, TO DEFEND LEGAL CASES, SETTLEMENT IN ARBITRATION MATTERS AND OTHER REFUNDS MADE TO CUSTOMERS. THE ASSESSING OFFICER DID NOT AGREE WITH AND MADE AN AD HOC DISALLOWANCE AT 25% OF THE TOTAL LEGAL EXPENDITURE AMOUNTING TO RS. 44,71,064 WITH THIS FINDING THAT THE SAID EXPENDITURE IS PENAL IN NATUR E HENCE IS NOT ALLOWABLE UNDER THE PROVISIONS OF THE ACT. 42.2 BEFORE THE LEARNED CIT(APPEALS), THE ASSESSEE MAINLY CONTENDED THAT THE ASSESSING OFFICER HAS NOT BEEN ABLE TO POINT OU T ANY SPECIFIC EXPENSE INCURRED BY THE ASSESSEE TO BE PENAL IN NATURE BUT HAS SUMMARILY MADE AN AD 132 HOC DISALLOWANCE @ 25% WITHOUT ANY COGENT REASON. T HE LEARNED CIT(APPEALS) HAS DELETED THE DISALLOWANCE. 43. IN SUPPORT OF THE GROUND, THE LEARNED CIT(DR) H AS BASICALLY PLACED RELIANCE ON THE ASSESSMENT ORDER AND HAS REITERATED THAT THE CLAIMED EXPENDITURE WAS PENAL IN NATURE, HENCE, IT WAS NOT ALLOWABLE UNDER THE PROVISIONS OF THE INCOME-TAX ACT, 1961. 44. THE LEARNED AR ON THE OTHER HAND TRIED TO JUSTI FY THE FIRST APPELLATE ORDER ON THE ISSUE AND SUBMITTED THAT THE ASSESSEE- COMPANY, IN THE COURSE OF ITS BUSINESS, INCURRED ROUTINE EXPENDITURE FOR SETT LEMENT OF LEGAL CLAIMS AMOUNTING TO RS.1.78 CRORES. 44.1 THE AFORESAID PAYMENTS, IT WAS SUBMITTED, WE RE MADE BY THE ASSESSEE IN PURSUANCE OF SETTLEMENT OF CERTAIN CLAIMS MADE B Y CONSUMERS, IN THE REGULAR COURSE OF BUSINESS AND DID NOT INVOLVE ANY PENAL ELEMENT. 44.2 IN THIS REGARD, THE LEARNED AR SUBMITTED, THAT THE PAYMENTS MADE WERE NOT ON ACCOUNT OF INFRACTION OR VIOLATION OF L AW, BUT MERELY IN THE 133 NATURE OF SETTLEMENT OF DISPUTES ARISING IN THE REG ULAR COURSE OF BUSINESS AND COULD AT BEST BE TREATED AS A TRADING LIABILITY. 44.3 FURTHER, EVEN THE ASSESSING OFFICER HAS FAILED TO PIN-POINT ANY SPECIFIC EXPENDITURE WHICH IS PENAL IN NATURE AND HAS MERELY MADE AN AD-HOC DISALLOWANCE @ 25% OF SUCH EXPENDITURE, MERELY ON T HE BASIS OF ASSUMPTION. 44.4 EVEN OTHERWISE, PAYMENTS MADE TO CUSTOMERS AND OTHERS IN LIEU OF CIVIL CLAIMS/ SUITS, ARBITRATION, ETC., ARE MERELY IN THE NATURE OF COMPENSATION PAID IN THE REGULAR COURSE OF BUSINESS, WHICH WAS P URELY COMPENSATORY IN NATURE AND CANNOT, BE DISALLOWED UNDER SECTION 37 O F THE ACT. RELIANCE IN THIS REGARD HAS BEEN PLACED BY THE LEAR NED AR ON THE FOLLOWING DECISIONS: PRAKASH COTTON MILLS VS. CIT: 201 ITR 684 (SC) CIT VS. INDIAN COPPER CORPORATION LTD.: 161 ITR 327 (PAT) CIT VS. GRAND CASHEW CORPORATION: 182 ITR 216 (KER) JAMA AUTO INDUSTRIES VS. CIT: 299 ITR 92 (P&H) CIT VS. HINDUSTAN COPPER LTD.: 55 TAXMAN 392 (CAL) CIT VS. TODI TEA COL. LTD: 239 ITR 28 (CAL.) G.L. REXROTH INDUSTRIES LTD. VS. DCIT: 59 TTJ 757 ( AHD.) CIT VS. DEVERSONS INDUSTRIES LTD.: 104 ITD 171 (AHD .) 134 45. ON PERUSAL OF THE ORDERS OF THE AUTHORITIES BEL OW ON THE ISSUE, IN VIEW OF THE ABOVE SUBMISSIONS AND THE DECISIONS CITED, W E FIND THAT THE LEARNED CIT(APPEALS) HAS DELETED THE ADDITION MADE ON ACCOU NT OF DISALLOWANCE OF LEGAL CLAIM ON THE BASIS THAT THE ASSESSING OFFICER HAS NOT HIGHLIGHTED A SINGLE INSTANCE THAT THE CHARGES WERE OF PENAL NATU RE. WE FIND THAT THE ASSESSING OFFICER HAS MADE THE DISALLOWANCE ON ESTI MATE BASIS AT 25% OF THE EXPENDITURE CLAIMED. NO BASIS HAS BEEN ASSIGNED FOR MAKING SUCH AD HOC DISALLOWANCE. NOTING THESE MATERIAL ASPECTS, WE ARE OF THE VIEW THAT THE LEARNED CIT(APPEALS) HAS RIGHTLY DELETED THE DISALL OWANCE IN ABSENCE OF ANY INSTANCE THAT THERE WAS ANY PENALTY WHICH WOULD FALL UNDER THE EXPLANATION TO SEC. 37 OF THE INCOME-TAX ACT, 1961. THE FIRST APPELLATE ORDER IN THIS REGARD IS THUS UPHELD. GROUND NO.3 IS ACCORDINGLY REJECTED. 46. GROUND NO.4 : IT IS REGARDING DELETION OF ADDITION OF RS.12,11, 462 MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DISALLO WANCE OF EXTRA DEPRECIATION ON COMPUTER PERIPHERAL. DURING THE YEA R, THE ASSESSEE HAS PURCHASED CERTAIN COMPUTERS ACCESSORIES AND PERIPHE RAL IN THE NATURE OF SCANNER, PRINTER, INPUT AND OUTPUT PROCESSING UNITS , ETC. AGGREGATING TO RS.28,32,502, WHICH WERE CAPITALIZED UNDER THE HEAD COMPUTER AND 135 DEPRECIATION THEREON WAS CLAIMED AT THE PRESCRIBED RATE OF 60%. THE ASSESSING OFFICER HELD THAT COMPUTER ACCESSORIES AN D PERIPHERAL COULD NOT BE CLASSIFIED UNDER THE HEAD COMPUTER AND THEREFORE, DISALLOWED DEPRECIATION CLAIMED @ 60% AND RESTRICTED THE SAME @ 15%, DISALL OWING THE CLAIM OF DEPRECIATION TO THE TUNE OF RS.12,11,462. THE LEARN ED CIT(APPEALS) HAS, HOWEVER, DELETED THE DISALLOWANCE RELYING UPON THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT OF DELHI IN THE CASE OF B SES RAJDHANI POWERS LTD., ITA NO. 1266 OF 2010 JUDGMENT DATED 31.8.20 10. AGAINST THIS ACTION OF THE LEARNED CIT(APPEALS), THE REVENUE IS IN APPE AL. 47. IN SUPPORT OF THE GROUND, THE LEARNED CIT(DR) H AS BASICALLY PLACED RELIANCE ON THE ASSESSMENT ORDER. 48. THE LEARNED AR ON THE CONTRARY HAS SUPPORTED TH E FIRST APPELLATE ORDER. HE SUBMITTED THAT THE CLAIMED DEPRECATION @ 60% ON COMPUTER ACCESSORIES AND PERIPHERAL IS AS PER THE LAW. HE DR EW OUR ATTENTION IN THIS REGARD TO THE STUDY MATERIAL FOR PEE II INFORMATION TECHNOLOGY PAPER VI ISSUED BY THE ICAI WHICH STATES AS UNDER: THE TERM 'COMPUTER' CAN LOGICALLY BE APPLIED TO AN Y CALCULATING MACHINE. HOWEVER, IN COMMON USAGE, THE DEFINITION O F A COMPUTER HAS BECOME MORE LIMITED IN A CONTEMPORARY USAGE. WE NOW DEFINE A COMPUTER AS AN ELECTRONIC DATA PROCESSING DEVICE CA PABLE OF RECEIVING 136 INPUT, STORING SETS OF INSTRUCTIONS FOR SOLVING PRO BLEMS AND GENERATING OUTPUT WITH HIGH SPEED AND ACCURACY. COMPUTERS ARE COMPOSED OF SWITCHES, WIRES, MOTORS, TRANSISTORS AND INTEGRATED CIRCUITS ASSEMBLED ON FRAMES . THE FRAMES FORM COMPONENTS SUCH AS KEYBOARDS, PRINTERS, VISUAL DISPLAY UNITS, DISK DRIVES, MAGNET IC TAPE DRIVES AND CENTRAL PROCESSING UNITS. THESE COMPONENTS ARE WIRED TOGETHER INTO A NETWORK CALLED A COMPUTING SYSTEM OFTEN CALLED A CO MPUTER. 48.1 THE LEARNED AR ALSO PLACED RELIANCE ON THE DEC ISION OF HON'BLE DELHI HIGH COURT IN THE CASE OF ASSESSEE ITSELF IN ITA NO . 1266 OF 2010- JUDGMENT DATED 31.8.2010 (SUPRA). HE ALSO PLACED RELIANCE ON THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF CIT VS. BIRLA SOFT LTD ., SLP NO. (S) 20645/2014. 49. CONSIDERING THE ABOVE SUBMISSION, WE FIND THAT THE ISSUE IS FULLY COVERED BY THE ABOVE CITED DECISION OF HON'BLE DELH I HIGH COURT IN THE CASE OF ASSESSEE ITSELF IN ITA NO.1266 OF 2010 (SUPRA) H OLDING THAT PRINTERS, SCANNERS AND SERVER ETC. FORM INTEGRAL PART OF THE COMPUTER SYSTEM AND, THEREFORE, ENTITLED TO DEPRECIATION @ 60%. RESPECTF ULLY FOLLOWING THE SAME, WE ARE OF THE VIEW THAT THE LEARNED CIT(APPEALS) HA S RIGHTLY DELETED THE DISALLOWANCE. THE SAME IS UPHELD. GROUND NO. 4 IS A CCORDINGLY REJECTED. 146. IN RESULT, THE APPEAL OF THE REVENUE IS DISMIS SED. 137 ITA NO. 1437/DEL/2011: (A.Y. 2007-08) : 50. THE ASSESSEE HAS IMPUGNED FIRST APPELLATE ORDER ON THE FOLLOWING GROUNDS: 1. SERVICE LINE DEPOSITS FROM THE CONSUMERS WRONGLY UPHELD AS TAXABLE OVER A PERIOD OF 3 YEARS. THE LEARNED CIT(A)-VI HAS UPHELD THAT THE SERVICE L INE DEPOSITS ARE CAPITAL IN NATURE BUT IN THIS REGARD SHE HAS WRONGL Y UPHELD THAT THE SAME ARE TAXABLE OVER A PERIOD OF 3 YEARS. IN FACT THE SAME DESERVES TO BE REDUCED FROM THE COST OF PLANT AND MACHINERY IN ACCORDANCE WITH THE PROVISIONS OF SECTION 43(1) OF THE INCOME TAX A CT, 1961. 2. DEPRECIATION ON ENERGY METERS WRONGLY ALLOWED AT 15% AS AGAINST 80% RESULTING IN A DISALLOWANCE OF RS. 32, 54, 73,974. THE LD.CIT(A)- VI HAS WRONGLY UPHELD THAT THE EN ERGY METERS ARE ELIGIBLE FOR DEPRECIATION @ 15 % AS AGAINST THE CLAIMS @ 80 % . IN THIS REGARD SHE HAS IGNORED THE FACTS THAT THESE ME TERS ARE FOR MEASURING ELECTRIC ENERGY WHICH HAS BEEN SPECIFICAL LY MENTIONED AS ELIGIBLE FOR 80% DEPRECIATION IN THE DEPRECIATION S CHEDULE OF THE INCOME TAX RULES 1961. FURTHER THESE METERS ALSO H AS THE CHARACTERISTICS OF ENERGY SAVING DEVICE WHICH IS SU BJECT TO DEPRECIATION @ 80%. 138 IN VIEW OF THE ABOVE, DEPRECIATION ALLOWED @ 15 % AS AGAINST THE 80% CLAIM ON ENERGY METERS RESULTING IN A DISALLOWA NCE OF RS. 32,54,73,974 IS WRONG, AGAINST THE FACTS OF THE CAS E AND UNSUSTAINABLE IN THE EYES OF LAW. 51. THE ISSUES RAISED IN THE ABOVE GROUNDS ARE COVE RED BY THE DECISION TAKEN ON IDENTICAL ISSUES IN THE ABOVE APPEALS FOR THE ASSESSMENT YEARS 2005- 06 AND 2006-07. 51.1 IN GROUND NO.1, THE ISSUE RAISED IS REGARDING VALIDITY OF THE FIRST APPELLATE ORDER UPHOLDING SERVICE LINE DEPOSITS FRO M THE CONSUMERS AS TAXABLE OVER A PERIOD OF THREE YEARS. WE HAVE DEALT WITH THIS ISSUE IN THE APPEALS FOR THE ASSESSMENT YEARS 2005-06 AND 2006-0 7 HEREINABOVE AND HELD THAT THE LEARNED CIT(APPEALS) WAS NOT JUSTIFIED IN NOT DIRECTING THE ASSESSING OFFICER TO REDUCE THE AMOUNT OF SERVICE L INE DEPOSITS CREDITED TO THE PROFIT AND LOSS ACCOUNT DURING THE YEAR AS PER THE ASSESSEES POLICY OF OFFERING THE SERVICE LINE DEPOSITS FOR REVENUE OVER A PERIOD OF THREE YEARS, WHILE COMPUTING THE TOTAL INCOME AFTER HOLDING THAT ENTIRE RECEIPTS BY WAY OF SERVICE LINE DEPOSITS IS CAPITAL IN NATURE. FOLLOWI NG THE SAME, WE DECIDE THE ISSUE RAISED IN GROUND NO.1 IN FAVOUR OF THE ASSESS EE WITH THE SAME FINDING AND WITH DIRECTION TO THE ASSESSING OFFICER TO REDU CE THE AMOUNT OF SERVICE 139 LINE DEPOSITS CREDITED TO THE PROFIT AND LOSS ACCOU NT DURING THE YEAR ACCORDINGLY WHILE COMPUTING THE TOTAL INCOME TREATI NG THE ENTIRE RECEIPTS BY WAY OF SERVICE LINE DEPOSITS AS CAPITAL IN NATURE. THE GROUND NO.1 IS ACCORDINGLY ALLOWED. 52. GROUND NO.2: IN THIS GROUND THE ISSUE RAISED IS REGARDING VALIDITY OF ALLOWANCE OF DEPRECIATION AT THE RATE OF 15% AS AGA INST 80% ON ENERGY METERS, RESULTING IN DISALLOWANCE OF RS.32,54,73,97 4. AN IDENTICAL ISSUE HAS BEEN DECIDED IN THE APPEALS FOR THE ASSESSMENT YEAR S 2005-06 AND 2006-07 HEREINABOVE WITH THIS FINDING THAT THE ASSESSEE IS ENTITLED FOR CLAIMING DEPRECIATION @ 80% ON THE ENERGY METERS AND HAS BEE N SET ASIDE THE MATTER TO THE FILE OF THE ASSESSING OFFICER TO ALLOW THE S AME ON THE ENERGY/ELECTRONIC METERS EXPENDITURE ON WHICH HAS B EEN REFLECTED IN THE AUDIT REPORT MADE AVAILABLE AT PAGE NO. 75 OF THE S UPPLEMENTARY PAPER BOOK FILED BY THE ASSESSEE. FOLLOWING THE SAME, WE DECI DE THE MATTER ACCORDINGLY WITH THE SIMILAR DIRECTION TO THE ASSESSING OFFICER . THE GROUND NO.2 IS THUS ALLOWED FOR STATISTICAL PURPOSES. 150. IN RESULT, THE APPEAL IS PARTLY ALLOWED. 140 ITA NO. 1539/DEL/20111: (A.Y. 2007-08) : 53. THE REVENUE HAS QUESTIONED FIRST APPELLATE ORDE R ON THE FOLLOWING GROUNDS: 1. THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN DE LETING ADDITION OF RS. 51,22,43,735/- MADE ON ACCOUNT OF DISALLOWANCE OF S ERVICE LINE DEPOSITS AND CUSTOMER CONTRIBUTION TO CAPITAL WORKS IGNORING THA T: A) THE SERVICE LINE DEPOSITS ARE NOT IN THE NATURE OF DEPOSITS PER SE THEY ARE NON- REFUNDABLE AS ALSO ADMITTED BY THE ASSESSEE CO. B) ONCE THESE RECEIPTS HAVE BEEN ACCEPTED AS NON-REFUN DABLE RECEIPTS THEY ARE NO MORE A LIABILITY ON THE COMPANY. HENCE THE TREATMEN T GIVEN BY THE ASSESSEE CO. TO SERVICE LINE DEPOSIT BY TREATING THEM AS LOA N FUNDS AND ACCORDINGLY AS LIABILITIES IS ALL TOGETHER INCORRECT. C) FURTHER THE ASSESSEE CO. IS ENGAGED IN SELLING ELEC TRICITY TO THE CONSUMERS FROM WHOM IT CHARGES FEES IN THE NAME OF ENERGY CHARGES. THESE ENERGY CHARGES ARE UNDISPUTEDLY IN THE NATURE OF REVENUE RECEIPTS. D) THE ASSESSEE CO. IS A SERVICE PROVIDER CO. AND IS E NGAGED IN THE BUSINESS OF DISTRIBUTION OF ELECTRICITY TO DIFFERENT CATEGORIES OF CUSTOMERS AS PER THEIR REQUIREMENTS. HENCE IT IS IN THE NATURE OF SERVICE PROVIDER. E) SINCE THE ASSESSEE CO. IS ENGAGED IN SELLING THE EN ERGY, THEREFORE FOR THIS PURPOSE IT HAS TO PROVIDE SERVICE LINE CONNECTIONS TO THE CONSUMERS FOR WHICH IT CHARGES SERVICE LINE DEPOSITS. HENCE IT CAN BE S EEN THAT THESE SERVICE LINE RECEIPTS ARE RECEIVED BY THE CO. DURING THE COURSE OF ITS REGULAR BUSINESS/COMMERCIAL OPERATIONS. HENCE, THEY ARE IN THE NATURE OF REVENUE RECEIPTS. F) THE REASONING GIVEN BY THE ASSESSEE CO. THAT IT INC URS CAPITAL EXPENDITURE FOR EXTENDING SERVICE LINES TO THE CONSUMERS AND THESE RECEIPTS ARE UTILIZED FOR THIS PURPOSE DOES NOT EXPLAIN THAT HOW THESE RECEIPTS AR E CAPITAL RECEIPTS IN ITS HANDS. G) THE FACT THAT THE ASSESSEE CO ITSELF TREATED 1/3 RD OF THESE RECEIPTS AS REVENUE RECEIPTS IMPLIEDLY, GOES ON TO SHOW THAT THE CO.BEL IEVES THAT THEY ARE OF REVENUE NATURE. H) FURTHER THE CO. HAS NOT SUBMITTED ANY REASONING WHA TSOEVER AS TO WHY IT HAS TREAED SPECIFICALLY 1/3 RD OF THESE RECEIPTS AS REVENUE RECEIPTS AND NOT OR 1/4 TH OR SOME OTHER PROPORTION AS REVENUE RECEIPTS. I) LASTLY THE ASSESSEE CO. HAS NOT PROVIDED THE DETAIL S OF THESE RECEIPTS INCLUDING THEIR RECONCILIATION WITH ITS BOOKS EVEN THOUGH SPE CIFIC QUERY WAS RAISED IN THIS REGARD VIDE NOT SHEET ENTRY DT. 21.11.2008. HO WEVER A SAMPLE VOUCHER OF 141 RECEIPT WAS SUBMITTED WHICH REVEALS THAT APART FROM SERVICE LINE CHARGES, THE CO. IS LEVYING DEVELOPMENT CHARGES FROM THE CUSTOME RS FOR A NEW CONNECTION. THUS THE CO. IS ALREADY COLLECTING FUNDS FOR INCURR ING CAPITAL EXPENDITURE. J) THE SERVICE LINE RECEIPTS SIMPLY CANNOT BE TREATED AS CAPITAL RECEIPTS BECAUSE THEIR NATURE WOULD NOT DEPEND UPON HOW THE ASSESSEE CO. IS UTILIZING THEM BUT IN WHAT CAPACITY THEY HAVE BEEN RECEIVED BY THE COM PANY. AND THE FACT IS THAT THEY HAVE BEEN RECEIVED BY THE COMPANY. AND THE FAC T IS THAT THEY HAVE BEEN RECEIVED BY THE CO. IN THE COURSE OF RUNNING ITS RE GULAR BUSINESS OPERATIONS. K) THE ASSESSEE COMPANY ALSO NOT PROVIDED THE INFORMAT ION IN THE TABULAR FORM INSPITE OF SPECIFICALLY ASKED FOR BY THE AO DURING THE ASSESSMENT PROCEEDINGS. 2. THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN DEL ETING ADDITION OF RS.32,59,746/- MADE ON ACCOUNT OF DISALLOWANCE OF L EGAL CLAIMS IGNORING THAT PAYMENTS MADE BY THE ASSESSEE ARE PENAL IN NATURE A ND HENCE NOT ALLOWABLE. 3. THE LD.CIT(A) HAS ERRED ON FACTS AND IN LAW IN DELE TING ADDITION OF RS. 4,33,41,629/- MADE ON ACCOUNT OF DISALLOWANCE OF EX TRA DEPRECIATION ON COMPUTER PERIPHERALS/ACCESSORIES IGNORING THAT AS PER THE I T RULES 60% DEPRECIATION IS ALLOWABLE ONLY ON COMPUTER AND COMPUTER SOFTWARE AN D NOT ON COMPUTER PERIPHERALS AND ACCESSORIES. 54. IN THE GROUND NO.1, THE ISSUE RAISED IS AS TO W HETHER THE LEARNED CIT(APPEALS) HAS ERRED IN DELETING THE ADDITION OF RS.51,22,43,735 MADE ON ACCOUNT OF SERVICE LINE DEPOSITS AND ON ACCOUNT O F CONSUMERS CONTRIBUTION FOR CAPITAL WORKS. THIS GROUND IS CO NNECTED WITH GROUND NO.1 OF THE APPEAL PREFERRED BY THE ASSESSEE FOR THE ASS ESSMENT YEAR UNDER CONSIDERATION AND BOTH HAVE BEEN DECIDED HEREINABOV E ON IDENTICAL ISSUES RAISED IN THE APPEALS FOR THE ASSESSMENT YEARS 2005 -06 AND 2006-07 WITH THIS FINDING THE LEARNED CIT(APPEALS) WAS JUSTIFIED IN T REATING THE SERVICE LINE DEPOSITS RECEIVED BY THE ASSESSEE FROM THE CONSUME RS AS CAPITAL IN NATURE 142 AND THE ASSESSING OFFICER HAS BEEN DIRECTED TO REDU CE THE AMOUNT OF SERVICE DEPOSITS CREDITED TO THE PROFIT AND LOSS ACCOUNT DU RING THE YEAR AS PER THE ASSESSEES POLICIES OF OFFERING THE SERVICE LINE DE POSITS FOR REVENUE OVER A PERIOD OF THREE YEARS, WHILE COMPUTING THE TOTAL IN COME AFTER HOLDING THAT ENTIRE RECEIPTS BY WAY OF SERVICE LINE DEPOSITS IS CAPITAL IN NATURE. THE ACTION OF THE LEARNED CIT(APPEALS) IN TREATING CONSUMERS CONTRIBUTION FOR CAPITAL WORK AS CAPITAL IN NATURE HAS ALSO BEEN JUS TIFIED AND UPHELD. THE GROUND NO.1 IS DECIDED ACCORDINGLY. THE SAME IS THU S REJECTED. 55. IN GROUND NO.2 , THE ISSUE RAISED IS AS TO WHETHER THE LEARNED CIT(APPEALS) HAS ERRED IN DELETING THE ADDITION OF RS.32,59,746 MADE ON ACCOUNT OF DISALLOWANCE OF LEGAL CLAIMS IGNORING TH AT PAYMENTS MADE BY THE ASSESSEE ARE PENAL IN NATURE AND HENCE NOT ALLOWABL E. AN IDENTICAL ISSUE HAS BEEN DECIDED HEREINABOVE IN THE APPEAL PREFERRED BY THE REVENUE FOR THE ASSESSMENT YEAR 2006-07. FOLLOWING THE SAME, WE UPH OLD THE FINDING OF THE LEARNED CIT(APPEALS) AS JUSTIFIED. THE GROUND NO.2 IS ACCORDINGLY REJECTED. 56. GROUND NO.3, THE ISSUE RAISED IS AS TO WHETHER THE LEARNED CIT(APPEALS) WAS JUSTIFIED IN DELETING THE ADDITION OF RS.4,32,41,629 ON ACCOUNT OF DISALLOWANCE OF EXTRA DEPRECIATION ON CO MPUTER PERIPHERAL. AN 143 IDENTICAL ISSUE HAS BEEN DECIDED HEREINABOVE IN THE APPEAL PREFERRED BY THE REVENUE FOR THE ASSESSMENT YEAR 2006-07. FOLLOWING THE SAME, THE ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE WHILE UPHOLDING T HE ACTION OF THE LEARNED CIT(APPEALS) IN THIS REGARD. THE GROUND NO.3 IS AC CORDINGLY REJECTED. 57. IN RESULT, THE APPEAL IS DISMISSED. ITA NO. 4780/DEL/2013- ASSESSEES APPEAL- (A.Y. 200 8-09) : 58. THE ASSESSEE HAS QUESTIONED FIRST APPELLATE ORD ER ON THE FOLLOWING GROUNDS: 1. DEPRECIATION ON ENERGY METERS AT 15% AS AGAINST ITS ELIGIBILITY OF 80% . THE LD. CIT (A)- V HAS DISMISSED THIS GROUND MENTIONI NG THAT SINCE APPELLANT HAS CLAIMED 15% DEPRECIATION ON ENERGY METERS IN THE REVISED RETURN WHICH HAS BEEN ALLOWED BY THE A. O. NO CAUSE OF GRIEVANCE ARISES. IN THIS REGARD, IT HAS BEEN DUL Y CLARIFIED THAT THE APPELLANT HAS CLAIMED DEPRECIATION @ 15% AGAINST THE ELIGIBILITY OF 80%. THE HIGHER DEPRECIAT ION MAY BE ALLOWED IN CASE THE APPELLANT AUTHORITIES ALLOW THE CL AIM OF 80% IN EARLIER YEARS. ACCORDINGLY, THE ISSUE OF HIGHER DEP RECIATION @ 80% ON ENERGY METERS STILL STANDS. 2. ADDITIONAL DEPRECIATION ON ASSETS CREATED OUT OF SE RVICE LINE DEPOSIT AND CONSUMER CONTRIBUTION FOR CAPITAL WORKS FROM CONSUMERS. 144 WITHOUT PREJUDICE TO THE GROUND THAT SERVICE LINE DEPO SITS AND CONSUMER CONTRIBUTION FOR CAPITAL WORKS ARE CAPITAL RECEIP TS, IN CASE AUTHORITIES DECIDE THESE ISSUE OTHERWISE, THE ADDITIO NAL DEPRECIATION ON ASSETS CREATED OUT OF SERVICE LINE DEPOSIT S AND CONSUMER CONTRIBUTION SHOULD BE ALLOWED. 59. GROUND NO.1 : AN IDENTICAL ISSUE AS RAISED IN T HIS GROUND REGARDING ELIGIBILITY OF CLAIMING OF DEPRECIATION @ 80% ON EN ERGY METERS HAS BEEN DECIDED HEREINABOVE IN THE APPEALS PREFERRED BY THE ASSESSEE FOR THE ASSESSMENT YEARS 2005-06, 2006-07 AND 2007-08. FOLL OWING THE SAME, THE ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE WITH THI S FINDING THAT THE ASSESSEE IS ENTITLED FOR CLAIMING DEPRECIATION @ 80% ON THE ENERGY METERS. WE THUS SET ASIDE THE MATTER TO THE FILE OF THE ASSESSING O FFICER TO ALLOW THE CLAIMED DEPRECIATION ON THE EXPENDITURE INCURRED ON ENERTY/ ELECTRONIC METERS AS PER AUDIT REPORT MADE AVAILABLE AFTER AFFORDING OPPORTU NITY OF BEING HEARD TO THE ASSESSEE. THE GROUND NO.1 IS ACCORDINGLY ALLOWED FO R STATISTICAL PURPOSES. 60. GROUND NO.2: THIS GROUND IS CONSEQUENTIAL TO IS SUE NO.1 OF THE APPEAL PREFERRED BY THE REVENUE QUESTIONING THE ACTION OF THE LEARNED CIT(APPEALS) IN DELETING THE ADDITION MADE ON ACCOU NT OF SERVICE LINE DEPOSITS TREATING THE SAME AS CAPITAL IN NATURE. WE WILL THUS DEAL WITH THE 145 ISSUE RAISED IN GROUND NO.2 OF THE APPEAL ALONG WIT H ISSUE NO.1 OF THE APPEAL PREFERRED BY THE REVENUE IN THE SUCCEEDING PARAGRAP H. 61. IN RESULT, THE APPEAL IS PARTLY ALLOWED. ITA NO. 5075/DEL/2013 REVENUE (A.Y. 2008-09) : 62. THE REVENUE HAS IMPUGNED FIRST APPELLATE ORDER ON THE FOLLOWING ISSUES: 1. WHETHER ON THE FACTS& CIRCUMSTANCES OF THE CASE, T HE LEARNED CIT (A) HAS ERRED IN DELETING THE ADDITION OF RS.1,21,47,44,450/- MAD E BY THE AO ON ACCOUNT OF SERVICE LINE DEPOSIT WITHOUT TAKING INTO ACCOUNT TH E FACT THAT THE AMOUNT RECEIVED FROM SERVICE LINE IS ESSENTIALLY REVENUE IN NATURE RECEIVED FROM THE CUSTOMERS AGAINST SELLING OF ELECTRICITY TO THE CUSTOMERS FOR WHOM THE SERVICES LINES ARE TO BE PROVIDED AND SUCH RECEIVED DURING THE COURSE OF REG ULAR BUSINESS OPERATION. 2. WHETHER ON THE FACTS& CIRCUMSTANCES OF THE CASE, TH E LEARNED CIT (A) HAS ERRED IN DELETING THE ADDITION OF RS.11,26,99,307/- MADE BY THE AO ON ACCOUNT OF LEGAL CLAIMS WITHOUT TAKING INTO ACCOUNT THE FACT THAT TH E PAYMENT MADE INCLUDED AMOUNTS WHICH WERE PENAL IN NATURE AND HENCE NOT AL LOWABLE. 3. WHETHER ON THE FACTS& CIRCUMSTANCES OF THE CASE, TH E LEARNED CIT (A) HAS ERRED IN HOLDING THE REVISED CLAIM OF DEPRECIATION OF THE AS SESSEE WITHOUT VERIFYING THE FACT THAT THE SERVICE LINE RECEIPTS SIMPLY CANNOT BE TRE ATED AS CAPITAL RECEIPTS, BECAUSE THE NATURE OF THE BUSINESS OF ASSESSEE IS THAT OF S ERVICE PROVIDER AND IS ENGAGED IN SELLING THE ENERGY FOR WHICH IT CHARGES SERVICE LIN E DEPOSIT AND THIS IS ITS REGULAR. 4. THE APPELLANT CRAVES LEAVE FOR RESERVING THE RIGHT TO AMEND, MODIFY, ALTER, ADD OR FOREGO ANY GROUND(S) OF APPEAL AT ANY TIME BEFORE O R ANY TIME DURING THE HEARING OF THIS APPEAL. 63. ISSUE NO.1 : AN IDENTICAL ISSUE AS TO WHETHER THE LEARNED CIT(APPEALS) HAS ERRED IN DELETING THE ADDITION (OF RS.1,21,47,44,450) MADE ON ACCOUNT OF SERVICE LINE DEPOSITS RECEIVED FROM T HE CUSTOMERS, HAS BEEN 146 DECIDED IN FAVOUR OF THE ASSESSEE AND UPHOLDING THE FINDING OF THE LEARNED CIT(APPEALS) IN THIS REGARD THAT THE DEPOSITS ARE C APITAL IN NATURE, IN THE APPEALS PREFERRED BY THE REVENUE FOR THE ASSESSMENT YEARS 2005-06 AND 2006-07. FOLLOWING THE SAME, THE FIRST APPELLATE OR DER ON THE ISSUE IS UPHELD WITH THIS FINDING THAT THE DEPOSITS ARE CAPI TAL IN NATURE. THE ISSUE NO.1 IS THUS DECIDED AGAINST THE REVENUE AND IS ACC ORDINGLY REJECTED. THE ISSUE RAISED IN GROUND NO.2 OF THE APPEAL PREFERRED BY THE ASSESSEE DOES NOT STAND. 64. ISSUE NO. 2 : AN IDENTICAL ISSUE AS TO WHETHER THE LEARNED CIT(APPEALS) HAS ERRED IN DELETING THE ADDITION ( O F RS.1,26,99,307 ) MADE ON ACCOUNT OF DISALLOWANCE OF LEGAL CLAIMS HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY UPHOLDING THE FIRST APPELLATE ORDER IN THIS REGARD IN THE APPEAL FOR THE ASSESSMENT YEAR 2006-07 PREFERRED BY THE RE VENUE. FOLLOWING THE SAME, THE ISSUE NO.2 IS DECIDED AGAINST THE REVENUE WITH THIS FINDING THAT THE LEGAL CLAIMS BEING NOT PENAL IN NATURE ARE ALLO WABLE. THE SAME IS THUS REJECTED. 65. ISSUE NO.3 : IT IS RELATED TO ISSUE NO.1 HEREINABOVE. FOLLOWIN G THE FINDING GIVEN THEREIN AGAINST THE ISSUE NO.1, THE I SSUE NO.3 IS DECIDED AGAINST THE REVENUE. IT IS ACCORDINGLY REJECTED. 147 66. IN RESULT, THE APPEAL IS DISMISSED. 67. IN SUMMARY, THE APPEALS PREFERRED BY THE ASSESS EE ARE PARTLY ALLOWED AND THAT PREFERRED BY THE REVENUE IS DISMISSED. ITA NO. 3689/DEL/2011 (ASSESSEE) (A.Y. 2005-06) : 68. THE ASSESSEE HAS IMPUGNED FIRST APPELLATE ORDER ON THE FOLLOWING GROUNDS: 1. DEPRECIATION ON ENERGY METERS WRONGLY ALLOWED AT 25% AS AGAINST 80% RESULTING IN A DISALLOWANCE OF R S. 22,65,50,211 (SUBSEQUENTLY REDUCED TO RS 20,36,82,4 54 BY WAY OF RECTIFICATION ORDER DATED 23.07.2010 U/S 154 OF INCOME TAX ACT, 1961). THE LD. CIT(A)- V HAS WRONGLY UPHELD THAT THE ENE RGY METERS ARE ELIGIBLE FOR DEPRECIATION @ 25 % AS AGAINST THE CL AIMS @ 80 %. IN THIS REGARD SHE HAS IGNORED THE FACTS THAT THESE ME TERS ARE FOR MEASURING ELECTRIC ENERGY WHICH HAS BEEN SPECIFICAL LY MENTIONED AS ELIGIBLE FOR 80% DEPRECIATION IN THE DEP RECIATION SCHEDULE OF THE INCOME TAX RULES 1962. FURTHER THESE M ETERS ALSO HAVE THE CHARACTERISTICS OF ENERGY SAVING DEVICE WHICH IS SUBJECT TO DEPRECIATION @ 80%. IN VIEW OF THE ABOVE, DEPRECIATION ALLOWED @ 25% AS AGAINST THE 80% CLAIM ON ENERGY METERS RESULTING IN A DISALLOW ANCE OF RS. 20,36,82,454, IS WRONG, AGAINST THE FACTS OF THE CASE AND UNSUSTAINABLE IN THE EYES OF LAW. 148 2. THE APPELLANT CRAVES TO LEAVE, ADD, ALTER, MODIFY, RECTIFY, AND AMEND ALL OR ANY OF THE GROUNDS BEFORE OR AT THE TIME OF HEARING. 69. BESIDES ABOVE, THE ASSESSEE HAS MOVED AN APPLIC ATION FOR ADMISSION OF THE FOLLOWING TWO ADDITIONAL GROUNDS: 1. SERVICE LINE DEPOSITS RECEIVED FROM THE CONSUME RS ARE OF CAPITAL NATURE : THE LEARNED CIT(APPEALS) ERRED IN NOT DIRECTING THE ASSESSING OFFICER TO REDUCE THE AMOUNT OF SERVICE LINE DEPOSI TS CREDITED TO THE PROFIT AND LOSS ACCOUNT DURING THE YEAR AMOUNTING T O RS.10,43,80,780 (AS PER THE COMPANYS POLICY OF OFFERING THE SERVIC E LINE DEPOSITS FOR REVENUE OVER A PERIOD OF THREE YEARS), WHILE CO MPUTING THE TOTAL INCOME AFTER HOLDING THAT ENTIRE RECEIPT BY WAY OF SERVICE LINE DEPOSIT IS CAPITAL IN NATURE. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE ASSESSING OFFICER ERRED IN ASSESSING THE INCOME OF THE APPELLANT UNDER SEC. 115B AND NOT UNDER THE NORMAL PROVISIONS OF TH E INCOME-TAX ACT, 1961 (THE ACT), WITHOUT APPRECIATING THAT THE DEE MING PROVISIONS OF SECTION 115JB OF THE ACT WERE NOT APPLICABLE DURING RELEVANT ASSESSMENT YEAR. 70. THE PARTIES HAVE ADOPTED SIMILAR ARGUMENTS AS A DVANCED BY THEM HEREINABOVE IN THE APPEAL FOR THE ASSESSMENT YEAR 2 005-06 IN THE CASE OF 149 BSES RAJDHANI POWER LTD. FOLLOWING THE VIEW TAKEN T HEREIN, THE PRESENT APPLICATION RAISED FOR THE ADMISSION OF THE ABOVE S TATED ADDITIONAL GROUNDS IS ALLOWED. 71. GROUND NO.1 : AN IDENTICAL ISSUE ON THE ELIGIBILITY OF CLAIMIN G DEPRECIATION @ 80% ON ENERGY METERS AGAINST 25% ALL OWED BY THE AUTHORITIES BELOW UNDER THE SIMILAR FACTS HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE IN THE APPEAL FOR THE ASSESSMENT YEAR 2005 -06 PREFERRED BY THE BSES RAJDHANI POWER LTD. HEREINABOVE. FOLLOWING TH E SAME, GROUND NO.1 IS DECIDED IN FAVOUR OF THE ASSESSEE WITH THIS FIND ING THAT THE ASSESSEE IS ENTITLED TO CLAIM DEPRECIATION @ 80% ON THE ENERGY METERS AND WE DIRECT THE ASSESSING OFFICER TO ALLOW THE SAME AFTER VERIFYING THE EXPENDITURE INCURRED ON ELECTRONIC METERS/ENERGY METERS MADE AVAILABLE I N THE AUDIT REPORT, AFTER AFFORDING OPPORTUNITY OF BEING HEARD TO THE ASSESSE E. THE GROUND NO.1 IS ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSES. 72. SO FAR AS ADDITIONAL GROUNDS ARE CONCERNED, ID ENTICAL ISSUES RAISED IN THE CORRESPONDING ADDITIONAL GROUNDS HEREINABOVE IN THE APPEAL FOR THE ASSESSMENT YEAR 2005-06 PREFERRED BY THE BSES RAJDH ANI POWER LTD. HAVE BEEN DECIDED IN FAVOUR OF THE ASSESSEE WITH THIS FI NDING THAT THE LEARNED CIT(APPEALS) WHILE TREATING THE SERVICE LINE DEPOSI TS RECEIVED FROM THE 150 CONSUMERS ARE OF CAPITAL NATURE, SHOULD HAVE DIRECT ED THE ASSESSING OFFICER TO REDUCE THE AMOUNT OF SERVICE LINE DEPOSITS CREDI TED TO THE PROFIT AND LOSS ACCOUNT DURING THE YEAR AS PER THE ASSESSEES POLIC Y OF OFFERING THE SERVICE LINE DEPOSITS FOR REVENUE OVER A PERIOD OF THREE YE ARTS WHILE COMPUTING THE TOTAL INCOME AFTER HOLDING THAT THE ENTIRE RECEIPT BY WAY OF SERVICE LINE DEPOSIT IS CAPITAL IN NATURE (ADDITIONAL GROUND NO .1) AND IT HAS BEEN HELD THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN ASS ESSING THE INCOME OF THE ASSESSEE UNDER SEC. 115JB AND NOT UNDER THE NORMAL PROVISIONS OF THE INCOME-TAX ACT, 1961 ( ADDITIONAL GROUND NO.2 ). FO LLOWING THESE DECISIONS THEREIN ON IDENTICAL ISSUES, THE ISSUES RAISED IN A DDITIONAL GROUNDS IN THE PRESENT APPEAL ARE DECIDED IN FAVOUR OF THE ASSESSE E. THE ADDITIONAL GROUNDS ARE ACCORDINGLY ALLOWED. THE APPEAL IS PARTLY ALLOWED. 73. ITA NO. 3660/DEL/2011 (REVENUE) (A.Y. 2005-06 ) : THE REVENUE HAS QUESTIONED FIRST APPELLATE ORDER ON THE FOLLOWI NG GROUNDS: 1. THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN DEL ETING ADDITION OF RS. 10,94,42,155/- SUBSEQUENTLY REDUCED TO RS. 13033059 /- MADE ON ACCOUNT OF SECURITY LINE DEPOSITS FORM CUSTOMERS IGNORING THAT : A) THE WHOLE OF THESE SERVICE LINE RECEIPTS ARE IN FAC T NOT A LIABILITY OF THE COMPANY BUT ARE REVENUE RECEIPTS ACCRUED/RECEIVED D URING THE YEAR ON RUNNING OF BUSINESS OPERATIONS OF THE ASSESSEE COMPANY AND HENCE ARE TAXABLE IN ITS HANDS. 151 B) FURTHER THE ASSESSEE CO IS ENGAGED IN SELLING ELECT RICITY TO THE CONSUMERS FROM WHOM IT CHARGES FEES IN THE NAME OF ENERGY CHARGES. THESE ENERGY CHARGES ARE UNDISPUTEDLY IN THE NATURE OF REVENUE RECEIPTS. C) SINCE THE ASSESSEE CO IS ENGAGED IN SELLING THE ENE RGY, THEREFORE FOR THIS PURPOSE IT HAS TO PROVIDE SERVICE LINE CONNECTIONS TO ALL CONSUMERS FOR WHICH IT CHARGES SERVICE LINE DEPOSITS. HENCE IT CAN BE SEEN THAT THESE SERVICE LINE RECEIPTS ARE RECEIVED BY THE CO. DURING THE COURSE OF ITS REGULAR BUSINESS/COMMERCIAL OPERATIONS. HENCE, THEY ARE IN THE NATURE OF REVENUE RECEIPTS. D) THE SERVICE LINE RECEIPTS SIMPLY CANNOT BE TREATED AS CAPITAL RECEIPTS BECAUSE THEIR NATURE WOULD BOT DEPEND UPON LOW THE ASSESSEE CO. IS UTILIZING THEM BUT IN WHAT CAPACITY THEY HAVE BEEN RECEIVED BY THE COM PANY. AND THE FACT IS THAT THEY HAVE BEEN RECEIVED BY THE CO. IN THE COURSE OF RUNNING ITS REGULAR BUSINESS OPERATIONS. 2. THE LD. CIT(A) HAS ERRED FACTS AND IN LAW IN DELETI NG ADDITION OF RS. 26200000/- MADE ON ACCOUNT OF VALUATION OF CLOSING STOCK IGNOR ING THAT: A) IN THIS PARTICULAR CASE THE ASSESSEE WAS EARLIER FO LLOWING FIRST IN FIRST OUT (FIFO) METHOD FOR VALUATION OF STORES/SPARES. UNDER ANY CIRCUMSTANCES FIFO METHOD IS MORE CORRECT & HENCE MORE APPROPRIATE FOR THE VALUATION OF STORES/SPARES AS CLOSING STOCK AS COMPARED TO MOVI NG AVERAGE METHOD. B) NO SOUND REASONING/ACCEPTABLE LOGIC IS GIVEN BY THE ASSESSEE COMPANY FOR CHANGE IN THE COST METHOD FROM FIFP TO MOVING AVERA GE. C) THE ORDER OF CIT(A) IS NOT ACCEPTABLE BECAUSE THE C HANGE IN THE METHOD OF VALUATION IS NEITHER BONAFIDE NOR REGULATORY FOLLOW ED BY THE ASSESSEE AS REQUIRED FOR THE CHANGE IN THE METHOD OF VALUATION. D) FURTHER, ON PERUSAL OF ACCOUNTING STANDARD-2, PROVI SIONS OF THE IT ACT, CASE LAWS & RELEVANT EXCERPTS FROM 3CD REPORT WHICH CLEA RLY STATES THAT DUE TO CHANGE OF VALUATION OF INVENTORIES, PROFIT OF THE C OMPANY IS LOWER BY RS. 5.02 CRORES, IT CAN BE SOUNDLY INCLUDED THAT AO IS CORRE CT WHILE MAKING THE ADDITION ON ACCOUNT OF VALUATION OF CLOSING STOCK. E) THE APPELLANT CRAVES LEAVE FOR RESERVING THE RIGHT TO AMEND, MODIFY, ALTER, ADD OR FOREGO ANY GROUND(S) OF APPEAL AT ANY TIME BEFORE O R DURING THE HEARING OF THIS APPEAL. 152 74. GROUND NO.1: IN THIS GROUND, THE VALIDITY OF TH E FIRST APPELLATE ORDER WHEREBY THE LEARNED CIT(APPEALS) HAS DELETED THE AD DITION OF RS. 10,94,42,155 (SUBSEQUENTLY REDUCED TO RS.1,30,33, 0 59) MADE ON ACCOUNT OF SERVICE LINE DEPOSITS FROM CUSTOMERS HAS BEEN QUEST IONED. UNDER SIMILAR SET OF FACTS, AN IDENTICAL ISSUE HAS BEEN DECIDED AGAIN ST THE REVENUE HEREINABOVE IN THE APPEAL PREFERRED BY THE REVENUE IN THIS CASE OF BSES RAJDHANI POWER LTD. FOR THE ASSESSMENT YEAR 2005-06 . FOLLOWING THE SAME, WE DECIDE THE ISSUE RAISED IN THIS GROUND NO.1 IN F AVOUR OF THE ASSESSEE WHILE UPHOLDING THE FIRST APPELLATE ORDER IN THIS R EGARD. IT IS ALSO MADE CLEAR THAT AS PER THE DECISION TAKEN IN THE ADDITIONAL GR OUND NO.1 HEREINABOVE, THE ASSESSING OFFICER IS DIRECTED TO REDUCE THE AMOUNT OF SERVICE LINE DEPOSITS CREDITED TO THE PROFIT AND LOSS ACCOUNT DURING THE YEAR AS PER THE ASSESSEES POLICY OF OFFERING THE SERVICE LINE DEPOSITS FOR RE VENUE OVER A PERIOD OF THREE YEARS, WHILE COMPUTING THE TOTAL INCOME AFTER HOLDING THAT ENTIRE RECEIPT BY WAY OF SERVICE LINE DEPOSIT IS CAPITAL I N NATURE. THE GROUND NO.1 IS ACCORDINGLY REJECTED. 75. GROUND NO.2 : IN THIS GROUND, THE ACTION OF THE LEARNED CIT(APP EALS) IN DELETING THE ADDITION OF RS.2,62,00,000 MADE ON ACCOUNT OF VALUATION OF 153 CLOSING STOCK HAS BEEN QUESTIONED BY THE REVENUE. U NDER THE SIMILAR SET OF FACTS, AN IDENTICAL ISSUE HAS BEEN DECIDED IN FAVOU R OF THE ASSESSEE BY UPHOLDING THE FIRST APPELLATE ORDER IN THIS REGARD HEREINABOVE IN THE APPEAL PREFERRED BY THE REVENUE IN THE CASE OF BSES RAJDHA NI POWER LTD. FOR THE ASSESSMENT YEAR 2005-06. FOLLOWING THE SAME, THE I SSUE RAISED IN GROUND NO.2 OF THE PRESENT APPEAL IS DECIDED AGAINST THE REVENUE BY UPHOLDING THE ACTION OF THE LEARNED CIT(APPEALS) GIVING THE ABOVE RELIEF. THE GROUND NO.2 IS ACCORDINGLY REJECTED. 76. IN RESULT, THE APPEAL IS DISMISSED. ITA NO. 404/DEL/2012 (ASSESSEE) - (A.Y. 2006-07) : 77. THE ASSESSEE HAS QUESTIONED FIRST APPELLATE ORD ER ON THE FOLLOWING GROUNDS: 1. SERVICE LINE DEPOSITS FROM THE CONSUMERS WRONGL Y UPHELD AS TAXABLE OVER A PERIOD OF 3 YEARS. THE LEARNED CIT (A)-VII HAS UPHELD THAT THE SERVICE LI NE DEPOSITS ARE CAPITAL IN NATURE BUT IN THIS REGARD HE HAS WRONGL Y UPHELD THAT THE SAME ARE TAXABLE OVER A PERIOD OF 3 YEARS. IN FACT THE SAME DESERVES TO BE REDUCED FROM THE COST OF PLANT AND MACHINERY IN ACCORDANCE WITH THE PROVISIONS OF SECTION 43( 1) OF THE INCOME TAX ACT, 1961. 154 2. DEPRECIATION ON ENERGY METERS WRONGLY ALLOWED AT 15% AS AGAINST 80% RESULTING IN A DISALLOWANCE OF R S. 48,13,62,420. THE LD. CIT (A) - VII HAS WRONGLY UPHELD THAT THE E NERGY METERS ARE ELIGIBLE FOR DEPRECIATION @ 15 % AS AGAINST THE CLAIMS @ 80 %. IN THIS REGARD HE HAS IGNORED THE FACTS TH AT THESE METERS ARE FOR MEASURING ELECTRIC ENERGY WHICH HAS B EEN SPECIFICALLY MENTIONED AS ELIGIBLE FOR 80% DEPRECIATION IN THE DEPRECIATION SCHEDULE OF THE INCOME TAX RULES, 1962. FUR THER THESE METERS ALSO HAVE THE CHARACTERISTICS OF ENERGY SAVING DEVICES WHICH ARE SUBJECT TO DEPRECIATION @ 80%. IN VIEW OF THE ABOVE, DEPRECIATION ALLOWED @ 15% AS AGAINST THE 80% CLAIM ON ENERGY METERS RESULTING IN A DISALLOW ANCE OF RS. 48,13,62,420, IS WRONG, AGAINST THE FACTS OF THE CASE AND UNSUSTAINABLE IN THE EYES OF LAW. 3. GRANT IN AID FOR FIXED ASSETS AND DISALLOWANCE O F DEPRECIATION TO THE TUNE OF RS 3,03,32,909. THE LD. CIT (A) - VII HAD WRONGLY UPHELD THAT ADJUST MENT OF GRANTS IN AID FOR FIXED ASSETS IS TO BE MADE IN THE RATI O OF ADDITION TO PLANT AND MACHINERY WHICH IS (SUBJECT TO DEP RECIATION @ 15%) AND ADDITION TO ENERGY METERS WHICH IS (SUBJECT T O DEPRECIATION @ 80%) RESULTING IN DISALLOWANCE OF DEPRECI ATION TO THE TUNE OF RS. 3,03,32,909. 4. THE APPELLANT CRAVES TO LEAVE, ADD, ALTER, MODIFY, R ECTIFY, AND AMEND ALL OR ANY OF THE GROUNDS BEFORE OR AT THE TIME OF HEARING. 155 78. BESIDES ABOVE, THE ASSESSEE HAS ALSO MOVED APPL ICATION FOR ADMISSION OF THE FOLLOWING ADDITIONAL GROUND: THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AN D IN LAW, THE ASSESSING OFFICER ERRED IN ASSESSING THE INCOME OF THE APPELLANT UNDER SEC. 115JB AND NOT UNDER THE NORMAL PROVISIONS OF T HE INCOME-TAX ACT, 1961 (THE ACT), WITHOUT APPRECIATING THAT THE DEEMING PROVISIONS OF SEC. 115JB OF THE ACT WERE NOT APPLICABLE DURING RELEVANT ASSESSMENT YEAR. 78.1. SIMILAR ARGUMENTS HAVE BEEN ADVANCED BY THE P ARTIES ON THE ALLOWABILITY OF THE PRESENT APPLICATION FOR ADMISSI ON OF THE ABOVE ADDITIONAL GROUND AS ADVANCED BY THEM ON A SIMILAR APPLICATION IN THE APPEAL OF THE ASSESSEE HEREINABOVE FOR THE ASSESSMENT YEAR 2005-0 6. FOLLOWING THE SAME, THE PRESENT APPLICATION IS ALLOWED. 78.2 THE PARTIES HAVE ALSO ADOPTED SIMILAR ARGUMENT S AS ADVANCED BY THEM ON THE ISSUE RAISED IN THIS ADDITIONAL GROUND AS AD VANCED BY THEM HEREINABOVE IN THE APPEAL OF THE ASSESSEE FOR THE A SSESSMENT YEAR 2005-06. FOLLOWING THE SAME, WE HOLD THAT THE ASSESSING OFFI CER WAS NOT JUSTIFIED IN ASSESSING THE INCOME OF THE ASSESSEE UNDER SEC. 115 JB OF THE ACT AND NOT 156 UNDER THE NORMAL PROVISIONS OF THE ACT DURING THE Y EAR. THE ADDITIONAL GROUND IS ACCORDINGLY ALLOWED. 79. GROUND NO.1 : THE ACTION OF THE LEARNED CIT(APPEALS) UPHOLDING SERVICE LINE DEPOSIT FROM THE CONSUMERS AS TAXABLE OVER A PERIOD OF THREE YEARS HAS BEEN QUESTIONED. DURING THE YEAR, THE ASS ESSEE HAD RECEIVED A SUM OF RS.10.44 CRORES (AS PER RECTIFICATION ORDER DATE D 31.1.2011) AS NON- REFUNDABLE SERVICE LINE DEPOSITS FROM CUSTOMERS AS PER THE PROVISIONS OF DERC AND THE EXPENSES FOR PROVIDING NEW CONNECTIONS TO CUSTOMERS. THE LEARNED CIT(APPEALS) WHILE TREATING THE SERVICE LIN E DEPOSIT AS CAPITAL IN NATURE DID NOT DIRECT THE ASSESSING OFFICER TO REDU CE THE AMOUNT OF SERVICE LINE DEPOSIT CREDITED TO THE PROFIT AND LOSS ACCOUN T DURING THE YEAR AS PER THE COMPANYS POLICY OF OFFERING THE SERVICE LINE DEPOS IT FOR REVENUE OVER A PERIOD OF THREE YEARS, WHILE COMPUTING THE TOTAL IN COME AFTER HOLDING THAT ENTIRE RECEIPT BY WAY OF SERVICE LINE DEPOSIT IS CA PITAL IN NATURE. BEING AGGRIEVED, THE ASSESSEE HAS RAISED THIS GROUND. THE ISSUE RAISED IN THIS GROUND UNDER THE SIMILAR SET OF FACTS HAS BEEN DECI DED HEREINABOVE IN THE CASE OF ASSESSEE ITSELF IN THE APPEAL PREFERRED BY IT FOR THE ASSESSMENT YEAR 2005-06 HEREINABOVE. FOLLOWING THE SAME, WE DIRECT THE ASSESSING OFFICER TO REDUCE THE AMOUNT OF SERVICE LINE DEPOSIT CREDIT ED TO THE PROFIT AND LOSS 157 ACCOUNT DURING THE YEAR AS PER THE COMPANYS POLICY OF OFFERING THE SERVICE LINE DEPOSIT FOR REVENUE OVER A PERIOD OF THREE YEA RS, WHILE COMPUTING THE TOTAL INCOME AFTER HOLDING THAT ENTIRE RECEIPT BY W AY OF SERVICE LINE DEPOSIT IS CAPITAL IN NATURE. THE GROUND NO.1 IS ACCORDINGLY A LLOWED. 80 GROUND NO.2 : IT IS IN RELATION TO THE DEPRECIATION ON ENERGY M ETERS ALLOWED AT 15% AS AGAINST 18% RESULTING IN A DISALL OWANCE OF RS.48,13,62,420. AN IDENTICAL ISSUE UNDER THE SIMIL AR SET OF FACTS HAS BEEN DECIDED HEREINABOVE IN GROUND NO.1 OF THE APPEAL FO R THE ASSESSMENT YEAR 2005-06 PREFERRED BY THE ASSESSEE. FOLLOWING THE SA ME, IT IS HELD THAT THE ASSESSEE IS ELIGIBLE TO CLAIM DEPRECIATION ON ENERG Y METERS @ 80% AND ACCORDINGLY DIRECT THE ASSESSING OFFICER TO ALLOW T HE SAME ON THE BASIS OF THE EXPENDITURE INCURRED ON ELECTRONIC METERS/ENERG Y METERS REFLECTED IN THE AUDIT REPORT. THE GROUND NO.2 IS ACCORDINGLY ALLOWE D FOR STATISTICAL PURPOSES. 81. GROUND NO. 3 : IT IS REGARDING DISALLOWANCE OF DEPRECATION TO TH E TUNE OF RS.3,03,32,909. THE FACTS IN BRIEF ARE THAT DURI NG THE YEAR, THE ASSESSEE HAD RECEIVED GRANT IN AID OF RS.18.63 CRORES FROM T HE MINISTRY OF POWER UNDER THE ACCELERATED POWER DEVELOPMENT REFORMS PRO GRAM (APRBRP) FOR THE PURPOSE OF UP-GRADATION OF SUB-TRANSMISSION AND DISTRIBUTION IN DENSELY 158 ELECTRIFIED ZONE IN THE URBAN AND INDUSTRIAL AREA A ND IMPROVEMENT IN THE COMMERCIAL VIABILITY OF THE SEVS/DISCOM. THE EXPEND ITURE INCURRED ON UP-GRADATION OF THE SYSTEM WAS DULY CAPITALIZED BY THE ASSESSEE UNDER THE HEAD PLANT AND MACHINERY AND THE GRANT/AID RECEIV ED UNDER THE SAID SCHEME WAS REDUCED FROM THE BLOCK OF SUCH ASSET(S). THE ASSESSING OFFICER HELD THAT SINCE THE GRANT IN AID RECEIVED BY THE AS SESSEE COULD NOT BE DIRECTLY ATTRIBUTED TO THE SPECIFIC ASSETS ACQUIRED DURING T HE ASSESSMENT YEAR UNDER CONSIDERATION, THE SAME WAS REQUIRED TO BE REDUCED FROM BOTH PLANT AND MACHINERY AS WELL AS ENERGY METERS, PARTICULARLY WHEN ACCELERATED DEPRECIATION @ 80% IS ALLOWED ON SUCH ENERGY METERS . 81.1. THE LEARNED CIT(APPEALS) HELD THAT SINCE THE ASSESSEE WAS NOT ELIGIBLE FOR CLAIMING ACCELERATED DEPRECIATION @ 80 % ON THE ENERGY METERS, NO INTERFERENCE WAS REQUIRED WITH THE FINDINGS OF T HE ASSESSING OFFICER. 81.2 UNDER SIMILAR SET OF FACTS AND IDENTICAL ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE IN THE CASE OF BSES RAJDHANI POWER LTD. IN THE APPEAL PREFERRED BY THE ASSESSEE FOR THE ASSESSMENT YEAR 2 006-07 HEREINABOVE. FOLLOWING THE SAME, WE WHILE SETTING ASIDE ORDERS O F THE AUTHORITIES BELOW IN THIS REGARD DIRECT THE ASSESSING OFFICER TO REDUCE GRANT IN AID RECEIVED BY THE ASSESSEE FROM THE RESPECTIVE COST OF ASSETS(S) AS REFLECTED IN THE TAX AUDIT 159 REPORT OF THE ASSESSEE FOR THE YEARS AS IT HAS BEEN RIGHTLY ADJUSTED BY THE ASSESSEE AND NOT AGAINST THE METERS AND ALLOW THE C LAIMED RELIEF AFTER AFFORDING OPPORTUNITY OF BEING HEARD. THE GROUND NO .3 IS ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSES. 82. IN RESULT, THE APPEAL IS PARTLY ALLOWED. ITA NO.1438/DEL/2011 -ASSESSEE- (A.Y. 2007-08) : 83. THE ASSESSEE HAS IMPUGNED FIRST APPELLATE ORDER ON THE FOLLOWING GROUNDS: 1. SERVICE LINE DEPOSITS FROM THE CONSUMERS WRONGLY UPHELD AS TAXABLE OVER A PERIOD OF 3 YEARS. THE LEARNED CIT(A)-VI HAS UPHELD THAT THE SERVICE LINE DEPOSITS ARE CAPITAL IN NATURE BUT IN THIS REGARD SHE HAS WRONGL Y UPHELD THAT THE SAME ARE TAXABLE OVER A PERIOD OF 3 YEARS. IN FACT THE SAME DESERVES TO BE REDUCED FROM THE COST OF PLANT AND MACHINERY IN ACCORDANCE WITH THE PROVISIONS OF SECTION 43( 1) OF THE INCOME TAX ACT, 1961. 2. DEPRECIATION ON ENERGY METERS WRONGLY ALLOWED AT 15% AS AGAINST 80% RESULTING IN A DISALLOWANCE OF RS. 33, 28, 96,938. THE LD.CIT(A)- VI HAS WRONGLY UPHELD THAT THE ENE RGY METERS ARE ELIGIBLE FOR DEPRECIATION @ 15 % AS AGAINST THE CLAIMS @ 80 160 % . IN THIS REGARD SHE HAS IGNORED THE FACTS THAT THESE M ETERS ARE FOR MEASURING ELECTRIC ENERGY WHICH HAS BEEN SPECIFICAL LY MENTIONED AS ELIGIBLE FOR 80% DEPRECIATION IN THE DEP RECIATION SCHEDULE OF THE INCOME TAX RULES 1961. FURTHER THESE M ETERS ALSO HAS THE CHARACTERISTICS OF ENERGY SAVING DEVICE WHICH IS SUBJECT TO DEPRECIATION @ 80%. IN VIEW OF THE ABOVE, DEPRECIATION ALLOWED @ 15 % A S AGAINST THE 80% CLAIM ON ENERGY METERS RESULTING IN A DISALLOW ANCE OF RS. 33,28,96,938 IS WRONG, AGAINST THE FACTS OF THE CASE AND UNSUSTAINABLE IN THE EYES OF LAW. 3. BASED UPON THE PROVISIONS OF SECTION 2(18) OF TH E INCOME TAX ACT, 1961, APPLICABILITY OF THE PROVISIONS OF S ECTION 2(22)(E) (PERTAINING TO THE TAXABILITY OF DEEMED DI VIDEND OF RS. 59,27,00,000) HAS NOT BEEN DECIDED IN THE HA NDS OF THE APPELLANT COMPANY . THE CIT(A)-VI ERRED IN NOT DECIDING THE APPLICABILITY OF SECTION 2(22)(E) (PERTAINING TO THE TAXABILITY OF DEEMED DI VIDEND IN THE HANDS OF THE APPELLANT) BASED UPON THE PROVISIONS OF SE CTION 2(18) OF THE INCOME TAX ACT, 1961. IN THIS REGARD IT H AS BEEN MENTIONED IN THE CIT(A) ORDER THAT SINCE THE ADDITIO N ON ACCOUNT OF DEEMED DIVIDEND HAD BEEN DELETED IN THE HANDS OF THE APPELLANT (BASED UPON THE FACT THAT APPELLANT IS NOT A SHAREHOLDER OF BRPL WHICH PROVIDED LOAN TO THE APPELL ANT), THE OTHER ARGUMENTS REGARDING THE NON-APPLICABILITY OF SE CTION 2(22)(E) ARE ONLY OF ACADEMIC NATURE AND DID NOT REQ UIRE SPECIFIC ADJUDICATION. AS BSES RAJDHANI POWER LTD. (BRPL), A COMPANY WHICH HAS PROVIDED THE LOAN TO THE APPELLANT COMPANY, IS A COMPANY IN WHICH PUBLIC IS SUBSTANTIALLY INTERESTED BY VI RTUE OF 161 THE PROVISIONS OF SECTION 2(18) OF THE INCOME TAX ACT, 1 961, PROVISIONS OF SECTION 2(22)(E) ARE NOT ATTRACTED ON THE AMOUNT OF THE LOAN / ADVANCE PROVIDED BY BRPL TO THE APPEL LANT. 4. THE APPELLANT CRAVES TO LEAVE, ADD, ALTER, MODIFY, R ECTIFY, AND AMEND ALL OR ANY OF THE GROUNDS BEFORE OR AT THE TIM E OF HEARING. 83.1. BESIDES ABOVE, THE ASSESSEE HAS ALSO MOVED AN APPLICATION FOR ADMISSION OF THE FOLLOWING ADDITIONAL GROUND: 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE ASSESSING OFFICER ERRED IN ASSESSING THE INCOME OF THE APPELLANT UNDER SEC. 115JB AND NOT UNDER THE NORMAL PROVISIONS OF T HE INCOME-TAX ACT, 1961 (THE ACT), WITHOUT APPRECIATING THAT TH E DEEMING PROVISIONS OF SECTION 115JB OF THE ACT WERE NOT APP LICABLE DURING THE RELEVANT ASSESSMENT YEAR. 83.2 AN IDENTICAL ISSUE AFTER ADMITTING THE ABOVE A DDITIONAL GROUND HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE HEREINABOVE IN THE APPEAL FOR THE ASSESSMENT YEAR 2005-06 WITH THIS FINDING THAT THE ASSESSING OFFICER HAS ERRED IN ASSESSING THE INCOME OF THE ASSESSEE UNDER SEC. 115JB OF THE ACT AND NOT UNDER THE NORMAL PROVISIONS OF THE ACT. FOL LOWING THE SAME, THE ADDITIONAL GROUND IS DECIDED IN FAVOUR OF THE ASSES SEE. 162 84. GROUND NO.1 : IT IS RELATING TO SERVICE LINE DEPOSITS FROM THE CONSUMERS WRONGLY UPHELD AS TAXABLE OVER A PERIOD OF THREE YE ARS. UNDER THE SIMILAR SET OF FACTS IN CASE OF THE ASSESSEE ITSELF IN THE APPE AL PREFERRED BY IT FOR THE ASSESSMENT YEAR 2005-06 HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE HEREINABOVE. FOLLOWING THE SAME, WE WHILE SETTING A SIDE ORDERS OF THE AUTHORITIES BELOW IN THIS REGARD DIRECT THE ASSESSI NG OFFICER TO REDUCE THE AMOUNT OF SERVICE LINE DEPOSIT CREDITED TO THE PROF IT AND LOSS ACCOUNT DURING THE YEAR (AS PER THE ASSESSEES POLICY OF OFFERING THE SERVICE LINE DEPOSITS FOR REVENUE OVER A PERIOD OF THREE YEARS) WHILE COMPUTI NG THE TOTAL INCOME AFTER HOLDING THAT THE ENTIRE RECEIPTS BY WAY OF SERVICE LINE DEPOSITS IS CAPITAL IN NATURE (AS DECIDED BY THE LEARNED CIT(APPEALS) ). T HE GROUND NO.1 IS ACCORDINGLY ALLOWED. 85. GROUND NO.2 : IT IS REGARDING DISALLOWANCE OF CLAIMED DEPRECIAT ION AT THE RATE OF 80% ON ENERGY METERS AND ALLOWING DEPRE CIATION @ 15% THEREON BY THE AUTHORITIES BELOW RESULTING IN DISALLOWANCE OF RS.33,28,96,938. AN IDENTICAL ISSUE UNDER THE SIMILAR SET OF FACTS HAS BEEN DECIDED HEREINABOVE IN THE CASE OF THE ASSESSEE IN ITS APPEAL FOR THE ASSE SSMENT YEAR 2005-06 IN FAVOUR OF THE ASSESSEE. FOLLOWING THE SAME, WE HOLD THAT THE ASSESSEE IS ELIGIBLE FOR CLAIMING DEPRECIATION @ 80% ON ENERGY METERS AND DIRECT THE 163 ASSESSING OFFICER TO ALLOW DEPRECIATION ACCORDINGLY ON THE EXPENDITURE INCURRED ON ELECTRONIC/ENERGY METERS REFLECTED IN A UDIT REPORT OF THE ASSESSEE. THE GROUND NO.2 IS ACCORDINGLY ALLOWED FOR STATISTI CAL PURPOSES. 86. GROUND NO.3 : THE FACTS IN BRIEF ARE THAT DURING THE YEAR, THE ASSESSING OFFICER MADE AN ADDITION OF RS.59,27,00,000 ON ACCO UNT OF DEEMED DIVIDEND UNDER SEC. 2(22)(E) RELATING TO LOANS ADVANCED TO T HE COMPANY BY BSES RAJDHANI POWER LTD. BEFORE THE LEARNED CIT(APPEALS ), THE ASSESSEE CONTENDED THAT SINCE IT WAS A COMPANY IN WHICH PUBL IC WAS SUBSTANTIALLY INTERESTED BY VIRTUE OF SEC. 2(18)(B) (B) AND THERE FORE, THE PROVISIONS OF SEC. 2(22)(E) OF THE ACT WERE NOT APPLICABLE TO IT. THE LEARNED CIT(APPEALS) WHILE DELETING THE ADDITION MADE BY THE ASSESSING O FFICER HOWEVER, HELD THAT SINCE THE ASSESSEE IS NOT A SHAREHOLDER IN BR PL(BSES RAJDHANI POWER LTD.), THE PROVISIONS OF SEC. 2(22)(E) WILL NOT BE APPLICABLE BY VIRTUE OF THE DECISION OF SPECIAL BENCH OF THE ITAT IN THE CASE O F ACIT VS. BHAUMIK COLOURS (P) LTD. 118 ITD 1 (MUMBAI) (SB). THE PAR TIES ARE ACCORDINGLY IN APPEAL. THE GRIEVANCE OF THE ASSESSEE AGAINST THE F IRST APPELLATE ORDER IS THAT BASED UPON THE PROVISIONS OF SEC. 2(18) OF THE INCOME-TAX ACT, 1961, APPLICABILITY OF THE PROVISIONS OF SEC. 2(22)(E) OF THE ACT (PERTAINING TO THE TAXABILITY OF DEEMED DIVIDED OF RS.59,27,00,000 ) H AS NOT BEEN DECIDED IN 164 THE HANDS OF THE ASSESSEE. THE GRIEVANCE OF THE REV ENUE ON THE OTHER HAND IS THAT THE LEARNED CIT(APPEALS) HAS ERRED IN DELETING THE ADDITION OF RS.59,27,00,000 MADE ON ACCOUNT OF DISALLOWANCE OF DEEMED DIVIDEND UNDER SEC. 2(22)(E) OF THE ACT IGNORING THAT THE RELIANCE ENERGY LTD., RELIANCE GLOBAL PVT. LTD. ARE COMMON SHAREHOLDER IN THE ASSE SSEE COMPANY AS WELL AS BSES RAJDHANI PVT. LTD. FROM WHOM THE ASSESSEE COMP ANY HAS RECEIVED LOAN AND ADVANCES. THE SHAREHOLDING OF RELIANCE ENE RGY LTD. AND RELIANCE GLOBAL PVT. LTD. IS ALSO NOT LESS THAN 10%. WE THUS DECIDED TO DEAL WITH GROUND NO.3 OF THE APPEAL OF THE ASSESSEE AND GROUN D NO.4 OF THE APPEAL OF THE REVENUE SIMULTANEOUSLY. 86.1 BRIEF FACTS ON THE ISSUE, CASE OF THE ASSESSIN G OFFICER, FINDINGS OF THE LEARNED CIT(APPEALS) AND CONTENTION OF THE ASSESSEE ARE AS UNDER: 86.2 IN THE ASSESSMENT YEAR UNDER CONSIDERATION THE ASSESSEE-COMPANY RECEIVED LOAN AMOUNTING TO RS.59,27,00,000 FROM M/S BSES RAJDHANI POWER LTD.(BRPL) THE SHAREHOLDING OF THE ASSESSEE-COMPANY AS ON 31.03.2007 WAS AS UNDER: NAME OF SHARE HOLDER NO. OF SHARES PERCENTAGE OF TOTAL RELIANCE ENERGY LTD. 30,60,000 51% RELIANCE ENERGY MGT. SERVICE PVT. LTD 96,00,000 RELIANCE ENERGY GLOBAL PVT. LTD. 96,00,000 POWERSURFER INTERACTIVE (I) PVT. LTD. 97,00,000 DELHI POWER CO. LTD. 5,68,39,997 49% CHIEF SECRETARY 1 PRINCIPAL SECRETARY (FINANCE) 1 PRINCIPAL SECRETARY (POWER) 1 TOTAL 11,60,00,000 100% 165 FURTHER, THE SHAREHOLDING OF BRPL AS ON 31.03.2007 IS TABULATED AS UNDER: NAME OF SHARE HOLDER NO. OF SHARES PERCENTAGE OF TOTAL RELIANCE ENERGY LTD. 11,97,00,000 51% RELIANCE ENERGY MGT. SERVICE PVT. LTD 3,83,00,000 RELIANCE ENERGY GLOBAL PVT. LTD. 3,83,00,000 POWERSURFER INTERACTIVE (I) PVT. LTD. 3,83,00,000 DELHI POWER CO. LTD. 22,53,99,997 49% CHIEF SECRETARY 1 PRINCIPAL SECRETARY (FINANCE) 1 PRINCIPAL SECRETARY (POWER) 1 TOTAL 46,00,00,000 100% 86.3 ON PERUSAL OF THE AFORESAID TABLE, IT MAY BE N OTED THAT RELIANCE ENERGY LTD. (REL) IS ONE OF THE COMMON-SHAREHOLDER IN THE ASSES SEE AS WELL AS BRPL AND HELD MORE THAN 26% SHARES IN EACH OF THE COMPANIES IN THE ASS ESSMENT YEAR UNDER CONSIDERATION. IT MAY, HOWEVER, BE PERTINENT TO NOTE THAT THE ASSESSE E DID NOT HAVE ANY DIRECT SHAREHOLDING IN BRPL. 86.4 IT MAY ALSO BE OBSERVED THAT 49% OF THE SHARES OF BRPL ARE HELD BY DELHI POWER CO. LTD., WHICH IS A CORPORATION SET UP UNDER THE D ELHI ELECTRICITY REFORM ACT, 2000 (DELHI ACT NO2 OF 2001), I.E. A STATE ACT. 86.5 THE ASSESSING OFFICER, IN THE IMPUGNED ASSESSM ENT ORDER, HELD THAT THE TRANSACTION OF LOAN ADVANCED BY BRPL TO THE ASSESSEE WAS IN THE NATURE OF DEEMED DIVIDEND AS DEFINED UNDER SECTION 2(22)(E) OF THE ACT. 86.6 IN THE IMPUGNED ASSESSMENT ORDER THE ASSESSING OFFICER, DESPITE ADMITTING THE FACT THAT 49% OF THE SHARES OF BRPL WAS HELD BY DELHI PO WER CO. LTD., WHICH IS A CORPORATION SET UP UNDER A STATE ACT, PROCEEDED TO TREAT THE AM OUNT OF LOAN ADVANCED AS DEEMED DIVIDEND BY MERELY HOLDING THAT THERE WAS NO EVIDE NCE TO PROVE THAT THE SHARES HELD BY DELHI POWER CO. LTD. WERE ALLOTTED OR ACQUIRED UNC ONDITIONALLY. 86.7 ON APPEAL AGAINST THE AFORESAID ORDER OF THE A SSESSING OFFICER, THE CIT(A) DELETED THE ADDITION MADE BY THE ASSESSING OFFICER BY HOLDI NG THAT SINCE THE ASSESSEE-COMPANY DID NOT HAVE ANY DIRECT SHARE-HOLDING IN BRPL, THE PROVISIONS OF SECTION 2(22)(E) OF TH E ACT WERE NOT APPLICABLE. THE CIT(A), HOWEVER, DID NOT E XAMINE THE FUNDAMENTAL QUESTION THAT THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT WERE, PER SE, NOT APPLICABLE IN THE CASE OF THE ASSESSEE. 87. IN THIS REGARD, THE LEARNED AR SUBMITTED THAT S ECTION 2(22)(E) OF THE ACT DEFINES DEEMED DIVIDEND AS UNDER: 166 (E) ANY PAYMENT BY A COMPANY, NOT BEING A COMPANY IN WH ICH THE PUBLIC ARE SUBSTANTIALLY INTERESTED , OF ANY SUM (WHETHER AS REPRESENTING A PART OF THE ASSETS OF THE COMPANY OR OTHERWISE) [ MADE AFTER THE 31ST DAY OF MAY, 1987 , BY WAY OF ADVANCE OR LOAN TO A SHAREHOLDER , BEING A PERSON WHO IS THE BENEFICIAL OWNER OF SHARES (NOT BEING SHARES ENTITLED TO A FIXED RATE OF DIVID END WHETHER WITH OR WITHOUT A RIGHT TO PARTICIPATE IN PROFITS) HOLDING NOT LESS THAN TEN PER CENT OF THE VOTING POWER, OR TO ANY CONCERN, IN WHICH SUCH SHAREHOLDER IS A MEMBER OR A PARTNER AND IN WHICH HE HAS A SUBSTANTIAL INTEREST (HEREAFTER IN THIS CLAUSE REFERRED TO AS THE SAID CONCERN)] OR ANY PAYMENT BY ANY SUCH COMPA NY ON BEHALF, OR FOR- THE INDIVIDUAL BENEFIT, OF ANY SUCH SHAREHOLDER, TO THE EXTENT TO WHICH THE COMPANY IN EITHER CASE POSSESSES ACCUMULATED PROFITS; BUT' DIV IDEND' DOES NOT INCLUDE . (EMPHASIS SUPPLIED) 87.1 ON PERUSAL OF THE AFORESAID, IT MAY BE NOTED T HAT THE PROVISIONS OF THIS CLAUSE ARE ATTRACTED TO ANY PAYMENT MADE BY A COMPANY, NOT BEI NG A COMPANY IN WHICH THE PUBLIC IS SUBSTANTIALLY INTERESTED ( AS DEFINED UNDER SECTION 2(18) OF THE ACT, DISCUSSE D INFRA ) AND THE PAYMENTS BEING IN THE NATURE OF (1) ADVANCE; OR (2) LOAN ; OR (3) ANY PAYMENT ON BEHALF OF ANY SHAREHOLDER; OR (4) ANY PAYMENT FOR T HE INDIVIDUAL BENEFIT OF ANY SHAREHOLDER. 87.2. IN THE PRESENT CASE, IT IS SUBMITTED THAT THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT WERE NOT APPLICABLE IN THE CASE OF THE ASSESSEE AT THE VERY THRESHOLD AS BRPL IS A COMPANY IN WHICH PUBLIC IS SUBSTANTIALLY INTERESTE D AS ELABORATED HEREUNDER: 87.3 A COMPANY IN WHICH PUBLIC IS SUBSTANTIALLY INT ERESTED IS DEFINED UNDER SECTION 2(18) OF THE ACT, WHICH READS AS UNDER: (18) ' COMPANY IN WHICH THE PUBLIC ARE SUBSTANTIALLY INTER ESTED' -- A COMPANY IS SAID TO BE A COMPANY IN WHICH THE PUBLIC ARE SUBSTA NTIALLY INTERESTED -- (A) IF IT IS A COMPANY OWNED BY THE GOVERNMENT OR T HE RESERVE BANK OF INDIA OR IN WHICH NOT LESS THAN FORTY PER CENT OF THE SHARES AR E HELD (WHETHER SINGLY OR TAKEN TOGETHER) BY THE GOVERNMENT OR THE RESERVE BANK OF INDIA OR A CORPORATION OWNED BY THAT BANK; OR .. (B) IF IT IS A COMPANY WHICH IS NOT A PRIVATE COMPANY A S DEFINED IN THE COMPANIES ACT, 19569 (1 OF 1956 ), AND THE CONDITIONS SPECIFI ED EITHER IN ITEM (A) OR IN ITEM (B) ARE FULFILLED, NAMELY :- (A) SHARES IN THE COMPANY (NOT BEING SHARES ENTITLE D TO A FIXED RATE OF DIVIDEND WHETHER WITH OR WITHOUT A FURTHER RIGHT TO PARTICIP ATE IN PROFITS) WERE, AS ON THE LAST DAY OF THE RELEVANT PREVIOUS YEAR, LISTED IN A RECO GNISED STOCK EXCHANGE IN INDIA IN ACCORDANCE WITH THE SECURITIES CONTRACTS (REGULATIO N) ACT, 1956 1 (42 OF 1956 ), AND ANY RULES MADE THEREUNDER; (B) SHARES IN THE COMPANY (NOT BEING SHARES ENTITLE D TO A FIXED RATE OF DIVIDEND WHETHER WITH OR WITHOUT A FURTHER RIGHT TO PARTICIP ATE IN PROFITS) CARRYING NOT LESS 167 THAN FIFTY PER CENT OF THE VOTING POWER HAVE BEEN A LLOTTED UNCONDITIONALLY TO, OR ACQUIRED UNCONDITIONALLY BY, AND WERE THROUGHOUT TH E RELEVANT PREVIOUS YEAR BENEFICIALLY HELD BY - (A) THE GOVERNMENT, OR (B) A CORPORATION ESTABLISHED BY A CENTRAL, STATE O R PROVINCIAL ACT, OR (C) ANY COMPANY TO WHICH THIS CLAUSE APPLIES OR ANY SUBSIDIARY COMPANY OF SUCH COMPANY IF THE WHOLE OF THE SHARE CAPITAL OF SUCH S UBSIDIARY COMPANY HAS BEEN HELD BY THE PARENT COMPANY OR BY ITS NOMINEES THROUGHOUT THE PREVIOUS YEAR. EXPLANATION .- IN ITS APPLICATION TO AN INDIAN COMPANY WHOSE BU SINESS CONSISTS MAINLY IN THE CONSTRUCTION OF SHIPS OR IN THE MANUF ACTURE OR PROCESSING OF GOODS OR IN MINING OR IN THE GENERATION OR DISTRIBUTION OF ELECTRICITY OR ANY OTHER FORM OF POWER, ITEM (B) SHALL HAVE EFFECT AS IF FOR THE WOR DS' NOT LESS THAN FIFTY PER CENT', THE WORDS' NOT LESS THAN FORTY PER CENT' HAD BEEN S UBSTITUTED ; (EMPHASIS SUPPLIED) 87.4 ON PERUSAL OF THE AFORESAID SECTION, IT MAY BE NOTED THAT IF FIFTY PERCENT OF SHARES A COMPANY, NOT BEING A PRIVATE COMPANY IS HELD BY: (1) THE GOVERNMENT; OR (2) CORPORATION ESTABLISHED BY A CENTRAL, STATE OR PROV INCIAL ACT; OR (3) ANY COMPANY TO WHICH THIS CLAUSE APPLIES; THEN SUCH COMPANY IS CONSIDERED TO BE A COMPANY IN WHICH THE PUBLIC ARE SUBSTANTIALLY INTERESTED, FOR THE PURPOSES OF THE ACT. 87.5 FURTHER, EXPLANATION TO THE AFORESAID SECTION PROVIDES THAT IN THE CASE OF AN INDIAN COMPANY WHOSE BUSINESS CONSISTS MAINLY OF DISTRIBUT ION OF ELECTRICITY , THEN THE WORDS NOT LESS THAN 50% SHALL BE SUBSTITUTED WITH NOT LESS THAN 40% . 87.6 THE LEARNED AR SUBMITTED THAT BRPL IS A COMPA NY IN WHICH THE PUBLIC ARE SUBSTANTIALLY INTERESTED AS DEFINED UNDER SECTION 2(18) OF THE ACT, AS ELABORATED HEREUNDER: BRPL, WAS INCORPORATED AS A PUBLIC COMPANY INCORPOR ATED ON 04.07.2001 AND 49% OF THE SHARES OF THE SAID COMPANY ARE HELD BY D ELHI POWER CO. LTD., A CORPORATION SET UP UNDER THE STATE ACT OF DELHI ELE CTRICITY REFORM ACT, 2000 (DELHI ACT NO.2 OF 2001). FURTHER, IT MAY ALSO BE N OTED THAT DELHI POWER CO. LTD., IS A COMPANY WHICH IS WHOLLY HELD BY THE GOVERNMENT AND HENCE A COMPANY IN WHICH PUBLIC IS SUBSTANTIALLY INTERESTED. 87.7 THUS, IN VIEW OF THE AFORESAID FACTS, IT IS RE SPECTFULLY SUBMITTED THAT BRPL SATISFIES THE CONDITIONS STIPULATED IN BOTH SUB-CLAUSE (B) AND (C) OF SECTION 2(18)(B)(B) OF THE ACT AS: 168 (I) MORE THAN 40% OF ITS SHARES ARE HELD BY CORPORATION SET UP UNDER A STATE ACT AND; (II) MORE THAN 40% OF ITS SHARE IS HELD BY A COMPANY WHI CH IS HELD DIRECTLY BY THE GOVERNMENT, 87.8 ACCORDINGLY PROVISIONS OF SECTION 2(22)(E) OF THE ACT ARE NOT ATTRACTED AT THE THRESHOLD. 87.9 THE ASSESSING OFFICER HAS, IN THE IMPUGNED ASS ESSMENT ORDER, NOWHERE DISPUTED THE FACT THAT 49% SHARES OF BRPL ARE HELD BY DELHI POWER CO. LTD., WHICH IS A CORPORATION SET UNDER A STATE ACT, BUT HAS MERELY M ADE A BALD ALLEGATION THAT THERE WAS NO EVIDENCE TO PROVE THAT 49% SHARES OF BRPL HELD B Y DELHI POWER CO. LTD. WERE ALLOTTED OR ACQUIRED UNCONDITIONALLY 87.10 IN MAKING THE AFORESAID OBSERVATION, THE ASSE SSING OFFICER HAS NOT BROUGHT ANYTHING ON RECORD TO ESTABLISH THAT THE AFORESAID SHARES WERE NOT ALLOTTED OR ACQUIRED UNCONDITIONALLY. 87.11 WITHOUT PREJUDICE TO THE AFORESAID, IT IS OF UTMOST IMPORTANCE TO NOTE THAT SECTION 2(22)(E) OF THE ACT ONLY DEALS WITH A PAYMENT TO TH E SHAREHOLDER DIRECTLY AND THE PAYMENT BY A COMPANY NOT TO A SHAREHOLDER BUT TO A THIRD PA RTY ON BEHALF OF OR FOR THE INDIVIDUAL BENEFIT OF THE SHAREHOLDER. 87.12 THUS, ON THE DATE OF ADVANCEMENT OF LOAN/ADVA NCE, THE RECIPIENT SHOULD BE A SHAREHOLDER AND IF IT IS NOT SO ESTABLISHED, THE PR OVISIONS OF SECTION 2(22)(E) OF THE ACT ARE NOT APPLICABLE. RELIANCE IN THIS REGARD IS PLACED ON THE FOLLOWING DECISIONS: CIT VS. ANKITECH (P.) LTD.: 318 ITR 376 (DEL) CIT V. UNIVERSAL MEDICARE (P.) LTD. : 324 ITR 263 ( BOM) CIT VS. SURAM HOLDINGS (P.) LTD.: 220 TAXMAN 327 (R AJ.) ACIT VS. BHAUMIK COLOUR (P) LTD.: 118 ITD 1 (MUM.) (SB) 87.13 IN THE INSTANT CASE, THE ASSESSEE DID NOT HAV E ANY DIRECT SHAREHOLDING IN BRPL IN THE ASSESSMENT YEAR UNDER CONSIDERATION AND WAS THE REFORE NOT A SHAREHOLDER IN BRPL. 87.14. IN VIEW OF THE ABOVE, IT IS RESPECTFULLY SUB MITTED, THAT THE ADDITION OF RS.59,27,00,000/- MADE BY THE ASSESSING OFFICER UND ER SECTION 2(22)(E) OF THE ACT CALLS FOR BEING DELETED. 88. THE LEARNED CIT(DR) ON THE OTHER HAND PLACED RE LIANCE ON THE ASSESSMENT ORDER. 169 89. IT IS COMING FROM THE SUBMISSIONS OF THE ASSES SEE THAT BRPL WAS INCORPORATED AS PUBLIC COMPANY ON 04.07.2001 AND 49 % OF THE SHARES OF THE SAID COMPANY ARE HELD BY THE DELHI POWER CO. LTD., A CORPORATION SET UP UNDER THE STATE ACT OF DELHI ELECTRICITY REFORMS AC T, 2000 (DELHI ACT NO.2 OF 2001). IT HAS ALSO BEEN POINTED OUT THAT DELHI P OWER CO. LTD. IS A COMPANY WHICH IS WHOLLY HELD BY THE GOVERNMENT AND HENCE A COMPANY IN WHICH PUBLIC IS SUBSTANTIALLY INTERESTED. IN VIEW O F THE SUBMISSIONS, THE CONTENTION OF THE LEARNED AR REMAINED THAT BRPL SAT ISFIES THE CONDITIONS STIPULATED IN BOTH SUB-CLAUSE (B) AND (C) OF SECTIO N 2(18)(B)(B) OF THE ACT AS: I) MORE THAN 40% OF ITS SHARES ARE HELD BY CORPORAT ION SET UP UNDER THE STATE ACT; II) MORE THAN 40% ITS SHARE IS HELD BY A COMPANY WH ICH IS HELD DIRECTLY BY THE GOVERNMENT. 89.1 ACCORDINGLY PROVISIONS OF SEC. 2(22)(E) OF THE ACT ARE NOT ATTRACTED AT THE THRESHOLD. THE ASSESSING OFFICER NOWHERE DISPUT ED THE FACT THAT 49% SHARES OF BRPL ARE HELD BY DELHI POWER CO. LTD., WH ICH IS A CORPORATION SET UP UNDER THE STATE ACT, BUT HAS HELD THAT THERE WAS NO EVIDENCE TO PROVE THAT 49% SHARES OF BRPL HELD BY DELHI POWER CO. LTD. WER E ALLOTTED OR ACQUIRED UNCONDITIONALLY. 89.2 BEFORE THE LEARNED CIT(APPEALS), THE ASSESSEE HAS RAISED TWO CONTENTIONS. FIRSTLY, THE BRPL WHO HAS PROVIDED LOA N/ADVANCE TO THE 170 ASSESSEE IS A COMPANY IN WHICH PUBLIC IS SUBSTANTIA LLY INTERESTED BY VIRTUE OF PROVISIONS OF SEC. 2(18) (B)(B)(C) OF THE ACT, HENC E THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT ARE NOT ATTRACTED ON THE AMOUNT OF LOAN/ADVANCE PROVIDED BY BRPL TO THE ASSESSEE. BRPL IS A COMPANY WHICH IS NOT A PRIVATE COMPANY WITHIN THE MEANINGS OF THE COMPANYS ACT, 1 956 AND, THEREFORE, QUALIFIES AS A COMPANY IN WHICH THE PUBLIC HAS SUBS TANTIAL INTEREST, SINCE THE BELOW TWO CONDITIONS ARE ALSO SATISFIED: (A) 40% OF ITS SHARES ARE HELD BY DPCL, A COMPANY T O WHICH SECTION 2(18)(B)(B) APPLIES, AND (B) THE ABOVE MENTIONED SHAREHOLDING OF BRPL WAS UNCONDITIONALLY ALLOTTED TO AND ACQUIRED BY DPCL AN D WAS BENEFICIALLY HELD BY IT THROUGHOUT THE RELEVANT YEA R. 89.3 WITHOUT PREJUDICE TO THE ABOVE, THE SECOND CON TENTION OF THE ASSESSEE REMAINED THAT THE ASSESSEE COMPANY IS NOT A SHAREHO LDER IN BRPL AND ACCORDINGLY CANNOT BE TAXED UNDER SEC. 2(22)(E) OF THE ACT. 89.4 IN SUPPORT, RELIANCE WAS PLACED ON THE DECISIO NS IN THE CASES OF ACIT VS. BHAUMIK COLOUR (P) LTD. (2009) 313 ITR (AT) 1 46 (S.B) AND DCIT VS. NATIONAL TRAVEL SERVICES 31 SOT 76. IN VIEW OF TH E ABOVE CITED DECISIONS 171 ON THE ISSUE, THE LEARNED CIT(APPEALS) AGREED WITH THE ALTERNATIVE SUBMISSIONS OF THE ASSESSEE AND HELD THAT THE PROVI SIONS OF SEC. 2(22)(E) WILL NOT BE APPLICABLE IN THIS CASE AND DIRECTED THE ASS ESSING OFFICER TO DELETE THE ADDITION. THE SPECIAL BENCH IN THE ABOVE CITED DECI SIONS IN THE CASE OF ACIT VS. BHAUMIK COLOUR (P) LTD. (SUPRA) HAS HELD THAT D EEMED DIVIDEND CAN BE ASSESSED ONLY IN THE HANDS OF A PERSON WHO IS SHARE HOLDER OF THE LENDER COMPANY AND NOT IN THE HANDS OF THE PERSON OTHER TH AN SHAREHOLDER. SIMILAR VIEW HAS BEEN EXPRESSED IN THE OTHER CITED DECISION S. SINCE THE DECISION TAKEN BY THE LEARNED CIT(APPEALS) ON THE OTHER ALTE RNATIVE ARGUMENT OF THE ASSESSEE IS FULLY COVERED IN FAVOUR OF THE ASSESSEE BY THE ABOVE CITED DECISIONS, WE DO NOT FIND REASON TO INTERFERE WITH THE FIRST APPELLATE ORDER IN THIS REGARD. THE SAME IS UPHELD. THE GROUND NO.4 OF THE REVENUES APPEAL QUESTIONING THE ABOVE FINDING IS THUS REJECTED. 89.5 THE LEARNED CIT(APPEALS) HAS, HOWEVER, LEFT OP EN THE ABOVE DISCUSSED FIRST CONTENTION OF THE ASSESSEE, TREATIN G THE SAME AS TURNED ACADEMIC IN VIEW OF IS ABOVE FINDING ON THE ALTERNA TIVE CONTENTION OF THE ASSESSEE. THE ASSESSEE IS AGGRIEVED WITH THIS NON-A CTION OF THE LEARNED CIT(APPEALS). 172 BY VIRTUE OF THE PROVISIONS LAID DOWN UNDER SEC. 2( 18)(B)(B)(C) OF THE ACT, WE PRINCIPALLY AGREE WITH THE CONTENTION OF TH E ASSESSEE THAT PROVISIONS OF SEC. 2(22)(E) OF THE ACT ARE NOT ATTRACTED, WHER E THE COMPANY, WHO PROVIDES LOAN/ADVANCE TO THE ASSESSEE, IS A COMPANY IN WHICH PUBLIC HAS SUBSTANTIAL INTEREST. IN SUPPORT, THE ASSESSEE HAS ALSO CITED HEREINABOVE THE TWO CONDITIONS I.E. (A) (B) CLAIMED TO HAVE BEEN FU LFILLED IN THE PRESENT CASE, WHICH OUR VIEW NEED VERIFICATION TO DECIDE THE ISSU E RAISED IN GROUND NO.3 OF THE ASSESSEE. SINCE THE LEARNED CIT(APPEALS) HAS LEFT THE ISSUE UNDECIDED, WE IN THE INTEREST OF JUSTICE SET ASIDE THE MATTER TO THE FILE OF THE LEARNED CIT(APPEALS) TO DECIDE THE ISSUE AFTER AFFO RDING OPPORTUNITY OF BEING HEARD TO THE PARTIES. THE GROUND NO.3 OF THE APPEAL PREFERRED BY THE ASSESSEE IS THUS ALLOWED FOR STATISTICAL PURPOSES. 89.6 THUS, GROUND NO.3 OF THE APPEAL OF THE ASSESSE E IS ALLOWED FOR STATISTICAL PURPOSES AND GROUND NO.4 OF THE APPEAL FILED BY THE REVENUE IS REJECTED. 91. IN RESULT, THE APPEAL IS PARTLY ALLOWED. ITA NO. 1538/DEL/2011 REVENUE (A.Y.2007-08): 90. THE REVENUE HAS IMPUGNED THE FIRST APPELLATE O RDER ON THE FOLLOWING GROUNDS: 4. THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN DE LETING ADDITION OF RS. 51,22,43,735/- MADE ON ACCOUNT OF DISALLOWANCE OF S ERVICE LINE DEPOSITS AND CUSTOMER CONTRIBUTION TO CAPITAL WORKS IGNORING THA T: L) THE SERVICE LINE DEPOSITS ARE NOT IN THE NATURE OF DEPOSITS PER SE THEY ARE NON- REFUNDABLE AS ALSO ADMITTED BY THE ASSESSEE CO. 173 M) ONCE THESE RECEIPTS HAVE BEEN ACCEPTED AS NON-REFUN DABLE RECEIPTS THEY ARE NO MORE A LIABILITY ON THE COMPANY. HENCE THE TREATMEN T GIVEN BY THE ASSESSEE CO. TO SERVICE LINE DEPOSIT BY TREATING THEM AS LOA N FUNDS AND ACCORDINGLY AS LIABILITIES IS ALL TOGETHER INCORRECT. N) FURTHER THE ASSESSEE CO. IS ENGAGED IN SELLING ELEC TRICITY TO THE CONSUMERS FROM WHOM IT CHARGES FEES IN THE NAME OF ENERGY CHARGES. THESE ENERGY CHARGES ARE UNDISPUTEDLY IN THE NATURE OF REVENUE RECEIPTS. O) THE ASSESSEE CO. IS A SERVICE PROVIDER CO. AND IS E NGAGED IN THE BUSINESS OF DISTRIBUTION OF ELECTRICITY TO DIFFERENT CATEGORIES OF CUSTOMERS AS PER THEIR REQUIREMENTS. HENCE IT IS IN THE NATURE OF SERVICE PROVIDER. P) SINCE THE ASSESSEE CO. IS ENGAGED IN SELLING THE EN ERGY, THEREFORE FOR THIS PURPOSE IT HAS TO PROVIDE SERVICE LINE CONNECTIONS TO THE CONSUMERS FOR WHICH IT CHARGES SERVICE LINE DEPOSITS. HENCE IT CAN BE S EEN THAT THESE SERVICE LINE RECEIPTS ARE RECEIVED BY THE CO. DURING THE COURSE OF ITS REGULAR BUSINESS/COMMERCIAL OPERATIONS. HENCE, THEY ARE IN THE NATURE OF REVENUE RECEIPTS. Q) THE REASONING GIVEN BY THE ASSESSEE CO. THAT IT INC URS CAPITAL EXPENDITURE FOR EXTENDING SERVICE LINES TO THE CONSUMERS AND THESE RECEIPTS ARE UTILIZED FOR THIS PURPOSE DOES NOT EXPLAIN THAT HOW THESE RECEIPTS AR E CAPITAL RECEIPTS IN ITS HANDS. R) THE FACT THAT THE ASSESSEE CO ITSELF TREATED 1/3 RD OF THESE RECEIPTS AS REVENUE RECEIPTS IMPLIEDLY, GOES ON TO SHOW THAT THE CO.BEL IEVES THAT THEY ARE OF REVENUE NATURE. S) FURTHER THE CO. HAS NOT SUBMITTED ANY REASONING WHA TSOEVER AS TO WHY IT HAS TREATED SPECIFICALLY 1/3 RD OF THESE RECEIPTS AS REVENUE RECEIPTS AND NOT OR 1/4 TH OR SOME OTHER PROPORTION AS REVENUE RECEIPTS. T) LASTLY THE ASSESSEE CO. HAS NOT PROVIDED THE DETAIL S OF THESE RECEIPTS INCLUDING THEIR RECONCILIATION WITH ITS BOOKS EVEN THOUGH SPE CIFIC QUERY WAS RAISED IN THIS REGARD VIDE NOT SHEET ENTRY DT. 21.11.2008. HO WEVER A SAMPLE VOUCHER OF RECEIPT WAS SUBMITTED WHICH REVEALS THAT APART FROM SERVICE LINE CHARGES, THE CO. IS LEVYING DEVELOPMENT CHARGES FROM THE CUSTOME RS FOR A NEW CONNECTION. THUS THE CO. IS ALREADY COLLECTING FUNDS FOR INCURR ING CAPITAL EXPENDITURE. U) THE SERVICE LINE RECEIPTS SIMPLY CANNOT BE TREATED AS CAPITAL RECEIPTS BECAUSE THEIR NATURE WOULD NOT DEPEND UPON HOW THE ASSESSEE CO. IS UTILIZING THEM BUT IN WHAT CAPACITY THEY HAVE BEEN RECEIVED BY THE COM PANY. AND THE FACT IS THAT THEY HAVE BEEN RECEIVED BY THE COMPANY. AND THE FAC T IS THAT THEY HAVE BEEN RECEIVED BY THE CO. IN THE COURSE OF RUNNING ITS RE GULAR BUSINESS OPERATIONS. V) THE ASSESSEE COMPANY ALSO NOT PROVIDED THE INFORMAT ION IN THE TABULAR FORM INSPITE OF SPECIFICALLY ASKED FOR BY THE AO DURING THE ASSESSMENT PROCEEDINGS. 174 5. THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN DEL ETING ADDITION OF RS.32,59,746/- MADE ON ACCOUNT OF DISALLOWANCE OF L EGAL CLAIMS IGNORING THAT PAYMENTS MADE BY THE ASSESSEE ARE PENAL IN NATURE A ND HENCE NOT ALLOWABLE. 6. THE LD.CIT(A) HAS ERRED ON FACTS AND IN LAW IN DELE TING ADDITION OF RS. 4,33,41,629/- MADE ON ACCOUNT OF DISALLOWANCE OF EX TRA DEPRECIATION ON COMPUTER PERIPHERALS/ACCESSORIES IGNORING THAT AS PER THE I T RULES 60% DEPRECIATION IS ALLOWABLE ONLY ON COMPUTER AND COMPUTER SOFTWARE AN D NOT ON COMPUTER PERIPHERALS AND ACCESSORIES. 92. GROUND NO.1 : THE ACTION OF THE LEARNED CIT(APPEALS) IN DELETIN G ADDITIONS MADE ON ACCOUNT OF SERVICE LINES DEPOSITS AND ON ACCOUNT OF CONSUMERS CONTRIBUTION FOR CAPITAL WORK HAS BEEN IM PUGNED BY THE REVENUE. THE ASSESSEE ON THE OTHER HAND HAS RAISED A CONNECT ED ISSUE IN GROUND NO.1 OF ITS APPEAL FOR THE SAME ASSESSMENT YEAR QUESTION ING THE FIRST APPELLATE ORDER UPHOLDING THE SERVICE LINE DEPOSIT FROM CONSU MERS AS TAXABLE OVER A PERIOD OF THREE YEARS. WHILE DECIDING THIS ISSUE HE REINABOVE IN THE APPEAL OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2006-07, WE HA VE ALREADY DEALT WITH BOTH THE CONNECTED GROUNDS. FOLLOWING THE SAME, THE FINDING OF THE LEARNED CIT(APPEALS) THAT SERVICE LINE DEPOSITS AND CONSUME RS CONTRIBUTION FOR CAPITAL WORKS ARE CAPITAL IN NATURE IS UPHELD. THE GROUND NO.1 PREFERRED BY THE REVENUE IS THUS REJECTED. 93. GROUND NO.2 : IT IS REGARDING DELETION OF ADDITION OF RS.22,74, 094 MADE ON ACCOUNT OF DISALLOWANCE OF LEGAL CLAIMS. UN DER SIMILAR SET OF FACTS, 175 THIS ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESS EE IN GROUND NO.3 OF THE APPEAL PREFERRED BY THE REVENUE FOR THE ASSESSMENT YEAR 2006-07. FOLLOWING THE SAME, WE DO NOT FIND REASON TO INTERFERE WITH T HE ACTION OF THE LEARNED CIT(APPEALS) IN DELETING THE ADDITION OF RS.22,74,0 94 WITH THIS FINDING THAT PAYMENTS MADE ON ACCOUNT OF LEGAL CLAIMS BY THE ASS ESSEE ARE NOT PENAL IN NATURE. THE GROUND NO.2 IS ACCORDINGLY REJECTED. 94. GROUND NO.3 : IT IS REGARDING THE DELETION OF ADDITION OF RS.2,73,27,670 ON ACCOUNT OF DISALLOWANCE OF EXTRA DEPRECIATION ON COMPUTER PERIPHERAL. UNDER THE SIMILAR SET OF FACTS , AN IDENTICAL ISSUE HAS BEEN DECIDED IN THE APPEAL PREFERRED BY THE REVENUE FOR THE ASSESSMENT YEAR 2006-07 VIDE GROUND NO.4 THEREIN. FOLLOWING THE SAM E, WE AFFIRM THE ACTION OF THE LEARNED CIT(APPEALS) IN DELETING THE ADDITIO N IN QUESTION WITH THIS FINDING THAT THE ASSESSEE WAS VERY MUCH ELIGIBLE FO R THE CLAIMED DEPRECIATION ON COMPUTER PERIPHERALS. THE GROUND NO.3 IS ACCORDI NGLY REJECTED. 95. GROUND NO.4 : IT IS REGARDING THE DELETION OF ADDITION OF RS.59,27,00,000 MADE ON ACCOUNT OF DISALLOWANCE OF DEEMED DIVIDEND UNDER SEC. 2(22)(E) OF THE ACT, WHICH HAS BEEN DEALT WITH CONNECTED ISSUE RAISED IN GROUND NO. 3 OF THE APPEAL PREFERRED BY THE ASSESSE E HEREINABOVE. FOLLOWING 176 THE DECISION TAKEN THEREIN THE ACTION OF THE LEARNE D CIT(APPEALS) IN DELETING THE ADDITION IN QUESTION IS UPHELD. GROUND NO. 4 IS ACCORDINGLY REJECTED. 96. IN RESULT, THE APPEAL IS DISMISSED. ITA NO. 3922/DEL/2012 - ASSESSEE (A.Y. 2008-09) : 97. THE ASSESSEE HAS IMPUGNED FIRST APPELLATE ORDER ON THE FOLLOWING GROUNDS: 1. SERVICE LINE DEPOSITS FROM THE CUSTOMERS WRONGL Y UPHELD AS TAXABLE OVER A PERIOD OF 3 YEARS. THE LEARNED CIT(APPEALS)-VIII HAS UPHELD THAT THE S ERVICE LINE DEPOSITS ARE CAPITAL IN NATURE BUT IN THIS REGARD H E HAS WRONGLY UPHELD THAT THE SAME ARE TAXABLE OVER A PERIOD OF 3 YEARS. IN FACT THE SAME ARE IN THE NATURE OF CAPITAL RECEIPTS AND AT THE MOST CAN BE REDUCED FROM THE COST OF PLANT AND MACHINERY IN ACCORDANCE WITH THE PROVISIONS OF SEC. 43(1) OF THE INCOME-TAX ACT, 1961. 2. DEPRECIATION ON ENERGY METERS AT 15% AS AGAINST ITS ELIGIBILITY OF 80%. THE LEARNED CIT(APPEALS)-VIII HAS DISMISSED THIS G ROUND MENTIONING THAT SINCE APPELLANT HAS CLAIMED 15% DEP RECIATION ON ENERGY METERS IN THE REVISED RETURNS WHICH HAS B EEN ALLOWED BY THE A.O. NO CAUSE OF GRIEVANCE ARISES. THE COMPA NY IS IN APPEAL BEFORE HIGHER AUTHORITIES ON ITS CLAIM OF D EPRECIATION ON 177 ENERGY METERS @ 80% AND IN CASE THE SAME IS ALLOWED , THEN THE HIGHER DEPRECIATION MAY BE ALLOWED. ACCORDINGLY THE ISSUE OF HIGHER DEPRECATION @ 80% ON ENERGY METERS STILL STA NDS. 3. ADDITIONAL DEPRECIATION ON ASSETS CREATED OUT OF SERVICE LINE DEPOSIT AND CONSUMER CONTRIBUTION FOR CAPITAL WORKS FROM CUSTOMERS. WITH PREJUDICE TO THE GROUND THAT SERVICE LINE DEP OSITS AND CONSUMER CONTRIBUTION FOR CAPITAL WORKS ARE CAPITAL RECEIPTS, IN CASE AUTHORITIES DECIDE THESE ISSUE OTHERWISE, THE ADDITIONAL DEPRECIATION ON ASSETS CREATED OUT OF SERVICE LINE DEPOSITS AND CONSUMER CONTRIBUTION SHOULD BE ALLOWED. 4. THE APPELLANT CRAVES TO LEAVE, ADD, ALTER, MODIF Y, RECTIFY, AND AMEND ALL OR ANY OF THE GROUNDS BEFORE OR AT THE TI ME OF HEARING. 98. BESIDES ABOVE, THE ASSESSEE HAS ALSO MOVED APPL ICATION FOR ADMISSION OF THE FOLLOWING ADDITIONAL GROUND: THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AN D IN LAW, THE ASSESSING OFFICER ERRED IN ASSESSING THE INCOME OF THE APPELLANT UNDER SEC. 115B AND NOT UNDER THE NORMAL PROVISIONS OF TH E INCOME-TAX ACT, 1961 (THE ACT), WITHOUT APPRECIATING THAT THE DEE MING PROVISIONS OF SECTION 115JB OF THE ACT WERE NOT APPLICABLE DURING RELEVANT ASSESSMENT YEAR. 178 98.1 THE PARTIES HAVE ADOPTED SIMILAR ARGUMENTS AS ADVANCED BY THEM ON SIMILAR APPLICATION IN THE APPEAL OF THE ASSESSEE H EREINABOVE FOR THE ASSESSMENT YEAR 2007-08. FOLLOWING THE SAME, THE AP PLICATION IS ALLOWED. THE PARTIES HAVE ALSO ADVANCED A SIMILAR ARGUMENTS ON THE ISSUE RAISED ON THE ADDITIONAL GROUND AS ADVANCED BY THEM IN THE AS SESSMENT YEAR 2007-08 IN THE APPEAL OF THE ASSESSEE. FOLLOWING THE SAME, WE HOLD THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN ASSESSING THE INCOME O F THE ASSESSEE UNDER SEC. 115JB OF THE ACT AND NOT UNDER THE NORMAL PROVISION S OF THE ACT DURING THE YEAR. THE ADDITIONAL GROUND IS ACCORDINGLY ALLOWED. 99. GROUND NO.1 : IT IS REGARDING UPHOLDING THE SERVICE LINE DEPOSI TS FROM CONSUMERS TAXABLE OVER A PERIOD OF THREE YEARS. 99.1 UNDER SIMILAR SET OF FACTS, WE HAVE DECIDED TH E ISSUE RAISED IN THIS GROUND IN THE APPEAL OF THE ASSESSEE FOR THE ASSESS MENT YEAR 2005-06 HEREINABOVE. FOLLOWING THE SAME AND THE DECISION TA KEN IN THE CONNECTED ADDITIONAL GROUND FOR THE ASSESSMENT YEAR 2005-06 I N THE ASSESSEES APPEAL, WE HOLD THAT THE LEARNED CIT(APPEALS) WHILE HOLDING THE SERVICE LINE DEPOSITS FROM CONSUMERS AS CAPITAL IN NATURE SHOULD HAVE DIRECTED THE ASSESSING OFFICER TO REDUCE THE AMOUNT OF SERVICE L INE DEPOSITS CREDITED TO 179 THE PROFIT AND LOSS ACCOUNT DURING THE YEAR (AS PER THE COMPANYS POLICY OF OFFERING THE SERVICE LINE DEPOSITS FOR REVENUE OVER A PERIOD OF THREE YEARS) BY COMPUTING THE TOTAL INCOME AFTER HOLDING THAT EN TIRE RECEIPTS BY WAY OF SERVICE LINE DEPOSITS IS CAPITAL IN NATURE. WE DIR ECT TO THE ASSESSING OFFICER ACCORDINGLY. THE GROUND NO.1 IS ACCORDINGLY ALLOWED . 100. GROUND NO2 : AN IDENTICAL ISSUE REGARDING DEPRECIATION ON ENER GY METERS @ 80% CLAIMED BY THE ASSESSEE HAS BEEN DECID ED IN THE ASSESSMENT YEAR 2005-06 IN GROUND NO.1 OF THE APPEAL PREFERRED BY THE ASSESSEE. FOLLOWING THE SAME, THE ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE WITH THIS FINDING THAT THE ASSESSEE IS VERY MUCH ELIGIBLE FOR THE CLAIMED DEPRECIATION @ 80% ON THE ENERGY METERS WITH DIRECTION TO THE AS SESSING OFFICER TO ALLOW THE CLAIMED DEPRECIATION @ 80% ON THE EXPENSES INCU RRED ON ELECTRONIC/ENERGY METERS REFLECTED IN THE AUDIT REP ORT. THE GROUND NO. 2 IS ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSES. 101. GROUND NO.3 : IT IS REGARDING THE ADDITIONAL DEPRECIATION ON AS SETS CREATED OUT OF SERVICE LINE DEPOSITS AND CONSUMER C ONTRIBUTION FOR CAPITAL WORKS FROM CONSUMERS. THE ASSESSEE WITHOUT PREJUDIC E TO THE GROUND THAT SERVICE LINE DEPOSITS AND CONSUMERS CONTRIBUTION FO R CAPITAL WORK ARE CAPITAL 180 RECEIPTS HAS PLEADED THAT IN CASE AUTHORITIES DECID E THIS ISSUE OTHERWISE, THE ADDITIONAL DEPRECIATION ON ASSETS CREATED OUT OF SE RVICE LINE DEPOSITS AND CONSUMERS CONTRIBUTION SHOULD BE ALLOWED. WE FIND T HAT THIS GROUND IS CONSEQUENTIAL TO GROUND NO.1 OF THE PRESENT APPEAL. SINCE GROUND NO.1 HAS ALREADY BEEN DECIDED IN FAVOUR OF THE ASSESSEE, THE CONSEQUENTIAL GROUND NO.3 DOES NOT STAND. THIS GROUND IS ACCORDINGLY REJ ECTED. 102. IN RESULT, THE APPEAL IS PARTLY ALLOWED. 103. IN SUMMARY, APPEALS PREFERRED BY THE ASSESSEE ARE PARTLY ALLOWED AND THOSE PREFERRED BY THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 05 .10.2015 SD/- SD/- ( INTURI RAMA RAO ) ( I.C. SUDHIR ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 05 /10/2015 MOHAN LAL COPY FORWARDED TO: 1) APPELLANT 2) RESPONDENT 3) CIT 4) CIT(APPEALS) 5) DR:ITAT ASSISTANT REGISTRAR 181 DATE DRAFT DICTATED ON COMPUTER 21.9.2015 TO 23.9.2015 & 01. 10.2015 DRAFT PLACED BEFORE AUTHOR 01.10.2015 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 01.10.2015 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. 05. 10.2015 APPROVED DRAFT COMES TO THE SR.PS/PS 14.10.201 5 KEPT FOR PRONOUNCEMENT ON 15.10.2015 FILE SENT TO THE BENCH CLERK 1510.2015 DATE ON WHICH FILE GOES TO THE AR DATE ON WHICH FILE GOES TO THE HEAD CLERK. DATE OF DISPATCH OF ORDER.