The ACIT, Circle-4, Surat V. M/s. Torrent Power SEC Ltd., Surat

ITA 517/AHD/2007

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 9168 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 10 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-12-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 30-06-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 05-02-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Principle of natural justice; Capital receipt; Revenue expenditure; Capital expenditure
• Section: 250; 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH A BEFORE SHRI G.D. AGARWAL, VICE-PRESIDENT (AZ) AND SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER DATE OF HEARING : 15/10/2010 DRAFTED ON: 02/12 /2010 1. ITA NO.517/AHD/2007 - A.Y.2003-04 2. ITA NO.644/AHD/2007 - A.Y.2003-04 1. THE ACIT CIRCLE-4 SURAT VS. M/S.TORRENT POWER SEC LTD. TORRENT HOUSE STATION ROAD SURAT PAN/GIR NO. : AAACT 8629 D 2. M/S.TORRENT POWER LTD. ( ERSTWHILE TORRENT POWER SEC.LTD. ) SURAT VS. THE ACT CIRCLE-4 SURAT ( APPELLANTS ) ( RESPONDENTS ) ASSESSEE BY: 1. SHRI S.N.SOPARKAR, ADV. 2. SHRI P.M. MEHTA, ADV. REVENUE BY: 1.SHRI RAJEEV AGARWAL, CIT-DR 2. SHRI K.M. MAHESH, DR 3. SHRI ANIL KUMAR, DR O R D E R PER SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER : THESE CROSS APPEALS RESPECTIVELY BY THE REVENUE AN D THE ASSESSEE HAVE ARISEN FROM THE ORDER OF THE LEARNED CIT(APPEA LS)-III, SURAT DATED 30/11/2006 PASSED FOR ASSESSMENT YEAR 2003-04. (A) REVENUES APPEAL, I.E. ITA NO.517/AHD/2007 2. EFFECTIVE GROUNDS ARE GROUND NO. 1&2 PRESSED BY THE REVENUE REPRODUCED BELOW :- ITA NO.571/AHD/2007 (BY REVENUE) &644/AHD/2007(BY ASSESSEE) ACIT VS. M/S.TORRENT POWER SEC.LTD. ASST.YEAR 2003-04 - 2 - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE THE CIT(A) ERRED IN FINDING THE LIABILITY TO PAY THE ENHANCED WAGES HAD OCCURRED IN THE IMPUGNED ASSTT YEAR. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE THE CIT(A) ERRED IN DECIDING THAT THE LIABILITY TO PAY THE ENHANCED WAGES IS LIABILITY IN PRESENTI THOUGH DISCHARGED ON A FUTURE DATE. IN DECIDING THIS, THE CIT(A) HAS ERRED IN IGNORING THE FACT THAT ONLY THE LIABILITY HAS BEEN DISCHARGED ON A FUTURE DATE BUT IT ALSO AROSE ONLY AFTER CONCLUSION OF NEGOTIATION OF WAGES SETTL EMENT WITH THE WORKERS UNION ON 16.10.2003. 2.1. THIS ISSUE NOW STOOD SETTLED IN FAVOUR OF THE ASSESSEE BY AN ORDER OF RESPECTED CO-ORDINATE BENCH D AHMEDABAD IN AS SESSEES OWN CASE BEARING ITA NO.1998/AHD/2006 (BY REVENUE) AND CO NO.254/AHD/2006(BY ASSESSEE) FOR ASSESSMENT YEAR 20 02-03, DATED 23/12/2008, WHEREIN THE TRIBUNAL HELD AS UNDER:- 21. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE T HROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE HAVE ALSO GONE TH ROUGH THE VARIOUS DECISIONS AS RELIED UPON BY THE LEARNED COU NSEL FOR THE ASSESSEE BEFORE THE CIT(A) AS WELL AS BEFORE US ALO NG WITH THE ORDERS OF THE AUTHORITIES BELOW. WE FIND THAT IF A LIABIL ITY HAD ACCRUED DURING THE RELEVANT PREVIOUS YEAR AND COULD QUITE REASON ABLY BE ESTIMATED ON THE BASIS OF MATERIAL AVAILABLE WITH THE ASSES SEE, THEN MERELY BECAUSE QUANTIFICATION OF THE SAME WAS DONE IN A SUBSEQUENT YEAR, IT CANNOT BE SAID THAT THE PROVISION SO MADE WAS A CONTINGENT LIABILITY. WHAT SHOULD BE CERTAIN IS THE INCURRING OF THE LIAB ILITY. IT SHOULD ALSO BE CAPABLE OF BEING ESTIMATED WITH REASONABLE CERTAINT Y, THOUGH ITS ACTUAL QUANTIFICATION MAY NOT BE POSSIBLE. IF THESE REQUI REMENTS ARE SATISFIED THEN THE LIABILITY IS IN PRAESENTI, THOUGH IT WI LL BE DISCHARGED AT A FUTURE DATE, AND IT ALSO DOES NOT MAKE ANY DIFFER ENCE IF THE FUTURE DATE ON WHICH THE LIABILITY SHALL HAVE TO BE DISC HARGED IS NOT CERTAIN. IN THE INSTANT CASE, IT IS SEEN THAT THE EARLIER WAGE SETTLEMENT CAME TO AN END ON 31.12.2000 AND A FRESH CHARTER OF DEMAND FOR THE NEXT 3 YEARS PERIOD BEGINNING FROM 01.0 12001 TO 31.12.2003 WAS SUBMITTED BY THE EMPLOYEES THROUGH THE NOTICE ITA NO.571/AHD/2007 (BY REVENUE) &644/AHD/2007(BY ASSESSEE) ACIT VS. M/S.TORRENT POWER SEC.LTD. ASST.YEAR 2003-04 - 3 - OF DEMAND ON 23.06.2001 AND THE PROCESS OF WAGE SET TLEMENT WAS STARTED. ONCE A CHARTER OF DEMANDS WAS SUBMITTED BY THE UNION, THE COMPANY WAS LEGALLY BOUND, UNDER THE IND USTRIAL DISPUTES ACT, TO TAKE NOTICE OF THE SAME AND TO ARRIVE AT A PRUDENT DECISION IN ACCORDANCE WITH THE PRESCRIBED PROCEDURES. AFTER P ROTRACTED NEGOTIATIONS IN RESPECT OF THE DEMANDS RAISED IN THE FRESH CHARTER OF DEMANDS, CONCILIATION PROCEEDINGS WERE HELD AND A FORMAL AGREEMENT WAS EXECUTED ON 16.10.2003 FOR THE PERIOD 01.01. 2000 TO 31.12.2003. A TOTAL PROVISION OF RS.3.31 CRORES WAS MADE BY THE APPELLANT DURING THE SETTLEMENT PERIOD (AS AGAINST CRYSTALLIZED LIABILITY OF RS.3.02 CRORES). IT IS FURTHER SEEN THAT SUCH WAGE SETTLEMENT WAS NOT A NEW EVENT OCCURRING IN THE CASE OF THE ASS ESSEE AND THREE SUCH SETTLEMENTS WITH THE EMPLOYEES UNION HAD BE EN ARRIVED AT FOR THE PERIODS FROM 01.01.1992 TO 31.12.1994, 01.01.1 995 TO 31.12.1997, AND 01.01.1998 TO 31.12.2000. AS THE COMPANY HAD ON RECORD THREE WAGE SETTLEMENTS FOR THE PRECEDING 9 YEARS PERIOD AND THE PERCENTAGE INCREASE GIVEN ON SALARY IN TH OSE SETTLEMENTS, A REASONABLE BASIS, IN THE FORM OF SETTLEMENTS EAR LIER REACHED FOR PAY REVISION, WAS THEREFORE AVAILABLE TO THE ASSESSE E FOR ASCERTAINMENT OF THE LIABILITIES LIKELY TO ARISE ON ACCOUNT OF T HE CONSEQUENTIAL INCREASE IN SALARIES AND WAGES OF ITS EMPLOYEES. TH E ASSESSEE WAS THUS REASONABLY CERTAIN OF IS INCREASED LIABILITY ON THAT ACCOUNT AND COULD REASONABLY ESTIMATE THE QUANTUM OF SUCH ACCR UED LIABILITY IN VIEW OF THE FACTS THAT (I) THE SERVICES HAD ALRE ADY BEEN RENDERED BY 31-3-2002, (II) THE REVISED WAGES / SALARY WAS TO BE GIVEN WITH EFFECT FROM 01.01.2001, AND (III) THE COMPANY HAD ON RECOR D THREE WAGE SETTLEMENTS FOR THE PRECEDING 9 YEARS PERIOD AND THE PERCENTAGE INCREASE GIVEN ON SALARY IN THOSE SETTLEMENTS. TH E LIABILITY WAS THUS CERTAIN. WHAT WAS NOT CERTAIN WAS THE QUANTUM OF SU CH LIABILITY. IT IS, THEREFORE, SEEN THAT THE PROVISION FOR WAGE SET TLEMENT WAS MADE BY THE APPELLANT ON A REASONABLE BASIS FOR THE AN TICIPATED EXPENDITURE ON ACCOUNT OF THE REVISED WAGES / SALA RIES TO BE GIVEN WITH EFFECT FROM 01.01.2001.( EMPHASIS SUPPLIED BY US ) 22. IN VIEW OF THE ABOVE FACTS NOW WE HAVE GONE THR OUGH THE LEGAL POSITION AS ARGUED BY BOTH THE SIDES. FIRST OF ALL , IT IS SEEN THAT THE HON'BLE APEX COURT IN THE CASE OF BHARAT EARTH MOVE RS V. CIT (2000) 245 ITR 428 (SC). THE LIABILITY WAS NOT A CONTING ENT LIABILITY. FURTHER, THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT V. MAHINDRA UGINE AND STEEL CO. LTD. (2001) 250 ITR 84 (BOM), WHEREIN IT IS HELD THAT WHERE, AFTER PURSUING THE TERMS AND CONDITIONS OF T HE WAGE SETTLEMENT ENTERED INTO BY THE ASSESSEE-COMPANY THE TRIBUNAL F OUND THAT UNDER THE CONCILIATION PROCEEDINGS A LUMP SUM PAYMENT WAS TO BE PAID TO THE ITA NO.571/AHD/2007 (BY REVENUE) &644/AHD/2007(BY ASSESSEE) ACIT VS. M/S.TORRENT POWER SEC.LTD. ASST.YEAR 2003-04 - 4 - WORKERS AND HENCE A DEBIT WAS MADE IN THE PROFIT AN D LOSS ACCOUNT TO DISCHARGE THE INCREASED LIABILITY, AND THAT THE PRO VISION WAS MADE ON A REASONABLE BASIS FOR ANTICIPATED EXPENDITURE AND TH EREFORE AN ALLOWABLE DEDUCTION. 23.. 24. SIMILARLY, THE CHENNAI BENCH OF THIS TRIBUNAL IN THE CASE OF NEYVELI LIGNITE CORPORATION V. ACIT 2 SOT 863 (CHEN NAI) HAS DISCUSSED THE FACTS THAT THE ASSESSEE HAD MADE A CLAIM ON ACCOUNT OF PAY REVISION IN THE A.Y. 2001-02. . HELD TH AT THE LIABILITY HAD GERMINATED IN THE SUBSEQUENT YEAR AND COULD NOT B E RELATED BACK TO THE EARLIER YEAR. . . 25. IN VIEW OF THE FACTS ABOVE DISCUSSED, CASE LAWS RELIED ON BY BOTH THE SIDES, WE ARE OF THE VIEW THAT THE FACTS A LMOST SIMILAR IN THE PRESENT CASE, TAKING A CONSISTENT VIEW AND RESPECTF ULLY FOLLOWING THE HON'BLE APEX COURT AS WELL AS THE BOMBAY HIGH COURT WE UPHOLD THE ORDER OF CIT(A) ALLOWING THE CLAIM OF THE ASSESSEE. ACCORDINGLY, THIS ISSUE OF THE REVENUES APPEAL IS DISMISSED. 3. FOR THE YEAR UNDER CONSIDERATION THE FACTS ARE S TATED TO BE IDENTICAL DUE TO THE REASON THAT ON THE SAME LINES A PROVISION I N RESPECT OF THE WAGE SETTLEMENT OF RS.2,70,00,000/- WAS MADE AND THE FIRST APPELLATE AUTHORITY HAS SIMPLY FOLLOWED HIS PREDECESSORS ORD ER OF THE A.Y. 2002- 03. ONCE THIS VERY GROUND OF THE REVENUE HAS ALREA DY BEEN DISMISSED BY THE RESPECTED CO-ORDINATE BENCH FOR THE A.Y. 02-03, RELEVANT PORTIONS REPRODUCED , THEREFORE, THE JUDICIAL PROPRIETY REQ UIRES ONE BENCH OF THE TRIBUNAL TO FOLLOW ANOTHER BENCH WHERE FACTS AND TH E CIRCUMSTANCES ARE LIKE PEAS IN A POD. WE FIND NO REASON TO ADOPT ANY OTHER VIEW BECAUSE ON THESE VERY FACTS AND CIRCUMSTANCES, THE AFORESAID RESPECTED CO-ORDINATE BENCH HAS ALREADY TAKEN A DECISION THAT THE PROVISION SO MADE FOR ENHANCED WAGES WAS NOT A CONTINGENT LIABILITY BUT A N ANTICIPATED ITA NO.571/AHD/2007 (BY REVENUE) &644/AHD/2007(BY ASSESSEE) ACIT VS. M/S.TORRENT POWER SEC.LTD. ASST.YEAR 2003-04 - 5 - EXPENDITURE ACCRUED THIS YEAR THEREFORE AN ALLOWABLE REVENUE EXPENDITURE HENCE THAT VIEW OUGHT TO BE FOLLOWED IN THE PRESENT APPEAL. THUS, THE GROUND RAISED BY THE REVENUE IS DISMISSED . (B) ASSESSEES APPEAL, I.E. ITA NO.644/AHD/2007 4. GROUND NO.1 IS REPRODUCED BELOW:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE CIT(A) HAS ERRED IN REJECTING THE ASSESSEES CLAIM THAT TH E LEASEHOLD RIGHT FOR 99 YEARS WAS NOT AN INTANGIBLE ASSET ENVISAGED IN SECTION 32 AND CONSEQUENTLY ERRED IN NOT ACCEPTING THE ASSESSE ES CLAIM OF DEPRECIATION ON COST/WDV OF THE SAME. 4.1. THE ISSUE IS ABOUT NON-ALLOWANCE OF DEPRECIATI ON OF RS.44,88,656/- CLAIMED @ 25% ON THE LEASEHOLD RIGHT LAND. THE FI RST APPELLATE AUTHORITY HAS RELIED UPON THE ORDER OF HIS PREDECESSOR FOR AS SESSMENT YEAR 2002- 03 AND DECIDED THE SAME AGAINST THE ASSESSEE. IN THAT YEAR, THE MATTER WAS CARRIED BY THIS ASSESSEE BEFORE THE TRIBUNAL AN D VIDE ORDER DATED 23/12/2008 (REFERENCE SUPRA), WHILE DECIDING THE CR OSS OBJECTION OF THE ASSESSEE VIDE PARAGRAPH NO.27 IT WAS HELD AS UNDER: - 27. WE HAVE HEARD THE RIVAL SUBMISSIONS AND, PERUS ED THE MATERIAL ON RECORD ALONG WITH THE ORDER OF THE AUTHORITIES B ELOW. WE HAVE ALSO GONE THROUGH THE VARIOUS DECISIONS AS RELIED UPON B Y THE LEARNED COUNSEL FOR THE ASSESSEE BEFORE THE CIT(A) AS WELL AS BEFORE US. WE FIND THAT THE PAYMENT OF PREMIUM FOR OBTAINING THE 99 YEARS LEASE WAS EVIDENTLY AN EXPENDITURE INCURRED IN CAPITAL FIELD FOR OBTAINING AN ASSET OF ENDURING NATURE, WHICH CANNOT STAND ON A D IFFERENT FOOTING THAN THE COST OF THE LAND, AS SPENT BY ANYBODY FOR PURCHASE OF LAND. THE MERE FACT THAT SOME SUCH REQUIREMENTS OR CONDIT IONS HAVE BEEN SPECIFIED IN THE LEASE DEED DOES NOT HOWEVER, FETTE R THE RIGHTS OF THE ITA NO.571/AHD/2007 (BY REVENUE) &644/AHD/2007(BY ASSESSEE) ACIT VS. M/S.TORRENT POWER SEC.LTD. ASST.YEAR 2003-04 - 6 - LESSEE OR CREATE ANY IMPEDIMENTS IN THE ENJOYMENT O F ITS RIGHT OVER USER OF THE LAND SO AS TO INTERFERE WITH OR LESSEN OR IN ANY MANNER CHANGE THE ENDURING NATURE OF THE RIGHTS GRANTED TO THE ASSESSEE THROUGH THE LEASE DEED. WE FIND THAT THE PREMIUM PAID FOR OBTAINING THE 99 YEARS LEASE FROM THE SMC CANNOT BE TREATED A S INTANGIBLE ASSET AND NO DEPRECIATION WOULD BE ADMISSIBLE TO THE ASSESSEE AS PER THE PROVISION OF THE ACT. WE FURTHER FIND THAT THE LAND DEVELOPED BY THE SMC WOULD NOT FALL IN THE CATEGORY OF A COMMERC IAL OR BUSINESS RIGHT AND NOT BE ENTITLED TO DEPRECIATION. IF ANY D EPRECIATION IS ALLOWED IN THESE FACTS AND CIRCUMSTANCES, THAT WILL BE EVID ENTLY OPPOSED TO THE ACCEPTED LEGAL POSITION. THE PREMIUM PAID FOR OBTA INING THE 99 YEARS LEASE FROM THE SMC CANNOT BE TREATED AS AN INTANGIB LE ASSET AND NO DEPRECIATION WOULD, THEREFORE, BE ADMISSIBLE THEREO N IN ACCORDANCE WITH THE PROVISIONS OF THE ACT. FURTHER, THE OBTAINING OF LAND FROM THE SMC WAS IN THE NATURE OF CAPITAL EXPENDITURE FOR OB TAINING ENDURING BENEFIT IN POSSESSION OF LAND FOR A PERIOD OF 99 YEARS. THEREFORE, THIS EXPENDITURE CANNOT BE ALLOWED AS RE VENUE EXPENDITURE. ACCORDINGLY, THIS ISSUE OF THE CROSS OBJECTION OF THE ASSESSEE IS DISMISSED.( EMPHASIS GIVEN BY US ) 5. THIS ISSUE HAD ONCE BEEN DECIDED BY THE M UMBAI BENCHES IN THE CASE OF GOVIK ELECTRICALS 96ITD70/ 97 TTJ75(MUM.) (ONE OF US I.E JM IS THE PARTY) AND HELD THAT THE LUMP-SUM PAYMENT MA DE AS A CONSIDERATION FOR ACQUIRING THE RIGHTS OVER THE PROPERTY WAS IN T HE NATURE OF CAPITAL EXPENDITURE. FURTHER, ON IDENTICAL FACTS AND CIRCU MSTANCES IN ASSESSEES OWN CASE ONCE THE ISSUE OF DISALLOWANCE OF DEPRECIA TION HAS ALREADY BEEN DECIDED IN FAVOUR OF THE REVENUE AND AGAINST THE A SSESSEE BY THE RESPECTED COORDINATE BENCH FOR A.Y. 2002-03, THEREF ORE, IN THE IDENTICAL MANNER FOR THE YEAR UNDER CONSIDERATION, I.E. 2003- 04, THIS GROUND OF THE ASSESSEE IS HEREBY DISMISSED. 6. GROUND NO.2 IS REPRODUCED BELOW:- ITA NO.571/AHD/2007 (BY REVENUE) &644/AHD/2007(BY ASSESSEE) ACIT VS. M/S.TORRENT POWER SEC.LTD. ASST.YEAR 2003-04 - 7 - 2.WITHOUT PREJUDICE, ON THE FACTS AND IN THE CIRCUM STANCES OF THE CASE, SINCE THE WHOLE OF THAT SUM HAD NOT BEEN ALLO WED IN ANY PAST YEAR ON REVENUE ACCOUNT THE ASSESSEE WAS ENTITLED T O DEDUCTION FOR THE SUM ATTRIBUTABLE TO THE RELEVANT PREVIOUS YEAR (BEING TOTAL PREMIUM DIVIDED BY 99) BECAUSE THE LEASE WAS OPERAT IVE FOR 99 YEARS. 6.1. THIS GROUND CAN BE SAID TO BE AN ALTERNATE PLE A, HOWEVER, WE ARE NOT CONVINCED WITH THE ALTERNATE PLEA. AS EMERGED F ROM THE AFORESAID DECISION OF THE RESPECTED CO-ORDINATE BENCH A CATEG ORICAL FINDING HAS BEEN GIVEN, FURTHER, THE OBTAINING OF LAND FROM THE SMC WAS IN THE NATURE OF CAPITAL EXPENDITURE FOR OBTAINING ENDURIN G BENEFIT IN POSSESSION OF LAND FOR A PERIOD OF 99 YEARS. THEREF ORE, THIS EXPENDITURE CANNOT BE ALLOWED AS REVENUE EXPENDITUR E. MOREOVER WE ARE ALSO INCLINED TO FOLLOW THE VIEW EXPRESSED I N GOVIK ELECTRICALS (SUPRA). THERE IS NO CHANGE IN THE FACTS OF THE CASE FOR THE YEAR UNDER CONSIDERATION, HENCE RESPECTFULLY FOLLOWING THE VIE W ALREADY TAKEN THIS GROUND OF THE ASSESSEE, AS WELL, IS HEREBY DISMISSE D. 7. GROUND NO.3 IS REPRODUCED BELOW:- 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE CIT(A) HAS ERRED IN NOT ACCEPTING THE ASSESSEES CLAIM THA T THE REFUNDABLE DEPOSIT RECEIVED FROM THE CONSUMERS AT THE TIME OF INSTALLING ELECTRIC METERS CANNOT BE TREATED AS PART OF COST OF METERS NOT ME T BY THE ASSESSEE. CONSEQUENTLY THE CIT(A) HAS ERRED IN NOT ACCEPTING THE ASSESSEES PLEA THAT THE AFORESAID DE POSITS WERE NOT REQUIRED TO BE DEDUCTED FROM THE COST OF METERS INC URRED BY THE ASSESSEE. ITA NO.571/AHD/2007 (BY REVENUE) &644/AHD/2007(BY ASSESSEE) ACIT VS. M/S.TORRENT POWER SEC.LTD. ASST.YEAR 2003-04 - 8 - 7.1. BARE MINIMUM FACTS WHICH WE CONSIDER NECESSARY TO MENTION AS EXTRACTED FROM THE CORRESPONDING ASSESSMENT ORDER P ASSED U/S.143(3) OF THE ACT, DATED 30/11/2005 WERE THAT THE ASSESSEE-COMPANY IS DOING TRANSMISSION AND DISTRIBUTION OF POWER IN SURAT CIT Y. THE ASSESSEE- COMPANY PURCHASES POWER FROM GUJARAT ELECTRICITY BO ARD (IN SHORT GEB) AND DISTRIBUTES THE ELECTRICITY TO CONSUMERS . FROM THIS ACTIVITY ANNUAL REVENUE GENERATION WAS ABOUT RS.800 CRORES AND FOR THE YEAR UNDER CONSIDERATION INCOME DECLARED AT RS.39,72,59, 199. IN THIS REGARD, IT WAS NOTICED BY THE ASSESSING OFFICER THAT A POWE R CONNECTION IS INSTALLED AT THE PREMISES OF THE CONSUMER ON THE BA SIS OF APPLICATION ALONGWITH A DEPOSIT NAMED AS METER DEPOSIT. ON RECEIPT OF APPLICATION AND METER DEPOSIT AN ELECTRIC LINE IS L AID, A METER IS INSTALLED AND A NEW CONNECTION IS PROVIDED TO A CUSTOMER. TH E AMOUNT OF METER DEPOSIT IS RS.500/- FOR SINGLE PHASE METER AND RS.1 200/- FOR THREE PHASE METER. IT HAS ALSO BEEN INFORMED THAT THE AVERAGE COST OF THE METER WAS RS.1,717/- FOR SINGLE PHASE METER AND RS.5,803/- FO R THREE PHASE METER. ASSESSING OFFICER HAS ALSO NOTED THAT DURING THE YE AR UNDER CONSIDERATION, A TOTAL DEPOSIT COLLECTED WAS AT RS.1,57,38,919/- B Y WAY OF METER DEPOSIT. THE ACTIVITY OF THE ASSESSEE-COMPANY IS GOVERNED BY THE SPECIFIC PROVISIONS OF ELECTRIC (SUPPLY) ACT. IN THE SAID ACT IT IS PROVIDED THAT TO COVER THE COST OF METER THE ASSESS EE IS AUTHORIZED TO COLLECT METER DEPOSIT, OBSERVED BY THE A.O. IT HA S ALSO BEEN EXPLAINED THAT THOUGH THERE IS NO CLAUSE IN ELECTRICITY (SUPP LY) ACT WHICH REQUIRES REFUND OF DEPOSIT BUT ON ITS OWN VOLITION ASSESSEE USED TO REFUND THE DEPOSIT IN CASE OF SURRENDER OF METER . ASSESSEE HAS FOLLOWED A ITA NO.571/AHD/2007 (BY REVENUE) &644/AHD/2007(BY ASSESSEE) ACIT VS. M/S.TORRENT POWER SEC.LTD. ASST.YEAR 2003-04 - 9 - PROCEDURE THAT WHENEVER A METER IS SURRENDERED AND THE CONNECTION IS DISCONTINUED, THEN THE METER DEPOSIT AMOUNT IS REFU NDED TO SUCH A CONSUMER. ASSESSING OFFICER HAS GIVEN A FINDING THAT ON PERUSAL OF RECORDS, IT WAS FOUND THAT REFUNDS WERE MADE BUT VERY RARELY. ACCORDING TO ASSESSING OFFICER, EVEN IF A PREMISE I S SOLD OR TRANSFERRED A METER CONNECTION IS USUALLY CONTINUED AND DEPOSITS ARE NORMALLY NOT REFUNDED. AS PER ASSESSING OFFICER, UPTO 31/03/2 003 AN AMOUNT OF RS.12,76,15,518/- WAS TOTALLY COLLECTED UNDER THE H EAD METER DEPOSIT. AS AGAINST THAT DURING THE YEAR UNDER CONSIDERATION ONLY RS.5,39,732/- WAS REQUIRED TO BE REFUNDED. WITH THIS BACKGROUND, THE ASSESSING OFFICER HAS CONCLUDED THAT THE METER DEPOSIT SO R ECEIVED ESSENTIALLY GOES TO REDUCE THE COST OF THE METERS. AS PER ASSE SSING OFFICER WHILE CALCULATING THE DEPRECIATION, THE SAID METER DEPOSI T SHOULD BE REDUCED FROM THE COST OF THE METERS. ONE MORE FACT HAS ALS O BEEN OBSERVED BY THE ASSESSING OFFICER THAT IN CASE OF MALFUNCTIONING O F A METER, THE SAME IS REPLACED SUBJECT TO CHARGE OF REPLACEMENT COST RECO VERED FROM THE CONSUMER. THEREFORE, A METER IS REPAIRED/REPLACED IS AT THE COST BORNE BY A CONSUMER AND NOT BY THE ASSESSEE-COMPANY. THERE FORE, IN THE OPINION OF THE ASSESSING OFFICER THE IMPUGNED METER DEPOSI T WAS ATTRIBUTABLE TO THE COST OF THE METER AND TO BE REDUCED FOR THE PURPOSE OF CALCULATION OF DEPRECIATION. WITH THESE REMARKS AND AFTER AS SIGNING FEW REASONS TO COUNTER THE ASSESSEES CONTENTION THE ASSESSING O FFICER HAS ARRIVED AT THE CONCLUSION THAT AFTER THE REDUCTION OF THE METER DEPOSIT FROM THE WDV/COST OF THE METER, THE BALANCE OF DEPRECIATION WHICH WAS ITA NO.571/AHD/2007 (BY REVENUE) &644/AHD/2007(BY ASSESSEE) ACIT VS. M/S.TORRENT POWER SEC.LTD. ASST.YEAR 2003-04 - 10 - EXCESSIVELY CLAIMED WAS RS.7,41,46,843/- . AGAINST THE SAID DISALLOWANCE OF DEPRECIATION, AN APPEAL WAS FILED. 7.2. WE MAY LIKE TO PLACE ON RECORD THAT THE LEARNE D CIT(APPEALS) HAS SLIGHTLY CONFUSED THE FACTS ON ACCOUNT OF THE REASO N THAT IN THE BEGINNING OF THE ORDER HE HAS DISCUSSED REPLACEMENT COST OF M ETER. THEREAFTER, HOWEVER, IN THE FOLLOWING PARAGRAPHS DISCUSSED THE ISSUE OF METER DEPOSIT BEING RECEIVED FROM A CUSTOMER AT THE TIME OF PROVIDING A NEW CONNECTION. RELEVANT DISCUSSION IS WORTH REPRODU CTION AS FOLLOWS:- WHILE GIVING A NEW CONNECTION TO A CUSTOMER, THE A PPELLANT COMPANY HAS ACCEPTED AN AMOUNT OF METER DEPOSIT FOR THE INSTALLATION OF THE METER. THIS DEPOSIT IS NEITHE R RETURNED NOR ANY INTEREST PAID ON THE SAME TO THE CUSTOMER AND THE A PPELLANT HAS NOT TAKEN THESE (WHICH INCLUDE METER DEPOSITS ALSO) AS A TAXABLE RECEIPTS AT ANY TIME. A DEPOSIT DOUBLES ITSELF ON ACCOUNT OF INTEREST ACCRUED ON IT IN 8 TO 9 YEARS. AS NO INTEREST IS S HOWN AS ACCRUED, THE APPELLANT COULD AS WELL REPLACE THE METERS ONCE IN 10 YEARS OUT OF THE AMOUNTS KEPT WITH ITSELF AS SECURITY DEPOSIT . APPELLANT CANNOT BE GIVEN THE DOUBLE BENEFIT OF NOT OFFERING THE DEPOSIT FOR TAXATION AND ALLOWING REPLACEMENT OF METER AS REVEN UE EXPENDITURE. FOR AN EXPENDITURE TO BE CLAIMED AS R EVENUE EXPENDITURE, CERTAIN CONDITIONS HAVE TO BE SATISFIE D, VIZ. (I) THE AMOUNT SHOULD BE PAID ON ACCOUNT OF CURRENT REPAIRS , I.E. REPAIRS UNDERTAKEN IN THE NORMAL COURSE OF PRESERVATION, MA INTENANCE OR PROPER UTILIZATION OR FOR RESTORING IT TO ITS ORIGI NAL CONDITION, (II) SHOULD NOT MEAN ONLY PETTY REPAIRS OR REPAIRS NECES SITATED BY WEAR AND TEAR DURING THE PARTICULAR YEAR, (III) SUCH REP AIRS SHOULD NOT BRING INTO EXISTENCE NOR OBTAIN A NEW OR DIFFERENT ASSET INTO EXISTENCE. IT IS NOT THE EXPENDITURE THAT IS RELEV ANT OR DECISIVE, BUT WHETHER BY THE EXPENDITURE, A NEW ASSET OR A NEW AD VANTAGE HAS BEEN CREATED. ITA NO.571/AHD/2007 (BY REVENUE) &644/AHD/2007(BY ASSESSEE) ACIT VS. M/S.TORRENT POWER SEC.LTD. ASST.YEAR 2003-04 - 11 - AT THE END, THE GROUND OF THE ASSESSEE WAS DISMISS ED, HENCE, NOW THE ASSESSEE IS FURTHER IN APPEAL BEFORE US. 7.3. FROM THE SIDE OF THE ASSESSEE, SHRI S.N.SOPARK AR & SHRI P.M. MEHTA, ADV. APPEARED AND FROM THE SIDE OF THE REVE NUE MR. RAJEEV AGARWAL-CIT DR APPEARED AND BOTH THE SIDES HAVE BE EN HEARD AT LENGTH. AT THE OUTSET, AN INTERESTING BACKGROUND WAS INFOR MED THAT FOR ASSESSMENT YEAR 2002-03, I.E. THE IMMEDIATE PRECEDI NG ASSESSMENT YEAR , LEARNED CIT(APPEALS)-III SURAT IN APPEAL NO.CAS-III /18/05- 06 VIDE AN ORDER DATED 16/06/2006 (ASSESSMENT YEAR 2002-03) HAS ALLOWED THIS CLAIM IN FAVOUR OF THE ASSESSEE. FOR THAT YEAR, THOUGH REVENUE HAS FILED AN APPEAL BEFORE THE TRIBUNAL (TH E ASSESSEE WAS IN CROSS OBJECTION) BUT NO GROUND WAS RAISED CHALLENGI NG THE ISSUE OF COST OF METERS ALLOWED IN FAVOUR OF THE ASSESSEE. WE H AVE ALREADY GONE THROUGH THE SAID DECISION OF ITAT D BENCH AHMEDAB AD (ITA NO.1998/AHD/2006) AND CROSS OBJECTION BY THE ASSESS EE (CO NO.254/AHD/2006) ASSESSMENT YEAR 2003-03 DATED 26/1 2/2008. IN VIEW OF THIS REASON, IT IS PLEADED BEFORE US THAT O NCE THE REVENUE HAS NOT CHALLENGED A VERDICT OF LEARNED CIT(APPEALS), HENCE THE RELIEF GRANTED THEREIN WAS ACCEPTED AND THAT ORDER OF LEARNED CIT( APPEALS) AFTER THE JUDGEMENT OF THE TRIBUNAL HAS BECOME FINAL AND TO BE FOLLOWED IN THE SUBSEQUENT YEARS. HOWEVER, LEARNED DEPARTMENTAL RE PRESENTATIVE MR.RAJEEV AGARWAL HAS OBJECTED SUCH A PROPOSAL AND SUBMITTED THAT EACH YEAR IS AN INDEPENDENT YEAR SPECIALLY WHEN THE PRES ENT LEARNED CIT(APPEALS) HAS NOT FOLLOWED THE SAID ORDER OF HIS PREDECESSOR, ITA NO.571/AHD/2007 (BY REVENUE) &644/AHD/2007(BY ASSESSEE) ACIT VS. M/S.TORRENT POWER SEC.LTD. ASST.YEAR 2003-04 - 12 - THEREFORE, IN THE INTEREST OF JUSTICE, THIS GROUND IS TO BE DECIDED ON ITS MERITS. FOR THIS REASON, TO PUT THE ISSUES STRAIG HT WE TAKE THE CALL AND FOLLOWING THE PRINCIPLE OF NATURAL JUSTICE, HEREINB ELOW DECIDE THE IMPUGNED ISSUE OF COST OF METER ON ITS MERITS. 7.4. FUNDAMENTALLY AS PER ASSESSING OFFICER, THE DE POSITS RECEIVED BY THE ASSESSEE AT THE TIME OF INSTALLATION OF METER W AS COLLECTED TO COVER THE COST OF THE METERS AND IT HAS TO BE SET OFF/ADJUSTE D AGAINST THE WDV OF THE METERS SPECIALLY WHEN IT WAS NOT A LIABILITY OR A S TATUTORY REQUIREMENT TO REFUND THE DEPOSIT AMOUNT. THE CONSEQUENCE OF THIS OBSERVATION WAS THAT THE ASSESSING OFFICER HAS RECOMPUTED THE DEPRECIATI ON ALLOWANCE AND ONLY THE BALANCE WAS ALLOWED, I.E.ALLEGED EXCESS DE PRECIATION WAS DISALLOWED. TO REBUT THE SAID ACTION OF THE ASSESS ING OFFICER, THE ASSESSEE HAS MADE CERTAIN SUBMISSIONS BEFORE LEARNE D CIT(APPEALS) IN ASSESSMENT YEAR 2002-03 (SUPRA) WHICH ARE WORTH REP RODUCTION AS UNDER:- 27. ACCORDING TO THE LD. LEARNED AUTHORISED R EPRESENTATIVE, AS PER CLAUSE 15.11 OF THE CONDITIONS & MISCELLANEOUS CHARGES OF SUPPLY APPROVED BY THE GOVT. OF GUJARAT, THE APPELL ANT IS EMPOWERED TO COLLECT 3 TYPES OF SECURITY DEPOSITS, VIZ., (A) TOWARDS NON-PAYMENT OF ELECTRICITY BILLS, (B) TOWARDS THE COST OF THE METERS AND (C) TO MEET THE LOSS OR DAMAGE TO THE METERS AND OT HER APPARATUS INSTALLED AT THE PREMISES OF THE CONSUMER. IT IS CONTENDED THAT THE COMPANY IS NOT COLLECTING ANY SECURITY DEPOSIT UNDE R CATEGORY (B) ABOVE, BUT COLLECTS SECURITY DEPOSITS UNDER CATEGOR IES (A) & (C) ABOVE. IT IS FURTHER CONTENDED THAT THE METER DEPOSITS UNDER CATEGORY (C) ABOVE ARE COLLECTED BY THE COMPANY TO PROTECT ITSEL F FROM LOSS OR DAMAGE TO THE METER AND OTHER APPARATUS INSTALLED A T THE PREMISES OF THE CONSUMER. ACCORDING TO HIM, NOMENCLATURE METE R DEPOSITS IS ITA NO.571/AHD/2007 (BY REVENUE) &644/AHD/2007(BY ASSESSEE) ACIT VS. M/S.TORRENT POWER SEC.LTD. ASST.YEAR 2003-04 - 13 - USED BY THE APPELLANT IN ITS BOOKS TO DISTINGUISH T HE SECURITY DEPOSITS TAKEN UNDER CATEGORY (C) ABOVE FROM THE SECURITY DE POSITS COLLECTED FOR NON-PAYMENT OF ELECTRICITY BILLS UNDER CATEG ORY (A) ABOVE. IT IS ALSO CONTENDED THAT, UNDER CLAUSE 11.3.5 OF THE CON DITIONS OF SUPPLY, INTEREST IS PAYABLE BY THE APPELLANT ON THE DEPOSIT S COLLECTED UNDER CATEGORIES (A) & (B) ABOVE, BUT NO INTEREST IS PAYABLE ON THE DEPOSITS COLLECTED UNDER CATEGORY (C) ABOVE. IT IS STATED THAT, SINCE THE SAID METER DEPOSITS WERE COLLECTED UNDER CATEGORY (C) AB OVE, THE COMPANY WAS NOT REQUIRED TO PAY ANY INTEREST ON SUCH DEPOSI TS. IT IS FURTHER STATED BY HIM THAT THESE SECURITY DEPOSITS WERE REFUNDABLE TO THE CONSUMERS ON DISCONNECTION OF SERVICE AND HAVE IN F ACT BEEN REFUNDED BY THE APPELLANT. IT IS ARGUED BY HIM THAT THE SEC URITY DEPOSITS, BEING REFUNDABLE, ARE A LIABILITY OF THE APPELLANT AND, UNLIKE SERVICE LINE CONTRIBUTIONS, GRANTS OR CAPITAL SUBSIDY ETC., ARE NOT IN THE NATURE OF CAPITAL RECEIPTS. ACCORDING TO HIM, THE QUESTION O F REDUCING THE METER DEPOSITS FROM THE COST OF METERS, THEREFORE, DID NO T ARISE. IT IS FURTHER ARGUED THAT THE CONSUMERS PAY RENT FOR THEIR METERS AND, HAD THEY CONTRIBUTED ANY AMOUNT TOWARDS COST OF THE METERS, THERE WOULD HAVE BEEN NO REASON FOR THEM TO PAY RENT . IT IS ALSO ARGUED BY HIM THAT, IF THE REASONING OF THE AO IS FOLLOWED, WHEN EVER METER DEPOSITS ARE REFUNDED, THEY SHOULD BE ADDED BACK TO THE COST OF THE METERS. IT IS CONTENDED THAT, IN THE PAST ALSO, NO SUCH ADJUST MENT OF METER DEPOSITS WAS MADE BY THE DEPT AGAINST THE COST OF T HE METERS. IT IS FURTHER CONTENDED THAT, ONCE A PARTICULAR VIEW IS T AKEN ON THE SAME FACTS, NOT JUST FOR ONE YEAR BUT FOR SEVERAL YEARS, IT CANNOT BE CHANGED WITHOUT BRINGING ON RECORD ANY FACTS WHICH ARE DIFF ERENT FROM THE PAST YEARS. IN SUPPORT OF HIS CONTENTIONS, THE LD. AR R ELIED ON THE JDUGEMENTS MENTIONED EARLIER IN THIS ORDER (REF: GR OUND NO.(II)(B)]. 28. IT IS FURTHER CONTENDED BY THE LD. AR THAT, AS PER THE REGULATIONS ISSUED BY THE GUJARAT ELECTRICITY REGULATORY COMMIS SION (GERC) ON 31.03.2005, THE COLLECTION OF METER DEPOSITS TO MEE T THE LOSS OR DAMAGE TO METERS HAS NOW BEEN DISPENSED WITH. IT I S STATED THAT THE COMPANY HAS THUS DISCONTINUED COLLECTION OF THE MET ER DEPOSITS W.E.F. 01.04.2005. IT IS FURTHER STATED BY HIM THAT THE EXISTING METER DEPOSITS HAVE THUS BEEN TRANSFERRED TO SECURITY DEP OSITS UNDER CATEGORY (A) ABOVE AND THE APPELLANT HAS ALSO START ED PAYING INTEREST ITA NO.571/AHD/2007 (BY REVENUE) &644/AHD/2007(BY ASSESSEE) ACIT VS. M/S.TORRENT POWER SEC.LTD. ASST.YEAR 2003-04 - 14 - THEREON W.E.F. 01.04.2005 IN ACCORDANCE WITH THE GO VT.NOTIFICATION. IT IS THUS CONTENDED BY THE LD. AR THAT THE AFORESAID FACTS DULY ESTABLISH THAT THE METER DEPOSITS COLLECTED BY THE APPELLANT WERE NEVER INTENDED TO MEET THE COST OR PART OF THE COST OF THE METERS BUT WERE IN FACT IN THE NATURE OF A SECURITY DEPOSIT TO MEET THE LOSS OR DA MAGE TO METERS, WHICH WAS REFUNDABLE TO THE CONSUMERS ON TERMINATIO N OF THE SERVICE. 29. WITHOUT PREJUDICE TO HIS AFORESAID SUBMISSI ONS, IT IS CONTENDED BY THE LD. AR THAT THE BASIS FOR WORKING OUT THE M ETER DEPOSITS IN THE AY 02-03 AT 34% WAS INCORRECT BECAUSE THE SAME WAS WORKED OUT BY THE AO ON THE BASIS OF THE DEPOSITS PER METER TO T HE AVERAGE COST OF METER, BUT WAS APPLIED TO THE VALUE OF ALL THE METE RS, IRRESPECTIVE OF WHETHER THE METER WAS FIXED FOR A NEW SERVICE CONNE CTION OR AS REPLACEMENT OF AN OLD METER. IT IS CONTENDED BY HI M THAT, IN CASE OF REPLACEMENT OF METER, THE AFORESAID BASIS COULD NOT BE APPLIED. IT IS STATED THAT ACTUAL METER DEPOSITS OF RS.148.40 LACS ONLY WERE COLLECTED DURING THE YEAR (AS STATED AT PAGE 40 OF THE ASSESS MENT ORDER), AS AGAINST WHICH DEPOSITS CALCULATED AT 34% OF THE MET ER COST WERE DEDUCTED BY THE AO TOWARDS METER DEPOSITS ON THE B ASIS OF THE ABOVE FORMULA, WHICH WAS MORE THAN THE METER DEPOSITS ACT UALLY RECEIVED BY THE APPELLANT DURING THE YEAR. IT IS ARGUED BY THE LD. AR THAT, WHEN THE ACTUAL METER DEPOSITS RECEIVED WERE MUCH LOWER, A HIGHER FIGURE DERIVED BY THE AO COULD NOT BE DEDUCTED FROM THE C OST OF THE METERS. 7.5. IN THE LIGHT OF THE ABOVE REPRODUCTION IT IS E VIDENT THAT THE ASSESSEE IS AUTHORIZED TO COLLECT THREE TYPES OF DEPOSITS AS PER A NOTIFICATION OF GOVT. OF GUJARAT, SAID TO BE IN THE NATURE OF (I) TOWARDS NON-PAYMENT OF ELECTRIC BILLS, (II) TOWARDS COST OF THE METER, AND (III) TOWARDS LOSS OR DAMAGE TO THE METER. CONSIDERING THE TOTALITY OF TH E CIRCUMSTANCES OF THE CASE AND THE FACTS NARRATED BEFORE US, WE ARE OF TH E VIEW THAT ONCE THE ASSESSEE IS RECOVERING THE AMOUNT AS A SECURITY TO MEET THE LOSS OR DAMAGE TO THE METER AND IT WAS NOT DEFINED AS COST OF THE METERS AS PER ITA NO.571/AHD/2007 (BY REVENUE) &644/AHD/2007(BY ASSESSEE) ACIT VS. M/S.TORRENT POWER SEC.LTD. ASST.YEAR 2003-04 - 15 - THE STATUTE OF GOVERNMENT OF GUJARAT, THEN NATURALL Y IT SHOULD NOT BE TERMED AS DEPOSIT TOWARDS THE COST OF METERS BUT IT WAS TO BE TREATED AS SECURITY DEPOSIT TO MEET THE LOSS TO THE METERS. THERE IS AN ANOTHER ONE MORE RELEVANT ASPECT IS THAT THE ASSESSEE HAS TO RE FUND THE METER DEPOSIT AMOUNT ON DEMAND. FOR THE YEAR UNDER CONSIDERATION , AS WELL, THE ASSESSEE HAD TO REFUND AN AMOUNT OF RS.5,39,732/- T O THE CUSTOMERS. THOUGH IT COULD BE A SMALL REFUND BUT CONSIDERING T HE METER DEPOSIT AMOUNT, IT WAS REPAID TO A NUMBER OF CONSUMERS. SINCE OUT OF THE COLLECTION, THE ASSESSEE WAS UNDER AN OBLIGATION TO REFUND THE AMOUNT, THEREFORE, THE ENTIRE AMOUNT SO COLLECTED WAS NOTHI NG BUT IN THE CHARACTER OF A LIABILITY. THE ASSESSEE HAS NEVER DENIED THIS LIABILITY AND DISCHARGED THE SAME AS AND WHEN REQUIRED TO BE REFUNDED. THESE DEPOSITS WERE COLLECTED IN PURSUANCE OF A SPECIFIC PROVISION CONTAINED IN A GOVERNMENT NOTIFICATION. AS FAR AS THE APPLICABI LITY OF EXPLANATION-10 TO SECTION 43 IS CONCERNED, IT SAYS THAT WHERE A PO RTION OF THE COST OF AN ASSET ACQUIRED BY THE ASSESSEE HAS BEEN MET DIRECTL Y OR INDIRECTLY 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 SHALL NOT BE INCLUDED IN THE ACTUA L COST OF THE ASSET. HOWEVER, THE PRESENT FACTS AND THE SITUATION DO NOT WARRANT TO HOLD THAT THE IMPUGNED COLLECTION CAN BE TREATED AS A PORTION OF THE COST MET BY SOME OTHER PERSON. THE NATURE OF DEPOSIT IS VERY SPECIFIC, TERMED AS SECURITY DEPOSIT AS PER THE NOTIFICATION. THERE IS NO PROVISION AS PER THE CONDITIONS PRESCRIBED IN THE NOTIFICATION THAT THE ASSESSEE HAS TO PROVIDE INTEREST ON THE SECURITY DEPOSIT. IT IS PR ECISELY A SECURITY ITA NO.571/AHD/2007 (BY REVENUE) &644/AHD/2007(BY ASSESSEE) ACIT VS. M/S.TORRENT POWER SEC.LTD. ASST.YEAR 2003-04 - 16 - DEPOSIT TO MEET THE LOSS OR DAMAGE TO THE METER AN D OTHER APPARATUS INSTALLED AT THE PREMISES OF THE CONSUMER. ON EXAM INATION, IT WAS FOUND THAT IN RESPECT OF OTHER TWO TYPE OF SECURITIES, I. E. NON-PAYMENT OF ELECTRICITY BILL AND COST OF METER, THERE IS A PROV ISION FOR GRANT OF INTEREST BUT THE SECURITY DEPOSIT IN QUESTION IS NOT SUBJECT TO PAYMENT OF INTEREST. IN THIS REGARD, A DECISION OF SIDDHESHWAR SAHAKARI SAKHAR KARKHANA LTD. VS. CIT & ORS. (2004) 270 ITR 01 (SC) IS WORTH MENT IONING BECAUSE THE COURT HAS ADVISED THAT IN SUCH TYPE OF CASES, THE L INE OF ENQUIRY SHOULD BE IN ORDER TO DETERMINE THE TRUE NATURE AND CHARACTER OF THE RECEIPTS. THE USE OF EXPRESSION DEPOSIT IS TO BE UNDERSTOOD AS PER THE MEANING ASSIGNED IN THE BYE-LAWS. EVEN IN THE CASE OF CIT VS. SITALDAS TIRATHALDAS (1961) 41 ITR 367 (SC) HAS SAID THAT IF AN AMOUNT COLLECTED TOWARDS A FUND IS RETAINED BY THE ASSESSEES SOCIET Y ITSELF AND UTILIZED ACCORDING TO THE GUIDELINES ISSUED BY THE GOVERNMEN T, THEN SUCH AN AMOUNT CANNOT BE TREATED AS A REVENUE RECEIPT. UND ISPUTEDLY, THIS ASSESSEE IS UNDER AN OBLIGATION TO REPAY THE DEPOSI T-AMOUNT IN CASE OF SURRENDER OF ELECTRIC CONNECTION BY THE CONSUMER. IT IS AN ACCEPTED FACT THAT EVEN DURING THE YEAR UNDER CONSIDERATION SOME OF THE CONSUMERS HAVE BEEN REPAID THE DEPOSIT AMOUNT. ON APPRECIATIO N OF THESE FACTS IT IS DIFFICULT TO HOLD THAT THERE IS NO POSSIBILITY OR P ROBABILITY OF OCCURRENCE OF DEMAND TO MAKE GOOD THE CONSUMER BY REPAYING THE SE CURITY DEPOSIT. IN VIEW OF THIS, IT IS RATIONAL TO HOLD THAT THE AMOUN T OF DEPOSIT WAS NOTHING BUT A LIABILITY ON THE ASSESSEE AND NOT IN THE NATU RE OF AN AMOUNT AS IF TO BE RETAINED FOREVER. THEREFORE, IT WAS WRONG ON TH E PART OF THE A.O. TO ITA NO.571/AHD/2007 (BY REVENUE) &644/AHD/2007(BY ASSESSEE) ACIT VS. M/S.TORRENT POWER SEC.LTD. ASST.YEAR 2003-04 - 17 - HOLD THAT THE IMPUGNED COLLECTED AMOUNT WAS TO BE A DJUSTED AGAINST THE COST OF AN ASSET OF THE ASSESSEE. 7.6. IN THE LIGHT OF THE FOREGOING DISCUSSION AND APPLYING THE PRINCIPLE LAID DOWN BY THE HON'BLE COURTS ON THE PRESENT SET OF FACTS OF THE CASE, WE HEREBY REVERSE THE FINDINGS OF THE AUTHORITIES B ELOW AND DIRECT NOT TO ADJUST THE IMPUGNED AMOUNT FROM WDV FOR THE PURPOSE CALCULATION OF DEPRECIATION. THIS GROUND IS HEREBY ALLOWED. 8. GROUND NO.4 IS REPRODUCED BELOW:- 4. WITHOUT PREJUDICE, ON THE FACTS AND IN THE CIRCUMS TANCES OF THE CASE, THE CIT(A) HAS ERRED IN NOT ACCEPTING THE ASS ESSEES CLAIM THAT THE COST OF THOSE METERS WHICH WERE USED FOR REPLACING THE OLD METERS WAS DEDUCTIBLE ON REVENUE ACCOUNT IN PURSUANCE OF SECTION 31(I). 8.1. THIS GROUND HAS NOT BEEN CONTESTED WITH THE CO NDITION THAT, IN CASE, GROUND NOS.3, 5 & 6 ARE GOING TO BE DECIDED IN FAVO UR OF THE ASSESSEE THEN THIS GROUND NEED NOT TO BE ADJUDICATED UPON. IN VIEW OF THIS SUGGESTION, THIS GROUND HAS BECOME REDUNDANT AND, T HEREFORE, DISMISSED. 9. GROUND NOS.5 & 6 ARE REPRODUCED BELOW:- 5. WITHOUT PREJUDICE, ON THE FACTS AND IN THE CIRCUMST ANCES OF THE CASE, THE CIT(A) HAS ERRED IN UPHOLDING THE ASS ESSING OFFICERS VIEW THAT THE ELECTRIC METERS WERE ENTITLED TO A DEPRECIATION OF 25% ONLY AND NOT 80% AS RIGHTLY CLAIMED BY THE ASSESSEE. ITA NO.571/AHD/2007 (BY REVENUE) &644/AHD/2007(BY ASSESSEE) ACIT VS. M/S.TORRENT POWER SEC.LTD. ASST.YEAR 2003-04 - 18 - 6. IN REGARD TO THE RATE OF DEPRECIATION ON METERS , THE CIT(A) HAS ERRED IN NOT FOLLOWING THE VIEW TAKEN BY HIS PREDEC ESSOR IN ASSESSEES OWN CASE FOR THE IMMEDIATELY PRECEDING Y EAR. 9.1 BOTH THESE GROUNDS ARE IN RESPECT OF THE SAME ISSUE AND NOW DECIDED IN FAVOUR OF THE ASSESSEE VIDE ITAT AHMEDAB AD ORDER IN ASSESSEES OWN CASE BEARING ITA NO.1998/AHD/2006 [C O NO.254/AHD/2006] ORDER DATED 23/12/2008 (SUPRA) THE REIN IT WAS HELD AS UNDER:- WE FIND FROM THE ABOVE, THAT THESE SOPHISTICATED M ETERS CONSUME LESS POWER WITHOUT LOAD AGAINST ERSTWHILE 1.5 WATTS . WE BELIEVE THIS IS THE DIRECT ENERGY SAVING BENEFIT BY THE MET ERS. TYPICALLY, IN THE POWER SECTOR, THE LOSS OCCUR MAINLY ON ACCOUNT OF TECHNICAL REASONS AND NON-TECHNICAL REASONS. NON-TECHNICAL REASONS INCLUDE THEFT OF POWER BY INTRUDING INTO DISTRIBUTI ON LINES OR TAMPERING WITH THE METERS OR SUCH OTHER WAY. WHERE AS, TECHNICAL REASONS INCLUDE INEFFICIENT AND OUTDATED DISTRIBUTI ON LINES, TRANSMITTERS, METERS ETC. THE ELECTRONIC METERS AR E THEFT PRONE AND THUS IN TURN REDUCE DISTRIBUTION LOSSES WHICH O CCUR ON ACCOUNT OF THEFT OF POWER. FURTHER, WITH THESE SOPHISTICA TED ELECTRONIC METERS, THE LEAKAGE OF ENERGY IS TOTALLY PLUGGED. THEREFORE, GOVERNMENT CONSIDERS POWER GENERATION, MODERNIZATIO N AND ANY MEASURE TO AUGMENT SUPPLY OF POWER/REDUCE LOSSES OF POWER/ESTABLISH MONITORING SYSTEM FOR ENERGY WITHIN THE AMBIT OF ENERGY SAVING DEVICES. THAT IS THE REASON WHY METE RS, GRIDLINES, ETC. ARE CLASSIFIED UNDER THIS PARTICULAR PARA OF 1 00% DEPRECIATION. THERE ARE DIRECTIVES FROM THE CENTRA L POWER AUTHORITY AND STATE POWER AUTHORITIES THAT THE SUPP LIERS OF ENERGY MONITOR AT DIFFERENT LEVELS OF THE SYSTEM BY DEPLOY ING SUITABLE METERS. THE IMPERATIVES HAVE GIVEN IMPETUS TO ENER GY SAVING BY BROADCASTING PROPER ECONOMIC SIGNALS TO THE END USE RS AND TO THE ENTITLES DOING SURVEILLANCE OF THE SYSTEMS. ITA NO.571/AHD/2007 (BY REVENUE) &644/AHD/2007(BY ASSESSEE) ACIT VS. M/S.TORRENT POWER SEC.LTD. ASST.YEAR 2003-04 - 19 - THE ELECTRONICS HAD DEVELOPED PARTICULARS MICRO ELE CTRONICS AND THE INDIA INNOVATIONS COULD DEVELOP METERS, WHICH C OULD MITIGATE THE PROBLEMS OF METER RELATED LOSSES. WITH MORE MI CRO ELECTRONICS GOING INTO THE METER MANUFACTURE IT WAS POSSIBLE TO OBTAIN PROPER RECORDING OF THE CONSUMPTION IN A VERY WIDE RANGE O F USAGE PATTERN. THE ACCURATE RECORDING OF THESE METERS GE NERATES RIGHT ECONOMICAL SIGNALS TO THE EXTRAVAGANT CONSUMERS BY MAKING THEM PAY FOR THEIR USE OR SAVE ENERGY BY USING ENERGY MO RE ECONOMICALLY AND EFFICIENTLY OR SHIFT TO MORE ENERG Y EFFICIENT APPLIANCES. THE DEVELOPING METERS ALSO HAD SOME FE ATURES BY WHICH INTRUSION COULD BE COMBATED. ANY USER TYING TO DIVERT THE RETURN CURRENT IN THE CIRCUIT COULD NOT AFFECT THE ACCURACY OF RECORDING. THESE METERS COULD ALSO TOLERATE WIDE R ANGE OF VOLTAGE FLUCTUATION AND FREQUENCY VARIATION WITHOUT LOSS OF ACCURACY. THE PROPER RECORDING AND CONSEQUENT BILLING HAS TRIGGED ENERGY CONSERVATION AND ENERGY MEASURES. BY PROCESS OR AC CURATE RECORDING IN METERS ELECTRICITY CAN BE PRICED CLOSE LY TO MATCH THE COST IN THE FORM OF TIME SLOTTED TARIFFS. THE ACCU RATE REACTIVE ENERGY METERING AT THE END USER LEVEL ALSO TRIGGERS POWER FACTOR IMPROVEMENT INITIATIVES. THESE METERS HAVE HELPED THE COUNTRY TO SAVE ON CAPITAL COST AND TO BRING THE PRICE CLOSER TO THE COST. FURTHER, IT MAY BE NOTED THAT THE WORD SAVING IS IN COMMON PARLANCE USED FOR REDUCING THE CONSUMPTION OR EXPEN SES AND IT IS NOT USED FOR INCREASING THE SUPPLY OR INCOME, THOUG H THE LAST MENTIONED MODE ALSO GOES TO AUGMENT THE SAVINGS. IT IS IMPORTANT TO NOTE THAT IN THE AFORESAID ITEM NO.3 (III) WORD SAVINGS: IS OBVIOUSLY NOT USED FOR MERELY REDUCING THE CONSUMPT ION OF ENERGY, BUT THE LIST CONTAINED UNDER THAT TIME CLEARLY SHOW S THAT IT CAN INTO AMBIT ALSO THE ITEMS WHICH GO TO AUGMENT THE PRODUC TION OF ENERGY. FURTHER, IT COVERS THOSE ITEMS ALSO WHOSE USE MAY NOT DIRECTLY REDUCE THE CONSUMPTION, BUT ULTIMATELY RES ULTS IN SAVING OF ENERGY, FOR EXAMPLE DIGITAL HEAT LOSS METERS SOME WHAT SIMILAR IS THE POSITION FOR EXHAUST GASSES ANALYZER ENE RGY SAVING DEVICES INCLUDE AND COVER THE EQUIPMENTS AND INSTR UMENTS WHOSE INSTALLATION OR USE, DOES NOT RESULT IN DIRECTLY RE DUCING THE CONSUMPTION OF ENERGY BUT ARE CONNECTED WITH AN HEL PFUL IN DEVISING WAYS AND MEANS OF SAVING ENERGY. THEREFOR E, THE ITEM ITA NO.571/AHD/2007 (BY REVENUE) &644/AHD/2007(BY ASSESSEE) ACIT VS. M/S.TORRENT POWER SEC.LTD. ASST.YEAR 2003-04 - 20 - HAS TO BE VIEWED IN QUITE A LIBERAL AND A COMPREHEN SIVE WAY AND NEED NOT BE ARTIFICIALLY RESTRICTED TO A VERY NARRO W COMPASS. 13. FURTHER, THE ASSESSEE HAS FILED A NOTE ON ME TERS HOW THAT IS SAVING ENERGY AND BECOMES ENERGY SAVING DEVICE. BEFORE PARTING, WE WANT TO GOT THROUGH THE ASSESSEES NOTE WHICH READS AS UNDER: 17. IN VIEW OF THE FACTS AND CIRCUMSTANCES DISCUSS ED ABOVE, WE ARE OF THE CONSIDERED VIEW THAT THE ASSESSEE-COMPANYS ELECTRONIC METERS AS INSTALLED AT THE PREMISES OF THE CONSUMER S FALL UNDER RULE 5 APPENDIX-I, PART-A-III, 3 (III)B(E) OF THE I .T.RULES, THEREBY IS ELIGIBLE FOR DEPRECIATION @ 100%. 9.2. THE ABOVE VIEW IS TO BE FOLLOWED, HOWEVER, THE ONLY REQUIREMENT IS THAT THE RATE OF DEPRECIATION IS TO BE APPLIED A S PER THE PRESCRIBED RATES FOR THE YEAR UNDER CONSIDERATION PROVIDED IN THE IN COME TAX RULES, 1962. THESE GROUNDS ARE, THEREFORE, ALLOWED. 10. GROUND NO.7 IS REPRODUCED BELOW:- 7. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE CIT(A) HAS ERRED IN UPHOLDING AN ADDITION OF RS.14,27,425, MADE BY THE LD. ASSESSING OFFICER U/S.41(1), WHICH WAS MADE BY THE LD. A.O. WITHOUT REALIZING THAT NONE OF THESE TWO ITEMS (VIZ . RS.12,27,500 FOR PRICE WATER HOUSE AND RS.1,99,925 FOR SIEMENS L TD.) WERE CAUGHT BY THE MISCHIEF OF SECTION 41(1), AS THERE H AD NOT BEEN ANY REMISSION OR CESSATION OF LIABILITY IN RESPECT OF T HOSE SUMS WHOLLY OR PARTLY IN THE PREVIOUS YEAR RELEVANT TO THIS A PPEAL. ITA NO.571/AHD/2007 (BY REVENUE) &644/AHD/2007(BY ASSESSEE) ACIT VS. M/S.TORRENT POWER SEC.LTD. ASST.YEAR 2003-04 - 21 - 10.1. THERE WAS AN AMOUNT WHICH WAS OUTSTANDING IN THE BALANCE-SHEET TOWARDS M/S PRICE WATER HOUSE SINCE 1999-2000. TH E AMOUNT SHOWN AS LIABILITY WAS STATED TO BE RS.12,27,500/-. IT WAS S TATED THAT THE ASSESSEE WAS DEVELOPING ORACLE MODULE FOR JOB COSTING ACCOUN TS PAYABLE, ETC. HOWEVER, THE FINAL DESIGN OF THE SAID MODULE WAS NO T GIVEN. THE AMOUNT WAS OUTSTANDING SINCE PAST FIVE YEARS AND IT WAS NO T PAID TILL DATE. THE ASSESSEE DID NOT GET THE COMPLETE SERVICES. HOWEVER , THE LIABILITY HAD NOT CEASED TO EXIST. 10.2. THERE WAS ONE MORE AMOUNT SHOWN AS OUTSTAND ING LIABILITY OF RS.1,99,925/- TOWARDS SIEMENS LTD. IT WAS EXPLAINE D THAT THE AMOUNT WAS OUTSTANDING SINCE 1998-99 BECAUSE THE MATERIAL DELIVERED WAS NOT IN ACCORDANCE TO THE PURCHASE SPECIFICATION. THE EXPL ANATION OF THE ASSESSEE WAS THAT THE SAID LIABILITY HAD NEITHER CEASED TO E XIST NOR IT HAS BEEN REMITTED. THE ASSESSING OFFICER HAS INVOKED THE PR OVISIONS OF SECTION 41(1) OF THE I.T. ACT, 1961 AND HELD THAT BOTH THE AMOUNTS HAD CEASED TO EXIST AS A LIABILITY, THEREFORE, ADDED IN THE TOTAL INCOME OF THE ASSESSEE. WHEN THE MATTER HAD GONE IN APPEAL, THE LEARNED CIT (APPEALS) HAS HELD THAT THE PROVISIONS OF SECTION 41(1) OF THE I.T. AC T, 1961 WERE RIGHTLY ATTRACTED BY THE ASSESSEE, THEREFORE, THE ADDITION WAS CONFIRMED. ON HEARING THE SUBMISSIONS OF BOTH THE SIDES THE FACTS HAVE UNDISPUTEDLY DEMONSTRATED THAT THIS IS NOT THE CASE WHEN THE ASS ESSEE HAS STATED THOSE LIABILITIES WERE CEASED TO EXIST DURING THE ACCOUNT ING PERIOD UNDER CONSIDERATION, BUT THE ASSESSING OFFICER HAS SUO MO TU HELD THAT SINCE THOSE LIABILITIES WERE OUTSTANDING SINCE LAST FEW Y EARS, THEREFORE, NOT ANY ITA NO.571/AHD/2007 (BY REVENUE) &644/AHD/2007(BY ASSESSEE) ACIT VS. M/S.TORRENT POWER SEC.LTD. ASST.YEAR 2003-04 - 22 - MORE PAYABLE BY THE ASSESSEE AND CEASED TO EXIST. ALMOST ON IDENTICAL FACTS, A VIEW HAS ALREADY BEEN TAKEN BY THE RESPECT ED CO-ORDINATE BENCH IN THE CASE OF SHRI RAJESH MUKUNDLAL SHAH VS. ITO W D-5(10 BARODA BEARING ITA NO.424/AHD/2006 (BY ASSESSEE) AND ITA NO.609/AHD/2006(BY REVENUE) FOR ASSESSMENT YEAR 20 02-03 ORDER DATED 08/01/2010, WHEREIN THE DECISION OF HON'BLE S UPREME COURT IN THE CASE OF SUGAULI SUGAR WORKS (P.) LTD. (1999) REPORTED AS 23 6 ITR 518(SC) AND DECISION(S) OF HON'BLE GUJARAT HIGH COURT IN TH E CASE OF CIT VS. CHETAN CHEMICALS PVT. LTD. REPORTED AS 267 ITR 770 (GUJ. ) AND OF CIT VS. SILVER COTTON MILLS CO.LTD. REPORTED AS 254 ITR 728(GUJ. ) HAVE BEEN CITED AND, THEREAFTER, IT WAS HELD VIDE PARAGRAPH NO.9.5 AS UNDER:- 9.5. IN THE LIGHT OF VIEW TAKEN BY THE HON'BLE SUP REME COURT AND JURISDICTIONAL HIGH COURT IN THE AFORESAID DECISION S, IT IS APPARENT THAT UNLESS THERE IS A CESSATION OF LIABILITY OR TH ERE IS A REMISSION OF LIABILITY BY THE CREDITOR, THE LIABILITY SUBSISTS A ND, THEREFORE, EVEN IF THE ENTRIES ARE MADE TO WRITE BACK THE EXPENDITURE, THE AMOUNT SO WRITTEN BACK CANNOT BE ADDED IN THE INCOME OF THE A SSESSEE AS PER THE PROVISIONS OF SECTION 41(1) OF THE ACT. IN THE INSTANT CASE, THERE IS NOTHING TO SUGGEST THAT THE ASSESSEE HAS OBTAINE D ANY BENEFIT EITHER BY WAY OF REMISSION OR CESSATION OF ANY LIAB ILITY WHILE THE AFORESAID LIABILITIES ARE CONTINUALLY ADMITTED BY T HE ASSESSEE IN THEIR BALANCE-SHEET. IN THESE CIRCUMSTANCES, WE H AVE NO ALTERNATIVE BUT TO VACATE THE FINDINGS OF THE LD. CIT(A) AND DELETE THE ADDITION SUSTAINED BY THE LD. CIT(A). THEREFOR E, GROUND NOS. GROUND NOS. 3 TO 5 IN THE APPEAL OF THE ASSESSEE AR E ALLOWED WHILE GROUND NOS. 1 & 2 IN THE APPEAL OF THE REVENUE ARE DISMISSED. 12. ONCE A VIEW HAS ALREADY BEEN TAKEN, THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF THE CO-ORDINATE BENCH AS ALSO THE DECISION OF ITA NO.571/AHD/2007 (BY REVENUE) &644/AHD/2007(BY ASSESSEE) ACIT VS. M/S.TORRENT POWER SEC.LTD. ASST.YEAR 2003-04 - 23 - THE HON'BLE SUPREME COURT AS WELL AS THE HON'BLE J URISDICTIONAL HIGH COURT, WE FIND THAT THE REVENUE WAS NOT JUSTIFIED I N INVOKING THE PROVISIONS OF SECTION 41(1) OF THE I.T. ACT, 1961 S UO MOTU ESPECIALLY WHEN THE CESSATION OF THE LIABILITY DURING THE ACCO UNTING PERIOD UNDER CONSIDERATION WAS DEFINITELY DOUBTFUL. THEREFORE, THIS GROUND IS ALLOWED. 13. GROUND NOS.8, 9 & 10 ARE CONSEQUENTIAL IN NATUR E REQUIRE NO INDEPENDENT ADJUDICATION. 14. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED, WHEREAS THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER SIGNED, DATED AND PRONOUNCED IN THE COURT ON 10/ 12 /2010. SD/- SD/- ( G.D. AGARWAL ) ( MUKUL KR. SHRAWAT ) VICE PRESIDENT (AZ) JUDICIAL ME MBER AHMEDABAD; DATED 10 / 12 /2010 T.C. NAIR, SR. PS COPY OF THE ORDER FORWARDED TO : 1. THE ASSESSEE. 2. THE DEPARTMENT. 3. THE CIT CONCERNED 4. THE LD. CIT(APPEALS)-III, SURAT 5. THE DR, AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT.REGISTRAR), ITAT, AHMEDABAD ITA NO.571/AHD/2007 (BY REVENUE) &644/AHD/2007(BY ASSESSEE) ACIT VS. M/S.TORRENT POWER SEC.LTD. ASST.YEAR 2003-04 - 24 - 1. DATE OF DICTATION..02/12/2010 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 02/12/2010 OTHER MEMBER 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S08/12/2010 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S10/12/10 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 10/12/10 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 9. DATE OF DESPATCH OF THE ORDER