Transmission Corporation of AP Ltd., Hyd, Hyderabad V. DCIT,Circle-2(2), Hyderabad, Hyderabad

ITA 538/HYD/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 5909 (ITAT-HYDERABAD)
• Duration Of Justice: 7 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-12-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 06-12-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 18-04-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K V N CHARYA
• Assessee Lawyers: M CHANDRAMOULESWARA RAO
• Keywords: Revision of order; Depreciation; Assessment record; Revenue expenditure; Capital expenditure
• Section: 143(3); 115JB; 263

Judgement Text

ITA NO 538 OF 2016 TRANSMISSION CORPN OF AP LTD H YDERABAD PAGE 1 OF 5 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD B BENCH, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO.538/HYD/2016 (ASSESSMENT YEAR: 2011-12) M/S. TRANSMISSION CORPORATION OF AP LTD HYDERABAD PAN: AABCT 0088 P VS DY. COMMISSIONER OF INCOME TAX, CIRCLE 2(3) HYDERABAD FOR ASSESSEE : SHRI M. CHANDRAMOULESWARA RAO FOR REVENUE: SHRI K.V.N. CHARYA, CIT (DR) O R D E R PER SMT. P. MADHAVI DEVI, J.M. THIS IS ASSESSEES APPEAL FOR THE A.Y 2011-12. THIS APPEAL IS AGAINST THE ORDER OF THE CIT-2, HYDERABAD DATED 15.03.2016 U/S 263 OF THE ACT DIRECTING THE AO TO D ISALLOW AN AMOUNT OF RS.3,24,84,186 TOWARDS INFRUCTUOUS CAPEX WRITTEN OFF AND BRING IT TO TAX. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE CO MPANY, CARRYING ON BUSINESS OF TRANSMISSION OF ELECTRICAL ENERGY, FILED ITS RETURN OF INCOME FOR THE A.Y 2011-12 ON 29.09.2011 D ECLARING TOTAL INCOME OF RS. NIL UNDER THE NORMAL PROVISIO NS AFTER SET OFF OF BROUGHT FORWARD LOSS OF RS.163,07,88,910. FOR THE PURPOSE OF COMPUTATION OF MAT U/S 115JB OF THE ACT, THE ASSESS EE HAS DATE OF HEARING : 06.12.2016 DATE OF PRONOUNCEMENT : 16.12.2016 ITA NO 538 OF 2016 TRANSMISSION CORPN OF AP LTD H YDERABAD PAGE 2 OF 5 SHOWN BOOK PROFIT AT RS.136,89,67,604. DURING THE A SSESSMENT PROCEEDINGS U/S 143(3) OF THE ACT, THE AO EXAMINED THE VARIOUS CLAIMS MADE BY THE ASSESSEE AND AFTER THOROUGH INQU IRY, COMPLETED THE ASSESSMENT BY BRINGING TO TAX THE INT EREST INCOME AND INTEREST ON INVESTMENTS MADE OUT OF THE CONTING ENCY RESERVE. 3. THEREAFTER, THE CIT U/S 263 OF THE ACT, PERUSED THE ASSESSMENT RECORD AND OBSERVED THAT THE AO, WHILE P ASSING THE ASSESSMENT ORDER, HAS NOT VERIFIED THE ASSESSEES C LAIM OF RS.3,24,84,196 WHICH WAS DEBITED TO THE P&L A/C TOW ARDS INFRUCTUOUS CAPEX WRITTEN OFF, THOUGH IT IS CAPIT AL IN NATURE AND THE SAME NEEDS TO BE DISALLOWED AND ADDED BACK TO T HE TOTAL INCOME. THEREFORE, THE CIT ISSUED A SHOW-CAUSE NOTI CE DATED 20.11.2015 PROPOSING TO REVISE THE ASSESSMENT RECTI FYING THE ABOVE MISTAKE. IN RESPONSE TO THE SAME, THE ASSESSE E, VIDE LETTER DATED 11.01.2016, SUBMITTED THAT DURING THE AUDIT O F ACCOUNTS FOR THE YEAR 2009-10, THE A.G. OBSERVED THAT THE EXPEND ITURE INCURRED ON THE ABANDONED WORKS OF NAGARJUNA SAGAR (TALLAPAL LY) NARKATPALLY DCS LINE WORKS AND SULLURUPETA-RENIGUNT A LINE IS TO BE WRITTEN OFF DURING THE FINANCIAL YEAR 2010-11 AN D THEREFORE, THE SAID DEBIT OF RS.3.25 CRORES IS NOT IN THE NATURE O F CAPITAL EXPENDITURE, BUT IS THE COST OF ABANDONED WORKS PER TAINING TO THE TWO SCHEMES UNDERTAKEN BY THE APTRANSCO. THE ASSESS EE FURTHER SUBMITTED THAT THIS EXPENDITURE IS CHARGED TO THE P&L A/C AFTER ASCERTAINING THE NON-FEASIBILITY OF THE SCHEM E AND ALSO THAT IT HAS NOT CAPITALIZED THE EXPENDITURE AS IT WAS IN DISPUTE AND HAS SHOWN THE SAME UNDER THE HEAD CAPITAL WORK IN PROG RESS AND THAT IT HAS BEEN TRANSFERRED TO INFRUCTUOUS CAPEX WRITTEN OFF AND ULTIMATELY DEBITED TO THE P&L A/C. IT WAS ALSO SUBMITTED THAT ITA NO 538 OF 2016 TRANSMISSION CORPN OF AP LTD H YDERABAD PAGE 3 OF 5 THE ASSESSEE DID NOT CLAIM ANY DEPRECATION ON SUCH EXPENDITURE IN THE P&L A/C FOR THE PURPOSE OF TAX. 4. THE CIT, HOWEVER, WAS NOT CONVINCED WITH THE ASSESSEES CONTENTIONS AND HELD THAT THE EXPENDITUR E ON LAYING OF TRANSMISSION LINES IS CERTAINLY IN THE NATURE OF TH E CAPITAL EXPENDITURE BUT THAT THE DEPRECIATION ON SUCH EXPEN DITURE WAS NOT ALLOWABLE SINCE IT WAS NOT PUT TO USE DURING TH E RELEVANT PREVIOUS YEAR. HE THEREFORE, SET ASIDE THE ASSESSME NT ORDER AND DIRECTED THE AO TO DISALLOW THE SUM OF RS.3,24,84,1 96 AND BRING IT TO TAX. AGGRIEVED BY THIS ORDER OF THE CIT, THE ASS ESSEE IS IN APPEAL BEFORE US. 5. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED T HAT THE ASSESSEE IS AN UNDERTAKING OF THE GOVT. OF ANDH RA PRADESH AND THE DECISION TO ABANDON THE ABOVE TWO PROJECTS WAS TAKEN BY THE BOARD OF DIRECTORS IN THE MEETING HELD ON 25.09 .2010. HE HAS ALSO DRAWN OUR ATTENTION TO THE MINUTES OF THE 83 RD MEETING OF THE TRANSMISSION CORPORATION APTRANSCO WHICH IS PLACED AT PAGES 12 TO 18 OF THE PAPER BOOK. HE SUBMITTED THAT SINCE THE PROJECTS HAVE BEEN ABANDONED AND A DECISION WAS TAKEN TO WRI TE OFF THE EXPENDITURE DURING THE RELEVANT PREVIOUS YEAR, THE LIABILITY HAS CRYSTALLIZED DURING THE RELEVANT PREVIOUS YEAR ONLY AND ACCORDINGLY, THE ASSESSEE HAS DEBITED THE SAID AMOU NT TO THE P&L A/C DURING THE RELEVANT PREVIOUS YEAR AND IT HAS BE EN RIGHTLY ALLOWED BY THE AO DURING THE COURSE OF THE ASSESSME NT PROCEEDINGS. HE SUBMITTED THAT THE ASSESSMENT ORDER IS NOT ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE R EVENUE AND HENCE CANNOT BE REVISED. IN SUPPORT OF HIS CONTENTI ON THAT THE ITA NO 538 OF 2016 TRANSMISSION CORPN OF AP LTD H YDERABAD PAGE 4 OF 5 EXPENDITURE INCURRED ON PROJECTS WHICH ARE SUBSEQUE NTLY ABANDONED ARE ALLOWABLE EXPENDITURE, HE PLACED RELI ANCE UPON THE DECISION OF THE HON'BLE CALCUTTA HIGH COURT IN THE CASE OF BINANI CEMENT LTD VS. CIT REPORTED IN (2015) 60 TAXMANN.CO M 384 (CALCUTTA) AND ALSO THE DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL AT MUMBAI IN THE CASE OF IDEA CELLULAR LTD VS. ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE AAYAKAR BHAVA N, BASHEERBAGH, HYDERABAD REPORTED IN (2014) 47 TAXMAN N.COM 341(MUMBAI TRIB.). 6. THE LEARNED DR, HOWEVER, SUPPORTED THE ORDERS OF THE CIT AND SUBMITTED THAT THE AO HAS NOT VERIFIED THE CLAIM OF THE ASSESSEE AND THEREFORE, THE ASSESSMENT ORDER IS CLE ARLY ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE. 7. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE M ATERIAL ON RECORD, WE FIND THAT THE ASSESSMENT HAS BEEN COM PLETED U/S 143(3) OF THE ACT AND THERE IS NO DISCUSSION IN THE ASSESSMENT ORDER ABOUT THE ALLOWABILITY OR OTHERWISE OF THE CL AIM OF THE EXPENDITURE INCURRED ON ABANDONED PROJECTS. IF THE AO HAS NOT CONSIDERED THIS ISSUE AND HAS NOT VERIFIED THE CLAI M, THE ASSESSMENT ORDER IS CLEARLY ERRONEOUS. BUT TO REVIS E AN ASSESSMENT ORDER, THE ASSESSMENT ORDER HAS TO BE BO TH ERRONEOUS AS WELL AS PREJUDICIAL TO THE INTERESTS OF THE REVE NUE. THE EXPENDITURE CLAIMED AS INFRUCTUOUS CAPEX WRITTEN O FF IS THE EXPENDITURE INCURRED BY THE ASSESSEE TOWARDS THE PR OJECTS WHICH WERE ULTIMATELY ABANDONED BY THE ASSESSEE. THE JUDI CIAL PRECEDENTS RELIED ON BY THE ASSESSEE ON THE ISSUE A RE IN FAVOUR OF THE ASSESSEE, HOLDING THAT THE EXPENDITURE ON ABAND ONED PROJECTS ITA NO 538 OF 2016 TRANSMISSION CORPN OF AP LTD H YDERABAD PAGE 5 OF 5 HAS TO BE ALLOWED AS REVENUE EXPENDITURE. SUCH BEIN G THE LEGAL POSITION, THE ASSESSMENT ORDER, NOT DISALLOWING THE SAID EXPENDITURE, CANNOT BE TERMED AS BEING PREJUDICIAL TO THE INTEREST OF THE REVENUE. THE CIT HAS ALSO NOT BROUGHT OUT AS TO HOW THE ASSESSMENT ORDER IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. IN VIEW OF THE SAME, WE SEE NO MERIT IN THE ORDER U/S 263 AND WE, THEREFORE, SET ASIDE THE ORDER OF THE CIT U/S 263. 8. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 16 TH DECEMBER, 2016. SD/- SD/- (B. RAMAKOTAIAH) ACCOUNTANT MEMBER (P. MADHAVI DEVI) JUDICIAL MEMBER HYDERABAD, DATED 16 TH DECEMBER, 2016. VINODAN/SPS COPY TO: 1 SHRI M. CHANDRAMOULESWARA RAO, CA, C-3, SKYLARK A PARTMENTS, BASDHEERBAGH, HYDERABAD 500029 2 DY. C.I.T. CIRCLE 2(2) IT TOWERS, 8 TH FLOOR, AC GUARDS, HYDERABAD 3 PR. CIT -2 HYDERABAD 4 ADDL. CIT, RANGE-2 HYDERABAD 5 THE DR, ITAT HYDERABAD 6 GUARD FILE BY ORDER