Hyderabad Metropolitan Water Supply & Sewerage Board, Hyderabad V. Addl.CIT, Range-6, Hyderabad

ITA 832/HYD/2013

• Counselvise Citation: 83222514 RSA 2013
• Duration Of Justice: 11 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-05-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2004-2005
• Appeal Filed On: 23-05-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P SOMASEKHAR REDDY
• Assessee Lawyers: K VASANTH KUMAR
• Keywords: Reopening of assessment; Depreciation; Audit objection; Retrospective amendment; Scheme of amalgamation; Revenue expenditure
• Section: 143(3); 32; 147; 6; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A : HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA.NO.371/HYD/2013 ASSESSMENT YEAR 2003-2004 HYDERABAD METROPOLITAN WATER SUPPLY & SEWERAGE BOARD, HYDERABAD PAN AAALH-0186-J VS. ACIT, CIRCLE 6(1) HYDERABAD. (APPELLANT) (RESPONDENT) ITA.NO.832/HYD/2013 ASSESSMENT YEAR 2004-2005 HYDERABAD METROPOLITAN WATER SUPPLY & SEWERAGE BOARD, HYDERABAD PAN AAALH-0186-J VS. ACIT, CIRCLE 6(1) HYDERABAD. (APPELLANT) (RESPONDENT) FOR ASSESSEE : MR. K. VASANTH KUMAR FOR REVENUE : MR. P. SOMASEKHAR REDDY DATE OF HEARING : 24.03.2014 DATE OF PRONOUNCEMENT : 09.05.2014 ORDER PER B. RAMAKOTAIAH, A.M. THESE TWO APPEALS ARE BY ASSESSEE FOR ASSESSMENT YEARS 2003-04 AND 2004-05 AGAINST THE ORDER OF THE CIT(A)-IV, HYDERABAD DATED 30.01.2013 AND 11.03.2013 RESPECTIV ELY. SINCE BOTH APPEALS CONTAIN COMMON ISSUE FOR ADJUDIC ATION, THESE APPEALS ARE HEARD TOGETHER AND DECIDED BY THI S COMMON ORDER. 2 ITA.NO.371 & 832/HYD/2013 HYDERABAD METROPOLITAN WATER SUPPLY & SEWERAGE BOARD, HYDERABAD 2. BRIEFLY STATED, ASSESSEE WAS CONSTITUTED ON 01.11.1989 UNDER THE HYDERABAD METRO WATER SUPPLY A ND SEWERAGE ACT, 1989. BEING A LOCAL AUTHORITY, ITS IN COME WAS EXEMPT FROM INCOME TAX UNDER SECTION 10(20) OF THE ACT UPTO A.Y. 2002-03. WITH THE INSERTION OF EXPLANATION TO SECTION 10(20) BY FINANCE ACT, 2002 EFFECTIVE FROM 01.04.20 03 DEFINING THE TERM LOCAL AUTHORITY THE ASSESSEE BECAME TAXA BLE ENTITY FROM A.Y. 2003-04. IN BOTH THE A.YS THE ASSESSMENT WAS ORIGINALLY COMPLETED UNDER SECTION 143(3) ACCEPTING THE NET LOSS DECLARED BY THE ASSESSEE. HOWEVER, THE A.O. CO NSEQUENT TO THE AUDIT OBJECTIONS RAISED, INITIATED PROCEEDINGS UNDER SECTION 147 BY ISSUING NOTICE UNDER SECTION 148. IN THE RE- ASSESSMENT PROCEEDINGS, ASSESSEE WAS ASKED TO FURNISH DETAILS OF GRANTS RECEIVED FROM GOVERNMENT OF A.P. UTILISATION TO VAR IOUS FIXED ASSETS AND ACCOUNTING THEREON IN THE BOOKS OF ACCOU NT. NOT ONLY THAT A.O. WAS ALSO OF THE OPINION THAT THE DEP RECIATION CLAIMED BY THE ASSESSEE WAS NOT CALCULATED CORRECTL Y AS HE WAS OF THE OPINION THAT THE WDV AT THE BEGINNING OF THE YEAR FOR THE PURPOSE OF ALLOWING DEPRECIATION WAS TO BE CALCULAT ED ON THE VALUE OF ASSETS FROM THE INCEPTION OF BOARD, AS RED UCED BY VARIOUS CAPITAL GRANTS RECEIVED BY THE ASSESSEE TOW ARDS THE ASSETS. IN A.Y. 2004-05 THE MATTER WAS REFERRED TO THE SPECIAL AUDIT UNDER SECTION 142(2A) AND CONSEQUENT TO THAT REPORT WHICH WAS SUBMITTED THAT WITH CERTAIN RESERVATIONS, THE A.O. CONCLUDED THE ASSESSMENT PROCEEDINGS ON THE BASIS O F THE AUDIT REPORT DETERMINING THE DEPRECIATION AT A LESS ER FIGURE WHILE MODIFYING THE RECEIPTS AND EXPENDITURE. 3 ITA.NO.371 & 832/HYD/2013 HYDERABAD METROPOLITAN WATER SUPPLY & SEWERAGE BOARD, HYDERABAD 3. ASSESSEE HAS CARRIED THE MATTER IN APPEAL TO TH E LD. CIT(A). THE LD. CIT(A) WHILE UPHOLDING THE REOP ENING OF ASSESSMENT ALSO UPHOLD THE WORKING OF THE DEPRECIAT ION CONSEQUENT TO THE AUDIT REPORT VIDE ORDERS ORIGINAL LY PASSED FOR A.Y. 2004-05 DATED 28.09.2011. THIS ORDER WAS SUBJE CT MATTER OF APPEAL BEFORE THE ITAT AND THE ITAT B BENCH, H YDERABAD IN ITA.NO.2047/HYD/2011 UPHELD THE REOPENING OF THE ASSESSMENT UNDER SECTION 147 WHEREAS FOR DETERMININ G THE WDV CONSEQUENT TO EXPLANATION (6) TO SECTION 43(6) OF THE I.T. ACT, RESTORED THE MATTER TO THE FILE OF THE CIT(A) FOR CONSIDERING THE ASSESSEES EXPLANATION AND DETERMINING THE WDV AND ELIGIBLE DEPRECIATION. CONSEQUENT TO THE ORDERS DAT ED 06.08.2012, THE LD. CIT(A), HOWEVER, REITERATED EAR LIER ORDERS OF THE AUTHORITIES ON THE REASON THAT ASSESSEE FAILED TO JUSTIFY VARIOUS GRANTS RECEIVED AND PASSED THE ORDER FOR A. Y. 2004-05 ON 11.03.2013. ORDER IN A.Y. 2003-04 DATED 30.01.20 13 PASSED WAS ON SIMILAR LINES. THEREFORE, ASSESSEE IS AGGRIEVED AND RAISED VARIOUS GROUNDS (ITA.NO.832/HYD/2013 A .Y. 2004-05) ON THE ISSUE OF DEPRECIATION AS UNDER : 2. THE LEARNED CIT(A) ERRED IN HOLDING THAT CORREC T WDV OF VARIOUS ASSETS EVEN ACCORDING TO EXPLANATION 6 TO S UB- SECTION 6 OF SECTION 43 WITH RETROSPECTIVE EFFECT I N THE CASES OF THE TYPE OF THIS ASSESSEE WHERE THE INCOME S ARE NOT TAXABLE PRIOR TO A.Y. 2003-04 TO ADOPT THE BOOK VALUE AS WDV COULD BE ARRIVED AT BY GOING BACK TO COST AN D REDUCING THE DEPRECIATION PROVIDED IN THE BOOKS OF ACCOUNTS IGNORING THE FACT THAT IT WILL ONLY LEAD T O COLOSSAL LOSS TO THE ASSESSEE BY LEAVING LITTLE WDV OR NO WDV ON WHICH IT COULD CLAIM DEPRECIATION ONCE THE DEPRECIATION PROVIDED IN THE BOOKS IS REDUCED FROM THE COST THAT IS ARRIVED BY REDUCING THE GRANTS IN EACH YEAR. 4 ITA.NO.371 & 832/HYD/2013 HYDERABAD METROPOLITAN WATER SUPPLY & SEWERAGE BOARD, HYDERABAD 3. THE LEARNED CIT(A) FAILED TO APPRECIATE THE DIRE CTION OF THE TRIBUNAL FOR THE A.Y. TO KEEP IN MIND THAT THE ASSESSEE IS NOT LIABLE TO TAX PRIOR TO A.Y. 2003-04 WHILE HOLDING THAT NO GRANTS IN THE EARLIER YEARS PRIOR T O 2003- 04 ALSO ARE TO BE REDUCED TO ARRIVE AT THE WDV IN T HE PREVIOUS YEAR THEREBY APPLYING THE PROVISIONS OF IN COME TAX ACT TO THE YEARS IN WHICH THE ASSESSEE IS NOT L IABLE TO TAX AND IGNORING THE DIRECTIONS OF THE TRIBUNAL. 4. THE LEARNED CIT(A) ERRED IN INTERPRETING THE PRO VISIONS OF SECTION 43(6)(C) DEFINING WDV TO MEAN THAT ONE HAS TO KEEP REDUCING DEPRECIATION FROM THE WDV OF PREVIOUS YEAR UNTIL ONE ARRIVES AT THE YEAR IN WHICH THE ASS ET HAS BEEN ACQUIRED TO FIND OUT THE COST THEREBY NOT ONLY TRYING TO ADD WORDS TO THE PROVISION WHICH IS NOT PERMITTE D BUT MAKING THE DEFINITION PROVIDED FOR COST IN THE SAME SECTION 43 REDUNDANT. 3.1. ONE MORE GROUND CONTESTED BY ASSESSEE IN A.Y. 2003-04 IS WITH REFERENCE TO THE REOPENING OF ASSES SMENT. EVEN THOUGH THE ASSESSMENT WAS REOPENED FOR A.Y. 2004-05 , AS BRIEFLY STATED ABOVE THAT ISSUE WAS CONCLUDED AGAIN ST THE ASSESSEE BY THE ORDER OF THE ITAT (SUPRA) IN THAT Y EAR. ASSESSEE, HOWEVER, CARRIED THE MATTER TO THE HONBL E HIGH COURT OF A.P. EVEN THOUGH BY THE TIME THE MATTER WA S TAKEN- UP BY THE HONBLE HIGH COURT OF AP THE LD. CIT(A) PASSED THE IMPUGNED APPELLATE ORDER, THIS FACT WAS NOT BROUGHT TO THE NOTICE OF THE HONBLE HIGH COURT. THEREFORE, HONBL E HIGH COURT ALLOWED THE ASSESSEE TO AGITATE THE MATTERS A FRESH BEFORE THE LD. CIT(A) VIDE ORDERS DATED 01-10-2013. SINCE THE ORDERS OF THE HONBLE HIGH COURT OF A.P. COULD NOT BE IMPL EMENTED AS LD. CIT(A) ALREADY PASSED THE ORDER BY THAT TIME TH E DIRECTIONS OF THE HONBLE HIGH COURT WERE ISSUED, THE ASSESSEE DID NOT PRESS THE ISSUE OF REOPENING UNDER SECTION 147 BEFO RE US IN THE PRESENT PROCEEDINGS. THEREFORE, THE ISSUE OF REOPEN ING OF THE 5 ITA.NO.371 & 832/HYD/2013 HYDERABAD METROPOLITAN WATER SUPPLY & SEWERAGE BOARD, HYDERABAD ASSESSMENT WAS ONLY AGITATED IN A.Y. 2003-04. THIS ISSUE WILL BE CONSIDERED AT A LATER OF POINT OF TIME, AFTER CO NSIDERING THE MERITS OF THE ACTION OF THE AUTHORITIES IN RE-DETER MINING THE WDV AND RESTRICTION OF DEPRECIATION. ACCORDINGLY, T HE ISSUE ON MERITS IS CONSIDERED FIRST. 4. AS BRIEFLY STATED ABOVE, THE ISSUE IN THIS APPE ALS IS WITH REFERENCE TO ADJUSTMENT OF GRANTS-IN-AID RECEI VED TOWARDS COST OF ASSET UNDER THE PROVISIONS OF SECTION 43(6) . IT WAS THE CONTENTION OF THE A.O. THAT THE GRANTS-IN-AID RECEI VED BY THE ASSESSEE FROM THE GOVERNMENT OF A.P. TOWARDS VARIOU S PROJECTS ARE TO BE ADJUSTED IN THE COST OF ASSETS FOR THE PURPOSE OF ARRIVING AT WRITTEN DOWN VALUE (WDV). IT WAS THE CO NTENTION OF THE ASSESSEE THAT GRANTS-IN-AID WERE RECEIVED SOMET IMES TOWARDS THE PROJECT, SOMETIMES TOWARDS CAPITAL CONT RIBUTION AND ASSESSEE ALSO SOME OF THE GRANTS TOWARDS REVENU E EXPENDITURE AND THEY WERE ACCORDINGLY ACCOUNTING T HE GRANTS- IN-AID IN THE BOOKS OF ACCOUNTS. IT WAS ALSO THE CO NTENTION THAT AS PER EXPLANATION-6 TO SECTION 43(6) INTRODUCED RETROSPECTIVELY W.E.F. 01.04.2003 SPECIFICALLY FOR THE PURPOSE OF PERSONS EXEMPT FROM INCOME TAX UPTO A.Y. 2002-03 LI KE ASSESSEE, THE WDV IN THE BOOKS OF ACCOUNTS ONLY CAN BE CONSIDERED FOR DETERMINING THE ELIGIBILITY FOR THE PURPOSE OF DEPRECIATION AS OPENING WDV IN A.Y. 2003-04 AND CON SEQUENT WDV IN A.Y. 2004-05. HOWEVER, THE A.O. WAS OF THE O PINION THAT AS PER THE PROVISIONS OF SECTION 43(6), THE BL OCK OF ASSETS ARE TO BE RE-DETERMINED FROM THE TIME OF INCEPTION AND ACCORDINGLY, REFERRED THE MATTER TO SPECIAL AUDIT F OR THE PURPOSE OF ADJUSTING CAPITAL GRANTS-IN-AID TO THE A SSETS 6 ITA.NO.371 & 832/HYD/2013 HYDERABAD METROPOLITAN WATER SUPPLY & SEWERAGE BOARD, HYDERABAD ACQUIRED/CAPITALIZED BY THE ASSESSEE IN ALL THE YEA RS UPTO A.Y. 2002-03. CONSEQUENT TO THE REPORT SUBMITTED BY THE SPECIAL AUDITOR M/S. JAWAHAR & ASSOCIATES, HYDERABAD, THE COST/WRITTEN DOWN VALUE OF ASSETS FROM 01.11.1989 T O 31.03.2004 WERE ARRIVED AT ALONG WITH RE-STATEMENT OF INCOME AND EXPENDITURE FOR THE YEAR ENDING 2003-04 BY ITS REPORT DATED NIL. BASED ON THE ABOVE REPORT, THE A.O. NOT ONLY RE- DETERMINED THE TOTAL INCOME BUT ALSO RESTRICTED THE DEPRECIATION, WITHOUT CONSIDERING THE ASSESSEES OB JECTIONS TO THE ISSUE. ON THE BASIS OF THE SAID REPORT, SINCE T HE SPECIAL AUDITOR EXAMINED THE ISSUE FROM 01.11.1989 TO 31.03 .2004, THE A.O. ACCORDINGLY PASSED ORDER IN A.Y. 2003-04 A LSO IN THE RE-ASSESSMENT PROCEEDINGS FOR THAT YEAR. 5. REFERRING TO THE PROVISIONS OF SECTION 43(6) AN D AMENDMENT BROUGHT TO THE IT ACT BY FINANCE ACT, 200 8 W.E.F. 01.04.2003, IT WAS THE CONTENTION OF THE LD. COUNSE L THAT THE ACTION OF THE A.O./SPECIAL AUDITOR IN RE-WORKING OU T THE WRITTEN DOWN VALUES/VALUE OF ASSETS W.E.F. 01.11.19 89 TO 31.03.2004 IS NOT CORRECT AS THE ACT PROVIDES FOR C OMPUTATION OF ACTUAL COST IN THE BOOKS OF ACCOUNTS AS REDUCED BY THE TOTAL AMOUNT OF DEPRECIATION OF SUCH ADJUSTMENT PROVIDED IN THE BOOKS OF ACCOUNTS. THEREFORE, THE WDV AS AT THE BEG INNING OF THE YEAR I.E., AS N 01.04.2003 CAN ONLY BE CONSIDER ED AS WDV FOR THE PURPOSE OF DETERMINING THE DEPRECIATION FOR A.Y. 2003- 04. THEREFORE, THE ENTIRE EXERCISE DONE BY THE SPEC IAL AUDITOR IN RE-DETERMINING THE VALUE OF ASSETS/WRITTEN DOWN VALUES FOR EACH YEAR FROM 1989-90 ONWARDS IS NOT WARRANTED. RE FERRING TO THE ORDERS OF THE LD. CIT(A), IT WAS SUBMITTED THAT LD. CIT(A) 7 ITA.NO.371 & 832/HYD/2013 HYDERABAD METROPOLITAN WATER SUPPLY & SEWERAGE BOARD, HYDERABAD ALSO IGNORED THE SPECIFIC EXPLANATION-(6) BROUGHT O N THE STATUTE RETROSPECTIVELY AND CONFIRMED THE ORDER OF THE A.O. ON THE BASIS OF THE PROVISIONS OF SECTION 43(6) WHICH WAS INTERPRETED BY THE HONBLE ITAT IN THE CASE OF KANDLA PORT TRUS T VS. ACIT 296 ITR 88. IN THAT CASE, IT WAS HELD THAT IN THE C ASE OF AN ENTITY IT WAS OBVIOUSLY EXEMPT FROM INCOME TAX, SIN CE THERE IS NO LIABILITY TO TAX, THERE WAS NO OCCASION TO COMPU TE THE INCOME OF SUCH PERSON UNDER THE PROVISIONS OF THE A CT. HENCE, THE DEPRECIATION PROVIDED IN THE BOOKS IN THE YEARS WHEN THE INCOME WAS EXEMPT CANNOT BE TREATED AS THE DEPRECIA TION ACTUALLY ALLOWED. THEREFORE, IT WAS HELD THAT THE W DV FOR THE PURPOSE OF ASSESSMENT WOULD BE THE ORIGINAL COST. S INCE THIS INTERPRETATION IS NOT INCONFORMITY WITH THE INTENTI ON AND PURPOSE OF THE PROVISIONS FOR DEPRECIATION, EXPLANA TION-6 WAS INSERTED SPECIFICALLY OVERRIDING THE ABOVE ORDER OF THE ITAT. IT WAS THE SUBMISSION OF THE LD. COUNSEL THAT LD. CIT( A) AGAIN REFERRED PROVISIONS TO SECTION 43(6) TO INTERPRET I N A DIFFERENT MANNER EVEN THOUGH EXPLANATION-6 WAS INTRODUCED SPE CIFICALLY FOR THE ASSESSEES LIKE THE PRESENT ASSESSEE. IT WAS HIS SUBMISSION THAT ORDER OF THE LD. CIT(A) IS WRONG BO TH ON FACTS AND ON LAW. 6. AT OUR INSTANCE, LD. COUNSEL PLACED ON RECORD T HE REPORT OF THE SPECIAL AUDITOR ALONG WITH VARIOUS OT HER DETAILS ASKED FOR. THIS WILL BE DISCUSSED AT A LATE POINT O F TIME IN THE ORDER. 7. LEARNED D.R. HOWEVER, REITERATED THE ENTIRE SEQUENCE OF EVENTS AND JUSTIFIED THE ACTION OF THE A.O. AND LD. 8 ITA.NO.371 & 832/HYD/2013 HYDERABAD METROPOLITAN WATER SUPPLY & SEWERAGE BOARD, HYDERABAD CIT(A) IN RE-WORKING OUT THE WDV AS PER THE PROVISI ONS OF SECTION 43(6). 8. WE HAVE CONSIDERED THE ISSUE AND EXAMINED THE DOCUMENTS PLACED ON RECORD. BEFORE ADVERTING TO THE RIVAL CONTENTIONS, IT IS NECESSARY TO EXTRACT THE PROVISI ONS OF SECTION 43(6) ON THE BASIS OF WHICH, THE A.O. UNDERTOOK THE EXERCISE OF RE-DETERMINING THE DEPRECIATION FROM THE YEAR OF IN CEPTION. PROVISIONS OF SECTION 43(6) ARE AS UNDER : (6)WRITTEN DOWN VALUE MEANS (A) IN THE CASE OF ASSETS ACQUIRED IN THE PREVIOUS YEAR, THE ACTUAL COST TO THE ASSESSEE; (B) IN THE CASE OF ASSETS ACQUIRED BEFORE THE PREV IOUS YEAR, THE ACTUAL COST TO THE ASSESSEE LESS ALL DEPRECIATION ACTUALLY ALLOWED TO HIM UNDER THIS ACT, OR UNDER THE INDIAN INCOME-TAX ACT, 1922 (11 OF 1922), OR ANY ACT REPEALED BY THAT ACT, OR UNDER AN Y EXECUTIVE ORDERS ISSUED WHEN THE INDIAN INCOME-TAX ACT, 1886 (2 OF 1886), WAS IN FORCE: [ PROVIDED THAT IN DETERMINING THE WRITTEN DOWN VALUE IN RESPECT OF BUILDINGS, MACHINERY OR PLANT F OR THE PURPOSES OF CLAUSE (II) OF SUB-SECTION (1) OF SECTION 32 , DEPRECIATION ACTUALLY ALLOWED SHALL NOT INCLUDE DEPRECIATION ALLOWED UNDER SUB-CLAUSES (A), (B) AND (C) OF CLAUSE (VI) OF SUB-SECTION (2) OF SECTION 10 OF THE INDIAN INCOME-TAX ACT, 1922 (11 OF 1922), WHERE SUCH DEPRECIATION WAS NOT DEDUCTIBLE IN DETERMINING THE WRITTEN DOWN VALUE FOR THE PURPOSES OF THE SAID CLAUSE (VI);] [(C) IN THE CASE OF ANY BLOCK OF ASSETS, (I) IN RESPECT OF ANY PREVIOUS YEAR RELEVANT TO TH E ASSESSMENT YEAR COMMENCING ON THE 1ST DAY OF APRIL, 1988, THE AGGREGATE OF THE WRITTEN DOWN VALUES OF ALL THE ASSETS FALLING WITHIN THAT BLOCK OF ASSETS AT THE BEGINNING OF THE PREVIOUS YEAR AND ADJUSTED, 9 ITA.NO.371 & 832/HYD/2013 HYDERABAD METROPOLITAN WATER SUPPLY & SEWERAGE BOARD, HYDERABAD (A) BY THE INCREASE BY THE ACTUAL COST OF ANY ASSET FALLING WITHIN THAT BLOCK, ACQUIRED DURING THE PREVIOUS YEAR; (B) BY THE REDUCTION OF THE MONEYS PAYABLE IN RESPECT OF ANY ASSET FALLING WITHIN THAT BLOCK, WHICH IS SOLD OR DISCARDED OR DEMOLISHED OR DESTROYED DURING THAT PREVIOUS YEAR TOGETHER WITH THE AMOUNT OF THE SCRAP VALUE, IF ANY, SO, HOWEVER, THAT THE AMOUNT OF SUCH REDUCTION DOES NOT EXCEED THE WRITTEN DOWN VALUE AS SO INCREASED; AND [(C) IN THE CASE OF A SLUMP SALE, DECREASE BY THE ACTUAL COST OF THE ASSET FALLING WITHIN THAT BLOCK AS REDUCED (A) BY THE AMOUNT OF DEPRECIATION ACTUALLY ALLOWED TO HIM UNDER THIS ACT OR UNDER THE CORRESPONDING PROVISIONS OF THE INDIAN INCOME-TAX ACT, 1922 (11 OF 1922) IN RESPECT OF ANY PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR COMMENCING BEFORE THE 1ST DAY OF APRIL, 1988; AND (B) BY THE AMOUNT OF DEPRECIATION THAT WOULD HAVE BEEN ALLOWABLE TO THE ASSESSEE FOR ANY ASSESSMENT YEAR COMMENCING ON OR AFTER THE 1ST DAY OF APRIL, 1988 AS IF THE ASSET WAS THE ONLY ASSET IN THE RELEVANT BLOCK OF ASSETS, SO, HOWEVER, THAT THE AMOUNT OF SUCH DECREASE DOES NOT EXCEED THE WRITTEN DOWN VALUE;] (II) IN RESPECT OF ANY PREVIOUS YEAR RELEVANT TO T HE ASSESSMENT YEAR COMMENCING ON OR AFTER THE 1ST DAY OF APRIL, 1989, THE WRITTEN DOWN VALUE OF THAT BLOCK OF ASSETS IN THE IMMEDIATELY PRECEDING PREVIOUS YEAR AS REDUCED BY THE DEPRECIATION ACTUALLY ALLOWED IN RESPECT OF THAT BLOCK OF ASSETS IN RELATION TO THE SAID PRECEDING PREVIOUS YEAR AND AS FURTHER ADJUSTED BY THE INCREASE OR THE REDUCTION REFERRED TO IN ITEM (I).] EXPLANATION 1.WHEN IN A CASE OF SUCCESSION IN BUSINESS OR PROFESSION, AN ASSESSMENT IS MADE ON TH E 10 ITA.NO.371 & 832/HYD/2013 HYDERABAD METROPOLITAN WATER SUPPLY & SEWERAGE BOARD, HYDERABAD SUCCESSOR UNDER SUB-SECTION (2) OF SECTION 170 THE WRITTEN DOWN VALUE OF ANY ASSET OR ANY BLOCK OF ASSETS] SHALL BE THE AMOUNT WHICH WOULD HAVE BEEN TAKEN AS ITS WRITTEN DOWN VALUE IF THE ASSESSMENT HAD BEEN MADE DIRECTLY ON THE PERSON SUCCEEDED TO. [EXPLANATION 2.WHERE IN ANY PREVIOUS YEAR, ANY BLOCK OF ASSETS IS TRANSFERRED, (A) BY A HOLDING COMPANY TO ITS SUBSIDIARY COMPANY OR BY A SUBSIDIARY COMPANY TO ITS HOLDING COMPANY AND THE CONDITIONS OF CLAUSE (IV) OR, AS THE CASE MAY B E, OF CLAUSE (V) OF SECTION 47 ARE SATISFIED; OR (B) BY THE AMALGAMATING COMPANY TO THE AMALGAMATED COMPANY IN A SCHEME OF AMALGAMATION, AND THE AMALGAMATED COMPANY IS AN INDIAN COMPANY, THEN, NOTWITHSTANDING ANYTHING CONTAINED IN CLAUS E (1), THE ACTUAL COST OF THE BLOCK OF ASSETS IN THE CASE OF THE TRANSFEREE-COMPANY OR THE AMALGAMATED COMPANY, AS THE CASE MAY BE, SHALL BE THE WRITTEN DOWN VALUE OF THE BLOCK OF ASSETS AS IN THE CASE OF THE TRANSFEROR-CO MPANY OR THE AMALGAMATING COMPANY FOR THE IMMEDIATELY PRECEDING PREVIOUS YEAR AS REDUCED BY THE AMOUNT OF DEPRECIATION ACTUALLY ALLOWED IN RELATION TO THE SA ID PRECEDING PREVIOUS YEAR.] [EXPLANATION 2A.WHERE IN ANY PREVIOUS YEAR, ANY ASSET FORMING PART OF A BLOCK OF ASSETS IS TRANSFER RED BY A DEMERGED COMPANY TO THE RESULTING COMPANY, THEN, NOTWITHSTANDING ANYTHING CONTAINED IN CLAUSE (1), T HE WRITTEN DOWN VALUE OF THE BLOCK OF ASSETS OF THE DEMERGED COMPANY FOR THE IMMEDIATELY PRECEDING PREVIOUS YEAR SHALL BE REDUCED BY THE 4 [WRITTEN DOWN VALUE OF THE ASSETS] TRANSFERRED TO THE RESULTING COMPANY PURSUANT TO THE DEMERGER. EXPLANATION 2B.WHERE IN A PREVIOUS YEAR, ANY ASS ET FORMING PART OF A BLOCK OF ASSETS IS TRANSFERRED BY A DEMERGED COMPANY TO THE RESULTING COMPANY, THEN, NOTWITHSTANDING ANYTHING CONTAINED IN CLAUSE (1), T HE WRITTEN DOWN VALUE OF THE BLOCK OF ASSETS IN THE CA SE OF THE RESULTING COMPANY SHALL BE THE WRITTEN DOWN VALUE OF THE TRANSFERRED ASSETS [***] OF THE DEMERGED COMPANY IMMEDIATELY BEFORE THE DEMERGER. 11 ITA.NO.371 & 832/HYD/2013 HYDERABAD METROPOLITAN WATER SUPPLY & SEWERAGE BOARD, HYDERABAD EXPLANATION 3.ANY ALLOWANCE IN RESPECT OF ANY DEPRECIATION CARRIED FORWARD UNDER SUB-SECTION (2) OF SECTION 32 SHALL BE DEEMED TO BE DEPRECIATION ACTU ALLY ALLOWED. [EXPLANATION 4.FOR THE PURPOSES OF THIS CLAUSE, THE EXPRESSIONS MONEYS PAYABLE AND SOLD SHALL HAVE THE SAME MEANINGS AS IN THE EXPLANATION BELOW SUB- SECTION (4) OF SECTION 41.] [EXPLANATION 5.WHERE IN A PREVIOUS YEAR, ANY ASSET FORMING PART OF A BLOCK OF ASSETS IS TRANSFERRED BY A RECOGNISED STOCK EXCHANGE IN INDIA TO A COMPANY UND ER A SCHEME FOR CORPORATISATION APPROVED BY THE SECURI TIES AND EXCHANGE BOARD OF INDIA ESTABLISHED UNDER SECTI ON 3 OF THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT , 1992 (15 OF 1992), THE WRITTEN DOWN VALUE OF THE BL OCK OF ASSETS IN THE CASE OF SUCH COMPANY SHALL BE THE WRITTEN DOWN VALUE OF THE TRANSFERRED ASSETS IMMEDIATELY BEFORE SUCH TRANSFER.] [ EXPLANATION 6.WHERE AN ASSESSEE WAS NOT REQUIRED TO COMPUTE HIS TOTAL INCOME FOR THE PURPOSES OF THIS ACT FOR ANY PREVIOUS YEAR OR YEARS PRECEDING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION, (A) THE ACTUAL COST OF AN ASSET SHALL BE ADJUSTED BY THE AMOUNT ATTRIBUTABLE TO THE REVALUATION OF SUCH ASSET, IF ANY, IN THE BOOKS OF ACCOUNT; (B) THE TOTAL AMOUNT OF DEPRECIATION ON SUCH ASSET , PROVIDED IN THE BOOKS OF ACCOUNT OF THE ASSESSEE IN RESPECT OF SUCH PREVIOUS YEAR OR YEARS PRECEDING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION SHALL BE DEEMED TO BE THE DEPRECIATION ACTUALLY ALLOWED UNDER THIS ACT FOR THE PURPOSES OF THIS CLAUSE; AND (C) THE DEPRECIATION ACTUALLY ALLOWED UNDER CLAUSE (B) SHALL BE ADJUSTED BY THE AMOUNT OF DEPRECIATION ATTRIBUTABLE TO SUCH REVALUATION OF THE ASSET .] [EXPLANATION 7.FOR THE PURPOSES OF THIS CLAUSE, WHERE THE INCOME OF AN ASSESSEE IS DERIVED, IN PART FROM 12 ITA.NO.371 & 832/HYD/2013 HYDERABAD METROPOLITAN WATER SUPPLY & SEWERAGE BOARD, HYDERABAD AGRICULTURE AND IN PART FROM BUSINESS CHARGEABLE TO INCOME-TAX UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION, FOR COMPUTING THE WRITTEN DOWN VALUE OF ASSETS ACQUIRED BEFORE THE PREVIOUS YEAR, THE TOTAL AMOUNT OF DEPRECIATION SHALL BE COMPUTED AS I F THE ENTIRE INCOME IS DERIVED FROM THE BUSINESS OF THE ASSESSEE UNDER THE HEAD PROFITS AND GAINS OF BUSIN ESS OR PROFESSION AND THE DEPRECIATION SO COMPUTED SHA LL BE DEEMED TO BE THE DEPRECIATION ACTUALLY ALLOWED UNDER THIS ACT.] ( EMPHASIS SUPPLIED) 9. THERE IS NO DISPUTE WITH REFERENCE TO THE MAIN PROVISIONS OF (A), (B), (C) IN SECTION 43. IN THE C ASE OF ASSETS ACQUIRED IN THE PREVIOUS YEAR, THE ACTUAL COST TO T HE ASSESSEE IS TO BE DETERMINED. AS PER SUB-CLAUSE (B), IN THE CAS E OF ASSETS ACQUIRED BEFORE THE PREVIOUS YEAR, THE ACTUAL COST TO THE ASSESSEE, LESS, DEPRECIATION ACTUALLY ALLOWED, W ILL BE THE WDV. SIMILAR IS THE POSITION IN THE CASE OF BLOCK O F ASSETS ALSO WHERE LITTLE MORE ELABORATION HAS GIVEN BUT THE MAI N PRINCIPLE IS THE SAME. 10. INTERPRETING THE ISSUE OF DEPRECIATION A CTUALLY ALLOWED IN A CASE WHERE ASSESSEE WAS NOT TAXABLE UNDER THE INCOME TAX ACT TILL A PARTICULAR A.Y. THE COORDINATE BENCH IN THE CASE OF KANDLA PORT TRUST VS. ACIT 296 ITR 88 HELD THAT IN THE CASE OF SUCH PREVIOUSLY EXEMPT ENTITY, SINCE THERE WAS N O LIABILITY TO TAX, THERE WAS NO OCCASION TO COMPUTE THE INCOME OF SUCH ASSESSEE UNDER THE PROVISIONS OF INCOME TAX ACT. HE NCE, THE DEPRECIATION PROVIDED IN THE BOOKS IN THE YEARS WHE N THE INCOME WAS EXEMPT CANNOT BE TREATED AS THE DEPRECIA TION ACTUALLY ALLOWED. ACCORDINGLY, IT WAS HELD THAT W HEN THE ASSESSEE WAS NOT REQUIRED TO COMPUTE PROFITS AND GA INS OF 13 ITA.NO.371 & 832/HYD/2013 HYDERABAD METROPOLITAN WATER SUPPLY & SEWERAGE BOARD, HYDERABAD BUSINESS OR PROFESSION UNDER THE INCOME TAX ACT, ME RE PASSING OF ACCOUNTING ENTRY MADE FOR DEPRECIATION I N THE BOOKS OF ACCOUNTS WAS NOT THE DEPRECIATION ACTUALLY ALLO WED AS THERE WAS NO LIABILITY TO TAX AND HENCE, NO ASSESSM ENT FOR THIS PERIOD. IT WAS FURTHER HELD THAT THE WRITTEN DOWN V ALUE FOR THE PURPOSE OF ASSESSMENT WOULD BE THE ORIGINAL COST, L ESS, NIL. THEREFORE, THE ORIGINAL COST BECOMES WDV. AS THIS INTERPRETATION OF THE ITAT IS NOT IN ACCORDANCE WIT H/ CONFORMITY WITH THE INTENTION AND PURPOSE OF THE PR OVISION OF DEPRECIATION, EXPLANATION-6 HAS BEEN INSERTED IN SU B-SECTION 6 OF SECTION 43. IT WAS CLARIFIED AS UNDER : 14.2 SOME PERSONS WERE EXEMPT FROM TAX AND! THEREFO RE, NOT REQUIRED TO COMPUTE THEIR INCOME UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION'. UPON WITHDRAWAL OF EXEMPTION, SUCH PERSONS BECAME LIABLE TO INCOME-TAX AND HENCE WERE REQUIRED TO COMPUTE THEIR INCOME FOR INCOME-TAX PURPOSES. IN THIS CONTEXT, DI SPUTE HAS ARISEN REGARDING THE BASIS FOR AILOWING DEPRECI ATION UNDER THE INCOME-TAX ACT IN RESPECT OF ASSETS ACQUI RED DURING THE YEARS WHEN SUCH PERSONS ENJOYED TAX EXEMPTION. THE INCOME-TAX APPELLATE TRIBUNAL IN THE CASE OF KANDLA PORT TRUST V. ASST. CIT [2008] 296 ITR (AT) 88, HAS HELD THAT IN THE CASE OF SUCH A PREVIOUSLY EXEMPT ENTITY, SINCE THERE WAS NO LIABILITY TO TAX, THERE WAS NO OCCASION TO COMPUTE THE INCOME OF SUCH PERSO N UNDER THE PROVISIONS OF THE INCOME-TAX ACT. HENCE, THE DEPRECIATION PROVIDED IN THE BOOKS IN THE YEARS WHE N THE INCOME WAS EXEMPT CANNOT BE TREATED AS THE DEPRECIA TION 14 ITA.NO.371 & 832/HYD/2013 HYDERABAD METROPOLITAN WATER SUPPLY & SEWERAGE BOARD, HYDERABAD 'ACTUALLY ALLOWED'. ACCORDINGLY, IT WAS HELD THAT A S THE ASSESSEE WAS NOT REQUIRED TO COMPUTE PROFITS AND GA INS OF BUSINESS OR PROFESSION UNDER THE INCOME-TAX ACT, MERE PASSING OF ACCOUNTING ENTRY MADE FOR DEPRECIATION I N THE BOOKS OF ACCOUNT WAS NOT THE DEPRECIATION 'ACTUALLY ALLOWED' AS THERE WAS NO LIABILITY TO TAX AND HENCE NO INCOME-TAX ASSESSMENT FOR THIS PERIOD. IT HAS FURTH ER HELD THAT THE WRITTEN DOWN VALUE (WDV) FOR THE PURPOSE O F ASSESSMENT WOULD BE THE ORIGINAL COST LESS NIL, I.E ., THE ORIGINAL COST. THIS INTERPRETATION IS NOT IN CONFOR MITY WITH THE INTENT AND PURPOSE OF THE PROVISIONS OF DEPRECIATION. ACCORDINGLY, EXPLANATION 6 HAS BEEN INSERTED IN CLAUSE (6) OF SECTION 43. 11. THE CIRCUMSTANCES AND CONTEXT IN WHICH THE EXPLANATION-6 WAS INSERTED IS SIMILAR TO THE FACTS IN ASSESSEES CASE. ASSESSEE WAS EXEMPT FROM INCOME TAX UNDER SEC TION 10(20) UP TO A.Y. 2002-03. THEREFORE, EXPLANATION-6 TO SECTION 43(6) IS APPLICABLE TO THE ASSESSEES CASE. EXPLANA TION-6 SPECIFIES THAT WHERE AN ASSESSEE WAS NOT REQUIRED T O COMPUTE HIS TOTAL INCOME FOR THE PURPOSE OF THIS ACT IN ANY PREVIOUS YEAR OR YEARS PRECEDING THE PREVIOUS YEAR RELEVANT TO A.Y. UNDER CONSIDERATION SHALL BE DEEMED TO BE THE DEPRE CIATION ACTUALLY ALLOWED UNDER THE ACT FOR THE PURPOSE OF T HIS CLAUSE. THUS, THE AMOUNT OF DEPRECIATION PROVIDED IN THE BO OKS OF ACCOUNTS UPTO THE PREVIOUS YEAR RELEVANT TO THE A.Y . UNDER CONSIDERATION SHALL BE CONSIDERED AS DEPRECIATION ACTUALLY ALLOWED UNDER THIS ACT. THIS MEANS THE WDV AS PER THE BOOKS AT THE BEGINNING OF THE IMPUGNED A.Y.2003-04 BECOME S WDV 15 ITA.NO.371 & 832/HYD/2013 HYDERABAD METROPOLITAN WATER SUPPLY & SEWERAGE BOARD, HYDERABAD FOR THE PURPOSE OF SECTION 43(6). THEREFORE, THE A. OS. EXERCISE UNDER THE GUISE OF REFERENCE TO SPECIAL AUDIT TO RE-DETERMINE THE DEPRECIATION FROM THE INCEPTION TO A.Y. 2002-03 IS NOT ONLY BAD IN LAW BUT ALSO FUTILE, IN VIEW OF THE SPECIFIC EXPLANATION-6 INTRODUCED BY THE LEGISLATURE IN ORDER TO SETTLE TH E DISPUTES THAT MAY ARISE IN VIEW OF DIFFERENT INTERPRETATIONS . THEREFORE, SINCE EXPLANATION-6 HAS OVERRIDING EFFECT AND IS CL EARLY APPLICABLE TO THE ASSESSEES CASE, THE ENTIRE EXERC ISE OF RE- DETERMINING THE WDV FROM YEAR OF INCEPTION TILL A.Y . 2002-03 CANNOT BE UPHELD AT ALL. THEREFORE, ON PRINCIPLES O F LAW, ASSESSEES CONTENTION THAT WDV AT THE BEGINNING OF A.Y. 2003- 04 IN THE BOOKS OF ACCOUNTS SHOULD BE CONSIDERED AS WDV FOR THE PURPOSE OF INCOME TAX ACT IS UPHELD. 12. NOW COMING TO THE WORKING OF CLAIM OF DEPRECIATION, THE ISSUE WHICH IS ALSO AGITATED AND ON WHICH, THERE IS A DISPUTE IS WITH REFERENCE TO CAPITAL GRA NTS SANCTIONED BY THE GOVERNMENT OF A.P. TOWARDS VARIOUS PROJECTS, WHICH ARE REQUIRED TO BE ADJUSTED WHEN THE ASSETS BEING CAPIT ALIZED OR ACQUIRED BY THE ASSESSEE AS PART OF VARIOUS PROJECT S IN THE COURSE OF ITS OPERATIONS. THE MAJOR DISPUTE AROSE IN ASCERTAINING THE CAPITAL GRANTS SANCTIONED BY THE G OVERNMENT TO THE ASSESSEE IN VARIOUS YEARS. AS PER LAW, WHATE VER IS THE CAPITAL GRANT RECEIVED UPTO AND INCLUDING A.Y. 2002 -03 ARE NOT TO BE TAKEN INTO ACCOUNT AS IN THOSE YEARS ASSESSEE WAS NOT TAXABLE. THEREFORE, AS PER THE ACCOUNTING PRINCIPLE S BEING FOLLOWED BY THE ASSESSEE, CERTAIN GRANTS WERE TAKEN TOWARDS REVENUE EXPENDITURE AND CERTAIN GRANTS WERE TAKEN A S CAPITAL. THEREFORE, SINCE THOSE ACCOUNTS WERE ALREADY FINALI SED AND 16 ITA.NO.371 & 832/HYD/2013 HYDERABAD METROPOLITAN WATER SUPPLY & SEWERAGE BOARD, HYDERABAD APPROVED BY VARIOUS AUTHORITIES BOTH UNDER THE COM PANY LAW AS WELL AS UNDER THE RULES OF GOVERNMENT, THE ISSUE OF EXAMINING THE CAPITAL GRANTS IN EARLIER YEARS SHOUL D NOT ARISE AT ALL. INFACT AO/ SPECIAL AUDITOR HAS NO MANDATE T O DISTURB THE ENTRIES IN EARLIER YEARS. 13. FOR THE IMPUGNED A.YS. 2003-04 AND 2004-05 WHAT WE NOTICED FROM THE SPECIAL AUDIT REPORT WAS T HAT THE SPECIAL AUDITOR HAS CONSIDERED THE CAPITAL GRANTS ON THE BASIS OF THE CAPITALISATION OF CAPITAL WORK-IN-PROGRESS. IT IS NOTED THAT ASSESSEE KEEPS THE PROJECT WHICH ARE UNDER PROGRESS UNDER THE HEAD CAPITAL WORK-IN-PROGRESS AND CAPITALISES IN TH E YEAR IN WHICH THE PROJECT HAS COME INTO OPERATION. THEREFOR E, THE SPECIAL AUDITOR IN THE ABSENCE OF ANY CLARIFICATION /DIRECTIONS IN THIS REGARD, TOOK THE AMOUNT OF CAPITLIZATION OF WO RK-IN- PROGRESS IN RESPECTIVE YEAR AS AMOUNT OF CAPITAL GR ANT WITHOUT ACTUALLY EXAMINING THE ACTUAL GRANTS RECEIVED FROM THE GOVERNMENT. THIS EXERCISE UNDERTAKEN BY THE SPECIAL AUDITOR, IN OUR VIEW, IS NOT CORRECT. 14. MOREOVER, AS SEEN FROM THE ANNUAL REPORT F OR A.Y. 2002-03 WHICH IS RELEVANT FOR THE IMPUGNED A.Y.2003 -04, THE ANNUAL REPORT STATES THAT DURING THE YEAR 2002-03 T HE BOARD WAS IN RECEIPT OF RS.24.81 CRORES GRANT AND RS.41.5 9 CRORES AS CONTRIBUTIONS FROM THE GOVERNMENT OF A.P., RS.25.76 CRORES LOAN FROM GOVERNMENT OF A.P. AND RS.90 CRORES LOAN FROM HUDCO. IT WAS ALSO MENTIONED THAT BOARD HAS RECEIVE D RS.186.07 CRORES FROM CONSUMERS TOWARDS WATER AND S EWERAGE CESS AND NEW CONNECTION CHARGES. THIS RS.186.07 CRO RES WAS 17 ITA.NO.371 & 832/HYD/2013 HYDERABAD METROPOLITAN WATER SUPPLY & SEWERAGE BOARD, HYDERABAD TAKEN AS INCOME IN THE P & L ACCOUNT. THE LOANS AND CONTRIBUTIONS FROM GOVERNMENT HAVE GONE TO THE BALA NCE SHEET UNDER THE RESPECTIVE HEADS. OUT OF THE GRANT OF RS. 24.81 CRORES, ASSESSEE HAS TAKEN RS.12.78 CRORES AS REVEN UE GRANTS AND THE EXPENDITURE WAS REDUCED TO THAT EXTENT IN T HE INCOME- EXPENDITURE ACCOUNT. THUS, OUT OF RS.212.55 CRORES GROSS RECEIPTS SHOWN IN INCOME AND EXPENDITURE ACCOUNT, T HE GROSS EXPENDITURE WERE SHOWN AT RS.215.62 CRORES. HOWEVER , OUT OF THIS, AN AMOUNT OF RS.13.10 CRORES OF EXPENDITURE W AS CAPITALIZED VIDE SCHEDULE-9 AND AN AMOUNT OF RS.12. 78 CRORES WAS SHOWN AS EXPENDITURE ADJUSTED FROM GRANTS RECEI VED FROM GOVERNMENT OF A.P. THUS, AS AGAINST RS.215.62 CRORE S EXPENDITURE, ASSESSEE CHARGED RS.189.74 CRORES IN T HE EXPENDITURE STATEMENT, ARRIVING AT EXCESS OF INCOME AT RS.22.82 CRORES, WHICH IS THE BASIS FOR COMPUTATION OF INCOME. THUS, AS CAN BE SEEN, OUT OF RS.24.81 CRORES GRANT AMOUNT RECEIVED, RS.12.78 CRORES GRANT WAS TAKEN AS REVENU E GRANT. THEREFORE, QUESTION OF CAPITALISING THE SAME AND AD JUSTING IN THE ASSET COST SHOULD NOT ARISE. THAT LEAVES WITH T HE BALANCE AMOUNT OF RS.12 CRORES WHICH MAY BE TAKEN TOWARDS C OST OF NEW ASSETS. AS AGAINST THIS, THE SPECIAL AUDIT REPO RT INDICATES THAT CAPITAL GRANT WAS TAKEN AT RS.46.48 CRORES WHI CH IS NOTHING BUT THE ENTIRE AMOUNT OF ASSETS CAPITALIZED DURING THE YEAR. THEREFORE, THE BASIS FOR WORKING OUT THE AMOU NT ITSELF BEING WRONG, WE ARE NOT IN A POSITION TO APPROVE TH E WORKING GIVEN BY THE SPECIAL AUDITOR IN THIS REGARD. 15. SIMILARLY, FOR A.Y. 2004-05, IT WAS NOTIC ED THAT ASSESSEE WAS IN RECEIPT OF RS.26.15 CRORES GRANT OU T OF WHICH, 18 ITA.NO.371 & 832/HYD/2013 HYDERABAD METROPOLITAN WATER SUPPLY & SEWERAGE BOARD, HYDERABAD RS.22.67 CRORES WAS REDUCED FROM THE REVENUE EXPEND ITURE IN INCOME EXPENDITURE STATEMENT. THUS, AFTER AMOUNT BE ING CAPITALIZED FROM GROSS EXPENDITURE OF RS.258.25 CRO RES, EXPENDITURE WERE CHARGED ONLY RS.206.16 CRORES,THUS , ARRIVING AT EXCESS OF INCOME AT RS.10.57 CRORES. THEREFORE, IN THIS YEAR OUT OF RS.26.15 CRORES GRANT, RS.22.67 CRORES WAS A LREADY ADJUSTED AS REVENUE EXPENDITURE. THEREFORE, IN OUR OPINION ADOPTING THE AMOUNT OF RS.104.07 CRORES AS CAPITAL GRANTS RECEIVED AND ADJUSTING IN WDV CALCULATION WAS TOTAL LY ERRONEOUS. IN VIEW OF THE ABOVE, SINCE THE SPECIAL AUDITOR DID NOT BASE HIS REPORT NOT ONLY WITH THE PROVISIONS OF THE ACT BUT ALSO FACTS ARISING FROM THE ANNUAL REPORTS, WE HAVE NO HESITATION IN REJECTING THE ENTIRE REPORT. 16. BEFORE US, LD. COUNSEL SUBMITTED REVISED WORKI NG OF DEPRECIATION ON THE BASIS OF THE ENTRIES IN THE BOOKS OF ACCOUNTS READ WITH EXPLANATION-6 OF THE ACT. HOWEVE R, THIS EXERCISE HAS TO BE VERIFIED BY THE A.O. THEREFORE, WE ARE OF THE OPINION THAT CLAIM OF DEPRECIATION IS TO BE RESTORE D TO THE FILE OF THE A.O. WITH A DIRECTION (A) THAT WDV AT THE BEGIN NING OF A.Y. 2003-04 / AS ON 31.03.2002 IN THE ASSESSEE BOOKS OF ACCOUNT SHOULD BE CONSIDERED AS WDV FOR THE PURPOSE OF WORK ING OUT THE DEPRECIATION AND (B) CAPITAL GRANTS TOWARDS ASS ETS RECEIVED ONLY ARE TO BE ADJUSTED FROM THE ACTUAL COST CAPIT ALIZED DURING THE YEAR. WE MAKE IT CLEAR THAT A.O. CANNOT ADJUST THE CAPITAL GRANTS OF EARLIER YEARS AS WAS DONE BY THE STATUTOR Y AUDITOR IN ITS REPORT. SINCE ASSESSEE ALSO ADJUSTED SOME OF TH E GRANTS RECEIVED FROM THE GOVERNMENT IN THE REVENUE ACCOUNT , THE A.O. IS SPECIFICALLY DIRECTED TO EXAMINE ONLY THOSE CAPI TAL GRANTS 19 ITA.NO.371 & 832/HYD/2013 HYDERABAD METROPOLITAN WATER SUPPLY & SEWERAGE BOARD, HYDERABAD SANCTIONED SPECIFICALLY FOR THE PURPOSE OF CREATION OF ASSETS WHICH SHOULD BE ADJUSTED IN THE ACTUAL COST OF ASSE TS CAPITALIZED DURING THE YEAR. WITH THESE DIRECTIONS, THE ORDERS IN BOTH YEARS ON THIS ISSUE ARE SET ASIDE AND A.O. IS DIRECTED TO VERIFY AND ALLOW THE DEPRECIATION KEEPING IN MIND F ACTS AND LAW, SPECIFICALLY THE EXPLANATION-6 OF SEC.43(6). A CCORDINGLY, GROUNDS ON MERITS ARE CONSIDERED AS ALLOWED FOR STA TISTICAL PURPOSES. 17. THAT LEAVES US WITH THE ISSUE OF REOPENING OF ASSESSMENT IN AY 2003-04. AS BRIEFLY STATED EARLIER , THE ISSUE IN A.Y. 2004-05 WITH REFERENCE TO REOPENING HAS ALR EADY BEEN CRYSTALLIZED BY THE ORDERS OF THE ITAT AND ASSESSEE ALSO DID NOT PRESS THE ISSUE IN A.Y. 2004-05. EVEN THOUGH ASSESS EE RAISED VARIOUS ISSUES ON REOPENING OF THE ASSESSMENT IN A. Y. 2003-04 CONSIDERING THAT DEPRECIATION DETAILS WERE NOT GIVE N FULLY EVEN AS OF TODAY SO AS TO CONSIDER THE DEPRECIATION ALLO WABLE, WE ARE OF THE OPINION THAT THE REOPENING OF ASSESSMENT IS TO BE UPHELD AT LEAST FOR THE PURPOSE OF DETERMINING THE DEPRECI ATION ALLOWABLE IN A.Y. 2003-04, SO THAT WDV FOR A.Y. 200 4-05 CAN BE ARRIVED AT. EVEN OTHERWISE, REOPENING OF ASSESSM ENT IN AY 2004-05 WAS ALREADY UPHELD BY THE COORDINATE BENCH AND ASSESSEE DID NOT PRESS THE SAME IN THESE PROCEEDING S, EVEN AFTER DIRECTIONS OF HONBLE HIGH COURT TO THE CIT(A) . THE REASONS FOR REOPENING ARE SAME IN AY 2003-04. FOR T HESE REASONS, EVEN THOUGH ASSESSEE HAS RAISED CERTAIN LE GAL ISSUES ON ISSUE OF REOPENING, CONSIDERING THE FACTS OF THE CASE, WE UPHOLD THE REOPENING FOR A.Y. 2003-04 ALSO ON THE S AME REASONS AS IN AY 2004-05. THE GROUNDS ON THIS ISSUE ARE 20 ITA.NO.371 & 832/HYD/2013 HYDERABAD METROPOLITAN WATER SUPPLY & SEWERAGE BOARD, HYDERABAD ACCORDINGLY REJECTED. THIS ORDER, HOWEVER, SHOULD N OT BE TAKEN AS A PRECEDENT IN ANY OTHER CASE EITHER FOR UPHOLDI NG THE ORDER OR FOR CANCELLATION OF PROCEEDINGS UNDER SECTION 14 7, AS THIS ISSUE WAS DECIDED ON THE FACTS OF THIS CASE. WITH T HESE OBSERVATIONS BOTH THE APPEALS ARE CONSIDERED AS ALL OWED FOR STATISTICAL PURPOSES. 18. IN THE RESULT, APPEALS OF THE ASSESSEE ARE PAR TLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 09 TH MAY, 2014. SD/- SD/- (ASHA VIJAYARAGHAVAN) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACOUNTANT MEMBER HYDERABAD, DATE MAY, 2014 VBP/- COPY TO : 1. HYDERABAD METROPOLITAN WATER SUPPLY & SEWERAGE B OARD, KHAIRATABAD, HYDERABAD C/O. SRI K. VASANTKUMAR & SRI A.V. RAGHURAM, ADVOCATES, 610, 6 TH FLOOR, BABUKHAN ESTATE, BASHEERBAGH, HYDERABAD 1. 2. THE ADDL.CIT, RANGE-6, HYDERABAD. 3. CIT(A)-IV, HYDERABAD (2 COPIES) 4. CIT-III, HYDERABAD 5. D.R. ITAT, A BENCH, HYDERABAD.