Gujarat State Electricity Corporation Ltd., Baroda V. The Pr. CIT, Vadodara-1, Baroda

ITA 950/AHD/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 9758 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 7 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-12-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 08-12-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 17-04-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PRASENJIT SINGH
• Assessee Lawyers: J P SHAH
• Keywords: Capital asset; Business income; Depreciation; Additional depreciation; Retrospective amendment; Unabsorbed depreciation
• Section: 143(3); 115JB; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD D BENCH (BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER & SHRI MAHAVIR PRASAD, JUDICIAL MEMBER) ITA. NO: 950/AHD/2015 (ASSESSMENT YEAR: 2010-11) GUJARAT STATE ELECTRICITY CORP. LTD. VIDYUT BHAVAN, RACE COURSE CIRCLE, BARODA-390007 V/S COMMISSIONER OF INCOME TAX-1, BARODA (APPELLANT) (RESPONDENT) PAN: AAACG6864F APPELLANT BY : SHRI J.P. SHAH, AR RESPONDENT BY : SHRI PRASENJIT SINGH, CIT/ D .R. ( )/ ORDER DATE OF HEARING : 08 -12-201 6 DATE OF PRONOUNCEMENT : 13 -12-2016 PER N.K. BILLAIYA, ACCOUNTANT MEMBER: 1. WITH THIS APPEAL, THE ASSESSEE HAS CHALLENGED THE C ORRECTNESS OF THE ORDER OF THE LD. PRINCIPAL CIT, VADODARA-1, DATED 27.03.2 015 MADE U/S.263 OF THE ACT PERTAINING TO A.Y. 2010-11 ITA NO. 950/ AHD/2015 . A.Y. 2010-1 1 2 2. THE SUBSTANTIVE GRIEVANCE OF THE ASSESSEE WHILE CHA LLENGING THE VALIDITY OF THE ORDER MADE U/S. 263 OF THE ACT READS AS UNDER:- 2.0 THE LEARNED COMMISSIONER OF INCOME TAX-1, BARODA HA S ERRED IN HOLDING THAT THE APPELLANT IS NOT ELIGIBLE TO CLAIM ADDITIONAL DEPRE CIATION AS PER SECTION 32(L)(IIA) OF THE I T ACT AS GENERATION OF ELECTRICITY IS NOT MAN UFACTURE UNDER THE ACT. THE LEARNED COMMISSIONER OF INCOME TAX, THEREFORE, HAS DIRECTED THE ASSESSING OFFICER TO DISALLOW THE ADDITIONAL DEPRECIATION AMOUNTING TO R S. 2,03,43,49,000/- CLAIMED BY THE APPELLANT FOR THE YEAR UNDER CONSIDERATION, THE ASSESSMENT OF WHICH HAS ALREADY BEEN FINALIZED UNDER SECTION 143(3) OF THE I T ACT. 3.0 THE LEARNED COMMISSIONER OF INCOME TAX-1, BAROD A ERRED IN LAW AND ON FACTS HAS HELD THAT THE APPELLANT HAS WRONGLY CLAIMED SET OFF OF BROUGHT FORWARD BUSINESS LOSSES AND UNABSORBED DEPRECIATION OF EARLIER YEARS AND HAS THEREBY DIRECTED THE ASSESSING OFFICER TO VERIFY THE SAME AND RECOMPUTE THE CLAIM OF SET OFF OF UNABSORBED BUSINESS LOSSES AND DEPRECIATION. THE LEARNED COMMISSIONER OF INCOME TAX-1, BARODA HA S ERRED IN HOLDING THAT THE GOVERNMENT GRANT OF RS. 250.00 CRORES RECEIVED IN T ERMS OF FINANCIAL RESTRUCTURING PLAN AND BEING ALLOCATED BY THE HOLDING COMPANY SHO ULD HAVE BEEN REDUCED FROM THE COST OF CAPITAL ASSETS INSTEAD OF IT BEING TAKEN TO THE RESERVES & SURPLUS FOR THE YEAR UNDER CONSIDERATION, THE ASSESSMENT OF WHICH HAS AL READY BEEN FINALIZED UNDER SECTION 143(3) OF THE I T ACT. 4.1 LEARNED COMMISSIONER OF INCOME TAX-1, BARODA ER RED IN LAW AND ON FACTS HAS HELD THAT THE APPELLANT HAS CLAIMED EXCESS DEPRECIA TION AND THAT HAS THEREBY UNDERSTATED THE BOOK PROFITS UNDER SECTION 115JB OF THE I T ACT. THE LEARNED COMMISSIONER OF INCOME TAX, THEREFORE, HAS DIRECTED THE ASSESSING OFFICER TO MAKE ADDITION TO THE EXTENT OF 15% OF THE YEAR END BALAN CE OF GRANTS. 5.0 THE LEARNED COMMISSIONER OF INCOME TAX-1, BAROD A ERRED IN LAW AND ON HAS HELD THAT THE LOSS WRITTEN OFF AMOUNTING TO 5,25,87 ,0007- ON 'COLLAPSE OF A COOLING TOWER AT KUTCH LIGNITE POWER STATION IS NOT ALLOWAB LE ON THE GROUND THAT THE SAME IS MERELY AN ADHOC PROVISION MADE ON ESTIMATED BASIS. THE LEARNED COMMISSIONER OF INCOME TAX, THEREFORE, HAS DIRECTED THE ASSESSING O FFICER TO MAKE ADDITION TO THE ITA NO. 950/ AHD/2015 . A.Y. 2010-1 1 3 EXTENT OF LOSS CLAIMED BY THE APPELLANT BOTH UNDER NORMAL PROVISIONS AS WELL SECTION 115JB OF THE IT ACT, 1961. 3. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT AN AS SESSMENT WAS MADE U/S. 143(3) OF THE ACT VIDE ORDER DATED 22.02.2013. INVO KING THE POWERS VESTED UPON HIM VIDE A PROVISIONS OF SECTION 263 OF THE AC T, THE LD. PRINCIPAL CIT, VADODARA-1 ISSUED NOTICE TO THE ASSESSEE ASKING IT TO SHOW CAUSE WHY THE ASSESSMENT MADE U/S. 143(3) OF THE ACT SHOULD NOT B E ENHANCED OR CANCELLED WITH A DIRECTION TO MAKE FRESH ASSESSMENT IN ACCORDANCE WITH THE PROVISIONS OF LAW. ASSESSEE FILED A DETAILED REPLY VIDE SUBMISSION DATED 02.02.2015 QUESTIONING THE INVOCATION OF THE PROVIS IONS OF SECTION 263 OF THE ACT. THE ASSESSEE STRONGLY STATED THAT THERE IS NO ERROR IN THE ASSESSMENT ORDER PASSED U/S. 143(3) OF THE ACT AND THE SAME IS NOT PREJUDICIAL TO THE INTEREST OF REVENUE IN ANY MANNE R AND REQUESTED THE LD. PRINCIPAL CIT TO DROP THE PROCEEDINGS. AFTER CONSID ERING THE DETAILED SUBMISSIONS OF THE ASSESSEE, THE LD. PRINCIPAL CIT WAS NOT CONVINCED WITH THE CONTENTIONS OF THE ASSESSEE AND PROCEEDED BY HO LDING THAT THE ORDER PASSED BY THE ASSESSING OFFICER IS BOTH ERRONEOUS A ND PREJUDICIAL TO THE INTEREST OF THE REVENUE AND ACCORDINGLY SET ASIDE T HE ORDER TO BE FRAMED AFRESH. 4. AGGRIEVED BY THIS, THE ASSESSEE IS BEFORE US. RIVA L CONTENTIONS HAVE BEEN HEARD AT LENGTH. 5. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE ASS ESSMENT ORDER QUA THE ORDER MADE U/S. 263 OF THE ACT. WE HAVE ALSO CAREFU LLY CONSIDERED THE ITA NO. 950/ AHD/2015 . A.Y. 2010-1 1 4 SUBMISSIONS OF THE ASSESSEE MADE DURING THE PROCEED INGS U/S. 263 OF THE ACT. WE SHALL NOW DEAL WITH EACH ISSUE ONE BY ONE. 6. THE FIRST ISSUE RELATES TO THE CLAIM OF ADDITIONAL DEPRECIATION BY THE ASSESSEE ON THE GROUND THAT THE ASSESSEE COMPANY IS INDUSTRIAL UNDERTAKING ENGAGED IN THE BUSINESS OF GENERATION OF POWER AND ACTIVITY OF POWER GENERATION AND SATISFIES THE CONDITION OF MANUFACTU RE OR PRODUCTION OF ANY ARTICLE OR THING AS REQUIRED BY THE ACT. RELIANCE W AS PLACED ON THE DECISIONS OF THE HONBLE SUPREME COURT IN THE CASE OF MPEB 19 70 SC 732 AND STATE OF AP VS. NTPC 127 STC 280W. RELIANCE WAS ALSO PLACED ON THE DECISIONS OF THE CO-ORDINATE BENCH IN THE CASE OF M. SATISHKUMAR IN ITA NO. 718/MDS/ 2012, HUTTI GOLD MINES CO. LTD. IN ITA NO. 832/BANG /2012 AND NTPC LTD. IN ITA NO. 1438/DEL/2009. 7. A CAREFUL PERUSAL OF ALL THE DECISIONS RELIED UPON BY THE LD. COUNSEL BEFORE US PERTAINED TO ASSESSMENT YEARS PRIOR TO THE AMEND MENT BROUGHT IN THE ACT IN SECTION 2(29BA) BY WHICH THE DEFINITION OF M ANUFACTURE NOW READS AS UNDER:- S. 2 [(29BA) MANUFACTURE, WITH ITS GRAMMATICAL VA RIATIONS, MEANS A CHANGE IN A NON-LIVING PHYSICAL OBJECT OR ARTICLE OR THING,- (A) RESULTING IN TRANSFORMATION OF THE OBJECT OR ARTICL E OR THING INTO A NEW AND DISTINCT OBJECT OR ARTICLE OR THING HAVING A DIFFERENT NAME, CHARACTER AND USE; OR (B) BRINGING INTO EXISTENCE OF A NEW AND DISTINCT OBJEC T OR ARTICLE OR THING WITH A DIFFERENT CHEMICAL COMPOSITION OR INTEGRAL STRUCTUR E;] ITA NO. 950/ AHD/2015 . A.Y. 2010-1 1 5 8. THIS AMENDMENT HAS BEEN INSERTED BY THE FINANCE (NO . 2) ACT, 2009 WITH RETROSPECTIVE EFFECT FROM 01.04.2009. WE ARE IN ASS ESSMENT YEAR 2010-11. 9. SINCE THE ASSESSING OFFICER HAS NOT CONSIDERED THE AMENDMENT BROUGHT TO THE DEFINITION OF MANUFACTURE AND HAVE ALLOWED THE CLAIM OF ADDITIONAL DEPRECIATION ON THE BASIS OF EARLIER DECISIONS MENT IONED HEREINABOVE, IN OUR CONSIDERED OPINION, THERE IS AN ERROR IN LAW IN THE ASSESSMENT ORDER AND, THEREFORE, WE DO NOT FIND ANY REASON TO INTERF ERE WITH THE FINDINGS OF THE LD. PRINCIPAL CIT TO THIS EXTENT. 10. THE NEXT ISSUE RELATES TO THE SET OFF OF BROUGHT F ORWARD LOSSES. THE RELEVANT OBSERVATIONS OF THE LD. PRINCIPAL CIT READS AS UND ER:- 5. IT WAS NOTICED THAT ASSESSEE GAVE SET OFF OF BUSINE SS LOSSES/UNABSORBED DEPRECIATION DURING A.Y. 2006-07 TO A.Y. 2010-11 (UP TO A.Y. 200 5-06, THE COMPANY WAS IN LOSS) WITHOUT OBSERVING THE PROVISIONS OF THE ACT. THE TO TAL BUSINESS LOSS UPTO A.Y. 2005-06 WAS 6,16,74,00,899/- AND AGGREGATE ASSESSED INCOME FROM A.Y. 2006-07 TO A.Y. 2009-10 WAS 8,61,45,00,259/ WHICH MEANS, ALL THE PREVIOUS B USINESS LOSS WOULD HAVE BEEN COMPLETELY SET OFF DURING A.Y. 2006-07 TO 2009-10 A S PER THE PRIORITY ORDER PRESCRIBED. BESIDES, AN AMOUNT OF 2,44,70,99,360/- ALSO COULD H AVE BEEN SET OFF FROM EARLIER YEAR'S UNABSORBED DEPRECIATION. ACCORDINGLY, NO BUSINESS L OSS WAS AVAILABLE TO THE ASSESSEE FOR CARRY FORWARD TO A.Y. 2010-11 BUT AN AMOUNT OF UNAB SORBED DEPRECIATION OF 1,16,28,29,634/- WAS ELIGIBLE FOR CARRY FORWARD AND SET OFF. AS AGAINST THIS, AN AMOUNT OF 1,94,93,22,039/-WAS ALLOWED TO BE SET-OFF BY AO. AS SESSMENT YEAR-WISE DETAILS OF BUSINESS INCOME/LOSSES ARE AS FOLLOWS: A.Y. BUSINESS LOSS BUSIN ESS PROFIT REMARKS 1999 - 00 0 2000 - 01 2,63,56,58,369/ - 2001 - 02 2,63,50,94,776/ - ITA NO. 950/ AHD/2015 . A.Y. 2010-1 1 6 2002 - 03 0 2003 - 04 0 2 004 - 05 89,66,47,754/ - 2005 - 06 0 TOTAL 6,16,74,00,899/- 2006 - 07 1,51,51,57,827 / - 2007 - 08 1,50,43,45,855/ - 2008 - 09 2,30,84,16,895/- 2009 - 10 3,28,65,79,682/- TOTAL 8,61,45,00,259/- ENTIRE BUSINESS LOSS STANDS SET-OFF FURTHER, AFTER SET OFF OF THE UNABSORBED DEPRECIATI ON AMOUNTING TO RS. 1,16,28,29,634/-,THERE REMAINED A PROFIT OF RS. 80, 76,29,404/- AS SHOWN IN THE BELOW TABLE: ASSESSED INCOME BEFORE ALLOWING SET OFF OF EARLIER YEARS LOSSES RS.1,97,04,59, 038/ - SET OFF OF EARLIER YEARS' BUSINESS LOSS NIL NO LOSS WAS AVAILABLE FOR SET OFF S ET OFF OF BROUGHT FORWARD UNABSORBED DEPRECIATION (RS.1,16,28,29,634/-) RS.1,16,28,29,634/ - NO AMOUNT REMAINS TO BE CARRIED FORWARD TO A.Y. 2011- 12. THE AMOUNT CARRIED FORWARD IS REQUIRED TO BE WITHDRAWN RS.80, 76, 29,404/ - THERE REMAINED NO BUSINESS LOSS OR UNABSORBED DEPRECIATION FOR CARRY FORWARD AND SET, OFF ITA NO. 950/ AHD/2015 . A.Y. 2010-1 1 7 11. A PERUSAL OF THE ORDER OF THE AUTHORITIES BELOW SHO WS THAT THE ASSESSEE COMPANY HAS CLAIMED SET OFF OF UNABSORBED BUSINESS LOSS/UNABSORBED DEPRECIATION AS PER THE RETURN OF INCOME FIELD BY T HE ASSESSEE COMPANY. THE SET OFF OF LOSS AND DEPRECIATION ARE TO BE ALLO WED ON THE BASIS OF INCOME/LOSS DETERMINED IN THE ASSESSMENT OF A PARTI CULAR YEAR AND IF SUBSEQUENTLY THE INCOME/LOSS SO DETERMINED IS REDUC ED IN APPEAL THE CLAIM OF SET OFF SHALL BE SUBJECT TO CHANGE ACCORDINGLY. THEREFORE, THIS ISSUE NEEDS VERIFICATION BY THE A.O. WHILE GIVING EFFECT TO THE ORDERS OF THE APPELLATE AUTHORITIES. WE, THEREFORE, DO NOT FIND ANY ERROR O R INFIRMITY IN THE DIRECTION OF THE LD. PRINCIPAL CIT. THE ORDER TO THE SAME EFF ECT IS UPHELD TO THIS EXTENT. 12. THE THIRD ISSUE RELATES TO THE TREATMENT OF GOVERNM ENT GRANT OF RS. 250 CRORES U/S. 115JB OF THE ACT. 13. THE ASSESSEE COMPANY HAS RECEIVED CAPITAL GRANT OF RS. 250 CRORES WHICH WAS TRANSFERRED TO THE RESERVE & SURPLUS ACCOUNT. T HE LD. PRINCIPAL CIT WAS OF THE VIEW THAT THE SAME SHOULD HAVE BEEN REDUCED FROM THE COST OF ASSETS AND SINCE THE SAME HAS NOT BEEN DONE, THE COMPANY H AS CLAIMED EXCESS DEPRECIATION THEREBY OFFERING LESSER BOOK PROFITS. 14. WE FIND THAT THE LD. PRINCIPAL CIT HAS IGNORED THE FACT THAT THE GRANT IN QUESTION WAS RECEIVED IN TERMS OF THE FINANCIAL RES TRUCTURING PLAN FROM THE GOVERNMENT AND THE COMPANY HAS ACCOUNTED GOVERNMENT GRANTS IN TERMS OF THE MANDATORY ACCOUNTING STANDARD (AS)-12 ON AC COUNTING FOR ITA NO. 950/ AHD/2015 . A.Y. 2010-1 1 8 GOVERNMENT GRANTS PRESCRIBED BY THE ICAI. THE RELE VANT PART OF AS-12 READS AS UNDER:- 10. PRESENTATION OF GRANTS OF THE NATURE OF PROMOTE RS, CONTRIBUTION 10.1 WHERE THE GOVERNMENT GRANTS ARE OF THE NATURE OF PROMOTERS CONTRIBUTION, I.E., THEY ARE GIVEN WITH REFERENCE TO THE TOTAL IN VESTMENT IN AN UNDERTAKING OR BY WAY OF CONTRIBUTION TOWARDS ITS TOTAL CAPITAL OUTLA Y (FOR EXAMPLE, CENTRAL INVESTMENT SUBSIDY SCHEME) AND NO REPAYMENT IS ORDI NARILY EXPECTED IN RESPECT THEREOF, THE GRANTS ARE TREATED AS CAPITAL RESERVE WHICH CAN BE NEITHER DISTRIBUTED AS DIVIDEND NOR CONSIDERED AS DEFERRED INCOME. 15. THE RELEVANT OFFICE NOTE NEEDS SPECIAL MENTION HERE :- SUB: ALLOCATION OF FRP GRANT AS SHARE CAPITAL CONTRIBUTI ON TO SUBSIDIARIES. AT THE BOARD MEETING HELD ON 29.06,2009, BOARD APPR OVED TO ALLOCATE THE FRP GRANT OF RS.250 CRORES BEING GIVEN BY GOVT. OF GUJA RAT TO GUVNL FOR SYSTEM STRENGTHENING AS SHARE CAPITAL CONTRIBUTION FROM GU VNL TO SUBSIDIARIES. BOARD FURTHER AUTHORIZED MD, GUVNL TO DECIDE THE QUANTUM OF SUCH EQUITY CONTRIBUTION TO EACH OF THE SUBSIDIARIES. AS FAR AS DISCOMS ARE CONCERNED, THEIR EQUITY REQUIREMENT IS BEING MET THROUGH CONSUMERS' CONTRIB UTION AND AS SUCH THERE IS HARDLY ANY EQUITY REQUIREMENT WHICH IS REQUIRED TO BE CONTRIBUTED BY GUVNL. MOREOVER, THE CAPITA! GRANT BEING RELEASED BY GOG T O GUVNL FOR VARIOUS DISCOM RELATED PROJECTS, THE BOARD AT THE MEETING H ELD ON 04.01.2010 HAS APPROVED TO ALLOCATE THE SAME TO DISCOMS IN THE FOR M OF SHARE CAPITAL FROM GUVNL. SINCE THE DISCOM RELATED GRANTS ALONGWITH CO NSUMERS' CONTRIBUTION MEET WITH THE EQUITY REQUIREMENT OF DISCOMS IT IS P ROPOSED NOT TO ALLOCATE THE FRP GRANT TO DISCOMS FOR THE FY 2009-10. AS REGARDS TO GETCO, THEY HAVE INCURRED CAPITAL EXP ENDITURE OF RS.650 CRORES UPTO JANUARY'10. AGAINST THE SAID CAPITAL EXPENDITU RE, THEY HAVE RECEIVED CONSUMERS' CONTRIBUTION TO THE TUNE OF RS.87 CRORES . FURTHER, THE GOVT. GRANT ITA NO. 950/ AHD/2015 . A.Y. 2010-1 1 9 TOWARDS CREATION OF TRANSMISSION LINES AND SUB-STAT IONS OF RS.151 CRORE (RE) IS SPECIFICALLY MEANT FOR GETCO. IN ADDITION FOR CREAT ION OF NEW SUB-STATIONS IN COASTAL AREAS UNDER SAGARKHEDU YOJANA, GOVT. OF GUJ ARAT HAS GIVEN SHARE CAPITAL CONTRIBUTION OF RS.37.20 CRORES TO GUVNL. T HE SAID GRANT AND SHARE CAPITAL CONTRIBUTION WILL BE GIVEN TO GETCO AS SHAR E CAPITAL CONTRIBUTION FROM GUVNL. IN ADDITION, IN THE REVISED ESTIMATE, GOVT. HAS MADE A PROVISION OF RS.50 CRORES AS EQUITY SHARE CAPITAL CONTRIBUTION TO GETC O DIRECTLY (WITHOUT ROUTING THROUGH GUVNL). THUS, GETCO IS ALREADY HAVING EQUIT Y SHARE CAPITAL CONTRIBUTION TO THE TUNE OF RS. 238.20 CRORES IN A DDITION TO CONSUMERS CONTRIBUTION OF RS. 87 CRORES WHEREAS IN CASE OF GS ECL WHOSE EQUITY REQUIREMENT IS SUBSTANTIALLY HIGHER THAN THAT OF GE TCO, THEY HAVE BEEN GIVEN ONLY RS. 60.77 CRORES AS EQUITY SHARE CAPITAL CONTR IBUTION FROM GUVNL. CONSIDERING THE ABOVE POSITION, IT IS PROPOSED TO A LLOCATE ENTIRE FRP GRANT OF RS. 250 CRORES TO GSECL AS EQUITY SHARE CAPITAL CONTRIB UTION FROM GUVNL FOR THEIR PROJECTS. 16. CONSIDERING THE ACCOUNTING TREATMENT IN THE LIGHT O F THE ACCOUNTING STANDARD-12, WE DO NOT FIND ANY ERROR ON FACTS OR I N LAW. THEREFORE, TO THIS EXTENT THE FINDINGS OF THE LD. PRINCIPAL CIT ARE RE VERSED. 17. THE NEXT ISSUE RELATES TO THE PROVISION OF RS. 5.25 CRORES FOR COLLAPSED COOLING TOWER U/S. 115JB OF THE ACT. 18. TAKING A LEAF OUT OF SCHEDULE: 20-NOTES TO THE FINA NCIAL STATEMENTS FORMING PART OF ACCOUNTS, THE LD. PRINCIPAL CIT NOTICED THA T THE COOLING TOWER AT KUTCH LIGNITE THERMAL POWER STATION COLLAPSED FOR W HICH AN ADHOC PROVISION OF LOSS OF RS. 525.87 LAKH IS MADE IN THE BOOKS OF THE COMPANY WHICH WAS ITA NO. 950/ AHD/2015 . A.Y. 2010-1 1 10 50% OF WDV INSTEAD OF NET REALIZABLE VALUE OF THE A SSETS. THIS ADHOC PROVISION IS SHOWN AS PROVISION FOR OBSOLENCE OF A SSET IN THE BALANCE SHEET. THE LD. PRINCIPAL CIT WAS OF THE FIRM BELIEF THAT THIS PROVISION OUGHT TO HAVE BEEN ADDED BACK FOR COMPUTATION OF BOOK PRO FIT. U/S. 115JB OF THE ACT. 19. THE ASSESSEE STRONGLY CONTENDED THE ACTION OF THE L D. PRINCIPAL CIT BY MAKING FOLLOWING SUBMISSION:- IV) INCORRECT COMPUTATION OF BUSINESS INCOME, BOOK PROF ITS U/S 115JB IT HAS BEEN INDICATED THAT DURING THE YEAR A COOLIN G TOWER OF KUTCH LIGNITE THERMAL POWER STATION (KLTPS) COLLAPSED FOR WHICH T HE COMPANY BOOKED A LOSS TO THE EXTENT OF 50% OF THE BOOK VALUE OF THE COOLI NG TOWER. IT HAS BEEN INDICATED THAT SUCH ADHOC PROVISION IS AN UNASCERTAINED LIABI LITY WHICH IS REQUIRED TO BE ADDED BACK TO BOOK PROFITS COMPUTED UNDER SECTION 1 15JB OF THE I.T ACT. IT APPEARS THAT THE QUERY HAS BEEN RAISED MERELY ON THE BASIS OF THE NOTE IN THE ANNUAL ACCOUNTS. IT HAS BEEN MENTIONED IN THE NOTE THAT A PROVISION OF LOSS OF RS. 525.87 LACS HAS BEEN MADE IN THE BOOKS OF ACCOUNT @ 50% OF THE WRITTEN DOWN VALUE OF THE COOLING TOWER. THE FACTS ARE THAT A NATURAL DRAFT COOLING TOWER NO .3 AT KLTPS WAS COLLAPSED DURING THE YEAR THE COST OF WHICH ALONGWITH THE DAT E OF PUT TO USE IS UNDER: SR. NO. ' DATE OF PUT TO USE COST (RS.) 1 01.04.1993 850,81,208.89 2 01.04.1994 108,71,653.08 ITA NO. 950/ AHD/2015 . A.Y. 2010-1 1 11 3 01.04.2004 TOTAL 499,63,720.59 1459,15,582.56 FOR THE PURPOSE OF FINALIZING THE ACCOUNTS OF THE C OMPANY, THE USEFULNESS OF THE REMAINING STRUCTURES WERE DETERMINED AND AFTER DETA ILED VERIFICATIONS, IT WAS DECIDED THAT 50% OF THE COST OF THE COOLING TOWER C AN BE UTILIZED IN THE CONSTRUCTION OF NEW COOLING TOWER. ACCORDINGLY ONLY 50% OF THE WRITTEN DOWN VALUE OF RS.525.87 LACS (COST RS.1459.17 LACS LESS TOTAL DEPRECIATION TILL DATE RS.407.45 LACS) WAS WRITTEN OFF AS LOSS AND BOOKED UNDER THE HEAD MISCELLANEOUS LOSSES WRITTEN OFF. THUS, THE SAID LOSS WAS ACTUALL Y WRITTEN OFF AND WAS NOT MERELY A PROVISION FOR LOSS. THIS APART, THERE IS NO ELEMENT OF ESTIMATION IN IT SO AS TO TERM IT AS 'UNASCERTAINED LIABILITY' INASMUCH AS THE COST OF T HE COOLING TOWER AND DEPRECIATION CLAIMED THEREON IN THE BOOKS IS FULLY VERIFIABLE AND CERTAIN. IN VIEW OF THE ABOVE, IT IS SUBMITTED THAT THE SAID AMOUNT CANNOT BE TREATED AS UNASCERTAINED LIABILITY AND CAN UNDER NO CIRCUMSTAN CES BE ADDED UNDER THE NORMAL PROVISIONS AND UNDER SECTION 115JB OF THE I T ACT. 20. THE ABOVE SUBMISSION OF THE ASSESSEE HAS TO BE LOOK ED UPON IN THE LIGHT OF ACCOUNTING STANDARD-10 OF ICAI, THE RELEVANT PART R EADS AS UNDER:- 14. RETIREMENTS AND DISPOSALS. 14.1 AN ITEM OF FIXED ASSET IS ELIMINATED FROM THE FINANCIAL STATEMENTS ON DISPOSAL. 14.2 ITEMS OF FIXED ASSETS THAT HAVE BEEN RETIRED F ROM ACTIVE USE AND ARE HELD FOR DISPOSAL ARE STATED AT THE LOWER OF THEIR NET BOOK VALUE AND NET REALIZABLE VALUE AND ARE SHOWN SEPARATELY IN THE FINANCIAL STATEMENT S. ANY EXPECTED LOSS IS RECOGNIZED IMMEDIATELY IN THE PROFIT AND LOSS STATE MENT. ITA NO. 950/ AHD/2015 . A.Y. 2010-1 1 12 21. A PERUSAL OF THE ABOVE SHOWS THAT THE LOWER OF NET BOOKED VALUE AND NET REALIZABLE VALUE HAVE TO BE CONSIDERED AND EXPECTED LOSS IS TO BE RECOGNIZED IN THE PROFIT AND LOSS ACCOUNT. THE ASSE SSEE HAS WORTH 50% OF THE WDV ON ESTIMATED BASIS. THEREFORE, IT CANNOT BE SAID THAT IT HAS NET REALIZABLE VALUE TO WORTH 50% OF THE WDV. THUS, TH E ACCOUNTS OF THE ASSESSEE HAS NOT BEEN IN ACCORDANCE WITH ACCOUNTING STANDARAD-10 AND, THEREFORE, THE SAME VIOLATES THE PROVISIONS OF SECT ION 115JB OF THE ACT. THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF APOLLO TYRES 255 ITR 273 DO NOT APPLY. 22. IN OUR CONSIDERED OPINION, THE ASSESSING OFFICER HA S NOT PROPERLY VERIFIED THE FACTS AND, THEREFORE, WE DO NOT FIND ANY ERROR OR INFIRMITY IN THE DIRECTIONS OF THE LD. PRINCIPAL CIT SO FAR AS THIS ISSUE IS CONCERNED. 23. WE, THEREFORE, UPHOLD THE FINDINGS OF THE LD. PRINC IPAL CIT TO THIS EXTENT. 24. FOR THE SAKE OF THE COMPLETENESS OF ADJUDICATION, T HE ORDER OF THE LD. PRINCIPAL CIT IS MODIFIED AS PER OUR DETAILED DISCU SSIONS HEREINABOVE. 25. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 13 - 12- 2 016. SD/- SD/- (MAHAVIR PRASAD) (N. K. BILLAIYA) JUDICIAL MEMBER TRUE COPY ACCOUNTANT MEMBER AHMEDABAD: DATED 13 /12/2016