Income Tax Appellate Tribunal - Hyderabad
Transmission Corporation Of Ap Ltd., ... vs Dcit,Circle-2(2), Hyderabad, ... on 16 December, 2016
ITA No 538 of 2016 Transmission Corpn of AP Ltd Hyderabad
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 Vs Dy. Commissioner of Income
Corporation of AP Ltd Tax, Circle 2(3)
Hyderabad Hyderabad
PAN: AABCT 0088 P
For Assessee : Shri M. Chandramouleswara Rao
For Revenue: Shri K.V.N. Charya, CIT (DR)
Date of Hearing: 06.12.2016
Date of Pronouncement: 16.12.2016
ORDER
Per Smt. P. Madhavi Devi, J.M.
This is assessee's 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 disallow 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 company, carrying on business of Transmission of Electrical Energy, filed its return of income for the A.Y 2011-12 on 29.09.2011 declaring total income of Rs. "Nil" under the normal provisions 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 assessee has Page 1 of 5 ITA No 538 of 2016 Transmission Corpn of AP Ltd Hyderabad shown book profit at Rs.136,89,67,604. During the assessment proceedings u/s 143(3) of the Act, the AO examined the various claims made by the assessee and after thorough inquiry, completed the assessment by bringing to tax the interest income and interest on investments made out of the contingency reserve.
3. Thereafter, the CIT u/s 263 of the Act, perused the assessment record and observed that the AO, while passing the assessment order, has not verified the assessee's claim of Rs.3,24,84,196 which was debited to the P&L a/c towards "Infructuous Capex Written Off", though it is capital in nature and the same needs to be disallowed and added back to the total income. Therefore, the CIT issued a show-cause notice dated 20.11.2015 proposing to revise the assessment rectifying the above mistake. In response to the same, the assessee, vide letter dated 11.01.2016, submitted that during the audit of accounts for the year 2009-10, the A.G. observed that the expenditure incurred on the abandoned works of Nagarjuna Sagar (Tallapally) Narkatpally DCS line works and Sullurupeta-Renigunta Line is to be written off during the financial year 2010-11 and therefore, the said debit of Rs.3.25 crores is not in the nature of capital expenditure, but is the cost of abandoned works pertaining to the two schemes undertaken by the APTRANSCO. The assessee further submitted that this expenditure is charged to the P&L A/c after ascertaining the non-feasibility of the scheme 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 progress" 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 Page 2 of 5 ITA No 538 of 2016 Transmission Corpn of AP Ltd Hyderabad 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 assessee's contentions and held that the expenditure on laying of transmission lines is certainly in the nature of the capital expenditure but that the depreciation on such expenditure was not allowable since it was not put to use during the relevant previous year. He therefore, set aside the assessment order and directed the AO to disallow the sum of Rs.3,24,84,196 and bring it to tax. Aggrieved by this order of the CIT, the assessee is in appeal before us.
5. The learned Counsel for the assessee submitted that the assessee is an undertaking of the Govt. of Andhra 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 83rd 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 write 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 amount to the P&L a/c during the relevant previous year and it has been rightly allowed by the AO during the course of the assessment proceedings. He submitted that the assessment order is not erroneous and prejudicial to the interests of the Revenue and hence cannot be revised. In support of his contention that the Page 3 of 5 ITA No 538 of 2016 Transmission Corpn of AP Ltd Hyderabad expenditure incurred on projects which are subsequently abandoned are allowable expenditure, he placed reliance upon the decision of the Hon'ble Calcutta High Court in the case of Binani Cement Ltd vs. CIT reported in (2015) 60 Taxmann.com 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 Bhavan, Basheerbagh, Hyderabad reported in (2014) 47 Taxmann.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 clearly erroneous and prejudicial to the interests of the Revenue.
7. Having regard to the rival contentions and the material on record, we find that the assessment has been completed u/s 143(3) of the Act and there is no discussion in the assessment order about the allowability or otherwise of the claim of the expenditure incurred on abandoned projects. If the AO has not considered this issue and has not verified the claim, the assessment order is clearly erroneous. But to revise an assessment order, the assessment order has to be both erroneous as well as prejudicial to the interests of the Revenue. The expenditure claimed as "Infructuous Capex Written Off" is the expenditure incurred by the assessee towards the projects which were ultimately abandoned by the assessee. The judicial precedents relied on by the assessee on the issue are in favour of the assessee, holding that the expenditure on abandoned projects Page 4 of 5 ITA No 538 of 2016 Transmission Corpn of AP Ltd Hyderabad has to be allowed as revenue expenditure. Such being 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, assessee's appeal is allowed. Order pronounced in the Open Court on 16th December, 2016.
Sd/- Sd/-
(B. Ramakotaiah) (P. Madhavi Devi)
Accountant Member Judicial Member
Hyderabad, dated 16th December, 2016.
Vinodan/sps
Copy to:
1 Shri M. Chandramouleswara Rao, CA, C-3, Skylark Apartments, Basdheerbagh, Hyderabad 500029 2 Dy. C.I.T. Circle 2(2) IT Towers, 8th 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 Page 5 of 5