Income Tax Appellate Tribunal - Ahmedabad
Gujarat State Electricity Corporation ... vs Pr. Cit, Vadodara-1, Baroda on 13 December, 2016
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 V/S Commissioner of Income
Corp. Ltd. Vidyut Bhavan, Tax-1, Baroda
Race Course Circle,
Baroda-390007
(Appellant) (Respondent)
PAN: AAACG6864F
Appellant by : Shri J.P. Shah, AR
Respondent by : Shri Prasenjit Singh, CIT/ D.R.
(आदे श)/ORDER
Date of hearing : 08 -12-2016
Date of Pronouncement : 13 -12-2016
PER N.K. BILLAIYA, ACCOUNTANT MEMBER:
1. With this appeal, the assessee has challenged the correctness of the order of the ld. Principal CIT, Vadodara-1, dated 27.03.2015 made u/s.263 of the Act pertaining to A.Y. 2010-11 2 ITA No. 950/Ahd/2015 . A.Y. 2010-11
2. The substantive grievance of the assessee while challenging 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 has erred in holding that the appellant is not eligible to claim additional depreciation as per section 32(l)(iia) of the I T Act as generation of electricity is not manufacture under the Act. The learned Commissioner of Income Tax, therefore, has directed the Assessing Officer to disallow the additional depreciation amounting to Rs. 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, Baroda 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 has erred in holding that the Government Grant of Rs. 250.00 crores received in terms of Financial Restructuring Plan and being allocated by the holding company should 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 already been finalized under section 143(3) of the I T Act.
4.1 learned Commissioner of Income Tax-1, Baroda erred in law and on facts has held that the appellant has claimed excess depreciation 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 balance of Grants. 5.0 The learned Commissioner of Income Tax-1, Baroda 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 allowable 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 Officer to make addition to the 3 ITA No. 950/Ahd/2015 . A.Y. 2010-11 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 assessment was made u/s. 143(3) of the Act vide order dated 22.02.2013. Invoking the powers vested upon him vide a provisions of Section 263 of the Act, 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 be 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 provisions 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 manner and requested the ld. Principal CIT to drop the proceedings. After considering the detailed submissions of the assessee, the ld. Principal CIT was not convinced with the contentions of the assessee and proceeded by holding that the order passed by the Assessing Officer is both erroneous and prejudicial to the interest of the revenue and accordingly set aside the order to be framed afresh.
4. Aggrieved by this, the assessee is before us. Rival contentions have been heard at length.
5. We have given a thoughtful consideration to the assessment order qua the order made u/s. 263 of the Act. We have also carefully considered the 4 ITA No. 950/Ahd/2015 . A.Y. 2010-11 submissions of the assessee made during the proceedings 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 manufacture or production of any article or thing as required by the Act. Reliance was placed on the decisions of the Hon'ble Supreme Court in the case of MPEB 1970 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 amendment brought in the Act in Section 2(29BA) by which the definition of manufacture now reads as under:-
S. 2 [(29BA) "manufacture", with its grammatical variations, means a change in a non-living physical object or article or thing,-
(a) resulting in transformation of the object or article 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 object or article or thing with a different chemical composition or integral structure;] 5 ITA No. 950/Ahd/2015 . A.Y. 2010-11
8. This amendment has been inserted by the Finance (No. 2) Act, 2009 with retrospective effect from 01.04.2009. We are in assessment 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 mentioned hereinabove, in our considered opinion, there is an error in law in the assessment order and, therefore, we do not find any reason to interfere with the findings of the ld. Principal CIT to this extent.
10. The next issue relates to the set off of brought forward losses. The relevant observations of the ld. Principal CIT reads as under:-
5. It was noticed that assessee gave set off of business losses/unabsorbed depreciation during A.Y. 2006-07 to A.Y. 2010-11 (up to A.Y. 2005-06, the Company was in loss) without observing the provisions of the Act. The total 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 business loss would have been completely set off during A.Y. 2006-07 to 2009-10 as per the priority order prescribed.
Besides, an amount of 2,44,70,99,360/- also could have been set off from earlier year's unabsorbed depreciation. Accordingly, no business loss was available to the assessee for carry forward to A.Y. 2010-11 but an amount of unabsorbed 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. Assessment Year-wise details of Business Income/losses are as follows:
A.Y. Business Loss Business Profit Remarks 1999-00 0 2000-01 2,63,56,58,369/- 2001-02 2,63,50,94,776/- 6 ITA No. 950/Ahd/2015 . A.Y. 2010-11 2002-03 0 2003-04 0 2004-05 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 depreciation 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 Rs.1,97,04,59,038/-
before allowing set off
of earlier years losses
Set off of earlier Nil No loss was available
years' business loss for set off
Set off of brought Rs.1,16,28,29,634/- No amount remains to be
forward unabsorbed carried forward to
depreciation A.Y. 2011-12. The
(Rs.1,16,28,29,634/-) 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
7 ITA No. 950/Ahd/2015
. A.Y. 2010-11
11.A perusal of the order of the authorities below shows that the assessee company has claimed set off of unabsorbed business loss/unabsorbed depreciation as per the return of income field by the assessee company. The set off of loss and depreciation are to be allowed on the basis of income/loss determined in the assessment of a particular year and if subsequently the income/loss so determined is reduced 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 or infirmity in the direction of the ld. Principal CIT. The order to the same effect is upheld to this extent.
12.The third issue relates to the treatment of Government 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. The 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 has 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 Restructuring Plan from the Government and the company has accounted Government Grants in terms of the mandatory Accounting Standard (AS)-12 on "Accounting for 8 ITA No. 950/Ahd/2015 . A.Y. 2010-11 Government Grants" prescribed by the ICAI. The relevant part of AS-12 reads as under:-
10. Presentation of Grants of the nature of Promoters, contribution 10.1 Where the government grants are of the nature of promoters' contribution, i.e., they are given with reference to the total investment in an undertaking or by way of contribution towards its total capital outlay (for example, central investment subsidy scheme) and no repayment is ordinarily 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 contribution to subsidiaries.
At the Board Meeting held on 29.06,2009, Board approved to allocate the FRP grant of Rs.250 crores being given by Govt. of Gujarat to GUVNL for system strengthening as Share Capital contribution from GUVNL 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' contribution 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 to GUVNL for various DISCOM related projects, the Board at the meeting held on 04.01.2010 has approved to allocate the same to DISCOMs in the form of Share Capital from GUVNL. Since the DISCOM related grants alongwith consumers' contribution meet with the equity requirement of DISCOMs it is proposed not to allocate the FRP grant to DISCOMs for the FY 2009-10.
As regards to GETCO, they have incurred capital expenditure of Rs.650 crores upto January'10. Against the said capital expenditure, they have received consumers' contribution to the tune of Rs.87 crores. Further, the Govt. grant 9 ITA No. 950/Ahd/2015 . A.Y. 2010-11 towards creation of transmission lines and sub-stations of Rs.151 crore (RE) is specifically meant for GETCO. In addition for creation of new Sub-Stations in coastal areas under Sagarkhedu Yojana, Govt. of Gujarat has given Share Capital Contribution of Rs.37.20 crores to GUVNL. The said grant and share capital contribution will be given to GETCO as share 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 GETCO directly (without routing through GUVNL). Thus, GETCO is already having Equity Share Capital contribution to the tune of Rs. 238.20 crores in addition to consumer's contribution of Rs. 87 crores whereas in case of GSECL whose equity requirement is substantially higher than that of GETCO, they have been given only Rs. 60.77 crores as Equity Share Capital contribution from GUVNL.
Considering the above position, it is proposed to allocate entire FRP grant of Rs. 250 crores to GSECL as Equity Share Capital contribution from GUVNL for their projects.
16.Considering the accounting treatment in the light of the Accounting Standard-12, we do not find any error on facts or in law. Therefore, to this extent the findings of the ld. Principal CIT are reversed.
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 Financial Statements forming part of accounts, the ld. Principal CIT noticed that the cooling tower at Kutch Lignite Thermal Power Station collapsed for which an adhoc provision of loss of Rs. 525.87 lakh is made in the books of the company which was 10 ITA No. 950/Ahd/2015 . A.Y. 2010-11 50% of WDV instead of Net Realizable Value of the assets. This adhoc provision is shown as 'Provision for obsolence of asset' 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 profit. u/s. 115JB of the Act.
19.The assessee strongly contended the action of the ld. Principal CIT by making following submission:-
"iv) Incorrect computation of Business Income, Book Profits u/s 115JB It has been indicated that during the year a Cooling Tower of Kutch Lignite Thermal Power Station (KLTPS) collapsed for which the company booked a loss to the extent of 50% of the book value of the Cooling Tower. It has been indicated that such adhoc provision is an unascertained liability which is required to be added back to book profits computed under section 115JB 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 date of put to use is under:
Sr. No. ' Cost (Rs.)
Date of put to Use
1 01.04.1993 850,81,208.89
2 01.04.1994 108,71,653.08
11 ITA No. 950/Ahd/2015
. A.Y. 2010-11
3 01.04.2004 499,63,720.59
Total 1459,15,582.56
For the purpose of finalizing the accounts of the company, the usefulness of the remaining structures were determined and after detailed verifications, it was decided that 50% of the cost of the Cooling Tower can 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 actually 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 the 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 circumstances 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 looked upon in the light of Accounting Standard-10 of ICAI, the relevant part reads 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 from 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 statements. Any expected loss is recognized immediately in the profit and loss statement.12 ITA No. 950/Ahd/2015
. A.Y. 2010-11
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 assessee 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, the accounts of the assessee has not been in accordance with Accounting Standarad-10 and, therefore, the same violates the provisions of Section 115JB of the Act. The ratio laid down by the Hon'ble Supreme Court in the case of Apollo Tyres 255 ITR 273 do not apply.
22.In our considered opinion, the Assessing Officer has 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. Principal CIT to this extent.
24.For the sake of the completeness of adjudication, the order of the ld.
Principal CIT is modified as per our detailed discussions hereinabove.
25.In the result, the appeal filed by the Assessee is partly allowed.
Order pronounced in Open Court on 13 - 12- 2016.
Sd/- Sd/-
(MAHAVIR PRASAD) (N. K. BILLAIYA)
JUDICIAL MEMBER True Copy ACCOUNTANT MEMBER
Ahmedabad: Dated 13 /12/2016