Income Tax Appellate Tribunal - Jaipur
Dcit, Ajmer vs Ajmer Vidhyut Vitran Nigam Ltd., Ajmer on 31 May, 2019
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IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES,"B" JAIPUR
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BEFORE: SHRI VIJAY PAL RAO, JM & SHRI VIKRAM SINGH YADAV, AM
vk;dj vihy la-@ITA No. 283, 284 & 390/JP/2009
fu/kZkj.k o"kZ@Assessment Year : 2002-03, 2003-04 & 2006-7
M/s Ajmer Vidyut Vitran Nigam cuke Assistant Commissioner of
Ltd., City Power House, Vs. Income Tax,
Jaipur Road, Ajmer. Circle-2, Ajmer.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AACCA 8562 E
vihykFkhZ@Appellant izR;FkhZ@Respondent
vk;dj vihy la-@ITA No. 385, 386 & 549/JP/2009
fu/kZkj.k o"kZ@Assessment Year : 2002-03, 2003-04 & 2006-07
The ACIT, Circle-2/ cuke M/s Ajmer Vidyut Vitran Nigam
DCIT,Circle-2, Vs. Ltd., City Power House,
Ajmer. Jaipur Road, Ajmer.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AACCA 8562 E
vihykFkhZ@Appellant izR;FkhZ@Respondent
vk;dj vihy la-@ITA No. 361 to 370/JP/2016
fu/kZkj.k o"kZ@Assessment Year : 2004-05, 2005-06,2007-08 to 2009-10
M/s Ajmer Vidyut Vitran Nigam cuke Assistant Commissioner of
Ltd., City Power House, Vs. Income Tax, Circle-2, /
Jaipur Road, Ajmer. JCIT, Range-2,
Ajmer.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AACCA 8562 E
vihykFkhZ@Appellant izR;FkhZ@Respondent
ITA No. 283/JP/2009 with other cases
Ajmer VVNL Vs. ACIT/DCIT/JCIT
vk;dj vihy la-@ITA No. 357 to 360/JP/2016
fu/kZkj.k o"kZ@Assessment Year : 2004-05, 2005-06,2007-08 & 2008-09
Deputy Commissioner of cuke M/s Ajmer Vidyut Vitran Nigam
Income Tax, Vs. Ltd., City Power House,
Circle-2, Ajmer. Jaipur Road, Ajmer.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AACCA 8562 E
vihykFkhZ@Appellant izR;FkhZ@Respondent
fu/kZkfjrh dh vksj l@
s Assessee by : Shri Sunil Porwal (C.A.) &
Shri Ashik Gupta (C.A)
jktLo dh vksj ls@ Revenue by : Shri B.K. Gupta (CIT)
lquokbZ dh rkjh[k@ Date of Hearing : 29/05/2019
mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 31/05/2019
vkns'k@ ORDER
PER BENCH:
These are 13 appeals by the assessee for the assessment years 2002-03 to 2009-10 and cross appeals by the Department for the assessment years 2002-03 to 2008-09 are directed against the respective orders of the ld. CIT(A), Ajmer arising from assessment orders passed U/s 143(3) as well as reassessment of orders passed U/s 143(3) r.w.s. 147 of the IT Act for the assessment years 2004-05 to 2008-09. Since there are 3 assessment orders being one U/s 143(3) and two orders passed U/s 147 for the assessment years 2005-06 therefore, the assessee has filed three appeals for the assessment year 2005-06 2 ITA No. 283/JP/2009 with other cases Ajmer VVNL Vs. ACIT/DCIT/JCIT and to two appeals each for the assessment years 2004-05, 2007-08 and 2008-09.
2. All these appeals were earlier disposed off by this Tribunal by various orders and on further appeals by the assessee as well as by the Department the Hon'ble High Court vide judgments dated 21.12.2017, 03.04.2018 & 21.01.2019 has set aside the orders of the Tribunal and remanded these appeals back to the record of the Tribunal for deciding the same afresh except the issue of prior period expenses which was decided in favour of the assessee. Hence, these group of appeals have been placed before us for fresh hearing and adjudication. Since, common issues are arising in these appeals for all these assessment years therefore, for the sake of convenience these appeals are clubbed together for the purpose of hearing and are being disposed off by this composite order. The ld. AR as well as ld. DR has pointed that the grounds and issues raised in the cross appeals for the assessment year 2006-07 cover all the issues raised in the rest of the appeals. Therefore, for the purpose of recording facts and grounds the cross appeal in ITA No. 390/JP/2016 and 549/JP/2009 for the assessment year 2006-07 are taken as lead case. The grounds raised by the assessee as well as Revenue are as under:-
3 ITA No. 283/JP/2009 with other cases
Ajmer VVNL Vs. ACIT/DCIT/JCIT Grounds of assessee's appeal (ITA No. 390/JP/2009 A.Y. 2006-07):-
"Under the facts and the circumstances of the case the ld CIT(A), has erred in making the full additions/actions confirmed:-
1. Disallowance the depreciation of Rs.4,10,11,314/-
on non existing assets.
2. Disallowance of depreciation of Rs. 15,24,53,227/-
U/s 43(1) explanation 10 of Income Tax Act.
3. That further under the given circumstances the provisions of MAT (sec. 115JB of Income Tax Act, 1961) are also not applicable.
Further alternatively the quantum of depreciating considered for disallowance should also be considered as per books as claimed and not as per Income Tax returns/rates.
4. That further in view of decision of M/s Kwality Biscuits Ltd. Vs. CIT (284 ITR 434 (SC) charging of interest U/s 234B on MAT tax is also bad in law."
Grounds of revenue's appeal (ITA No. 549/JP/2009 A.Y. 2006-07):-
"In view of the facts and circumstances of the case, the Ld. CIT(A), Ajmer has erred in :
1. Deleting the disallowance of Rs. 9,32,66,120/-
on account of prior period expenses.
2. Restricting the disallowance of Rs.
15,24,53,227/- on non existing assets as against disallowance of Rs. 37,77,40,749/- made by the A.O. U/s 43(1) of the I.T. Act which is to be taken for calculation of book profit U/s 115JB."
4 ITA No. 283/JP/2009 with other cases
Ajmer VVNL Vs. ACIT/DCIT/JCIT
3. The assessee is a State Government Company, and was incorporated on 19.07.2000 vide Rajasthan State extraordinary Gazette notification dated 18.01.2002 whereby the Rajasthan State Power Sector Reforms Transfer Scheme, 2000 came into effect and by virtue of this notification the erstwhile Rajasthan State Electricity Board (RSEB) was converted into 5 distribution companies including assessee. The assets and liabilities of RSEB as well as personnel of the RSEB were transferred to these five distribution companies as per the respective schedule of the notification dated 18.01.2002. Accordingly, as per terms and conditions of the said notification the assessee also received fixed assets and liabilities w.e.f. 19.07.2000. The aggregate of assets and liabilities to be vested to the assessee are given in schedule- D part II of the notification. The assessee filed his return of income on 31.10.2006 declaring total loss of Rs. 41,36,95,558/-. The AO has completed assessment U/s 143(3) of the IT Act on 23.12.2008 and disallowed various expenses and claim of depreciation as well as tax was charged on the book profit U/s 115JB of the Act being Minimum Alterative Tax (MAT). The assessee challenged the action of the AO before the ld. CIT(A) and the ld. CIT(A) has granted part relief to the assessee in respect of disallowance of depreciation and by deleting the 5 ITA No. 283/JP/2009 with other cases Ajmer VVNL Vs. ACIT/DCIT/JCIT addition on account of prior period of expenses as well as cost of acquisition/written down value of the asset for the purpose of depreciation but confirmed the other addition made by the AO on account of depreciation on non existing asset and disallowance of depreciation U/s 43(1) of the Act as well as applicability of provisions of Section 115JB. Therefore, both the assessee and Revenue have challenged the impugned order of the ld. CIT(A).
4. Ground no. 1 of the assessee's appeal is regarding disallowance of depreciation on non existing assets. The Assessing Officer has disallowed the depreciation on the fixed assets worth Rs. 115.21 crores considering the same as not physically available. Since these assets are appearing in list the fixed assets but the physical verification was yet to be finalized by the assessee therefore, AO in the absence of physical verification has disallowed the depreciation on these assets worth Rs. 115.21 crores. The ld. CIT(A) while passing the impugned order dated 14.09.2007 confirmed the addition of the AO.
5. Before us, the ld. AR of the assessee has submitted that the fixed assets were valued worth Rs. 115.21 crore were also transferred through FRP (Financial Restructuring Plan) being on account of Capitalization of interest & financial charges amount on fixed assets 6 ITA No. 283/JP/2009 with other cases Ajmer VVNL Vs. ACIT/DCIT/JCIT value. The ld. AR further submitted that the statutory auditor for the financial year 2002-03 (asst, year 2003-04) of the company, page 29(10)(B) of the Statutory Audit Report filed along with the return has reported that "the fixed assets of Rs. 115.21 crore transfer through FRP was physically not available at the Head office Location." In A.Y. 2003- 04 the then Ld. A.O. considered this issue & disallowed a sum of Rs. 23.04 Crore being 20% depreciation on fixed asset worth Rs. 115.21 Crore considering the same as not physically available. The assessee Company submitted the certificate of verification of fixed assets of all circles by CSE and the same cannot be denied. It is worth to note that as per Audited Accounts & as per Statutory Auditors Report it is clear that no "Loss of Fixed Assets" are there. Further as per section 32 of Income Tax Act, 1961 it has been made clear that "IN RESPECT OF DEPRECIATION OF ASSETS OWNED WHOLLY OR PARTLY BY THE ASSESSEE AND USED FOR THE PURPOSE OF BUSINESS OR PROFESSION THE DEDUCTION FOR DEPRECIATION AS PER RULE 5(1A) AS APPENDIX 1(A)" is to be allowed. The Ld CIT (A) in its order has doubted the basis of issuance of certificate of verification of fixed assets and certificate regarding no loss of assets as issued by Chief Accounts Officer and only for this reason has confirmed the addition for 7 ITA No. 283/JP/2009 with other cases Ajmer VVNL Vs. ACIT/DCIT/JCIT disallowance of depreciation. Even no opportunity was granted to clarify the doubt when the certificate clearly mentions for verification of fixed assets and no loss there in booked of accounts. Further the assets were allocated by the State Government from erstwhile RSEB and its existence in a Government owned company cannot be doubted. Further even the Statutory Auditors in its report has mentioned for no loss of fixed assets.
6. On the other hand, the ld. DR has submitted that there is no dispute that the fixed assets to the tune of Rs. 115.21 crores were not found physically existed and the assessee has also not produced any material to show that these assets are physically verifiable. He has relied upon the orders of the authorities below and submitted that once the assets are not physically verifiable then the depreciation on such assets is not allowable as these assets are not used for the assessee business.
7. We have considered the rival submissions as well as the relevant material on record. The list of assets and liabilities vested to the assessee by virtue of the notification dated 18.01.2002 is given in schedule -D part II of the notification as under:- 8 ITA No. 283/JP/2009 with other cases
Ajmer VVNL Vs. ACIT/DCIT/JCIT Therefore, so far as the fixed assets vested to the assessee in the process of converting the Rajasthan State Electricity Board into 5 distribution companies and dividing the assets and liabilities among 9 ITA No. 283/JP/2009 with other cases Ajmer VVNL Vs. ACIT/DCIT/JCIT these 5 distribution companies is concerned the same is a matter of record. The Assessing Officer has disallowed the depreciation on the fixed assets of Rs. 115.21 crores on the ground of not physically verifiable. We find that the written down value of these assets is added to the block of assets and corresponding shares were issued to the Government then the asset to the tune of Rs. 115.21 crores transferred through Financial Restructure Plan (FRP) whereby the capitalization of interest and financial charges were mounted on the fixed assets value. These assets were acquired by the assessee in the process of division and transfer of the assets and liabilities of the erstwhile of Rajasthan State Electricity Board between 5 distribution companies and therefore, it cannot be a case of making bogus claim on non existing assets but the assets were duly transferred by the gazette notification. It is cleared from the schedule-D that gross fixed assets of Rs. 1029 crores were vested to the assessee and the transferred assets were part of block of assets of the RSEB prior to the said transfer as shown in the balance sheet of the RSEB. Once the assets which were vested to the assessee company were already part of the block assets of the RSEB then the depreciation on such assets in case of demerger or succession can be 10 ITA No. 283/JP/2009 with other cases Ajmer VVNL Vs. ACIT/DCIT/JCIT restricted only in terms of 5th provisions to Section 32(1) of the Act which reads as under:-
" [Provided also that the aggregate deduction, in respect of depreciation of buildings, machinery, plant or furniture, being tangible assets or know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets allowable to the predecessor and the successor in the case of succession referred to in 25[clause (xiii), clause (xiiib) and clause
(xiv)]of Transactions not regarded as transfer section 47 or section 170 or to the amalgamating company and the amalgamated company in the case of amalgamation, or to the demerged company and the resulting company in the case of demerger, as the case may be, shall not exceed in any previous year the deduction calculated at the prescribed rates as if the succession or the amalgamation or the demerger, as the case may be, had not taken place, and such deduction shall be apportioned between the predecessor and the successor, or the amalgamating company and the amalgamated company, or the demerged company and the resulting company, as the case may be, in the ratio of the number of days for which the assets were used by them."
Therefore, the only rider for allowing the aggregate deduction in respect of depreciation on the assets of the successor or demerger company resulting in the case of demerger is that it shall not exceed in any previous year the deduction calculated at the prescribed rate as if the succession or the demerger etc. as the case may be, had not taken placed. In other words the claim of depreciation in aggregate shall not exceed the eligible claim in the hands of the erstwhile company i.e. 11 ITA No. 283/JP/2009 with other cases Ajmer VVNL Vs. ACIT/DCIT/JCIT Rajasthan State Electricity Board. It is pertinent to note that the Hon'ble jurisdiction High Court in case of CIT vs. Rajasthan state Electricity Board 160 Taxman 19 has held that RSEB is a Government Company and is subject to rigorous of Income Tax Act therefore, the erstwhile RSEB was entity subject to Income Tax Act. Once the fixed assets vested with the assessees were part of the block of assets of the erstwhile RSEB then the depreciation on such assets cannot be disallowed on the ground that some of the assets were not physical verifiable. The assessee received these assets under the process of distribution of the assets of the RSEB vide notification dated 18.01.2002 and therefore, the assessee claimed depreciation on the assets which were vested to the assessee as per the written down value of block of assets shown in the balance sheet of the RSEB. Even otherwise, the cost of these assets as per the written down value as existed in the balance sheet of the RSEB was paid by the assessee by issuing the shares to the State government and hence this claim of depreciation is based on the written down value as existed in the record of the RSEB as well as in the books of the assessee and in case if some of the assets are not physically verifiable or not found to be physically existed the overall cost of fixed asset remains the same.
12 ITA No. 283/JP/2009 with other cases
Ajmer VVNL Vs. ACIT/DCIT/JCIT 7.1 It is an admitted case that the assessee company was constituted under the Act of Rajasthan and under the statutory transfer scheme, therefore, in view of Section 43 of the Act, transfer of assets had been fall within the realm of transfer as envisaged under the Act. As per explanation-6 of Section 43(1), the actual basis of transferee company would have to be written down value of the transferor company meaning thereby the block of assets, which was transferred by the Rajasthan Electricity Board with the original cost of acquisition, shall be determined the written down value for the assessee company. The Hon'ble Delhi High Court in the case of Dalmia Ceramic Industries Ltd. Vs. CIT (2005) 277 ITR 219 has held that "what would be the actual cost of the transferee company on the date of transfer is indicated in Section 43(1), explanation-6, thus the actual cost of transferee company will be written down value of the holding company." 7.2 Since the original cost of acquisition of the transferor company, is determined, similarly, the written down value of the transferor company is also available with the Assessing Officer, therefore, the ld Assessing Officer was only required to allow the application depreciation on the written down value of the assets acquired by the assessee from the 13 ITA No. 283/JP/2009 with other cases Ajmer VVNL Vs. ACIT/DCIT/JCIT transferor company (RACB). The relevant portion of the judgment in case of Dalmia Ceramic Industries Ltd. vs. CIT(supra) is reproduced hereinbelow:
"8. The only issue before this court is whether the written down value of the holding company is to be taken as actual cost of the assessee or the amount paid by the assessee to the holding company? Chapter IV of the Act refers to computation of business income and section 43 is required to be examined for the purpose of deciding this matter. Section 43(1) of the Act which defines actual cost reads as under:
" (1) ' actual cost' means the actual cost of the assets to the assessee, reduced by that portion of the cost thereof, if any, as has been met directly or indirectly by any other person or authority :
Provided that where the actual cost of an asset, being a motor-car which is acquired by the assessee after the 31st day of March, 1967 but before the 1st day of March, 1975, and is used otherwise than in a business of running it on hire for tourists, exceeds twenty-five thou sand rupees, the excess of the actual cost over such amount shall be ignored, and the actual cost thereof shall be taken to be twenty-five thousand rupees."
9. What is written down value is defined in clause (6) of section 43 which reads as under :
" ' 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 previous year, the actual cost to the assessee less all depreciation actually 14 ITA No. 283/JP/2009 with other cases Ajmer VVNL Vs. ACIT/DCIT/JCIT 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 any executive orders issued when the Indian Income-tax Act, 1886 (2 of 1886), was in force."
10. It may be noted that sub-clause (a) of clause (6) would not apply in the instant case as that would apply for the assessment year 1975-76. Sub- clause (b) clearly indicates that the written down value means the actual cost to the assessee less all depreciation actually allowed to him under the Act. In the instant case Explanation 2 to clause (6) of section 43 is relevant and is reproduced hereunder :
" Explanation 2.--When any capital asset is transferred by a hold ing company to its subsidiary company or by a subsidiary company to its holding company, then, if the conditions of clause (iv), or, as the case may be, of clause
(v) of section 47, are satisfied, the written down value of the transferred capital asset to the transferee-company shall be taken to be the same as it would have been if the transferor-
com pany had continued to hold the capital asset for the purpose of its business."
11. There is no dispute that the case falls under clause (iv) of section 47. Therefore, it is clear that the actual cost would be the written down value of the transferor-company. This aspect is required to be borne in mind while considering the question. We will now have to turn to Explanation 6 to section 43(1) which reads as under :
" Explanation 6.--When any capital asset is transferred by a hold ing company to its subsidiary company, or by a subsidiary company to its holding company, then, if the conditions of clause (iv) or, as the case may be, of clause (v) of section 47 are satisfied, the actual cost of the transferred capital asset to the transferee-company shall be taken to be 15 ITA No. 283/JP/2009 with other cases Ajmer VVNL Vs. ACIT/DCIT/JCIT the same as it would have been if the transferor-company had continued to hold the capital asset for the purposes of its business."
12. It is clear that what would be the actual cost to the transferee company on the date of transfer is indicated in section 43(1), Explanation 6. Thus, the actual cost to the transferee-company will be the WDV of the holding company (transferor-company).
13. The assessee based its submission relying on Maharana Mills P. Ltd. v. ITO [1959] 36 ITR 350 (SC) and Saharanpur Electric Supply Co. Ltd. v. CIT [1992] 194 ITR 294 (SC). The assessee has also relied on Ciba of India Ltd. v. CIT [1993] 202 ITR 1 (Bom) as also on CIT v. Hides and Leather Products P. Ltd. [1975] 101 ITR 61 (Guj). It is required to be noted that the Revenue as well as the assessee placed reliance on the decision of the apex court in the case of Saharanpur Electric Supply Co. Ltd. v. CIT [1992] 194 ITR
294. The apex court considered the decisions in Maharana Mills P. Ltd. v. ITO [1959] 36 ITR 350 (SC) and CIT v. Hides and Leather Products P. Ltd. [1975] 101 ITR 61 (Guj) amongst other cases. The apex court after examining the provisions in detail pointed out at page 315 as under :
" Explanation 6 offers no difficulty as the relationship of ' parent' and ' subsidiary' between the companies involved in the transfer, for the purposes of this clause, has to be determined as at the time of the transfer of the asset and will not be a wobbling or fluctuating one as suggested by counsel for the assessee. . ."
14. Thus in view of Explanation 6 the written down value of the holding company is required to be taken into consideration. 16 ITA No. 283/JP/2009 with other cases
Ajmer VVNL Vs. ACIT/DCIT/JCIT
15. Learned counsel for the assessee submitted that the difference between the WDV and the price received for the property has been taxed in the hands of the holding company in the relevant assessment years and there is no dispute on this issue. In view of this, it was submitted that the Revenue cannot have tax benefit at both the places, namely, in the hands of the parent company and at the hands of the assessee. It was thus submitted that there is no evasion of tax.
16. On behalf of the assessee it was contended that actual cost is not static and it is required to be determined year to year. No doubt there may be a situation which may require the Assessing Officer to examine the case and re-determine the actual cost. In fact the apex court has considered this aspect at page 306 and pointed out instances. The apex court at page 309 (see [1992] 194 ITR) as under:
"In principle, therefore, we are unable to accept the contention that the actual cost cannot be determined year after year on the factual or legal position applicable for the relevant previous year and that the actual cost once determined cannot be altered except in the three situations outlined by counsel where the original figure itself requires a modification."
In view of the above facts and circumstances of the case when the assessee has received these assets being transferred from RSEB at written down value and therefore, when the existence of these assets were not in dispute at the hand of the RSEB as part of the balance sheet of the Board then the assets transferred under the statutory transfer scheme to the assessee at the written down value under the 17 ITA No. 283/JP/2009 with other cases Ajmer VVNL Vs. ACIT/DCIT/JCIT block of assets were eligible for depreciation in the hands of the successor/transferee. Accordingly, we set aside the order of the authority below on this issue and allow the claim of the assessee.
8. Ground no. 2 is regarding disallowance of depreciation by invoking the provisions of Section 43(1) r.w. explanation 10 of Income Tax Act. The issue in ground no. 2 of the assessee's appeal and ground no. 2 of the Revenue appeal is common. The Assessing Officer noted that the addition in the plant and machinery made by the assessee during the year under consideration has been paid partly by the consumers and some part has been paid by the State Government as subsidy. Accordingly, the Assessing officer has re-computed the cost of acquisition by reducing the portion which is contributed by the consumers and the amount of subsidy given by the State Government. Hence, the AO has disallowed the depreciation of Rs. 15,24,53,227/- by invoking the provisions of Section 43(1) r.w. explanation 10 of the said section. The ld. CIT(A) has confirmed the said addition though the relief was granted to the extent of standard cost taken by the assessee in the books of accounts as against the exact/actual cost of the each of the asset.
18 ITA No. 283/JP/2009 with other cases
Ajmer VVNL Vs. ACIT/DCIT/JCIT
9. Before us, the ld. AR of the assessee has submitted that since the assessee is receiving some part of the cost of the assets as contribution from consumers and the said amount is taken to the reserve and therefore, the assessee showing the asset at the actual cost. He has further contended that the provisions of Section 43(1) r.w. explanation 10 of the I.T Act is not applicable in the case of the assessee as the cost of the asset is fully incurred by the assessee and it is only under the scheme of providing supply to the consumers the assessee is receiving the part of the estimated expenditure from the consumer. As regards the variation in the actual cost and standard cost the ld. AR has submitted that since at the time of receiving part of the expenditure from the consumer it is only estimated expenditure based on the standard cost apply by the assessee. It is standard formula for the purpose of issuing the material from head office circle and recovering part of the same from the consumer. The difference between the standard cost and actual cost has been credited/debited to the valuation reserve. The assessee as well as erstwhile RSEB has been following this method consistently. Therefore, it does not affect the Revenue as the standard cost may not be higher than the actual cost 19 ITA No. 283/JP/2009 with other cases Ajmer VVNL Vs. ACIT/DCIT/JCIT but it may be less than the actual cost therefore, the variation is transferred to the cost of valuation reserve.
9.1 As regards the subsidy received from the State Government the ld. AR submitted that the subsidy grant received from the Government is not towards the specific asset but it is separately shown under the head contribution/grants and therefore, the said amount cannot be reduced from the cost of the asset. He has thus, contended that when the subsidy received from the State Government which has not direct nexus with the assets then it will not fall in the mischief of Section 43(1) r.w. explanation 10 being the portion of the cost of the asset has been met directly or indirectly by the Government or by any person in the form of subsidy, grant/ reimbursement. Thus, the ld. AR has submitted that it is not the cost of the asset as met by the Government or reimbursement of the same but it is a general grant by the Government.
10. On the other hand, ld. DR has submitted that the assessee is charging about 30% of the cost from the consumer and therefore, the actual cost of the acquisition of the assets for the purpose of depreciation would be reduced by the said contribution from the consumers. Further, the State Government grants/subsidies which is aid 20 ITA No. 283/JP/2009 with other cases Ajmer VVNL Vs. ACIT/DCIT/JCIT in respect of specific expenditure then the said grant/subsidy by the Government shall be reduced from the expenditure lay out in acquiring the assets in terms of Section 43(1) r.w. explanation 10. He has relied upon the orders of the authorities below.
11. We have considered the rival submissions as well as the relevant material on record. As regards the assets shown at standard rates as against the actual cost, we find that as a matter of policy the assessee is issuing the material from the head office to various divisions/circles at a standard rate routed through an account of "material cost of variance"
in the profit and loss account and "reserve for material cost of variance"
in the balance sheet. The ld. AR has referred to the debit balance of Rs. 41766091.63 as at 31.03.2006 no longer a reserve and surplus. We find that a debit balance in the said reserve material cost of variance manifest the fact that the standard rates are not always more than the actual cost but it is only for convenience and smooth functioning and execution of work to avoid the delay in ascertaining the actual cost of a particular material at the time of issuing from this stores. This practice has been consistently followed then in longer run it is Revenue neutral and not a device or modus-opprendi to avoid the tax. Hence, to that 21 ITA No. 283/JP/2009 with other cases Ajmer VVNL Vs. ACIT/DCIT/JCIT extent we decide this issue in favour of the assessee and against the Revenue.
11.1 As regards the deduction received from the consumers, we find that the said amount is nothing but reimbursed of the cost of acquisition of the asset which is used by the assessee for providing the supply to the consumer and therefore, to that extent the provision of Section 43(1) r.w. explanation 10 are application hence, to that extent the order of the authorities below are upheld.
11.2. As regards the subsidy/grants received from the State Government though the AO has stated the same is to meet the cost of assets directly or indirectly by the Government in terms of explanation 10 however, in the absence of the scheme of the State Government under which the subsidy was given to the assessee it is not possible to give the concluding finding. It is pertinent to not that if the subsidy is given by the State Government or Central Government in respect of a particular expenditure laid out for acquisition of the assets then the same would be falling in the explanation 10 of Section 43(1) of the Act and required to be reduced from the actual cost of the assets. However if the subsidy is not a specific expenditure or expenses of distribution line or providing supply in a particular case then the same cannot be 22 ITA No. 283/JP/2009 with other cases Ajmer VVNL Vs. ACIT/DCIT/JCIT considered as directly or indirectly meeting the cost of asset or reimbursement of cost of the asset. Since, the scheme under which the subsidy/grants were given by the Government to the assessee are not available before us therefore, we direct the AO to verify the same on production of the assessee and then the issue shall be decided in the light of the above observation.
12. Ground no. 3 is regarding the applicability of provisions of Section 115JB of the IT Act for the purpose of MAT.
13. We have heard the ld. AR as well as the ld. DR and considered the relevant material on record. The ld. AR of the assessee has submitted that the assessee is not maintaining its books of account as per schedule-VI of the companies Act but the assessee is required to maintain its accounts as per the Electricity (Supply) Annual Accounts Rules, 1985 and accounting instructions. He has further submitted as per the Electricity (Supply) Act, 1984 the accounts and audit of the assessee shall be in the form as the Central Government may by the notification in official gazette prescribed by rules made in this behalf. Thus the ld. AR as contended that the provisions of Section 115JB of the Act are not applicable in the case of the assessee as the assessee is not required to prepare its accounts as per schedule-VI of company Act. 23 ITA No. 283/JP/2009 with other cases
Ajmer VVNL Vs. ACIT/DCIT/JCIT In support of his contention, he has relied upon the various decisions including the ruling of Authority for Advance Ruling, New Delhi in case of Jodhpur Vidhyut Vitraran Nigam Ltd. which has been accepted by the Revenue regarding the applicability of the provisions of Section 115JB of the Act. He has also relied upon the decision of Hon'ble Supreme Court in case of Apollo Tyres Ltd. vs. CIT 255 ITR 273 wherein it was held that the AO while computing the book profit has only the power of examining whether the books of accounts are certified by the Authorities under the companies Act as having being properly maintain in accordance with the Companies Act and the AO has no jurisdiction to tinker with net profit shown in the profit and loss account except to the extent of adjustment provided U/s 115JB of the Act. The assessee has been maintaining the accounts as per Electricity (Supply) Act read with Electricity (Supply) Annual Accounts Rules 1985 and therefore, when the books are not prepared as schedule VI of the Company Act then the provisions of Section 115JB of the Act are not applicable.
14. On the other hand, ld. DR has submitted that as per provisions of Section 115JB of the Act there is no exclusion of the assessee from the applicability of the said provision and further as per the Circular no. 762 dated 18.02.1998 issued by the CBDT only companies engaged in the 24 ITA No. 283/JP/2009 with other cases Ajmer VVNL Vs. ACIT/DCIT/JCIT business of generation and distribution of power and those enterprises engaged in developing, maintaining and operating infrastructure facilities under Sub-section (4A) of Section 80IA are exempted from the levy of MAT, so that the incentives given to infrastructure development is not affected. He has further referred to the annual report of the assessee and submitted that the annual general meeting of the assessee company was conveyed as per provisions of the Companies Act therefore, the provisions of company Act are applicable for maintaining the accounts by the assessee. He has relied upon the orders of the authorities below.
15. We have considered the rival submissions as well as the relevant material on record. We find that as per the notification dated 18.01.2002 the assessee was required to obtain the licence U/s 80 of the Electricity (Supply) Act, 1948 and therefore, the function of the assessees are governed by Electricity (Supply) Act as well as Rules framed thereunder. As per the Electricity (Supply) Annual Accounts Rules, 1985 and Account Instructions the annual statements of the distribution company are defined as it is prepared as per Rule-5(1) of the Rules. Therefore, the assessee is not required to maintain the books of accounts as per schedule VI of the Companies Act but the accounts 25 ITA No. 283/JP/2009 with other cases Ajmer VVNL Vs. ACIT/DCIT/JCIT are to be maintained as per Electricity (Supply) Annual Accounts Rules, 1985 and Account Instructions. There is no dispute that the account of the assessees are audited through CAG and hence, even as per audit report the accounts of the assessee were examined in light of the Electricity (Supply) Act and Rules. Further, when the authority of advance ruling has already decided this issue in the matter of Jodhpur Vidyut Vitaran Nigam Limited then the provisions of Section 115JB of the Act for the purpose of MAT are not applicable in the case of the assessee. The Revenue was not brought any record before us to show that the ruling of Authority for Advance Ruling (Income Tax), New Delhi has been either reversed or set aside. Accordingly, in the facts and circumstances of the case we hold that the provisions of Section 115JB of the Act as existed at the relevant point of time for the years under consideration prior to the amendment by Finance Act, 2012 are not applicable in the case of the assessee.
16. Ground no. 4 of the assessee's appeal is regarding interest U/s 234B which is consequential in nature.
17. Ground no. 1 of the Revenue's appeal is regarding disallowance of prior period expenses which were deleted by the ld. CIT(A). 26 ITA No. 283/JP/2009 with other cases
Ajmer VVNL Vs. ACIT/DCIT/JCIT
18. We have heard the ld. DR as well as ld. AR and considered the relevant material on record. At the outset, we note that this issue is common in all the appeal and the Hon'ble High Court in the case of the assessee has already decided this issue in favour of the assessee vide decision dated 29.05.2017 in ITA No. 333/2009. The issue was again considered by the Hon'ble High court in the subsequent assessment years including the assessment year 2007-08 and vide judgment dated 03.04.2018 in D.B. Income Tax Appeal no. 25/2018 it has been held in para 04 and 5 as under:-
"4 The facts of the case are that the assessee company has claimed prior period expenses amounting to Rs.
4,64,27,170/-. During the course of assessment proceedings, the assessee company submitted that it is a public sector undertaking carrying on the business of Transmission, Distribution and Supply of electricity. The company was formed after restructuring of Rajasthan State Electricity Board (RSEB) on 19.06.2000 and at that time, certain assets, liabilities, common expenditure were also transferred from RSEB which were subject to reconciliation. The assessment year under consideration is fourth year of its operation and certain expenses and income being in the nature of prior period items were claimed as per normal accounting norms and on the belief that these expenses though pertaining to the previous years are admissible only in the year in which it crystallized and accounted for on the basis of system of accounting regularly followed by the assessee. Further details of such income and expenses were submitted during the assessment proceeding. The 27 ITA No. 283/JP/2009 with other cases Ajmer VVNL Vs. ACIT/DCIT/JCIT Assessing Officer did not agree to the submission of the assessee and held that the net prior period expenses of Rs. 4,64,27,170/- debited during the year has distorted the profits of the year as the assessee is following mercantile system of account and expenditure not related to the previous year cannot be allowed to be deducted from income of the subject previous year. It was further stated by the AO that this expenditure also does not fall under the provisions of section 25D of the Act. Regarding assessee company's contention that the issue has been decided in its favour by the ld. CIT(A) for A.Y. 2002-03, the Assessing officer stated that since the Revenue is an appeal before the Tribunal against the said order, he is not in a position to follow the order of the ld. CIT(A). Finally, the Assessing officer, following the past history of the assessee, disallowed the prior period expenditure amount to Rs. 4,64,27,170/-.
5. Now with regard to issue of prior period expenses, the same is concluded in favour of the assessee in view of the decision rendered in ITA No. 333/2009, review application No. 66/2018 against the said decision has been rejected today."
Therefore, the issue is now settled and covered by the decisions of Hon'ble Jurisdiction High Court in assessee's own case. Accordingly, following the decision of Hon'ble jurisdiction High Court this issue is decided in favour of the assessee against the Revenue.
19. The above discussed 3 issues are involved in all these appeals and therefore, in view of our findings on these 3 issues all the appeals of the assessee and cross appeals of the Revenue stand disposed off. 28 ITA No. 283/JP/2009 with other cases
Ajmer VVNL Vs. ACIT/DCIT/JCIT In the result, the appeals of the assessee as well as cross appeals of the Revenue are partly allowed.
Order pronounced in the open court on 31/05/2019.
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(Vikram Singh Yadav) (Vijay Pal Rao)
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fnukad@Dated:- 31/05/2019.
*Santosh.
vkns'k dh izfrfyfi vxzfs 'kr@Copy of the order forwarded to:
1. vihykFkhZ@The Appellant- M/s Ajmer Vidyut Vitran Nigam Ltd., Ajmer
2. izR;FkhZ@ The Respondent- ACIT/DCIT/JCIT, Circle-2/Range-2, Ajmer.
3. vk;dj vk;qDr@ CIT
4. vk;dj vk;qDr@ CIT(A)
5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur.
6. xkMZ QkbZy@ Guard File {ITA No. 283, 284/JP/09, 390/JP/09, 385, 386 & 549/JP/2009 & 361 to 370/JP/2016 & 357 to 360/JP/2016} vkns'kkuqlkj@ By order, lgk;d iathdkj@Asst. Registrar 29