Income Tax Appellate Tribunal - Hyderabad
Asst. Commissioner Of Income Tax, ... vs Southern Power Distribution Company Of ... on 12 September, 2018
ITA Nos 807 and 808 of 2018 Southern Power Distribution
Company of AP Ltd Tirupati.
IN THE INCOME TAX APPELLATE TRIBUNAL
Hyderabad ' B ' Bench, Hyderabad
Before Smt. P. Madhavi Devi, Judicial Member
AND
Shri S.Rifaur Rahman, Accountant Member
ITA Nos.807 & 808/Hyd/2018
(Assessment Years: 2013-14 & 2014-15)
Asstt. Commissioner of Vs M/s. Southern Power
Income Tax, Circle 2(1) Distribution Company of A.P
Tirupati 517501 Ltd, Tirupati
PAN: AAHCS4056Q
(Appellant) (Respondent)
For Revenue : Smt.Alka R.Jain, DR
For Assessee: Shri M.Chandramouleswara Rao
Date of Hearing: 10.09.2018
Date of Pronouncement: 12.09.2018
ORDER
Per Smt. P. Madhavi Devi, J.M.
Both are Revenue's appeals for the A.Ys 2013-14 & 2014-15 respectively against the separate orders of the CIT (A)- Tirupati, dated 6.2.2018. The Revenue has raised the following grounds of appeal:
"1. The CIT (A) erred in deleting the net addition of Rs.2,19,41,76,453/-.
2. The CIT (A) failed to appreciate the fact that contributions received from consumers ought to have been treated as revenue receipts incidental for carrying on the business activity.
3. The CIT (A) failed to appreciate the fact that contributions of Rs.258,13,84,063 received from the consumers are used for erection of poles, lines etc. and said contributions paid by consumers on demand are Page 1 of 6 ITA Nos 807 and 808 of 2018 Southern Power Distribution Company of AP Ltd Tirupati.
neither in the nature of voluntary contributions nor refundable.
4. The CIT (A) erred in ignoring the fact that Revenue's appeal on identical issue in assessee's own case for A.Y 2009-10 is pending before the High Court.
5. Any other ground that may be urged at the time of hearing".
2. At the time of hearing, the learned Counsel for the assessee has drawn our attention to the decision of the ITAT in the assessee's own case for the A.Y 2009-10, wherein at paras 17 to 18, the Tribunal has considered the issue and has held as under:
"17. As regards Ground No.2, the CIT (A) has considered the assessee's contention at length and has held as under:
"5. During the appellate proceedings, the appellant was represented by Sri Y.Balakrishna Reddy, CA., and Sri B.Ravindra, CA., as authorized representatives. The. submissions as made by them are placed on record. I have perused the assessment order and all the submissions made, as well as the remand report dt.29.1.2013 received from the Assessing Officer. The appeal filed by the appellant is disposed off as under:
1) GROUNDS No.1 & 2:
The first ground of appeal pertains to treatment of Rs.58,53,98,096/- as taxable income. The facts relevant to this issue are that, the appellant company is engaged in distribution of power to six circles viz., Vijayawada, Guntur, Ongole, Nellore, Kadapa and Chitoor. It has nearly sixty five lakh consumers of power. For every new connection, the appellant company is collecting contributions/charges from consumers towards cost of service line charges and development charges. The appellant company has submitted that "on receipt of contributions from consumers, the company is debiting to cash/bank account and crediting to consumer contributions received as they are capital receipts towards the cost of fixed assets". The appellant has submitted that its Accounting Policy, is that the assets so created/constructed, out of the contributions from consumers, will be depreciated as per rates specified under GO No.265 (FE) dt.27.3.1994. The depreciation is debited to P&L account every year and the same is recognized as income and credited to P&L Account, by reducing it from the amount of capital fund received, to reduce the depreciation charged to P&L account on the assets purchased out of consumer contribution. For easy explanation the appellant has given the details of entries passed in its books pertaining to the receipts from consumers.Page 2 of 6
ITA Nos 807 and 808 of 2018 Southern Power Distribution Company of AP Ltd Tirupati.
The appellant has stated that the contributions received from consumers are capital contributions and should not be treated as income. From the accounting entries passed by it, the appellant has stated that, "it can be observed that the capital contributions which has part funded the fixed assets of the company, are adjusted to the cost of fixed assets and also the depreciation originally charged on the fixed assets are reversed, thereby the assets are shown at net values in the books of account and there is no impact on the P&L account, as the capital contributions are not on the revenue account and the depreciation originally charged attributable to the cost of assets partly funded by the capital contributions are reversed".
The appellant has submitted that during the asst.year 2009-10, the company has received consumer contributions including subsidies and grants towards cost of capital assets amounting to Rs.147.77 cr. and an amount of Rs.58.53 cr. has been reduced from the capital contributions and transferred to P&L account which is equal to the amount of depreciation charged on the assets purchased out of capital contributions. The appellant has also submitted that it has followed Accounting Standard-12 regarding treatment of consumer contributions. Accounting Standard-12 is as under:
Accounting Standard-12 which deals with capital based grants suggests two methods for treating grants received for specific asset? As per para-14 of the Standard, grants related to specific assets can be reduced from the cost of the fixed assets or the grants can be treated as deferred revenue grants. Para-14 is reproduced below:
"Government grants related to specific fixed assets should be presented in the balance sheet by showing the grant as a deduction from the gross value of the assets concerned in arriving at their book value. Where the grant related to a specific fixed assets equals the whole, or virtually the whole, of the cost of the asset, the asset should be shown in the balance sheet at a nominal value. Alternatively, government grants related to depreciable fixed assets may be treated as deferred income which should be recognized in the Profit and loss statement on a systematic and rational basis over the useful life of the asset, i.e., such grants should be allocated to income over the period and in the proportion in which depreciation on those assets is charged. Grants related to non- depreciable assets should be credited to capital reserve under this method. However, if a grant related to a non-depreciable asset requires the fulfilment of certain obligations, the grant should be credited to income over the same period over which the cost of meeting such obligations is charged to income. The deferred income balance should be separately disclosed in the financial statements".
The appellant has further referred to the treatment prescribed in the Income tax Act for such capital contributions. As per Sec.43(1) "Actual Cost" means the actual cost of the asset to the assessee, reduced by that portion of the cost, if any, as has been met directly or indirectly by any other person or authority. Explanation 10 states that, where a portion of the cost of an asset acquired by the assessee has been met directly or indirectly, by the Central Government or State Government, or any authority established under any law, or by any other person, in the form of a subsidy or grant or reimbursement, then, so much of the cost as is relatable to such subsidy or grant or reimbursement shall not be Page 3 of 6 ITA Nos 807 and 808 of 2018 Southern Power Distribution Company of AP Ltd Tirupati.
included in the actual cost of the asset to the assessee. Provided, that where such subsidy or grant or reimbursement is of such nature that it cannot be directly relatable to the asset acquired, so much of the amount which bears to the total subsidy or reimbursement or grant the same proportion as such asset bears to all the assets in respect of or with reference to which the subsidy or grant or reimbursement is so received, shall not be included in the actual cost of the asset to the assessee.
The appellant has gone on to state that the Assessing Officer has misunderstood the accounting policy and accounting entries passed in the books and erroneously treated the capital contributions received from consumers as income. Therefore, the amount of Rs.58,53,98,095/- added to the total income under the normal provisions, is not correct. The appellant has 'placed reliance on the decision in the case of Jodhpur Vidyut Vitran Nigam Vs CIT 321 ITR 18(2010).
2. Ground No.2 is regarding the treatment of subsidy received under Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY) credited to P&L Account amounting to Rs.2,36,64,224/-. This subsidy has been received from the Government towards construction/purchase of fixed assets. The appellant has stated that on receipt of subsidy from Government, the amount is spent for procurement· of capital stock/material and payment of service/labour charges for laying of service lines and fixing of transformers. The appellant has explained that the accounting treatment of such subsidy is similar to the accounting treatment followed in the case of capital contributions by the consumers. In respect of this subsidy, the appellant has again referred to Accounting Standard- 12 as well as Sec.43(1) of the I.T.Act.
The Assessing Officer in his remand report dt.29.1.2013 has stated that the above two amounts viz., Capital contributions from Consumers and RGGVY subsidy have not been found in the details of 'other income: furnished by the appellant. The Assessing Officer has further stated that statement of computation filed by the assessee reveals that the capital contributions to the extent of Rs.58,53,98,095/- and RGGVY subsidy of Rs.2,36,64,224/- were treated as Revenue receipts are not correct. The Assessing Officer stated that this statement of the appellant is contradictory, and the additions made should be sustained.
There appears to be an error in the interpretation given by the Assessing Officer. It is seen that the contributions from consumers were reflected in the balance-sheet as contributions and subsidies towards cost of capital assets, while cost of the material/capital cost incurred for giving connections to customers was capitalized and shown as additions to fixed assets. The appellant has submitted that while computing depreciation in the books, the appellant calculated depreciation on gross value of assets which included assets purchased contributions received from customers as well as subsidy received. Since, the deprecation debited to the P&L Account included depreciation on the value of assets created out of consumers contributions, as well as out of subsidy received under RGGVY, the depreciation relating to assets credited out such contribution/subsidy was credited to the P&L account under the head 'other income'. As a result, in the books of account of the appellant, gross depreciation was debited and deprecation on assets created out of consumer contributions Page 4 of 6 ITA Nos 807 and 808 of 2018 Southern Power Distribution Company of AP Ltd Tirupati.
and RGGVY subsidy was credited to the P&L account under the head "other incomes". In the next stage the appellant while computing its taxable income under the Income tax Act has deleted both the items from the net profit as per the books, by adding gross depreciation and reducing the depreciation attributable to consumers contribution/subsidy. The appellant has then claimed depreciation allowable under the Income tax Act on the net value of assets. The net value of assets is the gross value as reduced by consumers contributions/subsidy as is required under. explanation-l0 to sec.43(1). It is logical that adjustments are made to net profit for entries in the P&L account towards depreciation, before allowing deductions towards depreciation as per the I.T.Act. In the normal course such adjustment is required only for the depreciation debited to the P&L account. In the assessee's case· there is also a credit of such amount in accordance with ESAAR (Electricity Supply Annual Account Rules) even though it is not in the nature of income. It logically follows that this amount is to be reduced from net profit for the purpose of computation of total income. To sum up the amount of Rs.58,53,98,095/- and Rs.2,36,64,224/- were the amounts of depreciation claimed on assets generated out of the capital contributions/subsidy and had been credited to the P&L account since the P&L account had been debited by gross depreciation and not depreciation as per actual cost. Subsequently, while computing the income, gross depreciation was added back and depreciation as per I.T.Act was reduced. This depreciation as per I.T.Act took into account the provisions of sec.43(1) and expalantion-10 and hence the depreciation was proportionately reduced amount taking into account capital contributions. In view of the same the depreciation on capital contributions credited to the P&L account was also reduced in the computation of income and, correctly so. The accounting method followed by the appellant is not only correct but also as per provisions of the I.T.Act and Accounting Standards and the addition made is deleted. Appeal on Grounds No.1 & 2 is hence allowed".
18. We find that the CIT (A) has brought out the actual accounting treatment given by the assessee and its impact on the computation of income u/s 115JB of the Act. The learned DR has not been able to rebut the findings of the CIT (A) and demonstrate as to how the findings of the CIT (A) are not sustainable. In view of the same, we see no reason to interfere with the order of the CIT (A) on this issue and the Revenue's ground of appeal No.2 is accordingly rejected".
3. The learned DR supported the orders of the AO while the learned Counsel for the assessee submitted that the CIT (A) has followed the decision of the ITAT in the assessee's own case for the earlier A.Y against which the Revenue is in appeal before us and therefore, there is no need to interfere with the order of the CIT (A).
Page 5 of 6ITA Nos 807 and 808 of 2018 Southern Power Distribution Company of AP Ltd Tirupati.
4. Having considered the rival contentions, we find that the very same issue had arisen in the earlier A.Y and the Tribunal had considered the issue at length to hold in favour of the assessee. Respectfully following the decision to which both of us are signatories, the Revenue's appeals are dismissed.
5. In the result, Revenue's appeals are dismissed.
Order pronounced in the Open Court on 12th September, 2018.
Sd/- Sd/-
(S.Rifaur Rahman) (P. Madhavi Devi)
Accountant Member Judicial Member
Hyderabad, dated 12th September, 2018.
Vinodan/sps
Copy to:
1 ACIT, Circle 2(1), 3rd Floor, Aayakar Bhavan, KT Road, Tirupati 517501 2 M/s.Southern Power Distribution Company of A.P. Ltd, D.No.19- 13/65/A, Kesavayanagunta, Tiruchanoor Road, Tirupati 517503 3 CIT (A)-Tirupati 4 Pr. CIT - Tirupati 5 The DR, ITAT Hyderabad 6 Guard File By Order Page 6 of 6