2021 (11) TMI 1103 - HC - Income Tax

Court Upholds Tribunal Decision on Depreciation Disallowance and Prior Period Expenses

The High Court dismissed all appeals filed by the Revenue, upholding the Tribunal's decision. Depreciation disallowance was deemed unjustified as asset ... Disallowance of depreciation on the capital assets which according to the Revenue were not existing or available for verification - HELD THAT:- The facts on record clearly establish that the assessee company came into existence upon the conversion of the State Electricity Board into five electricity distribution companies. The assets and liabilities were distributed amongst these five companies and in the process the assessee received certain assets. The cost of acquisition of the transferer company as well as the written down value were reflected in the books of accounts required to be statutorily maintained and audited. As pointed out by the counsel for the assessee, such assets would include machinery and other hardware even inspection of which would not be easy for the Assessing Officer. However only on the ground that such assets were not immediately available for physical verification the claim of depreciation could not have been disallowed. No question of law arises. This question is therefore not entertained. Disallowance of prior period expenses - HELD THAT:- It is undisputed position that the issue is covered against the department by the judgment of this Court and against which the Revenue had abandoned the appeals before the Supreme Court. In that view of the matter, this question is not entertained without recording independent reasons. Applicability of Section 115JB to the assessee Electricity Company - HELD THAT:- We notice that other High Courts have under similar circumstances come to the conclusion that the said provisions prior to its amendment in the year 2012, would not cover the electricity company. The Kerela High Court in case of Kerela State Electricity Board [2010 (11) TMI 127 - KERALA HIGH COURT] had taken such a view in similar circumstances. Thus question No.3 is also not entertained. Issues Involved:1. Disallowance of depreciation on capital assets.2. Disallowance of prior period expenses.3. Applicability of Section 115JB of the Income Tax Act, 1961 to the assessee.Detailed Analysis:1. Disallowance of Depreciation on Capital Assets:The Revenue challenged the disallowance of depreciation on the grounds that the capital assets were not existing or available for verification. The High Court noted that in a previous round of litigation, the issue was remanded back to the ITAT with instructions for the Assessing Officer (AO) to verify the existence of the assets. The AO stated that the assets were spread over a vast area, making physical verification difficult. The Tribunal, however, decided based on the available records, noting that the assets valued at Rs.115.21 crores were transferred through a financial restructuring plan during the conversion of the Rajasthan State Electricity Board into five distribution companies, including the assessee. The statutory auditor had also reported that these assets were not physically available at the Head office but were reflected in the block of assets. The Tribunal concluded that the claim of depreciation could not be disallowed merely because the assets were not immediately available for physical verification. The High Court upheld this view, stating that the existence of the assets was sufficiently established through statutory records and audits, and thus, no question of law arose.2. Disallowance of Prior Period Expenses:The issue of disallowance of prior period expenses was not entertained by the High Court as it was already covered against the department by a previous judgment of the Court. The Revenue had abandoned appeals on this issue before the Supreme Court, making it a settled matter against the department.3. Applicability of Section 115JB of the Income Tax Act, 1961:The High Court examined whether Section 115JB, which pertains to Minimum Alternate Tax (MAT), was applicable to the assessee, an electricity company. It referred to similar judgments from other High Courts, including the Kerala High Court in the case of Kerala State Electricity Board Vs. Deputy Commissioner of Income Tax and the Bombay High Court in Commissioner of Income Tax and Ors. Vs. Union Bank of India and Ors. These judgments concluded that Section 115JB did not apply to electricity companies before its amendment in 2012, as these companies were not required to prepare their accounts in accordance with Parts II and III of Schedule VI of the Companies Act, 1956. The High Court agreed with this interpretation, noting that the machinery provisions of Section 115JB were unworkable for such companies, and thus, the section could not be applied. Consequently, this question was also not entertained.Conclusion:The High Court dismissed all the appeals filed by the Revenue, upholding the Tribunal's decision on all three issues. The disallowance of depreciation was not justified, the issue of prior period expenses was settled against the department, and Section 115JB was not applicable to the assessee prior to its amendment in 2012.