2021 (11) TMI 1103 - HC - Income Tax

Court Upholds Tribunal Decision on Depreciation Disallowance and Prior Period Expenses

Principal Commissioner of Income Tax, Ajmer Versus M/s Ajmer Vidyut Vitran Nigam Ltd.

Principal Commissioner of Income Tax, Ajmer Versus M/s Ajmer Vidyut Vitran Nigam Ltd. - [2022] 447 ITR 186 (Raj) 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.