TaxTMI 
TaxTMI 
2015 (11) TMI 927
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....-tax Act, 1961.) The Learned CIT(Appeals)-V has wrongly upheld that the "Energy Meters" are eligible for depreciation @ 25% as against the claims @ 80%. In this regard she has ignored the facts that these meters are for measuring electric energy which has been specifically mentioned as eligible for 80% depreciation in the depreciation schedule of the Income-tax Rules, 1962. Further these meters also have the characteristics of energy saving device which is subject to depreciation @ 80%. In view of the above, depreciation @ 25% as against the 80% claim on energy meters resulting in a disallowance of Rs. 21,33,46,193, is wrong, against the facts of the case and unsustainable in the eyes of law." 3. The assessee has also moved applications for admission of the following additional grounds for the adjudication of the bench: Additional ground of appeal: 1. "Service Line Deposits received from the Consumers are of Capital nature: The Learned CIT(Appeals) erred in not directing the Assessing Officer to reduce the amount of service line deposits credited to the profit and loss account during the year amounting to Rs. 14,94,91,835 (as per the Company's policy of offering t....
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....ground has not been raised though it could have been raised in support of the relief sought in the appeal, it cannot be said that such ground cannot be raised before the ITAT. The relevant para Nos. 38 & 39 of this decision are being reproduced hereunder: "38. It thus becomes clear that the decision of the Hon'ble Supreme Court in the case of Goetze (India) Ltd. (supra) is confined to the powers of the Assessing Officer and accepting a claim without revised return. This is what Hon'ble Supreme Court observed in the said judgment while distinguishing the judgment in the case of NTPC Ltd. (supra). When it comes to the power of Appellate Commissioner or the Tribunal, the Courts have recognized their jurisdiction to entertain a new ground or a legal contention. A ground would have a reference to an argument touching a question of fact or a question of law or mixed question of law or facts. A legal contention would ordinarily be a pure question of law without raising any dispute about the facts. Not only such additional ground or contention, the Courts have also, as noted above, recognized the powers of the Appellate Commissioner and the Tribunal to entertain a new claim for the firs....
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....e been received by the co. in the course of running its regular business operations. 2. The Learned CIT(Appeals) has erred on facts and in law in deleting the addition of Rs. 50200000 made on account of valuation of closing stock ignoring that: a) in this particular case the assessee was earlier following First In First Out (FIFO) method for valuation of stores/spares. Under any circumstances FIFO method is more correct & hence more appropriate for the valuation of stores/spares as closing stock as compared to "Moving Average" method. b) no sound reasoning/acceptable logic is given by the assessee company for change in the cost method from FIFO to Moving Average. c) the order of CIT(A) is not acceptable because the change in the method of valuation is neither bona fide nor regularly followed by the assessee as required for the change in the method of valuation. d) further, no perusal of the accounting standard-2, provisions of the IT Act, case laws & relevant extracts from 3CD report which clearly states that due to change of valuation of inventories, profit of the company is lower by Rs. 5.02 crores, it can be soundly concluded that A.O. is correct while making the ....
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....uring electric energy but at the same time various advanced features of the meters also facilitate savings in consumption of energy. The Assessing Officer did not agree with and rejected the claimed depreciation at the rate of 80% in respect of the aforesaid meters. The reasons shown by the Assessing Officer for disallowance remained that the equipments were primarily 'reading meters' for measuring energy, indirect energy saving features were not enough to regard the meters as "Energy saving devices", 60% of the meters were mechanical meters which did not have advanced features as available in other electronic/smart meters and assessee had also claimed higher depreciation on bus bar chambers, which are devices through which connection from overhead lines/under ground cable is provided to the meters. 8.3 The Learned CIT(Appeals) affirmed the assessment order with the finding that the said equipments were merely reading meters and they did not facilitate in energy conservation. This First Appellate Order has been questioned in ground No.1 of the appeal preferred by the assessee. 9. In support of the ground, the Learned AR contended that the denial of depreciation at the prescri....
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....ation and monitoring system for monitoring energy flows: (a) Automatic electrical load monitoring systems; (b) Digital heat loss meters; xxxxxxxxx (e) meters for measuring heat losses, furnace oil flow, stream flow, electric energy and power factor meters (f) Maximum demand indicator and clamp on power meters xxxxxxxxxx" (emphasis supplied) 9.4 On perusal of the aforesaid, it will kindly be appreciated that item III (8)(ix)(B) of the Depreciation Schedule provides for higher rate of depreciation in respect of 'meters for measuring........ electric energy'. 9.5 It is emphatically submitted that there is, as such, no further/ additional condition requiring the assessee to actually establish any direct relationship of the meters with the energy saved. The said Schedule also does not mandate that the energy meters should be 'electrical' or 'mechanical' devices, and merely provides that the meters should be electricity/ energy measuring devices. 9.6 It is, thus, respectfully submitted that electricity measuring meters are per se recognized as energy saving device by the aforesaid Schedule, since even if the meter does not have any special featur....
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....te that the said device forms integral/ inextricable part of the meters, without which the meter cannot function. 9.13 Kind attention, in this regard, is invited to the following decisions wherein the Courts have held that cables connected to the machine would form integral part of the machine and would accordingly, be eligible for depreciation as part of the machine: - CIT vs. Elecon Engg. Co. Ltd. : 166 ITR 66 (SC) - CIT vs. Birla Jute & Industries Ltd.: 260 ITR 55 (Cal) - CIT vs. Oswal Woollen Mill Ltd.: 289 ITR 261 (P&H) - CIT vs. Metalman Auto (P.) Ltd: 336 ITR 434 (P&H) - CIT v. India Turpentine & Rosin Co. Ltd.: 75 ITR 533 (All.) - DCIT vs. UAL Industries: 31 taxmann.com 111 (Kolkata - Trib.) (tm) - Ghaziabad footwear (P.) Ltd vs. DCIT: 142 Taxman 18 (Del Tri.) - Madhu Industries Ltd, Ahmedabad vs. ITO: 132 TTJ 233 (Ahd) In view of the above, it is respectfully submitted that meters acquired and installed by the appellant were capable of performing specific functions as aforesaid and were covered under the specific entries appearing in Appendix to Income Tax Rules, eligible for higher rate of depreciation @ 80%." 10. The Learned CIT(DR) on....
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....n value as may be prescribed. Under Item-III(8) of the table rates of depreciation in "Old Appendix-I" to the Income-tax Rules, 1962 is relevant for the assessment year 2005-06 wherein depreciation @ 80% is available in respect of equipment falling within the category of "energy measuring meters". The specific entries under which the depreciation was claimed by the assessee during the relevant assessment year reads as under: "III. Machinery and Plant xxxxxx (8) (ix) Energy saving devices, being19 A. xxxx B. Instrumentation and monitoring system for monitoring energy flows: (a) Automatic electrical load monitoring systems; (b) Digital heat loss meters; xxxxxxxxx (e) meters for measuring heat losses, furnace oil flow, stream flow, electric energy and power factor meters (f) Maximum demand indicator and clamp on power meters xxxxxxxxxx" 12.2 The perusal of aforesaid provisions make it clear that item-III(8)(ix)(B)(e) of the depreciation schedule provides for higher rate of depreciation in respect of "meters for measuring....electric energy". 12.3 The submission of the assessee that there is no further/additi....
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.... of the tax audit report of the assessee for the assessment year under consideration reflecting statement of particulars including bifurcation of expenses between normal meter and electronic meters. We thus set aside the matter to the file of the Assessing Officer to verify and allow the claimed depreciation at the rate of 80% on electronic meters/energy meters only after affording opportunity of being heard to the assessee. 12.5 Regarding the claimed higher depreciation on the "bus bar chamber", the Learned AR submitted that these are devices through which connection from overhead line/underground cable is provided to the meters and the said device forms integral/inextricable part of the meters without which the meter cannot function. The authorities below have denied the claimed higher depreciation on this instrument on the basis that these are not energy saving device. We set aside this matter to the file of the Assessing Officer to verify the above claim of the assessee that 'bus bar chamber' forms integral/inextricable part of the meters without which a meter cannot function and allow the depreciation thereupon accordingly after affording opportunity of being heard to the a....
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....CIT(Appeals) is that the Learned CIT(Appeals) has erred in deleting the addition of Rs. 73,75,590 made on account of security line deposits from customers holding the service line receipts as capital receipts. 14. In support of the additional ground, the Learned AR submitted that in terms of Section 43(1) of the Act and more specifically in terms of Explanation 10, if cost of any asset, is directly or indirectly met by any other person, then, the actual cost to be adjusted for purposes of depreciation should be the amount incurred for acquisition of the asset as reduced by the cost met by any other person. He referred the following provisions of the Act: Section 43(1) of the Act defining 'actual cost' and Explanation 10 thereto reads as under: "43. Definitions of certain terms relevant to income from profits and gains of business or profession. In sections 28 to 41 and in this section, unless the context otherwise requires- "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: Explanation 10.-Where a portion of the cost of an a....
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....ategorically held that service line deposits received by electricity companies towards capital works should be reduced from the cost of assets acquired as per section 43(1) of the Act: − Rohtak & Hissar Districts Electric Supply Co. (P.) Ltd. vs. CIT: 5 Taxman 116 (Delhi) − Ranchi Electric Supply Co. Ltd. vs. CIT: 16 Taxman 213 (Pat.) 14.7 No estoppels in law to resile from a wrong position: The Learned AR submitted that the Ld. CIT(A) has erred in not directing the assessing officer to reduce the amount received for the cost of assets, merely because the appellant was following erroneous principle of recognizing the same as income over a period of three years. 14.8 In this regard, it was submitted that the method of accounting erroneously followed by the appellant of recognizing service line deposits as income, over a period of three years, could not be the basis of bringing to tax the entire amount received as trading receipt, notwithstanding the mandate of Explanation 10 to section 43(1) of the Act. 14.9 It is settled proposition of law that no tax can be levied or recovered without authority of law. Article 265 of the Constitution of India imposes an ....
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....TD 430 (Del.) − Indo Java & Co. vs. IAC: 30 ITD 161 (Delhi SB) 14.15 Further, it is also settled law that the purpose of the assessment is to compute income in accordance with the provisions of the Act. The assessing officer is therefore, even otherwise, duty bound to grant relief, which the assessee may not have claimed in the return of income: − CIT vs. Mahalaxmi Sugar Mills Co. Ltd: 160 ITR 920 (SC) − National Thermal Power Limited v. CIT: 229 ITR 383 (SC) − Assam Company (India) Ltd. vs. CIT: 256 ITR 423 (Gau.) − Nathmal Bankatlal Parikh & Co. V. CIT: 122 ITR 168 (AP -FB) − CIT V. Smt. Archana R. Dhanswatay: 136 ITR 355 (Bom) − Smt. Shen Lata Jain V. CIT: 192 CTR 50 (J&K) 14.16 In view of the aforesaid submissions and the cited decisions, the Learned AR submitted that the assessing officer may kindly be directed to reduce the service line deposits from the cost of assets falling under the 'plant and machinery' in accordance with the mandate of Explanation 10 to Section 43(1) of the Act. 15. The learned CIT(DR) while opposing the additional ground No.1 raised by the assessee and supporting ground No.1 of the....
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....l in nature and as such is directly related to the capital expenditure incurred and capitalized under the head 'plant & machinery'. 16.5 The Learned AR submitted that the aforesaid issue, is squarely covered by the landmark decision of the Hon'ble Supreme Court in the case of Hoshiarpur Electric Supply Co. vs. CIT: 41 ITR 608, wherein the apex Court has categorically held that the service connection receipts of an 'electricity company' are not receipts incidental to nor carrying on of the assessee's business, but are receipts for bringing into existence capital of lasting value. Since the contributions made were not made merely for services rendered and to be rendered, but for installation of capital equipment, the same constituted 'capital receipt'. The Hon'ble Apex Court further held that even the balance amount retained by the assessee, which had not been expended, could not also be considered to be a revenue receipt. 16.6 In support of above, the Learned AR cited following decisions: − Rohatak & Hissar Districts Electric Supply Co. (P.) Ltd. vs. CIT: 5 Taxman 116 (Del) − Ranchi Electric Supply Co. Ltd. vs. CIT: 16 Taxman 213 (Pat.) − CIT vs. Coc....
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.... assets acquired, proportionate amount is to be excluded for computing the actual cost of the assets to the assessee. The Delhi Bench of the ITAT in the case of DCIT vs. Dalmia Cement (Bharat) Ltd. (supra) has held that subsidy received being capital receipt has to be adjusted against cost of assets in terms of Explanation 10 to section 43(1). Since the amount received by the assessee in the present case was undisputedly relatable to acquisition of GI pipes, bricks, sand, bus bar etc. for setting up service line, such concession/reimbursement would have to be reduced for the purpose of computing the actual cost of the fixed assets acquired by the assessee. We thus find substance in the contention of the Learned AR that merely because the assessee was following erroneous principles of recognizing the amount received from the cost of assets as income over a period of three years, the Learned CIT(Appeals) was not justified in not directing the Assessing Officer to reduce the amount received from the cost of assets. There is no dispute that as per the settled proposition of law, no tax can be levied or recovered without authority of law and thus the mandate of Explanation 10 to section....
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....c reply has been received apart from stating that DERC is a regulatory body which regulates the charging of service line charges. However that does not change the character of these receipt in the co's hands nor did the App. No.187/09-10 10 M/s BSES Rajdhani Power Ltd. A.Y.2005-06; u/s 143(3) definition in the electricity act specify that it is a capital receipt in assessee's hands. C) The co has itself recognized 1/3 of total receipts as rev which establishes that they are in the nature of rev receipts. D) The co is a service provider for providing services to the consumers. It may have to incur capital expenditure for providing services to the consumer but that does not make the receipts on trading account in lieu of this expenditure from customer in its hands as capital receipts. 5.2 In appeal before me, the A/R's present for the appellant submitted that as per the consistent policy followed by the co, the Assessee is transferring the service line deposits received during the year to the P & L a/c over a period of three years. In respect of the nature of service line deposits and provisions relating to receiving of service line deposits, the A/Rs referred to the related pr....
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....m different consumers is a capital receipt and not a revenue receipt in the hands of the company. Reliance was placed on the following cases; i) Hoshiarpur Electric Supply Co. v. CIT {1961} 41 ITR 608 (SC), ii) Monghyr Electricity Supply Co. Vs. CIT(Bihar & Orissa) 26 ITR 15, iii) CIT v. Poona Electric Supply Co. Ltd. {1946} 14 ITR 622 It was also submitted that till 17th April, 2007 the assessee company was charging service line deposit as well as development charges from the consumers as per the Rules and Notification of Delhi Electricity Regulatory Commission(DERC).The capital expenditure incurred in respect of service line deposits on account of service line cables, cost of GI pipes, bricks etc. were capitalized under the head meter accessories (on which depreciation was claimed @ 80% but was reduced to 25% by the DCIT). However, the capital expenditure incurred on development charges were duly included under the head (plant and machinery) which was subject to the normal depreciation @25%. Accordingly the development charges are required to be de-capitalized from the plant and machinery @ 25% and service line deposits from plant and machinery (mete....
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....upon the fact that energy meters are eligible for App. No.187/09-10 13 M/s BSES Rajdhani Power Ltd.A.Y.2005-06; u/s 143(3) depreciation at the higher rate of depreciation @ 80%. This is in line with the matching concept an enunciated under AS 1 requiring revenues to be matched with cost. Based upon the matching concept and revenue friendly concept, the offering of service line deposits (which are in the nature of capital receipts) over a period of three years is not prejudicial to the interest of the revenue. However, the service line receipts are of capital nature and is required to be reduced from the relevant cost of plant and machinery in accordance with Section 43 (1) of the I.T. Act, 1961. As regards the A.O's observation that the assessee company is engaged in selling electricity to the consumers from whom it charges fees in the name of energy charges. These energy charges are undisputedly in the nature of revenue receipts. It was submitted that the nature of service line receipts are entirely different from the nature of energy charges. Service line receipts as discussed above deserve to be reduced from the cost of the relevant plant and machinery in accordance with Sec. 43....
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....ce is shown as a liability in the balance sheet. It is also not in dispute that this levy of service charge is based on the regulations made by DERC. I find that on the identical issue in the case of Hoshiarpur Electric Supply Co.v/s CIT 41 ITR 608 Hon'ble Supreme Court observed as under:- The amount contributed by the consumer is in direct recoupment of the expenditure for bringing into existence an asset of a lasting character enabling the assessee to conduct its business of supplying electrical energy. By the installation of the service lines, a capital asset is brought into existence. The contribution made by the consumers is substantially as consideration for a joint adventure; the service line when installed becomes an appendage of the mains of the assessee, and by the provisions of the Electricity Act, the assessee is obliged to maintain it in proper repairs for ensuring efficient supply of energy. The assumption made by the dept. that the excess remaining in the hands of the assessee, after defraying the immediate cost of installation of a service line must be regarded as a trading profit of the company is not correct. The assessee is undoubtedly carrying on the bu....
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....nt appeal also, appellant has received the deposits and contribution for the specific purpose of installation of capital. Respectfully, following the decision of Hon'ble Supreme Court in the above said case, these receipts cannot be treated as trading receipts. I further find that similar issue was involved in the case of M/s BSES Rajdhani Power Ltd. for AY 2006-07, wherein the CIT(A)-IV, New Delhi has held that the receipts were capital in nature and in the case of BSES Yamuna power ltd for A.Y 07-08 on an identical issue, the CIT(A)-VI has held the receipts to be capital in nature Under the circumstances; the amounts received for installation of service lines are to be treated as capital receipts in the hands of the appellant. Accordingly, the addition made by the AO is herby deleted." 17.2 We find that while dealing with the issue, the Learned CIT(Appeals) has discussed the related provisions of the Electricity Act, 1910 defining "service line" as per which it is an electric supply line intended to supply energy to a single consumer or a group of consumer from the same point of the distributing main. So the service line is to be drawn from the distributing main. The lines dra....
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....ations of the Assessing Officer, only 1/3rd of the total amount on revenue account and not whole of it is treated as capital receipts, the contention of the assessee remained that DERC is a regulatory body, which regulates the charges of service line charges. Thus, service line deposits are received by the company as per the provisions of DERC and Electricity Act for the purpose of incurring the expenditure for laying the service line and other related expenses for providing new connection to the customers. It was explained that in the absence of a one to one linking of the service line deposit scheme with the capital expenditure incurred on the service line connection, the justification for treating 1/3rd of the total amount of receipts in a particular year as Revenue is that by doing so the assessee is offering for Revenue all service line receipts over three years. It was submitted that at the same time the assessee is claiming 99% of the cost incurred on capitalization service line connections under plant and machinery (meter) as depreciation over three years based upon the facts that energy meters are eligible for deprecation at the higher rate of 80%. This is in line with the....
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.... placed reliance on the assessment order. He submitted that the assessee was earlier following first-in-first-out (FIFO) method for valuation of stores/spares and the FIFO method is more correct and appropriate for the valuation of stores/spares as closing stock as compared to "moving average" method. He submitted that assessee has failed to furnish any sound reasoning for change in the cost method from FIFO to moving average. The change in the method by the assessee for the valuation of stock was neither bona fide nor regularly followed by the assessee. The relevant excerpts from 3 CD Report clearly states that due to change of valuation of inventories, profit of the company is lower by Rs. 5.02 crores. Thus, the Assessing Officer was correct in making the addition on account of valuation of closing stock. 19. The Learned AR on the other hand tried to justify the First Appellate Order on the issue. He contended that in the assessment year under consideration, the assessee transited its accounting package to SAP, which adopts 'Moving Average" (weighted average) method as the most reliable and feasible method for valuation of closing stock, on account of the following reasons: ....
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....used should reflect the fairest possible approximation to the cost incurred in bringing the items of inventory to their present location and condition." 19.5 The Learned AR pointed out that on perusal of the above, it may be noted that the assessee has a choice to value the stock at cost, either by following FIFO or weighted average cost formula. Therefore, the basic fundamental of accounting, i.e. the valuation of inventory should be at cost or net realizable value whichever is lower and if one follows either of these there is no change in method of valuation. 19.6 Therefore, the basic fundamental of accounting for valuing inventory at cost or net realizable value whichever is less is fully met if either of the aforesaid methods is followed. Thus, technically speaking there has been no change in the method of valuation of closing stock at cost or market value, whichever is lower, as adopted by the assessee. 19.7 It was further submitted that the provisions of section 145A of the Act nowhere bars the assessee from changing the method of valuation, but only lays down the criteria that the changed method has to be followed regularly, i.e. in subsequent years as well. 19.8....
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....e profits of the company but the same shall be ironed out in the subsequent years due to adoption of new method of valuation on permanent basis thereafter. 19.13 To the same effect are the following decisions: − Forest Industries Travancore Ltd. Vs CIT: 51 ITR 329 (Ker) − CIT Vs. Mopeds India Limited: 173 ITR 347 (AP) − CIT vs. Dalmia Cement (Bharat) Ltd.: 215 ITR 441 (Del.) − CIT vs. Modi Rubber Limited: 230 ITR 820 (Del.) − CIT Vs. Delta Plantation Ltd: 71 Taxman 329 (Cal) 19.14 It was further submitted that while making the aforesaid addition of Rs. 5.02 crores, the assessing officer failed to appreciate that the entire exercise is revenue neutral, in view of the fact of change in valuation of closing stock in the assessment year under consideration, the same had consequential effect of reducing the value of opening stock for the subsequent assessment year i.e. AY 2006-07, which resulted in increased profit to that extent. 19.15 Further, in holding that the assessee had adopted two different methods of valuation to value its closing and opening stock, the assessing officer failed to appreciate that since the opening stock per....
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....cost of inventories was on account of the transition and implementation of the Systems, Application and Products Package ('SAP') w.e.f. 01.04.2004, which adopts the 'Moving Average' (weighted average) basis as the most reliable and feasible method for determining the 'cost' of inventory. 20.1 On account of change in the method of valuation of inventory, the value of closing stock for the assessment year under consideration was lower by Rs. 5.02 crores as compared to the valuation method adopted in earlier years. However, since the opening inventories pertained to the earlier year, the same remained valued at FIFO. 20.2 The aforesaid fact was duly disclosed by the assessee in its financial statements for the financial year 2004-05, the year under consideration. Further, the 'moving average' (weighted average) method of valuation of inventories has been consistently followed by the assessee in all the subsequent assessment years, which has also been accepted by the assessing officer. 20.3 In the impugned assessment order, the assessing officer alleged that there was no sound reasoning or justification for the change in method of valuation of inventories undertaken by the ....
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....alue so arrived at will in its turn, become the value of the opening stock of the subsequent assessment year. Due to the above change in the method of valuation of inventories, the opening value of inventory for the next Assessment Year will also be lower by Rs. 5.02 crore, thus resulting in increasing the profit of the assessee company by Rs. 5.02 Crore in the subsequent AY i.e. A.Y. 2006-07. The A.O had observed that the lowering of this profit is due to discrepancy between the opening stock and closing stock valuations as two different methods are followed by the assessee. It is to be appreciated that whenever there is a change in the method of valuation, there is bound to be some distortion in the calculation of profit in the year in which the change takes place. But if the change is brought about bona fide and is in accordance with the normally accepted accounting practice, there is no reason why such a change should not be permitted. Thus, where the change has been effected by adopting the new changed method for valuing the closing stock of a particular assessment year, the value so arrived at will in its turn, become the value of the opening stock of the subsequent assessmen....
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....05-06; u/s 143(3) In the current assessment year,the assessee company has changed the method of valuation of closing stock of stores/spares and is consistently following the same changed method from year after year. Accordingly the reliance placed by the ACIT on the CIT Vs Bharat commerce Industries Ltd does not support his views. The A.O has also placed reliance in the case of CIT Vs. Sanjeev Woollen Mills. The facts of the case in brief was that For the AY 1992-93(First Year) and 1993-94(Second Year), the assessee valued the closing stock for the first year at the Rs. 130per Kg while the opening stock was valued at Rs. 90 per Kg . In the second year opening stock was valued at Rs. 130 per Kg and there was no closing stock that resulted in the abnormal gross profit ratio 2054.60 percent in the first year and loss return in the second year. Judgment The opening stock for the first year was computed at the rate of RS. 90 per kg and the closing stock was computed at the rate of Rs. 130 per kg. This was done because there were export sales whereas in the second year there were no export sales . Therefore the entire device was to claim the maximum deduction under section 80 HHC in the ....
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....not applicable in the present case. It is also an undisputed fact that in the Income-tax Act, 1961, it has not been prescribed that for arriving at the cost of closing stock inventory which method is to be taken into consideration, whether FIFO, weighted average, LIFO or any other method. But under AS2, it has been made clear that the cost of inventory should be arrived at by using the first in first out (FIFO), or weighted average cost formula. After making the change in the method of valuation of closing of inventory from FIFO method to the weight average method in the assessment year 2005-06, the same has been consistently followed by the assessee from the assessment year 2005-06 onward. We also concur with the view of the Learned CIT(Appeals) that it is for the assessee to decide which method is more correct and hence more appropriate for the valuation of the stores/spares and not for the Assessing Officer to decide as long as the change is bona fide and the assessee is consistently following the same in the subsequent years. We thus do not find infirmity in the First Appellate Order on the issue as there was no any casual departure in regard to the method adopted by the assess....
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....the Delhi Electricity Reforms (Transfer Scheme), Rules, 2001. 22.1 That Learned AR submitted that it is of utmost importance to note that in accordance with proviso to sub-sections (1) and (2) of section 211 of the then applicable Companies Act, 1956 ("Companies Act"), the assessee is not required to and has not been strictly preparing its audited annual accounts as per Parts II and III of Schedule VI of the said Act. 22.2 The aforesaid fact is evident on perusal of the significant accounting policies adopted by the appellant-company as disclosed in the audited annual accounts for the previous year relevant to the assessment year 2005-06, stating the basis of preparation of financial statements as under: "Significant Accounting Policies and Notes to the Accounts: 1. Basis of preparation of financial statements The financial statements are prepared under the historical cost convention, on the accrual basis of accounting, and in accordance with the provisions of the Companies Act, 1956 as well as those of the Repealed Electricity (Supply) Act, 1948 and comply with the accounting standards issued by the Institute of Chartered Accountants of India wherever applicab....
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....volved in determining the tariff based on the ARR and after the end of the financial year, the appellant files a "true up" petition setting out facts relating to the actual revenue earned and the expenditure incurred, in accordance with the applicable DERC Regulations. It is on the basis of the said true up petition and after a detailed hearing, the DERC passes an order determining the revenue surplus or the revenue gap. 22.8 It may, thus, be noted that even the very basis of recognition of revenue and expense is regulated strictly by the DERC and not strictly as per the provisions of the Companies Act. 22.9 Further, it is trite law that the provisions of a specific Act would override the provisions of all other Acts as has been held in the following decisions: - TRO v Custodian, Special Court Act, 1934: 293 ITR 369 (SC) - CIT v India Equipment Leasing Ltd: 293 ITR 350 (Mad) - CIT v Elgi Finance Ltd: 293 ITR 357 (Mad) - VasisthChayVyapar Ltd: 330 ITR 440 (Del) - DCIT vs. BhartiyaSamruddhi Finance Ltd.: 58 SOT 141 (Del) 22.10 In view of the above, it is patently clear that the appellant prepares its annual accounts in accordance with the applicable laws, incl....
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....ged to tax accordingly. The effective rate works out to 12 per cent of book profit calculated under the Companies Act. Companies engaged in the power and infrastructure sector will, however, be exempted from the levy of MAT." (emphasis supplied) 22.15 On the basis of the aforesaid, it would be noted that Legislature intended to exclude from the purview of MAT provisions under section 115JA of the Act (which were para-materia to section 115JB of the Act) companies engaged, inter-alia, in the power sector which were governed by a Special statute, which also regulates the manner in which accounts for such companies were to be prepared. 22.16 The appellant, is governed by the provisions of the Electricity Act, 2003 and accordingly preparesits annual accounts in accordance with the applicable Electricity Act/ DERC regulations, which are binding and mandatorily to be followed by the appellant. 22.17 It is was submitted that various Benches of the Tribunal have held that provisions of section 115JB of the Act shall not apply to companies referred in proviso to sub-sections (1) and (2) of Section 211 of the Companies Act, i.e., companies governed by Special Acts viz.,. Banking ....
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.... Book profit for this purpose is computed by making certain adjustments to the profit disclosed in the profit and loss account prepared by the company in accordance with the Schedule VI of the Companies Act, 1956. As per section 115JB, every company is required to prepare its accounts as per Schedule VI of the Companies Act, 1956. However, as per the provisions of the Companies Act, 1956, certain companies, e.g. insurance, banking or electricity company, are allowed to prepare their profit and loss account in accordance with the provisions specified in their regulatory Acts. In order to align the provisions of Income-tax Act with the Companies Act, 1956, it is proposed to amend section 115JB to provide that the companies which are not required under section 211 of the Companies Act to prepare their profit and loss account in accordance with the Schedule VI of the Companies Act, 1956, profit and loss account prepared in accordance with the provisions of their regulatory Acts shall be taken as a basis for computing the book profit under section 115JB. II. It is noted that in certain cases, the amount standing in the revaluation reserve is taken directly to general reserve on dispo....
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....B of the Act, as it then stood and the legislative intent. The amendments to section 115JB of the Act made by the Finance Act, 2012 are, it was submitted, substantive in nature resulting in fresh liability to tax and would therefore, apply only prospectively; the same cannot, unless specifically mandated by the statute, be applied from retrospective effect. 22.27 Reliance in this regard was placed on the decision of the Constitution Bench of the Hon'ble Supreme Court in the case of CIT vs. Vatika Township Private Limited: 367 ITR 466 (SC). To the same effect are the following decisions wherein it has been held that a provision imposing liability is governed by the normal presumption that is not retrospective: - S.S.Gadgil vs. Lal and Co. (1964) 53 ITR 231 (SC) - K.M.Sharma vs. ITO (2002) 254 ITR 772 (SC) - Gem Granites vs. CIT (2004) 271 ITR 322 (SC) - Sedco Forex International Drill Inc. vs. CIT (2005) 279 ITR 310 (SC). 22.28 The fundamental principle reiterated in the aforesaid decision is lexprospicit non respicit: i.e., laws look forward and not backward. No section can be interpreted retrospectively unless it is mentioned in the section itself. 22.29 Speci....
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....war : 258 ITR 761 (SC) - CIT v. A. J. Abraham Anthraper : 268 ITR 417 (Ker) - Vijay Omprakash Bansal v. CIT : 257 ITR 649 (Bom) - CIT v. L.G Balakrishnan: 255 ITR 339 (Mad) - CIT v. Quantas Airlines Ltd.: 256 ITR 84 (Del) Southern Roadways Ltd. vs. CWT: 251 ITR 213 (Mad) 22.34 Having regard to the legal position discussed supra, the Learned AR submitted that the provisions of section 115JB of the Act were not at all applicable to companies governed by special Acts (which includes power companies) in respect of assessment years falling prior to April 1, 2013 and thereby the appellant was not liable to pay tax under the provisions of the said section for the assessment year under consideration. Even though the appellant, under a misconception of law, had declared income under the deeming provisions of section 115JB of the Act, still the assessing officer was under duty to correctly assess income of the appellant in accordance with the provisions of the Act. 23. The learned CIT(DR) on the other hand tried to justify the action of the Assessing Officer in framing the assessment under sec. 115JB of the Act. He submitted that the decisions relied upon by the Learned ....
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.... 1(4) ) also provided/provides that the provisions of the said Act would apply in respect of an Electricity Company only in so far as the said provisions are not inconsistent with the Electricity Act. For a ready reference, the aforesaid provisions of the Companies Act, 1956 and the Companies Act, 2013 are being reproduced hereunder: Section 616 of the Companies Act, 1956: "616. Application of Act to insurance, banking, electricity supply and other companies governed by special Acts. The provisions of this Act shall apply- (a) to insurance companies, except in so far as the said provisions are inconsistent with the provisions of the Insurance Act, 1938 ; (4 of 1938 .) (b) to banking companies, except in so far as the said provisions are inconsistent with the provisions of the Bank- ing Companies Act, 1949 ; (10 of 1949 .) (c) to companies engaged in the generation or supply of electricity, except in so far as the said provisions are inconsistent with the provisions of The Indian Electricity Act, 1910, (9 of 1910) or] the Electricity Supply Act, 1948 ; (54 of 1948.) (d) to any other company governed by any special Act for the time being in force, except in so far a....
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....otification, make regulations consistent with this Act and the rules generally to carry out the provisions of this Act. (2) In particular and without prejudice to the generality of the power contained in sub-section (1), such regulations may provide for all or any of the following matters, namely: (a) period to be specified under the first proviso of section 14; (b) the form and the manner of application under sub-section (1) of section 15; .................. .................... (zc) the terms and conditions for the determination of tariff under section 61; .................. (zg) issue of tariff order with modifications or conditions under subsection(3) of section 64; (zo) any other matter which is to be, or may be, specified. (3) All regulations made by the State Commission under this Act shall be subject to the condition of previous publication." 24.5 On perusal of the above provisions, we concur with the submission of the assessee that under the Electricity Act, 2003, the State Commission is empowered to make regulations. In view of the above discussed provisions of Electricity Act, 2003 and Companies Act, it is clear that the very basis of rec....
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....ies required under the law, to prepare its profit and loss account in accordance with Parts-II and III of Schedule-VI of the Companies Act and not otherwise. 24.8 The Learned AR in his submission has also reproduced hereinabove the speech of Hon'ble Finance Minister while reintroducing the MAT provisions vide Finance Bill, 1996 - 220 ITR (Statute) 107 with the submission that the Legislature intended to exclude it from the purview of MAT provisions under sec. 115JA of the Act (which were para materia to sec. 115JB of the Act ) Companies engaged, inter alia, in the power sector which were governed by a Special Statute, which also regulates the manner in which accounts for such companies were to be prepared. Having gone through the said speech of the Hon'ble Finance Minister, we concur with the above submission of the assessee about the intention of the legislature. 24.9 In view of the above discussion, we agree with the submission of the Learned AR that the assessee is governed by the provisions of the Electricity Act, 2003 and accordingly supposed to prepare its annual accounts in accordance with the applicable Electricity Act/DERC Regulation, which are binding and mandatory ....
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....04.2013 which reads as under: "Explanation 3.-For the removal of doubts, it is hereby clarified that for the purposes of this section, the assessee, being a company to which the proviso to sub-section (2) of section 211 of the Companies Act, 1956 (1 of 1956) is applicable, has, for an assessment year commencing on or before the 1st day of April, 2012, an option to prepare its profit and loss account for the relevant previous year either in accordance with the provisions of Part II and Part III of Schedule VI to the Companies Act, 1956 or in accordance with the provisions of the Act governing such company." 24.8 We thus find that vide Finance Act, 2012, the scope of section 115JB of the Act was widen so as to include companies preparing profit and loss account in accordance with provisions of the relevant Regulatory Act. However, the amendments by the Finance Act, 2012 imposing new tax burden on companies which was otherwise not provided under the Act, were, in no uncertain terms, made in provisions of sec.115JB (2) w.e.f. 01.04.2013. In other words, the deeming provisions are applicable to companies governed by special Act only from assessment year 2013-14 and onwards. The me....
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....ot find that his plans have been retrospectively upset. This principle of law is known as lexprospicit non respicit: law looks forward not backward. As was observed in Phillips vs. Eyre (1870) LR 6 QB 1, a retrospective legislation is contrary to the general principle that legislation by which the conduct of mankind is to be regulated when introduced for the first time to deal with future acts ought not to change the character of past transactions carried on upon the faith of the then existing law. 32. The obvious basis of the principle against retrospectivity is the principle of 'fairness', which must be the basis of every legal rule as was observed in the decision reported in L'Office Cherifien des Phosphates v. Yamashita-Shinnihon Steamship Co.Ltd (1994) 1 AC 486. Thus, legislations which modified accrued rights or which impose obligations or impose new duties or attach a new disability have to be treated as prospective unless the legislative intent is clearly to give the enactment a retrospective effect; unless the legislation is for purpose of supplying an obvious omission in a former legislation or to explain a former legislation. We need not note the cornucopia of case la....
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..... It is well settled that if a statute is curative or merely declaratory of the previous law retrospective operation is generally intended. The language 'shall be deemed always to have meant' is declaratory, and is in plain terms retrospective. In the absence of clear words indicating that the amending Act is declaratory, it would not be so construed when the pre-amended provision was clear and unambiguous. An amending Act may be purely clarificatory to clear a meaning of a provision of the principal Act which was already implicit. A clarificatory amendment of this nature will have retrospective effect and, therefore, if the principal Act was existing law which the Constitution came into force, the amending Act also will be part of the existing law." The above summing up is factually based on the judgments of this Court as well as English decisions. A Constitution Bench of this Court in KeshavlalJethalal Shah v. MohanlalBhagwandas&Anr.( 1968) 3 SCR 623, while considering the nature of amendment to Section 29(2) of the Bombay Rents, Hotel and Lodging House Rates Control Act as amended by Gujarat Act 18 of 1965, observed as follows: "The amending clause does not seek to expl....
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....ording to the law in force at the beginning of the assessment year, i.e., the first day of April, any change in law affecting tax liability after that date though made during the currency of the assessment year, unless specifically made retrospective, does not apply to the assessment for that year................" 24.6 Similar view has been expressed by the Hon'ble Supreme Court in the other cited decisions in the cases of S.S. Gadgil vs. Lal & Co. (supra), Sedco Forex International Drill Inc. vs. CIT (supra) etc. Thus, it is clear and an established position of law that no section can be interpreted retrospectively unless is mentioned in the section itself. 24.7 The Delhi Bench of the ITAT in the case of Bank of Tokyo Mitsubishi UFJ Ltd. vs. ADIT (supra) while following the principles laid down by the Hon'ble Supreme Court in Vatika Township (supra) observed that the amendment to sec. 115JB of the Act by Finance Act, 2012 was prospective since the same resulted in substantial change in computation provisions. In that case, the ITAT was adjudicating the issue regarding applicability of provisions of sec. 115JB of the Act to a foreign bank which was subject to tax in India on ....
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....aterial on record we find that the Tribunal in assessee's own case in assessment year 2001-02 in para 29 has held as under: "As discussed above, the assessee is following the accounting policies wider the Electricity Supply Act and prepared its accounts in view of those very policies. Following those very policies, the account's in accordance with Part II & III of Schedule VI of the Companies Act are not applicable at all. Once there is no possibility for preparing the accounts in accordance with the part II and II of Schedule VI of Companies Act then the provisions of sec. 115JB cannot be forced. Therefore, in view of the above facts and circumstances and respectfully following the above decisions of the Hon'ble Supreme Court and the decision of the Tribunal for A.Y. 88-89, we hold that provisions of sec. 115JB are not applicable on the facts of the relevant case." 39. Similar view has been taken by the Tribunal in assessment years 2002-03 and 2003-04 as has been discussed in para 14 of the said order and also in the order for A.Y. 2004-05. Respectfully following the precedents, we accept the assessee's claim and hold that the provisions of sec. 115JB cannot be upheld.....
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.... to the legislative intent and plain wording of the statute. 7. The plea of the assessee is indeed well taken, and it meets our approval. The provisions of sec. 115JB can only come into play when the assessee is required to prepare its profit and loss account in accordance with the provisions of Part II and III of Schedule VI to the Companies Act. The starting point of computation of minimum alternate tax under sec.115JB is the result shown by such a profit and loss account. In the case of banking companies, however, the provisions of Schedule VI are not applicable in view of exemption set out under proviso to Sec. 211(2) of the Companies Act. The final accounts of the banking companies are required to be prepared in accordance with the provisions of the Banking Regulation Act. The provisions of Section 115JB cannot thus be applied to the case of banking company". The Hon'ble Kerala High Court in its recent decision in the case of Kerala State Electricity Board vs. DCIT (2010) - 329 ITR 91 (Ker.) after detailed deliberation and referring the CBDT understanding (Circular No. 762 dated 18.2.1998 - 230 ITR (Statute) - 12 ) that companies engaged in the business of generati....
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....le only to those assessees which - (a) are Companies except the Companies engaged in the business of either generation or distribution of electricity, (b) that such a fiction is made applicable to the Companies only with reference to the previous year relevant to the assessment year commencing after 1-4- 1988 and ending with the 1-4-1991, (c) the "total income" of the Company as computed under the Act is less than thirty per cent of its "book profit". The fiction being that the total income for the purpose of assessment shall be deemed to be 30 per cent of the book profit. In other words, the section prescribes 30 per cent of the book profits of those Companies falling within the purview of the section shall be treated as the total income of the Company for the purpose of Income-tax, irrespective of the fact that according to the accounts of the Company the "total income" is less than thirty per cent of the book profit. The expression "book profit" itself is explained in the section as meaning, the net profit as shown in the profit and loss account for the relevant previous year prepared as per the prescription under sub-section (1A) and either increased or decreased by various amo....
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....s than ten per cent of its book profit, such book profit shall be deemed to be the total income of the assessee and the tax payable by the assessee on such total income shall be the amount of income-tax at the rate of ten per cent. (2) Every assessee, being a company shall for the purposes of this section, prepare its profit and loss account for the relevant previous year in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act, 1956 (1 of 1956): Provided that while preparing the annual accounts including profit and loss account,- (i) the accounting policies; (ii)the accounting standards followed for preparing such accounts including profit and loss account; (iii)the method and rates adopted for calculating the depreciation shall be the same as have been adopted for the purpose of preparing such accounts including profit and loss account and laid before the company at its annual general meeting in accordance with the provisions of section 210 of the Companies Act, 1956 (1 of 1956): Provided further that where the company has adopted or adopts the financial year under the Companies Act, 1956 (1 of....
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.... Schedule VI to the Companies Act specify the method and manner of maintaining the profit and loss account. 15. However, the appellant though is by definition a Company under the Income-tax Act and deemed to be a Company for the purpose of Income-tax Act, (by virtue of the declaration under section 80 of the Electricity Supply Act) it is not a Company for the purpose of Companies Act. Therefore, the appellant is not obliged to either to convene an annual general meeting or place its profit and loss account in such general meeting. As a matter of fact, a general meeting contemplated under section 166 of the Companies Act is not possible in the case of the appellant as there are no shareholders for the appellant Board. On the other hand, under section 69 of the Electricity Supply Act, the appellant is obliged to keep proper accounts, including the profit and loss account, and prepare an annual statement of accounts, balance sheet, etc. in such form as may be prescribed by the Central Government and notified in the Official Gazette. The prescription of the rules in this regard is required to be made in consultation with the Comptroller and Auditor-General of India and also the Stat....
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....re another profit and loss account as prescribed under section 115JB(2) for the purpose of the Income-tax Act. The question is whether such an obligation is created under section 115JB(2) insofar as the appellant is concerned. In examining the said question, the legislative history and the mischief sought to be cured by the Legislature in making the special deeming provision, in our opinion, would be relevant. 18. Coming to the legislative history of section 115JB and its fore-runners - Sections 115J and 115JA - we have already noticed that they provided for the determination of the total income of the Companies by a fictitious process. However, at the earliest point of time when such a fictitious process is invented, i.e. when section 115J was introduced, the section expressly excluded from its operation bodies like the appellant. Coming to section 115JA, though such express exclusion is absent, the Central Board of Direct Taxes issued a Circular No. 762, dated 18th February, 1998 - [which is binding on the Department, see K.P. Varghese v. ITO [1981] 131 ITR 5971 (SC)] * and Ranadey Micronutrients v. Collector of Central Excise 1996 (87) ELT 19 (SC) excluding the bodies like th....
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.... book profits, the provisions of section 115JA will not be attracted. In other words, the MAT will apply only to such cases where export profits forming part of book profits of an assessee exceed 7 per cent of the total profits. 46.6 Companies engaged in the business of generation and distribution of power and those enterprises engaged in developing, maintaining and operating infrastructure facilities under sub-section (4A) of section 80-IA are exempted from the levy of MAT, so that the incentive given to infrastructure development is not affected." It can be seen from the above that the legislature took note of the fact that a number of Companies paying marginal tax and also zero-tax has grown. Such Companies earned substantial book profits and paid handsome dividends to the shareholders without paying any tax to the exchequer. Such a result was achieved by such Companies by taking advantage of the then existing legal position which permitted the adoption of dual accounting policies and practices, one for the purpose of computation of Income-tax and another for the purpose of determining the book profits for the purpose of payment of dividends. Therefore, the amendment....
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.... Income Tax Rules 1962. Further, these meters also have the characteristics of energy saving device which is subject to depreciation @ 80%. In view of the above, depreciation allowed @ 15 % as against the 80% claimed on energy meters resulting in a disallowance of Rs. 46,13,99,792, is wrong, against the facts of the case and unsustainable in the eyes of law. 2. Grant in aid for fixed assets and disallowance of depreciation to the tune of Rs. 20, 69,729. The Ld.CIT(A)- IV has wrongly upheld the contention of the ACIT that adjustment of grants in aid for fixed assets is to be made in the ratio of addition to plant and machinery which is (subject to depreciation @ 15%) and addition to energy meters which is (subject to depreciation @ 80%) resulting in disallowance of depreciation to the tune of Rs. 20,69,729. 25.1 Besides above, the assessee has also moved application under Rule 11 of the Income-tax (Appellate Tribunal) Rules, 1963 requesting for admission of the following additional grounds: "1. Service line deposits received from the consumers are of capital nature. The Learned CIT(Appeals) erred in not directing the Assessing Officer to reduce the amount of service line de....
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.... offering the service line deposits for Revenue over a period of three years, while computing the total income after holding that entire receipts by way of service line deposits is capital in nature and that the provisions under sec. 115JB of the Act were not applicable during the assessment year under consideration, hence, the Assessing Officer was not justified in making the assessment there under instead of normal provisions of the Income-tax Act, 1961. The additional grounds are accordingly allowed. 27. Ground No.1 (assessee): Under similar set of facts and circumstances, an identical issue has been decided by us in favour of the assessee while disposing off a similar ground No.1 of the appeal preferred by the assessee in the assessment year 2005-06 . Following the same, we hold that energy meters are eligible for depreciation @ 80% and set aside the matter to the file of the Assessing Officer to allow such deprecation on electronic/energy meter as reflected in the bifurcation of expenditure between electronic meters and manual meters in the audit report (page 75 of the supplementary paper book of assessee), after affording opportunity of being heard to the assessee in this ....
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....r purchase of meters. Therefore, the aid received was rightly adjusted against the cost of acquisition of plant and machinery and not meters. The aforesaid facts have also been duly certified by the tax auditor in the tax audit report of the assessee for the assessment year under consideration, wherein on detailed verification of records, a one to one relation has been drawn between the assets which have been purchased and the grant in aid received by the assessee. In this regard, he referred page No. 78 of the supplementary paper book i.e. relevant extracts of the tax audit report for the assessment year 2006-07 reflecting the grant in aid reduced from the respective "cost of assets". The Learned AR accordingly submitted that the grant in aid received by the assessee has been rightly reduced from the block of "plant and machinery". 30. The learned CIT(DR) on the other hand tried to justify the orders of the authorities below on the issue. 31. After having gone through the Explanation 10 to sec. 43(1) of the Act, we find that the above Explanation mandates that where cost of any assets is met directly or indirectly by any person in the form of a subsidy or grant or reimbursem....
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.... accordingly as liabilities is all together incorrect. c) Further the assessee co is engaged in selling electricity to the consumers from whom it charges fees in the name of energy charges. These energy charges are undisputedly in the nature of revenue receipts. d) The assessee co. is a service provider co. and is engaged in the business of distribution of electricity to different categories of customers as per their requirements. Hence it is in the nature of service provider. e) Since the assessee co. engaged in selling the energy, therefore for this purpose it has to provide service line connections to the consumers for which it charges service line deposits. Hence it can be seen that these service line receipts are received by the co. during the course of its regular business/commercial operations. Hence, they are in the nature of revenue receipts. f) The reasoning given by the assessee co. that it incurs capital expenditure for extending service lines to the consumers and these receipts are utilized for this purpose does not explain that how these receipts are capital receipts in its hands. g) The fact that the assessee co itself tre....
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.... at which the energy meters were purchased from REL was not at arm's length and that REL had sold the said product at an exorbitant price which was 68% higher than their purchase price. The Assessing Officer accordingly denied depreciation to the extent of Rs. 2.94 crores (as per rectification order dated 24.2.2009) on the aforesaid purchase of energy meters (i.e. after reducing an amount of Rs. 50.69 crores from the cost of energy meters), which were capitalized in the books of the assessee company without specifying any particulars sections under which the disallowance was being made. The Learned CIT(Appeals) has deleted the disallowance of depreciation made by the Assessing Officer on the ground that no corroborative evidence was brought on record by the Assessing Officer to substantiate that the payments made were not at arm's length. The Learned CIT(Appeals) has also observed that the order passed by the DERC could not be considered as conclusive evidence to determine the reasonableness of the transaction, more so when the said order had been set aside by the ATE. 35. In support of the ground, the learned CIT(DR) has placed reliance on the assessment order. He submitted tha....
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....ee to substantiate the arm's length character of the said transaction. 36.4 It may further be pertinent to note that section 40A(2) envisages only revenue expenditure in the nature of goods, services or facilities incurred by the assessee in respect of which deduction is claimed under the provisions of the Act and does not include within its ambit, determination of reasonableness of payment made for acquisition of 'capital assets'. 36.5 The Learned AR submitted that capital expenditure payments eligible for depreciation are not covered under section 40A(2) of the Act, by virtue of the fact that depreciation is not a deduction but only an allowance. 36.6 The Learned AR placed reliance on the following decisions, where it has been held that the term 'expenditure' envisaged in section 40A of the Act does not include 'capital expenditure': − Kansi Ram Madan Lal vs. ITO: 3 ITD 290 (Delhi) − Saral Motors & General Finance Ltd. vs. ACIT: 121 ITD 50 (Delhi) Even otherwise, in the present case, the following facts would amply demonstrate that the price paid by the assessee to REL for purchase of energy meters was not excessive or unreasonable, but at fair marke....
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....r energy meters, having same technical specifications, were procured by New Delhi Power Limited ('NDPL'), an unrelated enterprise distributing electricity in the State of Delhi, is comparable to the price at which such meters were purchased by the assessee from REL. It was on considering this aspect that the ATE set aside the order of the DERC. 36.15 In view of the aforesaid, it was submitted that the adverse inference drawn by the assessing officer merely on the basis of the DERC order, which has been set aside by ATE, alleging that the purchases made by the assessee from REL were at higher prices is baseless and, therefore, the deletion of disallowance made on that account by the Learned CIT(Appeals) is justified. 36.16 In this regard, the learned AR further submitted that for invoking the provisions of section 40A(2) of the Act, the onus lies upon the assessing officer to prove that the payment is excessive or unreasonable having regard to the fair market value of goods or legitimate needs of the business, as has been held in the following decisions: − CIT vs. Modi Revlon (P.) Ltd.:210 Taxman 161 (Del) − CIT vs. Nestle India Ltd: 337 ITR 103 (Del.) &mi....
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.... ultimately tax has been paid by REL on the consideration received on sale of the energy meters and the entire exercise is revenue neutral. 36.21 Reliance in this regard was placed on the landmark decision of the Hon'ble Supreme Court in the case of CIT vs. Glaxo Smithkline Asia (P.) Ltd: 195 Taxmann 35, where the key question for determination before the Revenue authorities was whether the assessee-company and its service provider were related companies in terms of section 40A(2) of the Act, whether allocation of cross-charges paid by the assessee could be disallowed on the alleged ground that the same were excessive or unreasonable. Dismissing the special leave petition of the Department, Hon'ble Supreme Court held that no interference was called for in the said case, as the entire exercise was revenue neutral. 36.22 To the same effect is the decision of Hon'ble Bombay High Court in the case of CIT vs. V.S. Dempo & Co. (P.) Ltd.: 196 Taxman 193, submitted the Learned AR. 36.23 In view of the above, the Learned AR submitted that the disallowance of depreciation of Rs. 2,94,24,126/- deleted by the Learned CIT(Appeals) may be upheld. 37. Considering the above submission,....
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.... received by the assessee was recognized as income over a period of three years, i.e. 1/3r of the service line deposits was recognized as income every year and the balance amount was shown as liability in the balance sheet. Further the expenditure incurred for providing service line was capitalized under the head "plant and machinery" and full depreciation was claimed by the assessee on the capital assets so acquired out of the said deposits. 38.3 The Assessing Officer held that the service line deposits and consumers contributions are in the nature of non-refundable deposits and therefore, not in the nature of liability. The Assessing Officer further held that the aforesaid deposits were taxable as Revenue receipts in view of the fact that the assessee is a service provider and the amount was received in the course of rendering of service. Accordingly, the Assessing Officer brought to tax the entire amount of service line deposits and consumer contributions received by the assessee in the assessment year under consideration. 38.4 The Learned CIT(Appeals) held that both ((i) consumer contribution and (ii) service line deposits were capital receipts and were not in the nature ....
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.... time of providing new connections, to recover the capital expenditure incurred on setting up of such lines. Thus, it is a onetime charge levied on the customer/ consumer at the time of taking new connections and thereafter, it is the responsibility of the assessee company for setting up and maintenance of the service lines. 40.4 It is respectfully submitted that the service line deposits/charges received by the assessee are capital in nature and as such is directly related to the capital expenditure incurred and capitalized under the head 'plant & machinery'. 40.5 The aforesaid issue, it was submitted, is squarely covered by the landmark decision of the Supreme Court in the case of Hoshiarpur Electric Supply Co. vs. CIT: 41 ITR 608, wherein the Hon'ble Apex Court has categorically held that the service connection receipts of an 'electricity company' are not receipts incidental to nor carrying on of the assessee's business, but are receipts for bringing into existence capital of lasting value.Since the contributions made were not made merely for services rendered and to be rendered, but for installation of capital equipment, the same constituted 'capital receipt'. The Hon'ble....
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.... including civil work, LT feeders and service line and street lights. 40.13 The aforesaid consumer contribution received from consumers for undertaking capital works are accounted for by the assessee-company as per the provisions of the Electricity (Supply) Annual Accounts Rules, 1985, which mandates that such contributions should be treated as capital receipt in the hands of the Electricity Company. 40.14 Further the details of nature of work and estimated cost of electrification schemes in respect of the consumer deposits received by the assessee were also furnished during the proceedings before the CIT(A). Reliance in this regard was placed on the decisions referred supra wherein it has been held that contribution(s) received by Electricity Companies for undertaking capital works is in the nature of 'capital receipt'. 40.15. Without prejudice to the above, the learned AR further submitted that since the aforesaid contributions were received by the assessee for meeting certain cost of assets capitalized under the head 'plant and machinery', the said amount could, at the most, be reduced from the cost of such 'plant & machinery', in terms of section 43(1) of the Act, a....
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.... details of nature of work and estimated cost of electrification schemes in respect of the consumer deposits received by the assessee were also furnished before the authorities below. We have also discussed in identical issue hereinabove in the appeals for the assessment year 2005-06 and have decided it in favour of the assessee. Thus, in view of the ratios laid down in the above cited decisions, we are of the view that the Learned CIT(Appeals) has rightly treated the consumers contribution as capital in nature. The First Appellate Order deleting the addition of Rs. 1,91,29,36,254 made on account of 'service line deposits' and on account of 'consumers contribution' is thus upheld. The ground No. 2 is accordingly rejected. 42. Ground No.3: In this ground, the Revenue has questioned First Appellate Order in deleting addition of Rs. 44,71,064 made on account of disallowance of legal claims ignoring that payments made by the assessee are penal in nature and hence not allowable. 42.1 The relevant facts are that the assessee claimed deduction for expenditure amounting to Rs. 1,78,84,256 under the head "legal claims" as per provisions of sec. 37 of the Act. The assessee submitted th....
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....the following decisions: − Prakash Cotton Mills vs. CIT: 201 ITR 684 (SC) − CIT vs. Indian Copper Corporation Ltd.: 161 ITR 327 (Pat) − CIT vs. Grand Cashew Corporation: 182 ITR 216 (Ker) − Jama Auto Industries vs. CIT: 299 ITR 92 (P&H) − CIT vs. Hindustan Copper Ltd.: 55 Taxman 392 (Cal) − CIT vs. Todi Tea Col. Ltd: 239 ITR 28 (Cal.) − G.L. Rexroth Industries Ltd. vs. DCIT: 59 TTJ 757 (Ahd.) − CIT vs. Deversons Industries Ltd.: 104 ITD 171 (Ahd.) 45. On perusal of the orders of the authorities below on the issue, in view of the above submissions and the decisions cited, we find that the Learned CIT(Appeals) has deleted the addition made on account of disallowance of legal claim on the basis that the Assessing Officer has not highlighted a single instance that the charges were of penal nature. We find that the Assessing Officer has made the disallowance on estimate basis at 25% of the expenditure claimed. No basis has been assigned for making such ad hoc disallowance. Noting these material aspects, we are of the view that the Learned CIT(Appeals) has rightly deleted the disallowance in absence of any instanc....
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....m often called a computer." 48.1 The Learned AR also placed reliance on the decision of Hon'ble Delhi High Court in the case of assessee itself in ITA No. 1266 of 2010- judgment dated 31.8.2010 (supra). He also placed reliance on the decision of Hon'ble Supreme Court in the case of CIT vs. Birla Soft Ltd., SLP No. (s) 20645/2014. 49. Considering the above submission, we find that the issue is fully covered by the above cited decision of Hon'ble Delhi High Court in the case of assessee itself in ITA No.1266 of 2010 (supra) holding that printers, scanners and server etc. form integral part of the computer system and, therefore, entitled to depreciation @ 60%. Respectfully following the same, we are of the view that the Learned CIT(Appeals) has rightly deleted the disallowance. The same is upheld. Ground No. 4 is accordingly rejected. 146. In result, the appeal of the Revenue is dismissed. ITA No. 1437/Del/2011: (A.Y. 2007-08): 50. The assessee has impugned First Appellate Order on the following grounds: "1. Service Line deposits from the consumers wrongly upheld as taxable over a period of 3 Years. The learned CIT(A)-VI has upheld that the service line deposits are ....
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..... Ground No.2: In this ground the issue raised is regarding validity of allowance of depreciation at the rate of 15% as against 80% on energy meters, resulting in disallowance of Rs. 32,54,73,974. An identical issue has been decided in the appeals for the assessment years 2005-06 and 2006-07 hereinabove with this finding that the assessee is entitled for claiming depreciation @ 80% on the energy meters and has been set aside the matter to the file of the Assessing Officer to allow the same on the energy/electronic meters expenditure on which has been reflected in the audit report made available at page No. 75 of the supplementary paper book filed by the assessee. Following the same, we decide the matter accordingly with the similar direction to the Assessing Officer. The ground No.2 is thus allowed for statistical purposes. 150. In result, the appeal is partly allowed. ITA No. 1539/Del/20111: (A.Y. 2007-08): 53. The Revenue has questioned First Appellate Order on the following grounds: 1. "The Ld. CIT(A) has erred on facts and in law in deleting addition of Rs. 51,22,43,735/- made on account of disallowance of service line deposits and customer contribution to capital w....
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....capital expenditure. j) The service line receipts simply cannot be treated as capital receipts because their nature would not depend upon how the assessee co. is utilizing them but in what capacity they have been received by the company. And the fact is that they have been received by the company. And the fact is that they have been received by the co. in the course of running its regular business operations. k) The assessee company also not provided the information in the tabular form inspite of specifically asked for by the AO during the Assessment proceedings. 2. The Ld. CIT(A) has erred on facts and in law in deleting addition of Rs. 32,59,746/- made on account of disallowance of legal claims ignoring that payments made by the assessee are penal in nature and hence not allowable. 3. The Ld.CIT(A) has erred on facts and in law in deleting addition of Rs. 4,33,41,629/- made on account of disallowance of extra depreciation on computer peripherals/accessories ignoring that as per the IT Rules 60% depreciation is allowable only on computer and computer software and not on computer peripherals and accessories." 54. In the ground No.1, the issue raised is as....
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....lowing grounds: "1. Depreciation on energy meters at 15% as against its eligibility of 80%. The Ld. CIT (A)- V has dismissed this ground mentioning that since appellant has claimed 15% depreciation on Energy Meters in the revised return which has been allowed by the A.O. no cause of grievance arises. In this regard, it has been duly clarified that the appellant has claimed depreciation @ 15% against the eligibility of 80%. The higher depreciation may be allowed in case the appellant authorities allow the claim of 80% in earlier years. Accordingly, the issue of higher depreciation @ 80% on energy meters still stands. 2. Additional depreciation on assets created out of Service Line Deposit and Consumer Contribution for Capital works from consumers. Without prejudice to the ground that service line deposits and consumer contribution for capital works are capital receipts, in case authorities decide these issue otherwise, the additional depreciation on assets created out of service line deposits and consumer contribution should be allowed." 59. Ground No.1 : An identical issue as raised in this ground regarding eligibility of claiming of depreciation @ 80% on energy mete....
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....it and this is its regular. 4. The appellant craves leave for reserving the right to amend, modify, alter, add or forego any ground(s) of appeal at any time before or any time during the hearing of this appeal". 63. Issue No.1: An identical issue as to whether the Learned CIT(Appeals) has erred in deleting the addition (of Rs. 1,21,47,44,450) made on account of service line deposits received from the customers, has been decided in favour of the assessee and upholding the finding of the Learned CIT(Appeals) in this regard that the deposits are capital in nature, in the appeals preferred by the Revenue for the assessment years 2005-06 and 2006-07. Following the same, the First Appellate Order on the issue is upheld with this finding that the deposits are capital in nature. The issue No.1 is thus decided against the Revenue and is accordingly rejected. The issue raised in ground No.2 of the appeal preferred by the assessee does not stand. 64. Issue No. 2: An identical issue as to whether the Learned CIT(Appeals) has erred in deleting the addition ( of Rs. 1,26,99,307 ) made on account of disallowance of legal claims has been decided in favour of the assessee by upholding the ....
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.... holding that entire receipt by way of service line deposit is capital in nature." 2. "That on the facts and circumstances of the case and in law, the Assessing Officer erred in assessing the income of the appellant under sec. 115B and not under the normal provisions of the Income-tax Act, 1961 ("the Act"), without appreciating that the deeming provisions of section 115JB of the Act were not applicable during relevant assessment year." 70. The parties have adopted similar arguments as advanced by them hereinabove in the appeal for the assessment year 2005-06 in the case of BSES Rajdhani Power Ltd. Following the view taken therein, the present application raised for the admission of the above stated additional grounds is allowed. 71. Ground No.1 : An identical issue on the eligibility of claiming depreciation @ 80% on energy meters against 25% allowed by the authorities below under the similar facts has been decided in favour of the assessee in the appeal for the assessment year 2005-06 preferred by the BSES Rajdhani Power Ltd. hereinabove. Following the same, ground No.1 is decided in favour of the assessee with this finding that the assessee is entitled to claim depreciat....
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....ssessee co is engaged in selling the energy, therefore for this purpose it has to provide service line connections to all consumers for which it charges service line deposits. Hence it can be seen that these service line receipts are received by the co. during the course of its regular business/commercial operations. Hence, they are in the nature of revenue receipts. d) The service line receipts simply cannot be treated as capital receipts because their nature would bot depend upon low the assessee co. is utilizing them but in what capacity they have been received by the company. And the fact is that they have been received by the co. in the course of running its regular business operations. 2. The Ld. CIT(A) has erred facts and in law in deleting addition of Rs. 26200000/-made on account of valuation of closing stock ignoring that: a) In this particular case the assessee was earlier following First In First Out (FIFO) method for valuation of stores/spares. Under any circumstances FIFO method is more correct & hence more appropriate for the valuation of stores/spares as closing stock as compared to "Moving Average" method. b) No sound reasoning/accepta....
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....n the case of BSES Rajdhani Power Ltd. for the assessment year 2005-06. Following the same, the issue raised in ground No.2 of the present appeal is decided against the Revenue by upholding the action of the Learned CIT(Appeals) giving the above relief. The ground No.2 is accordingly rejected. 76. In result, the appeal is dismissed. ITA No. 404/Del/2012 -(Assessee) - (A.Y. 2006-07): 77. The assessee has questioned First Appellate Order on the following grounds: "1. Service Line deposits from the consumers wrongly upheld as taxable over a period of 3 Years. The learned CIT (A)-VII has upheld that the service line deposits are capital in nature but in this regard he has wrongly upheld that the same are taxable over a period of 3 years. In fact the same deserves to be reduced from the cost of plant and machinery in accordance with the provisions of Section 43(1) of the Income Tax Act, 1961. 2. Depreciation on energy meters wrongly allowed at 15% as against 80% resulting in a disallowance of Rs. 48,13,62,420. The Ld. CIT (A) - VII has wrongly upheld that the "Energy Meters" are eligible for depreciation @ 15 % as against the claims @ 80 %. In this regard he has ign....
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....action of the Learned CIT(Appeals) upholding service line deposit from the consumers as taxable over a period of three years has been questioned. During the year, the assessee had received a sum of Rs. 10.44 crores (as per rectification order dated 31.1.2011) as nonrefundable service line deposits from customers as per the provisions of DERC and the expenses for providing new connections to customers. The Learned CIT(Appeals) while treating the service line deposit as capital in nature did not direct the Assessing Officer to reduce the amount of service line deposit credited to the profit and loss account during the year as per the company's policy of offering the service line deposit for Revenue over a period of three years, while computing the total income after holding that entire receipt by way of service line deposit is capital in nature. Being aggrieved, the assessee has raised this ground. The issue raised in this ground under the similar set of facts has been decided hereinabove in the case of assessee itself in the appeal preferred by it for the assessment year 2005-06 hereinabove. Following the same, we direct the Assessing Officer to reduce the amount of service line dep....
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....of BSES Rajdhani Power Ltd. in the appeal preferred by the assessee for the assessment year 2006-07 hereinabove. Following the same, we while setting aside orders of the authorities below in this regard direct the Assessing Officer to reduce grant in aid received by the assessee from the respective "cost of assets(s)" as reflected in the tax audit report of the assessee for the years as it has been rightly adjusted by the assessee and not against the meters and allow the claimed relief after affording opportunity of being heard. The ground No.3 is accordingly allowed for statistical purposes. 82. In result, the appeal is partly allowed. ITA No.1438/Del/2011 -Assessee- (A.Y. 2007-08): 83. The assessee has impugned First Appellate Order on the following grounds: 1. Service Line deposits from the consumers wrongly upheld as taxable over a period of 3 Years. The learned CIT(A)-VI has upheld that the service line deposits are capital in nature but in this regard she has wrongly upheld that the same are taxable over a period of 3 years. In fact the same deserves to be reduced from the cost of plant and machinery in accordance with the provisions of Section 43(1) of t....
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....s of the case and in law, the Assessing Officer erred in assessing the income of the appellant under sec. 115JB and not under the normal provisions of the Income-tax Act, 1961 ("the Act"), without appreciating that the deeming provisions of section 115JB of the Act were not applicable during the relevant assessment year." 83.2 An identical issue after admitting the above additional ground has been decided in favour of the assessee hereinabove in the appeal for the assessment year 2005-06 with this finding that the Assessing Officer has erred in assessing the income of the assessee under sec. 115JB of the Act and not under the normal provisions of the Act. Following the same, the additional ground is decided in favour of the assessee. 84. Ground No.1: It is relating to service line deposits from the consumers wrongly upheld as taxable over a period of three years. Under the similar set of facts in case of the assessee itself in the appeal preferred by it for the assessment year 2005-06 has been decided in favour of the assessee hereinabove. Following the same, we while setting aside orders of the authorities below in this regard direct the Assessing Officer to reduce the amoun....
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....s that the Learned CIT(Appeals) has erred in deleting the addition of Rs. 59,27,00,000 made on account of disallowance of deemed dividend under sec. 2(22)(e) of the Act ignoring that the Reliance Energy Ltd., Reliance Global Pvt. Ltd. are common shareholder in the assessee company as well as BSES Rajdhani Pvt. Ltd. from whom the assessee company has received loan and advances. The shareholding of Reliance Energy Ltd. and Reliance Global Pvt. Ltd. is also not less than 10%. We thus decided to deal with ground No.3 of the appeal of the assessee and ground No.4 of the appeal of the Revenue simultaneously. 86.1 Brief facts on the issue, case of the Assessing Officer, findings of the Learned CIT(Appeals) and contention of the assessee are as under: 86.2 In the assessment year under consideration the assessee-company received loan amounting to Rs. 59,27,00,000 from M/s BSES Rajdhani Power Ltd.('BRPL') The shareholding of the assessee-company as on 31.03.2007 was as under: Name of Share Holder No. of shares Percentage of Total Reliance Energy Ltd. 30,60,000 51% Reliance Energy Mgt. Service Pvt. Ltd 96,00,000 Reliance Energy Global Pvt. Ltd. 96,00,....
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....e, per se, not applicable in the case of the assessee. 87. In this regard, the Learned AR submitted that section 2(22)(e) of the Act defines 'deemed dividend' as under: "(e) any payment by a company, not being a company in which the public are substantially interested, of any sum (whether as representing a part of the assets of the company or otherwise) [ made after the 31st day of May, 1987 , by way of advance or loan to a shareholder, being a person who is the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) holding not less than ten per cent of the voting power, or to any concern, in which such shareholder is a member or a partner and in which he has a substantial interest (hereafter in this clause referred to as the said concern)] or any payment by any such company on behalf, or for- the individual benefit, of any such shareholder, to the extent to which the company in either case possesses accumulated profits; but" dividend" does not include- ..................." (emphasis supplied) 87.1 On perusal of the aforesaid, it may be noted that the provisions of this clause are attract....
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....throughout the previous year. Explanation.- In its application to an Indian company whose business consists mainly in the construction of ships or in the manufacture or processing of goods or in mining or in the generation or distribution of electricity or any other form of power, item (B) shall have effect as if for the words" not less than fifty per cent", the words" not less than forty per cent" had been substituted;" (emphasis supplied) 87.4 On perusal of the aforesaid section, it may be noted that if fifty percent of shares a Company, not being a Private Company is held by: (1) the Government; or (2) Corporation established by a Central, State or Provincial Act; or (3) any company to which this clause applies; then such Company is considered to be a "company in which the public are substantially interested", for the purposes of the Act. 87.5 Further, Explanation to the aforesaid section provides that in the case of an Indian company whose business consists mainly of distribution of electricity, then the words 'not less than 50%' shall be substituted with 'not less than 40%'. 87.6 The Learned AR submitted that BRPL is a "company in which the public are s....
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.... case, the assessee did not have any 'direct shareholding' in BRPL in the assessment year under consideration and was therefore not a 'shareholder' in BRPL. 87.14. In view of the above, it is respectfully submitted, that the addition of Rs. 59,27,00,000/- made by the assessing officer under section 2(22)(e) of the Act calls for being deleted. 88. The learned CIT(DR) on the other hand placed reliance on the assessment order. 89. It is coming from the submissions of the assessee that BRPL was incorporated as public company on 04.07.2001 and 49% of the shares of the said company are held by the Delhi Power Co. Ltd., a corporation set up under the State Act of Delhi Electricity Reforms Act, 2000 (Delhi Act No.2 of 2001). It has also been pointed out that Delhi Power Co. Ltd. is a company which is wholly held by the government and hence a company in which public is substantially interested. In view of the submissions, the contention of the Learned AR remained that BRPL satisfies the conditions stipulated in both sub-clause (b) and (c) of section 2(18)(b)(B) of the Act as: i) More than 40% of its shares are held by Corporation set up under the State Act; ii) More than 40% ....
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....arned CIT(Appeals) on the other alternative argument of the assessee is fully covered in favour of the assessee by the above cited decisions, we do not find reason to interfere with the First Appellate Order in this regard. The same is upheld. The ground No.4 of the Revenue's appeal questioning the above finding is thus rejected. 89.5 The Learned CIT(Appeals) has, however, left open the above discussed first contention of the assessee, treating the same as turned academic in view of is above finding on the alternative contention of the assessee. The assessee is aggrieved with this non-action of the Learned CIT(Appeals). By virtue of the provisions laid down under sec. 2(18)(b)(B)(c) of the Act, we principally agree with the contention of the assessee that provisions of sec. 2(22)(e) of the Act are not attracted, where the company, who provides loan/advance to the assessee, is a company in which public has substantial interest. In support, the assessee has also cited hereinabove the two conditions i.e. (a) (b) claimed to have been fulfilled in the present case, which our view need verification to decide the issue raised in ground NO.3 of the assessee. Since the Learned CIT(App....
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....e receipts as revenue receipts impliedly, goes on to show that the co.believes that they are of revenue nature. s) Further the co. has not submitted any reasoning whatsoever as to why it has treated specifically 1/3rd of these receipts as revenue receipts and not ½ or 1/4th or some other proportion as revenue receipts. t) Lastly the assessee co. has not provided the details of these receipts including their reconciliation with its books even though specific query was raised in this regard vide not sheet entry dt. 21.11.2008. However a sample voucher of receipt was submitted which reveals that apart from service line charges, the co. is levying development charges from the customers for a new connection. Thus the co. is already collecting funds for incurring capital expenditure. u) The service line receipts simply cannot be treated as capital receipts because their nature would not depend upon how the assessee co. is utilizing them but in what capacity they have been received by the company. And the fact is that they have been received by the company. And the fact is that they have been received by the co. in the course of running its regular business operations. ....
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....r the assessment year 2006-07 vide ground No.4 therein. Following the same, we affirm the action of the Learned CIT(Appeals) in deleting the addition in question with this finding that the assessee was very much eligible for the claimed depreciation on computer peripherals. The ground No.3 is accordingly rejected. 95. Ground No.4: It is regarding the deletion of addition of Rs. 59,27,00,000 made on account of disallowance of deemed dividend under sec. 2(22)(e) of the Act, which has been dealt with connected issue raised in ground No. 3 of the appeal preferred by the assessee hereinabove. Following the decision taken therein the action of the Learned CIT(Appeals) in deleting the addition in question is upheld. Ground No. 4 is accordingly rejected. 96. In result, the appeal is dismissed. ITA No. 3922/Del/2012 - Assessee - (A.Y. 2008-09): 97. The assessee has impugned First Appellate Order on the following grounds: "1. Service line deposits from the customers wrongly upheld as taxable over a period of 3 years. The Learned CIT(Appeals)-VIII has upheld that the service line deposits are capital in nature but in this regard he has wrongly upheld that the same are taxable o....
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....f the Act during the year. The additional ground is accordingly allowed. 99. Ground No.1: It is regarding upholding the service line deposits from consumers taxable over a period of three years. 99.1 Under similar set of facts, we have decided the issue raised in this ground in the appeal of the assessee for the assessment year 2005-06 hereinabove. Following the same and the decision taken in the connected additional ground for the assessment year 2005-06 in the assessee's appeal, we hold that the Learned CIT(Appeals) while holding the service line deposits from consumers as capital in nature should have directed the Assessing Officer to reduce the amount of service line deposits credited to the profit and loss account during the year (as per the company's policy of offering the service line deposits for Revenue over a period of three years) by computing the total income after holding that entire receipts by way of service line deposits is capital in nature. We direct to the Assessing Officer accordingly. The ground No.1 is accordingly allowed. 100. Ground No2: An identical issue regarding depreciation on energy meters @ 80% claimed by the assessee has been decided in the ....