TaxTMI 
TaxTMI 
2016 (12) TMI 946
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....e Gujarat Electricity Board (GEB) to the government and then to re-vest the same into seven companies i.e. one Generation company, one Transmission company and four Distribution companies and one with the residual functions. This re-organization of GEB was effective from 1st April, 2005 by operational law in the name of Gujarat Urja Nigam Ltd. Assessee is one among the 7 different companies engaged in carrying out activities relating to generation, transmission and distribution. Return of income for Asst. Year 2006-07 was electronically filed on 29.12.2006 declaring income at Rs. NIL and paid taxes u/s. 115JB of the Act on the book profit of Rs. 18,34,88,182/-. The case was selected for scrutiny assessment and notice u/s. 143(2) of the Act dated 24.10.2007 followed by notice u/s. 142(1) of the Act was duly served upon the assessee. Necessary details were called for and supplied by assessee. Various additions were made. However, due to set off of brought forward business loss income was assessed at NIL and book profit u/s. 115JB of the Act was assessed at Rs. 19,12,33,031/-. Appeal before ld. CIT(A) brought part relief to the assessee. 3. Now aggrieved, assessee is in appeal befo....
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....s. Further out of 24 accounting locations of the company a few locations could not pass the accounting entries during the F.Y. 2005-06 and the same have been passed in the subsequent years. Similarly, as regards miscellaneous loss of write off the total expenses under this head amounted to Rs. 25,01,509/- but after adjusting this amount against the opening provisions of bad debts assigned to the company, the balance amount of Rs. 7,38,118/- has been claimed as an expenditure. 8. On the other hand, ld. DR supported the orders of lower authorities. 9. We have heard the rival contentions and perused the record placed before us. The issue raised by assessee in this ground, against the order of ld. CIT(A) sustaining the disallowance of Rs. 41.41 lacs on account of bad debts of Rs. 34,03,318/- and miscellaneous loss written off at Rs. 7,38,118/-. 10. We observe that there was a major reshuffling in GEB pursuant to which 7 different companies came into operation for carrying out various activities generation, distribution, transmission etc. Assessee company is engaged in power transmission got its assets and liabilities as opening balance w.e.f. 1.4.2005. As submitted by ld. AR t....
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....om the fixed asset and has claimed higher amount of depreciation and accordingly calculated disallowance of depreciation at Rs. 10,84,81,976/-. 14. Ld. CIT(A) while adjudicating this ground raised by assessee confirmed the disallowance by observing as follows:- 6. Third ground is in respect of disallowance of depreciation amounting to Rs. 10,84,81,976/-. The facts in this regard as, noted by the AO are that in the balance sheet the appellant company has shown reserves and surplus as on 31.03.2006 amounting to Rs. 115.04 crores. It was noted by the AO that these reserves and surplus were govt. subsidy towards cost of capital assets and therefore he asked as to how the accounting treatment has been given to these reserves. It was stated before the AO that out of 115.04 crores Rs. 17.41 crores has been routed through profit and loss account and the balance of Rs. 97.63 crores received towards grant and capital contribution, 10% of the same is routed through profit and loss account every year. The AO raised a question as to why the amount of Rs. 97.63 crores should not be brought to tax during the year instead of only 10%. It was contended before the AO that the consumer co....
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.... referred and relied on the decision of Co-ordinate Bench in the case of Gujarat Energy Transmission Corpn. Ltd. (GETC L) vs. ACIT in ITA No. 704/Ahd/2012 for Asst. Year 2008-09 and other vide order dated 12.06.2015. 16. On the other hand ld. DR supported the orders of lower authorities. 17. We have heard the rival contentions and perused the material on record. Through this ground assessee has challenged the order of ld. CIT(A) sustaining the disallowance of depreciation at Rs. 10,84,81,976/- by observing that capital subsidy and grant received are to be reduced from fixed asset and depreciation to be allowed on the remaining balance. We observe that the Government gives grant/subsidy to the holding company and then it is allocated to the assessee which is one of the subsidiary company and further such subsidy are not granted to actually to meet the cost but are granted as an inclusive of rural economically backward unviable areas. Assessee received subsidies on different schemes viz. Rural Electrification and Tribal area Electrification and the assets cannot be bifurcated into Rural/Tribal area etc. 17.1 There is no dispute to the fact that the grants received from the G....
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....2 The contention of the assessee that Consumer's Contribution and Capital Grant are capital in nature is found tenable, but its treatment, of 10% thereof transferred to P and L account every year is not in accordance with the provisions of the Act. As envisaged in explanation 10 to section 43(1), where a portion of the cost an asset acquired by the assessee has been met directly or indirectly by the Central Government or State Govt. or any Authority established under any law, or by any other person, in the form of subsidy or grant or reimbursement then in a case where the subsidy is directly relatable to the asset, such subsidy shall not be included in the actual cost of the assets. In a case, where such subsidy or Grant or reimbursement, is of such nature that, it cannot be directly relatable to any particular assets, so much of the amount which bears to the total subsidy or reimbursement or Grant the same proportion as such asset bears to all the assets in respect of which or with reference to which such grant or subsidy or reimbursement is received shall no be included in the actual cost of that assets to the assessee. 4.3 In view of the clear provisions of the Act ....
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....ulate the depreciation at the rates applicable to such assets. Needless to mention that all necessary details will be provided by the assessee to the Assessing Officer in order to calculate the correct amount of depreciation, Ld. Assessing Officer to provide proper opportunity of being heard should be given to the assessee. Accordingly, this ground of assessee is allowed for statistical purposes. 18. Ground No. 3reads as under:- 3.0 The learned Commissioner of Income Tax (Appeals) has erred in law and facts in confirming the disallowance of Rs. 1,08,030/- under the head small and low value items written off. 19. Addition of Rs. 1,08,030/- was made by Assessing Officer towards the claim of assessee of write off of small and low value items of Rs. 1,08,030/- as the actual cost of machinery and plant individually was not exceeding Rs. 5,000/-. However, ld. Assessing Officer was of the view that w.e.f. 1.4.1996 no such provision exists for debiting the cost of assets as expenditure value of which is less than Rs. 5,000/-. Even before first appellate authority, ld. CIT(A) dismissed the ground of assessee as no details were available on record bifurcating the assets as per....
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....ier years and the assessee company has only taken over the existing liability. 26. In appeal before the Tribunal, ld. AR submitted that after restructuring in the year under appeal it is the first year of operation of the assessee hence assessee could not bring prior period expenses were allocated to the company as a result of split transfer of the running business and therefore, these expenditure crystallized during the year under consideration. 27. Ld. DR supported the orders of lower authorities. 28. We have heard the rival contentions and perused the record. The issue raised in this ground by assessee is against the action of ld. CIT(A) disallowing prior period expenditure of Rs. 20,69,096/-. We find that following prior period expenditure were claimed during the year:- Other generation cost Rs.900/- Employees cost Rs.5,17,070/- Depreciation Under Provided Rs.03,478/- Other excess provision Rs.4,28,098/- Other prior period expenditures Rs.11,19,550/- Rs.20,69,096/- 29. We further observe that apart from the bifurcation of prior period expenses as referred and general submission of assessee that the amount has been....
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....ction of deferred tax assets at Rs. 6,40,52,414/- was denied for calculating business income of the assessee. As far as computation of book profit was concerned assessee has himself not claimed it as deduction from book profit but mentioned by way of note in the computation of income that it was eligible for deduction u/s. 115JB of the Act for deferred tax asset and reserve its rights to claim refund of such tax in the event of matter being decided favourably. 33. Aggrieved assessee then went in appeal before ld. CIT(A) raising two grounds. Firstly against non-allowability of deduction of deferred tax asset while computing business income and secondly for not allowing deduction of deferred tax on assets u/s. 115JB of the Act without giving any finding in the assessment order. Ld. CIT(A) dismissed the ground of assessee claiming deduction of deferred tax asset for calculation of business income by observing as under:- 13.2 I have given my careful consideration to the submission and also considered relevant provisions of law in this regard. The appellant has reduced deferred tax amounting to Rs. 6.40 crore from the regular computation of income. It is to be noted that for....
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....of which was not made while furnishing return of income. As far as ground No. 6 is concerned, we observe that in the audited profit and loss account for F.Y. 2005-06 exhibiting at page 27, showing profit and loss before tax at Rs. 127180617/-. As the deferred tax asset of Rs. 6,40,52,414/- was more than other tax liabilities, the resultant figure was Rs. 44614193/- which has to be added to the profit before tax to arrive at profit after tax at Rs. 171794810/-. Calculation of tax adjustment of Rs. 44614193/- is as follows:- Income-tax (MAT) Rs.11693372 Deferred tax asset (Rs.64052414) Wealth tax Rs.67361 Fringe benefit tax Rs.7677488 Rs.4461419 Now when we move to see the effect of tax expenditure in the computation of income we find that assessee has rightly added provisions for wealth tax, provisions for income-tax and fringe benefit tax to the net profit as per profit and loss account of Rs. 174131929 (net profit after tax at Rs. 171794810 + net prior period credit at Rs. 2337119). Further assessee has rightly deducted deferred tax asset from the net profit for the purpose of calculating business income. To this extent assessee ha....
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....ssee has himself not claimed the deduction from its book profit while furnishing return of income we observe that if the assessee is eligible for some deduction but has not claimed so while furnishing return of income, deduction cannot be denied merely because it was not claimed in the computation of income. If the assessee has rightly moved an application u/s. 154 of the Act to rectify the intimation sent by Assessing Officer then Assessing Officer should rectify such intimation and allow the claim of assessee. We find that the decision of the Co-ordinate Bench, Ahmedabad in the case of Zen Tobacco Co. P. Ltd. comes to rescue to the plea of the assessee wherein the Co-ordinate Bench has observed that in the provisions of section 139(1), 139(5) and 143(1) of the Act, it is evident that it is not the case that Revenue authorities have to accept whatever stated in the return of income computing the income mechanically. As per provisions of section 143(1) of the Act is concerned the Revenue has to examine whether any claim as made by the assessee is correct or not. This includes under statement and over statement of the income. If Revenue authorities fail to take note of incorrect cla....
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.... of the Act are applicable on the service tax payable. Ld. CIT(A) allowed the claim of assessee by following the judgment of Hon. Delhi High Court in the case of CIT vs. Noble and Hewitt (I)(P) Ltd.. 42. Aggrieved, Revenue is now in Cross Objection before the Tribunal. 43. Ld. DR submitted that provisions of section 43B sub sec. (a) refers to any sum payable by the assessee by way of tax, duty, cess or fee, by whatever name called, under any law for the time being in force. Service tax payable related to service tax which has been charged by the assessee to its customers and it stood as liability at the end of the year, ld. DR submitted that there cannot be any possibility of claim of service tax payable as expenditure in the profit and loss account because it is the tax collected by assessee on behalf of the government and it needs to be paid to the government on the due date. Ld. DR further submitted that liability of service tax is same to that of other tax or duty which assessee has charged from its customers and if the tax so payable is not deposited before the due date of filing of return then it needs to be added to the net profit of the assessee u/s. 43B of the Act. ....
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....bility to pay the service tax in respect of the consideration payable will arise only upon the receipt of such consideration and not otherwise." Copy of above decision is enclosed herewith. (ii) Further, under Rule 6 of Service Tax Rules, 1994, as applicable in Asst. Year 2006-07, service tax was to be paid only after the receipt of service tax by the assessee from the persons to whom he has rendered the services. In other words, the assessee under Service Tax Act is only a collecting agent, who has liability to pay service tax to the Government on or after the receipt thereof. In view of the peculiarity of this provision, it is worth noting that in accountancy, because the assessee is a mere collecting agent, this item will not be reflected in the Profit and Loss Account of the concerned assessee under the Service Tax Act but will be reflected only in the Balance Sheet to keep track of the payment of service tax to be paid by the service receivers and to square of that Service Tax Account when the service tax is paid off to the Government. This method of accounting is being followed by all assessees because they are mere collecting agents, as it has been....
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....d as expenditure in the following year in which such tax or due is paid. In our view section 43B sub-sec. (a) of the Act does not have a direct link of the amount of tax to be passed through profit and loss account. Ratherit is in the nature of check by the statute to ensure that the assessee makes payment of the tax collected to the concerned department and if he is unable to do so the amount is added to its income. 47. Ld. AR has referred and relied on the decision of Hon. Bombay High Court in the case of CIT vs. Ovira Logistics (P) Ltd. (2015) 377 ITR 129 (Bom). We find that the facts of the case are completely different as it refers to service tax amount which were not payable as on 31.3.2007 as per the provisions of Service Tax Act wherein in same situation the liability to pay service tax ceases only when the value of service including service tax has been received from the parties. Further in the decision so relied on by the assessee, there was a bifurcation available on record about the service tax payable and not payable at the close of the year. However, going through the record placed before us, we find that assessee has been unable to place on record any detail to pr....