AI Drafter 
TaxTMI 
TaxTMI 
2017 (8) TMI 565
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....e first issue concerning depreciation on non existing assets is concerned, the same has been decided in quantum proceedings in favour of the assessee by the Tribunal vide its consolidated order dated 14.07.2016. It was accordingly submitted that since the addition has been deleted by the Tribunal in the quantum proceedings, the necessary relief may be granted in terms of consequent levy of penalty. 4. The relevant finding of the Coordinate Bench in ITA No. 283/JP/2009 and others dated 14.07.2016 are as under:- "9. We have heard the rival contentions of both the parties and perused the material available on the record. We have heard the matter on 16/6/2016. During the course of hearing, it was submitted on behalf of the assessee that the erstwhile Rajasthan State Electricity Board was not assessable to income tax and therefore, it was not filing the income tax return. However, thereafter on going through the record and the judgment passed by the Hon'ble High Court and Hon'ble Supreme Court, it transpires that the Rajasthan State Electricity Board is an taxable entity and therefore the matter was fixed for hearing on 29/6/2016 for the purposes of clarification. On....
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....rt of the block of assets prior to its transfer with the RACB. As per the balance sheet of the Rajasthan State Electricity Board, the allowable depreciation up to 19/7/2000 was mentioned as Rs. 1,04,82,30,121/-.Since block of assets were transferred to the assessee, therefore, the insistence of the ld Assessing Officer for physical verification of the assets for the purposes of depreciation, in our view, was not warranted. In our view, once the assets are forming part and parcel of the block of assets, which were transferred to the assessee from Rajasthan State Electricity Board, the physical verification for the purposes of depreciation may not be required and therefore, the assessee is entitled to depreciation on the written down value of the assets a per Income Tax Act 1961, subsequent to the transfer from the assets from Rajasthan State Electricity Board. 9.3 It is an admitted case that the assessee company was constituted under the Act of Rajasthan and under the statutory transfer scheme, therefore, in view of Section 43 of the Act, transfer of assets had been fall within the realm of transfer as envisaged under the Act. As per explanation-6 of Section 43(1), the actu....
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....t to the assessee ; (b) in the case of assets acquired before the previous year, the actual cost to the assessee less all depreciation actually allowed to him under this Act, or under the Indian Income-tax Act, 1922 (11 of 1922), or any Act repealed by that Act, or under any executive orders issued when the Indian Income-tax Act, 1886 (2 of 1886), was in force." 10. It may be noted that sub-clause (a) of clause (6) would not apply in the instant case as that would apply for the assessment year 1975-76. Sub- clause (b) clearly indicates that the written down value means the actual cost to the assessee less all depreciation actually allowed to him under the Act. In the instant case Explanation 2 to clause (6) of section 43 is relevant and is reproduced hereunder : " Explanation 2.-When any capital asset is transferred by a holding company to its subsidiary company or by a subsidiary company to its holding company, then, if the conditions of clause (iv), or, as the case may be, of clause (v) of section 47, are satisfied, the written down value of the transferred capital asset to the transferee-company shall be taken to be the same as it would have been if th....
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.... Explanation 6 the written down value of the holding company is required to be taken into consideration. 15. Learned counsel for the assessee submitted that the difference between the WDV and the price received for the property has been taxed in the hands of the holding company in the relevant assessment years and there is no dispute on this issue. In view of this, it was submitted that the Revenue cannot have tax benefit at both the places, namely, in the hands of the parent company and at the hands of the assessee. It was thus submitted that there is no evasion of tax. 16. On behalf of the assessee it was contended that actual cost is not static and it is required to be determined year to year. No doubt there may be a situation which may require the Assessing Officer to examine the case and re-determine the actual cost. In fact the apex court has considered this aspect at page 306 and pointed out instances. The apex court at page 309 (see [1992] 194 ITR) as under: "In principle, therefore, we are unable to accept the contention that the actual cost cannot be determined year after year on the factual or legal position applicable for the relevant previous....
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.... or indirectly by the Central Government or a State Government or any authority established under any law or by any other person, in the form of a subsidy or grant or reimbursement (by whatever name called), then, so much of the cost as is relatable to such subsidy or grant or reimbursement shall not be included in the actual cost of the asset to the assessee : Provided that where such subsidy or grant or reimbursement is of such nature that it cannot be directly relatable to the asset acquired so much of the amount which bears to the total subsidy or reimbursement or grant the same proportion as such asset bears to all the assets in respect of or with reference to which the subsidy or grant or reimbursement is so received, shall not be included in the actual cost of the asset to the assessee. A bare reading of the Explanation 10 of Section 43 of the Act, which clearly provides that where a portion of the cost of an asset acquired by the assessee has been met directly or indirectly by the Central Government or a State Government in the form of a subsidy or grant or reimbursement, then, so much of the subsidy or grant or reimbursement shall not be included in the a....
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....n favour of the assessee. Now, the position that emerges is that there is disallowance of depreciation while determining the income under the normal provisions of the Act and the provisions of MAT are held not applicable in the instant case. 9. In the above background, we now refer to the CBDT circular No. 25/2015 dated 31.12.2015 which is reproduced as under:- "Subject u/s 271(1)(c) wherein additions/disallowances made under normal provisions of the Income Tax Act, 1961 but tax levied under MAT provisions u/s115JB/115JC, for cases prior to A.Y. 2016-17-reg.- Section 115JB of the Act is a special provision for levy of Minimum Alternate Tax on Companies, inserted by Finance Act 2000 with effect from 1-4-2001. 2. Under clause (iii) of sub-section (1) of section 271 of the Act, penalty for concealment of income or furnishing inaccurate particulars of income is determined based on the "amount of tax sought to be evaded" which has been defined inter-alia, as the difference between the tax due on the income assessed and the tax which would have been chargeable had such total income been reduced by the amount of concealed income or income in respect of which inaccurate particular....
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....nalty order, statement of facts, grounds of appeal and written submission carefully. It is seen that one of the argument of the appellant is that in view of the Circular No. 25/2015 (F. No. 279/Misc/140/2015/ITJ) of the CBDT and the decision of Delhi High Court in the case of M/s Nalwa Sons Investment Ltd. vs. CIT (ITA No. 1420/2009), no penalty u/s 271(1)(c) can be levied upon the assessee as the tax has been paid by the assessee u/s 115JB because the income tax payable on the total income as computed under the normal provisions of the I.T. Act was less than the 7.5% of book profit and the books profit was deemed to be the total income of the assessee and tax was shown as payable by the assessee on such total income @ 7.5%. According to the assessee, in view of the Circular No. 25/2015 of the CBDT and decision of Delhi High Court in the case of M/s Nalwa Sons Investment Ltd., referred above, no penalty u/s 271(1)(c) can be levied upon the assessee as the total income deemed u/s 115JB is more than the total income computed under the normal provisions of the I.T. Act. I have gone through the judgment of Delhi High Court and Circular referred by the appellant carefully. In the judgme....
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....aimed on excess cost of the asset (In view of the Explanation 10 to sub section 1 of section 43) in the book profit declared by the appellant u/s 115JB. The same disallowances were made by the AO while computing the total income under the normal provisions of the I.T. Act. The adjustments made by the AO in the book profit declared by the appellant u/s 115JB have been upheld by the CIT(A) Ajmer on the ground that from the observations made by the auditors of the appellant company, it was clear that the accounts have not been maintained properly even according to the companies Act, as there were violations of various accounting standards (AS16, AS17, AS12, AS10 etc.) and the auditors have themselves mentioned that net effect of the various qualification made by them could not be given. Therefore, it was held by the CIT(A) that the AO was justified to make the changes in the books profit declared by the assessee u/s 115JB. Thus, it can be said that in the case under consideration, the AO has made adjustments in respect of the disallowance of depreciation made by him, in the book profit declared by the appellant u/s 115JB. The penalty u/s 271(1)(c) has also been levied in resp....
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....per any accounting standard issued by ICAI. Therefore, I am of the considered view that the appellant has filed inaccurate particulars of income by claiming depreciation on nonexisting assets. The appellant has also claimed depreciation on the cost of assets met by the government or consumers in the form of subsidies, grants and contributions. Further, the assessee has also claimed depreciation on the cost of the asset which was not paid by it at all and booked in the books of accounts under the head 'cost variance reserve'. As depreciation is admissible only in respect of the cost of the asset borne by the appellant, therefore the AO disallowed the depreciation claimed by the appellant in respect of the cost of the asset met by the government or consumers in the form of grant, subsidies and contribution. The AO also disallowed the depreciation on the excess cost which was not paid at all by the appellant (appearing in the form of 'cost variance reserve'). The adjustment made by the AO in the book profit declared by the appellant u/s 115JB, in respect of the disallowance of depreciation claimed by the appellant in respect of the cost of the assets met by the government and....
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....edings. Reason is simple. No doubt, there was concealment but that had its repercussions only when the assessment was done under the normal procedure. The assessment as per the normal procedure was, however, not acted upon. On the contrary, it is the deemed income assessed under section 115JB of the Act which has become the basis of assessment as it was higher of the two. Tax is thus, paid on the income assessed under section 115JB of the Act. Hence, when the computation was made under section 115JB of the Act, the aforesaid concealment had no role to play and was totally irrelevant. Therefore, the concealment did not lead to tax evasion at all." Similarly, Circular No. 25/2015 dated 31.12.2015 doesn't come to support the position of the assessee. 12. Now coming to other contentions of the ld AR. On merits, the contention of the ld AR is that the assessee under good faith and as per Electricity (supply) Annual Account Rule, 1985 and accounting instructions, prepared its accounts and there was no hiding or concealment of facts. It is merely an opinion on the subject for sake of addition by the AO and the same cannot be termed as furnishing of inaccurate particulars of income o....
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....e assessee is equally governed by the regular provisions of Income Tax Act and has to compute its income and offer the same to tax taking into consideration the relevant provisions of the Act. It cannot therefore be said that the assessee being governed by the Electricity rules and regulations will not follow the Income tax Act or the Electricity rules and regulations override the Income tax Act. In our view, in the instant case, the assessee company has simply failed to apply the provisions of the Act while determining the actual cost of the assets and computing the depreciation allowance thereon. 14. The next question that arises is where the assessee company has failed to give effect to and take into consideration the provisions of section 43(1) read with explanation 10, while determining the actual cost and claimed excess depreciation thereon, can it be said that the assessee company has furnished inaccurate particulars of income under Section 271(1)(c) which reads as under: "271.(1) If the Assessing Officer or the Commissioner (Appeals) or the Principal Commissioner or Commissioner in the course of any proceedings under this Act, is satisfied that any person- ....
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....its claim in the Return or not. Merely because the assessee had claimed the expenditure, which claim was not accepted or was not acceptable to the revenue, that by itself would not, in our opinion, attract the penalty under section 271(1)(c)." "The learned Counsel argued that "submitting an incorrect claim in law for the expenditure on interest would amount to giving inaccurate particulars of such income". We do not think that such can be the interpretation of the concerned words. The words are plain and simple. In order to expose the assessee to the penalty unless the case is strictly covered by the provision, the penalty provision cannot be invoked. By any stretch of imagination, making an incorrect claim in law cannot tantamount to furnishing inaccurate particulars." 17. In the instant case, the assessee company has duly filed its return of income along with audited balance sheet and profit/loss account. In schedule 2 - Reserve and Surpluses of its balance sheet, the assessee company has disclosed contribution, grants, subsidies towards cost of capital assets. The Assessing officer drawing reference to schedule 2 of the balance sheet as furnished, asked the assessee company t....
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....t the lower of their net books value and net book value and shown separately in the financial statements. The same has not been done thus leading to the violation of AS-10. (3) In the absence of Contribution, Grants, Subsidies towards the cost of capital assets being deducted from the gross value of asset as also in case of replacement of asset, WDV of the asset, WDV of the asset discarded is not reduced from the Gross value of the asset, depreciation is charged on the full gross value of the asset. This is against the provisions of AS-6. Thus, depreciation is overstated and net loss, which is shown as subsidy receivable from Govt. is overstated by the amount the quantification of which is not possible in the absence of full details of discarded assets and the allocation of Contribution & towards the respective asset." 19. In response to the above observations of the auditor, the assessee company has submitted that: "a. That the Company is a 100% owned undertaking of Rajasthan Government and is governed by the instructions approved by Government for Rajasthan State Electricity Board's The Electricity (Supply) Annual Accounts Rules, 1995 and Accounting Instr....
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....anies and accordingly the treatment has been made in books and the A.O. has made disallowance without considering the Accounting applicable to Electricity Companies. e. Alternatively the A.O. while making the deduction from Fixed Assets Block for Reserves & Surplus has not followed consistent method i.e. in A.Y. 2001-02 and 2002-03 has not deducted amounts for material cost variance under the head Reserves & Surplus but in the later years for deduction of Reserves & Surplus from Fixed Assets the amount of Material Cost Variance has also been deducted which is not in relevance with the Fixed Assets Cost and is rather related to Material Cost and thus the Block of Assets has reduced for depreciation by this amount and the eligible depreciation has also reduced. Further the addition to Fixed Assets as per books has been taken by A.O. at other arbitrary figures which have also been corrected in chart. Thus as per the chart on the theory of A.O. the depreciation disallowable come to Rs. 11,63,37,224.00 for the year against taken by A.O. at Rs. 18,99,41,047/-. f. Further any loss/ short fall in revenue is subject to SUB-VENTION CHARGES as receivable from State Governmen....