TaxTMI 
TaxTMI 
2017 (6) TMI 1181
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....w, the Ld. CIT(A) erred in allowing the claim of Rs. 43,29,42,626/-in account of replacement of electricity meters, even though the impugned expenditure is inherently capital in character as the installation and replacement of electricity meters given to the end customers is capital expenditure and the meter deposits received against the same is shown as capital advance by the assessee." 3. Brief facts are that the AO disallowed the expenditure of Rs. 43,29,42,626/- incurred by assessee on replacement of meters by holding the same to be capital expenditure. The AO allowed the depreciation at Rs. 4,87,06,045/-. The CIT(A) relying on earlier years ITAT orders for AY 2008-09 and 2009-10 deleted the disallowance by observing in Para 4.2 as under: - "4.2 1 have considered the facts and circumstances of the case. This issue had come into consideration of Hon'ble ITAT in A.Y.2008-09 and CJT(A) in A.Y. 2009-10 held as under: Hon'ble ITAT in A. Y 2008-09: 9. This issue has been discussed by the Tribunal in its order cited supra from paras 8 to 12, wherein the Tribunal has decided the issue in favour of the assessee for the reasons stated therein. Since the issue before u....
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....ers burning out or becoming faulty etc. and these expenses are necessarily required to be incurred for the purposes of carrying out business operations. The expenditure is incurred for the purposes of enabling the RespondentAssessee to carry out its business more efficiently and more profitably. The replacement of meters does not increase the generation and/or distribution capacity of electricity. Moreover, as held by the Supreme Court in the matter of Empire Jute Co. Ltd. v/s. CIT (124 ITR 1), the test of enduring benefit is not a conclusive test to be applied mechanically without considering the facts of a given case. In the above facts, the expenses on replacement of electricity meters would be on revenue and not on capital account. (iii) The Counsel for the Respondent has not been able to point out that how the conclusion of the Tribunal in the earlier years will not be applicable to the present Assessment Year. The Counsel for the revenue has also not been able to show that the finding of fact arrived at by the Tribunal is perverse and/or erroneous. In the above view, we see no reason to entertain Question (a). 4. So far as Questions (b) to (e) are concerned, Counsel for....
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....missed. CIT(A)'s order in A.Y.2009-10 "4.1. 1 have carefully considered the facts of the case. This issue was also there in appellant's own case in the earlier assessment years. In A. Y. 2007-08, my predecessor CIT(A)- I Mumbai vide order dated 27-01-2010, by following the C1T'(A) appeal order of A. Y. 2006-07, directed the AO, not to allocate the head office expenses against the Goa unit, Samalkot unit and Windmill unit and grant deduction u/s 80 IA for those units on the profits without allocating the head office expenses. In AY 2007-08, the ITAT, Mumbai, following the ITAT decisions in A. V. 2002-03 to 2006-07, dismissed the department's ground of appeal and directed to the AO to accept the allocation of head office expenses as done by the appellant. There are some decisions of Court/Tribunal holding that head office expenses are required to be allocated to 80-IA units. However, in appellant's own case, the ITAT has decided the issue in appellant's favour. The decision of JTAT in appellant's own case is binding on lower judicial authority i.e. CIT(A). Therefore, since the issue under consideration is covered in favour of appellant by the I....
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....ons of the Id. Representatives of the parties. A perusal of the above reproduced observations made by the Id. C!77A) while accepting the appeal of the assessee reveals that the id. CIT(A) has followed the various decisions of the co-ordinate benches of the Tribunal to hold that the assessee was not liable to deduct TDS either under section 194-1 or section 194-I on the 'Wheeling and Transmission Charges' paid by the assessee in case of which provisions of Electricity Act, 2003 were applicable. The Id. DR could not produce any contrary decision which may justify departure from the almost well settled position of law on the above issue. Hence, respectfully following the decision of the co-ordinate Benches of the Tribunal i.e. "Maharashtra State Electricity Distribution Co. Ltd. vs. DCIT (TDS) Range-2" ITA No. 2872/Mum/2010 for AY 2009-10 and the other decisions as referred by the ld. CIT(A) in his order, the issue is accordingly decided in favour of the assessee and the appeals of the Revenue are hereby dismissed." The Hon'ble ITAT held that no tax is deductible on transmission and wheeling charges u/s. 194-I or 194-J, hence, A.Os contention that tax is deduct....
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....224 General Revenue Capital Loss/Gain Realised Unrealized Realised unrealised Revaluatio n of ICD 22,923,781 67,227,910 154,695,871 Bank balances 106,609,153 106,609,153 Preference shares 3,283,976,472 260,543,966 3,023,432,506 Accrued Premium Receivable 255,661,638 25,465,164 230,196,474 ECB (3,296,465,000) (328,265,000) 2,968,200,000 S. Creditors (5,257,423) (5,257,423) Total 566,448,621 67,227,910 256,047,601 (42,255,870) 285,428,980 Net total 323,275,511 66,23,70,735 243,173,110 Total 905,543,845 I had examined the above table. In the foreign exchange loss there are two items, one is of Revenue nature and second items is of capital in nature. The appellant in the P&L account combined the forex loss incurr....
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.... Realised Unrealised Revaluation of Forex Creditors (379,843,093) (379,843,093) Revaluation of Forex Debtors 592,298,360 592,298,360 Revaluation of Forex bank Balances 122,275,175 122,275,175 Revaluation of Forex Loans Buyers credit 4,364,782 4,364,782 Total 339,095,224 339,095,224 General Revenue Capital Loss/Gain Realised Unrealised Realised Unrealised Revaluaion of ICD 221,923,781 67,227,910 154,695,871 Bank balances 106,609,153 106,609,153 Preference shares 3,283,976,472 260,543,966 3,023,432,506 ECB (3,296,465,000 ) (328,265,000) 2,968,200,000) S. Creditors (5,257,4....
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....issue in this appeal of Revenue is against the order of CIT(A) in holding that the provisions under section 115JB of the Act are not assessable to the assessee company. For the Revenue has raised following ground No. 5: - "5. On the facts and in the circumstances of the case and in law, whether the Ld. CIT(A) is justified in holding that provisions of section 115313 are not applicable to the assessee company as the Accounts of the assessee are prepared according to provisions of Electricity Supply Act." 16. Brief facts are that the AO computed book profit under section 115JB of the Act and thereby computed minimum alternate tax. The assessee stated that in assessee's case, the provisions of section 115JB of the Act are not applicable. The CIT(A) agreed with the details submission of the assessee and holding that the assessee is preparing it account under regulatory Act instead of Companies Act hence, there is no requirement for computation of minimum alternative tax under section 115JB of the Act. The CIT(A) held in Para 11.2 as under: - "11.2 1 have considered the facts and circumstances of the case. This issue had come into consideration of 1-lon'ble ITAT in A.Y.2008....
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....ssue of levy of tax u/s. 1 15JB, the assessee company submits that section 11 5JB requires every company to prepare its Profit and Loss Account in accordance With the provisions of Parts 11 and HI of Schedule Vito the Companies Act, 2956. The assessee company is an Electricity Company to which the provisions of Electricity Supply Act applies. The said Electricity Supply Act requires the assessee company to follow various accounting policies while preparing the accounts. The accounts are therefore required to be prepared in accordance with the said provisions of Electricity Supply Act. It is submitted that section 211(1) of the Companies Act, 1956 requires every company to prepare the Balance Sheet to give trite and fair view of the state of affairs in the form set out in Part I of Schedule VI of the Companies Act. Prothso to section 211(1) however states that this provision will not apply to a company engaged in the generation or supply of electricity for which a form of Balance Sheet has been specified in or under the Act governing such class of company. Similar section 211(2) of the Companies Act requires every company to prepare a Profit and Loss Account to give a true and fair ....
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....putation of book profit". Section 115JB also requires every company to prepare its Profit and Loss Account in accordance with the provisions of Part II and Hi of Schedule VI of the Companies Act, 1956. However while preparing the accounts including Profit and Loss Account the company has to follow same method and rates of calculating depreciation as has been adopted for the purpose of preparing Profit and Loss Account as laid before the shareholders in the Annual General Meeting. Section 115JB further requires every company to follow the same Accounting Policies and Accounting Standards which have been followed while preparing the accounts which are laid before the shareholders in the Annual General Meeting. Thus under section 115JB, the Profit and Loss Account which is required to he prepared by every company has to adopt the following: The Profit and Loss Account 'should he in accordance with the provisions of Part II and III of Schedule VI of the Companies Act. The accounts and the Profit and Loss Account so prepared in acceptance with Part 11 and 1ff of Schedule VI of the Companies Act: should again follow the same (a) the Accounting Policies) (b)....
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....tricity Supply Act, if the profit of the company in a year is in excess of the amount of Reasonable Return as computed under the Electricity Act, 1/3rd of such excess at exceeding 5% of the amount of Reasonable Return only is at the disposal of the company. Out of the balance excess, 50% is to be apportioned to Tariff and Dividend Control Reserve and balance 50% is to be distributed in form of proportional rebate on the amounts collected from the sale of electricity and meter rentals and to he carried forward in the account of company for the distribution to the consumers. Tariff and Dividend Control Reserve is available to the company when the clear profits as computed under the Electricity Supply Act is less than the Reasonable Return in any subsequent year. There is no similar provision in the Companies Act. Under the Electricity Supply Act, the company has to create various reserves out of the retained earning i.e. contingency reserves, which can be utilised or the happening of certain events, and the company has to invest the said reserves in Trust securities. There is no similar provision in the Companies Act. In the accounts) which are presented before the sharehold....
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....are different from Companies Act. The assessee had submitted that there are major differences in the provisions between the Companies Act and Electricity Supply Act in preparation of accounts. As the per Electricity Supply Act, the following are the major differences: - i) Under the Electricity Supply Act, depreciation on addition to fixed assets can be provided only from the subsequent year of addition and not in the year of addition whereas under the Companies Act, the depreciation is to be provided in the year of addition and even in the part of the year. ii) Rate of depreciation, under Electricity Supply Act is lower than the rate of depreciation under the Companies Act. (iii) Electricity Supply Act permits only straight-line method of depreciation whereas Companies Act permits both Straight Iine method and Written Down Method. iv) Under the Electricity Supply Act, depreciation is restricted to 90% of the cost of the assets whereas under the Companies Act entire asset value is allowed to be written off. v) When an Electricity Company has incurred losses and unable to bear the burden of depreciation, an amount equal to the unabsorbed ....
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....nt of the Proviso to section 11 53B(2), it is clear that the Electricity company has to comply with the provisions of Parts II & III of Schedule VI and the same time follow the same accounting policies, accounting standard and method and rate of depreciation as followed in the accounts which arc presented in the Annual General Meeting. 24.3 The assessee has claimed that the accounts laid before the Annual General Meeting have followed the accounting policies which are required to be followed under the Electricity Supply Act and which are not in accordance with the Companies Act. The assessee has drawn attention to the requirement of the Electricity Supply Act which provides for the accounting policy in respect of expenses on replacement of meters to be capitalized whereas the same is not in accordance with the Companies Act at the same is required to be written off. Proviso to section 115JB require the Electricity company to follow the same accounting policy while preparing the accounts in accordance with Parts 11 & III of Schedule VI and if the said policy of capitalizing the replacement of meters is followed in preparing the accounts under Companies Act, the accounts wil....
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....le VI the same methods and rates which are adopted for calculation of depreciation in the accounts presented before the company in Annual General Meeting should be followed. There was no provision for following the same accounting policies and same accounting standards in both the accounts as prepared under the Electricity Supply Act and under the Companies Act. This material departure in section 115JB from the provisions in section 115JA has resulted in the accounts to be prepared under the Companies Act following the same accounting policies and same accounting standards unworkable and any such attempt to make the accounts will be not in accordance with the provisions of the Companies Act. 25 As per the contentions of the Id counsel of the assessee, there will be a big anomaly in preparing the accounts as per Electricity Supply Act and as per Companies Act. The Hon'ble Supreme Court in the case of CIT vs. Official Liquidator, Palai Central Bank Ltd., in 150 ITR 539, on which reliance was placed by the id counsel of the assessee supports the case by the assessee. This case was under Super Profits Tax Act. In this case e was a banking company, which went into liquidati....
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....Act is against such a conclusion". 26. After going through the ratio of the decisions of the Hon'ble Supreme Court, it is clearly seen that where something is not possible then the assessee cannot be forced to do so under specific provisions of law. Those previsions of law cannot be followed because it is impossible to do so. The doctrine of impossibility is squarely applicable on the facts of the present case because it is not possible to prepare the accounts under the Companies Act because the assessee is preparing the accounts as per the policies of Electricity Supply Act. 26.1 The Hon'ble Supreme Court in the case of Kwality Biscuits Ltd in 284 ITR 434 has held that provisions of sec. 23413 & 234C are not applicable in respect to computation of deduction u/s 1153 because the computation of profit under the provisions of sec. 1 15J has to be made on the basis of book profit and since the entire exercise of computing the income under section 1 15J can only be done at the end of the financial year, and the provisions of sec. 207,208, 209 & 210 cannot be made applicable 'until and unless the accounts are audited and the balance sheet prepared. The ratio of....
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....ons of in as much as the accounting policies followed in the .....accounts if followed for the preparation of Companies Act. 1 not disclose true and fair view and will not be in accordance work part II and III of Schedule VI of the Companies Act. The ratio of the decisions of the Hon7ble Supreme Court and the ratio of the decision of the Tribunal discussed above are in support of the contentions of the assessee. We further found that the issue of applicability of sec. 115J came before the Tribunal for AY 88-89. Taking into consideration the preparation of accounts under the Electricity Act and other contentions the assessee including the decisions of the Supreme Court in the case of B.C.Srinivasa Setty (supra), the Tribunal has held that. the provisions of Sec. 115J are not attracted on the facts of the present case. 29 As discussed above, the assessee is following the accounting policies under the Electricity Supply act and prepared its accounts in view of those very policies. Following those very policies, the accounts 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....
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....TR 505 (Bombay) by observing in Para 10.3 as under: - "10.3 I have considered the facts and circumstances of the case. The A.O. had disallowed Rs. 37,34,41,170/- u/s.14A. This disallowance is for the expenditure related to interest and administrative expenditure. However, when we examine appellant's own funds, the appellant is having share capital of Rs. 244.92 crores and reserves of Rs. 14366.19 crores. The share capital and reserves in the appellant's balance sheet is together i.e. totaling to Rs. 14611 crores. The total investment for earning exempt income is Rs. 10119.57 crores. Here appellant's own funds is more than the investments, hence, no disallowance is required for interest u/s.14A r.w. Rule 8D (2)(i) in view of Bombay High Court decisions in the cases of Reliance Utilities and Power Ltd. 178 Taxman 135, CIT vs. HDFC Bank Ltd. ITA No.330 of 2012 and Winsome Textile Industries Ltd. 319 ITR 204 (P&H). However, the A.O. is directed to disallow 0.5% of the average investment for administrative expense. During appellate proceedings the appellant had filed additional ground stating that disallowance u/s. 14A as per Rule SD should be made considering only tho....
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....eme. The above disallowance was worked out taking all investments whether they have yielded any income during the year or not and also considering interest expense. During the course of assessment proceedings, the assessee was asked to furnish details as per the provisions of section 14A of the Act r.w.r. 8D of the rules in response to which the assessee had filed a revised computation of free income was earned/received during the year. The assessee has showed the investments on which exempt income is received and those investments on which no income is received. The assessee submitted that disallowance of interest under Rule 8D(2)(ii) is not warranted in the facts of the assessee's case as the assessee had sufficient amount of interest free funds available with them in form of share capital and reserves. The interest free funds available are as under: - Opening Closing Share capital 226.07 244.92 Reserves 10,897.88 14,366.19 Total 11,123.95 14,611.11 As against the above, the total investments as appearing in the balance sheet are as under: - In crores Opening Closing Total investments yielding table....
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.... section 115JB of the Act are not applicable by observing in Para 12.2. as under: - "12.2 1 have considered the facts and circumstances of the case. In ground no. 9 it is held that in view of Hon'ble ITAT order and CIT(A) order in appellant's own case, sec. 11 5JB is not applicable in appellant's case, hence, addition of AO under section 115JB is not applicable and addition under section 115JB is infructuous. This ground of appeal is allowed." 24. We have also considered this issue and find that the provisions of Section 115JB of the Act are not applicable in this case and once the provisions are not applicable no disallowance under this section can be made. We confirm the order of CIT(A) and this issue of Revenue's appeal is dismissed. 25. Now, we will deal with assessee's appeal in ITA No.1480/Mum/2015 for the AY 2010-11. In this issue of assessee's appeal is against the order of CIT(A) confirming the disallowance of expenditure on prospecting of methane gas blocks treating the same as capital expenditure. For this assessee has raised following ground No. 1: - "1. The learned Commissioner of Income Tax (Appeals) [hereinafter referred to as CIT(A)] erred in....