TaxTMI 
TaxTMI 
2019 (6) TMI 1453
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....sessing Officer erred in law in taxing book profits u/s 115JB of the Income-tax Act, 1961 [hereinafter referred to as 'the Act' for short]." 3. The ld. DR strongly objected to the admission of the additional ground raised by the assessee. It is the say of the ld. DR that this issue was never raised before the first appellate authority, therefore, the same should not be entertained by the Tribunal. 4. Per contra, the ld. counsel for the assessee contended that it is purely a legal issue which requires no verification of facts. Strong reliance was placed on the decision of the Hon'ble Supreme Court in the case of NTPC 229 ITR 383. 5. We have carefully considered the case records. The appellant company is a joint venture of the Government of Delhi and Tata Power Ltd, registered under the Companies Act, 1956. Since 2002, the appellant is engaged in the business of distribution of electricity in the North Delhi Districts of the National Capital, set up in terms of Delhi Electricity Reforms Rules [Transfer Scheme] Rules 2001. 6. As the appellant company is governed by the Electricity Act, 2003, therefore, the provisions of the said Act prevail wherever they are in....
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....ch form as may be prescribed by the Central Government and notified in the Official Gazette. Such accounts of the Board are required to be audited by the Comptroller and Auditor-General of India or such other person duly authorised by the Comptroller and Auditor-General of India. The accounts so prepared along with the audit report are required to be laid annually before the State Legislature and also to be published in the prescribed manner. At the earliest point of time when section 1151 was introduced, the section expressly excluded from its operation bodies like the Electricity Board. Though such express exclusion is absent in section 1153A , the Central Board of Direct Taxes issued Circular No. 762 dated February 18, 1998 excluding bodies like the Electricity Board from the operation of the section. Circular No. 762 not only is binding on the Department, but also explains the purpose in introducing section 1153A which was to tax zero-tax companies. The CBDT understood that companies engaged in the business of generation and distribution of electricity and enterprises engaged in developing, maintaining and operating infrastructure facilities, as a matter of policy, are....
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.... by the company to Delhi Transco Ltd. for power purchase. As per the terms of the said notification, the tariffs are statutorily required to be fixed in a manner that the assessee recovers its prudently incurred cost and also earns an assured return of 16% p.a. on equity plus free reserves. 13. Prescribed procedure before the DERC is that the assessee has first to submit detailed estimate of its cost to the DERC, which is likely to incur before the start of the relevant financial year. DERC examines the same after invoking the comments of all stakeholders including the members of the public, who are the consumers. The DERC approves the estimate of costs and the corresponding tariff for the year. Such an estimate is subsequently reviewed by the DERC on the basis of actual costs incurred by the assessee and is subjected to "Prudence check". 14. If the revenue for the year exceeds the 'trued up cost' then the excess amount has to be carried forward as liability to be adjusted through corresponding tariff reduction in future, in order to compensate the consumers through reduction in tariff; whereas if the trued up costs exceeds the revenue for any year, the difference is ....
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....and the interest of the consumers. 18. In exercise of the powers conferred by Section 12 and other applicable provisions of the Act, the GNCTD issued Notification No.F.11(119(8)/2001- Power in the month of November 2001. In this Notification vide paragraph 8, the Government considered the necessity of effective re-organization of the DVB and the sale of 51% equity shares in the distribution companies. The assessee is one of the entities, who participated in the bid, became successful for the lowest annual target loss was awarded 51% of equity. Vide para 12, this Notification prescribes that in the years between 2002-03 and 2006-07 in the event of actual AT&C loss of a distribution licensee for any particular year is better i.e. lower than the level proposed in the bid, the distribution licensee shall be allowed to retain 50% of the additional revenue resulting from such better performance and the balance 50% of additional revenue from such better performance shall be counted for the purpose of tariff fixation. Para 13 of such Notification provides that all expenses that shall be permitted by the Commission, tariffs shall be determined in such a way that the distribution li....
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.... A&TC losses and when the AT&C loss level reached by the assessee in that particular year is better i.e. lower than the level prescribed in the bid, the assessee shall be entitled to 50% of the additional revenue resulting from such purpose. This 50% becomes the regular taxable income of the assessee and insofar as this income is concerned, for this Asstt. Year 2006-07 also, there is no dispute. The balance 50% of this additional revenue, which is mandatory to be counted for the purpose of tariff fixation, which is called as the 'efficiency gain' will be taken into consideration by the DERC while permitting the tariff of the future years to be determined so as to see that the assessee would earn at least 16% return on the issued and paid up capital and free reserves. The Notification issued in November 2001, referred to above, is clear in its mandate that this 50% efficiency gain shall be reckoned as revenue for the purpose of tariff fixation and the assessee is under obligation to follow the mechanism of fixation of tariff by the DERC. 22. In Puna Electricity Supply Co. Ltd. Vs CIT (1965) 56 ITR 521 (SC), the Hon'ble Apex Court considered a similar situation w....
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....ether or not a separate account is opened, when this amount is separately shown under this head in the books, it makes little difference in so far as the application of the ratio of Puna Electricity Supply Co. Ltd. (supra) is concerned. Crux of the matter is that the assessee in both the cases has no right to appropriate the 'efficiency gain' amount and such amount is at the disposal of the DERC though not physically but in respect of utilization thereof. We, therefore, are convinced that the ratio of Puna Electricity Supply Co. Ltd (supra) is squarely applicable to the case of the assessee before us and on that score, we allow the contention of the assessee that they have rightly reduced the efficiency gain amount in their profit and loss account." 16. Respectfully following the findings of the co-ordinate bench, this grievance of the assessee is allowed. 17. At this stage, it would be pertinent to understand the claim of deduction under Chapter VIA which has been allowed by the first appellate authority and the Revenue is in appeal before us. 18. There is no dispute that the assessee had claimed deduction u/s 80IA of the Act at Rs. 98.38 crores, which is evident ....
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..... At times disallowance out of specific expenditure claimed may also be made. The effect of such disallowances is an increase in the profits. Doubts have been raised as to whether such higher profits would also result in claim for a higher profit-linked deduction under Chapter VI-A. 2. The issue of the claim of higher deduction on the enhanced profits has been a contentious one. However, the courts have generally held that if the expenditure disallowed is related to the business activity against which the Chapter VI-A deduction has been claimed, the deduction needs to be allowed on the enhanced profits. Some illustrative cases upholding this view are as follows: (i) if an expenditure incurred by assessee for the purpose of developing a housing project was not allowable on account of nondeduction of TDS under law, such disallowance would ultimately increase assessee's profits from business of developing housing project. The ultimate profits of assessee after adjusting disallowance under section 40(a)(ia) of the Act would qualify for deduction under section 80-IB of the Act. This view was taken by the courts in the following cases: * Income-tax Officer ....