TaxTMI 
TaxTMI 
2022 (1) TMI 37
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....ing generating stations, development and construction of new hydropower projects in the State of Uttarakhand. The Central Government vide its order dated 05.11.2011 transferred all hydro power plants located in the State of Uttarakhand to Uttarakhand Jal Vidyut Nigam Ltd. (UJVNL). It filed its return of income on 28th September, 2012 declaring an income of Rs. 17,03,72,200/-. This return was subsequently revised on 22nd December, 2013 declaring the income at Rs. 74,66,66,910/-. During the course of assessment proceedings, the AO analysed the history of the assessee which was discussed in the assessment order u/s 143(3) for the A.Y. 2008-09. The AO pointed out that during the course of assessment in the case of assessee, the then Assessing Officer had observed that at the time of creation of UJVNL, certain assets and liabilities had been transferred from UPJVNL to the assessee vide notification issued by the Govt, of India. It was seen that the assessee had taken over the assets transferred from UPJVNL but on the liability side did not take over the loans transferred in full from UPJVNL. In the Balance Sheet, the assessee has taken a reconstruction reserve amounting to Rs. 6,26,96,3....
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....respect to the assets for which no corresponding liability is taken was disallowed and added back to the taxable income for that year. 4. He, therefore, asked the assessee to explain as to why depreciation amounting to Rs. 4,1368,564/- should not be disallowed and added to the total income of the assessee. The assessee submitted that the depreciation of fixed assets transferred from UPJVNL for AY 2012-13, works out to Rs. 4,13,68,564/- and these were transferred after the bifurcation from UPJVNL to UJVNL. It was submitted that the Uttaranchal Jal Vidyut Nigam Ltd. (UJVNL) was incorporated on 12.02.2001 by Government of Uttaranchal for management of running generating stations, development and construction of new hydropower projects in the State of Uttaranchal. It was further submitted that the Central Government vide its order dated 5-11-2001 transferred all hydro power plants located in the State of Uttaranchal to UJVNL and although the company took the financial & administrative control of the plants immediately thereafter with effect from 9-11- 2001, the Transfer Scheme for transfer of values of assets & liabilities has still not been finalized. In absence of any transfer sch....
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....e matter. Hence, In view of the above the proposed addition on account of depreciation on assets transferred from UPJVNL at the time of bifurcation in the year 2001-02, was arbitrary and unlawful. 5. However, the AO was not satisfied with the arguments advanced by the assessee. He noted that the issue of depreciation is subjudice before the ITAT. He, therefore, rejected the claim of depreciation of Rs. 4,13,68,568/- on the assets acquired by the UJVNL and added the same to the total income of the assessee. 6. The AO, during the course of assessment proceedings asked the assessee to explain why capacity charges, deemed generation charges and capacity index incentive amounting to Rs. 45,31,58,363/- should not be added to the total income of the assessee as in the preceding assessment year. The assessee submitted that Rs. 45,31,58,363/- on account of capacity charges, deemed generation charges and capacity Index incentive, had been disclosed in the Notes to Accounts, annexed with the Balance Sheet as on 31-3-2012. The said amount had been shown as disclosure in the Balance Sheet, being the amount claimable by the assessee from UPCL, which had not been acknowledged but disputed b....
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....ounting standards notified by the Government. It was further pointed out that the Government had notified 2 accounting standards vide Notification no. SO 69 (E), dated 25-1-1996 dealing with the "Disclosure of Accounting Standards" And "Disclosure of Prior Period and Extraordinary Items and Changes in Accounting Policies" respectively. Thus, it was submitted that the profit or loss in the Profit and Loss account prepared by the assessee as per mercantile method of accounting, based on accepted, accounting principles and by following the accounting standards prescribed by ICAI and ones prescribed by Central Government u/s 145(2), had to be the foundation on the basis of which the Income under the head "Business" should be computed by the Income tax Authority. Thereafter, the assessee made submissions on the concept of accrual and role of accounting standards. It was submitted that it had been judicially held that Income accrues or arises when the assessee acquires a right to receive the same. However, mere claim will not fall in the ambit of the income. It was only on final determination of the right and amount of the compensation, that the right to claim would arise. It was further....
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.... have to be followed unless they are in conflict with statutory provisions. In the case of CIT vs. Woodward Governor 312 ITR 282 (S.C.) it had been held that it is settled law that no income can be said to accrue or arise unless there is an acknowledgment of the debt by the payer to the payee. Unless there was acknowledgment of debt, no real income could be said to result and income tax could only be levied only on real income. It was further submitted that the theory that only real income is to be taxed is settled law and it has been held by various Courts that notwithstanding that an assessee may be following the mercantile system of accounting, the assessee could only be taxed on real income and not on any hypothetical/illusory income. 8. However, the AO was not satisfied with the arguments advanced by the assessee and made addition of Rs. 45,31,58,363/- to the total income of the assessee. 9. In appeal, the ld.CIT(A) deleted both the additions by observing as under:- "9. I have duly considered the facts and circumstances of the case. Both the issues in dispute have been considered and decided by me in the appeal order 16/CIT(A)/DDN/14- 15 dated 30-03-2015. In the....
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....ders of my learned predecessors in previous assessment years and my own order in AY 2011-12 and after noting that the issue has also been decided in favour of the assessee following the refusal of permission to the Department 6y the COD in AY 2005-06 to agitate the issue before the ITAT, I hereby hold that the addition of Rs. 4,13,68,568/- on account of disallowed depreciation is not sustainable. It is accordingly deleted. The ground of appeal is accordingly allowed. 11. On the Issue of Capacity charges, Deemed Generation Charges and Capacity Index Incentive in the appeal for the AY2011-12, I had held that under:- "It was also observed from the submissions filed by the UPCL that the UPCL has not contested its liability to pay the said charges. It has only questioned the quantum of the charges that have been levied by the assessee on the grounds that the data for misdeclaration for the period 2004-05 to 2012-13 had not been provided to it to enable it to check the bills properly. I had also asked the assessee to furnish a note on the impact of misdeclaration on capacity charges. It is seen from the said note that while misdeclaration may vary the total amount of ca....
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....aid/disputed/written off portion as bad debt later, may no longer be relevant. According to the settlement arrived at by the UERC and accepted by both parties, the total amount now payable to the appellant on account of Capacity charges, Deemed Generation Charges and Capacity Index Incentive for this financial year is only Rs. 7,44,41,302/- and therefore, since this amount now stands crystallized, it is only this amount which is liable to be added back to the income of the appellant. Thus, the appellant is entitled to relief of Rs. 37,87,17,061/- on this count alone. However, it is also noticed that the appellant has offered the entire amount of Rs. 102,19,53,483/- (held to be receivable by it for the Financial years 2004-05 to 2012-13) to tax in the assessment year 2016-17 as the award had been received on 27.04.2015 and deposited Rs. 56.78 crores by way of self assessment tax for that year. Further, as submitted by the appellant, when the reassessment for the cases pertaining to AY 2007- 08, 2008-09, 2009-10 and regular assessment for AY 2013-14 was being done, the matter was discussed with the Principal CIT Dehradun, and it was agreed that no additions would be done in those yea....
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.... find, both the issues stand decided by the Tribunal in assessee's own case. 12. So far as depreciation is concerned, we find the Tribunal in assessee's own case vide ITA No.743/Del/2018 for AY 2014-15 has dismissed the appeal filed by the Revenue by observing as under:- "Depreciation: 5. This issue stands adjudicated by the order of ITAT in ITA No.5724/Del/2015 dated31-05-2021. The operative portion of the said order is reproduced for ready reference:- "These are second round of appellate proceedings before us. Briefly stated, the facts of the case are that for the year under consideration a return declaring total income of Rs. 8,94,85,800/- was filed by the assessee on 29th October 2004. Assessment was framed u/s 143(3) of the Income Tax Act, 1961 (hereinafter called 'the Act') on 22nd December 2006 assessing total income of the assessee at Rs. 40,67,51,498/-. Being aggrieved, the assessee filed an appeal before Ld. CIT (A). The Ld. first appellate authority, vide order dated 30th December 2008, allowed part relief. Assessee filed a further appeal before this Tribunal (ITAT). A coordinate Bench, vide order dated 25th February 2011 in ITA No. ....
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....n claimed in the profit and loss account is to be disallowed and is to be added back to the taxable income for the year. The depreciation on additions made during the year comes to Rs. 2,44,07,898/-. After application of the rates as per I.T. Act 1961, and the assessee has debited an amount of Rs. 32,39,16,600/-. The depreciation amounting to Rs. 29,95,08,702/- which is the balance is therefore, disallowed and added back to the taxable income of the assessee." 2.2Aggrieved again, the assessee filed an appeal before the Ld. first appellate authority. The Ld CIT (A) has extensively recorded the facts of the case and has found merit in claim made by the assessee. The appeal has been allowed by adjudicating as under: "The ld. AR has challenged this action on the ground that claim of depreciation on old assets has been consistently allowed in the past at Appellate stages and thus should be allowed this year also. Some of the submissions may be extracted : That Uttaranchal Jal Vidyut Nigam Ltd. (UJVNL) was incorporated on 12-2-2001 by Government of Uttaranchal for management of running generating stations, development and construction of new hydropower projects in the S....
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....005-06 284/DDN/07-08 30-12-2008 2007-08 139/DDN/2009-10 27-12-2011 2008-09 68/DDN/2010-11 31-01-2012 2009-10 328/CIT(A)-l/2011-12 30-03-2012 2011-12 16/ CIT(A)/DDN/14-15 30-03-2015 The Ld. CIT (A) has also held that the assessee would be entitled to claim of depreciation on assets transferred from UP Jal Vidyut Nigam Limited to UJVNL. Copy of the orders are enclosed herewith as Annexure 1 to 8. It may be brought to your kind notice that for the AY 2005-06 most of the relief was allowed by the Ld. Commissioner of I. Tax Appeals, as such no appeal was filed by the assessee for the aforesaid Assessment Year. However, the department had filed an appeal before the Hon'ble ITAT against the order of CIT(A)- 1. Dehradun for the aforesaid A.Y. 2005-06 only on one ground I.e., for allowing depreciation on fixed assets acquired from UPJVNL, the aforesaid appeal of the department has been dismissed by the Ld. ITAT New Delhi on 13thAugust, 2009, due to non approval of COD (Committee of Dispute). As per our knowledge no appeal has been filed so far, against the aforesaid order of the Hon'ble ITAT, moreover the above proceedings ....
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....s per settled accounting principles, every rupee invested in the business has a cost. The cost of borrowing from the bank is known to the business depending on the rate of interest but that does not mean that the capital introduced in the form of shareholders fund has no cost. In the present case, assets generating hydro power have been received by the assessee from the demerger of UP Jal Vidyut Nigam along with corresponding liabilities which it owns to the Uttaranchal Government and others. This liability represents nothing but the cost of the assets received on demerger. The assessee is entitled to depreciation on the written down value of these assets which been prescribed in Explanation 2B of section 43(6) of the Income Tax Act, 1961. The assessee is, therefore, entitled to depreciation. Somewhat similar situation arose in ease of M/s Bharat Sanchar Nigam Limited (BSNL) when it got incorporated in 2000. Prior to BSNL's incorporation, the telecommunication services were being provided by Government of India, Ministry of Communication through its two departments, namely Department of Telecommunication Services and Department of Telecommunication Operation. The AO in case of ....
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.... is limited to the face value of the issued and paid up share- capital and the reserves represent a subsidy or a grant or a reimbursement by the shareholders from which directly or indirectly the cost of the assets in the hands of a company are met. We are thus of the view that the reasons as furnished by the Assessing Officer for reopening the assessments could not possibly give rise to any belief that income of the petitioner had escaped assessment and proceedings initiated on the basis of such reasons are liable to be quashed." 6. We have gone through the entire contents and the history of the assessee. In this case, the assets have been transferred from Uttar Pradesh Government (UPJVNL) to Uttaranchal Government (UJVNL). There is no claim of the depreciation twice by both the Governments. The demerger led to division of assets in a fixed ratio and the same was duly accounted for both the entities as per the written down value (WDV) as on that date. The depreciation on de-merger cannot be a forgone benefit owing to de-merger, which is the result of state reorganization. Hence, we decline to interfere with the reasoned order of the Ld. CIT (A)." 13. So far as the issu....
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....ccounting regularly employed by the assessee. It may be either the cash system where entries are made on the basis of actual receipts and actual outgoings or disbursements; or it may be the mercantile system where entries are made on accrual basis, that is to say, accrual of the right to receive payment and the accrual of the liability to disburse or pay. However, in both cases unless there is real income, there cannot be any income-tax. Considering the facts before it, the Hon'ble Apex Court held that although the assessee-company was following the mercantile system of accounting and had made entries in the books regarding enhanced charges for the supply of electricity made to its consumers, no real income had accrued to the assessee-company in respect of those enhanced charges in view of the fact that soon after the assessee-company decided to enhance the rate, representative suits were filed by the consumers which were decreed by the Court and ultimately, after various proceedings which took place, the assessee-company was not able to realise the enhanced charges. The Court held that no real income had accrued to the assessee- company and, hence, the entries in respect of enhanc....
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....ndex incentives have been determined after the direction of the Hon'ble UERC vide its order dated 27.04.2015 by observing that:- The respondent (UPCL) shall pay to petition (I.e., UJVNL) the arrear in 18 equal monthly instalments from August, 2015 onward on account of: (a) Tariff revision (b) Capacity charges and capacity index incentive (c) Income Tax 7.6 The assessee has produced the copy of the Hon'ble UERC order dated 27.04.2015 alongwith its revised year wise income of capacity charge, deemed generation charge and capacity index incentive duly agreed by UPCL and UJVNL. A copy of the agreed reconciliation statement between UPCL and UJVNL is also furnished alongwith the copy of bank statement in which the above amount of installment have been received by the UJVNL, in support of its claim, a written explanations have been submitted by the assessee on the issue of capacity charges, capacity index incentive and deemed generation charges is given as mentioned in the body of the order. The assessee has agreed to offer the income earned for the period from F.Y.2004-05 to F.Y.2012-13 under the head capacity charges, deemed generation charge....