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2007 (1) TMI 574 - AT - Income TaxDisallowance of expenditure u/s 37 - incurred on replacing electricity meters - ''Revenue Or Capital''- meters are an integral part of the assessee's distribution network Or Not - generation and distribution of electricity - installed new meters with new consumers as well as new meters with old consumers - HELD THAT - The assessee's entire plant comprised of generation systems, like boiler and turbines, plant and machinery used for transmission and distribution; like cable wires transformers, etc., and meters which finally measured the quantum of electricity supplied. In the course of business some of the meters of existing customers were faulty, burnt out and got defective, as a result of which they were not recording proper consumption. The assessee's network cannot function without these meters. So, these are integrated part of distribution system. In case defective meters are not replaced, the assessee would have to bear the damages. The distribution losses have been wide spread concern in the energy sector. For the purpose of mitigating these problems, faulty meters require not only to be replaced, but replaced by tamper-proof electronic meters. The meters are, therefore, an integral part of the assessee's distribution network, which is a main business of the assessee company. It is not in dispute that the expenditure was incurred for replacement of faulty meters of its existing customers. The said expenditure was incurred by the assessee for increasing the efficiency of its business. It is constant and regular requirement. Thus, the expenditure incurred was not only for preserving and maintaining its existing distribution network but to increase effectiveness and generate more profits. Accordingly, this expenditure did not bring a new asset into existence or did not give the assessee a new or different advantage. Accordingly, the expenditure related to conducting of the business has rightly been held as revenue expenditure. This view is fortified by the decision of the Hon'ble Gujarat High Court in the case of Baroda Industrial Development Corporation Ltd. 1992 (3) TMI 48 - GUJARAT HIGH COURT . Hence, the CIT(A) was justified to delete the disallowance of expenditure amount incurred on replacement of 1,85,000 defective electricity meters. We uphold the same. As a result, the appeal filed by the Revenue is hereby dismissed. Disallowance u/s I4A - dividends and interest on tax-free bonds - HELD THAT - We are of the considered opinion that this issue Is covered in the case of Punjab State Industrial Development Corporation Ltd. vs. Dy. CIT 2006 (4) TMI 187 - ITAT CHANDIGARH , wherein It was held in this case that when the income such as dividend is taxable under the head Income from other sources', only the expenses referred to in s. 5 can be deducted to arrive at the net income and there is no justification to deduct expenses on estimate basis or in proportion of receipts shown by the assessee from various sources. It was also held that when the AO has not placed any meterial on record to controvert or reject the contention of the assessee that no expenditure was incurred for earning dividend income, there was no justification on the part of the AO to deduct proportionate management expenses or interest or other expenses while computing dividend income for the purpose of allowing deduction u/s 80M. For the same reasons, the assessee has to succeed in the present case also because in the present case also, neither the AO nor the CIT (A) has placed any material on record to controvert or reject the contention of the assessee that no expenditure was incurred for earning the impugned tax-free income by way of dividend and interest on tax-free bonds. Under these facts, we decide this issue in favour of the assessee by respectfully following this judgment of the Special Bench of the Tribunal. This ground of the assessee is allowed. As a result, the appeal of the assessee is partly allowed. Deduction u/s 80-IA - Payment of 'Standby charges' - HELD THAT - The claim of the assessee was rejected by the lower authorities for the only reason that the liability has not crystalised but since as per this order of MERC, the liability was finalized at ₹ 91.40 crores and deduction for balance amount of ₹ 49.40 crores is also allowed by the AO in AY 2005-06, this amount of ₹ 49.40 crores should also be considered in this year to work out the sale price of power by Tata Power Company to the assessee and accordingly, the deduction allowable to the assessee u/s 80-IA should be recalculated. This amount has to be considered for rate purpose in this year only since it was not considered in asst. yr. 2005-06 when deduction of this amount was allowed and we are of the opinion that the same cannot be considered in that year because it will result in distorted figure of sale price of power in that year and hence we hold that it should be considered in this year and the AO should recalculate the deduction allowable to the assessee u/s 80-IA. This ground of the assessee is allowed. As a result, the appeal of the assessee is allowed. Interest u/s 244A - Whether the Department has to pay interest u/s 244A on account of excess payment of self-assessment tax - HELD THAT -We find that it is settled legal position that if the dispute is regarding denial by the assessee of the liability to interest, the same is appealable. By the same yardstick, in the case where the Department denies the liability to pay interest, the same is also appealable. As per the judgment of Hon'ble Andhra Pradesh High Court rendered in the case of Bakelite Hylam vs. CIT 1988 (2) TMI 46 - ANDHRA PRADESH HIGH COURT , it was held that the assessee has a right of appeal against an order giving effect to the order of an appellate authority as if such order was an assessment order itself. In the same case, it was also held that if there is total denial of the liability by the Revenue to pay interest on belated refund, an appeal lies against such total denial. In the present ease also, there is total denial by the Revenue to pay interest on self-assessment tax paid by the assessee. We are of the considered opinion that the facts in the present case are similar to the facts in that case and hence, this judgment covers this issue against the Revenue. Respectfully following this judgment, this issue is decided in favour of the assessee and this ground of the Revenue is rejected. Whether the CIT(A) was justified in restricting the grant of interest only from the date the original assessment was framed and not from the date on which self-assessment tax was paid - HELD THAT - In the present case, the Revenue has use of the self-assessment tax. It is but equitable that the assessee should be entitled to interest from that date. The assessee's contentions are supported by the decisions of the Mumbai Benches of the Tribunal in the case of Asstt. CIT vs . National Organic Chemicals Ltd. 1993 (2) TMI 48 - BOMBAY HIGH COURT and in the case of Addl CIT vs . Grindwell Norton Ltd. 2005 (12) TMI 452 - ITAT MUMBAI . In both these cases as refund was determined pursuant to an intimation u/s 143(1)(a) of the IT Act, 1961, the assessee was entitled to interest on the refunds so-determined in respect of the excess self-assessment tax paid u/s 244A of the Act. In such eventuality, the question of applying the Explanation below clause could have never arisen. Nevertheless, the Tribunal had directed the AO to grant to the assessee therein interest from the date of payment of self-assessment tax. On a parity of reasoning, the assessee in the present appeal should also be entitled to interest upto the date of the refund and not from the date of the assessment order to the date of refund as has been directed by the CIT (A). This Issue is decided in favour at the assessee. As a result, the appeal of the Revenue stands dismissed and the appeal of the assessee stands allowed.
Issues Involved:
1. Disallowance of expenditure on replacing electricity meters. 2. Disallowance of community development expenditure. 3. Disallowance of claim as contingent liability. 4. Disallowance under Section 14A. 5. Computation of profits eligible for deduction under Section 80-IA. 6. Interest on self-assessment tax refund. Issue-wise Detailed Analysis: 1. Disallowance of Expenditure on Replacing Electricity Meters: The Revenue's appeal contested the CIT(A)'s decision to treat the expenditure of Rs. 18.17 crores on replacing 1,85,000 electricity meters as revenue expenditure. The AO had capitalized this expenditure, treating it as capital in nature. The CIT(A) directed the AO to treat the expenditure as revenue, citing that the expenditure was for maintaining and preserving the existing distribution network, thus not creating a new asset or advantage. The Tribunal upheld the CIT(A)'s decision, emphasizing that the expenditure was integral to the assessee's business and necessary for maintaining efficiency and generating profits. The appeal by the Revenue was dismissed. 2. Disallowance of Community Development Expenditure: The assessee's appeal included a ground against the disallowance of Rs. 31,23,355 incurred on community development. The AO disallowed 50% of the expenditure on borewells, schools, and colleges, and the entire expenditure on constructing toilets by Sulabh International. The CIT(A) confirmed the disallowance. The Tribunal found that the expenditure was incurred to improve working relations with the local community and was necessary for the business. The Tribunal allowed the expenditure, referencing the decision in the case of Great Eastern Shipping Co. Ltd. vs. Dy. CIT, which supported the allowance of such expenditures as revenue in nature. 3. Disallowance of Claim as Contingent Liability: The assessee's appeal included a ground against the disallowance of Rs. 24,22,000 payable to Amerace Corporation, treated as a contingent liability by the AO. The assessee did not press this ground during the hearing, and it was dismissed as not pressed. 4. Disallowance under Section 14A: The assessee contested the enhancement of disallowance under Section 14A from Rs. 27,877 to Rs. 82,796 by the CIT(A), who considered 0.5% of exempt receipts as disallowable. The Tribunal found that no nexus was established between the tax-free income and the interest payment or administrative expenses. Citing the Special Bench decision in Punjab State Industrial Development Corporation Ltd. vs. Dy. CIT, the Tribunal held that no disallowance was justified without evidence of a nexus. The Tribunal allowed the assessee's appeal on this ground. 5. Computation of Profits Eligible for Deduction under Section 80-IA: The assessee's appeal included a ground regarding the computation of profits eligible for deduction under Section 80-IA. The AO had excluded standby charges payable to Tata Power Company from the computation, considering the liability as not crystallized. The Tribunal found that the standby charges determined by MERC should be considered in the year for rate purposes to avoid distorted figures in subsequent years. The Tribunal directed the AO to recalculate the deduction under Section 80-IA, including the final standby charges determined by MERC. 6. Interest on Self-Assessment Tax Refund: The Revenue's appeal contested the CIT(A)'s decision to grant interest under Section 244A on the self-assessment tax paid by the assessee. The CIT(A) had curtailed the period for which interest was to be allowed. The Tribunal found that the issue was appealable and that the assessee was entitled to interest from the date of payment of the self-assessment tax, not from the date of the original assessment order. The Tribunal allowed the assessee's appeal on this ground, directing that interest be granted from the date of payment of the self-assessment tax. Conclusion: The Tribunal dismissed the Revenue's appeals and partly allowed the assessee's appeals, providing detailed reasoning for each issue based on legal principles and precedents. The decisions emphasized the necessity of expenditures for business efficiency, the relevance of legal provisions, and the importance of equitable treatment in tax matters.
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