2012 (8) TMI 591 - AT - Income Tax

Dis-allowance u/s 40(a)(ia) - non-deduction of TDS from wheeling and transmission charges - applicability of Section 194J or 194C - Held that - Applicability of Section 194J and also Section 194C was examined in the case of Jaipur Vidyut Vitaran Nigam Ltd (2009 (4) TMI 489 - ITAT JAIPUR-A) wherein it was held that such payments by the assessee are not liable for deduction of tax either u/s 194J or 194C. It is clear that all the parties involved with generation, transmission and distribution of electricity are to comply with the direction of State Load Dispatch Centre and the Regulatory Commission for achieving the economy and efficiency in the operation of power system and therefore question of any person rendering service to another does not arise. Since there are no major difference between the terms of the agreement and facts considered in that case and the terms of contract in the present case and there being no contrary decision brought on record, contentions of the department that these charges should be held liable for deduction of tax under either of the sections 194C/194J are rejected - Decided in favor of assessee Depreciation - reduction - receipt of contribution/grant subsidies towards cost of capital asset - Revenue contended that contribution should be reduced from the cost of the assets for the purpose of computing allowable depreciation in accordance with the provisions of Explanation 10 to sec. 43(1) - Held that - Applying the provisions of Explanation 10 to Section 43(1), we decline to interfere in the dis-allowance sustained by the CIT(A) - Decided against assessee. Alleged Understatement of revenue - income offered on estimated basis pertaining to the remaining days of March for which the bills were issued in April - Held that - CIT(A) rightly observed that there was no case that the revenue pertaining to the electricity supplied in March 2007, was not accounted for by the appellant in the year under consideration or in subsequent year. In absence of the issue of bills, the appellant offered the revenue on estimate basis in accounts for the electricity supplied in March 2007. Also, this practice was being followed by the appellant regularly and prior period income / expenses were being accounted for regularly. Such estimation was based on scientific basis i.e. based on actual bill/ consumption of power by the consumer in the past. Appellant has also explained that as per binding nature of accounting policies and principals under ESSAR 1985, it was mandatory to recognize revenue only when the right to collect the revenue arose. Thus, the estimation of revenue was not arbitrary - Decided in favor of assessee assessee remained liable to refund the security deposit of Rs.50.60 lakhs to its customers and hence the AO was not justified in considering the unpaid security deposit of Rs.50.60 lakhs the

Summary

Issues Involved:
1. Disallowance of wheeling and transmission charges under Section 40(a)(ia) of the Income Tax Act, 1961.
2. Reduction of depreciation claimed by the appellant.
3. Understatement of revenue.
4. Issuance of notice under Section 271(1)(c) of the Act.

Detailed Analysis:

1. Disallowance of Wheeling and Transmission Charges:
The primary issue revolves around the disallowance of wheeling and transmission charges due to non-deduction of tax at source under various sections of the Income Tax Act, 1961. The Assessing Officer (AO) disallowed these charges under Section 194J, while the Commissioner of Income-tax (Appeals) [CIT(A)] held that the charges were liable for deduction under Section 194C. The Tribunal examined the applicability of Sections 194C, 194J, and 194I, referring to the case of Jaipur Vidyut Vitaran Nigam Ltd. vs. DCIT, which held that such payments were not liable for deduction under these sections. The Tribunal noted that the payments were statutory, regulated by the Electricity Act, 2003, and were reimbursements rather than payments for services. Consequently, the Tribunal ruled that the assessee was not liable to deduct tax under any of these sections, thus allowing the assessee's appeal on this ground.

2. Reduction of Depreciation Claimed by the Appellant:
The AO reduced the depreciation claimed by the appellant by Rs. 247,12,96,468/- due to contributions, grants, and subsidies towards the cost of capital assets. The AO applied Explanation 10 to Section 43(1) of the Act, which mandates excluding such contributions from the actual cost of the asset for depreciation purposes. The CIT(A) upheld this disallowance, and the Tribunal found no arguments from the appellant against this decision. Therefore, the Tribunal upheld the CIT(A)'s decision, dismissing the appellant's ground on this issue.

3. Understatement of Revenue:
The AO added Rs. 36.95 crores to the assessee's income for AY 2007-08 due to unbilled revenue for energy supplied in March but billed in April. The CIT(A) deleted this addition, noting that the assessee followed a consistent accounting policy, recognizing revenue on an estimation basis for unbilled energy. The Tribunal agreed with the CIT(A), emphasizing that the accounting method was regularly followed and based on scientific estimation. The Tribunal dismissed the revenue's appeal on this ground for both AY 2007-08 and AY 2008-09.

4. Issuance of Notice under Section 271(1)(c) of the Act:
The assessee contended that the AO erred in issuing a notice under Section 271(1)(c) for AY 2007-08, arguing it was contrary to the facts and provisions of the Act. However, this issue was not specifically addressed in the Tribunal's detailed analysis, implying that it was either not pressed or not considered significant enough to alter the overall judgment.

Conclusion:
The Tribunal allowed the assessee's appeal regarding the disallowance of wheeling and transmission charges, dismissing the revenue's contention that these charges should be liable for deduction under Sections 194C, 194J, or 194I. The Tribunal upheld the reduction of depreciation claimed by the appellant and dismissed the revenue's appeal concerning the understatement of revenue. Consequently, the assessee's appeal for AY 2007-08 was partly allowed, the appeal for AY 2008-09 was allowed, and the revenue's appeals for both years were dismissed.