2013 (10) TMI 1238 - HC - Income Tax

Classification as Revenue or Capital Expenditure Expenses for transmission - Establishment and maintenance expenditure Disallowance of Rs.14,92,70,091/- by the assessing officer as capital expenditure Held that - In the facts and circumstances of the case and also as matter of general practice adopted by all electricity boards to bifurcate its establishment and general expenses in between capital and revenue expenses depending on the extent of capital work going on in each particular unit/division. It is only in respect of construction and the maintenance units where major part of work is maintenance of distribution, the assessee uniformly adopted 12/1/2% of such expenditure as capital expenses - In other electricity boards much lesser percentage of expenses is being capitalised in similar circumstances and at the same time the assessee having adopted the uniform method of capitalizing 12/1/2% of the expenditure ever since study undertaken by the Board in the year 1968, the accounts prepared by the assessee should have been accepted Decided against the Revenue.

Issues Involved:
1. Deletion of addition under the head "expenses for transmission."
2. Allowance of written-off amount for intangible assets.
3. Allowance of payment of interest made to the State Government out of fictitious assets.
4. Allowance of amount capitalized out of revenue expenditure.

Issue-wise Detailed Analysis:

1. Deletion of Addition under the Head "Expenses for Transmission":
The Tribunal was questioned whether it was justified in deleting the addition of Rs. 51,00,961/- out of the claim of Rs. 123 lakhs under "expenses for transmission." The Revenue argued that the steep rise in transmission expenses from the previous year was not properly explained by the assessee. However, the Tribunal noted that the expenditure was verifiable and vouched for, and the accounts were audited by both departmental auditors and the Accountant General. The Tribunal found no specific entry of capital nature pointed out by the assessing officer and concluded that the disallowance was without basis. The High Court upheld the Tribunal's finding, stating that the disallowance was wrongly maintained by the C.I.T. (Appeals) and confirmed the deletion of the addition. This question was answered in favor of the assessee and against the revenue.

2. Allowance of Written-off Amount for Intangible Assets:
The Tribunal was questioned whether it was justified in allowing Rs. 40,25,052/- claimed by the assessee as a written-off amount for intangible assets. The assessee had raised money through bonds and securities at a discount, which was written off over five years, and interest was payable on loans from I.D.B.I. The assessing officer disallowed the claim, stating it did not relate to the business of the assessee for the assessment year in question and was capital expenditure. The C.I.T. (Appeals) found substantial merit in the assessee's contentions, noting that the write-off was in accordance with the Electricity (Supply) Act, 1948, and had been consistently allowed in previous years. The Tribunal upheld the C.I.T. (Appeals)'s findings, and the High Court found no infirmity in these findings. This question was also answered in favor of the assessee and against the revenue.

3. Allowance of Payment of Interest Made to the State Government out of Fictitious Assets:
The Tribunal was questioned whether it was justified in allowing Rs. 23,00,000/- payment of interest made to the State Government out of fictitious assets. The assessee had taken over private sector electricity companies, and the compensation paid by the State Government was treated as loans by the Electricity Board. The assessing officer disallowed the interest, arguing that the liability was not accepted by the assessee and did not relate to capital expenditure or loan amount. The C.I.T. (Appeals) found that the interest was for the purpose of business and constituted an allowable deduction. The Tribunal upheld this finding, and the High Court found no infirmity in the findings. This question was answered in favor of the assessee and against the revenue.

4. Allowance of Amount Capitalized out of Revenue Expenditure:
The Tribunal was questioned whether it was justified in allowing Rs. 14,92,70,091/- claimed by the assessee as amount capitalized out of revenue expenditure. The assessing officer disallowed the amount as capital expenditure. The C.I.T. (Appeals) noted that it was a general practice for electricity boards to bifurcate establishment and general expenses between capital and revenue, depending on the extent of capital work in each unit. The assessee had consistently adopted 12.5% of such expenditure as capital since a study in 1968, which was accepted by the department in previous years. The Tribunal upheld the C.I.T. (Appeals)'s findings, and the High Court found no infirmity in these findings. This question was answered in favor of the assessee and against the revenue.

Conclusion:
All the questions referred for opinion were answered in the affirmative, in favor of the assessee and against the revenue. The Tribunal's findings were upheld as they were based on facts and did not suffer from any infirmity.

← Previous Next →