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2015 (11) TMI 927 - AT - Income TaxDepreciation on energy meters - 25% OR 80% - Held that - In the depreciation schedule for the assessment year 2006-07 and onwards specifically/separately covers feature of Time of Day under Item III(8)(ix)-E(i). Under the above facts and circumstances especially in view of above referred schedule read with sec. 32 of the Income-tax Act, we find that the assessee has been successfully able to demonstrate that it was very much entitled to claim depreciation on energy meters @ 80% and without appreciating the above schedule, the authorities below were not justified in disallowing the claimed depreciation on these assets on the ground that the energy meters did not facilitate in conservation of energy. The Assessing Officer had, however, pointed out that more than 60% of the meters are mechanically advanced meters which did not have any special feature. To meet out this objection and its submissions before the Learned CIT(Appeals)that most of the meters are energy saving meters, the Learned AR has referred page No.75 of the supplementary paper book i.e. copy of the relevant extracts of the tax audit report of the assessee for the assessment year under consideration reflecting statement of particulars including bifurcation of expenses between normal meter and electronic meters. We thus set aside the matter to the file of the Assessing Officer to verify and allow the claimed depreciation at the rate of 80% on electronic meters/energy meters only after affording opportunity of being heard to the assessee. Regarding the claimed higher depreciation on the bus bar chamber , the Learned AR submitted that these are devices through which connection from overhead line/underground cable is provided to the meters and the said device forms integral/inextricable part of the meters without which the meter cannot function. The authorities below have denied the claimed higher depreciation on this instrument on the basis that these are not energy saving device. We set aside this matter to the file of the Assessing Officer to verify the above claim of the assessee that bus bar chamber forms integral/inextricable part of the meters without which a meter cannot function and allow the depreciation thereupon accordingly after affording opportunity of being heard to the assessee. - Decided in favour of assessee for statistical purposes. Service Line Deposits received from the Consumers - Capital or revenue nature - Held that - We find substance in the contention of the Learned AR that merely because the assessee was following erroneous principles of recognizing the amount received from the cost of assets as income over a period of three years, the Learned CIT(Appeals) was not justified in not directing the Assessing Officer to reduce the amount received from the cost of assets. There is no dispute that as per the settled proposition of law, no tax can be levied or recovered without authority of law and thus the mandate of Explanation 10 to section 43(1) of the Act cannot be ignored only because the method of accounting was erroneously followed by the assessee of recognizing service line deposits as income over a period of three years. Of course, there is no estoppels in law and we fully concur with this contention of the Learned AR. The very purpose of the assessment is to compute income in accordance with the provisions of the Act. We thus while setting aside the orders of the authorities below on the issue raised by the assessee in the additional ground No.1 direct the Assessing Officer to reduce the service line deposits from the cost of assets falling under the plant and machinery in accordance with the mandate of Explanation-10 to section 43(1) of the Income-tax Act, 1961. Decided in favour of assessee. Both the receipts, namely, energy charges and service line receipts have different characteristic and therefore, could not be measured with the same yard-stick. We find substance in the submission of the assessee as there is no dispute on the facts of the case. Discussing these submissions of the assessee and meeting out the observations of the Assessing Officer, we are of the view that the Learned CIT(Appeals) rightly come to the conclusion that the amounts received for installation of service lines are to be treated as capital receipts in the hands of the assessee. In result, the Learned CIT(Appeals) was justified in deleting the addition of ₹ 73,75,590 made on account of service line deposits from customers. - Decided against revenue. Addition on account of valuation of closing stock - CIT(A) deleted the addition - Held that - It is also an undisputed fact that in the Income-tax Act, 1961, it has not been prescribed that for arriving at the cost of closing stock inventory which method is to be taken into consideration, whether FIFO, weighted average, LIFO or any other method. But under AS2, it has been made clear that the cost of inventory should be arrived at by using the first in first out (FIFO), or weighted average cost formula. After making the change in the method of valuation of closing of inventory from FIFO method to the weight average method in the assessment year 2005-06, the same has been consistently followed by the assessee from the assessment year 2005-06 onward. We also concur with the view of the Learned CIT(Appeals) that it is for the assessee to decide which method is more correct and hence more appropriate for the valuation of the stores/spares and not for the Assessing Officer to decide as long as the change is bona fide and the assessee is consistently following the same in the subsequent years. We thus do not find infirmity in the First Appellate Order on the issue as there was no any casual departure in regard to the method adopted by the assessee. The same is upheld. - Decided against revenue. MAT applicability - whether provisions of section 115JB of the Income-tax Act, 1961 were not applicable during the relevant assessment year and thus the Assessing Officer was not justified in assessing the income of the assessee under sec. 115JB of the Act and not under normal provisions of the Act? - Held that - Even though the assessee, under a misconception of law, had declared income under the deeming provisions of sec. 115JB of the Act, still the Assessing Officer was under its duty bound to make correct assessment of income of the assessee in accordance with the provisions of the Act. As per above discussion and the ratios laid down in the cited decisions, we hold that the provisions of sec. 115JB of the Act were not at all applicable to companies governed by special Acts which also includes power companies, in respect of assessment years falling prior to 01.04.2013 and thereby the assessee was not liable to pay tax under the provisions of the said sections for the assessment years under consideration. - Decided in favour of assessee. Disallowance u/s 40A(2) - price paid to REL for purchase of energy meters was unreasonable and excessive - Held that - For invoking the provisions of sec. 40A(2) of the Act, the onus lies upon the Assessing Officer to prove that payment is excessive or unreasonable having regard to the fair market value of the goods or legitimate need of the business. In the present case, the Assessing Officer has failed to bring on record any corroborative evidence to establish that the price paid to REL for purchase of energy meters was unreasonable and excessive. And above all the said DERC order on the basis of which the Assessing Officer came to the conclusion that excessive price has been paid to REL has already been set aside by the ATE and operation of that order giving relief to the assessee has not been stayed by any appellate authority as per the Learned AR. We also concur with the submissions of the assessee that capital expenditure payments eligible for depreciation are not covered under sec. 40A(2) of the Act by virtue of the fact that deprecation is not a deduction but only an allowance. Considering all these material aspects of the issue, we are of the view that the Learned CIT(Appeals) has rightly deleted the addition made on account of disallowance of depreciation on energy meters purchased from REL. - Decided in favour of assessee. Disallowance of legal claims - CIT(Appeals) deleted the addition - Held that - We find that the Assessing Officer has made the disallowance on estimate basis at 25% of the expenditure claimed. No basis has been assigned for making such ad hoc disallowance. Noting these material aspects, we are of the view that the Learned CIT(Appeals) has rightly deleted the disallowance in absence of any instance that there was any penalty which would fall under the Explanation to Sec. 37 of the Income-tax Act, 1961. - Decided in favour of assessee. Deemed dividend under sec. 2(22)(e) relating to loans advanced to the company by BSES Rajdhani Power Ltd. - CIT(A) deleted the addition - Held that - By virtue of the provisions laid down under sec. 2(18)(b)(B)(c) of the Act, we principally agree with the contention of the assessee that provisions of sec. 2(22)(e) of the Act are not attracted, where the company, who provides loan/advance to the assessee, is a company in which public has substantial interest. In support, the assessee has also cited hereinabove the two conditions i.e. (a) (b) claimed to have been fulfilled in the present case, which our view need verification to decide the issue raised in ground NO.3 of the assessee. Since the Learned CIT(Appeals) has left the issue undecided, we in the interest of justice set aside the matter to the file of the Learned CIT(Appeals) to decide the issue after affording opportunity of being heard to the parties. - Decided in favour of assessee for statistical purposes.
Issues Involved:
1. Depreciation on energy meters. 2. Service line deposits received from consumers. 3. Assessment of income under Section 115JB. 4. Valuation of closing stock. 5. Disallowance of legal claims. 6. Disallowance of extra depreciation on computer peripherals/accessories. 7. Deemed dividend under Section 2(22)(e). Detailed Analysis: 1. Depreciation on Energy Meters: Facts and Contentions: - The assessee claimed depreciation at 80% on energy meters, arguing they are energy-saving devices. - The Assessing Officer allowed only 25% depreciation, considering them as mere reading meters. - The CIT(A) upheld the AO's decision. Judgment: - The Tribunal found that the energy meters have advanced features facilitating energy conservation. - Section 32 and the relevant depreciation schedule in the Income-tax Rules support 80% depreciation for energy meters. - The Tribunal directed the AO to verify and allow 80% depreciation on electronic meters/energy meters. 2. Service Line Deposits: Facts and Contentions: - The assessee received non-refundable service line deposits from customers for laying service lines. - The AO treated these deposits as revenue receipts. - The CIT(A) held them as capital receipts but did not direct the AO to reduce the amount credited to the profit and loss account. Judgment: - The Tribunal held that service line deposits are capital receipts. - The AO was directed to reduce the amount credited to the profit and loss account while computing the total income. 3. Assessment of Income under Section 115JB: Facts and Contentions: - The assessee argued that Section 115JB was not applicable as it prepared accounts under the Electricity Act and DERC regulations, not under Schedule VI of the Companies Act. - The AO applied Section 115JB. Judgment: - The Tribunal held that Section 115JB was not applicable to companies governed by special Acts like the Electricity Act. - The amendments to Section 115JB by the Finance Act, 2012, are prospective and apply from AY 2013-14 onwards. - The AO was directed to assess the income under normal provisions of the Income-tax Act. 4. Valuation of Closing Stock: Facts and Contentions: - The assessee changed its stock valuation method from FIFO to Moving Average. - The AO added Rs. 5.02 crores to the income, arguing the change was not bona fide. Judgment: - The Tribunal found the change bona fide and in line with Accounting Standard 2. - The change was consistently followed in subsequent years. - The addition made by the AO was deleted. 5. Disallowance of Legal Claims: Facts and Contentions: - The AO made an ad hoc disallowance of 25% of legal claims, considering them penal in nature. Judgment: - The Tribunal held that the AO failed to identify specific penal expenses. - The disallowance was deleted as the expenses were compensatory and incurred in the regular course of business. 6. Disallowance of Extra Depreciation on Computer Peripherals/Accessories: Facts and Contentions: - The AO allowed only 15% depreciation on computer peripherals/accessories, against the claimed 60%. Judgment: - The Tribunal followed the Delhi High Court's decision in the assessee's own case, which allowed 60% depreciation on computer peripherals. - The disallowance was deleted. 7. Deemed Dividend under Section 2(22)(e): Facts and Contentions: - The AO treated loans from BSES Rajdhani Power Ltd. to the assessee as deemed dividend. - The CIT(A) deleted the addition, holding that the assessee was not a shareholder in BSES Rajdhani Power Ltd. Judgment: - The Tribunal upheld the CIT(A)'s decision, following the Special Bench decision in ACIT vs. Bhaumik Colour (P) Ltd. - The provisions of Section 2(22)(e) were not applicable as the assessee was not a shareholder in BSES Rajdhani Power Ltd. - The matter was remanded to the CIT(A) to verify if BSES Rajdhani Power Ltd. is a company in which the public is substantially interested. Summary: The Tribunal provided detailed rulings on each issue, directing the AO to make necessary adjustments and verifications. The appeals by the assessee were partly allowed, and those by the Revenue were dismissed.
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