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2019 (6) TMI 1453 - AT - Income TaxMAT Applicability - Taxing book profits u/s 115JB - appellant is engaged in the business of distribution of electricity in the North Delhi Districts of the National Capital, set up in terms of Delhi Electricity Reforms Rules Transfer Scheme Rules 2001 - HELD THAT - Circular No. 762 not only is binding on the Department, but also explains the purpose in introducing section 1153A which was to tax zero-tax companies. The CBDT understood that companies engaged in the business of generation and distribution of electricity and enterprises engaged in developing, maintaining and operating infrastructure facilities, as a matter of policy, are not brought within the purview of section 1153A for the reason that such a policy would promote the infrastructural development of the country. Such an understanding of the CBDT is binding on the Department. Section 1153B , which is substantially similar to section 1153A cannot have a different purpose and need not be interpreted in a manner different from the understanding of the CBDT of section 1153A . Where the computation provision could not be applied in a particular case, it is indicative of the fact that the charging section also would not apply. The Electricity Board or bodies similar to it, which are totally owned by the Government, either State or Central, have no shareholders. Profit, if at all, made would be for the benefit of entire body politic of the State. Therefore the enquiry as to the mischief sought to be remedied by the amendment becomes irrelevant. Therefore, the fiction fixed under section 1153B cannot be pressed into service against the Electricity ' Board while making the assessment of the tax payable under the Income-tax Act. Finding parity of facts with the facts of the judgment of KERALA STATE ELECTRICITY BOARD VERSUS DEPUTY COMMISSIONER OF INCOME-TAX 2010 (11) TMI 127 - KERALA HIGH COURT we hold that the provisions of section 115JB of the Act are not applicable to the appellant company. The Assessing Officer is directed accordingly. The additional ground raised by the assessee is allowed. Addition on account of de-recognition of revenue on account of efficiency gain - HELD THAT - Prescribed procedure before the DERC Delhi Electricity Regulatory Commission that the assessee has first to submit detailed estimate of its cost to the DERC, which is likely to incur before the start of the relevant financial year. DERC examines the same after invoking the comments of all stakeholders including the members of the public, who are the consumers. The DERC approves the estimate of costs and the corresponding tariff for the year. Such an estimate is subsequently reviewed by the DERC on the basis of actual costs incurred by the assessee and is subjected to Prudence check . If the revenue for the year exceeds the 'trued up cost' then the excess amount has to be carried forward as liability to be adjusted through corresponding tariff reduction in future, in order to compensate the consumers through reduction in tariff; whereas if the trued up costs exceeds the revenue for any year, the difference is recognized as an assets of the company under the head sundry debtors and is recoverable from the consumers in future through the tariff mechanism. We find that similar facts were considered by the co-ordinate bench in assessment year 2006-07 allow the contention of the assessee that they have rightly reduced the efficiency gain amount in their profit and loss account. Deduction u/s 80IA - HELD THAT - A perusal of the record, read with the audit report and report in Form No. 10CCB, shows that plant and machinery in the network of transmission or distribution lines have increased by more than 50% of the book value of the plant and machinery as on 01.04.2004. On these undisputed facts, we find that the return of income was filed well within due date alongwith audit report including audit report in Form No. 10CCB and were available before the Assessing Officer during the assessment proceedings. As mentioned elsewhere, the Assessing Officer has not disputed the claim of deduction u/s 80IA of the Act mentioned in the computation of income nor he has objected during the course of assessment proceedings. On these facts, the first appellate authority allowed the claim of deduction u/s 80IA of the Act irrespective of the fact that certain disallowances/additions were made by the Assessing Officer while completing the assessment order. In view of the above Circular No. 37/2016 dated 02.11.2016 issued by the Central Board of Direct Taxes Disallowances made by the Assessing Officer are related to the business activity against which deduction u/s 80IA of the Act has been claimed which resulted in enhancement of the profits of the eligible business and hence deduction under Chapter VIA is admissible on the profit so enhanced by the disallowances. In light of the above CBDT Circular, all the issues become academic in nature and therefore, need no separate adjudication, though it would be pertinent to mention here that all the disputed issues remain open for both the parties in case the deduction u/s 80IA is denied by the Hon'ble Superior Court. In the light of the above discussion and finding, all the appeals of the assessee are allowed whereas those of the revenue are dismissed.
Issues Involved:
1. Admission of additional ground regarding taxing book profits under Section 115JB of the Income-tax Act, 1961. 2. Applicability of Section 115JB to the appellant company. 3. Addition on account of de-recognition of revenue due to efficiency gain. 4. Claim of deduction under Chapter VIA, specifically Section 80IA of the Income-tax Act. Issue-wise Detailed Analysis: 1. Admission of Additional Ground: The assessee raised an additional ground stating, “That on the facts and circumstances of the case, the Assessing Officer erred in law in taxing book profits u/s 115JB of the Income-tax Act, 1961.” The Revenue objected to this additional ground, arguing it was not raised before the first appellate authority. However, the Tribunal admitted the additional ground, noting it was a purely legal issue requiring no verification of facts, citing the decision of the Hon'ble Supreme Court in NTPC 229 ITR 383. 2. Applicability of Section 115JB: The Tribunal referred to the Kerala High Court's judgment in the case of Kerala State Electricity Board 329 ITR 91, which held that Section 115JB, which creates a legal fiction regarding the total income of companies, does not apply to statutory corporations like the Electricity Board. The Tribunal found parity in facts with the appellant company, a joint venture of the Government of Delhi and Tata Power Ltd., engaged in electricity distribution. Following the Kerala High Court's ruling, the Tribunal held that Section 115JB does not apply to the appellant company and directed the Assessing Officer accordingly. 3. Addition on Account of Efficiency Gain: The appellant contested the addition on account of de-recognition of revenue due to efficiency gain. The Tribunal noted that the Delhi Electricity Regulatory Commission (DERC) determines tariffs to ensure the appellant recovers its costs and earns an assured return. Excess revenue over the trued-up cost is carried forward as a liability for future tariff adjustments, while deficits are recognized as assets. The Tribunal relied on a previous decision in ITA No. 4848/DEL/2010 and 5026/DEL/2010, where it was held that 50% of the additional revenue from efficiency gains is not taxable as it is used for future tariff fixation. The Tribunal allowed the assessee's grievance, following this precedent. 4. Claim of Deduction under Chapter VIA: The Revenue appealed against the first appellate authority's allowance of the assessee's claim for deduction under Section 80IA. The Tribunal noted that the assessee had claimed a deduction of ?98.38 crores under Section 80IA, which was not disputed by the Assessing Officer during assessment proceedings. The Tribunal found that the plant and machinery in the network had increased by more than 50% of the book value as on 01.04.2004, fulfilling the conditions for deduction under Section 80IA. The Tribunal referred to CBDT Circular No. 37/2016, which states that disallowances related to business activities against which Chapter VI-A deduction is claimed result in enhanced profits eligible for deduction. Following this Circular, the Tribunal held that the enhanced profits due to disallowances qualify for deduction under Section 80IA and dismissed the Revenue's appeal. Conclusion: The Tribunal allowed all the appeals of the assessee and dismissed all the appeals of the Revenue, confirming that: 1. The additional ground regarding Section 115JB was rightly admitted. 2. Section 115JB does not apply to the appellant company. 3. The addition on account of efficiency gain was not justified. 4. The deduction under Section 80IA was correctly allowed. The order was pronounced in the open court on 14.06.2019.
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