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2016 (4) TMI 379 - AT - Income TaxAddition made on account of initial connection charges Held that - CIT(A) after having considered the submissions of the assessee, has given a finding that ₹ 4.76 crores was initial connection charges collected on behalf of the BPCL for the equipments and was rightly shown as current liability by the assessee and could not be treated as income of the assessee and with respect to the balance amount of ₹ 52,50,830/- he has given a finding that since the amount was received towards the installation of pipelines, meters and equipments which are assets of the assessee, the said amount was a capital receipt as it was for bringing in plant and machinery and assessee has claimed depreciation after reducing the aforesaid amount from the aggregate cost of assets. Before us, Revenue has not placed any material on record to controvert the finding of ld. CIT(A) - Decided against revenue Estimation of value of closing stock of natural gas - Held that - We find that ld. CIT(A) while deleting the addition has given a finding that assessee purchased gas from GSPC which is transmitted through pipelines and that gas is purchased by it at the delivery point or tap off point and it is same as the point at which it is sold to the customers and it is a back to back arrangement for purchase by the assessee and sale to its customers and the quantity purchased by assessee is same that is sold by assessee. Before us, Revenue has not placed any material on record to controvert the above findings of ld. CIT(A)- Decided against revenue Addition on account of depreciation on meters and instruments - Held that - CIT(A) while deleting the addition has given a finding that assessee is the owner of meters and instruments that has been shown as plant and machinery in the book of accounts and that assessee has claimed depreciation after reducing the amount of initial connection charges which has been collected from customers. He, therefore, held that assessee was eligible for depreciation. Before us, Revenue has not placed any material on record to controvert the above findings of ld. CIT(A). In view of the aforesaid facts, we find no reason to interfere with the order of ld. CIT(A) - Decided against revenue Non treating the process of compression of natural gas as manufacture - whether the activity of compression of Gas to CNG amounts to manufacture for claiming additional depreciation u/s.32(iia)? - Held that - In case of GSPC Gas Company Ltd.(2014 (4) TMI 740 - ITAT AHMEDABAD) on identical facts has decided the issue in favour of assessee to held that the authorities below were not justified in rejecting the claim of the assessee for additional depreciation. - Decided against revenue Addition of liquidated damages - revenue receipt or capital receipt - Held that - The facts of the present case are identical to that of GSPC Gas (supra). We, therefore, following the decision of Coordinate Bench in the case of GSPC (supra) direct that the addition made therein on account of liquidated damages received by the assessee from the suppliers of the equipments be deleted. Since, the addition itself is deleted, the question of granting depreciation on the amount as directed by ld. CIT(A) does not arise. We, therefore, direct the A.O. to delete the addition of liquidated damages and reverse the depreciation (as directed by ld. CIT(A)) if allowed to the assessee.- Decided against revenue
Issues Involved:
1. Deletion of addition made on account of initial connection charges. 2. Estimation of the value of closing stock of natural gas. 3. Disallowance of depreciation on meters and instruments. 4. Treatment of additional depreciation for the process of compression of natural gas. 5. Treatment of liquidated damages received from suppliers and vendors of machinery. Detailed Analysis: Issue 1: Deletion of Addition Made on Account of Initial Connection Charges The Revenue challenged the deletion of an addition of Rs. 5,28,72,901/- related to initial connection charges. The Assessing Officer (A.O.) had considered these charges as revenue receipts, arguing that the meters and equipment remained the property of the assessee. The CIT(A) deleted this addition, noting that Rs. 4,76,62,071/- was collected on behalf of BPCL and shown as current liabilities, while Rs. 52,50,830/- was a capital receipt netted off against the value of plant and machinery. The Tribunal upheld CIT(A)'s decision, emphasizing that the Revenue failed to provide evidence to counter these findings. Issue 2: Estimation of the Value of Closing Stock of Natural Gas The A.O. added Rs. 15,97,186/- to the assessee's income, estimating the value of closing stock of natural gas. The assessee argued that there was no closing stock because the gas was sold immediately upon purchase. The CIT(A) deleted the addition, agreeing with the assessee's explanation that no storage facility existed and the gas was sold directly from the delivery point. The Tribunal upheld this decision, noting the Revenue's failure to disprove the assessee's claims. Issue 3: Disallowance of Depreciation on Meters and Instruments The A.O. disallowed Rs. 44,95,071/- claimed as depreciation on meters and instruments, arguing that the assessee was not the owner of these assets. The CIT(A) reversed this disallowance, confirming that the assessee owned the meters and instruments and had claimed depreciation after reducing the initial connection charges. The Tribunal upheld CIT(A)'s decision, finding no evidence to contradict the assessee's ownership of the assets. Issue 4: Treatment of Additional Depreciation for the Process of Compression of Natural Gas The A.O. denied additional depreciation of Rs. 80,87,323/-, arguing that the compression of natural gas did not constitute manufacturing. The CIT(A) upheld this view, citing that the process did not change the gas's composition or properties. However, the Tribunal reversed this decision, relying on precedents that recognized similar processes as manufacturing. The Tribunal directed the A.O. to allow the additional depreciation, aligning with decisions in similar cases. Issue 5: Treatment of Liquidated Damages Received from Suppliers and Vendors of Machinery The A.O. added Rs. 48,689/- received as liquidated damages to the assessee's income, treating it as a revenue receipt. The CIT(A) upheld this addition but directed the A.O. to grant depreciation on the amount. The Tribunal reversed this decision, treating the liquidated damages as a capital receipt, following the precedent set by the Supreme Court in the case of Saurashtra Cement Ltd. The Tribunal directed the A.O. to delete the addition and reverse any depreciation granted. Conclusion The Tribunal dismissed the Revenue's appeals and allowed the assessee's appeal, providing relief on all contested issues. The key takeaways include the recognition of initial connection charges as either liabilities or capital receipts, the non-existence of closing stock for immediate sales, the eligibility for depreciation on owned assets, the classification of compression of natural gas as manufacturing, and the treatment of liquidated damages as capital receipts.
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