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2016 (12) TMI 1075 - AT - Income TaxRevision u/s 263 - claim of additional depreciation on the ground that the assessee company is industrial undertaking engaged in the business of generation of power and activity of power generation satisfying the condition of manufacture - Held that - Since the Assessing Officer has not considered the amendment brought to the definition of manufacture and have allowed the claim of additional depreciation on the basis of earlier decisions mentioned hereinabove, in our considered opinion, there is an error in law in the assessment order and, therefore, we do not find any reason to interfere with the findings of the ld. Principal CIT to this extent. Set off of brought forward losses - Held that - A perusal of the order of the authorities below shows that the assessee company has claimed set off of unabsorbed business loss/unabsorbed depreciation as per the return of income field by the assessee company. The set off of loss and depreciation are to be allowed on the basis of income/loss determined in the assessment of a particular year and if subsequently the income/loss so determined is reduced in appeal the claim of set off shall be subject to change accordingly. Therefore, this issue needs verification by the A.O. while giving effect to the orders of the appellate authorities. We, therefore, do not find any error or infirmity in the direction of the ld. Principal CIT. The order to the same effect is upheld to this extent. Treatment of Government Grant u/s. 115JB - Held that - We find that the ld. Principal CIT has ignored the fact that the grant in question was received in terms of the Financial Restructuring Plan from the Government and the company has accounted Government Grants in terms of the mandatory Accounting Standard (AS)-12 on Accounting for Government Grants prescribed by the ICAI. Considering the accounting treatment in the light of the Accounting Standard-12, we do not find any error on facts or in law. Therefore, to this extent the findings of the ld. Principal CIT are reversed. Provision for Collapsed Cooling Tower u/s. 115JB - Held that - The lower of Net Booked Value and Net Realizable Value have to be considered and expected loss is to be recognized in the Profit and Loss account. The assessee has worth 50% of the WDV on estimated basis. Therefore, it cannot be said that it has Net Realizable Value to worth 50% of the WDV. Thus, the accounts of the assessee has not been in accordance with Accounting Standarad-10 and, therefore, the same violates the provisions of Section 115JB of the Act. The ratio laid down by the Hon ble Supreme Court in the case of Apollo Tyres 1965 (12) TMI 22 - SUPREME Court do not apply.In our considered opinion, the Assessing Officer has not properly verified the facts and, therefore, we do not find any error or infirmity in the directions of the ld. Principal CIT so far as this issue is concerned.
Issues Involved:
1. Eligibility for additional depreciation under Section 32(1)(iia) of the Income Tax Act. 2. Set off of brought forward business losses and unabsorbed depreciation. 3. Treatment of Government Grant under Section 115JB. 4. Provision for loss due to collapse of a Cooling Tower under Section 115JB. Detailed Analysis: 1. Eligibility for Additional Depreciation: The assessee challenged the disallowance of additional depreciation claimed under Section 32(1)(iia) of the Income Tax Act, arguing that the generation of electricity qualifies as "manufacture" or "production" under the Act. The Principal Commissioner of Income Tax (CIT) held that the generation of electricity does not constitute manufacturing. The Tribunal noted that earlier decisions cited by the assessee were based on the pre-amendment definition of "manufacture" under Section 2(29BA). Since the amendment, effective from 01.04.2009, was not considered by the Assessing Officer (AO), the Tribunal upheld the CIT's finding that the AO's order was erroneous and prejudicial to the revenue. 2. Set Off of Brought Forward Losses and Unabsorbed Depreciation: The CIT observed that the assessee had incorrectly set off business losses and unabsorbed depreciation from earlier years without adhering to the provisions of the Act. The Tribunal agreed with the CIT's direction to the AO to verify and recompute the set-off, noting that set-offs should align with the income/loss determined in the respective assessment years and any subsequent changes from appeals. 3. Treatment of Government Grant: The CIT directed that a Government Grant of ?250 crores, received under a Financial Restructuring Plan, should have been reduced from the cost of capital assets rather than being credited to Reserves & Surplus. The Tribunal found that the grant was accounted for per Accounting Standard (AS)-12 on "Accounting for Government Grants" by ICAI, which treats such grants as capital reserve. The Tribunal reversed the CIT's findings, concluding that the accounting treatment was correct and in compliance with AS-12. 4. Provision for Loss Due to Collapse of a Cooling Tower: The CIT added back an adhoc provision of ?5.25 crores for the collapse of a Cooling Tower to the book profits under Section 115JB, considering it an unascertained liability. The assessee argued that the provision was based on a detailed assessment and represented an actual loss, not an unascertained liability. The Tribunal examined the treatment under Accounting Standard-10, which requires assets retired from active use to be stated at the lower of their net book value and net realizable value, and any expected loss recognized in the profit and loss statement. The Tribunal found that the assessee's provision did not comply with AS-10, supporting the CIT's decision to add back the provision for book profit computation under Section 115JB. Conclusion: The Tribunal upheld the CIT's findings on the additional depreciation, set-off of losses, and provision for the Cooling Tower collapse, while reversing the CIT's decision on the treatment of the Government Grant. The appeal was partly allowed, modifying the CIT's order as discussed. Order Pronounced: The appeal filed by the Assessee is partly allowed, with the order pronounced in Open Court on 13-12-2016.
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