2021 (2) TMI 645 - HC - Income Tax

Deduction claimed u/s 80IA(4)(iv)(c) - expenditure required to be capitalized or not - nature of expenditure on renovation and modernization in the books of accounts - substantial renovation and modernization of existing network of transmission or distribution lines - HELD THAT - In the instant case, the assessee had undertaking substantial renovation and modernization of existing lines which is more than 50% of the book value of assets as on 01.04.2004 as per explanation to Section 80IA(4)(iv)(c) of the Act. Thus, it can safely be inferred that the assessee has undertaken the works towards renovation and modernization of existing transmission or distribution lines. It is pertinent to note that there is no requirement of capitalization of the amount in the books of accounts mentioned in Section 80IA(4)(iv)(c) of the Act. It is pertinent also to note that Section 80IA(4)(iv)(c) of the Act does not mandate that there has to be increase in the value of plant and machinery in the books of accounts. Therefore, such a requirement, which is not prescribed in the language of the provision cannot be read into it. MAT Applicability section 115JB - Issue already been answered by this court in 'COMMISSIONER OF INCOME TAX VS. ING VYSYA BANK LTD.' 2020 (1) TMI 1116 - KARNATAKA HIGH COURT Thus, in view of language employed in Section 80IA(4)(iv)(c) of the Act, the requirement contained therein is fulfilled if the assessee undertakes the substantial renovation and modernization of the existing or distribution lines and it is not necessary for the assessee to complete the same as the aforesaid provision does not contain the requirement of completion. The authorities have erred in law in adding the words 'capital work in progress' in the provision which is not mentioned and have also erred in holding that the renovation and modernization should be done in Previous Year. The aforesaid requirements are not contemplated by the provision in question. Assessee appeal allowed.

Summary

Issues Involved:
1. Disallowance of deduction claimed under Section 80IA(4)(iv)(c) of the Income Tax Act.
2. Requirement of capitalization of expenditure on renovation and modernization for claiming deduction under Section 80IA(4)(iv)(c).
3. Applicability of Section 115JB of the Income Tax Act for the assessment year 2005-06.

Issue-Wise Detailed Analysis:

1. Disallowance of Deduction under Section 80IA(4)(iv)(c):
The assessee, a public limited company engaged in the distribution of electricity, claimed a deduction of ?141,84,44,170 under Section 80IA(4)(iv)(c) for the Assessment Year 2005-06. The Assessing Officer disallowed this deduction, a decision upheld by the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal. The assessee argued that it undertook substantial renovation and modernization of existing transmission lines, exceeding 50% of the book value of assets as of 01.04.2004, as per the explanation to Section 80IA(4)(iv)(c). The court noted that the term "undertake" does not equate to "completion" and that the statute does not mandate capitalization in the books of accounts. The court concluded that the assessee met the requirements of Section 80IA(4)(iv)(c) by undertaking the renovation and modernization, thus allowing the deduction.

2. Capitalization of Expenditure:
The Tribunal held that capitalization of expenditure in the books of accounts was a condition precedent for claiming the deduction under Section 80IA(4)(iv)(c). The assessee contended that the statute does not require capitalization for the deduction and that the expenditure was shown under 'fixed assets' and 'capital work in progress'. The court agreed with the assessee, stating that Section 80IA(4)(iv)(c) does not stipulate capitalization as a requirement. The provision only requires that substantial renovation and modernization be undertaken, not necessarily completed or capitalized within the same year.

3. Applicability of Section 115JB:
The issue of whether Section 115JB of the Act applied to the assessee for the assessment year 2005-06 was also raised. The court referred to its earlier judgment in 'Commissioner of Income Tax vs. ING Vysya Bank Ltd.' (2020), which had addressed this issue. The court reiterated that the provisions of Section 115JB were not applicable to the fact situation of the case.

Conclusion:
The court concluded that the authorities erred in law by adding requirements not stipulated in Section 80IA(4)(iv)(c) and by holding that renovation and modernization should be capitalized in the books. The substantial questions of law were answered in favor of the assessee, quashing the Tribunal's order dated 04.07.2012 to the extent it contained findings against the assessee. The appeal was disposed of accordingly.