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TMI Blog2013 (9) TMI 675X X X X Extracts X X X X X X X X Extracts X X X X ..... ss total income of the assessee includes any profits and gains derived by an undertaking or an enterprise from any business referred to in sub-section (4), there shall, in accordance with and subject to the provisions of section 80-IA, be allowed, in computing the total income of the assessee, a deduction of an amount equal to 100% of the profits and gains derived from such business for ten consecutive assessment years. The Assessee claimed deduction under section 80-IA(4)(iv)(c) of the Act. Those provisions read as follows:- "(4) This section applies to . . . . . (iv) an undertaking which,. . . . . (c) Undertakes substantial renovation and modernization of the existing network of transmission or distribution lines at any time during the period beginning on the 1st day of April 2004, and ending on 31st day of March, 2010. Explanation: for the purposes of this sub-clause, "substantial renovation and modernization" means an increase in the plant and machinery in the network of transmission or distribution lines by at least fifty per cent of the book value of such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sp; Provided that the deduction under this section to an undertaking under subclause( b) shall be allowed only in relation to the profits derived from laying of such network of new lines for transmission or distribution;" The alternative claim of the assessee was examined by the CIT(Appeals) as under: "21. It was contended before me that the assessee company was covered under section 80-IA(4)(iv)(b), as it had been setup on 01.06.2002 by transfer of assets from the erstwhile Karnataka Electricity Board and was since engaged in the distribution of electric power. The audit report had clearly mentioned that the company undertook the distribution of power. Thus even if the assessing officer was right in his contention that the condition of substantial renovation and modernization as stipulated under section 80-IA(4)(iv)(c) was not met, the company was eligible for the deduction under section 80-IA(4)(iv)(b). 22. This contention leads one to the question whether the three clauses enumerated in sub section 4(iv) of section 80-IA are mutually exclusive. Considering the backdrop in which most State Electricity Boards have re-organized their functions and set u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 80-lA is available only if the eligible business is not formed by splitting up, or the reconstruction, of a business already in existence. Second Proviso to this sub-section makes an exception to the condition laid down in sub-section (3). This Proviso was inserted In terms of An amendment introduced in section 80-IA(3) by Finance (No. 2) Act, 2004, with effect from 01.04.2005, and states that - "Provided that nothing contained in this sub-section shall apply in the case of transfer, either in whole or in part, of machinery or plant previously used by a State Electricity Board referred to in clause (7) of section 2 of the Electricity Act, 2003 (36 of 2003), whether or not such transfer is in pursuance of the splitting up or reconstruction or reorganization of the Board under Part XIII of that Act." 26. The appellant's contention is that since the company was using the distribution lines which were previously used by the Karnataka Electricity Board, the restriction imposed by sub-section (3) did not apply to it in terms of the exception made by the second Proviso quoted above. Although the amendment came into effect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ribunal vide its order dated 4-7-2012 held as follows: "14. We have considered the rival submissions. As we have already seen, the deduction u/s. 80-IA(4)(iv)(c) is allowed for a period of ten years. The dispute in the present appeal is as to whether assessment year 2005-06 should be the first year in which the deduction should be allowed. It was clarified at the time of hearing of the appeal that from the A.Y. 2006-07, the assessee has been getting the deduction u/s. 80-IA(4). It is no doubt true that the provisions talk about undertaking substantial renovation and modernization of existing network of transmission or distribution lines by the electricity distribution company. The Explanation, however, defines what is substantial renovation and modernization and it lays down that the value of transmission and distribution lines should increase as per the books, at least by 50%, compared to the book value as on 01.04.2004. Admittedly, as per the books of account, this criterion was not satisfied. The assessee however seeks to rely on the expenditure incurred during the previous year which were in connection with renovation and modernization of cable and transmission li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aning of the word 'undertake" as per the Oxford Advanced Learners Dictionary was also brought to our notice. In short, the submission was that the provisions of section 80-IA(4)(iv)(c) were introduced to provide an impetus to the growth of infrastructure in the nation. The provisions are, therefore, beneficial provisions which should not be construed restrictively. It was also submitted that the view taken by the ITAT in the case of M/s.Bangalore Electricity Company Ltd (supra) wherein the view was held that the word 'undertake' should be interpreted to mean 'complete' is not correct. 9. We have considered the above submissions and are unable to agree. In the case of M/s.Bangalore Electricity Company Ltd (supra), we have already taken a view that the word 'undertake' in section 80-IV(4)(iv)(c) to mean that there should be an increase in the Plant and Machinery by at least 50% of the book value of such Plant and Machinery as on 1-4-2004 meaning thereby that there should be capitalization of the Plant and Machinery on completion of installation of Plant and Machinery. The Tribunal has taken the view that the purpose of introduction of the aforesaid provision was to achieve moderniza ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. To claim deduction u/s 80IA(4)(iv)(b) the conditions are that the assessee should start transmission or distribution by laying a new network of new transmission or distribution line. It is an admitted position that the assessee did not make any such claim before the AO in the course of assessment proceedings. It is only before the CIT(Appeals) the assessee made the aforesaid claim. Even in the submissions before the CIT(A), there is no reference to what is the network of new transmission or distribution lines that were laid by the assessee between 1-4-1999 and 1-4-2006. Even a perusal of the balance-sheet of the assessee at page 2 of the assessee's paper book which gives the Schedule of Fixed Assets only talks of lines cable net work. The opening written down value (WDV) of the same was Rs.837,41,39,851/- and there were additions to the tune of Rs.48,03,76,632/-. As to whether these were additions because of laying of network of new transmission or distribution lines or simple additions to existing line cable network is not known. In such circumstances, the claim made by the assessee without a sound basis and without proper facts available on record deserves to be rejected at th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssets accounted was also reduced from the total income. Thus, the net addition to the total income was made of Rs.39,89,124/-. 14. On appeal by the assessee, the CIT(A) confirmed the order of the AO. Before the CIT(Appeals), the assessee submitted that it was only an internal book adjustment and no sale of the asset had actually taken place. It was pointed out before the CIT(Appeals) that the assessee, being an undertaking of Government of Karnataka, has to follow the procedure as laid down in the KEB Accounts Volume/Circular with regard to the accounting of the fixed assets. The assessee pointed out that the transformers which were not repairable and were not sold, treated the same as scrapped transformers in the books of the account and loss is recorded in the books of account. The scrapped transformers are sold later after following formalities and the actual loss will be known only when sale of scrapped transformers takes place. The CIT(Appeals) was of the view that proper recourse open to the assessee was to reduce the WDV of the relevant block of assets by the amount of loss incurred on actual sale of assets rather than claiming loss in the profit and loss account. Aggrieved ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso worked out the depreciation allowable without considering the non-depreciable assets. As per the detailed furnished, the depreciation allowable was at Rs.20,85,25,686/- as against the depreciation claimed of Rs.24,13,96,009/-. Thus, the difference of excess depreciation claimed was at Rs.3,28,70,323/-, the details of which are as under: Consumer Contribution during AY. 2003-04 Opening balance as on 1.4.2005 : Rs. 3,23,19,592/- Depreciation claimed @ 15% for the Asst.Year 2006-07 : Rs. 48,47,939/- Consumer Contribution during A.Y. 2004-05 Opening balance as on 1.4.2005 : Rs. 5,91,96,278/- Depreciation claimed @ 15% for the Asst.Year 2006-07 : Rs. 88,79,442/- Consumer Contribution during A.Y. 2005-06 Opening balance as on 1.4.20005 : Rs. 8,79,40,279/- Depreciation claimed @ 15% for the Asst.Year 2006-07 : Rs. 1,31,91,042/- Consumer Contribution during A.Y. 2006-07 Consumer contribution collected during the year : Rs. 7,93,58,686/- Depreciation claimed @ 7.5% for the Asst.Year 2006-07 : Rs. 59,51 ,901/- Thus, the total depreciation claimed on consumer contribution works out to Rs. 3,28,70,323/- (Rs.48,47,939/- + Rs. 88,7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is clearly by individual consumers at their own premises and not for the business of the appellant company. The actual cost of the assets to the appellant company is nil. The circular relied upon by the appellant only prescribes the method of accounting for the inventory of assets transferred by consumers and has no bearing whatsoever on the admissibility of depreciation under the Income-Tax Act, whose provisions the circular cannot override. I therefore dismiss this ground of appeal." 18. Aggrieved by the order of the CIT(Appeals), the assessee has raised ground No.3 before the Tribunal. Learned counsel for the assessee reiterated the submissions as were made before the CIT(Appeals) and further submitted by way of alternative argument as follows: Even assuming but not conceding the department's stand, the disallowance should have been restricted only to Rs.1,87,72,394 and not Rs.3,28,70,323/- as adopted by the learned CIT(A) in his order. The following table shows the facts regarding the disallowance. Particulars Amount Depreciation claimed as per return in AY 2006-07 24,13,96,008 Less: Depreciation for AY 2006-07 excluding consumer contribution as per depreciation schedule ..... X X X X Extracts X X X X X X X X Extracts X X X X
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