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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 ..... uent to undertaking substantial expansion and the benefit cannot flow to the assessee unless substantial expansion is completed which would result operational efficiency of the electricity company – Order of Commissioner(A) has been confirmed – Decided against the Assessee. Deduction u/s 80IA(4)(iv)(b) of the Income Tax Act – Held that:- Conditions are that the assessee should start transmission or distribution by laying a new network of new transmission or distribution line – No reference to the addition in the Network lines has been made before either A.O. or Commissioner(A) and not anything separate has been shown in the Balance- Sheet - 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 - Claim made by the assessee without a sound basis and without proper facts available on record deserves to be rejected – Decided against the Assessee. Deprecation on on assets handed over to the appellant by consumers for their running and ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 plant and machinery as on the 1st day of April, 2004 . 4. The Assessee claimed that it had, during the previous year relevant to AY 05-06, undertaken substantial renovation and modernization and therefore was entitled to claim deduction u/s.80-IA(4)(iv)(c) of the Act. To claim deduction u/s.80-IA(4)(iv)( c) of the Act, the Assessee had to achieve an increase in the book value of the fixed assets - plant machinery by at least 50% of the book value of such plant machinery as on 01.04.2004. As on 1.4.2004, the value of the Plant and Machinery was Rs.1011 Crores. The Assessee claimed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 up separate entities to carry on the generation, transmission and distribution functions, it would appear that the legislative intention was to afford the tax to all undertakings which were engaged in any of the three activities. The legislative intent can be understood from the budget speech rendered in Parliament on 27.02.1999 by the then Finance Minister, who stated as follows: I propose to treat the activities of transmission and distribution of power, set up after 1.4.1999, as eligible activities for fiscal incentives available to infrastructure units. I am sanguine that this proposal will facilitate the restructuring and rehabilitation of the State Electricity B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rganization 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 from 01.04.2005, whereas the appellant company came into existence on 01.06.2002, i.e., much before the amendment came into force, the exception provided by the second proviso was available to the company because the claim for deduction was made for the first time only in this assessment year and not before the amendment came into force. 27. Since the assessee company had, in terms of section 80-IA(2), the option to claim deduction under section 80-IA for any ten consecutive assessment years out of fifteen years beginning from the year of commencement of distribution of electricity, its eligibility for the deduction ought to be determined with reference to the law in force as on the date of making the claim, and not with reference to the date of incorporation of the company. Moreover, there is nothing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 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 line which were not complete and were in progress and therefore classified as CWIP. The fact that they were shown as CWIP in the books of account would only mean that renovation and modernization of the existing transmission or distribution lines had not been recognized as complete. We accept the submission of the ld. DR that the provisions of section 80- IA(4)(iv)(c) of the Act are meant to encourage modernization and upgradation of plant machinery in power sector within a specified period in order to ensure wider network and prevention of transmission losses. This objective is sought to be achieved by prescribing a criterion of increase in the book value of the transmission or distribution lines, which are treated as plant machinery by the electricity supply company, compared to the book value as on 01.04.2004. We are, therefor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rease 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 modernization in operation of electricity company consequent to undertaking substantial expansion and the benefit cannot flow to the assessee unless substantial expansion is completed which would result operational efficiency of the electricity company. In view of the aforesaid decision of the Tribunal, we confirm the order of the CIT(Appeals) on this issue and dismiss the claim of the assessee in this regard. 10. As far a deduction u/s 80-IA(4)(iv)(b) of the Act is concerned, the factual situation is that the assessee-company came into existence as on 1-4-2002 consequent to the splitting up of the Karnataka Electricity Board. Our attention was drawn to the provisions of section 80-IA(3) which lay down the condition that the benefit of the provisions of sec.80-IA will not be available to a undertaking which is formed by splitting up of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itions 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 the outset. We do so accordingly. Nevertheless, we are of the view that proviso to sec.80-IA(3) which is introduced by the Finance Act 2004 w.e.f. 1-4-2005 gives the benefit to a new entity which is formed by splitting up of an existing State Electricity Board. If the entity which is formed by so splitting up undertakes laying of network of new transmission or distribution lines after such split up, then they should be entitled to the benefit of sec.80IA(4)(iv)(b) of the Act. In other words, the proviso referred to above operates prospectively. If a network of a new transmission or distribution line is made on or after 1-4-2005, then the benefit of sec. 80IA(4)(iv)(b) of the Act can be availed by an assessee. As already stated, in the present case, there are no facts which justify even remanding the matter to the AO for fresh co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owing 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 by the order of the CIT(Appeals), the assessee has raised ground No.4 before us. 15. We have heard the submissions of the learned counsel for the assessee who reiterated the stand of the assessee as put forth before the CIT(Appeals). We are of the view that the reasons given by the AO and the CIT(Appeals) are proper and do not call for any interference. After the concept of block of assets introduced in the Income-tax Act, 1961, any sale or discarding of an asset which has already entered block of assets for allowing depreciation, the sale value has to be simply reduced from the block of assets. Any profits or loss on sale of new assets are not capable of computation after introduction of the concept of block of assets. We, therefore, concur with the view of the CIT(Appeals) on this issue and dismiss the ground No.4 raised by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 88,79,442/- + Rs. 1,31,91,042/- + Rs.59,51,901/-) which was to be disallowed and added to the total income. 17. On appeal before the CIT(Appeals) it was argued that the company was eligible for depreciation since the assets were subsequently transferred by consumers to the assessee and the assessee thereafter maintained the assets, in terms of circular No. C(A/cs)/AO (A/cs)/Sn.lV/CYS 10/92-93, dated 20.04.1992, issued by its erstwhile parent assessee, M/s Karnataka Electricity Board. A copy of the circular was submitted. The CIT(Appeals) confirmed the order of the AO observing as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 22,26,23,615 Depreciation on consumer contribution. A 1,87,72,393 Consumer contribution as on 31-3-2005 25,63,72,231 Less: Transferred to CESCO as per Government order 8,90,72,452 Consumer contribution exclusively pertaining to MESCOM as on 31-3-2005 16,72,99,779 Add: Addition to consumer contribution in AY 2006-07 7,93,58,686 Balance of consumer contribution as on 31-3-2006 -B 24,66,58,465 Actual depreciation for AY 2006-07 @ 7.5 on consumer contribution-C (B*75.%) 1, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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