9911796707
TMI Blog2007 (1) TMI 574X X X X Extracts X X X X X X X X Extracts X X X X ..... f expenditure of Rs. 18.17 crores incurred on replacing 1,85,000 electricity meters, treating the same as revenue expenditure. 2.2 At the outset of hearing, the learned Authorised Representative of the assessee pointed out that there was a delay in filing the appeal by four days. The reason given for the same was stated to be due to communication gap between the concerned staff. So, it was requested to condone the delay in filing of the appeal by four days. In the interest of justice, we condone the delay of four days as the same is attributable to non-availability of certain relevant records at the relevant point of time. Accordingly, we condone the delay: 2.3 The brief facts are that the assessee company is engaged in the generation and distribution of electricity to 18 lakhs consumers in the suburbs of Bombay. Each consumer, whether residential or commercial, has to be separately provided electricity meters, so that proper tariffs are charged. During the year, 1,85,000 meters have been replaced on account of faulty readings. The AO did not allow the expenditure incurred on replacement of meters as revenue nature. For the year under consideration, it was noted by the AO that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... example, for the purpose of ascertaining or quantifying the profits arising from construction contracts, the methods described by the I.C.A.I, vide accounting standard may be adopted; and (iii)The method of accounting will not be decisive in the matter of whether the receipt will be subject to income-tax or expenditure will be allowed as deductions while computing the profits and gains of business. The same will be governed by the provisions of law relating thereto which may either be expressly provided in the Act [which would include accounting standard to be issued by the Central Government in exercise of the powers conferred upon it by s. 145(2) of the Act] or enunciated by various Courts of the country from time to time. Any accounting entry made contrary to such express provision or enunciation of law will be ignored for the purposes of income-tax assessments, notwithstanding the '' fact that the same may be recognised and accepted in accountancy phraseology. However, this may not be so in respect of proceedings under MTA. In this view of the matter, the computation of income under the head "Profits and gains or business or profession" has to be done with ss. 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncy in the distribution system is achieved by reducing distribution losses. For instance, though transmission and distribution losses of 10 per cent are acceptable worldwide, but in India, it exceeds 20 per cent. The distribution losses have been of wide spread concern in the energy sector. For the purpose of mitigating these problems, faulty meters require not only to be replaced, but replaced by temper-proof electronic meters. The meters are, therefore, integral part of the assessee's distribution network, which is main business of the assessee company. The material fact for consideration is that the expenditure, in this case, is borne for replacement of faulty meters of its existing customers. The expenditure had been incurred by the assessee for Increasing the efficiency of its business and is a constant and regular requirement. Under the facts and circumstances, the expenditure incurred is only for preserving and maintaining its existing distribution network with a view to increase efficacy and to generate more profits. Such replacement, according to the CIT (A) does not bring a new asset into existence or does not give the assessee a new or different advantage. In this re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claimed as revenue expenditure. The AO capitalised the expenditure amount to Rs. 18,17,36,176 for the reason that the assessee had treated the same as capital in its books. The meters fixed at the premises of consumers were used to measure the amount of electricity consumed for raising the bills on consumers. The assessee's entire plant comprised of generation systems, like boiler and turbines, plant and machinery used for transmission and distribution; like cable wires transformers, etc., and meters which finally measured the quantum of electricity supplied. In the course of business some of the meters of existing customers were faulty, burnt out and got defective, as a result of which they were not recording proper consumption. The assessee's network cannot function without these meters. So, these are integrated part of distribution system. In case defective meters are not replaced, the assessee would have to bear the damages. The distribution losses have been wide spread concern in the energy sector. For the purpose of mitigating these problems, faulty meters require not only to be replaced, but replaced by tamper-proof electronic meters. The meters are, therefore, an i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of meter arose in the Revenue's appeal in ITA No. 590/Mum/2004, for the asst. yr. 1999-2000. Facts being same, so, following the aforesaid reasoning as discussed in the preceding para, the order of CIT(A) allowing replacement expenditure of defective meters needs no interference. The same is upheld. 5. As a result, the appeal of the Revenue for the asst. yr. 2000-01 is also dismissed. ITA. No. 398/Mum/2004 ( Assessee's appeal-Asst yr. 1999-2000)' 6. In this appeal, the assessee has raised the following grounds : 1. (a) The learned CIT(A) erred in confirming the disallowance of Rs. 31,23,355 being the expenditure incurred on community development. (b) He erred in observing that there was no direct purpose for incurring such expenditure. (c)He failed to appreciate that such expenditure was incurred in and around the area in which the power generation facilities of the appellant are situated and is an expenditure incurred wholly and exclusively for the purpose of business. (d)The appellant prays that the aforesaid expenditure is allowable under s. 37(1) of the IT Act and the disallowance of Rs. 31,23,355 as made by the learned CIT(A) be deleted. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been detailed at pp. 1 to 3 of one of the paper books of the assessee. The AO did not allow the following two items : i)Construction of toilets Sulabh International. Rs. 18,52,416.00 ii)50 per cent construction of borewells, schools Rs. 25,41,878.52 and colleges. 8.2 With regard to the construction of toilets, namely, Sulabh International, the learned Authorised Representative of the assessee has submitted that the issue in dispute is covered in favour of the assessee by the order of Mumbai Bench 'D' of the Tribunal in ITA Nos. 727, 2086 & 2087/Mum/1999, for the asst yrs. 1993-94, 1994-95 and 1995-96 in the case of The Great Eastern Shipping Co. Ltd. vs. Dy. CIT. The relevant portion of the said order is as under: "We have heard the rival submissions, perused the material on record and have gone through the orders of authorities below and judgments cited by both the sides. We find that the judgment of Hon'ble jurisdictional High Court relied upon by the learned Departmental Representative of the Revenue rendered in the case of National Organic Chemical Industries Ltd. vs. CIT (supra), is not against the assessee and rather it supports the case of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tatement of case, which is placed at p. 5 and the details at p. 2 of the paper book. The learned Authorised Representative of the assessee also drew our attention to the agreement of the assessee with Dhyan Bharati Society, which is placed at p. 14 of the paper book. The learned Authorised Representative of the assessee further submitted that in view of agreement executed between the assessee company and Dhyan Bharati Society, the Revenue authorities failed to appreciate that such expenditure was incurred in an area to provide the facilities to the people of Dahanu region where power generation project was established. The expenditure incurred was wholly and exclusively for the purpose of business. The detail of expenditure in respect of borewells, schools and colleges in question are placed at p. 2 of the paper book. 8.5 We find that the Hon'ble Karnataka High Court in the case of Mysore Kirloskar Ltd. vs. CIT [1987] 61 CTR (Kar) 265 : [1987] 166 ITR 836 (Kar) had held that for the purpose of business use, it should not be limited to meaning of the earning profit alone. The assessee constituted a trust with an object to provide education for children of its employees or other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 : [2003] 264 ITR 522 (Bom) and in the case of CIT vs. General Insurance Corporation of India [2002] 254 ITR 203 (Bom). As against this, learned Departmental Representative supported the orders of authorities below. 9.3 We have considered the rival submissions and perused the materials on record, have gone through the orders of authorities below and the judgments cited by the counsel of the assessee. We find that as per para No. 8 of the assessment order, the AO has apportioned the interest expenses of Rs. 395.52 lakhs incurred on working capital to banks and on FDs as expenses to be disallowed under s. 14A in the ratio of tax-free income and total turnover, but there is nothing brought on record to show any nexus between this interest expenditure and this tax-free income. The CIT (A) has estimated the same at 0.5 per cent of tax-free income without any basis and also without bringing anything on record to show any nexus between the tax-free income and interest expenditure or any other administrative expenses. Moreover, expenses for earning dividend cannot be at a fixed percentage of dividend income even in the cases where there are such expenses. This is so because the quantum o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n ITA No. 398/Mum/2004 in the asst. yr. 1999-2000, which has been decided in favour of the assessee vide para 9 of this order. Following the same reasoning, no disallowance is justified. Accordingly, this issue is also decided in favour of the assessee. 13. This issue is regarding disallowance of Rs. 36,50,000 being the amount payable to Amerace Corporation by treating it as contingent liability. As the time of hearing, the learned Authorised Representative of the assessee did not press the issue. So, the same is dismissed as not pressed. 14. The next issue is regarding disallowance of Rs. 38,98,651 being the expenditure incurred in respect of community development. Similar issue arose in the asst. yr. 1999-2000, which has been decided in favour of the assessee vide para 8 of this order. Facts being same, so, following the same reasoning, the issue is also decided in favour of the assessee. The AO is directed accordingly. 15. The next issue is with regard to the disallowance of deduction of Rs. 7,706 lakhs being standby charges payable by the assessee to Tata Power Company. At the time of hearing, the learned Authorised Representative of the assessee did not press this issue. So ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee had accepted the basis that had been adopted by the AO. However, the only dispute which now arises is whether in computing the tariff one should have regard to the standby charges actually paid by the assessee or the demand for the standby charges raised by the Tata Power Company or the charges ultimately determined by the Maharashtra Electricity Regulatory Commission (in short MERC) on the arbitration of the disputes between the assessee and Tata Power Company. 16.2 In this regard, it was submitted that the AO had taken the view that as the assessee had not been allowed a deduction on account of the demand for standby charges raised because the profit derived from the unit eligible for the deduction under s. 80-IA of the Act is to be computed without taking into consideration the standby charges demanded. On appeal, the CIT (A) held that under s. 80-IA, the profits of the eligible business have to be computed in the manner provided for under the Act. As he had taken the view that the liability for payment of the enhanced standby charges was being disputed by the assessee and the matter had been restored for reconsideration by MERC, the assessee could not contend that the hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... malous situation inasmuch as in the year in which the MERC has fixed the rate the profits that would be eligible for deduction would be highly overstated and would not reflect the true profits from the generation activity for the year. In fact it is for this reason that the AO has not taken into consideration the amount so determined for the earlier previous years while determining the profits for the previous year relevant to the asst. yr. 2005-06. 16.3 It is also submitted that sub-s. (3) of s. 80-IA provides that where any goods or services held for the purpose of the eligible business are transferred to any other business carried on by the assessee and consideration, if any, for such transfer as recorded in the accounts of eligible business does not correspond to the market value of such goods as on the date of transfer, then, for the purposes of deduction under s. 80-IA of the Act, the profits and gains of such eligible business shall be computed as if the transfer had been made at the market value of such goods. Therefore, it is the market value of the electricity that is generated that has to be the basis for computing the deduction of the generation activity. The market va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear because the same cannot be considered in a later year although deduction for the same may be allowed in a subsequent year. We find force in this contention of the learned counsel for the assessee. We find that for the purpose of determining profit from power generation activity of the assessee, it has been agreed that the rate charged by Tata Power Company to the assessee should be taken as the basis. We also find that this is also agreed position that 'Standby charges' payable by the assessee to Tata Power Company have to be included for that purpose since the AO himself has excluded only Rs. 77.06 crores, which was not paid and not debited by the assessee in this year and, hence, the amount of Rs. 42 crores already paid by the assessee and debited in P&L a/c stands included in determining the sale price of power by Tata Power Company to the assessee. The AO had only excluded the claim of the assessee for including this sum of Rs. 77.06 crores on the basis of MERC order dt. 7th Dec, 2001. We also find that deduction for this balance amount of Rs. 49.40 crores (91.40-42.00) was allowed by the AO in asst. yr. 2005-06, but this amount was not included for rate purposes in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as well as the self-assessment tax of Rs. 24,00.00,000 paid, the assessee had claimed a refund of Rs. 29,01,09,085. The AO completed the assessment for the asst. yr. 1998-99 by an order dt. 16th Feb., 2001. He assessed the assessee to an income of Rs. 46,69,00,000 under s. 115JA. 19.2 Being aggrieved by the said order, the assessee had preferred an appeal before the CIT (A), which appeal was disposed of by an order dt. 9th April, 2002. The AO gave effect to the said order and determined the total income of the assessee at Rs. 63,26,36,008. After giving credit for the prepaid tax as well as the self-assessment tax and tax paid as per regular assessment, the AO determined a refund of Rs. 34,02,14,243. He also granted interest under s. 244A of the IT Act, 1961, in a sum of Rs. 2,10,34,320 on that portion of the refund that was attributable to the advance tax and tax deducted at source and tax paid on regular assessment. However, in respect of that portion of the refund, which was attributable to the self-assessment tax paid, the AO did not grant any interest. Accordingly, the assessee had preferred an appeal to the CIT(A) challenging the denial by the AO of interest on the self-asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was a denial of liability on the part of the Revenue to pay interest on the refund, an appeal would lie to the CIT(A). In arriving at this conclusion, the Hon'ble Andhra Pradesh High Court relied upon the principle laid down in the decision of the Hon'ble Supreme Court in the case of Central Provinces Manganese Ore Co. Ltd. vs. CIT [1986] 58 CTR (SC) 112 : [1986] 160 ITR 961 (SC), wherein it has been held that if an assessee denied his liability to pay interest, the appeal was maintainable. The Hon'ble Bombay High Court in the case of Caltex Oil Refining (India) Ltd. vs. CIT [1993] 113 CTR (Bom) 358 : [1993] 202 ITR 375 (Bom) , has also held that an appeal against an order denying interest under s. 214 was maintainable. Reliance also was placed on the decision of the Tribunal in the case of MMTC Ltd. vs. Dy. CIT [2007] 110 TTJ (Del) 600 : Taxman 7 (Mg), a copy whereof is enclosed. It is, therefore, pleaded that the appeal of the Revenue challenging the right of the assessee to prefer an appeal before the CIT (A) be dismissed. 19.5 It is submitted by the learned Departmental Representative of the Revenue that the issue of allowing of interest under s. 244A is not appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act was inserted by the Direct Tax Laws (Amendment) Act, 1989, which provides that where refund of any amount becomes due to an assessee under the Act, the assessee shall be entitled to receive in addition to the said amount, simple interest at the rate mentioned therein. Clause (a) of sub-s. (1) covers a case where the refund is out of any advance tax paid or tax deducted at source or tax collected at source. Insofar as the present proceedings are concerned, it is an admitted position that the assessee is entitled to interest on the excess advance tax paid by it. Clause (b) provides that in any other case, i.e. a case which does not fall within cl. (a), such interest has to be granted from the date, as the ease may be, dates of payments of the tax or penalty to the date on which the refund is granted. The Explanation below in cl. (b) to provide that "date of payment of tax or penalty" means the date on and from which the amount of tax or penalty specified in the notice of demand issued under s. 156 of the Act is paid in excess of such demand. The CIT (A) has taken the view that by virtue of the Explanation and by virtue of the judgment of the Hon'ble Supreme Court in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the period commencing from the day of the assessment year or the date of payment upto the date of the assessment order is framed. It was to cure this lacuna that the provisions of grant of interest were centralized in s. 244A of the Act. This is borne out by the Circular No. 549, dt. 31st Oct., 1989 (1990) 82 CTR (St) 1 : (1990) 182 ITR (St) 1], which explains the provisions of the Direct Tax Laws (Amendment) Act. In para 11 thereof it is stated that "these provisions, apart from being complicated, left certain gaps for which interest was not paid by the Department to the assessee for money remaining with the Government. To remove this inequity as also to simplify the provisions in this regard, the Amending Act, 1987 has inserted new s. 244A of the IT Act, 1961, applicable from the asst. yr. 1989-90 onwards which contains all the provisions for payment of interest by the Department and delay in the grant of refunds. The legislative intent thereby is to compensate an assessee, if the Government has had the use of the funds. As in the present case, the Revenue has had use of the self-assessment tax of Rs. 24 crores right from 29th June, 1998. It is but equitable that the assessee sh ..... X X X X Extracts X X X X X X X X Extracts X X X X
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