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TMI Blog2007 (1) TMI 574X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 integral part of the assessee's distribution network, which is a main business of the assessee company. It is not in dispute that the expenditure was incurred for replacement of faulty meters of its existing customers. The said expenditure was incurred by the assessee for increasing the efficiency of its business. It is constant and regular requirement. Thus, the expenditure incurred was not only for preserving and maintaining its existing distribution network but to increase effectiveness and generate more profits. Accordingly, this expenditure did not bring a new asset into existence or did not give the assessee a new or different advantage. Accordingly, the expenditure related to conducting of the business has rightly been held as revenue expenditure. This view is fortified by the decision of the Hon'ble Gujarat High Court in the case of Baroda Industrial Development Corporation Ltd. [ 1992 (3) TMI 48 - GUJAR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and accordingly, the deduction allowable to the assessee u/s 80-IA should be recalculated. This amount has to be considered for rate purpose in this year only since it was not considered in asst. yr. 2005-06 when deduction of this amount was allowed and we are of the opinion that the same cannot be considered in that year because it will result in distorted figure of sale price of power in that year and hence we hold that it should be considered in this year and the AO should recalculate the deduction allowable to the assessee u/s 80-IA. This ground of the assessee is allowed. As a result, the appeal of the assessee is allowed. Interest u/s 244A - Whether the Department has to pay interest u/s 244A on account of excess payment of self-assessment tax - HELD THAT:-We find that it is settled legal position that if the dispute is regarding denial by the assessee of the liability to interest, the same is appealable. By the same yardstick, in the case where the Department denies the liability to pay interest, the same is also appealable. As per the judgment of Hon'ble Andhra Pradesh High Court rendered in the case of Bakelite Hylam vs. CIT [ 1988 (2) TMI 46 - ANDHRA PRADE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tioner : Arvind Pinto For the Respondent : P.J. Pardiwalla, Jitendra Sanghvi and Shankar Pawar ORDER BY THE BENCH These cross-appeals pertain to the same assessee on various issues arising out of the respective orders of CIT (A). For the sake of convenience, these appeals were heard together and are being disposed of by this consolidated order. ITA No. 590/Mum/2004 (Revenue's appeal-Asst. yr. 1999-2000) 2. This appeal has been filed by the Revenue against the order of the CIT(A) for the asst. yr. 1999-2000, on the following ground : On the facts and in the circumstances of the case and in law, the learned CIT (A) erred in directing the AO to delete the disallowance of expenditure of ₹ 18.17 crores incurred on replacing 1,85,000 electricity meters, treating the same as revenue expenditure. 2.1 Thus, only issue is with regard to the disallowance of expenditure of ₹ 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 re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ify the accounting standard to be followed by any class of assessee or in respect of any class of income. So far as only two accounting standards have been issued which are mandatorlly, to be followed by all assessees who regularly employed the mercantile system of account. The controversies arise as to whether profits as per the method of accounting followed are sacrosanct in the income-tax assessment. In the light of various decisions, the issue was summarised by the CIT (A) as under : (i)As per s. 145 of the Act, the income chargeable under the head Profits and gains of business or profession is to be computed in accordance with either cash or mercantile system of accounting regularly employed by an assessee; (ii)The application of the method of accounting for the income-tax purposes will, however, be limited only for the purpose of quantifying the profits or for the valuation of assets. For 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 wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e perspective of the assessee company, the meters fixed at consumer's premises are used to measure the amount of electricity consumed for raising bills on consumers. The assessee's entire plant comprised of generation system, 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. It was observed that as some of the meters of its existing customers were faulty, burnt out and defective as a result of which these were not recording proper consumption. From the perspective of the assessee company, a network could not function without a meter and a meter could not function without being a part of distribution network. It was therefore, of use only if it were integrated with the distribution system. When considered from the point of assessee, it was observed that efficiency 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The issue before us is regarding replacement of defective meters. In this regard, it was submitted that to maintain regular supply, it was necessary to replace such meters. It was in the business interest of assessee to replace the defective meters of existing consumers. Though, initially, it was treated as capital, subsequently, the same was treated as revenue as per law. In view of the above, we are not inclined to interfere in the same. The assessee is engaged in the business of distribution of generation and distribution of electricity. The assessee installed new meters with new consumers as well as new meters with old consumers. This is undisputed that in case of new consumers the expenditure incurred towards new meters, it has to be treated as capital. This issue is not before us. The issue is regarding replacement of around 1,85,000 meters by incurring expenditure of ₹ 18,17,36,176. This amount has been claimed as revenue expenditure. The AO capitalised the expenditure amount to ₹ 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Banking Regulation Act, 1949, a bank may oblige to show its balance sheet, the valuation of stock-in-trade at cost, for the purpose of income-tax. The assessee is entitled to value the stock-in-trade at cost or market value, whichever is less. In the case before us, the assessee was under obligation as per the relevant provision of Electricity Act to show the expenditure as capital. But, for the purpose of income-tax, he was justified to treat the same as revenue by the order of United Commercial Bank (supra). In view of the above discussion, the CIT(A) was justified to delete the disallowance of expenditure amounting to ₹ 18.17,36,176 incurred on replacement of 1,85,000 defective electricity meters. We uphold the same. 3. As a result, the appeal filed by the Revenue is hereby dismissed. ITA No. 436/Mum/2004 (Revenue's appeal-Asst. yr. 2000-01) 4. Similar issue in respect of allowability of replacement charge 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 defectiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt. The AO made disallowance of a sum of ₹ 12,70,949.26 being 50 per cent of the expenditure of ₹ 25,41,898.52 incurred by the assessee on construction of borewells, school, colleges and an amount of ₹ 18,52,416 being expenditure of toilets at Dahanu on the ground that the same were not directly related to the assessee's business, which was confirmed by the CIT(A). 8.1 In this regard, the learned Authorised Representative of the assessee submitted that the assessee company had to set up its generation plant at Dahanu, which was an agricultural area. At the time of setting up, there were environmental concerns. There was strong opposition against the setting up of the generation plant on the ground that it would disturb the ecological balance and create various types of pollutions in the area. The assessee, thus, took steps to protect and conserve the environment. In the same sequence the expenditure was incurred on community development, which 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. ₹ 18,52,416.00 ii)50 per cent co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... labh International and. hence, respectfully following the judgment of Hon'ble Madras High Court rendered in the case of Madras Refinery Ltd. (supra), this ground of the assessee is allowed. Nothing contrary was brought to our knowledge by the Revenue in this regard. 8.3 After going through the rival submissions and also after going through the material available on record, we find that the assessee incurred expenditure towards Sulabh International as per agreement dt. 13th Feb., 1999, which is not disputed. The said expenditure was incurred to improve the working relation with native people. In the view of the decision in the case of Great Eastern Shipping Co. (supra), it is an allowable expenditure. We hold so. 8.4 Regarding disallowance of 50 per cent expenditure incurred on borewells, schools and colleges, the AO disallowed the same in the absence of break-up of this expenditure. In this regard, the learned Authorised Representative of the assessee drew our attention to the statement 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 asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #8377; 2,34,942.50 lakhs. The assessee carried the matter in appeal before learned CIT (A). The CIT (A) has held that it would be reasonable if 0.5 per cent of tax-free income is considered for disallowance under s. 14A of the Act and, accordingly, directed the AO to disallow ₹ 82,796 under s. 14A. Now, the assessee is in further appeal before us. 9.2 It is submitted by the learned Authorised Representative of the assessee that there is no nexus established by the AO or by the CIT (A) between the tax-free income and interest payment or any other administrative expenses, and hence no disallowance is justified under s. 14A. In support of this contention, reliance was placed on the judgment of the Special Bench of the Tribunal rendered in the case of Punjab State Industrial Development Corporation Ltd. vs. Dy. CIT [2006] 103 TTJ (Chd)(SB) 364 : [2006] 102 ITD 1 (Chd)(SB). Reliance was also placed on the judgments of Hon'ble jurisdictional High Court rendered in the case of CIT vs . Central Bank of India [2003] 184 CTR (Bom) 225 : [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 De ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ionate management expenses or interest or other expenses while computing dividend income for the purpose of allowing deduction under s. 80M. For the same reasons, the assessee has to succeed in the present case also because in the present case also, neither the AO nor the CIT (A) has placed any material on record to controvert or reject the contention of the assessee that no expenditure was incurred for earning the impugned tax-free income by way of dividend and interest on tax-free bonds. Under these facts, we decide this issue in favour of the assessee by respectfully following this judgment of the Special Bench of the Tribunal. This ground of the assessee is allowed. 10 As a result, the appeal of the assessee is partly allowed. ITA No. 399/Mum/2004 (Assessee's appeal-Asst. yr. 2000-01) 11. This appeal has been filed by the assessee against the order of the CIT(A), wherein various grounds have been raised. 12. The first issue is with regard to the disallowance under the provisions of s. 14A of the IT Act, 1961. Similar issue arose in 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. Follo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y in respect of the profits derived from the generation of electricity and not the profits from the distribution of electricity. If the sale price at which the electricity was sold to the consumer was regarded as the basis of determination of the profits, then, a part of the distribution profits would also become eligible for a deduction under s. 80-IA. Accordingly, he was of the view that in order to determine the profits from the generation activity, the tariff at which the assessee purchases the electricity from the Tata Power Company could be regarded as the basis. The assessee used to purchase electricity from the Tata Power Company as it had to make good the gap between its generating capacity and the demand from the consumers. The AO held that in determining the tariff not only was the actual charge levied by the Tata Power Company on the basis of the ,units actually consumed to be taken into consideration but even the standby charges levied were to be considered. This was because the standby charges were part of the tariff fixation by the Tata Power Company. The assessee had accepted the basis that had been adopted by the AO. However, the only dispute which now arises is wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the deduction of the additional liability as finally determined by MERC in the year the assessment completed for asst. yr. 2005-06 and it is for this reason alone and with a view to avoid further dispute that the assessee has not contested disallowance of the expenditure. However, the AO whilst computing the profits eligible for a deduction under s. 80-IA for the asst. yr. 2005-06 had not included this addition amount of ₹ 77.06 crores. The learned Authorised Representative of the assessee submitted that as it is an undisputed position that the standby charges levied by the Tata Power Company are part of the tariff that the Tata Power Company charges and as the assessee had accepted the decision of the AO that the tariff charged by the Tata Power Company is to be the basis for determining the profits eligible for a deduction under s. 80-IA the finally determined standby charges of ₹ 91.40 crores for the relevant previous year have been considered while determining the profits for the year. If this amount is not taken into consideration in determining the profits for the year it will lead to an anomalous situation inasmuch as in the year in which the MERC has fixed the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing payment of 'Standby charges' by the assessee to Tata Power Company. The original demand raised by Tata Power Company was of ₹ 181.50 crores but the same was restricted to ₹ 119.06 crores by MERC vide order dt. 7th Dec, 2001, but actual payment made was of only ₹ 42 crores. For this amount, the AO has allowed deduction also and he has considered this amount of ₹ 42 crores also for working out the rate of power supplied by Tata Power Company to the assessee. The final liability determined by MERC as per order dt. 31st May, 2004 is ₹ 91.40 crores as against ₹ 119.06 crores as per earlier order dt. 7th Dec, 2001. The assessee has not pressed the ground regarding allowing of deduction on this account and it was stated that since the assessee has to get deduction in the year when the liability get crystalised, this claim for deduction in this year is not pressed. But, the claim of the assessee is that for determining the market price of power supply by Tata Power Company to the assessee, the final amount of 'Standby charges' as per the order of MERC dt. 31st May, 2004 has to considered in this year because the same cannot be conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance of claim of deduction of income on account of excess billing amounting to ₹ 12,79,53,107. At the time of hearing, the learned Authorised Representative of the assessee did not press this issue also. So, the same is dismissed as not pressed. 18. As a result, the appeal of the assessee is also partly allowed. ITA Nos. 397 435/Mum/2004 (Asst yr. 1998-99) 19. These cross-appeals, one by the Revenue in ITA No. 397/Mum/2004 and the other by the assessee in ITA No. 435/Mum/2004, are against the orders of the CIT (A) for the asst. yr. 1998-99. In order to appreciate the issues that arise in the present appeals, it is necessary to set out in brief a few relevant facts. 19.1 The assessee had paid self-assessment tax on 29th June, 1998 of ₹ 24 crores for the asst. yr. 1998-99. It had filed its return of income for the said asst. yr. on 30th Nov., 1998 in which return a total income of ₹ 21,10,15,737 was declared under s. 115JA of the IT Act, 1961, as normal computation of income was 'NIL' after set off of past losses. After adjusting the advance tax of ₹ 8,50,00,000, the tax deducted at source of ₹ 3,89,32,198, the MAT credit availabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he CIT (A) was not maintainable. 19.4 In view of the above background, it was submitted that the appeal preferred by the assessee could be sustained either under s. 246A (1)(a) or under s. 246A(1)(c) of the IT Act, 1961. The order dt. 8th Nov., 2002, does not spell out as to under what section it had been passed. If it is treated as an order under s. 154 on the footing that the AO is rectifying his original order to bring it in the line with the directions given by the CIT(A), then the appeal would be maintainable under cl. (c) as it has the effect of reducing the refund that the assessee was entitled to. On the other hand, if the order is treated as one passed under s. 143(3) of the Act, then the same would be appealable under cl. (a) as the assessee would be regarded as challenging the determination of the tax (which includes the interest). In this connection, reliance was placed on the decision of Hon'ble Andhra Pradesh High Court in the case of Bakelite Hylam Ltd vs . CIT [1988] 72 CTR (AP) 137 : [1988] 171 ITR 344 (AP).wherein it has been held that the assessee had a right of appeal against an order giving effect to the order of an appellate authority as if such order w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as order under s. 143(3), the appeal lies as per s. 246A(1)(a). As per the judgment of Hon'ble Andhra Pradesh High Court rendered in the case of Bakelite Hylam vs . CIT (supra ), it was held that the assessee has a right of appeal against an order giving effect to the order of an appellate authority as if such order was an assessment order itself. In the same case, it was also held that if there is total denial of the liability by the Revenue to pay interest on belated refund, an appeal lies against such total denial. In the present ease also, there is total denial by the Revenue to pay interest on self-assessment tax paid by the assessee. We are of the considered opinion that the facts in the present case are similar to the facts in that case and hence, this judgment covers this issue against the Revenue. Respectfully following this judgment, this issue is decided in favour of the assessee and this ground of the Revenue is rejected. 19.7 The sole issue that arises in the assessee's appeal is whether the CIT(A) was justified in restricting the grant of interest only from the date the original assessment was framed i.e. 14th Feb., 2001 and not from 29th June, 1998 i.e. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act that an assessee would be entitled to interest for the period from which it paid the self-assessment tax is also borneout by the legislative history. Prior of the insertion of s. 244A of the Act, interest was allowed to an assessee either under s. 214 of the Act. Sec. 243 of the Act or s. 244 of the Act dealt with interest on excess advance tax paid. Sec. 243 dealt with the grant of interest on a delayed payment of a refund and s. 244, inter alia, dealt with the interest of the amounts paid pursuant to an order of the assessment and penalty. The Hon'ble Supreme Court in the case of Modi Industries ( supra) had held that on a construction of s. 244(1A) of the Act an assessee would be entitled to interest on a refund determined pursuant to an order to grant effect to an appellate order and that an assessee would be entitled to such interest from the date of the assessment order, as it was on that date that the advance tax paid, tax deducted at source or self-assessment tax was appropriated against tax demand in terms of ss. 219, 198 and 140A(3), respectively of the Act. Thus, there was a lacuna inasmuch as an assessee was not entitled to interest in respect of a refund arisin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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