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TMI Blog2017 (9) TMI 649X X X X Extracts X X X X X X X X Extracts X X X X ..... l Verification of assets could not be done - Held that:- CIT(A) confirmed the disallowance done by AO of depreciation on the nonexisting assets of 115.21 Crore on grounds that assessee does not prepare the list of fixed assets on physical verification and if the assessee himself cannot find where the assets are located, then the question of putting them to use for business purposes doesn’t arise. - But as per the submissions of Ld. AR for earlier AY 2003-04, the same case with same facts was decided by Tribunal in favor of assessee, therefore following the decision of the Co-ordinate Bench [2016 (9) TMI 399 - ITAT JAIPUR] there is no change in the facts and circumstances in the present case same is allowed in favor of assessee. Disallowance of depreciation u/s 32 r/w sec 43(1) - Contribution, grants and subsidies towards cost of capital assets - AO has disallowed the amount of 22,05,23,697/- as excess depreciation claimed by assessee on the grounds that as per section 32(1)(iii) read with section 43(1) and Explanation 10 contribution, grants and subsidies received for Capital Assets are to be reduced from the cost of capital assets and therefore AO recalculated the depreciation all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the:- (1) Addition of ₹ 4,64,27,170 show under the prior period expenses claimed. (2) Addition for disallowance of depreciation of ₹ 12,15,15,004 on non- existing assets. (3) Addition for disallowance of depreciation of ₹ 22,05,23,697 u/s 43(1) (Wrongly figure taken by Ld CIT(A) at ₹ 12,61,87,639)." Assessee's grounds of appeal (ITA No. 361/JP/16) "Under the facts & circumstances of the case, the Ld. CIT(A) has erred in confirming the :- (1) Addition of ₹ 4,64,27,170 shown under the prior period expenditure. (2) Disallowance of depreciation of ₹ 23,04,20,000 (Now rectified to ₹ 12,15,15,004 in the assessment order dated 30.12.2009 passed u/sec. 143(3)/148 for assessment year 2004-05)" Revenue's grounds of appeal (ITA No. 357/JP/16) "In view of the facts and circumstances of the case the Ld. CIT(A), Ajmer has erred in deleting the disallowances of ₹ 22,05,23,697/- made by the AO on account of excess depreciation claimed and added to the MAT income without appreciating the facts that as per provision of section 115JB(2) of the I.T. Act the assessee company has to follow accounting policies and prepare its P& ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecided in its favour by the ld. CIT(A) for A.Y. 2002-03, the Assessing Officer stated that since the Revenue is an appeal before the Tribunal against the said order, he is not in a position to follow the order of the ld. CIT(A). Finally, the Assessing Officer, following the past history of the assessee, disallowed the prior period expenditure amounting to ₹ 4,64,27,170/-. 5. Being aggrieved, the assessee carried the matter in appeal before the ld. CIT(A) and reiterated its submission made before the Assessing Officer. It was further submitted that the issue has since been decided by the Tribunal in assessee's own case in its favour for A.Y. 2002-03 and A.Y. 2003-04. The ld. CIT(A) didn't consider the decision of the Tribunal for the earlier years. Further, the ld. CIT(A) referred to his predecessor order for AY 2002-03 and 2003-04 and stated that in those years, a finding has been given that the liability in respect of these expenses were crystallized in the year in which these expenses have been claimed as deduction. The ld. CIT(A) further held that in the year under consideration, either during the course of assessment proceedings or appellate proceedings, the assessee has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in para 6 and 7 of its judgement which are reproduced as under:- "6. Counsel for the respondent contended that the issue is covered by the decision of Delhi High Court in case of SMCC Construction India Ltd. vs. Assistant Commissioner of Income Tax reported in [2013] 38 taxmann.com 146 (Delhi) wherein in para 13 & 14 it has been held as under:- "13. The prior period expenses are eligible for deduction during the current year provided the liability was determined and crystallized during the relevant year. 14.The reason to believe recorded by the Assessing Officer "that the assessee has debited a sum of ₹ 1,20,765 in the P&L account on account of prior period expenses after netting income of ₹ 30,34,463/- and expenditure of ₹ 31,55,228/- has not been crystallized during the year 2001-02 relevant to the assessment year 2002-03 such prior period expenses should have been disallowed" is not based on any material that had come to the knowledge of the Assessing Officer. The Assessing Officer has placed reliance on the notes to the accounts that were available at the time of the scrutiny assessment. But the notes also states that the prior period expenses had cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case or there are change in law which call for a fresh examination. Further, the Courts have held that where the rate of tax remained the same in the present assessment year as well as in the subsequent assessment year, the dispute raised by the Revenue is entirely academic or at best may have a minor tax effect. In the instant case, we have been informed that the assessee is subject to corporate tax rate of 35% and there is no change in the said tax rate in the subsequent assessment year. 11. In the entirety of facts and circumstances of the case and respectfully following the decision of the Hon'ble Rajasthan High Court in assessee's own case, the AO is directed to allow the claim of deduction of the prior period expenses amounting to ₹ 4,64,27,170/-. In the result, the ground of appeal taken by the assessee is allowed. Disallowance of depreciation on non-existing assets 12. In respect of ground no. 2, briefly the facts of the case are that the Assessing Officer during the course of assessment proceedings noticed that the assets worth ₹ 115.21 Crores could not be physically verified and following the earlier years, he disallowed depreciation on such assets amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble entity and therefore the matter was fixed for hearing on 29/6/2016 for the purposes of clarification. On 29/6/2016, the ld AR alongwith representatives of the assessee were present in the court. Ld AR submitted that the Board have filed the return of income for the assessment year 2001-02 and have also provided the chart for depreciation in respect of fixed assets of the assessee. 9.1 Even otherwise Section 80 of the Electricity Supply Act, 1948 provides as under:- "80. Provision relating to Income Tax and Super Tax.- (1) For the purposes of the Indian Income-tax Act, 1922 (XI of 1922), 4 the Board shall be deemed to be a company within the meaning of that Act and shall be liable to income tax and super tax accordingly on its income, profits and gains. (2) The State Government shall not be entitled to any refund of any such taxes paid by the Board. In view of the specific provisions under the Electricity Supply Act, 1948, a Board constituted under the said Act and the Board is liable to pay tax under the provisions of Income Tax Act, 1961 and therefore, the Board was required to file income tax return and the judgment passed by the Hon'ble Rajasthan High Court in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visaged under the Act. As per explanation-6 of Section 43(1), the actual basis of transferee company would have to be written down value of the transferor company meaning thereby the block of assets, which was transferred by the Rajasthan Electricity Board with the original cost of acquisition, shall be determined the written down value for the assessee company. The Hon'ble Delhi High Court in the case of Dalmia Ceramic Industries Ltd. Vs. CIT (2005) 277 ITR 219 has held that "what would be the actual cost of the transferee company on the date of transfer is indicated in Section 43(1), explanation-6, thus the actual cost of transferee company will be written down value of the holding company." 9.4 Since the original cost of acquisition of the transferor company, is determined, similarly, the written down value of the transferor company is also available with the Assessing Officer, therefore, the ld Assessing Officer was only required to allow the application depreciation on the written down value of the assets acquired by the assessee from the transferor company (RACB). The relevant portion of the judgment is reproduced hereinbelow: "8. The only issue before this court is whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en if the transferor-com pany had continued to hold the capital asset for the purpose of its business." 11. There is no dispute that the case falls under clause (iv) of section 47. Therefore, it is clear that the actual cost would be the written down value of the transferor-company. This aspect is required to be borne in mind while considering the question. We will now have to turn to Explanation 6 to section 43(1) which reads as under : " Explanation 6.-When any capital asset is transferred by a hold ing company to its subsidiary company, or by a subsidiary company to its holding company, then, if the conditions of clause (iv) or, as the case may be, of clause (v) of section 47 are satisfied, the actual cost of the transferred capital asset to the transfereecompany shall be taken to be the same as it would have been if the transferor-company had continued to hold the capital asset for the purposes of its business." 12. It is clear that what would be the actual cost to the transferee company on the date of transfer is indicated in section 43(1), Explanation 6. Thus, the actual cost to the transferee-company will be the WDV of the holding company (transferor-company). 13 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed cannot be altered except in the three situations outlined by counsel where the original figure itself requires a modification." 9.5 In view thereof, this ground of the assessee's appeal is allowed." 16. We have heard the rival submissions and perused the material available on record. Undisputedly, there is no change in the facts and circumstances of the case. No contrary authority has been brought to our notice subsequent to the above referred decision of the Coordinate Bench. In light of the same, following the decision of the Coordinate Bench, the ground is allowed in favour of the assessee company. Disallowance of depreciation u/s 32 r/w sec 43(1), Explanation 10 17. In respect of ground no. 3, briefly the facts of the case are that the Assessing officer after going through the schedule-2 of the balance sheet of the assessee company noticed that there is an increase in contribution, grants and subsidies towards cost of capital assets during the year which has not been reduced from the cost of the assets for the purpose of calculation of depreciation. In view of section 32(1)(iii) read with section 43(1) and Explanation 10 thereto and after going through the submission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st of the asset to the assessee. Admittedly, the amount has been received by the assessee in the form of grant/reimbursement/subsidy from the state Government therefore, in our view, the order passed by the ld CIT(A) is required to be upheld and the value of the assets shall be taken by the ld Assessing Officer after adjusting the subsidy/grant/reimbursement from the State Govt. or the other government departments. Accordingly, this issue is decided against the assessee and in favour of the revenue." 19. We have heard the rival submissions and perused the material available on record. Undisputedly, there is no change in the facts and circumstances of the case. Following the decision of the Coordinate Bench referred supra, the ground taken by the assessee company is dismissed. Applicability of MAT provisions u/s 115JB of the Act 20. At the outset, the ld. AR submitted that the Coordinate Bench in assessee's own case in its consolidated order dated 14.07.2016 has decided against the applicability of the MAT provisions to the assessee company. It was accordingly submitted that the issue is covered in favour of the assessee by the decision of the Coordinate Bench which may kindly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... already examined both these issues in detail. Our findings and directions contained in ITA No. 362/JP/2016 shall apply mutatis mutandis to this appeal as well. In the result, both the grounds taken by the assessee are allowed. ITA. No. 357/JP/16 24. In this appeal for AY 2004-05, the Revenue has challenged the action of ld CIT(A) in deleting the disallowance of excess depreciation claimed by the assessee company amounting to ₹ 22,05,23,697/- while working out the book profits as per provisions of section 115JB of the Act. 25. In ITA No. 362/JP/16 (supra), we have already taken a view that the provisions of section 115JB are not applicable to the assessee company. In view of the same, the subject ground of appeal relating to excess depreciation relating to computation of book profits becomes academic and we donot think it is necessary to examine the same in detail. In the result, the ground of the revenue's appeal is dismissed being infructious. Assessment Year 2005-06 (ITA No. 364/363/365/JP/16 & ITA No. 358/JP/16) 26. For AY 2005-06, there are three appeals filed by the assessee. In ITA No. 364/JP/2016, the assessee has challenged the order of ld CIT(A) dated 22.01.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TA No. 359/JP/16) 31. For AY 2007-08, there are two appeals filed by the assessee. In ITA No. 366/JP/2016, the assessee has challenged the order of ld CIT(A) dated 22.01.2016 passed pursuant to the assessment order u/s 143(3) of the Act and has taken grounds of appeal relating to disallowance of prior period expenses, disallowance of depreciation on non-existing assets, disallowance of depreciation under section 32 r/w section 43(1) of the Act and applicability of MAT provisions under section 115JB of the Act. In ITA No. 367/JP/2016, the assessee has challenged the order of ld CIT(A) dated 22.01.2016 passed pursuant to the reassessment order u/s 147 r/w section 143(3) of the Act, the assessee has taken grounds of appeal challenging issue of notice u/s 148 of the Act, applicability of MAT provisions under section 115JB of the Act and disallowance of depreciation amounting to ₹ 8,50,99,110 since rectified to ₹ 2,00,13,600 while computing book profits under section 115JB of the Act. In ITA No. 359/JP/16, the Revenue has challenged the action of ld CIT(A) in deleting the disallowance of excess depreciation claimed by the assessee company amounting to ₹ 22,71,05,598/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowance of excess depreciation claimed by the assessee company amounting to ₹ 12,61,87,639/- while working out the book profits as per provisions of section 115JB of the Act. 37. We have examined the subject issues in detail in ITA No. 362/JP/16 for AY 2004-05 relating to disallowance of depreciation on non-existing assets, disallowance of excess depreciation under section 32 r/w section 43(1) of the Act and applicability of MAT provisions under section 115JB of the Act. Undisputedly, both the parties agreed that the facts and circumstances of the case are identical. Our findings and directions contained in ITA No. 362/JP2016 shall apply mutatis mutandis to this appeal as well. 38. In ITA No. 368/JP/2016, the assessee has challenged the action of the AO where he has carried out various adjustments relating to depreciation while working out the book profits for the purposes of computing the MAT liability under section 115JB of the Act and passed an order under section 154 of the Act. Similarly, Revenue in its appeal in ITA No. 360/JP/16 has raised ground relating to depreciation adjustment while working out the book profits as per provisions of section 115JB of the Act. As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before the ld CIT(A) who has confirmed the said disallowance. The relevant findings of ld CIT(A) are contained at para 6.3 of his order which is reproduced as under:- "6.3 I have gone through the assessment order, statement of facts, grounds of appeal and written submission carefully. The provision for doubtful debt is not a deduction admissible in view of the specific provision of clause (vii) of sub-section 1 of section 36. Under no other provisions of the Act, unascertained liability can be allowed as deduction for the purpose of computing business income. Here it would be pertinent to mention that in the A.Y. 2011-12, the assessee itself has treated the provision for doubtful debt as inadmissible deduction and added back to the profit as per P&L accounts for purpose of computing income under the head 'profit and gains from business and profession'. Accordingly, the disallowance made by the AO is hereby confirmed. Hence, this ground of appeal is dismissed". 47. During the course of hearing, the ld AR submitted that this sum has been debited as bad & doubtful provision for dues from consumer. Actually it is write off of outstanding of permanent disconnected consumer. However ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deduction admissible in view of the specific provision of clause (vii) of sub-section 1 of section 36. Under no other provisions of the act, unascertained liability can be allowed as deduction for the purpose of computing business income. Whereas it is not terminology but the intention & act of assessee is important to justify the act of "write off". 48. We have heard the rival submissions and purused the material available on record. The assessee company has contended that it is not a provision but an actual write off. It was submitted that as per accounting procedure/guidelines prescribed for the electricity companies, it is not directly debited to the customer account for the purposes of determining the amount to be recovered in future. It was further submitted that as and when the amount is realised in future, the same will be offered to tax. There is however nothing on record to demonstrate what accounting treatment, the assessee company has done in its books of accounts under the double entry accounting system, if the amounts in individual accounts of the customers are not written off. Unless and until, the accounting treatment in the books of accounts is clear and through w ..... 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