9911796707
TMI Blog2022 (1) TMI 37X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee s own case [ 2021 (6) TMI 881 - ITAT DEHRADUN] assessee has produced the copy of the Hon ble UERC order dated 27.04.2015 alongwith its revised year wise income of capacity charge, deemed generation charge and capacity index incentive duly agreed by UPCL and UJVNL. A copy of the agreed reconciliation statement between UPCL and UJVNL is also furnished alongwith the copy of bank statement in which the above amount of installment have been received by the UJVNL, in support of its claim, a written explanations have been submitted by the assessee on the issue of capacity charges, capacity index incentive and deemed generation charges is given as mentioned in the body of the order. The assessee has agreed to offer the income earned for the period from F.Y.2004-05 to F.Y.2012-13 under the head capacity charges, deemed generation charge and capacity index incentive to be taxed in F.Y.2015-16 i.e., on receipt basis and has also paid two installments of advance tax after including the capacity charges in the income of the company - we find no merit in the addition made by the AO in the present order of assessment - Decided against revenue. X X X X Extracts X X X X X X X X Extracts X X X X ..... still under dispute and there was no clarity as on date with regard to the nature of the liability. Hence, the A.O. had concluded that the assessee had only taken over the assets for which the liability was not ascertained till date. This implied that on date, the assessee had the assets without the corresponding liability i.e. in effect, the assets had been taken over free of cost. This amounted to disallowance of depreciation on the same as per section 32 of the IT. Act, 1961, read with section 43 which defined "Actual Cost". What was the issue here, was the cost of the assets to the assessee and not the existence of the assets. As the assessee had failed to prove beyond doubt that the assets that were taken over were not free of cost to the assessee, therefore, the assessee was held not entitled to the claim of depreciation on the same. Section 32 of the I.T. Act, 1961, read with section 43 of the IT. Act, 1961, required that depreciation is permissible only on the basis of "Actual Cost" of the assets to the assessee. The A.O. also held that the assessee had failed to explain the nature of the Reconstruction Reserve that it had created. The assessee had claimed the benefit of de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he perusal of the Balance Sheet of UPJVNL it was clear that the total Fixed Assets as on 31- 3-2001 was ₹ 998.92 crores, out of which 682.05 crores was received out of demerger of UPJVNL vide notification letter dated 5- 11-2001. Correspondingly, the depreciation up to that date had also been accounted for in UJVNL accounts and the depreciation on the written down value as on 9-11-2001 was considered by UJVNL. It was further submitted that since these assets represented share capital in the balance sheet of UPJVNL, hence it could not be said that these assets had been obtained free of cost from UPVJNL. The difference of Assets and Liabilities had been shown as reconstruction reserve under "Capital Reserve" in the Balance Sheet. It was argued that this would be a demerger for the purpose Income Tax Act, 1961 and in case of demerger only a portion of the assets and liabilities of the company were assigned to the demerged company, which in this case did not involve any payment of cash and shares for the assets and liabilities transferred from UPJVNL to UJVNL. Hence, it may be stated that both the share capital as well as reserves including the reconstruction reserve (which belon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ex incentives could not be quantified. It was further submitted that the matters were disputed by the UPCL, who had ultimately to accept and make payment to the Appellant. It was submitted that the UERC is a regulatory authority who fixes the tariff on annual basis in accordance to the Terms & Conditions for determination of Hydro Generation Tariff, Regulation 2004. Since the method of calculation of these charges was not clear, this matter became the subject matter of dispute. The UJVNL had filed a petition before the UERC on 25th March 2014 due to prolonged dispute between UPCL and UJVNL and had also sought necessary directions from the UERC on the applicability and pay ability of capacity charges, deemed generation charges and capacity Index incentive. It was submitted that since the basis, modality and the amount on which the capacity charges, deemed generation charges and capacity Index incentives were to be levied, were yet to be determined/quantified, it was difficult for the assessee to ascertain the correct and actual amount of charges recoverable from UPCL. Hence, in absence of above, the same could not be recognized as revenue by the assessee in its Profit & Loss A/c, Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said to be giving a true and fair view. It was pointed out that it was held in the case of CIT vs. Woodward Governor India (P) Ltd. (294 ITR 451) (Delhi) that the accounting standards prescribed by the ICAI were also required to be followed by the assesses. Discussing the basic propositions for revenue recognition, it was argued that the same was based on Prudence i.e., not to recognize any income or asset which is not certain while recognizing all possible expenses and losses. It was further submitted that an income accrues as per AS 9 when, i) The significant risk and reward of the ownership has been transferred/ services have been rendered, and ii) There is certainty of realization of consideration. 7. It was argued that under the provisions of Income Tax Act also, an income could not be brought to tax if it is disputed and cannot be ascertained. In such cases, income accrues in the year when such dispute is resolved or there are conditions which reasonably establish that dispute is likely to be resolved and indications were there of possibility of fair and reasonable ascertainment of rights and liabilities. In the case of the appellant is very clear that the amount of capaci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... planation 4 to section 2(19AA) of the I.T. Act, 1961. In the circumstances the property and the liabilities of the undertaking or undertakings being transferred by the demerged company are transferred at the values appearing in its books of accounts immediately before the demerger. Thus, fixed assets worth ₹ 682,05 crores were received by the assessee on account of demerger of UPJVNL vide the notification dated 5.11.2001. I am in agreement with the logic expressed by my Ld. Predecessor in the order for the A.Y. 2004- 05 when he says that the A.O.'s arguments that the appellant had received the aforesaid assets free of cost, if stretched further will amount to stating * that whatever Uttaranchal received at the time of division of U.P., it had received free of cost and this was a wrong and unpleasant way of seeing the division of U.P. and the division of resources between the two states. I am also in agreement with my Ld. Predecessor when he states that the new state of Uttaranchal, instead, can be and should be seen to have incurred a cost for whatever came to it, for being a part and parcel of the U.P. when the assets were brought by the state of undivided U.P. and the only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of quantum. As my Ld. Predecessor has pointed out recognition of a receivable as revenue or of a liability as expenditure need not be postponed simply because its exact quantification is not possible but according to the mercantile system of accounting, the amount needs to be estimated to be best judgment of the assessee and given effect to in the accounts. If the amount, when it is quantified finally, varies with the estimate made earlier, appropriate adjustments in the accounts are to be made to factor in such variation. Hence, that cannot be a justification for not recognizing the revenue in question, especially in view of the fact that if the assessee failed to recovered the said amount in future it would be free to write the same off as bad debts and income tax law would allow deductionfor the same as and when such eventuality arose. It is seen that this exercise of ascertainment of CC and CII to the mutual satisfaction of both parties has been conducted. This could have formed the basis of best judgement estimation of income from such sources and at least those two charges could have been offered as income on the basis of such joint verification. Subsequently if the fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Incentive for the relevant financial years in those assessments stating that, in view of the appellant having accepting the liability to pay taxes on the entire amount received by it in FY 2015-16, the Department*' has decided not to make any additions in the assessment years relevant to the respective financial years. Therefore, since the appellant has already paid tax on receipt basis in the FY 2015-16 on the amount finally held to be receivable by it in this financial year ie ₹ 7,44,41,302/-, it is held that the same amount cannot be taxed in both years and because both the AO and the Appellant are in agreement that the amount may be taxed in the year of receipt, no useful purpose will be achieved by sustaining the addition of even ₹ 7,44,41,302/- on this account in this year. Therefore, the entire addition of ₹ 45,31,58,363/- made on this account is deleted. This ground of appeal is therefore allowed. 13. The appellant has also challenged the levy of interest and the initiation of penalty proceedings. In this context, it is observed that the liability for interest will automatically stand revised as a result of the reliefs allowed in this appeal. Howeve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... difficult to determine the taxable income of the assessee. Assessing Officer has made a major disallowance in respect of depreciation claim because of this anomaly. It is also true that auditor of the assessee has to be appointed by learned CAG but to our mind, assessee should have persuaded the learned CAG to get the auditor appointed in time. If we look into the negligence at the end of assessee vis a vis the punishment in the shape of tax liability then the punishment is disproportionate to the negligence. Therefore, in the interest of justice, we are of the opinion that assessee deserves one more opportunity to plead all the issues on the basis of the audited accounts before the Assessing Officer. We allowed the appeal of assessee set aside the order of revenue authorities below and remit all the issues taken up in the assessment order before the assessing officer for readjudication. We direct the assessee to cooperate with the Assessing Officer and submit the requisite details. We further direct the assessee that it should remain vigilant for getting its accounts audited in the subsequent assessment years." 2.1 Post the set aside by this Tribunal, fresh assessment proce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as not been finalized. In absence of any transfer scheme, Nigam has derived its provisional opening balances, on the basis of information available with it received from UPJVNL, to complete its accounts. The difference between opening balances of Assets & liabilities has been shown as Reconstruction Reserve under Capital Reserve in the Balance Sheet pending finalization of Transfer Scheme. From the perusal of the Balance Sheet of UPJVNL it will be clear that there was total Fixed Assets as on 31-3-2001 is ₹ 998.92 crores, out of which 682.05 crores was received out of demerger of UPJVNL vide notification letter dated 5-11- 2001 correspondingly the depreciation upto that date has also been accounted for in our accounts, as such the depreciation on the written down value as on 9-11-2001 was considered by UJVNL. Since these Assets represented share capital in the Balance sheet of UPJVNL hence it cannot be said that these assets have been obtained free of cost from UPJVNL. The difference of Assets and Liabilities have been shown as reconstruction reserve under the Capital Reserve in the Balance Sheet. As such this would be a demerger for the purpose Income Tax Act 1961. In case o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tities. Thus, it is difficult to understand how it can be said that the assets were acquired free of cost. In any case there have been a succession of Appellate orders (as mentioned in the extract of submissions above) which have allowed the claim of depreciation. Following those orders the claim is allowed for this year also with the direction that the closing value of WDV for AY 2003-04 shall be adopted from the audited accounts of that year and taken as opening value for the present year as per audited accounts for AY 2004-05. This ground is accordingly allowed with the deletion of addition of ₹ 29,95,08,702. 3.0 Being aggrieved, revenue in appeal before us now. During the course of Appellate proceedings, the Ld DR vehemently supported the disallowance made by the AO. However, when specifically questioned, the Ld DR was unable to rebut the conclusions recorded by the Ld CIT (A) that when the Central Government, vide its order dated 5th November 2001, had transferred all hydro power plants located in the State of Uttaranchal to the assessee, it had recognized the assets in its balance sheet and for the value of assets taken over consideration was paid by the assessee thro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 55 ITR 188(Del) by observing as under: "26. The scheme of hiving off the business of telecom services by Government of India to a corporate entity entailed incorporation of a wholly owned government company (i.e, the petitioner company) and the transfer of the business as a going concern along with all its assets and liabilities to the company. The net assets were transferred at book value, which was agreed to be at least ₹ 63,000/- Crores and in consideration of this the petitioner company accepted a liability of ₹ 7500 Crores and issued both equity and preference share capital of the face value of ₹ 5000 Crores and ₹ 7,500 Crores, respectively. The balancing figure was reflected as reserves which is an integral part of the shareholders funds. The Government of India has transferred the assets to the petitioner company at their book value i.e., the value at which the said assets are reflected in the books of DTS and DTO and the book value of the Government of India's holding in the petitioner company as shareholder and a creditor aggregates the book value of the assets transferred. The configuration of the capital structure of the petitioner has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een shown as a disclosure in the balance Sheet as an amount claimable by the assessee from UPCL which has not been acknowledged but disputed by the UPCL since inception and the matter has been referred to the Regulatory Authority for settlement from time to time. Facts on record demonstrate that since the methodology was to be determined and there were several technical aspects which were to be finalized, due to lack of clarity in the regulations, the determination of amount on account of capacity charges, deemed generation charges and capacity index incentives could not be quantified. The issue was disputed by UPCL. UERC is a regulatory authority which fixes the tariff on annual basis in accordance with the Terms & Conditions for determination of Hydro Generation Tariff, Regulation 2004. The method of calculation of these charges was not clear and as such this matter became the subject matter of dispute. The assessee filed a petition before the UERC on 25th March 2014 due to prolonged dispute between UPCL and UJVNL and had also sought necessary directions from the UERC on the applicability and payability of capacity charges, deemed generation charges and capacity Index incentive. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consider and pay the revised verified capacity charges, deemed generation charges and capacity Index incentive by SLDC, UPCL and UJVNL in 18 equal monthly installments. On the basis of verified data, year wise bills for CC, CII has been raised in suppression of bills raised earlier and detail of bills raised before and after verification for the period from FY 2004-05 to FY 2012-13 is as under: Financial year Total Capacity charges & Capacity Index Incentive Old Bill Revised Bill 2004-05 227,232,641 15,42,96,401 2005-06 66,705,707 4,57,18,570 2006-07 115,138,682 9,02,41,357 2007-08 99,150,697 8,24,69,988 2008-09 359,035,896 6,70,28,088 2009-10 633,606,018 28,83,27,802 2010-11 406,656,344 9,27,10,039 2011-12 441,513,425 7,44,41,381 2012-13 496,965,529 12,68,59,505 Total 2,846,004,939 102,20,93,131 5.2 The Ld AR has also brought on record the fact that the assessee has started receiving the disputed amounts from UPCL in monthly installments w.e.f, August, 2015 and that the assessee has voluntarily agreed do disclose the entire amount of capacity charges, Deemed Generation Charges and capacity index incentive charges during the FY 2015-16 relevant ..... 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