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TMI Blog2024 (1) TMI 545X X X X Extracts X X X X X X X X Extracts X X X X ..... s, the assessee is claiming depreciation at the rate of 15% per annum - HELD THAT:- As decided in own case [ 2022 (7) TMI 1498 - ITAT AHMEDABAD] wherein the issue has been restored back to the A.O. to adjudicate afresh after verifying amount of grants to be apportioned relating to different assets and calculate the amount of depreciation allowances accordingly - Hence, this ground of appeal preferred by the assessee is allowed for statistical purposes. CIT(A) powers of enhancement under subsection (2) of section 251 - Enhancing the assessed income by making disallowances of deferred revenue expenses - HELD THAT:- As provision of subsection 2 to section 251 of the Act provides that the ld. commissioner appeal shall not enhance an assessment unless appellant has been provided with the reasonable opportunity of being heard against such enhancement. In the case on hand, the disallowance made by the learned CIT(A) was not part of the assessment order or appeal meaning thereby that the learned CIT(A) have made disallowances or assessed new income not forming part of assessment order or appeal. Thus, the learned CIT(A) before exercising the power under section 251(1)(a) to en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15JB of the Act, the book profit shall be the net profit shown in profit and loss account which is to be increased by the amount of deferred tax assets or provision thereof. Therefore, considering the amended provision of clause (h) of explanation 1 to section 115JB of the Act, we do find any infirmity in order of the learned CIT(A). Hence, the ground of appeal of the assessee is hereby dismissed. - Ms. Suchitra Kamble, Judicial Member And Shri Waseem Ahmed, Accountant Member For the Assessee : Shri M.K. Patel, AR For the Revenue : Shri Kamlesh Makwana, CIT-DR ORDER PER WASEEM AHMED, ACCOUNTANT MEMBER: The captioned appeal has been filed at the instance of the Assessee against the order of the learned Commissioner of Income-tax (Appeals)-I, Baroda [hereinafter referred to as CIT(A) ] dated 30.11.2010, arising in the matter of assessment order passed under s. 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the Act ) relevant to the Assessment Year 2006-07. 2. The assessee has raised following grounds of appeal:- 1.0 The learned Commissioner of Income Tax (Appeals) erred in law and facts has set aside the issue relating to allowa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e issue of disallowance of Depreciation on assets purchased and put to use for more than 180 days. 4. The facts in brief are that that the assessee company is an undertaking of Government of Gujarat, came into existence on reorganization of erstwhile Gujarat Electricity Board (GEB). The assessee company is engaged in the activity of distribution of power. 5. The AO from depreciation chart reported in the audit report found that the assessee purchased certain fixed assets on 31st March 2006 for the amount aggregating to Rs. 229,49,35,998/- and claimed that the same has been put to use on 31st March 2006 only. On question by the AO, the assessee claimed fixed assets were transferred from erstwhile GEB and effective date of transfer was of 1st April 2005. However, the AO found the explanation of the assessee misleading for the reason that the assets transferred form GEB were of Rs. 106.37 crores and the same were part of opening WDV. The AO accordingly held that the assessee failed to justify the assets purchased on 31st March 2006 were actually put to use on 31st March 2006 only. Thus, the AO disallowed the claim of depreciation on such assets for the year under considerati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Government of Gujarat in the form of subsidies/ grants towards cost of capital assets. In addition to subsidies and grants, the assessee as per the rules framed by the Gujarat Electricity Regulatory Commission, recovered certain amounts from new consumers towards development of infrastructure of electrical line and cable network systems to provide the electricity at the consumers doorstep while releasing the connection to such customers. The assessee capitalized all these receipts and at the end of the year recognized an income @ 10% of the closing value of such subsidies, grants, and recoveries from the customers. Accordingly, the assessee for the year under consideration offered income of Rs. 12,62,04,714/- only. 14. The AO found that the Government Grants and recoveries from consumer were made towards capital assets and with respect to majority of capital assets, the assessee is claiming depreciation at the rate of 15% per annum. Therefore, according to the AO, the income should have been recognized @ 15% instead of 10% of the amount of consumer contribution and government grant as discussed above. The provision of section 43(1) of the Act also provides that the cost of capi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onclusive one way or the other. What is necessary to be considered is the true nature of the transaction and whether in fact it has resulted in profit or loss to be the assessee. 6.6 The appellant is in the business of transmission of electricity in specified areas of Gujarat and towards this end it incurs expenditure on fixed assets such as transformers, cables, meters, switches etc. and it has been admitted that no part of the grant / consumer contribution is utilized towards operational activities of the company. Therefore, in view of the clear provisions of the section 43, Explanation 10, grant / consumer contribution ought to have been reduced from the capital assets. By not doing so, the appellant has claimed extra depreciation of Rs. 19.28 crores (.15 X 128.534 crores) and since Rs. 12.62 crore of the grant is written back, the addition is sustained to the extent of Rs. 6.66 crores as against Rs. 6.31 crores proposed by the AO. Thus, the income is enhanced by Rs. 0.35 crores. 6.7 It is also noticed that appellant had written off and treated Rs. 41,16,442/- as deferred revenue expenditure and in the computation of income such write off was not added back. There is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... afresh after verifying amount of grants to be apportioned relating to different assets and calculate the amount of depreciation allowances accordingly. The relevant finding of the coordinate bench reads asunder: 15. We have heard the rival submissions made by the respective parties, and we have also perused the relevant materials available on record. 16. We find that on the identical issue as submitted by the Ld. A.R. in ITA No. 652/Ahd/2013 for A.Y. 2009-10 the Coordinate Bench has been pleased to set-aside the issue to the file of the Ld. AO for adjudication afresh for verifying the proportionate amount of grant relevant to different asset. The relevant observation of the Coordinate Bench is as follows: 13. The Learned AO finalized the issue by making an addition of Rs. 24,17,88,400/- which was, in turn, confirmed by the Learned CIT(A) and added to the total income of the assessee. While confirming the addition, the Learned CIT(A) observed as follows: 6.3 I have considered the submissions. It has been accepted by the appellant that the grants were for capital purpose and for capital projects specified by the Government. In Schedule-3 of the printed balance s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e contradicted by the Learned DR. We find following observation was made by the Hon ble Co-ordinate Bench while granting relief to the assessee: 15. The ground no.3 of the appeal of the assessee is directed against the order of the CIT(A) in confirming the action of the AO in transferring 15% of the capital grants as income although the disallowance made under this head has been restricted to Rs. 18,93,11,850/- as against the disallowance of Rs. 30,97,61,800/- made by the AO. 16. The brief facts of the case are that on verification of subsidies and grants, the AO observed that the assessee has shown deferred government grants, subsidies, contribution at Rs. 7305.70 lakhs as on 1.4.2007 and the assessee had shown Rs. 15941.67 lakhs at the end of the year i.e. as on 31.3.2008. On show cause by the AO to explain the treatment in accounts of the subsidy, grants the assessee stated that during the year capital grant received from Government of Gujarat and other. The assessee submitted that in order to improve various functions associated with the generation, transmission and distribution of electricity, and also because the PSUs connected with power section were making consis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and claimed excess depreciation, which was disallowed and worked out at 15% of the capital assets. 17. On appeal, the CIT(A) held that in assessee s case, 10% of grant under three heads namely Subsidy towards cost of capital assets , Grants towards cost of capital assets and Consumer contribution for capital assets i.e. the grants appearing in Schedule -3 of the balance sheet as on 31.3.2008 were offered for tax. The amount of grant on which 10% was calculated was on the opening balance of grants of Rs. 73,05,70,492/-, and the grants received during the year was Rs. 103,56,34,226/-, aggregating to Rs. 176,62,04,718/-. As these grants were towards cost of capital assets, 15% of the same should have been reduced from the depreciation claimed on account of making adjustment in the actual cost of assts as per Explanation 10 below section 43(1). Since the assessee has already offered for tax, 10% of the opening balance of grants plus grants received during the year under these three heads of Schedule-3 grants, such amount offered for tax was to be reduced from the excess depreciation to be disallowed at the rate of 15% of Rs. 176,62,04,718/- i.e. Rs. 26,49,30,708/-. The net ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the file of the AO for adjudication afresh after verifying the proportionate amount of grant relating to different asset, and applying the actual rate of depreciation which relate to these assets. Thus, this ground of appeal of the assessee is allowed for statistical purpose. Hence, in the absence of any changed circumstances as it appears from the records, we find no other alternative but to remit the issue to the file of the Learned AO for readjudication of the same and to pass order upon verification of the proportionate amount of grant relating to different assets and upon applying the actual date of depreciation relates to those assets. Hence, this ground of appeal preferred by the assessee is allowed for statistical purposes. Relying upon the observation and the decision taken by the Coordinate Bench we find it fit and proper to remand the issue to the file of the Ld. AO for re-adjudication of the same and to pass orders upon verification of the proportionate amount of grant relating to different assets and to pass orders accordingly. This ground of appeal preferred by the assessee is allowed for statistical purposes. 21. Therefore, following the view taken by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e by the learned CIT(A) was not part of the assessment order or appeal meaning thereby that the learned CIT(A) have made disallowances or assessed new income not forming part of assessment order or appeal. Thus, the learned CIT(A) before exercising the power under section 251(1)(a) to enhance the assessment was required to provide reasonable opportunity to show cause against such enhancement, but no such opportunity has been provided. The learned DR also did not bring any material on record suggesting that the assessee was awarded the opportunity of being heard before the enhancement of income by the learned CIT(A). As such, the appellate authority cannot enhance the assessment without issuing show cause notice. In holding so, we also draw support and guidance from the judgment of Hon ble Gujarat High court in the case of Saheli Synthetics (P.) Ltd vs. CIT reported 302 ITR 126. The relevant observation of Hon ble High court reads as under: Even in case where an appellate authority wants to exercise powers of enhancement under subsection (2) of section 251 such powers have to be exercised after giving a notice for enhancement providing for a reasonable opportunity of showing ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... well founded. The decision in the case of Nobel Hewit cited by the appellant is distinguishable as in that case there was no debit to the P L Account of the unpaid duty whereas in the instant case the appellant had claimed the said amount. In the case of ACIT Vs. Real Image Media in my respectful submission, the provisions of Service tax were not properly presented before Hon'ble ITAT. At Para 16 of the said order, it is mentioned by Hon'ble ITAT that there is no liability to make payment to Central Govt. if the payment is not received from the recipient of service and thus in terms of Section 43B no sum of service tax was payable. In fact, under the service tax Act if no service tax is collected the service provider is liable to deposit the service tax treating the receipts as inclusive of the service tax and thus the sum is payable and covered u/s 43B. In view of above, Ground No. 5 is dismissed. 34. Being aggrieved by the order of the learned CIT(A), the assessee is in appeal before us. 35. The learned AR before us prayed to give the direction to the revenue to provide the benefit of deduction for the disallowance of service tax liability in the year in which ..... X X X X Extracts X X X X X X X X Extracts X X X X
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