M/s Eastern Power Distribution Company of AP Ltd., Visakhapatnam v. The ACIT, Circle-3(1), Visakhapatnam

CO 8/VIZ/2007 | 2004-2005
Pronouncement Date: 22-12-2010 | Result: Dismissed

Appeal Details

RSA Number 825323 RSA 2007
Assessee PAN AAACE9876B
Bench Visakhapatnam
Appeal Number CO 8/VIZ/2007
Duration Of Justice 3 year(s) 4 month(s) 1 day(s)
Appellant M/s Eastern Power Distribution Company of AP Ltd., Visakhapatnam
Respondent The ACIT, Circle-3(1), Visakhapatnam
Appeal Type Cross Objection
Pronouncement Date 22-12-2010
Appeal Filed By Assessee
Order Result Dismissed
Bench Allotted DB
Tribunal Order Date 22-12-2010
Date Of Final Hearing 21-12-2010
Next Hearing Date 21-12-2010
Assessment Year 2004-2005
Appeal Filed On 20-08-2007
Judgment Text
ITA NOS.293 OF 2006 AND 228 OF 2007 EASTERN POWER DIS TRIBUTION PAGE 1 OF 4 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV JUDICIAL MEMBER AND SHRI BR BASKARAN ACCOUNTANT MEMBER ITA NO. 293/VIZAG/2006 & ITA NO.228/VIZAG/2007 ASSESSMENT YEARS:2003-04 & 2004-05 ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE-3(1) VISAKHAPATNAM EASTERN POWER DISTRIBUTION CO. OF A.P LTD. VISAKHAPATNAM (APPELLANT) (RESPONDENT) PAN NO:AAACE 9876 B C.O.NO.8/VIZAG/2007 (ARISING OUT OF ITA NO.228/VIZAG/2007) ASSESSMENT YEARS: 2004-05 EASTERN POWER DISTRIBUTION CO. OF A.P LTD. VISAKHAPATNAM ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE-3(1) VISAKHAPATNAM (APPELLANT) PAN NO:AAACE 9876 B (RESPONDENT) APPELLANT BY: SHRI T.L. PETER DR RESPONDENT BY: SHRI G.V.N. HARI CA & SHRI B.V.RAO CA ORDER PER SHRI B. R. BASKARAN ACCOUNTANT MEMBER: THE TWO APPEALS OF THE REVENUE ARE DIRECTED AGAINS T THE ORDERS OF LEARNED CIT(A)-I VISAKHAPATNAM AND THEY RELATE TO THE ASSESSMENT YEARS 2003-04 AND 2004-05. THE ASSESSEE HAS ALSO FILED C ROSS OBJECTION FOR THE ASSESSMENT YEAR 2004-05 IN SUPPORT OF THE ORDER OF THE LEARNED CIT (A). SINCE THE ISSUES URGED IN ALL THESE APPEALS ARE IDE NTICAL IN NATURE THEY WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS CO MMON ORDER FOR THE SAKE OF CONVENIENCE. 2. THE ONLY ISSUE URGED IN THESE APPEALS IS WHETHER THE LEARNED CIT (A) IS RIGHT IN LAW IN HOLDING THAT THE SUBSIDY RECEIVE D UNDER APDRP SCHEME IS NOT TO BE REDUCED FROM THE COST OF PLANT & MACHINER Y FOR THE PURPOSE OF CALCULATION OF DEPRECIATION. ITA NOS.293 OF 2006 AND 228 OF 2007 EASTERN POWER DIS TRIBUTION PAGE 2 OF 4 3. THE FACTS RELATING TO THE ISSUE ARE STATED IN BR IEF. THE ASSESSEE IS A STATE GOVERNMENT UNDERTAKING ENGAGED IN THE BUSINE SS OF PROCUREMENT DISTRIBUTION AND SALE OF ELECTRICITY. DURING THE YE ARS UNDER CONSIDERATION THE ASSESSEE RECEIVED GRANTS THROUGH THE GOVT. OF ANDHR A PRADESH UNDER A PROGRAMME INITIATED BY THE CENTRAL GOVERNMENT IN TH E NAME OF ACCELERATED POWER DEVELOPMENT AND REFORMS PROGRAMME (APDRP). TH E ASSESSEE CREDITED THESE GRANTS TO ITS CAPITAL RESERVE ACCOUN T. FOR THE PURPOSE OF CALCULATING DEPRECIATION THE ASSESSEE DID NOT DEDU CT THESE GRANTS FROM THE COST OF PLANT AND MACHINERY. HOWEVER THE ASSESSING OFFICER WAS OF THE VIEW THAT THESE GRANTS HAVE TO BE DEDUCTED FROM THE COST OF PLANT AND MACHINERY AS PER THE PROVISIONS OF SECTION 43(1) IN ORDER TO CALCULATE THE DEPRECIATION AND ACCORDINGLY CALCULATED THE DEPRECI ATION. THE ASSESSEE CARRIED THE MATTER BEFORE THE LEARNED CIT (A) WHO H ELD THAT THESE GRANTS NEED NOT BE REDUCED FROM THE COST OF PLANT AND MACH INERY IN ORDER TO ARRIVE AT THE ACTUAL COST FOR THE PURPOSE OF DEPRECIATION. AGGRIEVED THE REVENUE IS IN APPEAL BEFORE US. 4. WE HAVE HEARD THE RIVAL CONTENTIONS AND CAREFULL Y PERUSED THE RECORD. WE NOTICE THAT THE LEARNED CIT (A) HAS DEAL T WITH THIS ISSUE AT LENGTH AND THE OBSERVATIONS MADE BY HIM IN HIS ORDE R FOR THE ASSESSMENT YEAR 2003-04 ARE EXTRACTED BELOW: 4.3 IN SO FAR AS GRANT OF RS.10 99 68 000/- IS CON CERNED IT IS SEEN THAT THE SAID AMOUNT WAS RECEIVED BY THE APPEL LANT UNDER THE APDRP SCHEME. THE APDRP SCHEME WAS FORMULATED B Y THE MINISTRY OF POWER GOVT. OF INDIA IN VIEW OF TH E ALARMING RISE IN THE TRANSMISSION AND DISTRIBUTION LOSSES TH AT HAS BEEN A CAUSE OF CONCERN BOTH TO THE CENTRAL AS WELL AS STA TE GOVERNMENTS OVER THE LAST DECADE. IN ORDER TO PLUG S UCH LOSSES AND CONSERVE ENERGY THE GOVT. OF INDIA FORMU LATED THE APDRP SCHEME TO ENCOURAGE UTILITY PROVIDERS LIKE TH E APPELLANT TO TAKE MEASURES TO REDUCE SUCH TRANSMISSION AND DI STRIBUTION LOSSES. THE APDRP WAS LAUNCHED WITH THE SPECIFIC OB JECTIVE TO REDUCE TRANSMISSION AND DISTRIBUTION LOSSES TO BRI NG ABOUT COMMERCIAL VIABILITY IN THE POWER SECTOR TO REDUCE OUTAGE AND INTERRUPTION AND TO INCREASE CONSUMER SATISFACTION. IN THIS CONTEXT GOVT. OF INDIA EXTENDED SUPPORT TO GOVT. O F ANDHRA PRADESH THROUGH THE MECHANISM OF APDRP TO UNDERTAKE RENOVATION AND MODERNIZATION ACTIVITIES AND UPGRADA TION OF ITA NOS.293 OF 2006 AND 228 OF 2007 EASTERN POWER DIS TRIBUTION PAGE 3 OF 4 SUB-TRANSMISSION AND DISTRIBUTION SYSTEM (33KV AND BELOW) INCLUDING ENERGY ACCOUNTING AND METERING IN THREE I DENTIFIED CIRCLES THROUGH SHORT-TERM MEDIUM TERM AND LONG TE RM MEASURES IN ORDER TO REDUCE TRANSMISSION AND DISTRI BUTION LOSSES TO 10% AND MAKE SUCH CIRCLES AS MODEL CIRCLE S. ACCORDINGLY A MOU WAS SIGNED BETWEEN A.P.TRANSCO L TD. BEING THE NODAL AGENCY REPRESENTING ALL THE DISTRIB UTION COMPANIES AND THE MINISTRY OF POWER GOVT. OF INDIA ON 9 TH MARCH 2001. AS PER THE SAID MOU GOVT. OF INDIA WAS TO PROVIDE 50% OF SUCH PROJECT COST OF WHICH 25% IN TH E FORM OF GRANT AND 25% AS LOAN. IN THIS CONTEXT THE APPELLA NT RECEIVED THE ABOVE GRANT OF RS.10 99 68 000/- UNDER THE APDR P. AS PER THE MOU THE APPELLANT IS TO FORMULATE THE SUITABLE POLICY TO OUT SOURCE ACTIVITIES LIKE CONSUMER INDEXING METER READING BILLING BILL DELIVERY PERIODIC MAINTENANCE OF SUB -STATION EQUIPMENTS LINES ETC. TO SYSTEMATICALLY IMPROVE I TS FINANCIAL VIABILITY BY BENCH MARKING THEIR PERFORMANCE TO PR OVIDE FEEDER METERING FROM THE POINT OF INPUT UP TO 11KV FEEDER LEVEL TO INSTALL TAMPER PROOF STATIC HIGH PRECISION ENERGY METERS FOR ALL CUSTOMERS TO INSTALL CAPACITORS BY ALL CONSUMERS O F 5HP AND ABOVE ETC. ETC. A CLOSE READING OF THE SAID MOU SHOWS THAT THE GRANT IS NOT FOR ANY SPECIFIC PURPOSE OF ACQUISITION OF ANY ASSET . IN FACT THERE IS NO DIRECT NEXUS BETWEEN THE ASSET AND THE GRANT. IN COMMISSIONER OF INCOME TAX VS. GODAVARI PLYWOODS LTD. REPORTED IN 168 ITR 632 THE HON'BLE ANDHRA PRADESH HIGH COURT HELD THA T THE FINANCIAL INCENTIVES GRANTED BY THE CENTRAL GOVERNM ENTS AS WELL AS STATE GOVERNMENTS TO ENCOURAGE AND INDUCE ENTREPRENEURS TO MOVE TO BACKWARD AREAS AND ESTABLI SH INDUSTRIES THERE IS NOT FOR THE SPECIFIC PURPOSE O F MEETING A PORTION OF THE COST OF THE ASSETS. THE SPECIFIED PE RCENTAGE OF FIXED CAPITAL COST TAKEN AS THE BASIS FOR DETERMINI NG THE SUBSIDY IS ONLY A MEASURE ADOPTED UNDER THE SCHEME TO QUANTIFY THE SUBSIDY. THE SUBSIDY IS GRANTED MORE A S RECOMPENSE FOR THE HARDSHIPS AND INCONVENIENCES WHI CH THE ENTREPRENEUR MAY ENCOUNTER BY SETTING UP INDUSTRIES IN BACKWARD AREAS. THE SUBSIDY CANNOT BE DEDUCTED FROM THE ACTUAL COST OF THE ASSET TO THE ASSESSEE. THE DEPRE CIATION SHOULD BE ALLOWED ON THE ACTUAL COST OF THE ASSET WITHOUT REDUCING THE SAME BY THE AMOUNT OF SUBSIDY GRANTED. THE HON'BLE SUPREME COURT IN COMMISSIONER OF INCOME TAX VS. P.J. CHEMICALS LTD. REPORTED IN 210 ITR 830 WHILE AFFIR MING THE ABOVE DECISION OF THE HON'BLE ANDHRA PRADESH HIGH C OURT RULED THAT WHERE THE GOVERNMENT SUBSIDY IS AN INCENTIVE N OT FOR THE SPECIFIC PURPOSE OF MEETING A PORTION OF THE COST O F THE ASSETS THOUGH QUANTIFIED AS OR GEARED TO A PERCENTAGE OF S UCH COST IT DOES NOT PARTAKE THE CHARACTER OF A PAYMENT INTENDE D EITHER DIRECTLY OR INDIRECTLY TO MEET THE ACTUAL COST. I N THE INSTANT CASE AS DISCUSSED EARLIER THE GRANT HAS BEEN RECE IVED BY THE APPELLANT UNDER THE APDRP SCHEME WITH THE SPECIFIC PURPOSE ITA NOS.293 OF 2006 AND 228 OF 2007 EASTERN POWER DIS TRIBUTION PAGE 4 OF 4 OF REDUCING THE TRANSMISSION AND DISTRIBUTION LOSS. THE GRANT IS NOT LINKED SPECIFICALLY TO THE ACQUISITION OF ANY A SSET. THE GRANT IS IN FACT NOT TOWARDS THE COST OF ACQUISITION OF A NY ASSET. THEREFORE FOLLOWING THE RATIO OF THE ABOVE DECISIO NS I HOLD THAT THE AMOUNT OF RS.10 99 68 000/- IS NOT TO BE R EDUCED FROM THE COST OF THE PLANT & MACHINERY IN ORDER TO ARRIVE AT THE ACTUAL COST FOR THE PURPOSES OF DEPRECIATION. THIS PART OF THE ASSESSING OFFICERS ORDER IS THEREFORE DELETED. 5. WE FIND THAT THE LEARNED CIT (A) HAS FOLLOWED TH E PRINCIPLES LAID DOWN BY THE HON'BLE JURISDICTIONAL A.P HIGH COURT I N THE CASE OF GODAVARI PLYWOODS LTD (SUPRA) AND ALSO THE DECISION OF THE H ON'BLE SUPREME COURT IN THE CASE OF P.J. CHEMICALS (SUPRA). DURING THE COUR SE OF HEARING NO OTHER CONTRARY DECISION WAS CITED BEFORE US BY THE DEPART MENT. IN VIEW OF THE ABOVE WE DO NOT FIND ANY REASON TO INTERFERE WITH THE DECISION OF THE LEARNED CIT (A). 6. IN THE RESULT THE APPEALS OF THE REVENUE AND THE CROSS OBJECTION OF THE ASSESSEE ARE DISMISSED. PRONOUNCED IN THE OPEN COURT ON 22 ND DECEMBER 2010. SD/- SD/- (SUNIL KUMAR YADAV) (B R BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PVV/SPS VISAKHAPATNAM DATE: 22-12-2010 COPY TO 1 THE ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE-3( 1) VISAKHAPATNAM 530020 2 M/S EASTERN POWER DISTRIBUTION COMPANY OF ANDHRA PRADESH LTD. VISAKHAPATNAM 3 4. THE CIT (A)-I VISAKHAPATNAM THE CIT-1 VISAKHAPATNAM 5 THE DR ITAT VISAKHAPATNAM. 6 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM