Iapl/251/2013 Of Commissioner Of Income Tax v. M/S Poorvanchal Vdyut Vitran Nigam Ltd

AFRReserved on 30.9.2019Delivered on 17.10.2019 Case:- INCOME TAX APPEAL No. - 251 of 2013 Appellant :- Commissioner Of Income TaxRespondent :- M/S Poorvanchal Vdyut Vitran Nigam Ltd.Counsel for Appellant :- S.S.C. I.T.,Manish GoyalCounsel for Respondent :- Ashish Bansal Connected with- Case :- INCOME TAX APPEAL No. - 268 of 2013 Appellant :- Commissioner Of Income TaxRespondent :- M/S Poorvanchal Vdyut Vitran Nigam Ltd.Counsel for Appellant :- Manish GoelCounsel for Respondent :- Ashish Bansal With Case :- INCOME TAX APPEAL No. - 269 of 2013 Appellant :- Commissioner Of Income TaxRespondent :- M/S Poorvanchal Vdyut Vitran Nigam Ltd.Counsel for Appellant :- Manish GoelCounsel for Respondent :- Ashish Bansal With Case :- INCOME TAX APPEAL No. - 221 of 2016 Appellant :- Pr. Commissioner Of Income Tax VaranasiRespondent :- M/S Purvanchal Vidyut Vitran Nigam Ltd. VaranasiCounsel for Appellant :- Gaurav MahajanCounsel for Respondent :- Ashish Bansal,Gaurav Mahajan With Case :- INCOME TAX APPEAL No. - 242 of 2016 Appellant :- Pr. Commissioner Of Income Tax Varanasi Respondent :- M/S Purvanchal Vidyut Vitran Nigam Ltd. VaranasiCounsel for Appellant :- Manish GoelCounsel for Respondent :- Ashish Bansal With Case :- INCOME TAX APPEAL No. - 243 of 2016 Appellant :- Pr. Commissioner Of Income Tax VaranasiRespondent :- M/S Purvanchal Vidyut Vitran Nigam Ltd. VaranasiCounsel for Appellant :- Manish GoelCounsel for Respondent :- Ashish Bansa ***** Hon’ble Bharati Sapru,J.Hon’ble Rohit Ranjan Agarwal, J. (By Rohit Ranjan Agarwal,J.) 1.All these appeals filed under Section 260-A of the Income Tax Actarise out of orders dated 1.5.2013, passed by the Income Tax AppellateTribunal (hereinafter called as “ITAT”), Allahabad Bench, Allahabad inIncome Tax Appeal Nos.228/Alld/2011, 229/Alld/2011, 272/Alld/2012,for the assessment years 2007-08, 2008-09, 2009-10 and orders dated21.3.2016 passed by the Income Tax Appellate Tribunal, Allahabad(Circuit Bench at Varanasi) in Income Tax Appeal Nos.356/Alld/2014,498/Alld/2015 and 499/Alld/2015 for the assessment years 2010-11,2011-12 and 2012-13. 2.Issue in all these appeals under challenge are same, hence are beingdecided by a common order, treating appeal no.251 of 2013, for theassessment year 2007-08, as the leading appeal. 3.All the appeals are filed on the same question of law, which read asunder: “Whether the Income Tax Appellate Tribunal is justified inlaw and facts in holding that the assessee was entitled to claimdepreciation on the fixed assets acquired on transfer scheme 2003which was not yet finalized/ascertained on the fact that the actualassets are not identifiable and not being used as well as their fulltitle have not been transferred to the assessee ?” 4.Brief facts of the case are, that U.P. Electricity RegulatoryCommission (in short “UPERC”) was formed under the provisions ofU.P. Electricity Reforms Act, 1999 by Government of U.P., as a first stepfor reforming and restructuring the power sector in the State. 5.The erstwhile U.P. State Electricity Board (in short “UPSEB”) wasunbundled into three distinct legal and separate entities through the FirstReforms Transfer Scheme, dated 14.1.2000, which are as under: (i)U.P. Power Corporation Ltd. (in short “UPPCL”), vested withthe function of transmission and distribution of power withinthe State.the function of transmission and distribution of power withinthe State. (ii)U.P.Rajya Vidyut Utpadan Nigam Ltd. (in short “UPRVUNL”),vested with the function of Thermal generation within the State.vested with the function of Thermal generation within the State. (iii)U.P.Jal Vidyut Nigam Ltd. (in short “UPJVNL”), vested withthe function of Hydro generation within the State. the function of Hydro generation within the State. 5.The erstwhile U.P. State Electricity Board (in short “UPSEB”) wasunbundled into three distinct legal and separate entities through the FirstReforms Transfer Scheme, dated 14.1.2000, which are as under: (i)U.P. Power Corporation Ltd. (in short “UPPCL”), vested withthe function of transmission and distribution of power withinthe State.the function of transmission and distribution of power withinthe State. (ii)U.P.Rajya Vidyut Utpadan Nigam Ltd. (in short “UPRVUNL”),vested with the function of Thermal generation within the State.vested with the function of Thermal generation within the State. (iii)U.P.Jal Vidyut Nigam Ltd. (in short “UPJVNL”), vested withthe function of Hydro generation within the State. the function of Hydro generation within the State. 6.By another Transfer Scheme dated 15.1.2000, the assets liabilitiesand personnel of Kanpur Electricity Supply Authority (in short“KESA” ) under UPSEB were transferred to Kanpur Electricity SupplyCompany Ltd. (in short “KESCO”), a Company registered under theCompanies Act, 1956. 7.After the enactment of Electricity Act, 2003, UPPCL, which wasresponsible for transmission and distribution of electricity was furtherdivided and four new distribution Companies (hereinafter collectively referred to as “distribution licensees”) were created under the U.P.Transfer of Distribution Undertaking Scheme,2003 (in short called as“Transfer Scheme, 2003”), vide notification no.2740-PA-1-2003-24-14P-2003, dated 12.8.2003, issued by the State Government to undertakedistribution and supply of electricity in the areas under their respectiveZones specified in the Scheme: (i)Dakshinanchal Vidyut Vitran Nigam Ltd. (Agra Discom orDVVNL)DVVNL) (ii)Madhanchal Vidyut Vitran Nigam Ltd. ( Lucknow Discom orMVVNL) MVVNL) (iii)Paschimanchal Vidyut Vitran Nigam Ltd. (Meerut Discom orPVVNL)PVVNL) (iv)Purvanchal Vidyut Vitran Nigam Ltd. ( Varanasi Discom orPVVNL)PVVNL) 8.The said notification was issued in pursuance of Section 131(4) ofElectricity Act, 2003 and Section 23(4) of the U.P. Electricity ReformsAct, 1999. 9.Pursuant to the formation of the said four Companies, all the assetsand liability as per the Scheme was transferred, which included the fixedassets. After transfer of assets and liabilities, these Companies startedutilizing the same in power generation and revenue generated wasdisclosed in the return filed by it in regular course. However, as break upof assets value and itemwise was not provided in the Scheme, as such forPUVNL, one Ms Batliboy & Co. was entrusted with task for physicalverification of assets and determination of the same. 10.As the report was awaited and the returned had fallen due, assesseehad charged depreciation at a common rate of 7.84% on the method prescribed by the Government under Electricity Supply Act, 1948 on thegross fixed assets transferred to the Company as per the TransferScheme, 2003. 11.While making the assessment for the assessment year 2004-05 theassessing officer disallowed the depreciation claimed by the respondent-assessee on the assets transferred to it under the U.P. Transfer ofDistribution Undertaking Scheme, 2003. 12.CIT(A), however, considering the fact allowed the appeal of therespondent-assessee, which was affirmed by the Tribunal. The order ofthe Tribunal was challenged by the Department before this Court. 13.Present dispute relates to the assessment years 2007-08, 2008-09,2009-10, 2010-11, 2011-12 and 2012-13. In all these years the assessingauthority had disallowed the depreciation claimed by the assessee on theassets transferred to it pursuant to the Scheme of 2003. 11.While making the assessment for the assessment year 2004-05 theassessing officer disallowed the depreciation claimed by the respondent-assessee on the assets transferred to it under the U.P. Transfer ofDistribution Undertaking Scheme, 2003. 12.CIT(A), however, considering the fact allowed the appeal of therespondent-assessee, which was affirmed by the Tribunal. The order ofthe Tribunal was challenged by the Department before this Court. 13.Present dispute relates to the assessment years 2007-08, 2008-09,2009-10, 2010-11, 2011-12 and 2012-13. In all these years the assessingauthority had disallowed the depreciation claimed by the assessee on theassets transferred to it pursuant to the Scheme of 2003. 14.Sri Gaurav Mahajan, learned counsel appearing for the Departmentsubmitted that Section 32 of the Income Tax Act provides fordepreciation in respect of building, machinery, plant or furniture, beingtangible assets. He relied upon sub-section 1(ii) of Section 32 of the Act,which provides that depreciation shall be granted only when the assesseeowned, wholly or partly and used for the purpose of business orprofession that the deduction shall be allowed. According to theappellant the respondent-assessee came into effect from 12.8.2003 andclaimed depreciation to the tune of Rs.87,01,38,609/- out of whichRs.17,45,76,911/- has been claimed for assets acquired after the TransferScheme, 2003 as mentioned in the depreciation schedule. 15.While remaining depreciation of Rs.69,55,61,698/- has been claimed on the balance assets acquired on the Transfer Scheme, 2003. Hefurther submitted that A.O. had rightly allowed the claim of depreciationon the assets acquired after the Transfer Scheme, 2003 came into forcewhile it disallowed the claim of the respondent-assessee on the assetstransferred under the Scheme as the same was not yet finalized andidentifiable and, therefore, not being used as well. He also submitted thatthe assessing officer had also disallowed the claim of depreciationclaimed by the assessee for the previous assessment years also. 16.Lastly, it was contended that the assets acquired under the TransferScheme, 2003 came to be identifiable in the assessment year 2016-17, assuch, the matter needs to be remitted back to the assessing authority tolook into the claim of depreciation in respect of assets so acquired. 17.Per contra, Sri Ashsih Bansal, learned counsel appearing for therespondent-assessee submitted that the A.O. had wrongly disallowed theclaim of depreciation, as the C.I.T. (Appeal) and Tribunal had granted theclaim of depreciation to the assessee for the relevant years in question aswell as for the previous assessment years, as such the arguments of theDepartment has no legs to stand. However, he candidly admitted the fact,that the task for determination of itemwise opening balance of assets andliabilities had been completed and the reports had been submitted byauditor/agency to the assessee, the same have been brought by thecounsel for the assessee before the Court in his written submission,which is dated 4.12.2015. The relevant extract of the letter dated4.12.2015 are extracted here as under : “ mRrj izns’k ikoj dkjiksjs’ku fyfeVsM ¼m0 iz0 ljdkj dk midze½ U.P. Power Corporation Limited (U.P. Govrnment Undertaking ) dkjiksjsV ys[kk vuqHkkx CORPORATE ACCOUNTS &&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&& ’kfDr Hkou foLrkj 14&v’kksd ekxZ] y[kuÅ&226001 Shakti Bhawan Ext., 14-Ashok Marg Lucknow -226001 &&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&& i=kad 354@ih0lh0,y0@lh0,0&ch0,l0 @ys[kk leh{kk cSBd fnukad 04&12&2015funs’kd ¼foRr½] iwokZUpy fo0fo0 fu0fy0] okjk.klhA fc"k;%& fMLdkel~ vUrj.k Ldhe ds vfUrehdj.k ds QyLo:i lEcfU/kr [k.Mokjvo’ks"k o mu ij izfrosnu iznku fd;s tkus ds lEcU/k esaA “ mRrj izns’k ikoj dkjiksjs’ku fyfeVsM ¼m0 iz0 ljdkj dk midze½ U.P. Power Corporation Limited (U.P. Govrnment Undertaking ) dkjiksjsV ys[kk vuqHkkx CORPORATE ACCOUNTS &&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&& ’kfDr Hkou foLrkj 14&v’kksd ekxZ] y[kuÅ&226001 Shakti Bhawan Ext., 14-Ashok Marg Lucknow -226001 &&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&& i=kad 354@ih0lh0,y0@lh0,0&ch0,l0 @ys[kk leh{kk cSBd fnukad 04&12&2015funs’kd ¼foRr½] iwokZUpy fo0fo0 fu0fy0] okjk.klhA fc"k;%& fMLdkel~ vUrj.k Ldhe ds vfUrehdj.k ds QyLo:i lEcfU/kr [k.Mokjvo’ks"k o mu ij izfrosnu iznku fd;s tkus ds lEcU/k esaA d`i;k bl dk;kZy; ds i= la[;k 338@ih0lh0,y0 @lh0,0&,0,l0 @ 35@vks0ch0vkj0 fnukad 16&11&2015 dk lanHkZ xzg.k djasA mDr lEcU/k esa fMLdke vUrj.kLdhe ds vfUrehdj.k ds ifj.kkeLo:i esllZ iszwMsfU’k;y izkstsDV flaMhdsV }kjk iznRr “Opening Balances of Acoounting Units vested in Purvanchal VidyutVitran Nigam Limited, Varanasi as on 12.08.2003” dh ewy izfr ¼i`"B la0 1ls 256 rd½ ,oa “ Explanatory note on the computation on unit wisebalances finally proposed to be tranaferred by the U.P. PowerCorporeation Limited to Discoms as on 11.08.2003” dh ewy izfr ¼i`"B la01 ls 192 rd½ lwpukFkZ ,oa vko’;d dk;Zokgh gsrq layXu izsf"kr gSAlayXud%&;FkksifjA ¼,0ds0 xqIrk½ 18.Sri Bansal lastly submitted that in case the court is of differentview, then the matter be remanded to A.O. for limited purpose, only forverification of the said record for allowing depreciation to the assessee asper law. 19.Having heard learned counsel for the parties and from perusal ofthe records, it is not in dispute that the UPPCL was divided into four newdistribution Companies under the Transfer Scheme, 2003 by Governmentnotification dated 12.8.2003. The respondent-assessee is one of the fourdistribution Companies. It is further not in dispute that the TransferScheme, 2003 provided for the assets, which included the fixed assets,but no break up of assets values and itemwise was provided in theTransfer Scheme, 2003, as such the respondent-assessee had appointed an auditor to make itemwise opening balance of the assets and liabilities,which according to the respondent-assessee themselves was submitted bythe auditors to them on 4.12.2015. 20.The contention of the counsel for the Department regarding thedepreciation, which has been disallowed by the assessing officer on thebalance assets acquired on the date of Transfer Scheme, 2003, as theassets was was not identifiable at the relevant point of time, needsconsideration. 21.In the light of the fact that the auditors themselves had submittedreport to the respondent-assessee on 4.12.2015 and the assets so acquiredunder the Transfer Scheme, 2003 came to be identifiable only in theassessment year 2016-17. The said fact has also not been denied by thecounsel for the respondent-assessee. 22.In view of the above, we are of the considered opinion that thematter needs to be examined afresh for the claim of depreciation by theassessing officer, in the light of the auditor’s report providing itemwiseaccounting of assets and liabilities on 4.12.2015. Thus, the matter isremitted back to the assessing authority to reconsider and verify therecords and pass fresh order, as far as claim of depreciation on the assetsclaimed by the respondent-assessee, pursuant to the Scheme of 2003. 23.We hope and trust that the aforesaid exercise will be carried out bythe assessing officer within three months from the date of production of acertified copy of this order, with the aforesaid directions all the appealstands disposed off. Dated:- 17.10.2019AKJ