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DCIT, Circle 5(1) Room No.390 C.R.building I.P.Estate New Delhi vs. BSES Yamuna Power Ltd. Shakti Kiran building Karkardoma Delhi 110 092
February, 08th 2019
          IN THE INCOME TAX APPELLATE TRIBUNAL
              DELHI BENCHES: `D', NEW DELHI

       BEFORE SMT. BEENA A PILLAI, JUDICIAL MEMBER
    AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER

                       ITA No. 3800/Del/2015
                            AY: 2008-09

DCIT, Circle 5(1)               BSES Yamuna Power Ltd.
Room No.390              vs.    Shakti Kiran building
C.R.building                    Karkardoma
I.P.Estate                      Delhi 110 092
New Delhi
                                PAN: AABCC8569N

 (Appellant)                           (Respondent)


                 Department by : Sh. JK Mishra, CIT, DR.
                  Assessee by : Sh. Rohit Jain, Adv.
                                Sh.Vibhu Gupta, CA

                    Date of Hearing :      29/01/2019
                    Date of Pronouncement: 08/02/2019

                               ORDER


PER BEENA A PILLAI, JUDICIAL MEMBER

     Present appeal has been filed by revenue against order dated
21.03.2012     passed by Ld.CIT(A)-VIII, New Delhi    for Assessment
Year 2008-09 on following grounds of appeal:
"The Assessing Officer (AO) Dy.CIT, Circle 5(1), New Delhi is directed
to file appeal in the above mentioned case before the ITAT, New Delhi
on the following grounds of appeal.
                                                        ITA No.3800/Del/2015 A.Y.2008-09
                                                         DCIT vs. BSES Yamuna Power Ltd.



     (i)      On the facts and in the circumstances of the case and in law,
              the Ld.CIT(A) has erred in deleting the disallowance of
              Consumer Security Deposit and Service Line deposits
              amounting to Rs.57,56,69,642/- ignoring the fact that the
              amount received from the customers for service line is
              revenue in nature as the same is part of the selling of
              electricity during normal business operation and does not
              qualify to be capital receipt.
     (ii)     On the facts and in the circumstances of the case and in law,
              the Ld.CIT(A) has erred in deleting the addition amounting to
              Rs.95,83,279/- on account of legal claims ignoring that the
              amounts involved are penal in nature and hence are not
              allowable.
     (iii)    The appellant craves leave for reserving the right to amend,
              modify, alter, add or forego any ground(s) of appeal at any
              time before or during the hearing of this appeal.


2.          Brief facts of case are as under:
The assessee filed return of income on 29.09.2008, declaring loss of
Rs.84,73,35,870/- which was subsequently revised on 29/03/10
declaring revised loss of Rs.64,49,30,204/-. Notice under section
143(2) of In.T.Act, 1961 (the Act) was served upon assessee along
with questionnaire. In response to statutory notices, representative
of assessee appeared before Ld.AO and filed details as called for.
2.1. Ld.AO observed that assessee had received a sum of
Rs.19,65,18,794/- as service line deposit which was treated by
Ld.AO as non-refundable deposit.
2.2. Further Ld.AO observed that assessee claimed legal expenses
of Rs.3,83,33,117/-. Ld. AO called for              nature of payment. From
details filed,       it was observed that,      a portion of expenses claimed,
Ld. AO was of opinion that could not be allowed as it was in the

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                                                 ITA No.3800/Del/2015 A.Y.2008-09
                                                  DCIT vs. BSES Yamuna Power Ltd.



nature of penalty imposed upon assessee for failure to perform his
duties as per law.
3.     Aggrieved by order of Ld.AO, assessee preferred appeal before
Ld.CIT(A) who deleted addition made by Ld.AO by following order
passed by his predecessor for assessment year 2006-07 and 2007-
08.
4.     Aggrieved by order of Ld.CIT (A), revenue is in appeal before us
now.
5.     At the outset Ld.AR submitted that both grounds raised by
revenue are covered by order of this Tribunal in assessee's own case
for preceding assessment years. He filed order in paper book at
page 1-52, it is also submitted that said order of this Tribunal has
been approved by Hon'ble Delhi High Court, which is also part of
paper book at page 53-58.
6.     Ld.Sr DR though supported order of Ld.AO,                 could not
controvert afore stated argument of Ld.AR.
7.     We have perused submissions advanced by both sides in light
of records placed before us.
8.     Ground No. (i)
It is observed that assessee during        year under consideration
received a sum of Rs.19,65,18,794/- as service line deposits from
customers for setting up service line which include cost of GI pipes,
bricks sand etc. The said charges have been received by assessee
as per provisions of Electricity Act, 2003, and regulations framed
thereunder, by DERC from time to time. It is observed that said
issue has been considered by this Tribunal, in assessee's own case

                                                                               3
                                                 ITA No.3800/Del/2015 A.Y.2008-09
                                                  DCIT vs. BSES Yamuna Power Ltd.








in consolidated order dated 05/10/15 for Assessment Years 2005-
06 to 2008-09 as under:
 " 17.2.    We find that while dealing with the issue the Learned
CIT(Appeals) has discussed the related provisions of the Electricity
Act, 1910 defining "service line" as per which it is an electric supply
line intended to supply energy to a single consumer or a group of
consumer from the same point of the distributing main. So the service
line is to be drawn from the distributing main. The lines drawn with
the help of electric posts are electric supply lines and connection
taken from the post to the building are service line. He has noted
further that service line charges are levied to recover the cost of
service line which includes the cost of GI pipes, bricks, sand,
overheads or under ground cables etc. There is no dispute that the
service line charges are charged from the consumer only at the time
of providing new connections, to recover the expenditure incurred on
such equipments and it is a one time charge levied on the consumers
at the time of taking new connections and thereafter it is the
responsibility of the BRPL for repair/replacement of the service line. It
has been noted that the assessee was charging service line deposits
as well as development charges from the consumers as per the rules
and notification of Delhi Electricity Regulatory Commission (BERC).
The capital expenditure incurred in respect of service line deposits on
account of service line cables, cost of G.I. pipes, bricks etc. were
capitalized under the head `meter accessories' (on which deprecation
was claimed at the rate of 80% but was reduced by the Assessing
Officer to 25%). However, the capital expenditure incurred on
development charges were duly included under the head "plant and
machinery", which was subject to the normal depreciation @ 25%. It
was accordingly submitted that the development charges are
required to be D-capitalized from the plant and machinery @ 25% and
service line deposits from plant and machinery (meter) @ 80% in
accordance with the provisions of sec. 43(1) of the Act. Against the
observation of the Assessing Officer that it is not a deposit but a
receipt as it is non-refundable, the contention of the assessee
remained that service line charges are being recovered from the
customers as per the Electricity Act, 2003 and the regulation framed
under the Act by the DERC from time to time. The charges are levied
to recover the cost of service line which includes cost of G.I. pipes,

                                                                               4
                                                 ITA No.3800/Del/2015 A.Y.2008-09
                                                  DCIT vs. BSES Yamuna Power Ltd.



bricks, sand, overhead or underground service line cable, meter
accessories etc. These charges are taken from the customers only at
the time of providing the new connection to recover the expenditure
incurred on the equipments and these expenditures are capitalized
under the head "plant and machinery" (meter) and depreciation is
claimed thereon.
17.3 With regard to the observations of the Assessing Officer, only
1/3 of the total amount on revenue account and not whole of it is
treated as capital receipts, the contention of the assessee remained
that DERC is a regulatory body, which regulates the charges of
service line charges. Thus, service line deposits are received by the
company as per the provisions of DERC and Electricity Act for the
purpose of incurring the expenditure for laying the service line and
other related expenses for providing new connection to the customers.
It was explained that in the absence of a one to one linking of the
service line deposit scheme with the capital expenditure incurred on
the service line connection, the justification for treating l/3ld of the
total amount of receipts in a particular year as Revenue is that by
doing so the assessee is offering for Revenue all service line receipts
over three years. It was submitted that at the same time the
assessee is claiming 99% of the cost incurred on capitalization service
line connections under plant and machinery (meter) as depreciation
over three years based upon the facts that energy meters are eligible
for deprecation at the higher rate of 80%. This is in line with the
matching concept as enunciated under AS-I requiring Revenue to be
matched with cost. Based upon the matching concept and Revenue
friendly concept, the offering of service line deposits (which are in the
nature of capital receipts) over a period of three years is not
prejudicial to the interest of Revenue, however, the service line
receipts are of capital nature and is required to be reduced from the
relevant cost of plant and machinery in accordance with sec. 43(1) of
the Income-tax Act, 1961, explained the assessee.
17.4 With regard to the observation of the Assessing Officer that the
assessee is engaged in selling electricity to the consumers from
whom it charges fees in the name of energy charges and these
energy charges are in the nature of Revenue receipts, the submission
of the assessee remained that the nature of service line receipts are
entirely different from the nature of the energy charges and the
service line receipts deserve to be reduced from the cost of the

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                                                 ITA No.3800/Del/2015 A.Y.2008-09
                                                  DCIT vs. BSES Yamuna Power Ltd.



relevant plant and machinery in accordance with sec. 43(1) of the
Income-tax Act, 1961. On the other hand, energy charges are
recovered from consumers for the amount of electricity consumed by
them at the prevailing tariff, which is of the Revenue nature.
Accordingly, both these receipts, namely, energy charges and service
line receipts have different characteristic and therefore, could not be
measured with the same yard-stick. We find substance in the
submission of the assessee as there is no dispute on the facts of the
case. Discussing these submissions of the assessee and meeting out
the observations of the Assessing Officer, we are of the view that the
Learned CIT(Appeals) following the ratios laid down in the cited
decisions has rightly come to the conclusion that the amounts
received for installation of service lines are to be treated as capital
receipts in the hands of the assessee. In result, the Learned
CIT(Appeals) was justified in deleting the addition of Rs.73,75,590
made on account of service line deposits from customers. The same is
upheld. The ground No.1 of the appeal preferred by the Revenue is
accordingly rejected.

8.1. Further, it is observed that Hon'ble Delhi High Court approved
order passed by this Tribunal vide order dated 14/09/16. Hon'ble
Delhi High Court upheld findings of this Tribunal by observing as
under:
" 8. With respect to the ITAT's ruling that the treatment of the service
line deposit over the years being capital or revenue is concerned, we
notice that the AO refused to recognise the amounts as capital
receipts. The assessee offered l/3rd of the amount to the profit and
loss account and later explained that these were capital receipts and
are not revenue in nature. This volte face of the assessee seems to
have triggered the AO's decision that the receipts were not capital but
revenue and therefore entirely liable to be taxed. The issue is covered
against the revenue in Hoshiarpur Electric Supply Co. vs. CIT
{1961} 41 ITR 608 (SC).
9. As far as the change in the method of valuation is concerned, the
1TAT permitted the assessee to adopt the moving average

                                                                               6
                                               ITA No.3800/Del/2015 A.Y.2008-09
                                                DCIT vs. BSES Yamuna Power Ltd.



methodology. The ITAT noted that the previous method adopted by
the assessee was First In First Out (FIFO) in terms of AS2. However,
they changed that method from 2005-2006 onwards. The ITAT
concurred with the CIT (A)'s decision that the assessee had the
autonomy to decide appropriate method as along as the authority did
not find anything fundamentally wrong in it. In our opinion no
question of law arises on this score as well."


8.2. Admittedly facts and circumstances of this issue are identical
in year under consideration, with that of preceding assessment
years and no distinguishing features has been brought out by the
Ld.Sr DR in order to deviate from view upheld by Hon'ble High
Court.
8.3.     Respectfully following same, we are upholding view taken by
Ld.CIT(A).
8.4.       Accordingly this ground raised by revenue stands
dismissed.
9. Ground No.(ii)
9.1. Ld.AR submitted that deduction of expenditure amounting to
Rs.3,83,33,117/- was made under section 37 of the Act. He
submitted that Ld.AO without giving any specific reference to an
expenditure incurred under legal claims disallowed ad hoc 25% of
expenses considering same to be penal in nature.
9.2.       Ld.CIT(A) deleted   addition by following       order of his
predecessor for assessment year 2006-07 and 2007-08. It has been
submitted that facts and circumstances are same in year under
consideration.


                                                                             7
                                                   ITA No.3800/Del/2015 A.Y.2008-09
                                                    DCIT vs. BSES Yamuna Power Ltd.



9.3.      Ld.Sr DR though supported order of Ld.AO could not
controvert aforestated arguments advanced by Ld.AR.
10.     We have perused submissions advanced by both sides in light
of records placed before us.
10.1.      It is observed that, this Tribunal has decided            issues in
preceding assessment years in assessee's own case vide order dated
05/10/15 as under:
  " 44.3. Further, even the assessing officer has failed to pin-point
any specific expenditure which is penal in nature and has merely
made an ad-hoc disallowance @ 25% of such expenditure, merely on
the basis of assumption.
44.4. Even otherwise, payments made to customers and others in
lieu of civil claims/ suits, arbitration, etc., are merely in the nature of
compensation paid in the regular course of business, which was
purely compensatory in nature and cannot, be disallowed under
section 37 of the Act.
Reliance in this regard has been placed by the Learned AR on the
following decisions:
-      Prakash Cotton Mills vs. CIT: 201 ITR 684 (SC)
-     CIT vs. Indian Copper Corporation Ltd.: 161 ITR 327            (Pat)
-     CIT vs. Grand Cashew Corporation: 182 ITR 216 (Ker)
-      Jama Auto Industries vs. CIT: 299 ITR 92 (P&H)
-     CIT vs. Hindustan Copper Ltd.: 55 Taxman 392 (Cal)
-     CIT vs. Todi Tea Col. Ltd: 239 ITR 28 (Cal.)
-      G.L. Rexroth Industries Ltd. vs. DCIT: 59 TTJ 757 (Ahd.)
-      CIT vs. Deversons Industries Ltd.: 104 ITD 171 (Ahd.)
45. On perusal of the orders of the authorities below on the issue, in
view of the above submissions and the decisions cited, we find that
the Learned CIT(Appeals) has deleted the addition made on account
of disallowance of legal claim on the basis that the Assessing Officer
has not highlighted a single instance that the charges were of penal
nature. We find that the Assessing Officer has made the

                                                                                 8
                                                ITA No.3800/Del/2015 A.Y.2008-09
                                                 DCIT vs. BSES Yamuna Power Ltd.








disallowance on estimate basis at 25% of the expenditure claimed.
No basis has been assigned for making such ad hoc disallowance.
Noting these material aspects, we are of the view that the Learned
CIT(Appeals) has rightly deleted the disallowance in absence of any
instance that there was any penalty which would fall under the
Explanation to Sec. 37 of the Income-tax Act, 1961. The First
Appellate Order in this regard is thus upheld. Ground No.3 is
accordingly rejected."
10.2. Before Hon'ble Delhi High Court revenue had not raised this
issue and therefore attained finality.
10.3.     Respectfully following view taken by this Tribunal, we are
inclined to uphold order passed by Ld.CIT(A).
10.4.      Accordingly this ground raised by revenue stands
dismissed.
11.     Ground no.(iii) is general in nature and therefore do not
require any adjudication.
12. In the result appeal filed by revenue stands dismissed.

Order pronounced in the open court on 08th February, 2019.


               Sd/-                                      Sd/-
      ( PRASHANT MAHARISHI)                       (BEENA A PILLAI)
       ACCOUNTANT MEMBER                         JUDICIAL MEMBER

Dt. 08th February, 2019

   Gmv




                                                                              9
                                          ITA No.3800/Del/2015 A.Y.2008-09
                                           DCIT vs. BSES Yamuna Power Ltd.




Copy forwarded to: -
1.  Appellant
2.  Respondent
3.  CIT
4.  CIT(A)
5.  DR, ITAT
                  -    TRUE COPY   -

                                         By Order,




                                       ASSISTANT REGISTRAR
                                        ITAT Delhi Benches




                                                                       10
                                                        ITA No.3800/Del/2015 A.Y.2008-09
                                                         DCIT vs. BSES Yamuna Power Ltd.




                                             Date
Draft dictated on                            06.02.19

Draft placed before author                   06.02.19
                                             07.02.19
Draft proposed & placed before the second    07.02.19
member
Draft discussed/approved by Second
Member.
Approved Draft comes to the Sr.PS/PS
Kept for pronouncement on                    08.02.19
            &
Order uploaded on :
File sent to the Bench Clerk
Date on which file goes to the AR
Date on which file goes to the Head Clerk.
Date of dispatch of Order.




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