Referred Sections:
Section on 115JB of the Income-tax Act,
Section 5
Section 2(17) of the Income-tax Act
Section 69
Section 1151
Section 1153A ,
Section 2(c) of the Act
Section 28 of the Act,
Sections 57 and 57-A of the said Act;
Section 12
Section 80IA(4)(iv)(c) of the Act
Sections 32, 40(a)(ia), 40A(3), 43B etc., of the Act.
Section 40(a)(ia) of the Act
Referred Cases / Judgments
In Puna Electricity Supply Co. Ltd. Vs CIT (1965) 56 ITR 521
Income-tax Officer - Ward 5(1) vs. Keval Construction, Tax Appeal No. 443 of 2012, December 10, 2012, Gujarat High Court.1
Commissioner of Income-tax-IV, Nagpur vs, Sunil Vishwambharnath Tiwari, IT Appeal No. 2 of 2011, September 11, 2015, Bombay High Court.2 ’
Principal CIT. Kanpur vs. S onya Merchants Ltd.. I.T. Appeal No. 248 of 2015, May 03, 2016 Allahabad High Court
1
IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI `E' BENCH,
NEW DELHI
BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER, AND
MS. SUCHITRA KAMBLE, JUDICIAL MEMBER
ITA No. 2784/DEL/2013
[A.Y 2008-09]
&
ITA No. 2785/DEL/2013
[A.Y 2007-08]
&
ITA No. 5368/DEL/2013
[A.Y 2009-10]
Tata Power Delhi Distribution Ltd Vs. The Addl. C.I.T
[Earlier known as North Delhi Power Ltd Range 13,
NDPL House, Hudson Line, New Delhi
Kingsway Camp, New Delhi
PAN No: AABCN 6808 R
ITA No. 4055/DEL/2013
[A.Y 2008-09]
&
ITA No. 4054/DEL/2013
[A.Y 2007-08]
&
ITA No. 5676/DEL/2013
[A.Y 2009-10]
The A.C.I.T Vs. Tata Power Delhi Distribution Ltd
Range 13, [Earlier known as North Delhi Power Ltd
New Delhi NDPL House, Hudson Line,
Kingsway Camp, New Delhi
PAN No: AABCN 6808 R
[Appellant] [Respondent]
2
Date of Hearing : 11.06.2019
Date of Pronouncement : 14.06.2019
Assessee by : Shri S.D. Kapila, Adv
Shri R.R. Maurya, Adv
Shri Pravesh Sharma, Adv
Revenue by : Ms.Pramita M. Biswas, CIT- DR
ORDER
PER BENCH:-
The above captioned cross appeals by the assessee and Revenue
are preferred against the order of the Commissioner of Income Tax
[Appeals], XVI, New Delhi pertaining to assessment years 2007-08,
2008-09 and 2009-10. Since all these appeals pertain to same assessee
and were heard together involving common issues, we are disposing
them off by this common order for the sake of convenience and
brevity.
2. The assessee has raised an additional ground which reads as
under:
"That on the facts and circumstances of the case, the
Assessing Officer erred in law in taxing book profits u/s
115JB of the Income-tax Act, 1961 [hereinafter referred to
as 'the Act' for short]."
3
3. The ld. DR strongly objected to the admission of the additional
ground raised by the assessee. It is the say of the ld. DR that this issue
was never raised before the first appellate authority, therefore, the
same should not be entertained by the Tribunal.
4. Per contra, the ld. counsel for the assessee contended that it is
purely a legal issue which requires no verification of facts. Strong
reliance was placed on the decision of the Hon'ble Supreme Court in
the case of NTPC 229 ITR 383.
5. We have carefully considered the case records. The appellant
company is a joint venture of the Government of Delhi and Tata Power
Ltd, registered under the Companies Act, 1956. Since 2002, the
appellant is engaged in the business of distribution of electricity in the
North Delhi Districts of the National Capital, set up in terms of Delhi
Electricity Reforms Rules [Transfer Scheme] Rules 2001.
6. As the appellant company is governed by the Electricity Act,
2003, therefore, the provisions of the said Act prevail wherever they
are inconsistent with the provisions of the Companies Act, 1956. We
find that in the Return of Income, the assessee has declared total
4
income as per the book profit u/s 115JB of the Act. We are of the
considered view that the additional ground raised by the assessee is
well taken and requires no verification of any facts, whatsoever. The
same is, accordingly, admitted.
7. In so far as the question of applicability of provisions of section
115JB of the appellant company is concerned, it has been answered by
the Hon'ble Kerala High Court in the case of Kerala State Electricity
Board 329 ITR 91 in favour of the assessee and against the revenue.
The Hon'ble High Court has held as under:
"Section on 115JB of the Income-tax Act, 1961creates a legal
fiction regarding the total income of assessees which are
companies. The book profit of the company is deemed to be the
total income of the assessee in the circumstances specified in the
section. The expression "book profit" for the purpose of the
section is explained to mean the net profit as increased or
decreased by the various amounts shown in the various sub-clauses
of the section. The "net profit" itself must be the net profit as
shown in the profit and loss account of the company. Sub-section
(2) mandates that the profit and loss account of the company is
required to be prepared in the manner specified therein. Section
115JB stipulates that the accounting policies, accounting standards,
etc. shall be uniform both for the purpose of Income-tax as well as
for the information statutorily required to be placed before the
5
annual general meeting conducted, in accordance with section
115JB of the Companies Act, 1956.
Though the Kerala State Electricity Board, a statutory corporation
constituted by virtue of section 5 of the Electricity (Supply) Act,
1948 answers the description of an Indian company and therefore a
company within the meaning of section 2(17) of the Income-tax
Act, 1961it is not a company for the purpose of the Companies Act,
1956. It is not obliged to either to convene an annual general
meeting or place its profit and loss account in such general
meeting. On the other hand, under section 69 of the Electricity
(Supply) Act, 1948, the Board is obliged to keep proper accounts,
including the profit and loss account, and prepare an annual
statement of accounts, balance sheet, etc. in such form as may be
prescribed by the Central Government and notified in the Official
Gazette. Such accounts of the Board are required to be audited by
the Comptroller and Auditor-General of India or such other person
duly authorised by the Comptroller and Auditor-General of India.
The accounts so prepared along with the audit report are required
to be laid annually before the State Legislature and also to be
published in the prescribed manner.
At the earliest point of time when section 1151 was introduced, the
section expressly excluded from its operation bodies like the
Electricity Board. Though such express exclusion is absent in
section 1153A , the Central Board of Direct Taxes issued Circular
No. 762 dated February 18, 1998 excluding bodies like the
6
Electricity Board from the operation of the section. Circular No.
762 not only is binding on the Department, but also explains the
purpose in introducing section 1153A which was to tax zero-tax
companies. The CBDT understood that companies engaged in the
business of generation and distribution of electricity and
enterprises engaged in developing, maintaining and operating
infrastructure facilities, as a matter of policy, are not brought
within the purview of section 1153A for the reason that such a
policy would promote the infrastructural development of the
country. Such an understanding of the CBDT is binding on the
Department. Section 1153B , which is substantially similar to
section 1153A cannot have a different purpose and need not be
interpreted in a manner different from the understanding of the
CBDT of section 1153A .
Where the computation provision could not be applied in a
particular case, it is indicative of the fact that the charging
section also would not apply.
The Electricity Board or bodies similar to it, which are totally
owned by the Government, either State or Central, have no
shareholders. Profit, if at all, made would be for the benefit of
entire body politic of the State. Therefore the enquiry as to the
mischief sought to be remedied by the amendment becomes
irrelevant. Therefore, the fiction fixed under section 1153B cannot
be pressed into service against the Electricity ' Board while making
the assessment of the tax payable under the Income-tax Act."
7
8. Finding parity of facts with the facts of the judgment of the
Hon'ble Kerala High Court [supra], respectfully following the finding of
the Hon'ble High Court, we hold that the provisions of section 115JB of
the Act are not applicable to the appellant company. The Assessing
Officer is directed accordingly. The additional ground raised by the
assessee is allowed.
9. First addition contested by the appellant company relates to the
addition on account of de-recognition of revenue on account of
efficiency gain.
10. At the very outset, the ld. counsel for the assessee stated that on
identical set of facts, the issue has been considered by the co-ordinate
bench in assessment year 2006-07 by the Tribunal in ITA No.
4848/DEL/2010 and 5026/DEL/2010. It is the say of the ld. counsel for
the assessee that facts have been elaborately discussed by the co-
ordinate bench in assessment year 2006-07.
11. The ld. DR strongly supported the findings of the Assessing
Officer but could not bring any distinguishing decision in favour of the
revenue.
8
12. A perusal of the record shows that Delhi Electricity Regulatory
Commission [DERC] constituted under the Delhi Reforms Act, 2000
determines the Retail Supply Tariff chargeable by the company to the
consumers and bulk supply tariff payable by the company to Delhi
Transco Ltd. for power purchase. As per the terms of the said
notification, the tariffs are statutorily required to be fixed in a manner
that the assessee recovers its prudently incurred cost and also earns an
assured return of 16% p.a. on equity plus free reserves.
13. Prescribed procedure before the DERC is that the assessee has
first to submit detailed estimate of its cost to the DERC, which is likely
to incur before the start of the relevant financial year. DERC examines
the same after invoking the comments of all stakeholders including the
members of the public, who are the consumers. The DERC approves
the estimate of costs and the corresponding tariff for the year. Such an
estimate is subsequently reviewed by the DERC on the basis of actual
costs incurred by the assessee and is subjected to "Prudence check".
14. If the revenue for the year exceeds the 'trued up cost' then the
excess amount has to be carried forward as liability to be adjusted
through corresponding tariff reduction in future, in order to
9
compensate the consumers through reduction in tariff; whereas if the
trued up costs exceeds the revenue for any year, the difference is
recognized as an assets of the company under the head "sundry
debtors" and is recoverable from the consumers in future through the
tariff mechanism.
15. We find that similar facts were considered by the co-ordinate
bench in assessment year 2006-07 in ITA No. 4848/DEL/2010 and
5026/DEL/2010. The relevant findings of the co-ordinate bench read as
under:
"17. It is, therefore, clear from the arguments advanced before
us that the question involved in this matter is whether the
disputed Rs.91.13 crores could be brought to tax by treating it
as the application of the income after its accrual. This aspect
requires a reading of the provisions of the Delhi Electricity
Reforms Act, 2000 with the notifications issued and the orders
passed by the DERC. As could be seen from the Delhi Electricity
Reforms Act, 2000, it received the assent of the President of
India on 6.3.2001 and promulgated by way of Notification dated
8.3.2001. Section 2(c) of the Act defines the commission to
mean the Delhi Electricity Regulatory Commission. The
Act constitutes the Commission. It empowers the Government to
issue directions to the Commission in the matters of policy
involving public interest from time of time regulating the
10
discharge of the commission functions. In turn, by virtue
of Section 28 of the Act, the holder of the license (i.e.
assessee) is under obligation to observe the methodologies and
procedure specified by the Commission from time to time in
calculating the expected revenue from charges which it is
permitted to recover pursuant to the terms of its license and in
designing tariffs to collect those revenues. The Commission is
also empowered to prescribe the terms and conditions for
determination of the licensee's revenues and tariffs by
regulations duly published in the official Gazette and in such
other manner as the Commission considers appropriate. In this
respect, it is provided that the Commission shall be guided by
the following parameters, namely:-
the financial principles and their application provided in the
Sixth Schedule to the Act, 1948 read with sections 57 and 57-A
of the said Act;
the factors which would encourage efficiency, economic use of
the resources, good performance, optimum investments and
other matters which the Commission considers appropriate
keeping in view the salient objects and purposes of the
provisions of this Act; and the interest of the consumers.
18. In exercise of the powers conferred by Section 12 and other
applicable provisions of the Act, the GNCTD issued Notification
No.F.11(119(8)/2001- Power in the month of November 2001. In
this Notification vide paragraph 8, the Government considered
11
the necessity of effective re-organization of the DVB and the
sale of 51% equity shares in the distribution companies. The
assessee is one of the entities, who participated in the bid,
became successful for the lowest annual target loss was
awarded 51% of equity. Vide para 12, this Notification
prescribes that in the years between 2002-03 and 2006-07
in the event of actual AT&C loss of a distribution licensee for
any particular year is better i.e. lower than the level proposed in
the bid, the distribution licensee shall be allowed to retain 50%
of the additional revenue resulting from such better
performance and the balance 50% of additional revenue from
such better performance shall be counted for the purpose of
tariff fixation. Para 13 of such Notification provides that all
expenses that shall be permitted by the Commission, tariffs
shall be determined in such a way that the distribution licensees
earn, at least, 16% return on the issued and paid up capital and
free reserves (excluding consumer contribution and revaluation
reserves but including share premium and retained profits
outstanding at the end of any particular year) provided that
such share capital and free reserves have been invested into
fixed or any other assets etc.
19. Para 16 of this Notification sums up the mandate in this
Notification in the following terms:
(a) The AT&C loss programme is to be as per the bid submitted
by the purchaser (selected bidder) as per para 11 above.
12
(b) Distribution licensees shall be entitled to retain 50% of the
additional revenues from any AT&C loss reduction over and
above then level proposed in the bid by the Purchaser (selected
bidder) and this shall not be counted as revenue for the purpose
of tariff fixation for the succeeding years. The balance 50% of
the excess efficiency gain shall be counted as revenue for the
purpose of tariff fixation.
(c) Distribution licensees earn, at least, 16% return on the
issued and paid up capital and free reserves
(d) The amount agreed to be made available by the Government
to TRANSCO will be as a loan for the particular year.
20. In deference to this Notification, the DERC in its order
passed in July 2005 at paragraph 4.2 observed that for the
Asstt. Year 2004-05, the assessee had achieved AT&C loss level
lower than the minimum bid level specified by the GNCTD,
accordingly the provisions of the policy directions and the
GNCTD's clarification have been applied to determine the
extent of additional revenue to be retained by the DISCOM and
that it will be passed down to the consumers while determining
the annual revenue requirement of the utilities. It is further
observed that in case of the assessee as the over achievement
in AT&C loss reduction is more than the minimum level target
the entire additional revenue as a result of AT and C loss
reduction up to minimum level with respect to bid level, and 50%
of the additional revenue beyond minimum level has been
13
considered as additional revenue for the purpose of ARR
determination and balance 50% of the savings beyond minimum
level has been approved to be retained by the assessee.
21. Basing on this, we are convinced that the assessee is under
statutory obligation to meet the targets of reduction of A&TC
losses and when the AT&C loss level reached by the assessee in
that particular year is better i.e. lower than the level prescribed
in the bid, the assessee shall be entitled to 50% of the
additional revenue resulting from such purpose. This 50%
becomes the regular taxable income of the assessee and insofar
as this income is concerned, for this Asstt. Year 2006-07 also,
there is no dispute. The balance 50% of this additional revenue,
which is mandatory to be counted for the purpose of tariff
fixation, which is called as the 'efficiency gain' will be taken
into consideration by the DERC while permitting the tariff of
the future years to be determined so as to see that the
assessee would earn at least 16% return on the issued and paid
up capital and free reserves. The Notification issued in
November 2001, referred to above, is clear in its mandate that
this 50% efficiency gain shall be reckoned as revenue for the
purpose of tariff fixation and the assessee is under obligation
to follow the mechanism of fixation of tariff by the DERC.
22. In Puna Electricity Supply Co. Ltd. Vs CIT (1965) 56 ITR 521
(SC), the Hon'ble Apex Court considered a similar situation
where the licensee like the assessee was under the obligation to
14
set apart some amount and transfer it to the consumer benefit
reserve account which represents a rebate to the customers of
the excess amount collected from them. Hon'ble Apex Court
held that there are two types of profits in such cases i.e.
Commercial profits and clear profits governed by two different
enactments. Commercial profits are arrived at on commercial
principle whereas the other is regulated by the statute. The
clear profits could be determined only after excluding the
amount statutorily transferred to represent the rebate to the
customers of the excess amount collected from them. Finally
the Hon'ble Apex Court held that the amount transferrable for
the benefit of the consumers do not form part of the
assessee's real profit; and for the purpose of calculating the
taxable income, such amount have to be deducted from its total
income.
23. Record speaks that this decision was brought to the notice
of the learned CIT(A) but he distinguished the same stating
that in such case the assessee was crediting the excess amount
in a separate account called "Consumer Benefit Reserve
Account" and they were part of the excess amount paid to it and
reserve to be returned to the consumers; whereas in the case of
the assessee, the assessee is not required to return the excess
amount to the consumers and on the contrary, the assessee is
the beneficial owner of the amount which it could use the way it
likes. On this premise, learned CIT(A) held that the decision in
15
the case of Puna Electricity Supply Co. Ltd (supra) has no
application to the facts of the present case.
24. On a careful consideration of the factual matrix involved in
both the cases and the reasoning of the Hon'ble Apex Court in
reaching the conclusion, we are of the considered opinion that
the approach of the learned CIT(A) is incorrect. In the
preceding paragraphs, we have noted that the assessee is under
a statutory obligation to set apart 50% of the excess amount
generated due to the overreaching of the targets, for the
purpose of the consideration of the DERC to fix the future
tariffs either to give relief to the consumers or otherwise. A
reading of the statute, notification and the orders of the DERC
clearly indicates that the assessee is not free to use this
efficiency gain amount the way it likes. Whether or not a
separate account is opened, when this amount is separately
shown under this head in the books, it makes little difference in
so far as the application of the ratio of Puna Electricity Supply
Co. Ltd. (supra) is concerned. Crux of the matter is that the
assessee in both the cases has no right to appropriate the
'efficiency gain' amount and such amount is at the disposal of
the DERC though not physically but in respect of utilization
thereof. We, therefore, are convinced that the ratio of Puna
Electricity Supply Co. Ltd (supra) is squarely applicable to the
case of the assessee before us and on that score, we allow the
contention of the assessee that they have rightly reduced the
efficiency gain amount in their profit and loss account."
16
16. Respectfully following the findings of the co-ordinate bench, this
grievance of the assessee is allowed.
17. At this stage, it would be pertinent to understand the claim of
deduction under Chapter VIA which has been allowed by the first
appellate authority and the Revenue is in appeal before us.
18. There is no dispute that the assessee had claimed deduction u/s
80IA of the Act at Rs. 98.38 crores, which is evident from the
statement showing computation of total income exhibited at page 3 of
the paper book. It is also not in dispute that the Assessing Officer did
not raise any query nor there was any quarrel in respect of the claim of
deduction u/s 80IA of the Act. However, the quarrel is only in respect
of the disallowances made by the Assessing Officer while framing the
assessment order u/s 143(3) of the Act.
19. Section 80IA(4)(iv)(c) of the Act provides that an undertaking
which undertakes substantial renovation and modernisation of the
existing network of transmission or distribution lines at any time during
the period beginning the first day of April 2004 and ending on 31st day
of March 201 is eligible for deduction u/s 80IA of the Act. The
17
explanation to the said provision provides that substantial renovation
and modernisation means an increase in the plant and machinery in the
net work by at least 50% of book value as on 01.04.2004.
20. A perusal of the record, read with the audit report and report in
Form No. 10CCB, shows that plant and machinery in the network of
transmission or distribution lines have increased by more than 50% of
the book value of the plant and machinery as on 01.04.2004. On these
undisputed facts, we find that the return of income was filed well
within due date alongwith audit report including audit report in Form
No. 10CCB and were available before the Assessing Officer during the
assessment proceedings.
21. As mentioned elsewhere, the Assessing Officer has not disputed
the claim of deduction u/s 80IA of the Act mentioned in the
computation of income nor he has objected during the course of
assessment proceedings. On these facts, the first appellate authority
allowed the claim of deduction u/s 80IA of the Act irrespective of the
fact that certain disallowances/additions were made by the Assessing
Officer while completing the assessment order.
18
22. In our considered opinion, the issue is now well settled by the
Circular No. 37/2016 dated 02.11.2016 issued by the Central Board of
Direct Taxes, which reads as under:
"Chapter VI-A of the Income-tax Act, 1961 ("the Act"), provides
for deductions in respect of certain incomes. In computing the
profits and gains of a business activity, the Assessing Officer may
make certain disallowances, such as disallowances pertaining to
sections 32, 40(a)(ia), 40A(3), 43B etc., of the Act. At times
disallowance out of specific expenditure claimed may also be made.
The effect of such disallowances is an increase in the profits.
Doubts have been raised as to whether such higher profits would
also result in claim for a higher profit-linked deduction under
Chapter VI-A.
2. The issue of the claim of higher deduction on the enhanced
profits has been a contentious one. However, the courts have
generally held that if the expenditure disallowed is related to the
business activity against which the Chapter VI-A deduction has
been claimed, the deduction needs to be allowed on the enhanced
profits. Some illustrative cases upholding this view are as follows:
(i) if an expenditure incurred by assessee for the purpose of
developing a housing project was not allowable on account of non-
deduction of TDS under law, such disallowance would ultimately
increase assessee's profits from business of developing housing
project. The ultimate profits of assessee after adjusting
disallowance under section 40(a)(ia) of the Act would qualify for
19
deduction under section 80-IB of the Act. This view was taken by
the courts in the following cases:
Income-tax Officer - Ward 5(1) vs. Keval
Construction, Tax Appeal No. 443 of 2012, December
10, 2012, Gujarat High Court.1
Commissioner of Income-tax-IV, Nagpur vs, Sunil
Vishwambharnath Tiwari, IT Appeal No. 2 of 2011,
September 11, 2015, Bombay High Court.2 '
(ii) deduction under section 40A(3) of the Act. is not
allowed, the same would be added to the profits of the
undertaking on which the assessee would .d o for
deduction under section 80-IB of the Act. This view was
taken by the court in the following cases:
"Principal CIT. Kanpur vs. S onya Merchants Ltd.. I.T.
Appeal No. 248 of 2015, May 03, 2016 Allahabad High
Court
The above views have attained finality as these judgments
of the High Courts of Bombay, Gujarat and Allahabad
have been accepted by the Department.
3. In view of the above, the Board has accepted the settled
position that the disallowances made under sections 32, 40(a)(ia),
40A(3), 43B, etc. of the Act and other specific disallowances,
related to the business activity against which the Chapter VI-A
20
deduction has been claimed, result in enhancement of the profits
of the eligible business, and that deduction under Chapter VI-A is
admissible on the profits so enhanced by the disallowance.
4 Accordingly, henceforth, appeals may not be filed on this ground
by officers of the Department and appeals already filed in Courts/
Tribunals may be withdrawn/ not pressed upon. The above may be
brought to the notice of all concerned."
23. In view of the above Circular, disallowances made by the
Assessing Officer are related to the business activity against which
deduction u/s 80IA of the Act has been claimed which resulted in
enhancement of the profits of the eligible business and hence
deduction under Chapter VIA is admissible on the profit so enhanced by
the disallowances.
24. In light of the above CBDT Circular, all the issues become
academic in nature and therefore, need no separate adjudication,
though it would be pertinent to mention here that all the disputed
issues remain open for both the parties in case the deduction u/s 80IA
is denied by the Hon'ble Superior Court. In the light of the above
discussion and finding, all the appeals of the assessee are allowed
whereas those of the revenue are dismissed.
21
25. In the result, all the appeals of the assessee in ITA No
2784/DEL/2013, ITA No. 2785/DEL/2013 and ITA No.
5368/DEL/2013 are allowed whereas those of the revenue in ITA No.
2784/DEL/2013, ITA No. 2785/DEL/2013 andITA No. 5368/DEL/2013
are dismissed.
The order is pronounced in the open court on 14.06.2019.
Sd/- Sd/-
[SUCHITRA KAMBLE] [N.K. BILLAIYA]
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: 14th June, 2019
VL/
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR
Asst. Registrar
ITAT, New Delhi
22
Date of dictation
Date on which the typed draft is placed before
the dictating Member
Date on which the typed draft is placed before
the Other Member
Date on which the approved draft comes to the
Sr.PS/PS
Date on which the fair order is placed before the
Dictating Member for pronouncement
Date on which the fair order comes back to the
Sr.PS/PS
Date on which the final order is uploaded on the
website of ITAT
Date on which the file goes to the Bench Clerk
Date on which the file goes to the Head Clerk
The date on which the file goes to the Assistant
Registrar for signature on the order
Date of dispatch of the Order
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