Case of Authority for Advance Rulings, November 20, 2009 (case Jodhpur Vidyut Vitran Nigam Limited Vs Commissioner of Income-tax)
| President | P.V. Reddi, J. (Chairman) and J. Khosla, Member |
| Resolution Date | November 20, 2009 |
Judgment:
J. Khosla, Member
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The applicant is a Government company engaged in the business of power distribution in the State of Rajasthan. The Rajasthan State Electricity Board was split into three companies, namely, Electricity Generating company, Electricity Transmission Company and Distribution Companies as per the provisions of Rajasthan Power State Reforms Act, 1999. Out of the three distribution companies, the applicant is one, said to be the successor of the erstwhile Rajasthan State Electricity Board. The income tax return filed by it for the assessment year 2004-05 was adjudicated by the Assessing Officer and order under Section 143(3) of the Income-tax Act, 1961 ('Act' for short) was passed on 29.12.2006 against the company. An appeal filed against this impugned order before the Commissioner of Income-tax (Appeals), Jodhpur yielded partly in its favour. Further appeal before the Income Tax Appellate Tribunal, Jodhpur is pending.
The assessing authority invoked Section 115JB of the Act on the premise that there was book profit and made assessment on notional income under that Section. He disallowed the alleged excess depreciation claimed and made his own calculations on the ground that the accounting standard No. 12 which was required to be followed as per the Companies Act has not been followed, as seen from the auditor's note. On such recalculation by the assessing officer, the book profit got increased by Rs. 12,12,93,578/-. The assessing officer disallowed the adjustment of prior period expenses and added the same to book profit as it was considered to be not allowable for the year in question. Assessing authority also disallowed the interest paid to Rajasthan Rajya Vidyut Prasaran Nigam Ltd. towards the FDR loans raised by it from financial institutions. The total taxable income was determined at Rs. 18,02,78,335/-. The appellate authority confirmed the order of the assessing authority while rejecting all the contentions of the applicant.
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Against this background the applicant has filed the application under Section 245Q(1) of the Act before this Authority for ruling on the following questions in the capacity of a resident in terms of Section 245N(b)(iii) of the Act:
(1) Whether claim of depreciation Under Section 32 amounting to Rs. 71985930/- is allowable to the assessee company, keeping in view the amount involved under the head cost variance reserves capital contribution towards services connection and capital subsidy and grants towards cost of capital assets.
(2) Whether the amount of interest paid to RRVPN Rs. 1168841/- on the amount of FDR loan raised by RRVPN from financial institutions on behalf of assessee company is allowable to the assessee company.
(3) Whether audited accounts can be disturbed by the A.O. for the purpose of calculation of MAT Under Section 115JB.
(4) Whether the amount debited under the head "prior period expenses" can be added back for the purpose of book profit Under Section 115JB.
(5) Whether amount of depreciation which is no where debited in the books of accounts but derived during assessment proceeding by the A.O. can be added back for the purpose of books profit Under Section 115JB.
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It is stated by the applicant that this company is formed on 'No profit No loss' basis. The Rajasthan State Electricity Board had been incurring huge losses and was surviving on the financial support of the Government of Rajasthan and this company being one of its successors continue to receive the financial assistance. The cumulative losses since inception of the company which have been shown as recoverable in the audited accounts are Rs. 1271.04 crores and the book loss for the year under consideration amounted to Rs. 303.76 crores and these losses are shown as recoverable from the Government of Rajasthan as per the printed balance sheet. It is argued that the Assessing Officer has erroneously ignored the losses and assessed it under Section 115JB of the Income-tax Act.
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So far as the 1st question regarding depreciation under Section 32 is concerned, this question was not pressed by the applicant in the further submissions made by it and the question No. (1) is withdrawn by the applicant. Therefore, it is unnecessary to discuss this issue further.
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Question No. 2: Whether the amount of interest paid to RRVPN Rs. 1168841/- on the amount of FDR loan raised by RRVPN from financial institutions on behalf of assessee company is allowable to the assessee company.
The learned Authorized Representative of the applicant has shown us copies of the statements of April, 2003 onwards sent by Rajasthan Rajya Vidyut Prasaran Nigam Ltd. (for short 'RVPN') showing the receipt and payment on behalf of the applicant wherein against S. No. 38, 'Interest on loan against FDR' is shown. In the written submissions filed by the applicant and at the time of hearing, it was explained that the entire revenue collection by Jodhpur Discom (applicant) is first transferred to RVPN towards purchase of power from them. Then, RVPN has been providing funds to the applicant for operational activities. Further, it is stated that the erstwhile RSEB was having certain FDRs amounting to Rs. 224.31 crores. Out of this FDRs worth Rs. 194.31 crores were allocated to RVPN and FDRs of Rs. 30 crores were allocated to RVPN. RVPN had availed the demand loan from time to time against the pledge of aforesaid FDRs for working capital requirements of successor entities of RSEB (including the applicant) and paid interest on such demand loan. Interest passed on such loans was allocated to all entities equally as per the decision of the Management. Then, it is submitted that the RVPN charged interest from the applicant by issuing Inter-company Transfer Memos(ICTs), the copies of which are filed by the applicant at pages 180 to 204 of paper book. It is argued by the learned authorized representative of the applicant that the expenditure by way of interest payment is incurred wholly and exclusively for the purpose of business of the assessee and the same needs to be allowed. The applicant in order to support his case has...
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