# Commissioner of Income Tax, Varanasi v. M/s Poorvanchal Vidyut Vitaran Nigam Ltd., Varanasi

- **Citation:** (2019) 3 ILRA 804
- **Court:** High Court of Judicature at Allahabad
- **Decided:** 2019-10-17
- **Case number:** Income Tax Appeal No. 251 of 2013
- **Bench:** Bharati Sapru, Rohit Ranjan Agarwal
- **Source:** https://unisonlegal.in/judgment/allahabad-high-court/commissioner-of-income-tax-varanasi-v-m-s-poorvanchal-vidyut-vitaran-nigam-ltd-44809
- **Pages:** 5

## Headnote

A. Income Tax Law-Income Tax Act,
1961 - Section 32, 260A - Whether the
ITAT is justified in law and facts in
holding that the assessee was entitled to
claim depreciation on the fixed assets
acquired on transfer scheme 2003 which
was not yet finalized/ascertained on the
fact that the actual assets are not
identifiable and not being used as well
as
their
full
title
have
not
been
transferred to the assessee?

U.P. Transfer of Distribution Undertaking
Scheme, 2003 provided for transfer of all the
assets and liabilities to four distribution
companies made after division of UPPCL.
Though the task of determination of item wise
3 All. Commissioner of Income Tax, Varanasi Vs. M/s Poorvanchal Vidyut Vitran Nigam Ltd., Varanasi
805
opening balance of assets and liabilities could
only be completed in 2015. The depreciation
claimed has been disallowed by the AO as the
assets were not identifiable at the relevant
point of time. Matter remitted back for fresh
consideration in the light of auditor's report.
(Para 7, 17, 19, 20, 21, 22)

Matter Remitted (E-4)

Appeals
arise
out
of
orders
dated
01.05.2013, passed by ITAT, Allahabad
Bench, Allahabad and orders dated
21.03.2016 passed by ITAT, Allahabad.

## Text

804 INDIAN LAW REPORTS ALLAHABAD SERIES
irrelevant to the claim made by the
assessee, in this case. It is so, because
here the taxing event (entry of machinery
into the local area Allahabad), took place
and stood completed and concluded
during the A.Y. 2000-01 itself.

18. The subsequent event of sale or
re-sale of the machinery by way of export
sale was unconnected to that taxing event.
In any case, it took place much after close
of the A.Y. 2000-01. Therefore, that
separate event/transaction had no bearing
on
the
taxable
event
that
stood
irreversibly concluded. Therefore, the
consequent
tax
liability
remained
unaffected by the subsequent export of
the machinery.

19. Thus, the legal basis of the claim
raised by the assessee is found nonexistent. There is nothing to doubt the
existence of the tax liability and its
crystallization at the end of the A.Y.
2000-01. It also did not get diluted or
wiped out upon occurrence of export of
the machinery, in subsequent assessment
year.

20. In view of the above, questions
of law raised by the assessee are
answered thus: the factual and legal basis
of the claim raised by the assessee having
arisen more than three years after the
close of the assessment year 2000-01, the
same is wholly unfounded. The taxable
event occurred in and tax liability arose
upon the assessee having caused the entry
of machinery for use in the local area
Allahabad, during the A.Y. 2000-01. It
got crystallized on 31st March, 2001. The
event of subsequent export of machinery
outside the country during the A.Y. 200405, had no bearing on the unit of
assessment being the A.Y. 2000-01.

21. In view of the above, there is no
merit in the revision. It is accordingly,
dismissed. Costs easy.
----------
(2019)11ILR A804

APPELLATE JURISDICTION
CIVIL SIDE
DATED: ALLAHABAD 17.10.2019

BEFORE
THE HON'BLE BHARATI SAPRU, J.
THE HON'BLE ROHIT RANJAN AGARWAL, J.

Income Tax Appeal No. 251 of 2013
connected with
Income Tax Appeal Cases No. 268 of
2013, 269 of 2013, 221 of 2016, 242 of
2016 and 243 of 2016

Commissioner of Income Tax, Varanasi
 ...Appellant
Versus
M/s Poorvanchal Vidyut Vitaran Nigam
Ltd., Varanasi ...Respondent

Counsel for the Appellant:
S.S.C.I.T., Sri Manish Goyal, Sri R.K.
Upadhyay

Counsel for the Respondent:
Sri Ashish Bansal, Sri S.K. Garg

A. Income Tax Law-Income Tax Act,
1961 - Section 32, 260A - Whether the
ITAT is justified in law and facts in
holding that the assessee was entitled to
claim depreciation on the fixed assets
acquired on transfer scheme 2003 which
was not yet finalized/ascertained on the
fact that the actual assets are not
identifiable and not being used as well
as
their
full
title
have
not
been
transferred to the assessee?

U.P. Transfer of Distribution Undertaking
Scheme, 2003 provided for transfer of all the
assets and liabilities to four distribution
companies made after division of UPPCL.
Though the task of determination of item wise
3 All. Commissioner of Income Tax, Varanasi Vs. M/s Poorvanchal Vidyut Vitran Nigam Ltd., Varanasi
805
opening balance of assets and liabilities could
only be completed in 2015. The depreciation
claimed has been disallowed by the AO as the
assets were not identifiable at the relevant
point of time. Matter remitted back for fresh
consideration in the light of auditor's report.
(Para 7, 17, 19, 20, 21, 22)

Matter Remitted (E-4)

Appeals
arise
out
of
orders
dated
01.05.2013, passed by ITAT, Allahabad
Bench, Allahabad and orders dated
21.03.2016 passed by ITAT, Allahabad.

(Delivered by Hon'ble Rohit Ranjan
Agarwal, J.)

1. All these appeals filed under
Section 260-A of the Income Tax Act
arise out of orders dated 1.5.2013, passed
by the Income Tax Appellate Tribunal
(hereinafter called as "ITAT"), Allahabad
Bench, Allahabad in Income Tax Appeal
Nos.228/Alld/2011,
229/Alld/2011,
272/Alld/2012, for the assessment years
2007-08, 2008-09, 2009-10 and orders
dated 21.3.2016 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 being
decided by a common order, treating
appeal no.251 of 2013, for the assessment
year 2007-08, as the leading appeal.

3. All the appeals are filed on the
same question of law, which read as
under:

"Whether
the
Income
Tax
Appellate Tribunal is justified in law and
facts in holding that the assessee was
entitled to claim depreciation on the fixed
assets acquired on transfer scheme 2003
which was not yet finalized/ascertained
on the fact that the actual assets are not
identifiable and not being used as well as
their full title have not been transferred to
the assessee ?"

4. Brief facts of the case are, that
U.P. Electricity Regulatory Commission
(in short "UPERC") was formed under the
provisions of U.P. Electricity Reforms
Act, 1999 by Government of U.P., as a
first step for reforming and restructuring
the power sector in the State.

5.
 The
erstwhile
U.P. State
Electricity Board (in short "UPSEB") was
unbundled into three distinct legal and
separate
entities
through
the
First
Reforms
Transfer
Scheme,
dated
14.1.2000, which are as under:

(i) U.P. Power Corporation Ltd.
(in short "UPPCL"), vested with the
function of transmission and distribution
of power within the State.

(ii) U.P.Rajya Vidyut Utpadan
Nigam Ltd. (in short "UPRVUNL"),
vested with the function of Thermal
generation within the State.

(iii) U.P.Jal Vidyut Nigam Ltd.
(in short "UPJVNL"), vested with the
function of Hydro generation within the
State.

6. By another Transfer Scheme
dated 15.1.2000, the assets liabilities and
personnel of Kanpur Electricity Supply
Authority (in short "KESA" ) under
UPSEB were transferred to Kanpur
Electricity Supply Company Ltd. (in short
"KESCO"), a Company registered under
the Companies Act, 1956.
806 INDIAN LAW REPORTS ALLAHABAD SERIES

7. After the enactment of Electricity
Act,
2003,
UPPCL,
which
was
responsible
for
transmission
and
distribution of electricity was further
divided
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-12003-24-14P-2003,
dated
12.8.2003,
issued by the State Government to
undertake distribution and supply of
electricity in the areas under their
respective Zones specified in the Scheme:

(i) Dakshinanchal Vidyut Vitran
Nigam Ltd. (Agra Discom or DVVNL)

(ii) Madhanchal Vidyut Vitran
Nigam Ltd. ( Lucknow Discom or
MVVNL)

(iii)
Paschimanchal
Vidyut
Vitran Nigam Ltd. (Meerut Discom or
PVVNL)

(iv) Purvanchal Vidyut Vitran
Nigam Ltd. ( Varanasi Discom or
PVVNL)

8. The said notification was issued
in pursuance of Section 131(4) of
Electricity Act, 2003 and Section 23(4) of
the U.P. Electricity Reforms Act, 1999.

9. Pursuant to the formation of the
said four Companies, all the assets and
liability
as
per
the
Scheme
was
transferred, which included the fixed
assets. After transfer of assets and
liabilities,
these
Companies
started
utilizing the same in power generation
and revenue generated was disclosed in
the return filed by it in regular course.
However, as break up of assets value and
itemwise was not provided in the Scheme,
as such for PUVNL, one Ms Batliboy &
Co. was entrusted with task for physical
verification of assets and determination of
the same.

10. As the report was awaited and
the returned had fallen due, assessee had
charged depreciation at a common rate of
7.84% on the method prescribed by the
Government under Electricity Supply
Act, 1948 on the gross fixed assets
transferred to the Company as per the
Transfer Scheme, 2003.

11. While making the assessment
for the assessment year 2004-05 the
assessing
officer
disallowed
the
depreciation claimed by the respondentassessee on the assets transferred to it
under the U.P. Transfer of Distribution
Undertaking Scheme, 2003.

12. CIT(A), however, considering
the fact allowed the appeal of the
respondent-assessee, which was affirmed
by the Tribunal. The order of the 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 assessing authority
had disallowed the depreciation claimed
by the assessee on the assets transferred
to it pursuant to the Scheme of 2003.

14. Sri Gaurav Mahajan, learned
counsel appearing for the Department
submitted that Section 32 of the Income
Tax Act provides for depreciation in
respect of building, machinery, plant or
furniture, being tangible assets. He relied
upon sub-section 1(ii) of Section 32 of the
Act, which provides that depreciation
3 All. Commissioner of Income Tax, Varanasi Vs. M/s Poorvanchal Vidyut Vitran Nigam Ltd., Varanasi
807
shall be granted only when the assessee
owned, wholly or partly and used for the
purpose of business or profession that the
deduction shall be allowed. According to
the appellant the respondent-assessee
came into effect from 12.8.2003 and
claimed depreciation to the tune of
Rs.87,01,38,609/-
out
of
which
Rs.17,45,76,911/- has been claimed for
assets acquired after the Transfer Scheme,
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. He further
submitted that A.O. had rightly allowed
the claim of depreciation on the assets
acquired after the Transfer Scheme, 2003
came into force while it disallowed the
claim of the respondent-assessee on the
assets transferred under the Scheme as the
same
was
not
yet
finalized
and
identifiable and, therefore, not being used
as well. He also submitted that the
assessing officer had also disallowed the
claim of depreciation claimed by the
assessee for the previous assessment
years also.

16. Lastly, it was contended that the
assets
acquired
under
the
Transfer
Scheme, 2003 came to be identifiable in
the assessment year 2016-17, as such, the
matter needs to be remitted back to the
assessing authority to look into the claim
of depreciation in respect of assets so
acquired.

17. Per contra, Sri Ashsih Bansal,
learned
counsel
appearing
for
the
respondent-assessee submitted that the
A.O. had wrongly disallowed the claim of
depreciation, as the C.I.T. (Appeal) and
Tribunal had granted the claim of
depreciation to the assessee for the
relevant years in question as well as for
the previous assessment years, as such the
arguments of the Department has no legs
to stand. However, he candidly admitted
the fact, that the task for determination of
itemwise opening balance of assets and
liabilities had been completed and the
reports
had
been
submitted
by
auditor/agency to the assessee, the same
have been brought by the counsel for the
assessee before the Court in his written
submission, which is dated 4.12.2015.
The relevant extract of the letter dated
4.12.2015 are extracted here as under :

" mRrj izns'k ikoj dkjiksjs'ku fyfeVsM
1⁄4m0 iz0 ljdkj dk midze1⁄2
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., 14Ashok Marg Lucknow -226001

&&&&&&&&&&&&&&&&&&&&&&&&&&&
&&&&&&&&&&&&&&&&&&&&&&&&&

i=kad
354@ih0lh0,y0@lh0,0&ch0,l0 @ys[kk leh{kk
cSBd fnukad 04&12&2015
funs'kd 1⁄4foRr1⁄2]

iwokZUpy fo0fo0 fu0fy0]

okjk.klhA

fc"k;%& fMLdkel~ vUrj.k Ldhe ds
vfUrehdj.k ds QyLo:i lEcfU/kr [k.Mokj vo'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.k Ldhe ds
vfUrehdj.k ds ifj.kkeLo:i esllZ iszwMsfU'k;y
izkstsDV flaMhdsV }kjk iznRr " Opening
808 INDIAN LAW REPORTS ALLAHABAD SERIES
Balances of Acoounting Units vested in
Purvanchal
Vidyut
Vitran
Nigam
Limited, Varanasi as on 12.08.2003" dh
ewy izfr 1⁄4i`"B la0 1 ls 256 rd1⁄2 ,oa "
Explanatory note on the computation on
unit wise balances finally proposed to be
tranaferred
by
the
U.P.
Power
Corporeation Limited to Discoms as on
11.08.2003" dh ewy izfr 1⁄4i`"B la0 1 ls 192
rd1⁄2 lwpukFkZ ,oa vko';d dk;Zokgh gsrq layXu
izsf"kr gSA

layXud%&;FkksifjA

 1⁄4,0ds0 xqIrk1⁄2

eq[; egkizcU/kd 1⁄4ys[kk1⁄2"

18. Sri Bansal lastly submitted that
in case the court is of different view, then
the matter be remanded to A.O. for
limited purpose, only for verification of
the said record for allowing depreciation
to the assessee as per law.

19. Having heard learned counsel for
the parties and from perusal of the records, it
is not in dispute that the UPPCL was divided
into four new distribution Companies under
the Transfer Scheme, 2003 by Government
notification dated 12.8.2003. The respondentassessee is one of the four distribution
Companies. It is further not in dispute that the
Transfer Scheme, 2003 provided for the
assets, which included the fixed assets, but no
break up of assets values and itemwise was
provided in the Transfer 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 by the auditors to them on
4.12.2015.

20. The contention of the counsel
for
the
Department
regarding
the
depreciation, which has been disallowed
by the assessing officer on the balance
assets acquired on the date of Transfer
Scheme, 2003, as the assets was was not
identifiable at the relevant point of time,
needs consideration.

21. In the light of the fact that the
auditors themselves had submitted report
to the respondent-assessee on 4.12.2015
and the assets so acquired under the
Transfer Scheme, 2003 came to be
identifiable only in the assessment year
2016-17. The said fact has also not been
denied by the counsel for the respondentassessee.

22. In view of the above, we are of
the considered opinion that the matter
needs to be examined afresh for the claim
of depreciation by the assessing officer, in
the light of the auditor's report providing
itemwise
accounting
of
assets
and
liabilities on 4.12.2015. Thus, the matter
is remitted back to the assessing authority
to reconsider and verify the records and
pass fresh order, as far as claim of
depreciation on the assets claimed by the
respondent-assessee,
pursuant
to
the
Scheme of 2003.

23. We hope and trust that the
aforesaid exercise will be carried out by
the assessing officer within three months
from the date of production of a certified
copy of this order, with the aforesaid
directions all the appeal stands disposed
off.
----------
(2019)11ILR A808

REVISIONAL JURISDICTION
CIVIL SIDE
DATED: ALLAHABAD 12.09.2019

BEFORE