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2021 (6) TMI 881 - AT - Income TaxAccrual of income - real income - Addition to total income on account of capacity charges, deemed generation charges and capacity index incentives - assessee is following mercantile system of accounting - as submitted by the assessee that UERC, (Terms and Conditions for determination of Hydro Generation Tariff) Regulation, 2004, Regulation 20(2) provided for capacity charges, Regulation 29(1) provided for capacity index incentives and Regulation 31(1) provided for deemed generation - HELD THAT:- In the financial statements capacity charges, deemed generation charges and capacity Index incentive have been shown as a disclosure in the balance Sheet as an amount claimable by the assessee from UPCL which has not been acknowledged but disputed by the UPCL since inception and the matter has been referred to the Regulatory Authority for settlement from time to time. Facts on record demonstrate that since the methodology was to be determined and there were several technical aspects which were to be finalized, due to lack of clarity in the regulations, the determination of amount on account of capacity charges, deemed generation charges and capacity index incentives could not be quantified. The issue was disputed by UPCL. UERC is a regulatory authority which fixes the tariff on annual basis in accordance with the Terms & Conditions for determination of Hydro Generation Tariff, Regulation 2004. The method of calculation of these charges was not clear and as such this matter became the subject matter of dispute. The assessee filed a petition before the UERC on 25th March 2014 due to prolonged dispute between UPCL and UJVNL and had also sought necessary directions from the UERC on the applicability and payability of capacity charges, deemed generation charges and capacity Index incentive. We find merit in submissions made by the Ld AR that since the basis, modality and the amount on which the capacity charges, deemed generation charges and capacity Index Incentives were to be determined/ quantified, it was difficult for the assessee to ascertain the correct and actual amount of charges recoverable from UPCL. We are, therefore, unable to sustain the addition made by the AO. AR has also brought on record the fact that the assessee has started receiving the disputed amounts from UPCL in monthly installments w.e.f, August, 2015 and that the assessee has voluntarily agreed to disclose the entire amount of capacity charges, Deemed Generation Charges and capacity index incentive charges during the FY 2015-16 relevant to AY 2016-17. Once the correct amount of income has already been offered to tax in AY 2016-17, we find no merit in the addition made by the AO in the present order of assessment. We, therefore, allow ground of the appeal and direct the AO to delete the addition made.
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