2023 (10) TMI 1528 - AT - Income Tax

Addition of recoverable excess electricity charges - adjustment with future demands - assessee was being charged for the electricity at the rates meant for mining but the assessee claimed that it should have been charged for the rates applicable for manufacturing units and finally Hon ble Apex Court decided the issue in favour of the assessee and as a result the excess amount of electricity paid by the assessee was refunded HELD THAT - From going through the finding of the Hon ble Apex Court we notice that the excess amount of electricity charges paid by the assessee in the past shall be adjusted towards future demands. In our humble understanding the future demands here is referred to the electricity charges payable by the assessee which it is required to be paid. The assessee has acted correctly in pursuance to the finding of the Hon ble Apex Court and has adjusted the sum receivable from Madhya Pradesh State Electricity Board against the electricity charges payable by the assessee for AY 2017-18 and the remaining unadjusted amount has been subsequently adjusted during AY 2018-19 AY 2019-20. Thus the assessee has not claimed the electricity expenses for all these three assessment years which indirectly means that the income of the assessee has increased by the total amount receivable by the assessee from Madhya Pradesh State Electricity Board. The finding of ld. CIT(A) will tantamount to be double addition in the hands of the assessee because the same has already been offered to tax during AY 2018-19 AY 2019-20 in terms of the direction given by the Hon ble Apex Court in the order dated 10.11.2016. We therefore set aside the finding of ld. CIT(A) and decide in favour of the assessee.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal in this appeal are:

(a) Whether the addition of Rs. 73,68,76,693 to the income of the assessee for Assessment Year (AY) 2017-18, representing recoverable excess electricity charges, was justified in light of the Supreme Court's decision directing tariff adjustment for manufacturing units.

(b) Whether the assessee had correctly accounted for the refund of excess electricity charges aggregating to Rs. 123.15 Crore by adjusting it against electricity bills for AY 2017-18, AY 2018-19, and AY 2019-20, thereby offering the entire amount as income over these years.

(c) Whether confirming the addition of Rs. 73,68,76,693 in AY 2017-18 resulted in double taxation, given that the same amount was effectively adjusted and offered as income in subsequent assessment years.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a): Validity of addition of Rs. 73.69 Crore as income in AY 2017-18

Relevant legal framework and precedents: The addition was made under Section 263 of the Income Tax Act, 1961, following the assessment order under Section 143(3). The Supreme Court's judgment dated 10.11.2016 held that the assessee was entitled to be charged electricity tariff applicable to manufacturing units rather than mining units, and directed that any excess payments made should be adjusted against future electricity demands.

Court's interpretation and reasoning: The Tribunal examined the Supreme Court's directive that "if any amount has been paid by the appellants to the revenue, the same shall be adjusted towards future demands." The Tribunal interpreted "future demands" as electricity charges payable by the assessee in subsequent years. The excess amount of Rs. 123.15 Crore was not refunded in cash but was adjusted against electricity bills for the relevant years.

Key evidence and findings: The assessee's books showed adjustment of the excess payment against electricity charges for AY 2017-18 (Rs. 49.46 Crore), AY 2018-19 (Rs. 45.73 Crore), and AY 2019-20 (Rs. 27.95 Crore). The Assessing Officer (AO) and Commissioner of Income Tax (Appeals) [CIT(A)] held that the entire Rs. 123.15 Crore should have been declared as income in AY 2017-18, leading to an addition of Rs. 73.69 Crore (the unadjusted portion for that year).

Application of law to facts: The Tribunal held that since the Supreme Court mandated adjustment of excess payments against future demands, the assessee's method of adjusting the amount against electricity bills over multiple years was consistent with the judgment. The amount was effectively offered as income over the years by not claiming the corresponding electricity expenses.

Treatment of competing arguments: The Department argued that the refund entitlement should have been accounted for as income in AY 2017-18, irrespective of the adjustment against future electricity charges. The Tribunal rejected this, emphasizing adherence to the Supreme Court's direction and the practical accounting treatment adopted by the assessee.

Conclusion: The addition of Rs. 73.69 Crore as income in AY 2017-18 was unwarranted since the amount was not received as cash but adjusted against electricity charges payable, consistent with the Supreme Court's order.

Issue (b): Correctness of the assessee's adjustment of the excess electricity charges over multiple years

Relevant legal framework and precedents: The Supreme Court's judgment provided the legal foundation for the assessee's entitlement and adjustment mechanism. Accounting principles require that income be recognized when it is earned or receivable, but also allow for adjustments against liabilities where appropriate.

Court's interpretation and reasoning: The Tribunal noted that the assessee did not receive a cash refund but adjusted the excess payment against electricity bills in the relevant years. This adjustment meant the assessee's income was increased by the amount of electricity charges not claimed as expenses in those years.

Key evidence and findings: The Tribunal reviewed the breakdown of adjustments: Rs. 49.46 Crore in AY 2017-18, Rs. 45.73 Crore in AY 2018-19, and Rs. 27.95 Crore in AY 2019-20, totaling Rs. 123.15 Crore. The assessee's income tax returns reflected this adjustment by not claiming electricity expenses to the extent of the adjusted amount.

Application of law to facts: The Tribunal found that the assessee's approach was in conformity with the Supreme Court's directive and accounting norms, ensuring that the excess payments were reflected in the income over the relevant assessment years.

Treatment of competing arguments: The Department contended that the entire amount should have been recognized as income in AY 2017-18. The Tribunal disagreed, holding that the staged adjustment was appropriate and did not violate tax principles.

Conclusion: The assessee's adjustment of the excess electricity charges over multiple years was proper and consistent with the Supreme Court's order.

Issue (c): Whether confirming the addition in AY 2017-18 led to double taxation

Relevant legal framework and precedents: The principle against double taxation is well recognized in tax jurisprudence. The Supreme Court's order and the income tax provisions require that the same income should not be taxed more than once.

Court's interpretation and reasoning: The Tribunal observed that confirming the addition of Rs. 73.69 Crore in AY 2017-18, when the same amount was effectively adjusted and offered as income in AY 2018-19 and AY 2019-20, would result in double addition.

Key evidence and findings: The Tribunal noted that the CIT(A) confirmed the addition without appreciating that the assessee had already offered the entire amount as income over the three years by foregoing electricity expense claims.

Application of law to facts: The Tribunal applied the principle against double taxation and held that the addition confirmed by CIT(A) was erroneous as it led to taxing the same income twice.

Treatment of competing arguments: The Department did not specifically address the double taxation issue, focusing instead on the entitlement to income recognition in AY 2017-18. The Tribunal gave precedence to the principle against double taxation and the factual adjustment pattern.

Conclusion: The Tribunal set aside the addition confirmed by CIT(A) to avoid double taxation of the same amount.

3. SIGNIFICANT HOLDINGS

The Tribunal's key legal reasoning is encapsulated in the following verbatim observation:

"As a logical corollary, tariff has to be levied as meant for manufacturing unit, therefore, the analysis made by the High Court is not correct and, accordingly, the judgments rendered by it deserve to be set aside and we so direct. However, during this period if any amount has been paid by the appellants to the revenue, the same shall be adjusted towards future demands."

Core principles established include:

• The income arising from recoverable excess electricity charges, as per the Supreme Court's direction, should be accounted for by adjustment against future electricity demands rather than immediate recognition as income in the year of entitlement.
• The assessee's method of adjusting the excess payment against electricity bills over multiple years, and correspondingly not claiming electricity expenses, constitutes appropriate recognition of income.
• Confirming addition of the same amount in the initial year, when it has been offered as income in subsequent years, results in impermissible double taxation.

Final determinations on each issue were:

• The addition of Rs. 73.69 Crore in AY 2017-18 was not justified and was set aside.
• The assessee's adjustment of the entire Rs. 123.15 Crore over AY 2017-18, AY 2018-19, and AY 2019-20 was proper and consistent with the Supreme Court's order.
• The confirmation of the addition by the CIT(A) was erroneous as it led to double addition, and thus was reversed.