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TMI Blog2012 (8) TMI 423X X X X Extracts X X X X X X X X Extracts X X X X ..... ,104/- representing Income tax receivable from AP TRANSCO as income for the AY 2004-05 ignoring the submissions of the appellant. (b) The Commissioner of Income-tax(Appeals) grossly ought to have seen that the reimbursement of the income tax is disputed by AP TRANSCO and since it is not reimbursed so for, the said amount has neither accrued not crystalised and therefore cannot be taken as the appellant's income for the AY 2004-05. (c) The Commissioner of Income-tax(Appeals) grossly erred in holding that the Income tax receivable from AP TRANSCO is assessable under the head "income from other sources" but not as income from business. The learned counsel for the assessee mentioned that, but for the amount and the assessment year noted in the above grounds, the ground No.2 with its sub-grounds (a), (b) and (c) are identical to the corresponding grounds raised and adjudicated in connection with the assessee's appeal for the assessment year 2002-03 (ITA No.1659/Hyd/2008). Both the parties mentioned that the arguments advanced by them in connection with the said appeal for assessment year 2002-03 hold good even in the context of the present appeal for the assessment year 2004-05. 4. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anding to the AO is to be allowed or not. In this regard, we find that the same should be considered favorably considering the principles of natural justice. In this view of the matter, we set aside the impugned order of the CIT(A) and restore the matter to the file of the assessing officer for deciding the issue, duly considering, among other things, the additional evidence filed before us, in accordance with law, and giving reasonable opportunity of hearing to the assessee. 10. Regarding the issue relating to the correct head of income (sub ground 2c), the assessee claimed that the said income tax receivable in principle is a business receipt and accordingly, it should be dealt under the head ' profits and gains from business or profession". Assessee relies heavily on the Purchase Price Agreement and various clauses embedded in it. On the other hand, the AO is of the view the said income is not only accrued but also it is unrelated to the business of the assessee ie Power generation and transmission. Therefore, it is taxable under head "income from other sources". Sri Shiv Kumar, Ld counsel for the assessee made exhaustive submission on the merits of decision of the AO on this i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the same against the interest excess paid earlier to the Appellant company and therefore the said amount cannot be treated as income of the Appellant." 6. Relevant facts in relation to this ground are given in para 6 of the assessment order. In brief, during the assessment proceedings, the assessing officer noticed that the assessee claimed deduction of Rs.2,46,34,667 from the sales account and paid to the liabilities account. The said amount was explained to be the amount collected by the assessee in connection with the huge interest liabilities payable to the institutions, who provided loans at higher rate of interest. Consequent to the prepayment of the said loans, assessee was required to incur repayment premium. The interest received was required to be adjusted towards the pre-payment under the assumption that the AP TRANSCO shall not reimburse the said prepayment premium After examining the material, assessing officer came to the conclusion that the said interest collected, since already received would form part of the income of the assessee. He strengthened his views by stating that AP TRANSCO never rejected the reimbursement of the prepayment premium. In the process, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay the assessee less interest as part of lower tariff than what they were paying at the old rates of interest. Since the assessee incurred prepayment premium and other expenditure in connection with reduction in rates of interest, the assessee requested the AP TRANSCO to reimburse the expenditure incurred by it in getting the interest rates reduced. However, the AP TRANSCO did not accept reimbursement of such expenses as on 31.3.2004. Hence, the assessee collected interest at the rates applicable to original loans and excess interest collected was credited to AP TRANSCO account as the same has to be paid back to AP TRANSCO if they agree for reimbursement of prepayment premium and other expenditure incurred in connection with deduction in rates of interest. He further submitted that during the financial year 2004-05, AP TRANSCO has accepted for reimbursement of prepayment premium and other expenses and in fact adjusted the said expenses and the interest excess paid by them earlier to the assessee company vide their letter No.612 dated 16.6.2004 while making payment of assessee's power bill for the tariff period from 10.5.2004 to 9.6.2004. He submitted that the assessing officer reje ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also 12. We heard both sides and perused the orders of the Revenue and the arguments raised by the parties to the litigation. It is a fact that as per the Power Purchase Agreement, the interest on loans raised form part of the power tariff to be charged by the assessee on AP TRANSCO. It is also a fact that the assessee had been charging interest at the prevailing rates on loans it had taken in its bills raised on AP TRANSCO. When subsequently, the rates of interest came down, the assessee negotiated with the lending institutions for pre-payment of loans, subject to payment of certain amount of pre-payment premium. The assessee repaid the loans taken at higher rate of interest, by availing loans at lower rates of interest. The assessee asked AP TRANSCO for reimbursement of expenditure incurred in connection with availing of loans at lower rates of interest and also prepayment premium. The AP TRANSCO, however, did not agree to reimburse the said expenditure. Hence, the assessee continued to raise the bills charging interest at the higher rates applicable to the original loans, which were also paid by the AP TRANSCO. 13. The interest on loan being a component forming part of the pow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... officer and the CIT(A) are of the opinion that the assessee is not entitled to deduction in respect of the above items for the reason that these receipts do not constitute income derived from the industrial undertaking for the purposes of computing deduction. In this regard, learned counsel for the assessee argued stating that these receipts form part and parcel of the bills raised by the assessee in the name of AP Transco, and as such, they form part of the profits derived from the industrial undertaking. The arguments of the assessee that the receipts such as excess insurance premium since accounted as deemed income under S.41(1) of the Act, it must form part of business profits. In connection with the income-tax receivable, the Revenue was of the view that such amount should be taxed under the head income from other sources, and therefore the same falls outside the scope of deduction under S.80IA. The CIT(A) upheld the views of the assessing officer in this regard. As for other items, such as excess interest received, gains on account of foreign exchange variation, both the assessing officer and the CIT(A) held them as not eligible for deduction, relying on the decision of the S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IFF. Tariff, which is the rate for purchase of power to be paid by the APSEB (now APTRANSCO) consists of fixed charge, (article 3.2), variable charge (article 3.5 and 3.8), incentive/disincentive payments (article 3.10) and taxes on income (article 3.4) as the main components. It may thus be seen that the amount of taxes on income is an integral component of the price of power generated and sold by the assessee. Therefore the view taken by the A.O and upheld by the CIT(A) is untenable. It is submitted that the decision of CIT(Appeals) may be reversed. Excess interest received: 5.5 The Assessing officer as well as the Commissioner of Incometax(Appeals) held that Excess interest received is not income derived from the business of generation of power for purposes of computing deduction u/s. 80IA. In this connection, kind attention is invited to the submissions made in paras 4.1 to 4.8 above, wherein the assessee has prayed for deletion of this amount representing excess interest received. However, for any reasons the same is considered as income, such amount of excess interest bears the same character as sale price of power under clause 3.2.1(i) of the PPA. It is therefore submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing officer for want of clear finding as to whether the specific items of income of the assessee constitute operational income of the assessee eligible for relief under S.80IA of the Act or ineligible ancillary profits of the assessee. We do so accordingly, and set aside this issue to the file of the assessing officer with a direction to redecide the same in the light of our observations, in accordance with law and after giving reasonable opportunity of hearing to the assessee. 18. In the result, appeal of the assessee is partly allowed for statistical purposes. Revenue's Appeal: ITA No.508/Hyd/2005 : Assessment year 2000-01 19. This is Revenue's appeal for the assessment year 2000-01, wherein the grounds raised are as under- "1. The order of the CIT(A) is erroneous in law and facts. 2. The CIT(A) is erred in reducing the interest income of Rs.22,91582 from the interest earned of Rs.5,45,85,383 3. The decision of the ITAT, Delhi in the case of Lalson Enterprises V/s. Dy.CIT is not applicable in this case since the facts and circumstances of the assessee's case are different. 4. The CIT(A) erred in reducing the prior period expenses of Rs.96,72,866 while computing the inco ..... X X X X Extracts X X X X X X X X Extracts X X X X
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