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2015 (10) TMI 597 - ITAT MUMBAI

2015 (10) TMI 597 - ITAT MUMBAI - TMI - Addition made in respect of lower provision for FOCA than authorized by MERC order - CIT(A) deleted the addition accepting additional evidence - Held that:- Additional evidences were relevant to the ground of appeals. It was observed by Ld. CIT(A) that these sufficient causes were unprecedented trifurcation of MSEB, voluminous records of MSEB taken over by appellant and appellant's operations spread over far and wide areas including Naxalite infected remot .....

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ind that admission of additional evidences by the Ld.CIT(A) in the case of the assessee is on the basis of proper reasoning and has been done in view of principles of natural justice and the same is held to be justified and ground no.1 of the revenue's appeal is dismissed.

Addition made in respect of lower provision for Fuel and Other Cost Adjustment ["FOCA"] authorized by Maharashtra Electricity Regulatory Commission - CIT deleted the addition - Held that:- The MERC order, authorizin .....

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nhanced FOCA charges from public did not accrued to appellant in the year under consideration and therefore, appellant correctly accounted for FOCA on the basis of actual. Without prejudice to this argument the AO himself (in the case of M.S.P. Generation Co. Ltd.) that that since the MERC order dtd. 07.09.2006 was received 01. 26.09.06 i.e in the next assessment year, the effect of MERC order was required to be given in subsequent assessment year. The same principle applies in case of appellant .....

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have offered the same in the P.Y ended on 31.03.06. As per direction of MERC, such FOCA was collected by appellant and correctly offered as revenue in the next assessment year. Considering the entirety of facts and circumstances, the binding nature of MERC order, and directions of MERC, principles of accruals of income and the fact that there was no loss of revenue (since offered in next year), the addition made by A.O is hereby deleted. - Decided in favour of assessee.

Write-off of .....

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und is upheld

Set off of brought forward/loss/unabsorbed depreciation - CIT(A) deleted the addition - Held that:- It is seen that the AO has himself allowed this claim to the assessee in subsequent years. The Ld. CIT(A) has passed speaking order and the reasoning given by Ld. CIT(A) in allowing this claim is justified and does not need any interference of our part. Further, Ld. CIT(A) has allowed this claim subject to verification by the AO to ascertain the correct fact before allowi .....

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er consideration and that the expenditure should not be a capital nature. All these three conditions are cumulative. It is an admitted position by the assessee also that the expenditure under consideration did not pertain to the year under consideration and the same was recorded in the books of account, as a result of an error. Therefore, in view of these facts we find that the AO has rightly disallowed the claim and the Ld. CIT(A) has rightly upheld the action of AO in this regard. It is furthe .....

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requisite direction to the AO to allow the relief to the assessee company in A.Y. 2007-08 after due verification. In our view the assesse should not be agrieved when appropriate direction has already been issued to allow the claim in the correct manner and in the correct year. We find the ground of the assesse is to be devoid of merits and the same is dismissed upholding the order of the Ld. CIT(A) on this issue.

Disallowance on account of capitalization of interest - Held that:- DR h .....

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xpenditure during the year under consideration. In these circumstances, we find that this claim cannot be allowed to the assessee and therefore, the order of the Ld. CIT(A) is upheld and the ground raised by the assessee is dismissed.

Addition made by Ld. AO on account of recovery from temporary service communication - Held that:- DR relied upon the order of the authorities below and submitted that there was suppression of the income on the part of the assessee company and Ld. CIT(A) .....

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e order of AO on this aspect. Ld. Counsel could not assail the findings of the Ld. CIT(A) and we do not find any error in the order of Ld. CIT(A) and the same is upheld and ground of the assessee is dismissed.

Electricity duty collected and paid/adjusted by the assessee company - Whether covered under the provisions of section 43B ? - Held that:- electricity duty collected by the licensee from the consumers is so done by the licensee as an agent of the State and, hence, the same canno .....

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does not pay the same to the Government, the statute provides mechanism for the Government to recover the same from the licensee. Even iii a case where the licensee is unable to recover the duty but recovers the energy charges, the statutes still provides a procedure for the Government to recover the duty either from the consumer or from the licensee. This view of ours finds support from the decision of the Andhra Pradesh High Court in the case of Commissioner of Income Tax-vs.-Devatha Chandraia .....

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(DR) For the Respondent : Shri J D Mistri & K K Ved, (AR) ORDER Per A D Jain These Cross Appeals have been filed by the department as well as assessee for the assessment year 2006-07 against the order dated 24.11.2009, passed by the Ld. Commissioner of Income Tax(Appeals)-21, Mumbai, against the assessment order passed u/s 143(3) by the assessing officer dated 31.12.2008. 2. We first take up the appeal filed by the revenue in ITA No.762/M/2010. The grounds raised by the revenue is reproduce .....

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er without appreciating that though the MERC order was issued at a later date, It was received before the closure of books of accounts and hence, required to be given effect in the said books. 3. On the facts and in the circumstances of the case, the ld. CIT(A) erred in allowing the claim of write-off of capital items of ₹ 7.41 lakhs without appreciating at write-off of items of capital nature is not allowable as deduction or char e to P&L a/c irrespective of the amount involved. 4. On .....

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und be set aside and that of the A.O. be restored. 6. The appellant craves leave to amend or alter any grounds or add a new ground which may be necessary." 3. Grounds No.5 & 6 are general and do not need any specific adjudication. 4. Ground no.1 deals with the grievances of the revenue about the action of Ld. CIT(A) in the admitting the additional evidences in violation of Rule 46A. During the course of hearing, the Ld. DR submitted that sufficient opportunities were given to the assess .....

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ules 1962. Ld. CIT(A) has admitted the additional evidences very much according to these rules and he also submitted that no prejudice is caused to the revenue as Ld. CIT(A) had called for the remand report from the assessing officer and during the course of remand proceedings the AO had full opportunity to examine all required details and evidences. He further submitted that none of the evidences are after thought and all the evidences are very crucial for adjudication of this appeal. 5. We hav .....

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by clause (c) of Rule 46A, as the assessee was prevented by sufficient cause from producing these evidences before the AO. These additional evidences were relevant to the ground of appeals. It was observed by Ld. CIT(A) that these sufficient causes were unprecedented trifurcation of MSEB, voluminous records of MSEB taken over by appellant and appellant's operations spread over far and wide areas including Naxalite infected remote areas. In addition to the above it was further seen by us that .....

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he assessee is on the basis of proper reasoning and has been done in view of principles of natural justice and the same is held to be justified and ground no.1 of the revenue's appeal is dismissed. 6. Ground no.2, in this ground the revenue has challenged the action of Ld. CIT(A) in deleting the addition made by AO in respect of lower provision for Fuel and Other Cost Adjustment ["FOCA"] authorized by Maharashtra Electricity Regulatory Commission. The Ld. AO has discussed the issue .....

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8377; 346.56 crores. Accordingly the Ld. AO made addition of this amount to the income of the assessee company. Before the Ld. CIT(A), the assessee company contested this issue and Ld. CIT(A) delted this addition by making a detailed discussion in para 4 to 4.3(f) of his order. 7. Before us, both the parties have argued this issue at length. Ld. DR reiterated the observations made in the assessment order and submitted that there was a understatement of income by the assessee company to extent of .....

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arguments were made accordingly. 8. We have considered both the sides and have gone through the orders passed by the authorities below as well as the material placed before us in the paper book. The issue in brief is that the amount of ₹ 346.57 crores was included in its income by the assessee company in assessment year 2007-08, whereas the AO's stand was that the same should have been accounted for in the year under consideration i.e. A.Y. 2006-07. Thus, the issue was not that of sup .....

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d distribution of electricity in the State of Maharashtra. During the year, the MSEB was trifurcated into three new companies and each company took over one activity of MSEB. The erstwhile MSEB was under statutory control of Maharashtra Electricity Regulatory Commissioner (MERC) in respect of tariff of electricity to be charged from the public. After trifurcation, all the three new companies including appellant were under control of MERC. The appellant was purchasing electricity from MSE Power G .....

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ore, apart from electricity charges, the appellant provide / accounted for revenue of ₹ 1063.95 crore towards FOCA (i.e. Fuel and Other Cost Adjustment to be charged from public) till the end of previous year. However, the MERC vide order dtd. 5.5.2006 and 1.6.2006 authorized the appellant to charge FOCA from public at enhanced rate i.e. ₹ 1410.52 crore. The MERC also ordered that the excess FOCA charges (at ₹ 346.57 crore) was to be received / collected from the public in the .....

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ile system of accounting and it's previous year ended on 31.3.2006.TiII 31.3.06, MERC order was not in existence and therefore, the appellant could not have visualized the fixation of tariff at higher rate by the MERC. In the previous year, the income / revenue collected from public was offered as sales. The appellant could not have charged more from the public without authorization by the MERC. This fact was more relevant in view of the fact that the MERC could have decided lesser tariff (a .....

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ent is correct that the right to recover FOCA from public accrued only in the previous year 2006-07 i.e. A Y 2007-08 and not in the year under consideration. On the proposition "when income accrues" the appellant has correctly relied on various case laws which are in appellant's favour. Thus, in my considered opinion, the right to recover enhanced FOCA charges from public did not accrued to appellant in the year under consideration and therefore, appellant correctly accounted for F .....

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n their order also decided and ordered that the excess FOCA charges were to be collected by the appellant from public in the bills for the months of June, July and August 2006, which were falling in the PY 2006-07 relevant to next assessment year. Thus, when the appellant was debarred from collecting the FOCA before June, 2006, how the appellant could have offered the same in the P.Y ended on 31.03.06. As per direction of MERC, such FOCA was collected by appellant and correctly offered as revenu .....

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O 229/1988) and from the judgment of Hon'ble Supreme Court in the case of CIT vs. Excel Industries Ltd. and Ors. (358 ITR 295). 10. Keeping in view the position of law and facts and circumstances of the case we find that the order of Ld. CIT(A) on this issue is in accordance with law and facts and no interference is called for therein and the same is upheld and ground no.2 raised by the revenue is dismissed. 11. Ground no.3 deals with the action of Ld. CIT(A) in allowing the claim of write-o .....

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the same/charging of same to P&L account was permissible. It was further held by the Ld. CIT(A) that in various cases, courts/tribunals have allowed method of annually written off of inventory items of low value @ 5% or less. Accordingly the disallowance made by Ld. AO on this ground is deleted by Ld. CIT(A). 12. Before us the Ld. DR relied upon the order of the AO and on the other hand the Ld. Counsel of the assessee has argued that the items written off truly constituted revenue items, whi .....

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the submissions made by both the sides. We find that the Ld. CIT(A) has deleted the disallowance with proper reasoning and no interference is called for in the order of Ld. CIT(A). We derive support from the judgment of Hon'ble Supreme Court in the case of Excel Industries Ltd. (supra) and judgment of Hon'ble Delhi High Court in the case of CIT vs. CIT vs. Vishnu Industrial Gases P Ltd. (supra). Thus, the order of the Ld. CIT(A) on this ground is upheld and ground no.3 of revenue's a .....

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mpany but belong to erstwhile Maharashtra State Electricity Board (MSEB) which was trifurcated into three companies i.e. for generation, transmission and distribution. The assessee company being one of these three companies. In other words the assessee company was demerged out of erstwhile MSEB. The assessee company made this claim on the basis of a chart showing the brought forward loss and unabsorbed depreciation from 1990-1999 on wards belonging to the aforesaid MSEB. The assessee company mad .....

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owing reasons: (i) The basis of apportionment of the said losses among the three trifurcated entities of MSEB is not explained. (ii) The figures of losses submitted are based on the returns filed by MSEB, but the assessed losses are not reported by the assessee company. (iii) The petition claimed to have been made before the CBDT is still pending and no approval has been granted. (iv) The assessee company has claimed demerger from the original entity i.e. MSEB. However, the said demerger has not .....

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of income available i.e. ₹ 838,65,23,129/-. However, neither any details of balance loss allowed to be carried forward nor any chart of apportionment of the said loss to the trifurcated entities are mentioned therein. 15. The issue was contested by the assessee company before Ld. CIT(A) and Ld. CIT(A) allowed the claim of the assessee by passing speaking order and the relevant discussion was made by the Ld. CIT(A) in para 15.1 to 15.3 on page 29 to 34 of the appellate order. The relevant o .....

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verifying the facts in the case of MSEB. The year under consideration was last assessment year of MSEB and the first year of the appellant company. In case of MSEB, the figures of unabsorbed losses / depreciation of various years will go on changing on receipt of orders of appellate authorities, which will have bearings on the last assessment order of the MSEB and consequently on the first assessment year under consideration of the appellant. The A.a is directed to ascertain the fact of unabsorb .....

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claim after considering all the facts and circumstances and correct position of law and further submitted that in any case vide subsequent years the AO has himself allowed the set off of brought forward business loss/unabsorbed depreciation to the assessee company being vide following orders: "i. Order dated Nil passed u/s.143(3) r.w.s.263 of the Income tax, act 1961 for the Assessment year 2006-07- refer page no.06 to 07 of the compilation' ii. Order dated 10 March 2010 passed u/s.154 .....

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hat the AO has himself allowed this claim to the assessee in subsequent years. The Ld. CIT(A) has passed speaking order and the reasoning given by Ld. CIT(A) in allowing this claim is justified and does not need any interference of our part. Further, Ld. CIT(A) has allowed this claim subject to verification by the AO to ascertain the correct fact before allowing this claim. Under these circumstances we do not find if any prejudice would be caused to the revenue. In view of the above ground no.4 .....

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lacs) * Excess provision for interest/finance charges 52.79 * Excess provision for purchase of power. 32072.00 * Interest related to acquisition of fixed assets not capitalised. 39.23 * Recovery from temporary service connections 768.00 GROUND NO.2 The learned CIT (Appeals) erred in holding that the electricity duty collected ,and paid/adjusted by the appellant, amounting to ₹ 23291.59 lacs is covered/governed by the provisions of section 43B of the Income Tax Act, 1961, and rejecting the .....

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has challenged the action of Ld. CIT(A) in confirming the disallowance made by the AO on account of excess provision for interest/ finance charges amounting to ₹ 52.79 lakhs. This issue has been discussed by the AO on paragraph no.8 at page no.3 of the assessment order whereas the Ld. CIT(A) has discussed this issue in para 7.1 to 7.3 on page no.17 of the appellate order. The Ld. AO has made disallowance on the ground that in some cases assessee made provision of excess interest and on so .....

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lity of the error could not be ruled out and error was miniscule and was inherent of the appellants accounting year after year. It was further submitted by the assessee company that in the next year, necessary rectification entries had already been passed by the reducing the expenditure to the extent of excess provision made during the year under consideration. But the Ld. CIT(A) was not satisfied and convinced with the arguments of the assessee company and therefore, the disallowance was confir .....

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he disallowance made by AO is therefore, confirmed. However, the appellant has stated that this excess provision was rectified in accounts of next year. The AO is directed to allow relief on this account in the next assessment year after verification of appellant's claim." 20. Before us the Ld. Counsel of the assessee has assailed the order of lower authorities and submitted as under: "• The said additions were made on the basis of the CAG comment on the accounts of the Appell .....

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xcess provisions made in the Assessment Year 2006-07 was rectified in the subsequent year i.e., Assessment Year 2007-08 • The CIT(A) upheld the addition in the A.Y. 2006-07, however, directed the AO to grant subsequent relief in the A.Y. 2007-08 after verification of the claim. 21. We have heard both the parties and considered the material before us. It is settled law that expenditure can be allowed against the business income only if the expense has been incurred for the purpose of the bus .....

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d the action of AO in this regard. It is further seen by us that that ld. CIT(A) was fair enough in issuing requisite direction to the AO to allow the relief on this action in the next assessment year after verification of the claim made by the assessee. Under these circumstances we do not find anything wrong in the order of the Ld. CIT(A) on this issue and the same is upheld and this ground of the assessee is dismissed. 22. In ground no.1(b), the assessee has challenged the action of Ld. CIT(A) .....

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Ld. CIT(A) also did not provide any relief to the assessee. The assessee has filed an appeal before the Tribunal on this issue also. During the course of hearing following submissions were made by the Ld. Counsel of the assessee. "• The CIT(A) has directed the AO to grant relief in the subsequent in the assessment year 2007-08 since the appellant had offered the same as income in the A.Y. 2007- 08. • The CIT(A) states that he had disallowed the claim for reduction of income in th .....

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e benefit of wrong claim and requested for upholding the order of Ld. CIT(A) on this issue. We have heard both sides on this issue and we find that the ld. CIT(A) was fair enough to give requisite direction to the AO to allow the relief to the assessee company in A.Y. 2007-08 after due verification. In our view the assesse should not be agrieved when appropriate direction has already been issued to allow the claim in the correct manner and in the correct year. We find the ground of the assesse i .....

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issue in para 9 on page no.21 to 22 of the appellate order. The Ld. CIT(A) has also not accepted the claim of the assessee mainly on the ground that the impugned expenditure was a capital nature and therefore, it was not allowable as an expenditure in the year under consideration. The Ld. Counsel has made following submission before us. "• The said additions were made on the basis of the CAG comment on the accounts of the appellant. • The AO has selectively relied on CAG comments .....

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been carried out in the books of account of the assessee in the next year. We find that the claim of the assessee was not in accordance with law. Ld. Counsel has not been able to show anything to convince that impugned interest expense can be allowed as revenue expenditure during the year under consideration. In these circumstances, we find that this claim cannot be allowed to the assessee and therefore, the order of the Ld. CIT(A) is upheld and the ground no.1C raised by the assessee is dismis .....

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emporary service communication were transferred to liability account by the assessee company. The Ld. AO further observed that statutory auditor have also pointed out that this amount should have been added to the miscellaneous income in the profit and loss account of the assessee but the assessee did not include the said amount in its income. Accordingly, Ld. AO made the addition for the same in the assessment order. Before the Ld. CIT(A) the arguments of the assessee in nutshell was that due t .....

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ut was in fact income of the appellant and therefore, the assessee company should have shown the same in the income account. Before us ld. Counsel has made his arguments in detail and the arguments made in the write up submitted by Ld. Counsel are reproduced hereunder for the sake of ready reference: • In light of the uncertainty and lack of clarity persisting at that point in time due to the then recent restructuring of the erstwhile MSEB which also happened in the same year, the payments .....

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to and since the position was not clear the account of MSEBHCL was credited. • This error was realized during the finalization of accounts when the picture vis-à-vis the demerger of the various undertakings of the MSEB also became clear and accordingly an entry was passed on 31 March 2006 rectifying the aforesaid error along with the other similar errors - filed as an additional evidence on 29 June 2015. • This fact was adequately communicated to the CAG by the Appellant vide it .....

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s of both the sides this fact has not been rebutted by Ld. Counsel then before us that the impugned amount is income of the assessee. The assessee is obliged under the law to include it in its income. Since the assessee had not done so, the AO had rightly brought this amount to tax as part of income of the year under consideration and Ld. CIT(A) has rightly confirmed the order of AO on this aspect. Ld. Counsel could not assail the findings of the Ld. CIT(A) and we do not find any error in the or .....

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para no.12 to 12.3 on page no.25 to 27 of the order. During the course of assessment proceedings the AO noticed that the assessee company had shown liability to the tune of aforesaid amount Accordingly, he was of the opinion that the said amount of duty was collected but was not paid to the Government and consequently the provisions of section 43B were attracted and the impugned amount was disallowable and accordingly, the AO made an addition of this amount to the income of the assessee. The ass .....

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tles its inter se accounts with the appellant on account of electricity duty by setting off/adjusting the amount receivable against the amount payable. The inter se payments were thus effected through set off of mutually receivable/payable balances, for which notifications were issued by the GOM from time to time. The process of issue of such notification was complex and time consuming, since it involved a variety of procedure with various authorities. During the appellate proceedings the appell .....

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ureau could not be applied in the case of appellant since that case was pertaining to Sales tax collected, whereas the appellant's case was in respect of collection of electricity duty in the light of section 4 of Bombay Electricity Act 1958. 30. It was further argued by the assessee before the Ld. CIT(A) without prejudice that in case if the provisions of section 43B are held to be applicable to the electricity duty, then in the alternative appropriate direction must be given to the AO to a .....

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relief by giving a direction that payment by way of adjustment made and actual payment both till date of filing of return should be allowed. The operative para of Ld. CIT(A)'s order is reproduced as under : "I have considered the facts of the case. The appellant company came into existence as a result of trifurcation of MSEB. Earlier MSEB was paying electricity duty to Govt. and the issue of disallowace u/s.43B of unpaid electricity duty was also there. In the appellant proceedings of .....

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ity duty." 32. Before us, Ld. Counsel of the assessee argued the matter at length and submitted that the provisions of section 43B are not applicable in this case and reliance was placed by him on the following judgments: (i) CESC Ltd. Vs. CIT in ITA No.82/110/83/84 of 2004/2005 (ii) Kerala State Electricity Board vs. DCIT reported in (2010) 329 ITR 91 (iii) A.W. Figgis & Co. Ltd. vs. CIT reported in (2003) 256 ITR 268 (iv) CIT vs Ovira Logistics Pvt. Ltd. reported in (2015) 58 taxmann. .....

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d before us.We have also considered the case laws relied upon by the ld. Counsel on this issue, copies of which have also been placed before us. It is seen that in the case of 'Kerala State Electricity Board'(su.),it was held by the Hon'ble High Court that in these circumstances the provisions of s.43B would not be applicable. We also placed reliance on the judgment of Hon'ble Bombay High Court in the case of 'CIT vs. Ovira Logistics Pvt. Ltd.' (su.),wherein their Lordshi .....

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ill arise only upon the assessee receiving funds and not otherwise,and it was accordingly held that liability to pay the service tax in respect of consideration payable will arise only upon receipt of such consideration, and not otherwise. In the case before us, the admitted position is that because of some settlements pending between the assessee company and the Government of Maharashtra,payments could not be made during the financial year. It is further seen that the admitted facts are that th .....

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the State Govt. Two relevant paras from the recent order of the Hon'ble Calcutta High Court in the case of 'CESC Ltd. (supra), vide its order dated 14.05.2015 are reproduced hereunder: 19. Thus, in our view, the electricity duty, not being a sum payable by the assessee as a primary liability by way of tax, duty, cess or fee, Section 43B is not attracted to the licencee/assessee in respect of electricity duty collected by it for being passed on the State Government. On this point we are i .....

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to a case where payment is to be made to the State Government in its capacity as a principal by an agent. In the instant case, the relationship between the State and the licensee is of a principal and agent/fiduciary and not that of a sovereign and a subject. 20) Looking at the issue from another angle, the electricity duty collected by the licensee from the consumers is so done by the licensee as an agent of the State and, hence, the same cannot be considered to a trading receipt in the hands .....

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