TMI Blog2015 (10) TMI 597X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, authorizing collection of FOCA from public at higher rate, were dated 5.5.2006 and 01.6.06. Since the MERC orders were statutorily binding, therefore, appellant's argument 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 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 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of excess provision for interest/ finance charges - Held that:- 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 business and has been incurred during the year under 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 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. Disallowance on account of excess provision for purchase of power ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ollected 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 of the licensee. It does not constitute income of the licensee and cannot be included in the licensee's income for the purpose of computation of income tax. It is not a business receipt of the licensee which the licensee collects on its own behalf in connection with its business of generating and supplying electricity. The licensee does not collect the electricity duty for its own consumption or utilization. If the licensee collects the duty but 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 Chandraiah (1983 (4) TMI 6 - ANDHRA PRADESH High Court ). Though the said case deals wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. The appellant prays that the order of CIT(A) on the above ground 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 assessee to explain the issues and therefore the Ld. CIT(A) ought not have admitted the additional evidences. On the other hand, the Ld Authorized Representative (AR) appearing on behalf of the assessee company submitted that the assessee company is a public sector under taking and there were valid reasons due to which some of the evidences could not be submitted before the AO during the course assessment proceedings. The case of the assessee falls within the parameters of Rule 46A of the Income Tax Rules 1962. Ld. CIT(A) has admitted the additional evidences very much according to these rules and he also submitted that no prejudi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder. The assessing officer has made addition of ₹ 346.57 crores on the ground that MERC had allowed the assessee company to recover an aggregate of amount of ₹ 1410.52 crores towards the fuel and other costs adjustments. However, the assessee company provided in the books of account as revenue only for aggregate amount of ₹ 1063.95 crores and as per AO, in this manner the revenue of the assessee company was understated by an amount of ₹ 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 ₹ 346.57 crores and therefore, the Ld. CIT(A) has wrongly deleted the same and requested for reversing the action of the Ld. CIT(A) and upholding that of the AO. On the other hand, Ld. Counsel of the assessee has relied upon the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 billing months of June, July and August, 2006. Therefore, the appellant collected that amount of ₹ 346.57 crore from public in the previous year 2006-07 and accordingly, offered the same as revenue in the AY 2007-08. 4.3 (c) In my considered opinion, the appellant's action of offering FOCA revenue of ₹ 346.57 crore in next assessment year was correct. There was no dispute on the fact that the MERC order was statutorily binding on the appellant. The appellant was following mercantile 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nue (since offered in next year), the addition made by A.O is hereby deleted. 9. In addition to the findings given by the Ld. CIT(A), we further derive support from the judgment of Hon'ble Delhi High Court in the case of CIT vs. Vishnu Industrial Gases P Ltd (ITR NO 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-off of capital items of ₹ 7.41 lakhs. The AO has discussed this issue at para no.14 at page no.4 of the assessment order whereas the Ld. CIT(A) has discussed this issue in para no.14 at page 29 of the appellate order.The Ld. AO disallowed this amount on the ground that the expenditure was capital in nature. The Ld. CIT(A) has allowed the same, vide para 14.3 of the appeal order on the ground that though the item ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny 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 made the claim in terms of section 72(A)(4) of the Income Tax Act 1961. It was further claimed by the assessee that business loss and unabsorbed depreciation of MSEB has been apportioned to the assessee company (1/3rd share) and the same was set off against the total income of the impugned year and the balance amount was carried forward for set off against income of subsequent years. The Ld. AO denied the claim for set off of brought forward business loss and unabsorbed depreciation due to the following 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een rightly rejected by the AO. On the other hand ld. Counsel of the assessee has submitted that Ld. CIT(A) has rightly allowed the 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 of the Income tax, Act 1961 for the assessment year 2007-08- refer page nos.08 to 09 of the compilation iii. Order dated 16 March 2011 passed u/s.154 of the Income tax, Act 1961 for the Assessment Year 2007-08 refer page no.11 of the compilation iv. Order dated 02 May 2011 passed u/s.154 of the Income-tax Act 1961 for the Assessment Year 2007-08 refer page no.13 of the compilation. 17. We have considered arguments of both sides and material placed before us for our consideration. It is seen that the AO has himself allowed this claim to the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance 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 some other cases the assessee had made short provision and according to the AO net excess amount provided by the assessee company in its books of account on account of interest and other finance charges is amounting to ₹ 52.79 lakhs. Before the Ld. CIT(A) the assessee made detailed submissions and in brief the assessee submitted that the assessee dealt with voluminous transactions and there was a total annual expenditure of ₹ 339.11 crores and under such voluminous transactions possibility 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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) in confirming the disallowance made by the AO on account of excess provision for purchase of power amounting to ₹ 320.72 crores. The AO has discussed this issue in para 7 of page 3 of the assessment order wereas the Ld. CIT(A) has discussed this issue on para no.8 on pages 18 to 21 of the appellate order. The AO has made the disallowance on the ground that the assessee company has made provision for purchase of cost of power. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re 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 and made additions to taxable while ignoring overstatement of income as per the same report. Rectification entries passed in the subsequent year viz. Assessment year 2007-08 25. Before us, both the parties have argued the matter in detail and Ld. DR has supported the orders of authorities below and requested for confirmation of the same. Whereas ld. Counsel of the assessee requested for allowing the claim. It is further brought to our notice that necessary rectification entries have 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 dismissed. 26. In Ground no.1D in this gro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt point of time as to which entity the bank account pertained 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- -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 its letter dated 17 February 2007 (bearing reference No.AD/WMl2006-07/325 W.M. Section) titled Reply to Audit Enquiry No.3. filed as an additional evidence on 29 June 2015. 27. On the other hand, ld. 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) has rightly confirmed the addition and therefore, the order of Ld. CIT(A) should be confirmed. We have gone through the arguments 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 oblig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssued by the GOM in support of its contention. 29. It is further submitted before the Ld. CIT(A) that the assessee did not account for this amount through its profit and loss account and only the net amount was duly effected in the balance sheet and thus electricity duty was not expenditure of the assessee and therefore, it was outside the preview of section 43B of the Income Tax Act. It was further argued that the ration of Chouranghee Sales Bureau 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 allow as deduction the electricity duty paid upto the date of filing of the return. For the purpose of payment of electricity duty the appellant argued that since the duty payable to GOM are settled by adjustment of the amount receivable by it tow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een 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 Lordships have held that in the case of service tax payment by that assessee where it was found that before end of the year,amount on which service tax was payable have not been received from the parties to whom services were rendered, the claim of service tax paid could not be disallowed. It was held that s.43B does not contemplate liability to pay the service tax before actual receipt of funds in the account of the assessee and it was further held that the liability to pay service into the treasury will 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 pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... censee collects on its own behalf in connection with its business of generating and supplying electricity. The licensee does not collect the electricity duty for its own consumption or utilization. If the licensee collects the duty but 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 Chandraiah (supra). Though the said case deals with sales tax, the principle laid down in that case supports our view. The mischief that Section 43B of the Income Tax Act intended to present, is taken care of by the provisions of the Bengal Electricity Duty Act itself. 34. Thus, in our considered view, the assessee deserves to succeed. The disallowance made by Ld. AO on this ground for ₹ 23291.59 lakhs is hereby deleted and ground no.2 of the assessee is allo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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