TMI Blog2017 (5) TMI 531X X X X Extracts X X X X X X X X Extracts X X X X ..... lant : Shri Murthy Naik, DR For The Respondent : Shri C. Subrahmanyam, AR ORDER PER Shri G. Manjunatha, Accountant Member: These four appeals filed by the revenue are directed against separate, but identical orders of the CIT(A)-1, Guntur dated 28.8.2015 for the assessment years 2005-06, 2006-07, 2010-11 2011-12. Since, the facts are identical and issues are common, they are clubbed, heard together and disposed-off by way of this common order for the sake of convenience. 2. The brief facts of the case extracted from ITA No.68/Vizag/2016 are that the assessee is a Public Limited company engaged in the business activity of manufacture of fatty acids, Stearic Acid, Flakes, Soap Noodles, Toilet soaps, Refined glycerin, Industrial Oxygen and Bio Mass power generation. The assessee has filed its return of income for the assessment year 2005-06 on 27.10.2012 declaring income at ₹ 11,35,00,240/-. The assessment was completed u/s 143(3) of the Income Tax Act, 1961 (hereinafter called as 'the Act') on 14.12.2007 determining the taxable income at ₹ 11,96,53,600/-. Subsequently, the case has been re-opened by issuance of notice u/s 148 of the Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent with 5% escalation towards the power supply to APTRANSCO, but the revenue is recognised as per the orders of the State Government. The mere fact that the issue is pending before the appellate authorities does not take away the right of the assessee to get the escalated sale price from the APTRANSCO, which is evident from the conduct of assessee. The assessee has raised sale bill with escalated sale price, therefore, it cannot take a contrary view when it comes to recognition of revenue. Accordingly, made additions of ₹ 76,95,720/- to the taxable income. 4. Aggrieved by the assessment order, the assessee preferred an appeal before the CIT(A). Before the CIT(A), the assessee reiterated the submissions made before the A.O. The assessee further contended that it is following mercantile system of accounting for the purpose of recognition of revenue and recognised the revenue as and when revenue crystalised as on the date of balance sheet date. The assessee further submitted that the amount transferred to contingent sales represents differential sale price claimed from M/s. APTRANSCO, which is pending because of dispute between the company and M/s. APTRANSCO, with regard to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DCIT Vs. Sri Balaji Bio-Mass Private Limited in ITA No.1748/Hyd/2008, has held that the assessee has rightly treated difference between sale price claimed and price paid by the APTRANSCO as contingent sales, which is not accrued to the assessee for the relevant financial year. The relevant portion of the order is extracted below: 10. We have heard both the parties, perused the materials available on record and gone through the orders of the authorities below. The factual matrix of the case which leads to the impugned addition are that the assessee entered into a Power Purchase Agreement (PPA) with APTRANSCO for supply of power. As per the said agreement, the assessee has agreed to sell the power at a unit price of ₹ 2.25 per unit with a 5% escalation per annum up to 31.3.2004, with a base year of 1994-95. Accordingly, the assessee company and other non conventional energy producers have received a consideration of ₹ 3.48 per unit up to the financial year ending 31.3.2004. Further, as per the said agreement after 1.4.2004, the APERC i.e. Andhra Pradesh Electricity Regulatory Commission is empowered to fix the purchase price. Accordingly, the APERC has fixed the purch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount in view of the interim order passed by the State Government and also the fact that the matter is pending before the ATE. Therefore, the assessee required to recognize the said disputed sale amount for the relevant financial period. It is the contention of the assessee that since the matter is pending for adjudication before the Appellate authorities, there is no guarantee that the said amount is receivable by the assessee, unless the ATE passes its final order. Under these circumstances, it has rightly recognized the revenue which is accrued to the assessee as per the sale price fixed by the State Government and the remaining disputed amount was not recognized as revenue which was considered as contingent sale and disclosed in the financial statements. 12. The question before us is whether the said disputed sales revenue is accrued to the assessee or not for the relevant financial period is to be decided based on the prevailing facts. The term revenue is not defined under the Act. However, the Accounting Standards 9 issued by the ICAI, defined the term revenue as per which the term revenue is the gross inflow of cash receivables or other consideration accrued in the cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .O. merely based on the copies of sale bills has come to the conclusion that the assessee has absolute right to receive the said disputed amount without understanding the facts of disputes prevailing at the time of recognition of revenue. 13. The facts with regard to the method of accounting followed by the assessee and the recognition of revenue are not in dispute. The assessee has consistently following mercantile system of accounting to recognize the revenue. The assessee is continuously followed this method of revenue recognition by following the accounting standard 9 issued by the ICAI. The assessee being a company bound to follow the provisions of section 211(3c) of the Companies Act, 1956 which requires the assessee to follow accounting standards notified by the Government or issued by the ICAI to prepare its financial statements. Being a company by following the prudent policies, it has followed the accounting standard 9 to recognize the revenues. Accordingly, where the revenue has clearly accrued to the assessee the same has been recognized on accrual basis by making necessary entries. The impugned contingent sale amount is neither received by the assessee nor accrue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the probability of realization of income and in case if the amount to be realized is under dispute, there was no real income accrues to the assessee. The relevant portion is extracted below:- Under the Act income charged to tax is the income that is received or is deemed to be received in India in the previous year relevant to the year for which assessment is made or on the income that accrues or arises or is deemed to accrue or arise in India during such year. The computation of such income is to be made in accordance with the method of accounting regularly employed by the assessee. It may be either the cash system where entries are made on the basis of actual receipts and actual outgoings or disbursements or it may be the mercantile system where entries are made on accrual basis, i.e., accrual of the right to receive payment and the accrual of the liability to disburse or pay. If the accounts are maintained under the mercantile system what has to be seen is whether income can be said to have really accrued to the assessee-company. Even though the assessee-company was following g the mercantile system of accounting and had made entries in the books regarding enhanced charg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anced charges for supply of electricity has to be considered by taking the probability or improbability of realisation in a realistic manner. If the matter is considered in this light, it is not possible to hold that there was real accrual of income to the assesseecompany in respect of the enhanced charges for supply of electricity which were added by the ITO while passing the assessment orders in respect of the assessment years under consideration. The AAC was right in deleting the said addition made by the ITO and-the Tribunal had rightly held that the claim at the increased rates as made by the assessee company on the basis of which necessary entries were made represented only hypothetical income and the impugned amounts as brought to tax by the ITO did not represent the income which had really accrued to the assessee-company during the relevant previous years. The High Court was in error in upsetting the said view of the Tribunal.-CIT vs. Godhra Electricity co. Ltd. (1983) 32 CTR (Guj) 141 : (1983) 140 ITR 657 (Guj) : TC 39R.493 set aside; CIT vs. Shoorji Va!labhdas Co. (1962) 46 ITR 144 (SC) : TC 39R.737; CIT vs. Birla Gwalior (P)Ltd. 1973 CTR (SC) 349 : (1973) 89 ITR 266 (SC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve, has to raise the claim against the other party within the period of limitation, which in its view is due to it according to the terms of the contract, so as to get an enforceable right for the recovery of the amount as and when it succeeds in the litigation. In this view of the matter, though invoices raised constitute fundamental record for maintenance of accounts in the normal course, as observed by the Assessing Officer, that logic does not hold good when the subject matter was under dispute and was under litigation before the judicial fora, including the jurisdictional High Court and Hon'ble Supreme Court during the relevant points of time. Assessee's method of accounting only the amount which was not subject matter of litigation and which in fact was received by it from the APTRANSCO in terms of the interim order of the A.P. High Court, was in conformity with the Accounting Standard 9 and the ratio laid down by the Apex Court, among others, in the case law discussed by the CIT (A) in the impugned order, and also in the case-law relied upon by the assessee before us. In this view of the matter, we find no infirmity in the order of the CIT(A), which is accordingly co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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