TMI Blog2016 (5) TMI 1353X X X X Extracts X X X X X X X X Extracts X X X X ..... ed is under dispute, there was no real income accrues to the assessee. CIT(A) after considering the facts and circumstances of the case has rightly deleted the additions made by the A.O. We do not see any error or infirmity in the order passed by the CIT(A). - Decided in favour of assessee. - I.T.A. No. 696/Vizag/2013 - - - Dated:- 27-5-2016 - V. Durga Rao (Judicial Member) And G. Manjunatha (Accountant Member) For the Appellant : M. K. Sethi, DR For the Respondent : C. V. K. Prasad, AR ORDER G. Manjunatha (Accountant Member) This appeal filed by the revenue is directed against the order of Commissioner of Income Tax (Appeals), Guntur dated 27.8.2013 and it pertains to the assessment year 2009-10. 2. The brief facts of the case are that the assessee is a public limited company, which is engaged in the business of manufacture and sale of fatty acids and also generation of Bio-Mass Power. The assessee has filed its return of income for the assessment year 2009-10 on 26.9.2009 declaring total income of ₹ 14,28,09,174/-. The case has been selected for scrutiny and accordingly, notices u/s 143(2) 142(1) of the Income Tax Act, 1961 (hereinafter ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the existing rate of ₹ 3.48 per unit as on 31.3.2004. In view of the abnormal reduction in price, Bio-Mass Energy Developers Association (BEDA) on behalf of its members approached A.P. High Court and obtained a direction vide interim order dated 20.8.2004 and as per the High Court order, the High Court has directed to pay the price fixed by the APERC + 50% of the difference between the price fixed by the APERC and price prevailing as on 31.3.2004. 4. The assessee further submitted that after setting up Appellate Tribunal for Electricity, New Delhi the High Court directed BEDA to file the appeal with Appellate Tribunal for Electricity. The Appellate Tribunal for Electricity allowed the appeal filed by the BEDA, but APERC and APTRANSCO has filed appeal against the order passed by the Appellate Tribunal for Electricity before the Hon ble Supreme Court and the Hon ble Supreme Court remanded the case to APERC to reconsider the claims of power generators while fixing the price. Thereafter, a 3 member bench of APERC has given 3 different orders without a majority opinion, hence, a further appeal was filed by BEDA before the ATE which is pending for disposal. Meantime, the Andhra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ans the certainty of accrual of income for the relevant financial year is not in doubt. The assessee has an established right to receive the billed amount from APTRANSCO by virtue of Government orders, though the dispute is pending before the ATE. This clearly establishes that the assessee has an absolute right to receive the billed amount. The bills were raised with price fixed as per PPA with 5% escalation towards the power supplied to APTRANSCO, but the revenue is recognized as per the order of State Government, because the issue is pending before the APERC. The mere fact that the issue is pending before the ATE does not take away the right of the assessee to get the escalated sales 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. With these observations made additions of ₹ 82,35,112/- to the taxable income. 6. 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 submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt to the year of closing an income which is accrued cannot be made no income. Same principle have been followed in the case of Godhra Electricity Company Limited reported in (1997) 225 ITR 746. The CIT(A) further held that the case of the assessee is squarely covered by the decision of the Supreme Court in the case of Godhra Electricity Company Limited and hence, held that the amount of ₹ 82,35,112/- treated as contingent sale by the assessee and added to the income by the A.O. cannot be treated as income and the same is deleted. Aggrieved by the CIT(A) order, the revenue is in appeal before us. 8. The Ld. D.R. submitted that the Commissioner of Income Tax (A) erred in granting relief by deleting the addition of ₹ 82,35,112/- made by the A.O. on account of contingent sales. The D.R. further submitted that the CIT(A) ought to have appreciated the fact that the assessee company has raised the sale bills at escalated price, according to the orders of the A.P. State Government and the order of the APERC and hence, the chances of getting the escalated price are not completely closed and ceased to exist, even though there is a dispute pending before Appellate Tribunal for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the financial year under consideration. When the particular issue has been accepted in one financial year, then the department cannot dispute the same matter for the current financial year. The A.R. further submitted that the assessee rightly recognized the revenue in the books of account as per the order of the State Government. The determination of selling price by the APERC has been challenged before the Appellate Tribunal for Electricity and the Appellate Tribunal for Electricity has not adjudicated the issue. When the matter is pending before the Appellate authorities, the right to receive the said amount is uncertain. Under these circumstances, recognition of revenue as per the billed amount to APTRANSCO is not correct. The assessee being a company required to follow the provisions of section 211(3c) of the Companies Act, 1956 and also accounting standard issued by the ICAI. As per the accounting standards-9 issued by the ICAI, which deals with recognition of revenue states that an essential criterion for the recognition of revenue is that the consideration receivable for the sale of goods, the rendering of services or from the use by others of enterprises resources is reason ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... E has allowed the appeal filed by the BEDA. But, the APERC and APTRANSCO have appealed against the order passed by the ATE before the Supreme Court, which has remanded the case back to the APERC with a direction to reconsider the claim of power generators while fixing the price. The APERC, as per the directions of the Supreme Court have heard the matter and could not reach a conscious decision by the 3 member bench of APERC. Hence, the BEDA has filed a fresh appeal before the ATE for determination of the price to be fixed for supply of power which is pending for adjudication. Meanwhile, the A.P. State Government has issued an order dated 12.11.2008 and has directed APTRANSCO for payment of an adhoc price of ₹ 3.79 per unit for a period of 1 year or till APERC finalises the issue and determined the tariff. In this background, the assessee company has continued to raise the sale bill as per the original PPA with 5% escalation per year. Accordingly, the assessee company has raised sale bill for the year under consideration for a price of ₹ 4.23 per unit up to 20.4.2008 and ₹ 4.44 per unit from 20.4.2008 to till the end of the financial year 31.3.2009. However, while ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es is reasonably determinable. When such revenue is not determinable within reasonable limits, the recognition of revenue may be postponed. The assessee contend that in view of the fact that the matter is pending before the ATE for determination of price to be paid by the APTRANSCO towards supply of power, the assessee continued to bill the sale of power as per the original PPA entered into with the APTRANSCO. The reason for raising the sale bills as per the terms of the original agreement is to keep the issue alive so that at a later stage, the APTRANSCO cannot say that the assessee has not made any claim for the enhanced price. However, it is continuously recognizing the revenue as per the price fixed by the State Government, accordingly, for the year under consideration it has recognized the revenue on accrual basis as per the price fixed by the state government. We find force in the arguments of the assessee for the reason that there is no dispute with regard to method of accounting followed by the assessee and recognition of revenue on accrual basis. The only dispute is with regard to the differential sale price claimed by the assessee and price paid by the APTRANSCO. When the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cognized as revenue for the relevant financial period. We further observed that the assessee has recognized the revenue as per the rate fixed by the state government. The impugned contingent sale is only a claim made by the assessee. The said amount is receivable or accrued to the assessee is depending upon the outcome of the decision of ATE. When the uncertainty relating to collectability arises either at the time of recognition of revenue or subsequent to the time of sale or the rendering of services, it is appropriate to make separate provision to reflect the uncertainty in the financial statements rather than recognizing the revenue and make separate provisions in the books of accounts. In the present case on hand, on perusal of the facts, we find that the assessee has rightly recognized the revenue in the relevant financial period as per the rate fixed by the state government which is the amount payable by the APTRANSCO. The disputed amount claimed by the assessee is a mere claim and the assessee has no right to receive the said amount, unless the matter is decided by the ATE. The fact that the matter is pending before the ATE for final determination of the sale price cannot b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the said suits were dismissed. But appeals were filed against the said judgment by the consumers in this Court and the same were dismissed by the judgment of this Court dt. 26th Feb., 1969. Shortly thereafter, on 19th March, 1969, the Under Secretary to the Government of Gujarat wrote a letter advising the assessee - company to maintain the status quo for the rates to the consumers for at least six months and the Chief Electrical Inspector was directed to go through the accounts of the assessee-company from year to year and to report to the Government about the actual position about the reasonable returns earned by the assessee-company. On 16th May, 1969 another representative suit (Suit No. 118 of 1969) was filed by the consumers wherein interim injunction was granted by the Court and which was finally decreed in favour of the consumers on 23rd June, 1974, It would thus appear that after the decision was taken by the assessee company to enhance the charges it was not able to realise the enhanced charges on account of pendency of the earlier representative suits of the consumers followed by the letter of the Under Secretary to the Government of Gujarat and the subsequent suit of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee, when the differential income was subject matter of litigation and also there is no certainty of the assessee being intended to such income unless it succeeds in such litigation. The relevant portion of the order is reproduced hereunder: 8. We have considered the rival submissions. There is no dispute with regard to the material facts of the case. The only question that arises for consideration is whether the differential amount of sales, viz, worked out at ₹ 3.48/- per unit as per the Power Purchase Agreement applying which invoices for supply of power to APTRANSCO were raised and ₹ 3.18/- applying which in terms of the interim orders of the Hon'ble A.P. High Court, invoices of the assessee were settled by the APTRANSCO and accounted for by the assessee in the books of account, can be treated as the income of the assessee for the assessment year 2005- 06. We find that the CIT(A) has given elaborate reasoning before concluding that the income worked at the rate of ₹ 3.48/- per unit of power supplied had neither accrued to the assessee nor was receivable during the previous year and therefore, no corresponding debt in respect of the differential am ..... X X X X Extracts X X X X X X X X Extracts X X X X
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