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TMI Blog2021 (6) TMI 881X X X X Extracts X X X X X X X X Extracts X X X X ..... es and capacity index incentives shown as a disclosure in Notes to Accounts Annexed with the Balance Sheet. 3. Not adjudicating in respect of initiation of penalty proceedings u/s 271(1)(c) of the Income Tax Act 4. That contrary to facts bad in law and perverse in its import and application, the order must be quashed" 1.1 On the other hand revenue has filed an appeal in ITA No. 3181/Del/2015 challenging the impugned order on following ground: "The Ld CIT(A) has erred in law and on facts by allowing depreciation on assets of which the actual cost bas per section 43(1) of the I.T. Act, 1961 was NIL" 2.0 We shall first take up for consideration appeal filed by the assessee. During the course of hearing before us, the Ld. AR submitted that ground no. 1 of appeal is general as specific grievance on merits of the case has been raised in form of ground no. 2. As such ground no. 1 of the appeal is dismissed. 2.1 Ground no. 3 challenges action of initiation of penalty. Penalty proceedings are altogether separate hence ground no. 3 is also dismissed. 2.2 In ground no. 2, the assessee is aggrieved by the action of the Assessing Officer (AO) in making an addition to total income of Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g in spillage of water, the energy charges on account of such spill among the affected beneficiaries shall be in proportion to their shares n saleable capacity of the station. Provided that in case where share of saleable capacity, which is the committed or earmarked capacity for any beneficiary through an agreement or otherwise, is not available, the apportionment shall be on the basis of proportion of energy sales to different beneficiaries". 2.3 It was submitted before the AO that in accordance with these provisions, bills have been raised by the assessee on account of capacity charges (CC), capacity index incentive (CII) and deemed generation charges (DG) on Uttarakhand Power Corporation (UPCL). However, the UPCL has failed and neglected to make payment of the subject charges pursuant to the bills of energy consumption for the month of July, 2005 onwards and unilaterally made deduction vide their letter no.71/ UPCL/ CGM (Comm)/ UVJNL/ GC dated 20.9.2005 for the payments made earlier. It also failed and neglected to pay these charges for all subsequent bills. In its letter no.1142/UPCL/ CGM (Comm.)/ P-3 dated 17.5.2005, the UPCL raised the following objections "the component of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 15.12.2009 and 20.12.2009 to sign the minutes of the meeting. Subsequently, in their respective Board meetings, the UPCL and the assessee decided to take necessary steps to expedite the verification of capacity indices of all LHPs for F.Y.2004-05 to F.Y.2012-13. Subsequently, on the basis of verified data, revised bills for CC and CII were raised by the assessee in supression of bills raised earlier. However, despite being a party to the verification, UPCL had not considered these dues till date. In view of the above events it was submitted that the assessee was approaching UERC u/s 23(1) under Chapter 3 of Settlement of dispute of Conduct of Business Regulation, 2004 read with section 86(1) of the Electricity Act, 2003 for adjudication in this regard. Hence the issue was still in dispute. 2.6 The AO, however, was unimpressed. In his order of assessment, it was held by the AO that in books of accounts, the assessee has itself recognized capacity charges, deemed generation charges and capacity index incentives as its income and moreover that the assessee was fighting for getting these sums recovered as dues from UPCL. Since the assessee was following a mercantile system of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... UPCL signing the minutes in the matter. 2.3 Even though UPCL failed to sign the minutes the empowered group constituted by the UERC approved of the assessee's claim and so did the UERC. As noted above, the business of generation and sale of electricity is regulated by law. Even though it is a business enterprise, the tariff of electricity is laid down by the electricity regulatory commission which is a statutory body. The tariff thus laid down may not be called a statutory levy like tax, cess, duty etc. But it is also but a price discovered in free market or settled bilaterally by the parties to the transaction. In so far as the tariff is a part of the regulatory regime, the parties to the transaction have little feeway. Hence, if the UPCL purchased electricity from the assessee, it was bound to pay the charges laid down by the UERC. It did not deny the liability. It had only raised questions about the procedure and methodology to be adopted for calculation/verification of these charges. The concerns of UPCL were considered and addressed by the UERC and the assessee's claim was found to be in order. It is true that the parleys continued well after the end of the previous yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement of the assessee and given effect to in the accounts. That is necessary for ascertaining the correct profit of the business. If the amount, when it is quantified finally, varies with the estimate made earlier, appropriate adjustments in the accounts are to be made in order to factor in such variation. Hence, there was no justification for not recognizing the revenue in question. Needless to say, if the assessee failed to recover the said amount in future, it would be free to write the same off as bad debt. Income Tax law would allow deduction for the same as and when such an eventuality arose. Thus, by booking the amount as revenue and treating it as income, the assessee would not incur an irreparable tax loss. As far as the case of UPCL is concerned it could also, correspondingly, recognize the liability (even though it may have its concerns about the procedure and methodology of calculation) and, in case it did not have to pay the same, it could write back the amount and offer the same as income u/s 41 of the I.T. Act. 2.6 As regards the other logic, it is true that the assessee's income would constitute corresponding expenditure in the hands of UPCL. It is also true that, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same. In the circumstances, when the amount is payable to the assessee as per the statutory regulation and when the debtor has not disputed the liability to make the payment, it cannot be said that the income had not accrued to the assessee. The only issue for resolution is the issue of determination of quantum. As my Ld. Predecessor has pointed out recognition of a receivable as revenue or of a liability as expenditure need not be postponed simply because its exact quantification is not possible but according to the mercantile system of accounting, the amount needs to be estimated to be best judgment of the assessee and give effect to in the accounts. If the amount, when it is quantified finally varies with the estimate made earlier, appropriate adjustments in the accounts are to be made to factor in such variation. Hence, that cannot be a justification for not recognizing the revenue in question, especially in view of the fact that if the assessee failed to recovered the said amount in future it would be free to write the same off as bad debts and income tax law would allow deduction for the same as and when such eventuality arose. It is seen that this exercise of ascertainment o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT (1965) 57 ITR 521 (SC) ix. CIT vs. Eichter Ltd. (2010) 320 ITR 410 (Delhi) 4.0 On the other hand, the Ld DR has supported the addition made by the AO. It was submitted by him that the Ld. CIT (A) has discussed the issue in detail and has rightly upheld the addition. 5.0 We have carefully considered the facts of the case and the material available on record. In the financial statements capacity charges, deemed generation charges and capacity Index incentive have been shown as a disclosure in the balance Sheet as an amount claimable by the assessee from UPCL which has not been acknowledged but disputed by the UPCL since inception and the matter has been referred to the Regulatory Authority for settlement from time to time. Facts on record demonstrate that since the methodology was to be determined and there were several technical aspects which were to be finalized, due to lack of clarity in the regulations, the determination of amount on account of capacity charges, deemed generation charges and capacity index incentives could not be quantified. The issue was disputed by UPCL. UERC is a regulatory authority which fixes the tariff on annual basis in accordance with the Terms & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntries in respect of enhanced charges did not reflect the real income of the assessee and could not be brought to tax by the revenue. 5.1 The Ld AR has also placed on record the fact that on 27th April, 2015, UERC has finally settled the petition dated 25th March, 2014 regarding the dispute between UPCL and the assessee on the applicability and pay ability of capacity charges, deemed generation charges and capacity Index incentive and UERC has given direction to UPCL to consider and pay the revised verified capacity charges, deemed generation charges and capacity Index incentive by SLDC, UPCL and UJVNL in 18 equal monthly installments. On the basis of verified data, year wise bills for CC, CII has been raised in suppression of bills raised earlier and detail of bills raised before and after verification for the period from FY 2004-05 to FY 2012-13 is as under: Financial year Total Capacity charges & Capacity Index Incentive Old Bill Revised Bill 2004-05 227,232,641 15,42,96,401 2005-06 66,705,707 4,57,18,570 2006-07 115,138,682 9,02,41,357 2007-08 99,150,697 8,24,69,988 2008-09 359,035,896 6,70,28,088 2009-10 633,606,018 28,83,27,802 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also paid two installments of advance tax after including the capacity charges in the income of the company for F.Y.2015-16. Hence no addition has been made on this account during the year under consideration." 5.3 Similar findings have been given by the AO in orders for assessment dated 21st March 2016 and 17th March 2016 passed u/s 254/143(3) for AYs 2008-09 and 2009-10.Once the correct amount of income has already been offered to tax in AY 2016-17, we find no merit in the addition made by the AO in the present order of assessment. We, therefore, allow ground no. 2 of the appeal and direct the AO to delete the addition made of Rs. 40,66,56,344/-. 6.0 We now take up for consideration the appeal filed by the revenue. The grounds raised by the department are as under: 1. The Ld. CIT(A) has erred in law and on facts by allowing depreciation on assets of which the actual cost as per section 43(1) of the I.T. Act, 1961 was NIL. 2. The order of the Ld. CIT (A) be set aside and that of the AO restored. 6.1 Sole issue in dispute is disallowance of depreciation. Both the lower authorities note that this a legacy issue in case of the assessee. This issue has recently been decided b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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