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TMI Blog2022 (12) TMI 584X X X X Extracts X X X X X X X X Extracts X X X X ..... rder passed by the A.O. is untenable in the absence of order of the A.O. being erroneous as well as prejudicial to the interest of the Revenue. (3)On the facts and circumstances of the case, the learned PCIT has erred both on facts and in law in ignoring the fact that all the issues raised by him in notice under Section 263 were before the A.O during the assessment proceedings under section 143(3) of the Act and as such the jurisdiction on this issue under Section 263 cannot be assumed. (4)On the facts and circumstances of the case, the learned PCIT has erred, both on facts and in law, in rejecting the contention that the issues raised by the PCIT in his notice has been examined by the A.O. and order has been passed by the A.O. after examination of the reply and evidences submitted by the assessee and due application of mind. (5)On the facts and circumstances of the case, the learned PCIT has erred, both on facts and in law, in setting aside the order under section 263 of the Act without there being any adverse material either at the stage of assessment or in the revisionary proceedings. (6)On the facts and circumstances of the case, the learned PCIT has erred in ignoring t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in law in passing the order without giving reasonable opportunity of being heard in gross violation of principal of natural justice. (5)(i) On the facts and circumstances of the case, the Ld. CIT(A) has erred both on facts and in law in not adjudicating the additions made by the AO holding that the addition has been made as per the directions of Principal Commissioner of Income Tax and the same cannot be challenged before him. (ii)On the facts and circumstances of the case, the Ld. CIT(A) has erred both on facts and in law in holding that challenging the order passed by the AO will indirectly tantamount to challenging the order passed under section 263 passed by Principal Commissioner of Income Tax. (iii)On the facts and circumstances of the case, the Ld. CIT(A) has erred both on facts and in law in ignoring the fact that since the issues raised by the assessee before him have not attained finality the same can be adjudicated by him. (6) On the facts and circumstances of the case, the Ld. CIT(A) has erred both on facts and in law in confirming the addition of Rs.66,80,41,655/- on account of Late Payment Surcharge (LPS) not received by the assessee treating the same as accru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le of other income'. (PB Pg. 78). The Late payment surcharge are charges levied by all power generating companies in case the payment of any bill for charges payable under the regulation of Electricity commission is delayed by beneficiary beyond stipulated time. The assessee is following mercantile system of accounting and it recognizes all of its income on 'accrual' basis only i.e. it is recognized as and when the certainty of its realization arises. Due to high level of uncertainty involved in its ultimate collection of these LPS charges the recognition of the same is postponed by the assessee till the reasonable certainty arises which arises when the income is actually received by the assessee. The said treatment has been accepted by the statutory auditor, CAG as well as the tax auditor. 7. That, during the year under consideration i.e. AY 2014-15 the assessee realized Rs. 1843.15 lakhs on account of delayed payment surcharge and recognized the said amount as its income. That, the case of assessee was taken up for scrutiny under CASS and notice under section 143(2) was issued to the assessee. During the course of assessment proceedings, Ld. AO vide notice dated 17.10.2016 under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cy of such LPS. Briefly, the assessee explained as under: (a)LPS was recognized as income on year to year till 2001-02 by the assessee and other Power section CPSUs and the same was offered to tax in the year of recognition. (b)However, none of the beneficiaries were paying up these LPS to the generating companies and the amount kept on soaring in the books of the power generating CPSUs creating an unhealthy financial position and cash crunch. This resulted in huge amount of trade receivable becoming due from the beneficiaries. (c)Thereafter in 2001, an Expert Committee constituted by the Govt, of India* under the chairmanship of Dr. Montek Singh Ahluwalia to overcome the crisis, recommended that 60% of the outstanding dues on account of late payment surcharge be waived. This recommendation was adopted and huge amounts had to be written off overnight thereby severely affecting the health of the Power CPSUs. The assessee also suffered loss of Rs. 254.10 crs due to waiver of surcharge in FY 2002-03. (d)This event created a need to have a relook at the accounting policy of all the Power Sector CPSUs as regards recognition of Late Payment of Surcharge. All the CPSUs decided to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany after taking appropriate measures. The Government of India in order to improve the poor cash condition of the power generating company constituted an expert committee under the Chairmanship of Dr. Montek Singh Ahluwalia, Dy. Chairman, Planning Commission and based on the recommendation of the Expert Committee, the Government came up with an on-time settlement policy of all the outstanding dues of the power generating CPSU. Under the one time settlement scheme waiver of 60% of the dues on account of interest from the outstanding dues was directed. NEEPCO, being a Government Company accepted the recommendation and wrote off the dues as directed. Thereafter also recovery of surcharges has become uncertain from the state beneficiaries. Considering the uncertainty, the Audit Committee in 2003 had pointed out that the accounting of surcharge has to be done on receipt basis to avoid any future loss on account of any policy of the Government. The Dy. Secretary (Finance), Ministry of Power vide letter No. DO. Nos DS(F)/NEEPCO/2003-04 dated 19.08.2003 intimated that other CPSUs including NFIPC, were accounting for surcharge on receipt basis and NEEPCO should adopt the same policy so a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich was subsequently affirmed by the Hon'ble Punjab & Haryana High Court and SLP filed by the Revenue was dismissed. Further it was submitted that the assessee is following the same treatment for last many years and since AY 2003-04 the assessee's case is being assessed under section 143(3) of the Act and such treatment of delayed payment charges on cash basis is being accepted by the Department, and, therefore, the principle of consistency is applicable to the assessee. Reliance placed on plethora of judgment including that of Hon'ble Supreme Court in the case of Radhasoami Satsang -vs.- CIT 193 ITR 321; CIT -vs.- Rajasthan Beweries; SLP (C) 1379/2014(SC); CIT -vs.- Realest Builders and Services 307 ITR 202 (SC). Further it was submitted that the books of account are audited by three auditors including the Controller of Auditor General (CAG) and all auditors have accepted the treatment of the surcharge/interest on outstanding payments. Similar accounting treatment is also consistently followed by various other Power Sector Companies, copy of which is placed at pages 227 to 577 of the paper book. 13. On the other hand, ld. Departmental Representative vehemently argued referring t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espect of LPS on unrealisable amount relying on the directions contained in the DO letter of Deputy Secreary (Finance), Ministry of Power dated 19.08.2003. The ld. PCIT was of the view that since the assessee is maintaining the books of account on mercantile system, therefore, hybrid system of accounting is not allowed as per the provisions of section 145(1) of the Act and also the assessee-company, whose main debtor is Meghalaya Electricity Corporation Limited (in short "MECL") and its subsidiaries, bills for LPS are regularly raised to MECL from time to time but the assessee shows income of LPS only when it is received on cash basis. Based on these observations, ld. PCIT held the assessment order as erroneous so far as prejudicial to the interest of revenue. Before adverting to the facts of the case and the justification of the revisionary proceedings carried out by the ld. PCIT, we will first go through the provisions of section 263 of the Act and the settled judicial precedence in this regard. 15. Section 263 has a direct bearing on the controversy, therefore, it is pertinent to take note of this section. It reads as under:- "263(1) The Commissioner may call for and examine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on for the purposes of sub-section (2), the time taken in giving an opportunity to the assessee to be reheard under the proviso to section 129 and any period during which any proceeding under this section is stayed by an order or injunction of any court shall be excluded." 16. On a bare perusal of the sub section-1 would reveal that powers of revision granted by section 263 to the learned Commissioner have four compartments. In the first place, the learned Commissioner may call for and examine the records of any proceedings under this Act. For calling of the record and examination, the learned Commissioner was not required to show any reason. It is a part of his administrative control to call for the records and examine them. The second feature would come when he will judge an order passed by an Assessing Officer on culmination of any proceedings or during the pendency of those proceedings. On an analysis of the record and of the order passed by the Assessing Officer, he formed an opinion that such an order is erroneous in so far as it is prejudicial to the interests of the Revenue. By this stage the learned Commissioner was not required the assistance of the assessee. Thereafter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me as such will be erroneous and prejudicial to the interests of the revenue - Rampyari Devi Saraogi v. CIT [1968] 67 ITR 84 (SC) and in Smt. Tara Devi Aggarwal v. CIT [1973] 88 ITR 323 (SC)".[Emphasis Supplied] 18. Hon'ble Apex Court in the case of CIT vs. Max India Limited as reported in 295 ITR 0282 has held that: " 2. At this stage we may clarify that under para 10 of the judgment in the case of Malabar Industrial Co. Ltd. (supra) this Court has taken the view that the phrase "prejudicial to the interest of the Revenue" under s. 263 has to be read in conjunction with the expression "erroneous" order passed by the AO. Every loss of revenue as a consequence of an order of the AO cannot be treated as prejudicial to the interest of the Revenue. For example, when the ITO adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the ITO has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the Revenue, unless the view taken by the ITO is unsustainable in law." 19. Hon'ble Madhya Pradesh High court in the case of CIT vs. Associated Food Prod ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer is erroneous and prejudicial to the interest of the Revenue. Thus, where there are two possible views and the Assessing Officer has taken one of the possible views, no action to exercise powers of revision can arise, nor can revisional power be exercised for directing a fuller enquiry to find out if the view taken is erroneous. This power of revision can be exercised only where no enquiry, as required under the law, is done. It is not open to enquire in case of inadequate inquiry. Our view is fortified by the judgment of Hon'ble High Court of Bombay in the case of CIT vs. Nirav Modi, [2016] 71 taxmann.com 272 (Bombay). 21. This view is further supported by the decision of the Hon'ble Gujarat High Court in the case of Shri Prakash Bhagchand Khatri in Tax Appeal No. 177 with Tax Appeal No.178 of 2016, wherein the Hon'ble Gujarat High Court was seized with the following substantial question of law:- "Whether the Tribunal is right in law and on facts in upholding the order passed by the CIT under section 263 of the Act on merits and still storing the issue of allowability of deduction under section 54 of the Act to the file of Assessing Officer even though the wor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment order, this would not by itself lead to the conclusion that the order of the AO called for interference and revision. In the instant case, for example, the CIT has observed in the order passed by him that the assessee has not filed certain documents on the record at the time of assessment. Assuming it to be so, in our opinion, this does not justify the conclusion arrived at by the CIT that the AO had shirked his responsibility of examining and investigating the case. More so, in view of the fact that the assessee explained that the capital investment made by the partners, which had been called into question by the CIT was duly reflected in the respective assessments of the partners who were I.T. assessees and the unsecured loan taken from M/s Stutee Chit & Finance (P) Ltd. was duly reflected in the assessment order of the said chit fund which was also an assessee." 64. Since in the instant case the A.O. after considering the various submissions made by the assessee from time to time and has taken a possible view, therefore, merely because the DIT does not agree with the opinion of the A.O., he cannot invoke the provisions of section 263 to substitute his own opinion. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exercising his jurisdiction under s. 263 must have material on record to arrive at a satisfaction. (ix) If the AO has made enquiries during the course of assessment proceedings on the relevant issues and the assessee has given detailed explanation by a letter in writing and the AO allows the claim on being satisfied with the explanation of the assessee, the decision of the AO cannot be held to be erroneous simply because in his order he does not make an elaborate discussion in that regard." 24. Apart from above stated broader principles, one more principle needs to be added in view of the judgment of Hon'ble Delhi High Court in the case of ITO vs. D.G. Housing Projects Ltd. [2012] 343 ITR 329 (Delhi) that the ld. CIT has to examine and verify the issue himself and give a finding on merits and form an opinion on merits that the order passed by the AO is erroneous and prejudicial to the interest of the Revenue. Relevant extract is reproduced below: "In the present case, the findings recorded by the Tribunal are correct as the CIT has not gone into and has not given any reason for observing that the order passed by the Assessing Officer was erroneous. The finding recorded by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... specifically asked the assessee to provide the details of other income, which included the LPS charges also. In reply on 27.10.2016, complete details of the other income were filed which are placed at pages 116 to 119 of the paepr book and clarification for the above accounting treatment of LPS charges on cash basis made following the Accounting Standard-9 issued by the Instituted of Chartered Accountants of India (in short ICAI ) was also mentioned in the notes on account attached to the audited balance-sheet. The ld. Assessing Officer after considering the details filed by the assessee, notes on account appearing in the audited balance-sheet and also taking a consistent view as taken by predecessors in the scrutiny proceedings carried out under section 143(3) of the Act from A.Y. 2003-04 till A.Y. 2012-13 accepting the assessee's treatment of LPS charges on cash basis accepted the same treatment for A.Y. 2014-15. In our considered view, the instant case is not of "No enquiry" but a case where detailed enquiry has been conducted and a consistent view has been taken by ld. A.O. accepting the assessee's treatment of LPS accounted for on cash basis. 27. So far as the remaining issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Revenue has been deprived of any tax. We are told that the rate of tax remained the same in the present assessment year as well as in the subsequent assessment year. Therefore, the dispute raised by the Revenue is entirely academic or at best may have a minor tax effect There was, therefore, no need for the Revenue to continue with this litigation when rt was quite clear that not only was it fruitless (on merits) but also that it may not have added anything much to the public coffers." 29. Similar view was also taken by the Hon'ble Delhi High Court in the case of CIT -vs.- Dinesh Kumar Goel (supra). Further we notice that similar issue of late payment charges to be realised on cash basis due to its high uncertainity of recovery was decided in favour of the assessee by the decision of Coordinate Bench of ITAT, Delhi in the case of DCIT, Hisar -vs.- Dakshin Haryana Bijli Vitran Nigam Limited Hisar dated 30.11.2011, wherein the relevant finding of the Tribunal, which was confirmed by the Hon'ble Punjab & Haryana High Court and thereafter the Revenue's SLP was dismissed by the Hon'ble Apex Court on 2nd August, 2019 reads as under:- "5.2. Coming to the merits, the assesses is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concept. 5.7. In the case of Poona Electric Supply Co. (supra), also the Hon'ble Supreme Court held that portion exceeds over clear profits returned as rebate to the consumers was not part of taxable income of the assessee. Thus, though the amount from consumers accrued to the assessee, due to the return on account of stipulation provided, rebate was held to be non-taxable rebate. 5.8. In case of Modi Rubber Ltd. (supra), The Hon'ble Delhi High Court affirmed the order of ITAT holding that mere unilateral act of the assessee debiting the books of account with the amount of interest, which was disputed by the debtor, did not amount to accrual of income to the assessee. 5.9. There is no dispute on the issue raised by the learned DR that principles of res- judicata are not applicable to income-tax proceedings. However, in view of Hon'ble Supreme Court judgment in the case of Radha Swami Satsang (supra), has laid down rule of consistency, which has been followed in facts of various cases in subsequent judgments. By now it is a settled principle that unless facts and circumstances have drastically changed, the principle of consistency is to be maintained in departmental action. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the said accounting treatment of LPS on cash basis has been consistently followed by the assessee from A.Y. 2003-04 and onwards and the said disclosure appears in the audited balance-sheet which are audited by three auditors including the tax auditor, Government Auditor and Controller Auditor of India and all the auditors have accepted the treatment of assessee and no objection has been raised regarding non-compliance of section 128 of the Companies Act. Section 128 of the Companies Act reads as follow:- "128. Books of account, etc., to be kept by company.-(1) Every company shall prepare and keep at its registered office books of account and other relevant books and papers and financial statement for every financial year which give a true and fair view of the state of the affairs of the company, including that of its branch office or offices, if any, and explain the transactions effected both at the registered office and its branches and such books shall be kept on accrual basis and according to the double entry system of accounting:" Since all the auditors have accepted the treatment of the assessee to be in accordance with the provisions of the Act as well as commercial parl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n waived many times. Further, there is no corresponding liability acknowledged by the customers. In fact, it is pertinent to point out that none of the customers have deducted TDS in respect of such late payment surcharge which fact too establishes that they have not accounted for liability. Moreover, as per the practical trend, there is no reasonable certainty of collection of such amount. In such circumstances applying the 3 tests laid down by the Hon'ble Apex Court in the case of Excel Industries (supra) to the facts of the given case, accrual cannot said to have taken place and the late payment surcharge is at best a hypothetical income. 32. The said treatment of LPS on cash basis further find supports from the fact tha from A.Y. 2013-14 to AY 2019-20 against the LPS due to Rs.265.43 crores, the assessee received only Rs.13.19 crores during the A.Y. 2019-20, which itself depicts that 'MECL' is not paying the LPS amount to the assessee and the recoverbility of the same is highly uncertain. It was observed by the ld. PCIT that since the customers of the assessee are only owned Government entities, the dues from them cannot be termed as uncertain. The recovery of only Rs.13.91 cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed immediately after the exc y of stipulated period of payment of 90 days, and there would have been no requirement for waiver/settlement scheme. Yet, the payments have not been received for many years as noted above in the case of MeECL and waivers have been granted. There was waiver of 60% of LPS in 2015-16 as well. The said facts itself depict that recovery through Tri-Party Agreement is not sacrosanct. (iv)Tne clause 15.2 (as captured in the judgment as well) itself provides that in case supplies are continued to be made by a CPSU to the State Discoms despite not receiving the payment within the stipulated payment, then the recovery in respect of such supply would not be guaranteed by the Government. As a matter of fact, per direction from Ministry of Power, the supply has neither been stopped not can it be stopped as the same will result in black out in the respective states which will reflect poorly on the Country and the cooperative federalism. Thus, the guarantee given under the Tri-Party agreement itself becomes redundant once supplies are continued which as a matter of fact have to be continued to avoid black-outs. (v) That, legal backing of guarantee in any case is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or prejudicial to the interest of revenue. We accordingly quash the revisionary proceedings carried out under section 263 of the Act dated 12.12.2018 by ld. PCIT and allow the grounds of appeal raised by the assessee in ITA No. 45/GAU/2019. 34. Now we take up ITA No. 418/GAU/2019 for A.Y. 2014-15. This appeal of the assessee is against the order of ld. CIT(Appeals) dated 26.07.2019, which is arising out of the consequential order framed by the ld. Assessing Officer under section 143(3) r.w.s. 263 of the Act on 31.01.2019. However, since we have already quashed the revisionary order by ld. PCIT u/s 263 of the Act dated 12.12.2018, the consequantial assessment order framed by the ld. Assessing Officer on 31.01.2019 in compliance to order u/s 263 of the Act dated 12.12.2018 becomes infructuous and liable to be quashed. Therefore, appeal of the assessee for A.Y. 2014- 15 in ITA No. 418/GAU/2019 is dismissed as infructuous. 35. In the result, the appeal of the assessee in ITA No. 45/GAU/2019 is allowed and the appeal in ITA No. 418/GAU/2019 is dismissed as infructuous. 36. Apart from the above, it is observed that as per Rule 34 of Income Tax Appellate Tribunal Rules, an order is req ..... X X X X Extracts X X X X X X X X Extracts X X X X
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