2011 (5) TMI 1025 - AT - Income Tax

Summary

Issues Involved:
1. Addition of provision for rebate and other receivables for computation of income under sections other than section 115JB.
2. Charging of interest under section 234B due to retrospective amendment to section 115JB.
3. Computation of book profits under section 115JB concerning provision for doubtful receivables.
4. Recognition of start-up fuel costs as income.
5. Classification of receipts from Covanta Samalpatti Operating Pvt Ltd. (CSOPL) as revenue receipts.
6. Treatment of loss on sale of land classified as agricultural land.

Detailed Analysis:

1. Addition of provision for rebate and other receivables for computation of income under sections other than section 115JB:
The assessee argued that the provision for rebate is in the nature of a discount and should be allowed for normal computation of income. The rebate, auxiliary consumption, and dividend distribution tax provisions were based on actual amounts and not on an ad hoc basis. The CIT(A) was criticized for not exercising his powers to determine the allowability of these provisions. The Tribunal referred to the decisions of the Supreme Court in Rotork Control India(P) Ltd vs CIT (314 ITR 62), Bharat Earth Movers vs CIT (245 ITR 428), and Indian Transformers Ltd (270 ITR 259), which support the recognition of provisions based on reliable estimates. The issue was restored to the Assessing Officer for fresh consideration.

2. Charging of interest under section 234B due to retrospective amendment to section 115JB:
The assessee contended that interest under section 234B should not be levied on additional tax due to the retrospective amendment to section 115JB. The Tribunal admitted this additional ground, citing the Supreme Court decisions in Jute Corporation (187 ITR 688) and National Thermal Power Corporation (229 ITR 383). The Tribunal found merit in the assessee's argument, stating that interest cannot be charged for no fault of the assessee, who had paid tax according to the law existing at that time.

3. Computation of book profits under section 115JB concerning provision for doubtful receivables:
The Department appealed against the CIT(A)'s decision that item (c) of Explanation to section 115JB is not applicable to any provision for doubtful receivables. The Tribunal noted that the amendment to section 115JB by Finance (No.2) Act, 2009, with retrospective effect from the assessment year 2001-02, includes clause (i) to Explanation 1, which covers provisions for diminution in the value of any asset. Therefore, the Tribunal reversed the CIT(A)'s finding, allowing the Revenue's grounds.

4. Recognition of start-up fuel costs as income:
The CIT(A) held that income from start-up fuel costs claimed from TNEB cannot be treated as accrued since TNEB did not acknowledge the liability. The Tribunal upheld this decision, stating that the concept of accrual is based on the acquisition of an enforceable right to receive, which was not present in this case. The Tribunal cited the Supreme Court's decisions in CIT vs Chamanlal Mangaldas and Company (39 ITR 8) and Godhara Electricity Company Ltd vs CIT (225 ITR 746), supporting the view that income does not accrue if the payer does not accept the liability.

5. Classification of receipts from Covanta Samalpatti Operating Pvt Ltd. (CSOPL) as revenue receipts:
The CIT(A) ruled that deposits received from CSOPL for major maintenance expenses cannot be considered revenue receipts. The Tribunal agreed, noting that the deposits were made under a Trust and Retention Account Agreement and were meant for specific major maintenance expenses, not for the assessee's commercial use. The Tribunal found that the assessee was merely a custodian of these funds, and thus, the receipts could not be classified as revenue income.

6. Treatment of loss on sale of land classified as agricultural land:
The CIT(A) held that the loss on the sale of land, initially classified as agricultural land, constitutes a long-term capital loss eligible for carry forward. The Tribunal supported this view, noting that although the land was classified as agricultural in revenue records, it was acquired for setting up a power plant and was never used for agricultural purposes by the assessee. The Tribunal cited the Supreme Court decision in CWT vs Officer-in-Charge [Court of Wards] (105 ITR 133) and the Madras High Court decision in M.S. Srinivasa Naicker vs ITO (292 ITR 481), concluding that the land was a business asset, and the loss on its sale was a long-term capital loss.

Conclusion:
The appeal of the assessee is partly allowed and partly allowed for statistical purposes. The appeal of the Revenue is partly allowed. The order was pronounced in the open court on 24.5.2011.