2011 (2) TMI 1193 - HC - Income Tax

Provision for liability towards differential tariff payable to the KSEB - whether assessee was entitled to concessional power tariff debited the P& L account - as per dept assessee has no justification to debit P & L account merely because some arrear bills are received from the KSEB. Held that - As Standing counsel submitted that genuineness or correctness of the bills itself should be doubted because KSEB did not raise the bills for the relevant year to which the liability relates - appeal allowed by setting aside the order of the Tribunal and that of the first appellate authority and remand the matter to the Assessing Officer for reconsidering the developments that took place based on evidence to be produced by the assessee and in fact the ultimate settlement of liability which would have taken place in the course of the last eight years - appeal allowed by way of remand

Summary

Issues:

1. Whether the Tribunal was justified in allowing a provision for liability created by the respondent assessee towards differential tariff payable to the KSEB for the assessment years 2000-2001 and 2001-2002.

Analysis:

The High Court of Kerala deliberated on the question of whether the Tribunal's decision to permit a provision for liability created by the respondent assessee towards differential tariff owed to the KSEB for the assessment years 2000-2001 and 2001-2002 was justified. The assessee, entitled to concessional power tariff, debited a substantial amount in the P&L account, representing arrears billed by the KSEB for the preceding two years. The revenue contended that the assessee had not paid the arrear bills raised by KSEB, emphasizing that the liability for power charges was not of the previous year but based on arrear bills from earlier years. On the contrary, the assessee argued that since the arrear bills were raised in the previous year, provisions should be made in the current year's accounts, and despite contesting the matter through a writ petition, partial payments had been made. The Tribunal's decision was criticized for not considering crucial aspects of the case and allowing the claim based on a provision under Section 41(1) of the Income Tax Act without substantial evidence. The High Court highlighted that if the assessee had made partial payments and contested the liability through court orders preventing disconnection by KSEB, deductions could be allowed. However, in the absence of material supporting the assessee's contentions and due to questionable bill authenticity, the Court decided to set aside the Tribunal's order and remand the matter to the Assessing Officer for a fresh review based on evidence to be presented by the assessee.

The Court emphasized the importance of substantiating the case before the Assessing Officer, allowing the assessee to provide all relevant records for reconsideration. The Assessing Officer was directed to reassess the situation, taking into account the developments over the past eight years, including the ultimate settlement of liability. The Court stressed the need for information from KSEB regarding the nature of liability, the progress of the legal contest, and any court orders against KSEB issued by the High Court. The decision to remand the matter aimed to ensure a thorough evaluation of the evidence and a fair determination of the liability issue, considering all pertinent factors and records presented by the assessee.