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2012 (7) TMI 340 - AT - Income TaxAddition made on account of non realization of Provision for surcharge - CIT(A) deleted the addition - Held that - assessee changed its method of accounting after seeking necessary approval of CAG shows that as far as the assessee is concerned the collection of surcharge was contingent and did not accrue due to assessee. The liability will accrue on the basis of crystallization i.e. the payment of the surcharge or passing of a suitable order by the appropriate authority on the dispute raised by the customer - assessee being a state PSU the surcharge on delayed payment being disputable item was not mandatorily payable at the time of payment of electricity consumption bill was not an accrued receipt in view of the accounting policy accepted by the revenue - such amount of surcharge cannot be held to be taxable as it is not the real income of the assessee and is hypothetical by nature in given facts and circumstances and does not amount to accrued of receipt taxable as income - in favour of assessee. Addition u/s 40(a)(ia) on account of non deduction of tax on the payment of wheeling / transmission charge - CIT(A) deleted the addition - Held that - Considering the clauses of transmission service agreement it is clear that all the parties involved with generation transmission and distribution of electricity are to comply with the direction of State Load Dispatch Center and the Regulatory Commission for achieving the economy and efficiency in the operation of power system and therefore question of any person rendering service to another does not arise. The operation and maintenance of transmission lines by RVPNL and the use of these lines by assessee for transmitting energy does not result into any technical service being rendered to the assessee - the services rendered qua interconnection/port access do not involve any human interface and therefore the same cannot be regarded as technical services as contemplated under section 194J - there is no liability to deduct tax at source on payment of transmission/wheeling/SLDC charges under section 194J or for that matter under section 194C - transmission/wheeling/SLDC charges is reimbursement of the cost therefore the provisions of Chapter XVII-B are not applicable since there is no payment of income/revenue by the assessee - in favour of assessee.
Issues Involved:
1. Deletion of addition of Rs. 89.66 crores on account of non-realization of 'Provision for surcharge'. 2. Deletion of disallowance made under section 40(a)(ia) of the IT Act, 1961 amounting to Rs. 152.53 crores. 3. Determination of whether payments made by the assessee in the form of transmission/wheeling/SLDC charges were liable for tax deduction at source under sections 194J or 194C of the Income Tax Act, 1961. Issue-wise Detailed Analysis: 1. Deletion of Addition of Rs. 89.66 Crores on Account of Non-realization of 'Provision for Surcharge': The assessee, a government undertaking distributing electricity in Southern Haryana, levied a surcharge on delayed payments. The AO added Rs. 89.66 crores to the assessee's income for the surcharge levied but not realized. The CIT(A) deleted this addition, following the decision for the assessment year (A.Y.) 2006-07, which was upheld by ITAT, Delhi. The Tribunal noted that the assessee accounted for surcharge on a receipt basis following the advice of statutory auditors and the decision of the Audit Committee of the Board of Directors. The Tribunal upheld the CIT(A)'s decision, emphasizing that the surcharge was contingent and did not accrue to the assessee. The Tribunal cited several case laws, including the Supreme Court's decision in Shoorji Vallabh Das & Co., which held that hypothetical income is not taxable. The Tribunal confirmed that the facts were consistent with previous years and upheld the CIT(A)'s order, rejecting the Department's appeal on this issue. 2. Deletion of Disallowance Made Under Section 40(a)(ia) Amounting to Rs. 152.53 Crores: The AO disallowed Rs. 152.53 crores under section 40(a)(ia) for non-deduction of tax on payments for wheeling/transmission charges. The CIT(A) deleted this disallowance, following the ITAT's decision in the assessee's case for A.Y. 2008-09, which held that the assessee was not required to deduct tax at source under section 194J for such payments. The Tribunal reiterated that the payments for wheeling/transmission charges did not constitute 'fees for technical services' under section 194J. The Tribunal referenced the Jaipur ITAT's decision in Jaipur Vidyut Vitran Nigam Ltd. v. ITO, which held that the operation and maintenance of transmission lines did not involve rendering technical services to the assessee. The Tribunal emphasized that the payments were for the use of a standard facility and did not involve human intervention, aligning with the Delhi High Court's decision in Bharti Cellular Ltd. The Tribunal upheld the CIT(A)'s order, rejecting the Department's appeal on this issue. 3. Determination of Whether Payments Made by the Assessee in the Form of Transmission/Wheeling/SLDC Charges Were Liable for Tax Deduction at Source Under Sections 194J or 194C: The Tribunal examined whether the payments for wheeling/transmission/SLDC charges were liable for tax deduction at source under sections 194J or 194C. The Tribunal concluded that these payments did not constitute 'fees for technical services' under section 194J, as they did not involve human intervention or the provision of technical services. The Tribunal also considered whether the payments were liable under section 194C and concluded that they were not, as the payments were for the use of a standard facility rather than for any specific services rendered. The Tribunal upheld the CIT(A)'s order, rejecting the Department's appeal on this issue. Conclusion: The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s order on all issues. The Tribunal confirmed that the addition of Rs. 89.66 crores on account of non-realization of 'Provision for surcharge' was correctly deleted, the disallowance under section 40(a)(ia) was properly removed, and the payments for wheeling/transmission/SLDC charges were not liable for tax deduction at source under sections 194J or 194C. The Tribunal emphasized the principle of consistency and the importance of following precedents in similar cases.
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