2013 (2) TMI 530 - HC - Income Tax

Deduction on Payment basis Unpaid electricity charges - Assessee has debited to the profit and loss account a sum of Rs. 1,67,10,388 towards power consumed It was a demand from Andhra Pradesh Electricity Board - Assessee had paid only a sum of Rs. 1,14,86,598 and the remaining amount of Rs. 52,23,790 was not paid either during the relevant previous year or on or before the time provided under section 139(1) - Held that - Section 43B of the Act does not speak about the electricity charges - The proviso to the section says that an assessee has to pay the actual liability on or before the due date applicable in his case for furnishing the return of income - Nowhere it is mentioned in the section or proviso to it that unpaid electricity charges are not deductible. Assessee challenging the balance electricity charges of Rs. 52,23,790 filed a writ petition before this court against the APSEB and this court granted interim stay and the writ petition is pending - As such, the assessee has shown the said amount as liability - Provisions of section 43B of the Act would not attract to such unpaid electricity charges. Further, non-payment of such disputed electricity charges to the APSEB cannot be termed as fees and that the Revenue has to give deduction to the said amount - such electricity charges are in the nature of statutory liability - Revenue has to allow them as deduction irrespective of whether or not the same has been paid and notwithstanding that the assessee has disputed any liability to pay any part of such charges - Against the Revenue

Summary

Issues:
1. Disallowance of unpaid electricity charges under section 43B of the Income-tax Act, 1961.
2. Interpretation of section 43B regarding the deductibility of electricity charges as fees.

Analysis:

Issue 1: Disallowance of unpaid electricity charges under section 43B
The case involved a private limited company engaged in the manufacture and sale of HC ferro chrome. The Assessing Officer disallowed a portion of electricity charges under section 43B of the Income-tax Act, 1961, as the company had not paid the full amount to the Andhra Pradesh Electricity Board (APSEB). The Commissioner of Income-tax upheld the disallowance, but the Income-tax Appellate Tribunal allowed the appeal, stating that the Assessing Officer was not justified in making the disallowance. The Tribunal held that the unpaid electricity charges were not covered under section 43B and, therefore, should be allowed as a deduction. The Revenue argued that the charges were in the nature of fees and should be disallowed if unpaid. However, the Tribunal found that the provisions of section 43B did not specifically include electricity charges, and thus, the disallowance was not warranted.

Issue 2: Interpretation of section 43B regarding deductibility of electricity charges
The dispute centered around whether the unpaid electricity charges should be considered as fees and hence disallowed under section 43B. The Revenue contended that the charges were for distinct services and should be treated as fees, making them subject to disallowance if unpaid. On the other hand, the respondent argued that the charges were a statutory liability and should be allowed as a deduction irrespective of payment status. The Tribunal held that section 43B did not mention electricity charges specifically and that the charges were more akin to a statutory liability, making them deductible even if unpaid. The Tribunal emphasized that the Revenue cannot interpret the provisions of section 43B in a manner that excludes electricity charges from deduction, as the section does not explicitly address such charges. Therefore, the Tribunal concluded that the electricity charges should be allowed as a deduction regardless of payment status or any dispute over liability.

In conclusion, the High Court ruled in favor of the assessee, holding that the unpaid electricity charges were not covered under section 43B of the Income-tax Act, 1961, and should be allowed as a deduction. The court emphasized that the charges were more in the nature of a statutory liability rather than fees, and thus, the Revenue was required to permit the deduction of the disputed amount.