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2015 (10) TMI 304 - AT - Income TaxInterest income allegedly accrued at the rate of 15% on delayed payments made by the DISCOMs - CIT(A) deleted the addition - Held that - Having regard to the facts of the case including especially the absence of any clause in the relevant agreement for the levy of interest or surcharge for the delayed payment and the order of the Andhra Pradesh Electricity Regulatory Commission, denying the claim of the assessee for such interest/surcharge, we are of the view that the assessee was not entitled to claim any interest on the delayed payments from the DISCOMs for the year under consideration, and such interest income cannot be said to have accrued to the assessee for the year, as rightly held by the learned CIT(A). In that view of the matter, we uphold the impugned order of the learned CIT(A) deleting the addition made by the Assessing Officer on account of interest allegedly receivable by the assessee from the DISCOMs on delayed payments, and dismiss this appeal of the Revenue. - Decided in favour of assessee.
Issues:
- Addition of interest income accrued to the assessee on delayed payments made by DISCOMs. - Applicability of Accounting Standard-9 on revenue recognition. - Legal right of the assessee to claim interest for delayed payments. - Relevance of Power Purchase Agreement in determining interest receivable. - Decision of the Andhra Pradesh Electricity Regulatory Commission on the claim of interest by the assessee. Analysis: 1. Addition of Interest Income: The Revenue appealed against the deletion of the addition of Rs. 233.75 crores made by the Assessing Officer to the total income of the assessee on account of interest income allegedly accrued from delayed payments by DISCOMs. The Assessing Officer relied on the mercantile system of accounting and the claim made by the assessee before the A.P. Electricity Regulatory Commission for interest on delayed payments. However, the CIT(A) found that the assessee had no legal right to claim such interest as per the Power Purchase Agreement and the rejection of the claim by the APERC. The addition was deleted based on lack of entitlement to the interest income. 2. Accounting Standard-9: The assessee argued that revenue recognition should be based on the certainty of measurability and collectability, as per Accounting Standard-9. The CIT(A) agreed with this argument, emphasizing that revenue recognition should not be based on hypothetical or notional income. The absence of a provision for charging interest in the Power Purchase Agreement further supported the deletion of the addition by the CIT(A). 3. Legal Right to Claim Interest: The CIT(A) analyzed the conditions necessary for interest income to accrue to the assessee, including the existence of a legal right to claim interest as per any agreement and approval from the regulatory authority. The absence of these conditions in the agreement between APGENCO and APDISCOMs led to the conclusion that the assessee did not have a legal basis to claim interest on delayed payments, justifying the deletion of the addition by the CIT(A). 4. Power Purchase Agreement Relevance: The Tribunal noted that the Power Purchase Agreement dated 22.12.2009 allowed for charging delayed payment interest at 1.25% per month, effective from the agreement date. As this clause was not applicable for the relevant assessment year, the assessee was not entitled to charge interest on delayed payments, aligning with the decision of the CIT(A) to delete the addition. 5. APERC Decision: The APERC rejected the claim of the assessee for interest on belated payments, emphasizing the distinction between Delayed Payment Surcharge and amounts to be paid to APGENCO due to delays by DISCOMs. The APERC's decision, along with the absence of a clause in the agreement for interest or surcharge on delayed payments, supported the conclusion that the interest income did not accrue to the assessee, leading to the dismissal of the Revenue's appeal. In conclusion, the Tribunal upheld the CIT(A)'s decision to delete the addition of interest income, considering the lack of a legal basis for the claim and the regulatory decisions against such charges. The judgment emphasized adherence to accounting standards, contractual agreements, and regulatory approvals in determining the accrual of income, ultimately ruling in favor of the assessee and dismissing the Revenue's appeal.
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