2017 (8) TMI 1614 - AT - Income Tax

Book profit u/s 115JB - Revenue recognition from reimbursement of specified taxes - accounts were prepared as per Part-Il Part-Ill of Schedule-VI of the Companies Act 1956? - HELD THAT - We have gone through the decision in the case of Rain Commodities Ltd. 2010 (7) TMI 794 - ITAT HYDERABAD which has considered the decision of Hon ble Supreme Court in the case of Apollo Tyres 2002 (5) TMI 5 - SUPREME COURT and held that it was open to the AO to see whether the accounts were prepared as per PartIl Part-Ill of Schedule-6 of the Companies Act 1956. In this case it is an admitted fact that assessee s accounts have not been prepared as per the requirements of Part-Il Part-Ill of Schedule-VI of the Companies Act 1956 which is reflected in the Auditors statement which is reproduced.. Thus on such issues as held by the Special Bench of Hyderabad it was open to the AO to see whether the accounts were prepared as per Part-Il Part-Ill of Schedule-VI of the Companies Act 1956. Since the AO has found that the assessee did not follow the Accounting Standard properly it had not recognised the income properly and it had not prepared its financial statements as per Part II and Part III of Schedule VI to the Companies Act 1956 and made the impugned additions and the assessee has not challenged such findings with relevant material its pleas are untenable and hence rejected. The income which has to be assessed in a particular year can not be assessed in any other year. Therefore the impugned items of income are assessable in this assessment year and hence the additions made u/s 115 JB are also confirmed.- Decided in favour of assessee.

Summary

Issues Involved:

1. Addition towards cash discount.
2. Addition towards Return on Equity.
3. No decision on appeal relating to Equity Incentive.
4. Incorrect amount relating to Capital Cost.
5. Incorrect description of Fuel cost.
6. Addition towards Income received from TRA Account.
7. Additions made under Section 115JB.
8. Revenue's cross appeal regarding revenue recognition from reimbursement of specified taxes.

Detailed Analysis:

1. Addition towards cash discount:

The CIT(A) confirmed the addition towards the cash discount without appreciating that TANGEDCO was making payments after deducting the cash discount on an ad hoc basis, arbitrarily, since 2001, despite not being entitled to as per the provisions of the PPA. The assessee argued that the realisability of income was uncertain, warranting non-recognition of revenue to the extent of Rs. 17.16 crores.

2. Addition towards Return on Equity:

The CIT(A) confirmed the addition towards Return on Equity (Rs. 9.09 crores under dispute before TNERC) without appreciating that the definition of Equity as per the PPA is restricted to the subscribed and paid-up capital on the date of Commercial Operations. The assessee argued that the provisional capital cost for billing was Rs. 1,364.40 crores, but due to disputes, they restricted it to Rs. 1,314.40 crores for income recognition.

3. No decision on appeal relating to Equity Incentive:

The CIT(A) did not decide on the issue relating to equity incentive amounting to Rs. 2.62 crores raised in the grounds of appeal. The assessee is entitled to an incentive based on actual generation, which is a percentage factor linked to Equity. Following prudence, Rs. 2.62 crores was not recognized as income during the year.

4. Incorrect amount relating to Capital Cost:

The CIT(A) erred in considering Rs. 66 crores as capital cost instead of Rs. 50 crores. TANGEDCO had disallowed capital cost to the extent of Rs. 127 crores, and the assessee, following prudence, did not recognize FCC income in the books to the extent of Rs. 50 crores of capital cost disallowance.

5. Incorrect description of Fuel cost:

The CIT(A) erred in confirming the addition of Rs. 2.93 crores and describing it as fuel handling charges instead of fuel cost. The amount claimed was in excess of the eligible claim as per the PPA terms, hence not recognized as revenue.

6. Addition towards Income received from TRA Account:

The CIT(A) confirmed the treatment of interest income received from Trust and Retention Account (TRA) deposits amounting to Rs. 5.94 crores as Income from Other Sources, consequently denying deduction under Sec 80IA.

7. Additions made under Section 115JB:

The CIT(A) confirmed the additions made by the AO regarding additions made u/s 115JB amounting to Rs. 41.76 crores without appreciating that the accounts were prepared in accordance with the Companies Act, 1956. The AO found that the assessee did not follow the Accounting Standard properly, did not recognize the income properly, and did not prepare its financial statements as per Part II and Part III of Schedule VI to the Companies Act, 1956. This was supported by the decision of the Hon'ble ITAT, 'B' (Special) Bench, Hyderabad in the case of Rain Commodities Ltd. Vs. Dy. CIT.

8. Revenue's cross appeal regarding revenue recognition from reimbursement of specified taxes:

The CIT(A) directed the AO to delete the addition of Rs. 4,76,28,590/- made towards revenue recognition from reimbursement of specified taxes for AY 2009-10, following the ITAT decision in the assessee's own case for AY 2004-05. The revenue argued that the facts for the assessment year under consideration were different, as the assessee had not given up its right to reimbursement and offered the same as income in subsequent assessment years.

Conclusion:

The tribunal sustained the additions made by the AO under normal computation and u/s 115JB, rejecting the assessee's pleas based on the findings that the assessee did not follow the Accounting Standard properly, did not recognize the income properly, and did not prepare its financial statements as per Part II and Part III of Schedule VI to the Companies Act, 1956. Consequently, the assessee's appeal was dismissed, and the Revenue's cross appeal was allowed.