2020 (11) TMI 99 - HC - Income Tax

Allowable expenditure in terms of Explanation to Section 37(1) - Provision made by the Assessee towards demand raised by Kerala State Electricity Board towards alleged theft of power, (Which was subsequently set aside by the Kerala High Court) - Whether Tribunal was right in law in not following the decision in Exide Industries Ltd and another Vs. Union of India Others 2020 (4) TMI 792 - SUPREME COURT - Whether the claim for provision for demand raised by KSEB is disallowable under Explanation to Section 37 when the Kerala High Court has dismissed the case of KSEB and has held that there was no theft of power? - HELD THAT - Substantial Question of Law No.4 is concerned, the same has to be answered against the assessee in the light of the decision of the Hon'ble Supreme Court of India in the case of Union of India and others Vs. Exide Industries Ltd and another supra - Accordingly, the same is answered against the assessee. Substantial Question of Law Nos.1 to 3, we find that no material was placed by the assessee before the Tribunal to show that the assessee had succeeded in the Writ Petition filed by them before the High Court of Kerala, wherein according to the assessee, there is an observation that it is not theft of energy, but a case of excess consumption. Assessee submitted that though the assessee succeeded before the learned Single Judge, the Electricity Board filed Writ Appeal before the Hon'ble Division Bench, which was dismissed only in the year 2011. Though such submission is made before us, there is no scrap of paper placed before this Court either as an averment in the Memorandum of Grounds of appeal or a document in the typed set of papers. There is no mention about any order passed by the High Court of Kerala in favour of the assessee in the Memorandum of Grounds of appeal. We do not wish to place the assessee in a disadvantageous position, because no person should be put to prejudice on account of a Court order. This Court is inclined to grant liberty to the assessee to move the Tribunal by way of Miscellaneous Petition, raising all contentions and if such Miscellaneous Petition is filed, the Tribunal shall entertain the same without reference to limitation.

Summary

Issues:
1. Allowability of provision made by the assessee towards demand raised by Kerala State Electricity Board for alleged theft of power.
2. Disallowance of claim for provision when Kerala High Court dismissed the case of KSEB.
3. Entitlement for deduction under Section 37(1) of the Income Tax Act in respect of provision towards a crystallized liability.
4. Application of the decision in Exide Industries Ltd case.

Analysis:
1. The appeal challenged the order of the Income Tax Appellate Tribunal regarding the provision made by the assessee towards demand raised by Kerala State Electricity Board for alleged theft of power. The Tribunal held it as not an allowable expenditure under Section 37(1) of the IT Act. The High Court found that no material was presented to show the assessee's success in the Writ Petition filed before the High Court of Kerala, where it was observed as a case of excess consumption, not theft of energy. The Court granted liberty to the assessee to move the Tribunal by filing a Miscellaneous Petition to present all contentions and relevant orders from the High Court of Kerala.

2. The High Court addressed the disallowance of the claim for provision when the Kerala High Court dismissed the case of Kerala State Electricity Board. The Court noted that the assessee had succeeded before the Single Judge, and the Electricity Board's Writ Appeal was dismissed later. However, the Court emphasized the lack of evidence or documents supporting this claim in the appeal. Despite this, the Court granted liberty to the assessee to file a Miscellaneous Petition before the Tribunal to present relevant documents and arguments.

3. Regarding the entitlement for deduction under Section 37(1) of the Act in respect of provision towards a crystallized liability, the High Court highlighted the absence of specific details or orders from the High Court of Kerala supporting the assessee's position. The Court granted liberty to the assessee to submit necessary documents and contentions through a Miscellaneous Petition before the Tribunal for further consideration.

4. The Court addressed the application of the decision in the Exide Industries Ltd case, which was cited as a precedent. The High Court ruled against the assessee based on the Supreme Court's decision in the Union of India vs. Exide Industries Ltd case. The Court granted liberty to the assessee to raise additional grounds before the Tribunal through a Miscellaneous Petition, despite the usual requirement of raising all grounds before the lower forums. This liberty was granted based on the specific circumstances of the case and should not be considered a precedent for future cases.