2015 (10) TMI 597 - AT - Income Tax

Addition made in respect of lower provision for FOCA than authorized by MERC order - CIT(A) deleted the addition accepting additional evidence - Held that - Additional evidences were relevant to the ground of appeals. It was observed by Ld. CIT(A) that these sufficient causes were unprecedented trifurcation of MSEB, voluminous records of MSEB taken over by appellant and appellant s operations spread over far and wide areas including Naxalite infected remote areas. In addition to the above it was further seen by us that the Ld. CIT(A) had called for a remand report. The Ld. AO had sent the remand report and the same was considered by the Ld. CIT(A) before passing the appellate order. Under these circumstances admission of additional evidences is justified. We derive support from the judgment of Hon ble Delhi High Court in the case of Virgin Securities & Credits (P)(Ltd. (2011 (2) TMI 207 - DELHI HIGH COURT ). Thus, viewed from all the angles, we find that admission of additional evidences by the Ld.CIT(A) in the case of the assessee is on the basis of proper reasoning and has been done in view of principles of natural justice and the same is held to be justified and ground no.1 of the revenue s appeal is dismissed. Addition made in respect of lower provision for Fuel and Other Cost Adjustment FOCA authorized by Maharashtra Electricity Regulatory Commission - CIT deleted the addition - Held that - The MERC order, authorizing collection of FOCA from public at higher rate, were dated 5.5.2006 and 01.6.06. Since the MERC orders were statutorily binding, therefore, appellant s argument is correct that the right to recover FOCA from public accrued only in the previous year 2006-07 i.e. A Y 2007-08 and not in the year under consideration. On the proposition when income accrues the appellant has correctly relied on various case laws which are in appellant s favour. Thus, in my considered opinion, the right to recover enhanced FOCA charges from public did not accrued to appellant in the year under consideration and therefore, appellant correctly accounted for FOCA on the basis of actual. Without prejudice to this argument the AO himself (in the case of M.S.P. Generation Co. Ltd.) that that since the MERC order dtd. 07.09.2006 was received 01. 26.09.06 i.e in the next assessment year, the effect of MERC order was required to be given in subsequent assessment year. The same principle applies in case of appellant and therefore, effect of MERC order dated 05.05.06 and 01.06.2006 were correctly given by appellant in next assessment year. The MERC in their order also decided and ordered that the excess FOCA charges were to be collected by the appellant from public in the bills for the months of June, July and August 2006, which were falling in the PY 2006-07 relevant to next assessment year. Thus, when the appellant was debarred from collecting the FOCA before June, 2006, how the appellant could have offered the same in the P.Y ended on 31.03.06. As per direction of MERC, such FOCA was collected by appellant and correctly offered as revenue in the next assessment year. Considering the entirety of facts and circumstances, the binding nature of MERC order, and directions of MERC, principles of accruals of income and the fact that there was no loss of revenue (since offered in next year), the addition made by A.O is hereby deleted. - Decided in favour of assessee. Write-off of capital items - CIT(A) deleted the addition - Held that - CIT(A) has deleted the disallowance with proper reasoning and no interference is called for in the order of Ld. CIT(A). We derive support from the judgment of Hon ble Supreme Court in the case of Excel Industries Ltd. (2013 (10) TMI 324 - SUPREME COURT) and judgment of Hon ble Delhi High Court in the case of CIT vs. CIT vs. Vishnu Industrial Gases P Ltd. (2008 (5) TMI 636 - DELHI HIGH COURT ). Thus, the order of the Ld. CIT(A) on this ground is upheld Set off of brought forward/loss/unabsorbed depreciation - CIT(A) deleted the addition - Held that - It is seen that the AO has himself allowed this claim to the assessee in subsequent years. The Ld. CIT(A) has passed speaking order and the reasoning given by Ld. CIT(A) in allowing this claim is justified and does not need any interference of our part. Further, Ld. CIT(A) has allowed this claim subject to verification by the AO to ascertain the correct fact before allowing this claim. Under these circumstances we do not find if any prejudice would be caused to the revenue. In view of the above ground no.4 of the revenue being devoid of merits is hereby dismissed. Disallowance made by the AO on account of excess provision for interest/ finance charges - Held that - It is settled law that expenditure can be allowed against the business income only if the expense has been incurred for the purpose of the business and has been incurred during the year under consideration and that the expenditure should not be a capital nature. All these three conditions are cumulative. It is an admitted position by the assessee also that the expenditure under consideration did not pertain to the year under consideration and the same was recorded in the books of account, as a result of an error. Therefore, in view of these facts we find that the AO has rightly disallowed the claim and the Ld. CIT(A) has rightly upheld the action of AO in this regard. It is further seen by us that that ld. CIT(A) was fair enough in issuing requisite direction to the AO to allow the relief on this action in the next assessment year after verification of the claim made by the assessee. Under these circumstances we do not find anything wrong in the order of the Ld. CIT(A) on this issue and the same is upheld and this ground of the assessee is dismissed. Disallowance on account of excess provision for purchase of power - Held that - CIT(A) was fair enough to give requisite direction to the AO to allow the relief to the assessee company in A.Y. 2007-08 after due verification. In our view the assesse should not be agrieved when appropriate direction has already been issued to allow the claim in the correct manner and in the correct year. We find the ground of the assesse is to be devoid of merits and the same is dismissed upholding the order of the Ld. CIT(A) on this issue. Disallowance on account of capitalization of interest - Held that - DR has supported the orders of authorities below and requested for confirmation of the same. Whereas ld. Counsel of the assessee requested for allowing the claim. It is further brought to our notice that necessary rectification entries have been carried out in the books of account of the assessee in the next year. We find that the claim of the assessee was not in accordance with law. Ld. Counsel has not been able to show anything to convince that impugned interest expense can be allowed as revenue expenditure during the year under consideration. In these circumstances, we find that this claim cannot be allowed to the assessee and therefore, the order of the Ld. CIT(A) is upheld and the ground raised by the assessee is dismissed. Addition made by Ld. AO on account of recovery from temporary service communication - Held that - DR relied upon the order of the authorities below and submitted that there was suppression of the income on the part of the assessee company and Ld. CIT(A) has rightly confirmed the addition and therefore, the order of Ld. CIT(A) should be confirmed. We have gone through the arguments of both the sides this fact has not been rebutted by Ld. Counsel then before us that the impugned amount is income of the assessee. The assessee is obliged under the law to include it in its income. Since the assessee had not done so, the AO had rightly brought this amount to tax as part of income of the year under consideration and Ld. CIT(A) has rightly confirmed the order of AO on this aspect. Ld. Counsel could not assail the findings of the Ld. CIT(A) and we do not find any error in the order of Ld. CIT(A) and the same is upheld and ground of the assessee is dismissed. Electricity duty collected and paid/adjusted by the assessee company - Whether covered under the provisions of section 43B ? - Held that - electricity duty collected by the licensee from the consumers is so done by the licensee as an agent of the State and, hence, the same cannot be considered to a trading receipt in the hands of the licensee. It does not constitute income of the licensee and cannot be included in the licensee s income for the purpose of computation of income tax. It is not a business receipt of the licensee which the licensee collects on its own behalf in connection with its business of generating and supplying electricity. The licensee does not collect the electricity duty for its own consumption or utilization. If the licensee collects the duty but does not pay the same to the Government, the statute provides mechanism for the Government to recover the same from the licensee. Even iii a case where the licensee is unable to recover the duty but recovers the energy charges, the statutes still provides a procedure for the Government to recover the duty either from the consumer or from the licensee. This view of ours finds support from the decision of the Andhra Pradesh High Court in the case of Commissioner of Income Tax-vs.-Devatha Chandraiah (1983 (4) TMI 6 - ANDHRA PRADESH High Court ). Though the said case deals with sales tax, the principle laid down in that case supports our view. The mischief that Section 43B of the Income Tax Act intended to present, is taken care of by the provisions of the Bengal Electricity Duty Act itself.Thus, in our considered view, the assessee deserves to succeed.

Summary

Issues Involved:
1. Admission of additional evidence in violation of Rule 46A.
2. Deletion of addition regarding lower provision for Fuel and Other Cost Adjustment (FOCA).
3. Allowance of write-off of capital items.
4. Set-off of brought forward loss/unabsorbed depreciation.
5. Excess provision for interest/finance charges.
6. Excess provision for purchase of power.
7. Interest related to acquisition of fixed assets not capitalized.
8. Recovery from temporary service connections.
9. Applicability of Section 43B to electricity duty collected and paid/adjusted.
10. Issuance of notice under Section 271(1)(c).

Detailed Analysis:

1. Admission of Additional Evidence in Violation of Rule 46A
The revenue contended that the CIT(A) erred in admitting additional evidence without following Rule 46A. The assessee argued that due to valid reasons, some evidence could not be submitted during the assessment proceedings. The CIT(A) admitted the evidence, considering the principles of natural justice and the remand report from the AO. The Tribunal upheld the CIT(A)'s decision, finding it justified and dismissing the revenue's ground.

2. Deletion of Addition Regarding Lower Provision for FOCA
The AO added Rs. 346.57 crores to the income, arguing that the assessee understated revenue by not accounting for the MERC order in the relevant year. The CIT(A) deleted the addition, reasoning that the right to recover FOCA accrued in the subsequent year when the MERC order was received. The Tribunal upheld this decision, noting that the income was accounted for in the next assessment year, and there was no suppression of income.

3. Allowance of Write-Off of Capital Items
The AO disallowed Rs. 7.41 lakhs, considering it capital expenditure. The CIT(A) allowed the write-off, citing that low-cost items could be charged to the P&L account. The Tribunal upheld this, referencing judgments supporting the annual write-off of low-value inventory items.

4. Set-Off of Brought Forward Loss/Unabsorbed Depreciation
The AO denied the set-off, questioning the apportionment of losses among trifurcated entities of MSEB and the lack of CBDT approval. The CIT(A) allowed the claim, directing the AO to verify the facts from MSEB's records. The Tribunal upheld this decision, noting that the AO allowed the claim in subsequent years and no prejudice would be caused to the revenue.

5. Excess Provision for Interest/Finance Charges
The AO disallowed Rs. 52.79 lakhs for excess provision of interest. The CIT(A) confirmed this, directing the AO to allow relief in the next year. The Tribunal upheld this decision, noting that the expenditure did not pertain to the year under consideration.

6. Excess Provision for Purchase of Power
The AO disallowed Rs. 320.72 crores for excess provision for power purchase. The CIT(A) upheld this, directing the AO to allow relief in the subsequent year. The Tribunal agreed, finding the CIT(A)'s direction appropriate.

7. Interest Related to Acquisition of Fixed Assets Not Capitalized
The AO disallowed Rs. 39.23 lakhs for interest not capitalized. The CIT(A) upheld this, considering it capital expenditure. The Tribunal agreed, noting that the claim was not in accordance with the law.

8. Recovery from Temporary Service Connections
The AO added Rs. 7.68 crores for recovery from temporary service connections, which was not included in the income. The CIT(A) confirmed this, finding it income of the assessee. The Tribunal upheld this decision, noting that the amount should have been included in the income.

9. Applicability of Section 43B to Electricity Duty Collected and Paid/Adjusted
The AO added Rs. 23291.59 lakhs under Section 43B, considering unpaid electricity duty. The CIT(A) upheld this, directing the AO to treat the duty settled by adjustment as payment. The Tribunal disagreed, citing judgments that Section 43B was not applicable to electricity duty collected as an agent of the State. The disallowance was deleted.

10. Issuance of Notice under Section 271(1)(c)
The Tribunal found the ground premature and dismissed it.

Conclusion:
The Tribunal dismissed the revenue's appeal and partly allowed the assessee's appeal, providing detailed reasoning for each issue and upholding the principles of natural justice and correct application of law.