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TMI Blog2017 (3) TMI 1675X X X X Extracts X X X X X X X X Extracts X X X X ..... lant's total income for the year by ignoring the reversa1 of excess billing made by the Appellant in its books of accounts following the order passed by the Maharashtra Electricity Regulatory Commission. 1:2 The Appellant submits that considering the facts and circumstances of its case and the law prevailing on the subject the total billing of the Appellant for the year was only Rs. 5,361.70 crores and not Rs. 5,692.56 crores as considered by the Assessing Officer and the Commissioner of Income-tax (Appeals) ought to have held as such. 1:3 The Appellant submits that the Assessing Officer be directed to delete the addition of Rs. 320,72,82,510/- made by him and to recompute the Appellant's total income accordingly. 2:0 Re: Addition of Rs. 2,41,00,000/- to the closing stock: 2:1 The Commissioner of Income-tax (Appeals) has erred in confirming the action of the Assessing Officer of making an addition of Rs. 2,41,00,000/- to the closing stock of the Appellant for the year under consideration. 2:2 The Appellant submits that considering the facts and circumstances of its case and the law prevailing on the subject the addition of Rs. 2,41,00,000/- made by the Assessing Officer is err ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... annot be any eligibility for set-off or allowance of loss or unabsorbed depreciation in the case of assessee under any provisions. 7. The appellant prays that the order of CIT(A) on the above ground be set aside and that of the A.O be restored. 8. The appellant craves leave to amend or alter any grounds or add a new ground which may be necessary." 2. Briefly stated, the facts of the case are that the assessee company had started functioning from 06.06.2005 after the erstwhile Maharashtra State Electricity Board (for short 'MSEB') trifurcated into 3 companies, viz Maharashtra State Power Generation Co. Ltd. (i.e. the assessee), Maharashtra State Electricity Distribution Co. Ltd. and Maharashtra State Electricity Transmission Co. Ltd. That each of the aforesaid companies were to look into one of the three aspects of the erstwhile MSEB, i.e. generation, distribution and transmission of electricity, respectively, as a result whereof the assessee company was engaged in the business of electricity generation, and the year under consideration was the first year of its operation. 3. The assessee company filed its return of income for A.Y. 2006-07 on 30.11.2006, declaring Nil income aft ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... original return of income, had however failed to put forth an explanation as regards the same. The A.O further being of the view that though the revised return of income was filed by the assessee company within the stipulated period contemplated u/s 139(5), but however in the backdrop of the fact that no omission or wrong statement was discovered by the assessee in its original return of income, therefore the assessee company was divested of its right of filing a revised return of income. The A.O thus in the backdrop of his aforesaid observations, therein holding a conviction that the reduction in the total income was both irregular and unsubstantiated, made an addition of Rs. 334,57,16,988/- in the hands of the assessee company. 5. That the assessee company in its return of income had claimed setting off of the carried forward losses of erstwhile MSEB in its hands, on the basis that as MSEB was demerged into three companies, therefore the said three companies were entitled to carry forward the loss of the erstwhile MSEB. That during the course of the assessment proceedings the assessee company placed on record a chart showing B/forward losses and unabsorbed depreciation of the er ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the facts of the case in the backdrop of the contentions of the Ld. A.R., therein deliberated on the different issues as were assailed by the assessee, as under:- (i) The CIT(A) adverting to the validity of the revised return of income filed by the assessee company as on 02.08.2007, at the very outset held that the same had been filed within time period contemplated u/s 139(5) of the 'Act'. The CIT(A) thereafter dealing with the observations of the A.O that as no omission or wrong statement was discovered by the assessee in its original return of income, therefore the assessee company was not entitled to file a revised return of income, therein taking cognizance of the fact that as the original return of income was filed by the assessee on the basis of unaudited accounts which in itself was based on the report of an auditor K.B. Kasliwal, chartered accountant, who in his report dated 28.11.2006 filed in 'Form No. 3CD' had categorically reported that the report was prepared on the basis of copy of unaudited Profit & Loss A/c/Income & Expenditure A/c and Unaudited Balance Sheet. The CIT(A) duly appreciating that the assessee company which had came into existence as on 06.06.2005 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d unreconciled, thus concluded that it was a conceded fact that the assessee company in its revised return had given a 'Note' therein pointing out that the reason for revising the return of income was that the original return was filed on the basis of unaudited accounts, as the accounts could not be got audited till the 'due date' of filing of the return of income, while for the revised return was filed on the basis of the audited accounts. Thus in the backdrop of the aforesaid facts which were duly conveyed by the assessee company in its revised return of income, therein prima facie explained the reasons for difference in the original and revised return, which could have easily been gathered by the A.O by perusing and comparing the different figures of the Profit & Loss account and Balance sheet, etc., which were duly enclosed by the assessee company with the original as well as revised return. The CIT(A) thereafter specifically referring to the primary reason leading to the substantial variance in the respective returns, therein observed that in the order dated 07.09.2006 of Maharashtra Electricity Regulatory Commission (for short 'MERC'), it was mentioned in detail as regards th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cceptable, as the MERC order dated 07.09.2006 was issued after end of the year under consideration, while for the books of accounts of the assessee company were closed on 31.03.2006. The A.O had further averred that since the MERC order was issued and received in the subsequent year, therefore effect to the same was required to be given in the books of subsequent year, as a result whereof the assessee company could have made necessary adjustment in the account of the said latter year only. The CIT(A) finding himself as not being an agreement with the view of the A.O, and rather observing that prior to demerger MSEB's tariff structure including other aspects, were being controlled by the statutory body, viz. MERC, and the orders of MERC were statutorily binding on MSEB, and after trifurcation of MSEB, the assessee along with other two companies came into existence, and the said trifurcated companies also remained under the statutory control of MERC in respect of tariff structure of power and other items, and as such the orders of MERC were statutorily binding on the assessee company. That in the backdrop of the aforesaid facts it was observed by the CIT(A) that though the MERC order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sale of electricity shown in the accounts (as per the mutual consent of both companies) was thus found to be recorded in excess. Thus in the backdrop of the MERC order the assessee company had correctly reversed the excess revenue of 320,72,82,510/- in its revised return of income. The CIT(A) adverting to the last limb of the contention of the A.O that since the MERC order was received on 26.09.2006, therefore the effect of the same was required to be given in the next assessment year, therein duly appreciating that the adjustment of the excess revenue of Rs. 320,72,82,510/- pertaining to the year under consideration was not possible in the next assessment year, since there was no such provision in the income tax act for claiming reversal of revenue in the next year, therefore the revenue and expenditure relatable to the year under consideration could only be recorded in the hands of the assessee company in the relevant year only. (iv) The CIT(A) further observed that the revenue (sale/billing of electricity) of the assessee company was the expenditure (purchase of electricity) of MSEDCL, wherein the latter was also being assessed with the same A.O, i.e. ACIT-10(1), Mumbai. It was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he disallowance by the A.O of various other items of disallowance forming part of the difference of income of Rs. 334,57,16,988/-, therein dealt with the said respective issues ,as under:- (i) Provision of Service Tax of Rs. 33.52 lac: The CIT(A) observed that the aforesaid amount was payable by the assessee company to GAIL for supply of gas, which was included by the latter in the gas supply bills. Thus in the backdrop of the aforesaid facts, the CIT(A) concluded that as the amount which was payable to GAIL was as part of cost of gas and not as a tax to Government, thus the same did not call for any disallowance u/s 43B of the 'Act'. (ii). Provision of difference in oil stock of Rs. 20.04 lac: The CIT(A) adverting to the provision of difference in oil stock of Rs. 20.04 lac, therein held that the same was allowable since the physical inventory of oil stock was carried out in the month of September/October,2005, and not during September/October, 2006 as had been misconceived by the A.O. (iii). ROC tax paid at Rs. 199.88 lac : The CIT(A) adverting to the disallowance of ROC tax paid at Rs. 199.88 lac, therein observed that as the same was not pressed by the assessee company vide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... value of electricity, which was claimed as an expenditure by MSEDCL(i.e the company which had purchased the electricity from the assessee company) was disallowed in the latters assessment, which disallowance had thereafter been upheld in appeal, coupled with the fact that irrespective of the year in which effect to the difference in the income was to be given in the hands of the assessee company, viz. the year under consideration A.Y. 2006-07 (as claimed by the assessee) or the immediately succeeding year, i.e A.Y. 2007-08 (as averred by the department), keeping in view the fact that the respective tax rates for both the years was same, therefore no loss of revenue was suffered by the department. However, the CIT(A) thereafter referring to the order dated: 07.09.2006 of MERC, therein observed that MERC vide its aforesaid order had categorically directed that the tariff order was to be effective prospectively from the month of September, 2006 for all billing purposes. The CIT(A) thus observing that as the entire order of MERC was in respect of determination of tariff for F.Y.2006-07, though at some places the Annual Revenue requirement of F.Y. 2005-06 also stood mentioned. The CIT(A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue being aggrieved with the respective findings of the CIT(A), had therein carried the matter in appeal before us. That at the very outset of the hearing of the appeal, it was submitted by the ld. Authorized representative (for short 'A.R') for the assessee company that it was not pressing 'Ground of appeal No.2' so raised in the appeal filed by the assessee company. That in the light of the concession made by the Ld. A.R, the 'Ground of appeal No.2' so raised by the assessee company is thus dismissed as not pressed. Thus only the 'Ground of appeal No. 1' survives for adjudication in the appeal filed by the assessee company before us. The Ld. A.R adverting to the 'Ground of appeal No. 1' therein averred that the CIT(A) had rightly concluded that the revised return filed by the assessee company was a valid return, and the reasons as regards the difference of Rs. 334,57,16,988/- in the income shown by the assessee in its original return of income and the revised return had duly been explained by the assessee, both by way of a note appended in the statement of the total income filed alongwith the return of income, as well as by replying to the query as was raised by the A.O on the sai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rashtra Electricity Regulatory Commission (for short 'MERC'). It was submitted that after trifurcation of MSEB, the assessee along with other two companies came into existence, and the said trifurcated companies also remained under the statutory control of MERC in respect of tariff structure of power and other items, and as such the orders of MERC were statutorily binding on the assessee company. It was thus submitted by the Ld. A.R that as both of the aforesaid companies were under the statutory control of MERC in respect of fixation of tariff and other items, therefore pursuant to the order dated. 07.09.2006 passed by MERC, as per which it was decided that the assessee company should charge lower tariff, the revenue from sale of electricity to MSEDCL shown in the accounts of the assessee company (as per the mutual consent of both companies) on the basis of which the original return of income had been filed, was found to be recorded on the higher side. The Ld. A.R averred that in the backdrop of the MERC order which was binding on the assessee company, the latter reversed the excess revenue of Rs. 320,72,82,510/- on the count of lower tariff fixed by MERC (forming part of the tota ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich came up for public hearing before several consumers, the representatives of various consumer organizations, and other shareholders on 13th June, 2006 and having stood over for consideration till this day, the Commission passes the following ORDER. ______________________________________________ MERC, Mumbai ______________________________________________" The Ld. A.R reverting to the adverse inferences drawn by the CIT(A), who by referring to the order dated: 07.09.2006 of MERC, had therein observed that MERC vide its aforesaid order had categorically directed that the tariff order was to be effective prospectively from the month of September, 2006 for all billing purposes, and as such was in respect of determination of tariff for F.Y.2006-07, and would not be thus effective for the year under consideration, viz. F.Y 2005-06, therein in order to drive home his contention that the aforesaid order dated : 07.09.2006 of MERC was applicable and therein regulated the tariff chargeable by the assessee company from MSEDCL for F.Y. 2005-06, thus referred to a letter dated. 16.07.2009 received by the assessee company from the Director (Tariff), MERC, which therein clearly spelt out th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see company, which had been reversed in the balance sheet. The aforesaid Note 14 reads as under: - "MSPGCL has billed total 5684.40 crores (at notional unit rate which is base rate Rs. 1.26 plus adhoc FAC Rs. 0.14 per unit plus actual FAC approved MERC) for sale of Electricity to the MSEDCL and accordingly excess billing of Rs. 320.73 Crores have been reversed in the Balance Sheet." The Ld. A.R thus on the basis of the aforesaid facts, coupled with the fact that as appreciated by the CIT(A) that now when the excess purchase value of electricity, which was claimed as an expenditure by MSEDCL (i.e the company which had purchased electricity from the assessee company) was disallowed in the latters assessment which thereafter had been upheld in appeal, and that irrespective of the year in which effect to the difference in the income was to be given in the hands of the assessee company, viz the year under consideration A.Y. 2006-07 (as claimed by the assessee) or the immediately succeeding year, i.e A.Y. 2007-08 (as averred by the department), keeping in view the fact that the respective tax rates for both the years was same, would thus not lead to any loss of revenue to the departmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orded Order dated. 07.09.2006 r.w letter dated. 16.07.2009 of MERC, but rather had most arbitrarily failed to take cognizance of the observations of the ITAT so passed in the case of M/s Maharashtra State Electricity Distribution Co. Ltd.(supra), ITA No. 720/Mum/2010, A.Y. 2006-07, wherein the Tribunal had confirmed the disallowance of excess provision for purchase of power amounting to Rs. 320.72 crores by MSEDCL from the assessee company, viz. Maharashtra State Power Generation Co. Ltd in the year under consideration, viz. A.Y. 2006-07. The Ld. A.R thus submitted that the addition of Rs. 320,72,82,510/- sustained by the CIT(A) may therein be deleted. That on the other hand the Ld. Departmental representative placed heavy reliance on the order of the CIT(A), and specifically took support of the observations of the first appellate authority at Page 19 - Para 2.3.2 and Page 21 of the latters order. The Ld. D.R therein referring to the order dated. 07.09.2006 of MERC, therein submitted that as the tariffs contemplated therein were for F.Y. 2006-07 and not for the year under consideration, therefore the CIT(A) had rightly upheld the addition of Rs. 320,72,82,510/- in the hands of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rms "....Revenue Requirements for FY 2005-06 & 2006-07", can thus be safely construed by according a literal meaning thereof, as an approval which was sought by the assessee company from MERC in respect of F.Y. 2005-06 & F.Y. 2006-07. However, we cannot loose sight of the very fact that the assessee company had placed on record of the CIT(A) a letter dated. 16.07.2009 of MERC (Page 732 of 'APB'), which had therein put to rest the dilemma as regards the scope of its order dated. 07.09.2006, by clarifying beyond any scope of doubt that the tariff chargeable by the assessee company, viz. Maharashtra State Power Generation Company Limited from Maharashtra State Electricity Distribution Co. Ltd. (MSEDCL) for the year ended March 31, 2006 [Financial Year: 2005-06] was as approved by the Commission, viz. MERC, vide its order dated. 07.09.2006. Thus the plain and clear language of the letter dated. 16.07.2009 of MERC, which was in pursuance of the specific query raised by the assessee company vide its letter dated. July 14, 2009, as to whether the order of the Commission would also be applicable for F.Y. 2005-06, which as observed by us hereinabove, was answered by MERC in affirmative. We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erein the Tribunal as observed by us hereinabove had confirmed the disallowance of excess provision for purchase of power amounting to Rs. 320.72 crores by MSEDCL from the assessee company, viz. Maharashtra State Power Generation Co. Ltd. We thus in the backdrop of our aforesaid observations, as well as the fact that a coordinate bench of the Tribunal while disposing of the appeal of the purchaser company, viz. MSEDCL, had already related the order of the Commission, viz. MERC with the year under consideration, i.e A.Y. 2006-07, therefore we find no reason to take a different view, and as such delete the addition of Rs. 320,72,82,510/- in the hands of the assessee company. The 'Ground of appeal No. 1' is thus allowed in terms of our aforesaid observations. That as the 'Ground of appeal No.3' is general in nature and the Ld. A.R had not raised any averment as regards the same, the same is dismissed as not pressed. 15. The appeal of the assessee company is partly allowed in light of our aforesaid observations. ITA NO. 418/MUM/2010 : 1. We now advert to the appeal of the revenue. The revenue had assailed the admission of the 'additional evidence' by the CIT(A), vide 'Ground of appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation". 2.1 The Ld. D.R during the course of hearing of the appeal therein submitted that the CIT(A) summarily accepting the contention of the assessee, had therein most arbitrarily and without carrying out any verification as regards the genuineness and veracity of the claim of the assessee company, thus simply going by the statement of the assessee had therein stated at Page 19 of his order, as under:- "The appellant has explained that interest on Power Finance Corpn. is allowable u/s 43B." It was thus averred by the Ld. D.R that the CIT(A) had erred in allowing the aforesaid relief to the assessee on the basis of a non-speaking order, which thus could not be sustained in the eyes of law, and as such was liable to be set aside. That on the other hand the Ld. A.R referring to 'Schedule 31' of the 'Statement of accounts' of the assessee company, which is headed as 'Payments due on Capital Liabilities' (Page 134 of 'APB'), therein submitted that it stood duly certified by the auditors that an amount of Interest of Rs. 5,492.54463 (in lac) had became due during the period 31.05.2005 to 31.03.2006, but the said entire amount, viz. Rs. 5,492.54463 (in lac) was paid by the assessee c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsideration to the facts of the case in light of the settled position of law, and though find ourselves to be in agreement with the contention of the Ld. A.R, but then are of the considered view that the said factual position was supposed to be verified by the CIT(A), whom we find had dispensed with the same and had gone by and accepted the contention of the assessee at the very face of it. We thus are of the considered view that the facts pertaining to the said issue requires verification, and thus restore the matter to the file of the CIT(A). The CIT(A) is herein directed to pass a speaking order and if the claim of the assessee is found to be in order, then no disallowance of any part of the interest on P.F.C loan would be called for in its hands. Needless to say, the CIT(A) shall during the course of the set aside proceedings shall consider the objections of the department on the issue under consideration, and afford reasonable opportunity to the assessee company to rebut the objections raised by the department and substantiate its claim that no disallowance of any part of interest on P.F.C loan is called for under Sec. 43B of the 'Act'. The 'Ground of appeal No. 2' is thus all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e revenue had further averred that the CIT(A) had erred in allowing the claim of the prior period expenses made by the assessee company in its revised return of income, without appreciating that the said expenses pertained to the period prior to the existence of the assessee company and hence, were not allowable. The revenue had further claimed that the CIT(A) had erred in allowing claim of reduction of Rs. 4.27 lac on account of prior period billing without appreciating that the assessee itself had during the course of the appellate proceedings before the CIT(A) therein stated that the said amount was taxable during the year under consideration. The revenue had assailed the aforesaid issues vide 'Ground of appeal no. 4' and 'Ground of appeal no. 5', as under:- "4. On the facts and in the circumstances of the case, the ld. CIT(A) erred in allowing the claim of prior period expenses made in the revised return by the assessee company without appreciating that the said expenses pertained to the period prior to existence of the assessee company and hence, were not allowable. 5. On the facts and in the circumstances of the case, the ld. CIT(A) erred in allowing claim of reduction of R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not final as the same were subject to out come of further appellate orders in case of MSEB. It has been brought to the notice of undersigned that the CIT(A)-1, Mumbai has passed appeal order dated. 18.03.2009 for A.Y. 2001-02 in case of MSEB deleting the additions made to the total income of MSEB amounting to Rs. 1947.86 crore which will consequently effect c/f of losses. The A.O is directed to consider the same including any other orders passed subsequently by CIT(A)/ITAT and courts in case of MSEB." We find that the CIT(A) had merely given 'directions' to the A.O for carrying out certain verifications as regards the assessed brought forward unabsorbed losses and depreciation of erstwhile MSEB, as was available as a final outcome of the further appellate orders passed in the case of MSEB. We are of the considered view that the final outcome of the exercise carried out by the A.O in pursuance to the directions of the CIT(A), would safely take care of the issues assailed by the revenue vide 'Ground of appeal no. 6' , hereinabove. Thus in the backdrop of the aforesaid facts as they so remain, we find no infirmity in the aforesaid directions of the CIT(A), and finding no reason to i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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