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TMI Blog2022 (6) TMI 949X X X X Extracts X X X X X X X X Extracts X X X X ..... n by the first appellate authority, which stands confirmed by us, has been due to the availability of the award, it is not so. The award only provides a ready figure of a reasonable compensation and, thus, adopted as a surrogate measure therefor, which would otherwise need to be worked out, and toward which we have suggested a formula based on PSA itself. The loss awarded by the Commission is on 109.74 MU (million units), which were agreed to be sold at Rs. 5/5.50 per unit. The profit (loss) as per the P L A/c, assuming the sale of excess power at that rate, as against that obtaining, would easily yield the extent of the loss suffered by the assessee, which, where in excess of Rs. 2 per kwh (Rs. 21.89 cr.), is to be capped at that sum. The assessee made an exorbitant claim, which led to its non-acceptance. It is for this reason that we have found the facts of the case and, therefore, the issue at hand, as squarely covered by Chunilal V. Mehta Sons P. Ltd. ( 1971 (8) TMI 4 - SUPREME COURT] with reference to which, as indeed the order of MPERC read with PSA, the parties were required to address their arguments during hearing, though choose to do so de hors the same. There is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndeed that qua the current year provision made in the following year, i.e., up to the due date of filing the return of income u/s. 139(1). And which we, vacating the finding/s by the ld. CIT(A), subject to his satisfaction, direct the AO to and, further, to record his dissatisfaction, if any, per a speaking order, to the extent the said deduction is not allowed by him. Assessee s appeal is partly allowed - I.T.A. No. 36/JAB/2017 And I.T.A. No. 39/JAB/2017 - - - Dated:- 17-6-2022 - Shri Sanjay Arora, Hon ble Accountant Member And Shri Manomohan Das, Hon'ble Judicial Member For the Appellant : Shri Sukesh Kumar, FCA For the Respondent : Shri Shravan Kumar Gotra, CIT-DR, ORDER PER BENCH These are cross appeals by the Assessee and the Revenue directed against the order by the Commissioner of Income Tax (Appeals)-2, Jabalpur ( CIT(A) for short) dated 19/6/2017, partly allowing the assessee s appeal contesting it s assessment under section 143(3) of the Income Tax Act, 1961 ( the Act hereinafter) dated 20/12/2016 for assessment year (AY) 2011-12. 2. The Appeals raise two issues, which we shall take up in seriatim. The assessee, a power trading ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stified to maintain an addition of Rs. 9.06 crores being the amount already realized and shown as income in the FY 2013-14 as per arbitration award. 2. That ld. CIT(A) is not justified to maintain the addition of Rs. 1,09,42,819/- being the amount outstanding as on the close of the year whereas the amount was already added back in earlier years. The Revenue: 1. The ld. CIT(A) has erred in law in not appreciating the impact of para 9.3 of Accounting Standard 9 revenue recognition of Rs. 82.55 cr. (*) while deleting the addition of Rs. 63,44,00,000/-. 2. That the appellant reserves the right to amend/alter any of the grounds of appeal/add other grounds of appeal at the time of hearing. (*) the correct figure works to rs. 81.55 cr. 3. Before us, the assessee would rely on the Accounting Standard (AS) 9 qua the recognition of income. The same clearly provides for an uncertainty as to ultimate realisation, on account of prudence, a fundamental accounting assumption, as an impediment to accrual of income, which is to be dovetailed to the concept of real income, as explained in Godra Electricity Co. Ltd. v. CIT [1997] 225 ITR 746 (SC); UCO Bank v. CIT [1999] 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to its realization, cannot be said to have accrued. The reason for non-admission of the assessee s claim (for Rs. 86.56 cr.) by Rs. 81.56 cr. by the buyer, is not shown to be for want of funds or any disinclination on it s part to pay the assessee it s just dues. Even the assessee has not preferred a recovery suit, and it is doubtful if MPERC has power of attachment or otherwise to execute it s award. The only reason, as we gather, is that it considered the assessee s claim as not in terms of the contract and, in any case, unreasonable and exaggerated. The assessee had no surplus power (which in terms of the PSA had to be reckoned on the basis of the power available from Kawas and Gandhar power stations) (pg. 13, para 21 (c) of the award) for certain months, so that there was no question of it being compensated for non-scheduling of power for those months. Then, again, the assessee did not exhibit loss thereto (due to non off-take of power) for other months, in absence of which no claim for compensation or damages, liquidated or un-liquidated, could be entertained. In fact, it raised a specific claim (per it s written submissions before the MPERC), recorded at pg. 17 of the Commis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. 4.4 Income to the extent of Rs. 14.06 cr., thus, arose to the assessee for the relevant year, even though the same was quantified and received later. The materials before the Court, on the basis of which it worked out the compensation, were supplied by the parties themselves and relate to facts which were not in dispute and, further, pertain to the relevant year. As regards the amount in excess of Rs. 14.06 cr., i.e., Rs. 72.50 cr., there is no question of accrual thereof for any year, and the question of claim of bad debt in its respect therefore does not arise. This in fact was precisely the issue before the Apex Court in Chunilal V. Mehta Sons (supra). The assessee claimed damages for unlawful termination of it s managing agency at Rs. 28 lacs, which was later determined at Rs. 2.34 lacs, so that the question of accrual, as well as of its year and, thus, the year of taxability, arose. It was clarified therein that the damages in the sum of Rs. 2.34 lacs became due to the assessee in April, 1951, i.e., at the time of termination of agency itself, and not on its receipt in December, 1955 on the settlement of the dispute. The fact that the assessee claimed an exorbitant s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of Rs. 2 per kwh represents the maximum amount up to which the compensation could be claimed. The Commission had worked out the compensation on the basis of the actual loss suffered by the assessee on the facts (materials) supplied thereto and on which there is no dispute, at Rs. 14.06 cr. It is only the amount in excess thereof that could therefore be regarded as disputed. We have already noted that it is not the case that the assessee had made a fair, honest estimate of it s loss, so that it is only the difference, plus or minus, that would require to be claimed set-off of or offered as income on award of compensation. That is, the assessee invokes AS-9 without following the accounting precepts, making a reasonable accounting estimate in the light of the facts of the case and the law in the matter. The matter thus reduces to one of reasonableness subject to the terms of the agreement, being the guiding criteria. It is only where so that it can be said that, applying AS-9, any amount beyond this sum cannot, despite its claim, be regarded as arisen to the assessee, being uncertain as to its realisation, de hors which it becomes a bald claim. We have on facts found that to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction of payment vouchers, claimed to be at Rs. 130 crores on 31/03/2011. The ld. CIT(A), in appeal, allowed the assessee s claim inasmuch as the provision account reflected a closing (as on 31/03/2011) balance at Rs.1,09,42,819, so that the difference of Rs. 21,46,639 (Rs. 1,30,89,458 Rs. 1,09,42,819) only was liable for deduction. 6. We have heard the parties, and perused the material on record. 6.1 The provision for terminal benefit account reads as under: (PB pg. 45) Date Particulars (Amount in Rs.) Debit Credit 01/04/2010 By Opening balance 2,18,82,715(1) 31/03/2011 To bank 1,30,00,000 31/03/2011 By contribution for terminal benefits @20% 1,30,89,459 31/03/2011 To terminal benefits for fy 2010-11 1,10,29,355 (2) 31/03/2011 To balance carry forward 1,09,42, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6.3 Our next observation is that in view of the suo motu disallowance by the assessee, as explained, on account of s.43B, there has been no examination of the deductibility of the same as there was not occasion to do so. The deduction u/s. 43B is only in respect of sums otherwise allowable. As such, the payment during the year (for Rs. 130 cr.), removing the bar of s. 43B, also becomes the occasion to examine the same to the extent disallowed earlier. Subject, therefore, to the satisfaction of the condition for deduction, viz. sec. 40A(7) for gratuity; actuarial valuation (or otherwise, scientific, empirical validation) for gratuity, leave salary; payment to an approved fund (or the concerned employee), etc., deduction shall be allowed to the assessee for the current year u/s. 37(1) r/w s. 43B. This deduction follows the disallowance u/s. 43B for Rs. 130.89 cr., which cannot be faulted with. The assessee shall accordingly provide the complete break-up of the opening provision of Rs. 165.75 lacs (i.e., to the extent disallowed for earlier years), as well as of Rs. 130.89 cr. (for the current year), i.e., Rs. 296.64 cr., in terms of the following: a) year b) nature (viz. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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