DCIT, CIRCLE- 2, MEERUT V. PASCHIMANCHAL VIDYUT VITRAN NIGAM LTD., MEERUT

ITA 1665/DEL/2018

AI Insights

The case involves cross appeals by Paschimanchal Vidyut Vitran Nigam Ltd. (the assessee) and the DCIT Circle-2 Meerut (the revenue) concerning the assessment year 2011-12. The primary issue was the addition of receivables from UPPCL and UP Power Transmission Corporation Limited to the assessee's income, which the assessee argued had already been included in their reported sales and income. The Tribunal examined the accounting practices and transactions between the assessee and UPPCL, concluding that the lower authorities had erred in their understanding and application of these transactions, leading to the deletion of the contested additions.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 36952 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-12-2024
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Assessment Year: 2011-2012
• Other Referred Cases: ITA No.1171(del) of 2016
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRANAV GUPTA
• Assessee Lawyers: RAJESH KUMAR
• Keywords: Business income; Competent authority; Wholly owned subsidiary
• Section: 143(3)

Judgement Text

"Page 1 of 10 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘F’: NEW DELHI BEFORE, SHRI M. BALAGANESH, ACCOUNTANT MEMBER AND SHRI YOGESH KUMAR U.S., JUDICIAL MEMBER ITA No.1444/Del/2018 (ASSESSMENT YEAR 2011-12) Paschimanchal Vidyut Vitran Nigam Ltd. C/o Advocate Vinod Kumar Goyal, 200 Western Kutchery Road, Meerut vs DCIT Circle-2 Meerut (Appellant) (Respondent) ITA No.1665/Del/2018 (ASSESSMENT YEAR 2011-12) DCIT Circle-2 Meerut vs Paschimanchal Vidyut Vitran Nigam Ltd. C/o Advocate Vinod Kumar Goyal, 200 Western Kutchery Road, Meerut (Appellant) (Respondent) Appellant by Sh. Pranav Gupta, Advocate Respondent by Sh. Rajesh Kumar, CIT (DR) Date of Hearing 31/12/2024 Date of Pronouncement 31/12/2024 Page 2 of 10 ORDER PER M. BALAGANESH, AM: These cross appeals by the assessee and revenue arises out of the order of the Commissioner of Income Tax (Appeals), Meerut [hereinafter referred to as ‘CITA(A)’] in Appeal No.133/2014-15 dated 27.12.2017 against the order passed by ACIT, Circle -2, Meerut u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) the Assessment Year 2011-12. 2. Let us take up the appeal of the assessee in ITA No.1444 of 2018 first. 3. The only issue to be decided in the appeal of the assessee as to whether the Learned CIT(A) was justified in confirming the addition made on account of amount receivable from UPPCL (Inter company balance) which was already shown as sales by the assessee in the facts and circumstances of the instant case. 4. We have heard the rival submissions and perused the material available on record. The assessee company is engaged in the distribution of electricity. The assessee company is 100% subsidiary undertaking of UPPCL. The assessee company is like a branch of UPPCL and the accounting and internal control of all the operations and policy making is regulated by the Holding company i.e. UPPCL. All the revenues realised from consumers by the distribution divisions are credited to sales and considered as income of the assessee. As a policy matter of the Government of Uttar Pradesh, all the collections firstly are automatically transferred to UPPCL ( holding company) and then given to assessee company as and when required. Every distribution Page 3 of 10 unit ( other than stores, construction, civil and test divisions) of the company maintain a separate revenue / receipt account with the bank which has clear instructions that the receipt in that account will be transferred to UPPCL. Also the receipts of subsidy and direct receipt from Government connections by UPPCL are also debited to this account. The accounting entries passed in this regard are as under :- 5. The payment of power purchase, transmissions charges are made by UPPCL. Funds for the payment of salaries and administrative and general expenses, maintenance charges, finance charges, repayment of loans etc. are transferred by UPPCL. The net amount of Rs.4,25,79,05,650/- is the balance outstanding at the close of the financial year. 6. Ignoring the aforesaid contentions, the learned AO by completely misunderstanding the transactions and the functions carried out by the assessee and completely ignoring the fact that assessee had already disclosed the amount as sales and offered as income, proceeded to add again the closing balance of accounts receivables shown under the head current asset in the balance sheet in the total sum of Rs. 4,25,79,05,650/-as income of the Page 4 of 10 assessee and added the same to the total income. This action of the learned AO was upheld by the learned CIT(A). 7. From the narration of facts above, it is crystal clear that assessee had already offered the sales to income and the amounts outstanding as on 31.03.2011 in the sum of Rs. 4,25,79,05,650/-is already included in the total sales which is already offered to tax by the assessee. There is no need to again add the amounts lying as receivables from the Holding company i.e. UPPCL. We hold that both the lower authorities has grossly earned in not understanding the accounting entries and the factual position involved therein while making and confirming the addition respectively. Hence, we have no hesitation to delete the said addition. Accordingly, the grounds raised by the assessee are allowed. 8. In the result, the appeal of the assessee is allowed. ITA No.1665/Del/2018 – Revenue appeal 9. The ground Nos.1 and 2 raised by the revenue are challenging the deletion of addition of Rs.4,33,03,173/- made by the learned AO on account of amounts receivable by the assessee. 10. We have heard the rival submissions and perused the material available on record. The assessee has shown amount receivable from UP Power Page 5 of 10 transmission corporation Limited of Rs.4,33,07,173/- in schedule 9 of the balance sheet. The UP Power Transmission corporation Limited is 100% owned by Govt. of UP and its units are located at different places in the area of Paschimanchal Vidyut Vitran Nigam Ltd. For continuous supply of electricity in the interest of public and state, occasionally the common usage materials are transferred from one company to another company which is reconciled in due course of time and adjusted accordingly. The learned AO without understanding the business model proceeded to treat the amount receivable from UP Power Transmissions corporation Limited as income of the assessee and added Rs.4,33,07,173/- as income of the assessee. 11. The assessee explained the accounting entries passed by it as under :- 12. The assessee explained that when the goods are received from UP Power Transmission corporation Limited, the profit and loss account of the assessee is debited and when the goods are transferred to UP Power Transmission corporation Limited, then profit and loss account is credited, which means the assessee has reduced its expenses. In such a scenario, when on the balance sheet date, the amount is receivable from UP Power Transmissions Corporation Limited, the profit and loss account has already been reduced with that Page 6 of 10 amount which means already income is offered. Hence, there is no case for adding the amount receivable as on 31.03.2011 which is lying in the balance sheet as it would amount to double addition. These facts were duly appreciated by the learned CIT(A) while granting relief to the assessee. Hence, we do not find any infirmity in the order qua this issue. Accordingly, the ground Nos.1 and 2 raised by the revenue are dismissed. 13. The ground No.3 raised by the revenue is challenging the deletion of ad- hoc addition of Rs.1,87,84,029/- on account of printing and stationery expenses and miscellaneous expenses. 14. We have heard the rival submissions and perused the material available on record. The assessee has claimed printing and stationery expenses of Rs.2,59,19,884/- and miscellaneous expenses of Rs.6,80,00,260/-. The assessee was asked to furnish the details of bills and vouchers in support of its claim. Since the same could not be produced for all the units of the assessee, the learned AO proceeded to make ad-hoc expenses @ 20% thereon and made disallowance of Rs.1,87,84,029/- in the assessment. 15. The assessee submitted that it is engaged in providing the supply of electricity to various consumers spread over in 11 districts and 3 zones namely Meerut, Moradabad and Saharanpur and under these zones, there are 115 units under its jurisdiction. It was submitted that though the electricity department of U.P Govt. is converted into a public limited company, all the Page 7 of 10 activities are being controlled by policies framed, implemented and regulated by U.P. Govt. and working and financial powers are still exercised just like a Govt. department. The assessee company is having 115 units and operating in decentralized / unit accounting nomenclature, where each unit maintain its own books of accounts. Each and every expenditure debited in the books of account are properly authorized by the authorized person. The entire transactions of assessee company are subjected to various Govt. controls and audited by independent firm of chartered accountants appointed by Comptroller and Auditor General of India ( C & AG). Further the accounts of the company are also subjected to C & AG audit. Hence, there is no scope at all for incurrence of any expenditure without proper authorization by the competent authority and without any supporting vouchers and the expenses are duly subjected to proper internal controls. Further since the assessee is having transactions in 115 units, it became practically impossible to provide bills and vouchers for all the 12 months for all the units before the learned AO. The assessee also submitted a tabulation of total revenues earned and percentage of the aforesaid 2 expenditure to the total revenue as under :- Page 8 of 10 16. All the expenditures are wholly and exclusively incurred for the purpose of business only and not otherwise. 17. The learned CIT(A) by placing reliance on his order in assessee’s own case in Appeal No.247 /2013-14 dated 10.12.2015 deleted the ad-hoc disallowance. 18. We find that the issue in dispute is covered by the order of this Tribunal in assessee’s own case in ITA No.1171(del) of 2016 dated 29.06.2018 for A.Y. 2010-11 wherein under identical facts and circumstances, the ad-hoc disallowance of expenses made by the learned AO was deleted by this Tribunal. Respectfully following the same, the ground No.3 raised by the revenue is dismissed. Page 9 of 10 19. The ground Nos. 4 and 5 raised by the revenue are general in nature and does not require any specific adjudication. 20. To sum up, the appeal of the assessee is allowed and appeal of revenue is dismissed. Order pronounced in the open court on 31.12.2024 Sd/- Sd/- Sd (YOGESH KUMAR U.S.) (M. BALAGANESH) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 31/12/2024 Neha, Sr. P.S. Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI "