AAKASH PETROLEUM, NAGPUR V. INCOME TAX OFFICER WARD2(1), NAGPUR

ITA 134/NAG/2021

AI Insights

The case revolves around an appeal by Aakash Petroleum against the order of the National Faceless Appeal Centre (NFAC), which confirmed the addition of Rs.1,92,190 to the assessee's income for the assessment year 2018-19. The addition was initially made due to cash payments exceeding Rs.10,000, which are generally disallowed under section 40A(3) of the Income Tax Act. Aakash Petroleum argued that the payments made to SNDL for electricity bills were exempt under Rule 6DD(b) as they were made to an agent of the government. The Tribunal examined the relationship between MSEDCL, SNDL, and the government, and concluded that the payments were indeed made on behalf of the state, thus falling under the exception in Rule 6DD(b).

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 132784 (ITAT-NAGPUR)
• Duration Of Justice: 1 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-12-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 09-11-2022
• Assessment Year: misc
• Appeal Filed On: 25-10-2022
• Other Referred Cases: CIT Vs. Kalyan Prasad Gupta, Smt. Sapna Sanjay Raisoni Vs. ITO, CIT Vs. Kalyan Prasad Gupta
• Laws Referred To: Income Tax Act, Electricity Act, 2003
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Section: 40A(3); 22

Judgement Text

आयकर अपीलीय अधिकरण न्यायपीठ नागपूर में । IN THE INCOME TAX APPELLATE TRIBUNAL, NAGPUR (Through Virtual Court) BEFORE SHRI S.S. VISWANETHRA RAVI, JUDICIAL MEMBER AND DR. DIPAK P. RIPOTE, ACCOUNTANT MEMBER आयकर अपील सं. / ITA No.134/NAG/2021 धनिाारण वर्ा / Assessment Year : 2018-19 Aakash Petroleum, 0, Ring Road, Jaripatka, Nagpur – 440017 PAN : AAJFA2774Q .......अपीलार्थी / Appellant बनाम / V/s. The Income Tax Officer, Ward – 2(1), Nagpur ......प्रत्यर्थी / Respondent Assessee by : Dr. Milind Bhusari Revenue by : Shri G.J. Ninawe सुनवाई की तारीख / Date of Hearing : 10-11-2022 घोषणा की तारीख / Date of Pronouncement : 15-12-2022 आदेश / ORDER PER S.S. VISWANETHRA RAVI, JM : This appeal by the assessee against the order dated 30-07-2021 passed by the National Faceless Appeal Centre (“NFAC”), Delhi for assessment year 2018-19. 2. The only issue to be decided is as to whether the CIT(A), NFAC, Delhi justified in confirming the addition of Rs.1,92,190/- on account of cash payment more than Rs.10,000/- u/s. 40A(3) of the Act. 2 ITA No.134/NAG/2021, A.Y. 2018-19 3. The ld. AR, Dr. Milind Bhusari submits that the CPC did not consider the reply of assessee regarding the intimation towards cash payment exceeding Rs.10,000/-. He submits that the assessee paid electricity bills to Spanco Nagpur Discon Ltd. (SNDL) who is agent of Government of Maharashtra. He argued the said payment is covered under Rule 6DD(b). The assessee filed an agreement between Maharashtra State Electricity Distribution Co. Ltd. (MSEDCL) and SNDL in support of its claim that SNDL is an agent of Government of Maharashtra for distribution of electricity in Nagpur. He further submits that the payments made by the assessee to the agent of Government of Maharashtra is covered under Rule 6DD(b) and vehemently argued the disallowance as confirmed by the CIT(A) is not justified. He drew our attention to the legal position as contended before the CIT(A) at page 5 of the impugned order. Further, he referred to a decision of Hon’ble High Court of Rajasthan at Jaipur Bench in the case of CIT Vs. Kalyan Prasad Gupta reported in 239 CTR 447 and argued that the Hon’ble High Court held the amount paid to contractor collected on behalf of the State Government, is covered under Rule 6DD(b) and no disallowance would be made. 4. Further, he drew our attention to the receipt raised by the SNDL at page 25 of the paper book along with the meaning of franchisee at Point No. 27 in Electricity Act, 2003, argued that the SNDL is a MSEDCL’s franchisee and the franchisee means a persons authorized by a distribution licensee to distribute electricity on its behalf in a particular area within its area of supply. The ld. AR vehemently argued that the MSEDCL authorized distribution of electricity to SNDL upon which the said SNDL collecting charges on behalf of the MSEDCL towards distribution of electricity. Further, he referred to order of this Tribunal in the case of Smt. Sapna Sanjay Raisoni Vs. ITO reported in 70 taxmann.com 7 (Pune-Trib.) at page 26 of the paper book and drew our 3 ITA No.134/NAG/2021, A.Y. 2018-19 attention to para 18 and argued that this Tribunal held the provisions u/s. 40A(3) of the Act are not attracted on the cash payments made by the assessee to MSRTC. Further, the Tribunal held the exception covered under Rule 6DD(b) will operate in the case of assessee covering the cash payments made to MSRTC. The ld. AR argued that the finding of this Tribunal in the case of Smt. Sapna Sanjay Raisoni (supra) is applicable to the facts on hand as the MSRTC stands on the same footing of MSEDCL. 5. The ld. DR, Shri G.J. Ninawe vehemently argued that the MSEDCL is a company registered under the Companies Act but it is not a Government body. The said SNDL is also a limited company assigned to central division of Mumbai for its assessment. He argued when it is a company the provisions u/s. 40A(3) is attracted to the disallowance as confirmed by the CIT(A), is justified. Further, he argued the Rule 6DD(b) is not applicable as MSEDCL and SNDL are companies but not Government authorities. He prayed to dismiss the grounds of appeal raised by the assessee. 6. Heard both the parties and perused the material available on record. We note that the bill dated 17-02-2018 issued by the SNDL to the assessee at page 24 of the paper book, wherein, it is reflected that it is a MSEDCL’s franchisee. Further, the receipt dated 26-02-2018 issued by SNDL is at page 25 of the paper book, on perusal of the same it is reflected that SNDL, Nagpur is a distribution franchisee of MSEDCL. On an examination of both the bill and receipt placed on record by the assessee clearly shows that SNDL is a franchisee for distribution of electricity on behalf of the MSEDCL which is a fully owned Company of the State of Maharashtra. The definition of franchisee is provided at Point No. 27 of the Electricity Act at page 15 of the paper book, explains that persons authorized by a distribution licensee to distribute electricity on its behalf in a particular are is called franchisee. Therefore, it is clear that the SNDL in the capacity of 4 ITA No.134/NAG/2021, A.Y. 2018-19 franchise distributing electricity on behalf of the MSEDCL, in the same way the bill was issued by the SNDL in the capacity of franchisee for collection of electricity charges on behalf of the MSEDCL, receipt was issued on payment of charges, in our opinion is covered under exception provided under Rule 6DD(b) of the Rules. 7. The profile of MSEDCL is at pages 21 and 22 of the paper book, on perusal of the same, it is noted that it is a wholly owned corporate entity under the Maharashtra Government incorporated in 2005 restructuring the erstwhile Maharashtra State Electricity Board to distribute electricity from the end point of transmission to the end consumers. Further, it is observed that the MSEDCL is a public company in the category of State Government Company with the main objectives of developing, operating and maintenance of distribution system for supplying electricity to the consumers in its area of supply. Further, we note that it is a deemed distribution licensee u/s. 14 of the Electricity Act, 2003 in order to achieve carrying out the supply of power to the end users as well as maintaining the wire business for supply of such power. 8. The MSEDCL entered into an agreement with Spanco, in turn the Spanco forms Spanco Nagpur Discon Limited (SNDL) to look after power distribution in Nagpur city. MSEDCL signed an agreement between Spanco and SNDL. The said agreement entered by the MSEDCL is to supply reliable power to Nagpur city and Spanco Limited is answerable for its obligations for MSEDCL. Therefore, it is clear from the profile of MSEDCL and its agreement with SNDL as a franchise supplying power to the end consumers in the Nagpur city. Further, as already discussed above, the receipt raised by the SNDL at page 25 of the paper book clearly discloses that SNDL as franchise for MSEDCL for distribution of electricity. Thus, it can be safely concluded that the payment to SNDL on account of 5 ITA No.134/NAG/2021, A.Y. 2018-19 electricity charges is deemed to be payment receiving on behalf of MSEDCL. 9. Coming to the order of this Tribunal in the case of Smt. Sapna Sanjay Raisoni (supra), the facts therein are that the assessee was engaged in the business of purchase and sale of scrap from various Government organizations. The AO disallowed cash payments exceeding Rs.20,000/- for the purchase of scrap from MSRTC. The CIT(A) upheld the findings of AO. The Tribunal held that MSRTC is a “State” within the meaning of Article 12 of the Constitution of India and the provisions of section 40A(3) are not attracted on the cash payments made by the assessee therein to MSRTC. The ld. AR argued that the MSEDCL is to be treated as “State” within the ambit of Article 12 of the Constitution of India and the order of Tribunal is applicable to the facts on hand. The ld. DR argued that the SNDL was assessed in the Central Division of Mumbai, cannot be considered as “State”. The ld. AR drew our attention to the decision of Hon’ble Supreme Court in the case of Rajasthan State Electricity Board reported in 1967 AIR 1857, on careful reading of the said decision, we note that the Hon’ble Supreme Court was pleased to explain the “other authorities” in Article 12, will, include all constitutional or statutory authorities on whom powers are conferred by law. Further, it is not at all material that some of the powers conferred may be for the purpose of carrying on commercial activities. The State, is itself envisaged as having the right to carry on trade or business as mentioned in Article 19(1)(g) of the Constitution of India. The Hon’ble Supreme Court further observed that the circumstance that the Board under the Electricity Supply Act is required to carry on some activities of the nature of trade or commerce does not, therefore, give any indication that the Board must be excluded from the scope of the word “State” as used in Article 12. 6 ITA No.134/NAG/2021, A.Y. 2018-19 10. Now, let us refer to the decision of Hon’ble High Court of Rajasthan at Jaipur Bench in the case of CIT Vs. Kalyan Prasad Gupta (supra) as relied on by the ld. AR, on careful reading of the same, we find that the Government of Rajasthan has granted contract to collect the royalty to the contractor. The assessee had paid Rs.64,00,384/- as royalty to the State Government and as per policy of the State Government, royalty is collected by the contractor on behalf of the Government. The AO disallowed 20% of the said payment on the ground that the royalty was paid by way of cash. The Hon’ble High Court of Rajasthan opined that the amount was paid to the contractor which was collected on behalf of the State Government as such no disallowance could have been made in view of Rule 6DD(b) of the Rules vide para 6 of the said judgment. Further, the Hon’ble High Court of Rajasthan was pleased to hold that the payment received by the contractor not in individual capacity but on behalf of the Government of Rajasthan and held no disallowance Rule 6DD(b) could have been made in view of Rules 6DD(b). 11. In the present case, MSEDCL which, is a wholly owned corporate entity of Maharashtra State, in turn, which is deemed licensee u/s. 14 of the Electricity Act, 2003, in turn, entered into an agreement with SNDL which is a subsidiary of Spanco with whom the MSEDCL entered into original agreement. The home page of SNDL shows that has been formed to look after power distribution to Nagpur city on behalf of the MSEDCL and the Spanco is answerable for its obligation towards MSEDCL, which clearly establishes that the SNDL performing its obligations in pursuance of contract entered with MSEDCL which is a State under Article 12 of the Constitution, as an agent of Maharashtra State for distribution of electricity in Nagpur city. Therefore, the payment made to the agent/franchisee of the State of Maharashtra is covered under Rule 6DD(b) of the I.T. Rules. Thus, the provisions u/s. 40A(3) are not attracted to the 7 ITA No.134/NAG/2021, A.Y. 2018-19 payments made to SNDL received on behalf of the MSEDCL. Therefore, the order of CIT(A) is not justified and the grounds raised by the assessee are allowed. 12. In the result, the appeal of assessee is allowed. Order pronounced in the open court on 15 th December, 2022. Sd/- Sd/- (Dr. Dipak P. Ripote) (S.S. Viswanethra Ravi) ACCOUNTANT MEMBER JUDICIAL MEMBER पुणे / Pune; दिनाांक / Dated : 15 th December, 2022. रदव आदेश की प्रधिधलधप अग्रेधर्ि / Copy of the Order forwarded to : 1. अपीलार्थी / The Appellant. 2. प्रत्यर्थी / The Respondent. 3. The CIT(A), NFAC, Delhi. 4. The CIT concerned. 5. दवभागीय प्रदतदनदि, आयकर अपीलीय अदिकरण, नागपूर, / DR, ITAT, Nagpur. 6. गार्ड फ़ाइल / Guard File. //सत्यादपत प्रदत// True Copy// आिेशानुसार / BY ORDER, वररष्ठ दनजी सदिव / Sr. Private Secretary आयकर अपीलीय अदिकरण ,पुणे / ITAT, Pune