M/s Sanghi Textiles P. Ltd., Hyderabad V. DCIT, Circle 3(1), Hyderabad

ITA 207/HYD/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 59111 (ITAT-HYDERABAD)
• Duration Of Justice: 11 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-01-2012
• Appeal Filed By: Assessee
• Bench Allotted: A
• Next Hearing Date: 18-07-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 07-02-2011
• Court: TRIBUNAL
• Department Lawyers: V SRINIVAS
• Assessee Lawyers: K A SAI PRASAD
• Section: 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH, HYDERABAD BEFORE SHRI CHANDRA POOJARI, AM & SMT. ASHA VIJAYARAGHAVAN, JM ITA NO.207/HYD/2011 ASSESSMENT YEAR 2007-08 M/S SANGHI TEXTILES P LTD., HYDERABAD. (PAN AADCSO837P) VS THE DCIT, CIRCLE 3(1), ASSESSEE RESPONDENT ASSESSEE BY : SHRI K.A. SAI PRASAD RESPONDENT BY : SHRI V. SRINIVAS DATE OF HEARING : 3.11.2011 DATE OF PRONOUNCEMENT : ORDER PER ASHA VIJAYARAGHAVAN, JM . THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER PASSED BY THE CIT(A) IV HYDERABA D DATED 30.11.2011 AND IT PERTAINS TO THE ASSESSMENT YEAR 2 007-08. 2. THIS APPEAL BY THE ASSESSEE IS AGAINST THE CONFIRMATION BY THE CIT(A) OF THE DISALLOWANCE OF T HE TOTAL CLAIM OF EXPENDITURE OF RS 1,42,42,305/- TOWARDS EL ECTRICITY CHARGES. THE ASSESSING OFFICER NOTED THAT THOUGH TH E ASSESSEE HAD DEBITED THE ABOVE AMOUNT TOWARDS ELECT RICITY CHARGES, IT FAILED TO PRODUCE PROOF OF PAYMENT THER EOF WITH RELEVANT SUPPORTING ELECTRICITY BILLS. IT WAS EXPL AINED BY THE ASSESSEE THAT THE ELECTRICITY CHARGES WERE NOT PAID BY THEM DIRECTLY TO THE APCPDCL, BUT WERE RATHER PAID TO TH EIR SISTER CONCERN. IT WAS SUBMITTED THAT THE ELECTRICITY BIL LS WERE ITA NO.207/HYD/2011 M/S SANGHI TEXTILES P LTD., HYDERABAD 2 BEING RAISED BY THE SUPPLIER ON M/S SANGHI POLYESTE RS LTD AND THE AMOUNT SPECIFIED IN THE SINGLE BILLS SO ISS UED WAS LATER APPORTIONED BY THE VARIOUS UNITS OF THE COMPA NY AMONG ITS SISTER CONCERNS. THIS WAS CLAIMED AS BAS ED ON THE NUMBER OF UNITS CONSUMED BY THEM AS PER SUB MET ERS RAISED BY THEM. HOWEVER THE ASSESSING OFFICER DID NOT FIND THE EXPLANATION OF THE ASSESSEE ACCEPTABLE. HE NOTE D THAT THE COPIES OF THE BILLS RAISED BY THE APCPDCL ON S ANDHI POLYESTERS LTD., SHOWED ARREARS OF PAYMENTS BY THEM IN ALMOST ALL THE BILLS, INDICATING THAT M/S SANGHI PO LYESTERS LTD., HAD BEEN DEFAULTING IN THEIR PAYMENTS. FURTH ER, HE NOTED THAT NO SUPPORTING MATERIAL COULD BE FURNISHE D FROM THE BOOKS OF M/S SANGHI POLYESTERS LTD SHOWING RECE IPTS FROM THE SISTER CONCERNS. HE ALSO NOTED THAT IT WA S NOT KNOWN WHETHER A CONTRACT AGREEMENT EXISTED AMONG TH E MEMBERS OF THE GROUP FOR SUCH REVISION, IN WHICH CA SE THE PAYMENTS WOULD HAVE GOT COVERED UNDER CHAPTER XVII B OF THE ACT, FOR A SORT OF RENT BEING PAID BY THE ASS ESSEE AND QUANTIFIED IN TERMS OF UNITS OF ELECTRICITY UTILIZE D. ACCORDINGLY, HE DISALLOWED THE ENTIRE CLAIM OF ELEC TRICITY CHARGES OF RS. 1,42,45,035/-. 3. DURING THE APPELLATE PROCEEDINGS THE REPRESENTA TIVE OF THE ASSESSEE SUBMITTED THAT THE GOVT. OF ANDHRA PRA DESH HAD ACCORDED PERMISSION IN THE YEAR 1990 FOR RELEAS E OF BULK SUPPLY OF 12 MVA ELECTRICITY TO M/S SANGHI GRO UP OF INDUSTRIES IN THEIR ESTATE AT 132 KV TERMINAL. HE SUBMITTED THAT AS PER THE SAID AGREEMENT. M/S APCPD CL ISSUES A SINGLE BILL IN THE NAME OF M/S SINGHI POL YSTER LTD., SINCE 1990 ITSELF AND EACH OF THE GROUP CONCERNS PA YS TO ITA NO.207/HYD/2011 M/S SANGHI TEXTILES P LTD., HYDERABAD 3 M/S SANGHI POLYSTER FOR ITS OWN CONSUMPTION, WHICH IS PROPERLY RECORDED SEPARATELY. 4. ON THIS ISSUE, THE ASSESSING OFFICER IN HIS REM AND REPORT DATED 12.11.2010, HAS STATED THAT THE ASSESS EE FAILED TO FURNISH PROOF REGARDING PAYMENT OF ELECTRICITY C HARGES IN THE SHAPE OF ELECTRICITY BILLS,. HE REITERATED THAT THE CONTENTION REGARDING PAYMENT THROUGH SISTER CONCERN IS NOT SUPPORTED BY ANY CONVINCING DOCUMENTARY EVIDENCE. BESIDES, THE ASSESSEE FAILED TO SUBSTANTIATE WHETHE R THERE WAS A CONTRACT IN THIS REGARD, AS A CONSEQUENCE TO WHICH THE PROVISIONS OF CHAPTER XVII B WOULD BE ATTRACTED . 5. IN HIS REPLY TO THE REMAND REPORT, THE REPRESEN TATIVE OF THE ASSESSEE HAS SUBMITTED THAT THE ASSESSEE HAD FILED COPIES OF THE ELECTRICITY BOARD SANCTION ORDER, BIL LS, ELECTRICITY ACCOUNT IN THE BOOKS OF THE ASSESSEE. A CCOUNT COPY OF THE A P TRANSCO IN THE BOOKS OF SANGHI POLY STERS, WHEREIN THE PAYMENTS MADE BY THE ASSESSEE ARE REFLE CTED ETC., DURING THE ASSESSMENT PROCEEDINGS AND ALONG W ITH ITS APPLICATION U/S 154 ALSO. 6. THE AUTHORISED REPRESENTATIVE FOR THE ASSESSEE HAS SUBMITTED THE FOLLOWING WITH HIS SUBMISSIONS: I. COPY OF LETTER DATED 14.3.1991 FROM THE DIVISIONAL ELECT. BOARD ENGINEER, OPERATION (RS) SAROORNAGAR, HYDERABAD ADDRESSED TO SANGHI POLYSTERS LTD., ENCLOSING A COPY OF THE CONCLUDED AGREEMENT BETWEEN THE SANGHI GROUP AND ELECTRICITY. II. COPY OF STATE GOVERNMENT G.O. DATED 7.6.1991 SANCTIONING THE SCHEME. ITA NO.207/HYD/2011 M/S SANGHI TEXTILES P LTD., HYDERABAD 4 III. COPY OF ACCOUNT OF ELECTRICITY CHARGES IN THE BOOKS OF THE ASSESSEE. IV. COPIES OF MONTHLY ELECTRICITY BILLS ISSUED BY CENTR AL POWER DISTRIBUTION COMMISSIONER OF INCOME TAX OF A P LTD FOR THE MONTHS OF APRIL 2006 TO MARCH 2007 ALONG WITH GRID POWER DISTRIBUTION AMONGST THE SANGHI GROUP COMPANIES AND DETAILS OF POWER CONSUMPTION. V. COPY OF THE ACCOUNT OF A.P. TRANSCO IN THE BOOKS OF SANGHI POLYESTERS. 7. IT WAS SUBMITTED THAT THE ABOVE ACCOUNT SHOWED THAT THE TOTAL AMOUNT TOWARDS ELECTRICITY BILL WAS RS 1,42,42,305/- WHICH INCLUDED THE CHARGES FOR POWER DISTRIBUTED THROUGH SANGHI GRID AND ALSO OTHER ELEC TRICITY CHARGES. IT WAS AVERRED THAT THE ASSESSEE HAD MADE ABOVE PAYMENTS TO SANGHI POLYESTERS THROUGH BANKING CHANN ELS. BESIDES THE COPY OF THE ACCOUNT OF A.P. TRANSCO IN THE BOOKS OF SANGHI POLYESTERS ALSO SHOWED THE PAYMENTS MADE BY THE ASSESSEE TO M/S SANGHI POLYESTERS LTD., 8. WITH REGARD TO THE OBSERVATIONS OF THE ASSESSIN G OFFICER REGARDING ARREARS IN THE BILLS, THE REPRE SENTATIVE SUBMITTED THAT FROM THE COPY OF BILL FOR MARCH, 200 7, IT COULD BE SEEN THAT THE TOTAL BILL FOR THE MONTH WAS RS. 79,01,456/- WHEREAS THE ARREARS AS ON 23.3.2007 WER E OF RS. 1,89,19,345/- AND TOTAL BILL WAS FOR RS. 2,68,2 0,801/- HE AVERRED THAT THIS SHOWED THAT THERE WERE CERTAIN DELAYS IN MAKING PAYMENTS BY SANGHI POLYESTERS. FINALLY, HE SUBMITTED THAT THE PRACTICE OF SINGLE BILL AND APPO RTIONMENT THEREOF IS IN VOGUE SINCE 1991 AND THE FACT OF CONS UMPTION ITA NO.207/HYD/2011 M/S SANGHI TEXTILES P LTD., HYDERABAD 5 OF ELECTRICITY AND QUANTITY THEREOF IS ALSO NOT IN DISPUTE. HE AVERRED THAT THERE IS NO PROVISION IN THE ACT TO DI SALLOW ANY LIABILITY RELATING TO ELECTRICITY CHARGES ON ACCOUN T OF ANY DEFAULT IN PAYMENT. HE FURTHER ARGUED THAT THE PR OVISIONS OF CHAPTER XVII B ARE NOT APPLICABLE TO THE PAYMENT OF ELECTRICITY CHARGES MADE TO SUB DIVISION OF BULK SU PPLY, FOLLOWING A GOVERNMENT ORDER AND AGREEMENT THEREON. 9. VIDE FURTHER SUBMISSIONS, THE REPRESENTATIVE O F THE ASSESSEE SUBMITTED THAT THOUGH THE APCPDCL ISSUED T HE SINGLE BILL IN THE NAME OF M/S SANGHI POLYESTERS LT D EVERY MONTH IN RESPECT OF THE BULK SUPPLY TO SANGHI GROUP OF INDUSTRIES AT THEIR ESTATE, SEPARATE METERS ARE FI XED FOR EACH OF THE UNITS OF THE GROUP FOR RECORDING THEIR INDIVIDUAL CONSUMPTION. BASING ON THE CONSUMPTION THUS RECORDE D THE OFFICERS OF THE SANGHI POLYESTERS PREPARE, IN R ESPECT OF EACH BILL, A POWER DISTRIBUTION BILL, WORKING OUT T HE PAYMENTS TO BE MADE BY EACH MEMBER OF THE GROUP. TH E UNITS OF THE ELECTRICITY, CONSUMED FOR COMMON PURPO SES LIKE FACTORY LIGHTS ETC., FOR THE PREMISES OF SANGHI GRO UP AS A WHOLE, IS DISTRIBUTED AMONGST THE MEMBER UNITS ON A FIXED PERCENTAGE AND ADDED TO THE ABOVE. 10. THE REPRESENTATIVE FURTHER AVERRED THAT THE AS SESSEE HAD INCURRED ELECTRICITY CHARGES OF RS 1.42 CRORES DURING THE YEAR, WHILE THE TURNOVER FOR THE YEAR WAS RS 7.64 C RORES. IN THE EARLIER YEARS, THE ELECTRICITY CHARGES WERE RS. 1.18 CRORES AND RS 1.19 CRORES, WHILE THE TURNOVERS WERE RS 7.3 8 CRORES AND RS 8.97 CRORES IN THE ASSESSMENT YEARS 2006-07 AND 2005-06 RESPECTIVELY. HE AVERRED THAT EVEN THOUGH THE DISTRIBUTION AMONGST THE SANGHI GROUP IS NOT BY ANY STATUTORY OR OTHER AUTHORITY THE CORRECTNESS OF SU CH ITA NO.207/HYD/2011 M/S SANGHI TEXTILES P LTD., HYDERABAD 6 DISTRIBUTION CANNOT BE AN ISSUE FOR CONSIDERATION, AS THE ASSESSEE COULD NOT HAVE GAINED ANY THING BY ANY MANIPULATION IN ITS FAVOUR, AS IT WAS IN HUGE LOSSE S. 11. THE CIT(A) DISMISSED THE APPEAL OF THE ASSESSE E OBSERVING AS UNDER: I HAVE GONE THROUGH THE FACTS OF THE CASE AND THE SUBMISSIONS OF THE ASSESSEE. IT IS SEEN THAT THE ASSESSING OFFICER DISALLOWED THE PAYMENTS MADE TO THE ELECTRICITY CHARGES OF RS 1,42,42,305/- AS THE ASSESSEE COULD NOT FURNISH THE BILLS TOWARDS ELECT RICITY CHARGES IN ITS OWN NAME. BESIDES NO SUPPORTING MATERIAL IN THE FORM OF BOOKS OF M/S SANGHI POLYEST ERS LTD., SUPPORTING THE RECEIPTS FROM THE SISTER CONCE RNS WAS ALSO FURNISHED. NO SUCH EVIDENCE COULD BE FURNISHED EVEN DURING THE APPELLATE PROCEEDINGS. O N THE OTHER HAND, IT IS ALSO ADMITTED BY THE ASSESSEE THAT SUCH DISTRIBUTION AMONGST THE SANGHI GROUP MEMBERS IS NOT BY ANY STATUTORY OR OTHER AUTHORITIES. IT I S ALSO ADMITTED THAT THE APPORTIONMENT IS DONE BY THE OFFI CERS OF SANGHI GROUP ITSELF AND THEY ONLY RECORD THE INDIVIDUAL CONSUMPTIONS ON THE BASIS OF METERS INSTALLED BY THE GROUP ITSELF. FURTHER EVEN THOUGH IT IS CLAIMED THAT THE PAYMENTS TOWARDS SUCH EXPENSES WERE MADE TO M/S SANGHI POLYESTERS LTD., BY WAY OF CHEQUES, NO EVIDENCE REGARDING TREATMENT OF SUCH EXPENSES BY THE COUNTER PARTY COULD BE FILED BY THE ASSESSEE. UNDER THE CIRCUMSTANCES I AM OF THE VIEW THAT THE ASSESSEE HAS NOT BEEN ABLE TO SUBSTANTI ATE ITS CLAIM REGARDING ELECTRICITY CHARGES OF RS 1,42,42,305/- DURING THESE PROCEEDINGS ALSO. FINDIN G ITA NO.207/HYD/2011 M/S SANGHI TEXTILES P LTD., HYDERABAD 7 NO REASON TO DIFFER WITH THE FINDINGS OF THE ASSESS ING OFFICER THEREFORE THE DISALLOWANCE OF RS. 1,42,42,3 05/- IS UPHELD AND GROUND NO.3 DECIDED AGAINST THE ASSESSEE. IN THE RESULT, THE APPEAL IS PARTY ALLOWED. 12. AGGRIEVED THE ASSESSEE IS ON APPEAL. THE ISSUE IS ALLOWABILITY OF EXPENSES FOR ELECTRICITY CLAIMED BY THE ASSESSEE. FROM THE RECORDS AND ARGUMENTS, THE DEPAR TMENT HAS NOT SERIOUSLY DOUBTED THAT THE ASSESSEE HAS IN FACT UTILIZED ELECTRICITY FOR ITS PRODUCTION. THE ASSESS EE DID NOT HAVE A SEPARATE ELECTRICITY CONNECTION NOR HAVE THE Y DEBITED ANY OTHER EXPENDITURE TOWARDS ELECTRICITY. THERE IS A COMMON CONNECTION FOR ALL THE SANGHI GROUP OF COMPA NIES AND THE TOTAL BILL FOR THE ELECTRICITY CONSUMED BY ALL THE COMPANIES IS RAISED ON ONE COMPANY. THE ASSESSEE HA S SUBMITTED THAT THIS COMMON BILL IS APPORTIONED AMON G ALL THE OTHER GROUP COMPANIES ON THE BASIS OF THE ACTUA L USAGE BY THE INDIVIDUAL COMPANIES BASED ON SEPARATE METER S FIXED IN EACH COMPANY. THERE IS ALSO CHARGES FOR THE USAG E OF ELECTRICITY FOR COMMON AREAS. FROM THE DATA FILED B Y THE ASSESSEE WE FIND THAT THE ELECTRICITY CHARGES CLAIM ED BY THEM ARE REASONABLE, ON THE BASIS OF THE TURNOVER, COMPARED TO CHARGES CLAIMED BY THEM IN THE EARLIER YEARS, WHICH HAS BEEN ALLOWED BY THE DEPARTMENT. THE OBJEC TION OF THE DEPARTMENT IS THAT THERE IS NO SEPARATE BILL FR OM THE ELECTRICITY DEPARTMENT IN THE NAME OF THE ASSESSEE. 13. WE FIND FROM THE RECORDS, IT IS NOT CLEAR WHET HER THE ASSESSEE HAS ACTUALLY SETTLED THE LIABILITY FOR USE OF ELECTRICITY TO M/S SANGHI POLYESTERS. IF THE ASSES SEE WAS NOT ITA NO.207/HYD/2011 M/S SANGHI TEXTILES P LTD., HYDERABAD 8 REQUIRED TO SETTLE THE LIABILITY FOR THE USE OF ELE CTRICITY, THEN THE ASSESSEE COULD NOT BE SAID TO HAVE INCURRED ANY LIABILITY TOWARDS CONSUMPTION OF ELECTRICITY. IN THE CIRCUMS TANCES, WE SET ASIDE THIS ISSUE TO THE FILES OF ASSESSING O FFICER FOR THE PURPOSE OF VERIFICATION WHETHER THE ASSESSEE HA D ACTUALLY PAID/ADJUSTED THIS LIABILITY FOR CONSUMPTI ON OF ELECTRICITY TO M/S SANGHI POLYESTERS LTD. AND IF SO THE CLAIM OF THE ASSESSEE MAY BE ALLOWED. IT SHALL GIVE REAS ONABLE OPPORTUNITY TO THE ASSESSEE TO FURNISH NECESSARY PR OOF IN THIS REGARD. 14. IN THE RESULT THE APPEAL OF THE ASSESSEE IS AL LOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON: 12.1.20 12 SD/- SD/- (CHANDRA POOJARI) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 12 TH JANUARY, 2012 COPY FORWARDED TO: 1. M/S CH. PARTHASARATHY & CO., 1-1-298/2/B/3, 1 ST FLOOR, SOWBHAGYA AVENUE, ST. NO.1, ASHOK NAGAR, HYDERABAD. 2. THE DY. CIT, CIRCLE 3(1), HYDERABAD 3. THE CIT(A) IV, HYDERABAD 4. THE CIT, HYDERABAD 5. THE DR, ITAT, HYDERABAD NP/