Principal Officer, Kanpur V. Dy. Commissioner of Income Tax, Kanpur

ITA 311/LKW/2014

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 83387 (ITAT-LUCKNOW)
• Duration Of Justice: 6 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-11-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2004-2005
• Appeal Filed On: 23-04-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: O P SHUKLA
• Keywords: Business expenditure; Opportunity of being heard; Bad and doubtful debts; Revenue expenditure
• Section: 43B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH B, LUCKNOW BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI. A. K. GARODIA, ACCOUNTANT MEMBER ITA NO.311/LKW/2014 ASSESSMENT YEAR:2004-05 PRINCIPAL OFFICER KANPUR ELECTRICITY SUPPLY COMPANY LIMITED, KESCO HOUSE 14/71, CIVIL LINE, KANPUR V. DY. CIT RANGE VI KANPUR PAN/PAN: AACCK3753D (APPELLANT) (RESPONDENT) ITA NO.318/LKW/2014 ASSESSMENT YEAR:2004-05 DY. CIT RANGE VI KANPUR V. KANPUR ELECTRICITY SUPPLY COMPANY LIMITED, 14/T-1, CIVIL LINES, KANPUR PAN/PAN:AACCK3753D (APPELLANT) (RESPONDENT) ASSESSEE BY: SHRI. O. P. SHUKLA, ADVOCATE DEPARTMENT BY: SHRI. RAJIV JAIN, CIT (DR) DATE OF HEARING: 15 09 2014 DATE OF PRONOUNCEMENT: 14 11 2014 O R D E R PER SUNIL KUMAR YADAV: THESE CROSS-APPEALS ARE PREFERRED BYTHE ASSESSEE AS WELL AS THE REVENUE AGAINST THE ORDER OF THE LD. CIT(A) PERTAINING TO ASSESSMENT YEAR 2004-05. 2. SINCE THESE APPEALS WERE HEARD TOGETHER, THESE ARE BEING DISPOSED OF THROUGH THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. WE, HOWEVER, PREFER TO ADJUDICATE THESE APPEALS ONE AFTER THE OTHER. :- 2 -: I.T.A. NO. 311/LKW/2014: BY THE ASSESSEE: 3. THIS APPEAL IS PREFERRED BY THE ASSESSEE AGAINST THE ORDER OF THE LD. CIT(A) MAINLY ON TWO GROUNDS, ALTHOUGH VARIOUS GROUNDS ARE RAISED IN THE GROUNDS OF APPEAL. 4. FIRST GROUND RELATES TO THE DISALLOWANCE OF BAD AND DOUBTFUL DEBTS WRITTEN OFF BY THE ASSESSEE OF RS.24,33,42,403/- AND THE OTHER GROUND RELATES TO THE DISALLOWANCE OF INTEREST IN CONSUMER SECURITY OF RS.1.40 CRORES, HAVING INVOKED THE PROVISIONS OF SECTION 43B OF THE INCOME-TAX ACT, 1961 (HEREINAFTER CALLED IN SHORT THE ACT'). 5. SO FAR AS FIRST GROUND IS CONCERNED, IT IS NOTICED FROM THE ORDERS OF THE LOWER AUTHORITIES THAT THE ASSESSING OFFICER, DURING THE COURSE OF ASSESSMENT PROCEEDINGS, HAS NOTED THAT THE ASSESSEE HAS MADE PROVISION FOR BAD AND DOUBTFUL DEBTS AMOUNTING TO RS.24,33,42,403/-. THE ASSESSEE WAS REQUIRED TO EXPLAIN WHY THIS AMOUNT SHOULD NOT BE DISALLOWED AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. IN RESPONSE THERETO, IT WAS SUBMITTED THAT PROVISION FOR BAD AND DOUBTFUL DEBTS WAS MADE IN THE ACCOUNTS @ 15% OF THE INCREMENTAL TOTALS DURING THE YEAR WHILE IN PRACTICE THIS PROVISION FOR BAD AND DOUBTFUL DEBTS IS INSUFFICIENT. THE ASSESSEE FURTHER SUBMITTED THAT THE RECOVERY FROM THE DEBTORS IS ABOUT 70 TO 85% KEEPING IN VIEW THE TREND OF RECOVERY OF PAST YEARS. IT WAS FURTHER CONTENDED THAT ALTHOUGH IN THE ACCOUNTS THE BAD AND DOUBTFUL DEBTS IS NOT WRITTEN OFF, BUT IN FUTURE IT SHALL BE WRITTEN OFF THROUGH THAT ACCOUNT. ACCORDINGLY A REQUEST WAS MADE TO ALLOW THIS PROVISION AS BUSINESS EXPENDITURE. THE ASSESSING OFFICER HAS DISALLOWED THE PROVISION MADE ON ACCOUNT OF BAD AND DOUBTFUL DEBTS AND MADE ADDITION OF THE SAME TO THE TOTAL INCOME OF THE ASSESSEE, HAVING OBSERVED THAT AS PER EXISTING PROVISIONS OF THE ACT AS WELL AS ACCOUNTING PRINCIPLES, NO PROVISIONS MADE :- 3 -: FOR BAD AND DOUBTFUL DEBTS CAN BE ALLOWED UNTIL AND UNLESS A PARTICULAR DEBT IS ACTUALLY BAD AND NOT RECOVERABLE. 6. AN APPEAL WAS PREFERRED BEFORE THE LD. CIT(A) WITH THE SUBMISSION THAT THE ASSESSEE HAS MADE PROVISIONS FOR BAD AND DOUBTFUL DEBTS AGAINST SALE OF POWERS @ 15% OF INCREMENTAL BASIS AND THIS POLICY HAS BEEN APPROVED BY THE BOARD OF DIRECTORS AND AS PER PROVISIONS OF SECTION 36(1)(VII) OF THE ACT ANY BAD DEBTS OR PART THEREOF WHICH IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE SHOULD BE ALLOWED. ASSESSEE FILED WRITTEN SUBMISSIONS BEFORE THE LD. CIT(A) AND THE LD. CIT(A) CONFIRMED THE ORDER OF THE ASSESSING OFFICER, HAVING OBSERVED THAT THIS AMOUNT HAS BEEN DISALLOWED SINCE THE PROVISIONS MADE FROM PRETAX RECEIPTS CANNOT BE PERMITTED, SINCE THERE IS NO MENTION OF THE ACTUAL LIABILITY ON ACCOUNT OF BAD DEBTS WHICH COULD BE TECHNICALLY ALLOWABLE. 7. AGGRIEVED, THE ASSESSEE HAS PREFERRED AN APPEAL BEFORE THE TRIBUNAL AND REITERATED ITS SUBMISSIONS AS RAISED BEFORE THE LD. CIT(A). 8. THE LD. D.R., ON THE OTHER HAND, HAS SUBMITTED THAT AS PER PROVISIONS OF SECTION 36(1)(VII) OF THE ACT, ONLY WRITTEN OFF; AND BAD & DOUBTFUL DEBTS ARE ALLOWABLE AND NOT PROVISIONS FOR THE SAME. THE PROVISIONS FOR BAD AND DOUBTFUL DEBTS CAN ONLY BE ALLOWED UNDER SECTION 36(1)(VIIA) OF THE ACT ONLY IN THOSE CASES WHERE ASSESSEE IS A SCHEDULED BANK OR A PUBLIC FINANCIAL INSTITUTION, ETC. THEREFORE, PROVISIONS OF SECTION 36(1)(VII) OF THE ACT CANNOT BE INVOKED FOR ALLOWING PROVISIONS FOR BAD AND DOUBTFUL DEBTS. THE LD. D.R. HAS FURTHER PLACED RELIANCE UPON THE ORDER OF THE LD. CIT(A). 9. HAVING GIVEN A THOUGHTFUL CONSIDERATION TO THE RIVAL SUBMISSIONS AND FROM A CAREFUL PERUSAL OF THE ORDERS OF THE AUTHORITIES BELOW, WE FIND THAT THE ASSESSEE HAS MADE PROVISIONS FOR BAD AND DOUBTFUL DEBTS AGAINST SALE OF POWERS AT 50% OF INCREMENTAL BASIS. ACCORDING TO THE ASSESSEE, THIS IS A POLICY MATTER AND HAS BEEN APPROVED BY THE BOARD OF DIRECTORS OF THE :- 4 -: COMPANY. ACCORDINGLY IT CLAIMED DEDUCTION OF THE SAME UNDER SECTION 36(1)(VII) OF THE ACT, BUT ON A CAREFUL PERUSAL OF THE PROVISIONS OF SECTION 36(1)(VII) OF THE ACT, WE FIND THAT DEDUCTION OF THE AMOUNT OF ANY BAD DEBT OR PART THEREOF, WHICH IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE FOR THE PREVIOUS YEAR, CAN BE ALLOWED SUBJECT TO THE PROVISIONS OF SUB-SECTION (2) OF SECTION 36 OF THE ACT. UNDER THIS SUB-SECTION, ONLY CLAIM OF DEDUCTION OF BAD AND DOUBTFUL DEBTS ON ITS WRITTEN OFF OR IRRECOVERABLE CAN BE ALLOWED AND NOT PROVISION FOR BAD AND DOUBTFUL DEBTS. THE OTHER CLAUSE (VII)(A) OF SECTION 36(1) OF THE ACT DEALS WITH THE ISSUE OF CLAIM OF PROVISION FOR BAD AND DOUBTFUL DEBTS MADE BY THE SCHEDULED BANK OR NON- SCHEDULED BANK OR CORPORATION BANK, ETC. IN THE INSTANT CASE, THE ASSESSEE HAS CLAIMED DEDUCTION FOR PROVISIONS OF BAD AND DOUBTFUL DEBTS UNDER SECTION 36(1)(VII) OF THE ACT WHICH ONLY DEALS WITH ACTUAL CLAIM OF DEDUCTIONS. IN THE LIGHT OF THESE FACTS, WE ARE OF THE VIEW THAT PROVISION FOR BAD AND DOUBTFUL DEBTS CANNOT BE ALLOWED UNDER SECTION 36(1)(VII) OF THE ACT. WE, THEREFORE, FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A) AND ACCORDINGLY, WE CONFIRM HIS ORDER ON THIS ISSUE. 10. THE OTHER GROUND RELATES TO THE DISALLOWANCE OF INTEREST ON CONSUMER SECURITY DEPOSIT, HAVING INVOKED THE PROVISIONS OF SECTION 43B OF THE ACT. 11. IN THIS REGARD, IT IS NOTICED THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER HAS NOTICED THAT ASSESSEE HAS INCURRED INTEREST ON CONSUMER SECURITY DEPOSIT AMOUNTING TO RS.1,74,98,293/- , BUT THE SAME WAS NOT PAID. THE ASSESSEE WAS, THEREFORE, REQUIRED TO EXPLAIN AS TO WHY THIS AMOUNT MAY NOT BE ADDED TO THE TOTAL INCOME. IN RESPONSE THERETO, IT WAS SUBMITTED THAT THE AMOUNT OF RS.24,98,293/- WAS DEBITED AS INTEREST ON CONSUMER SECURITY DEPOSIT AND NO PROVISION OF INTEREST ON CONSUMER SECURITY DEPOSIT WAS MADE DURING THE YEAR. THE INTEREST WAS BEING ADJUSTED AND PAID TO CONSUMERS @ 3% ON THE AMOUNT OF CONSUMER SECURITY FROM BILLS OF ELECTRICITY/POWER RAISED TO THEM. THE ASSESSING :- 5 -: OFFICER ACCORDINGLY ALLOWED PAYMENT OF RS.24,98,293/- AND DISALLOWED THE BALANCE OF RS.1.50 CRORES BEING PROVISION OF INTEREST ON CONSUMER SECURITY DEPOSIT AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 12. AN APPEAL WAS FILED BEFORE THE LD. CIT(A) WITH THE SUBMISSION THAT ALL THE CONSUMERS ARE NOT A GOVT. BODIES AND HAS NOT TAKEN ANY LOANS OR ADVANCES FROM THE CONSUMERS TO WHOM INTEREST HAS BEEN PAID. IT WAS FURTHER CONTENDED THAT IT WAS NOT A LIABILITY UNDER SECTION 43B OF THE ACT, WHICH HAS TO BE PAID WITHIN THE STIPULATED TIME LIMIT OR BEFORE FILING OF RETURN OF INCOME. IT WAS FURTHER CONTENDED THAT IT WAS MANDATORY FOR THE ASSESSEE TO PROVIDE INTEREST ON CONSUMER SECURITY @ 3% BUT THESE AMOUNTS WILL NOT BE CREDITED TO THE PAYEE ACCOUNTS AND ONLY THE INTEREST CHARGES ON CONSUMER SECURITY SHOULD BE ADJUSTABLE FROM THE OUTSTANDING BILLS OF THE CONSUMER AFTER END OF MARCH AND BILL RAISED IN THE MONTH OF APRIL. IF THE ASSESSEE COULD NOT MAKE PROVISION OF SECURITY DEPOSIT, PENAL LIABILITY WILL BE ARISEN ON THE PERSON CONCERNED WHO HAS NOT MADE THE SAID PROVISION. THE INTEREST AMOUNT PROVIDED TO THE CONSUMER MAY NOT BE PAID AS IT ALL DEPEND UPON THE HAPPENING OF THE EVENT, SUCH AS SURRENDER OF THE METER, ITS DISCONNECTION, ETC. THE LD. CIT(A) WAS NOT CONVINCED WITH THE EXPLANATIONS OF THE ASSESSEE AND CONFIRMED THE ORDER OF THE ASSESSING OFFICER. 13. NOW THE ASSESSEE HAS PREFERRED AN APPEAL BEFORE THE TRIBUNAL AND REITERATED ITS CONTENTIONS. 14. DURING THE COURSE OF HEARING, THE LD. COUNSEL FOR THE ASSESSEE HAS INVITED OUR ATTENTION TO THE SCHEDULE FORMING PART OF THE PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDING ON 31.3.2004 APPEARING AT PAGE 35 OF THE COMPILATION OF THE ASSESSEE IN ORDER TO ESTABLISH THAT INTEREST ON CONSUMER SECURITY DEPOSIT WERE CHARGED AND AT THE YEAR ENDING ON 31.3.2004 IT WAS RAISED UPTO RS.24.98,293/-. THE LD. COUNSEL FOR THE ASSESSEE HAS FURTHER :- 6 -: CONTENDED THAT THOUGH INTEREST ACCRUED ON CONSUMER SECURITIES HAS NOT PAID BUT THE PROVISION MADE FOR IT SHOULD BE ALLOWED. 15. THE LD. D.R., ON THE OTHER HAND, HAS SUBMITTED THAT ONLY PAYMENT OF INTEREST MADE BY THE ASSESSEE CAN BE ALLOWED AND THE PAYMENT OF INTEREST TO THE CONSUMER WHICH DEPEND UPON THE HAPPENING OF CERTAIN EVENTS AS PER ASSESSEE ITSELF CANNOT BE ALLOWED. THEREFORE, UNLESS AND UNTIL PAYMENT IS MADE, IT SHOULD NOT BE ALLOWED. 16. HAVING GIVEN A THOUGHTFUL CONSIDERATION TO THE RIVAL SUBMISSIONS AND FROM A CAREFUL PERUSAL OF THE ORDERS OF THE AUTHORITIES BELOW, WE FIND THAT UNDISPUTEDLY ASSESSEE HAS MADE PROVISION FOR PAYMENT OF INTEREST ON CONSUMER SECURITIES, BUT IT WAS NOT IN FACT PAID EVEN IN SUCCEEDING YEARS, AS IT DEPENDS UPON CERTAIN HAPPENINGS OR THE EVENTS. IF THE ASSESSEE HAS DEBITED A PARTICULAR INTEREST TO THIS ACCOUNT, A CORRESPONDING CREDIT ENTRY SHOULD HAVE BEEN MADE IN THE ACCOUNTS OF THE CONSUMER. BUT THE ASSESSEE WITHOUT CREDITING THE CORRESPONDING INTEREST TO THE ACCOUNT OF THE CONSUMERS INTEND TO CLAIM EXPENDITURE OF PROVISION OF INTEREST ON CONSUMER SECURITIES, EVEN THE PAYMENT DEPENDS UPON CERTAIN HAPPENINGS OR EVENTS. FROM THE DETAILS, IT IS NOT CLEAR THAT AS TO IN HOW MANY CASES INTEREST WERE PAID TO THE CONSUMERS. MOREOVER, THE LD. CIT(A) HAS NOT ADJUDICATED THE ISSUE IN DETAIL. IN THE ORDER IN FEW LINES HE HAS SIMPLY CONFIRMED THE ORDER OF THE ASSESSING OFFICER. CONSIDERING THE COMPLEXITY OF FACTS WITH REGARD TO THE ISSUE OF PROVISION FOR INTEREST, WE ARE OF THE VIEW THAT THIS ISSUE REQUIRES A PROPER ADJUDICATION BY THE LD. CIT(A) IN THE LIGHT OF ASSESSEES CONTENTION AND RELEVANT LAW. THE VERIFICATION OF FACTS IS ALSO REQUIRED AS TO IN HOW MANY CASES INTEREST WERE PAID TO THE CONSUMERS ON THEIR SECURITY DEPOSIT TO DECIDE WHETHER IN ANY OF THE CASES, INTEREST ACCRUED ON CONSUMER SECURITIES WAS PAID OR ADJUSTED TO THE CONSUMER ACCOUNT. ACCORDINGLY THIS MATTER IS RESTORED TO THE LD. CIT(A) FOR RE-ADJUDICATION IN TERMS INDICATED ABOVE. :- 7 -: I.T.A. NO. 318/LKW/2014: BY THE REVENUE: 17. THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST THE ORDER OF THE LD. CIT(A), INTER ALIA, ON FOLLOWING GROUNDS:- 1. THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN ALLOWING THE RELIEF OF RS.9,90,82,803/-ON ACCOUNT OF NON-PAYMENT OF ELECTRICITY DUTY U/S 43B WITHOUT APPRECIATING THE FACT THAT THE CRISIS OF FUND AND INTENTION FOR PAYMENT OF THE SAME IN FUTURE WERE ADMITTED BY THE ASSESSEE ITSELF BEFORE THE AO WHEREAS BEFORE THE ASSESSEE HAS SUBMITTED BEFORE THE CIT(A) THAT THE SAME WAS PAID ON 28.07.2004. 2. THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN ALLOWING THE RELIEF OF RS.9,90,82,803/-ON ACCOUNT OF NON-PAYMENT OF ELECTRICITY DUTY U/S 43B WITHOUT APPRECIATING THE FACT THAT THIS WAS NOT PAID AS PER THE PROVISIONS CONTAINED IN THAT SECTION AND ONLY ADJUSTMENT ENTRIES WITH THE HOLDING COMPANY WERE MADE BY THE ASSESSEE IN SUPPORT OF ITS PAYMENT. 3. THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN ALLOWING THE RELIEF OF RS.19,95,19,863/-ON ACCOUNT OF NON-PAYMENT OF INTEREST TO U.P. POWER CORPORATION LTD. WITHOUT CONSIDERING THE FACT THAT THE SAME CANNOT BE ALLOWED AS EXPENDITURE UNTIL AND UNLESS THE ASSESSEE MADE THE ACTUAL PAYMENT U/S. 43B OF THE INCOME-TAX ACT, 1961. 4. THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN LAW AND ON FACTS IN ALLOWING THE RELIEF OF RS.7,78,488/- & RS.13,42,805/- ON ACCOUNT OF TRADE TAX LIABILITY & EMPLOYEES COST RESPECTIVELY WITHOUT APPRECIATING THE FACT THAT THESE EXPENSES RELATE TO PRIOR PERIOD AND CANNOT BE ADJUSTED AGAINST THE INCOME OF THE CURRENT YEAR. 5. THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN LAW AND ON FACTS IN :- 8 -: ALLOWING THE RELIEF OF RS.38,50,00,000/- ON ACCOUNT OF SURCHARGE OF POWER PURCHASE DUE TO LATE PAYMENT IGNORING THE FACT THAT THE NATURE OF THIS PAYMENT IS PENAL AND NOT COMPENSATORY AND THEREFORE, IT CANNOT BE ALLOWED AS EXPENDITURE. 6. THE ORDER OF THE CIT (A), KANPUR BEING ERRONEOUS, UNJUST AND BAD IN LAW BE VACATED AND THE ORDER OF THE AO BE RESTORED. 18. APROPOS GROUNDS NO.1 & 2, IT IS NOTICED THAT DISALLOWANCE OF ELECTRICITY OF RS.9,90,82,803/- WAS MADE, HAVING INVOKED THE PROVISIONS OF SECTION 43B OF THE ACT, AS IT WAS NOT PAID WITHIN THE END OF THE RELEVANT FINANCIAL YEAR. 19. IN APPEAL, THE ASSESSEE HAS CONTENDED THAT THE ASSESSEE-COMPANY IS A GOVERNMENT ORGANIZATION AND HAS RECEIVED ELECTRICITY DUTY FROM CONSUMERS AGAINST SALE OF POWERS OF RS.9,90,8,803/- AND IN THE REGULAR PROCESS ELECTRICITY DUTY ADJUSTED FROM REVENUE SUBSIDY RELEASED BY THE U.P. GOVT. THE ASSESSEE HAS TRANSFERRED THESE AMOUNTS TO UPPCL WHO IS A HOLDING COMPANY OF THE SUBSIDIARY I.E. KESCO, THE ASSESSEE. THE UPPCL HAS ADJUSTED THE ELECTRICITY DUTY FROM SUBSIDY RELEASED BY THE GOVT. TO REDUCE THE LOSS OF THE COMPANY AND UPPCL HAS TRANSFERRED THE SAID AMOUNT TO U.P. GOVT. ACCOUNT AND ISSUED A DEBIT AND CREDIT NOTE IN FAVOUR OF ITS SUBSIDIARY I.E. KESCO AND THESE AMOUNTS HAS ALSO BEEN INCORPORATED IN THE BOOKS OF ACCOUNT OF THE ASSESSEE. THE ASSESSEE HAS FILED THE COPY OF DEBIT NOTE ISSUED BY THE UPPCL TO THE ASSESSEE. THE LD. CIT(A) EXAMINED THESE FACTS AND FINDING FORCE IN THE CONTENTIONS OF THE ASSESSEE, DELETED THE DISALLOWANCE. 20. NOW THE REVENUE IS IN APPEAL BEFORE US AND HAS PLACED RELIANCE UPON THE ORDER OF THE ASSESSING OFFICER WHEREAS THE LD. COUNSEL FOR THE ASSESSEE HAS CONTENDED THAT SINCE THE ASSESSEE IS A GOVT. ORGANIZATION AND HAS RECEIVED ELECTRICITY DUTY FROM THE CONSUMERS WHICH WAS TRANSFERRED TO THE :- 9 -: UPPCL, HOLDING COMPANY OF THE ASSESSEE AND UPPCL HAS ADJUSTED THE ELECTRICITY DUTY FROM SUBSIDY RELEASED BY THE GOVT., THEREFORE, IT IS A CASE OF MERE ADJUSTMENT OF THE ENTRIES AND PROVISIONS OF SECTION 43B OF THE ACT CANNOT BE INVOKED. 21. HAVING GIVEN A THOUGHTFUL CONSIDERATION TO THE RIVAL SUBMISSIONS AND FROM A CAREFUL PERUSAL OF THE ORDERS OF THE AUTHORITIES BELOW, WE FIND FORCE IN THE CONTENTIONS OF THE LD. COUNSEL FOR THE ASSESSEE THAT ELECTRICITY DUTY RECEIVED FROM CONSUMERS WAS IMMEDIATELY TRANSFERRED TO UPPCL, THE HOLDING COMPANY WHICH ADJUSTED THE ELECTRICITY DUTY SUBSIDY RELEASED BY THE GOVT. TO REDUCE THE LOSS OF THE COMPANY. THE DEBIT NOTE WAS ALSO ACCORDINGLY ISSUED BY UPPCL TO KESCO, THE ASSESSEE. BUT THESE FACTS WERE NOT BROUGHT TO THE NOTICE OF THE ASSESSING OFFICER AND THE ASSESSING OFFICER HAS INVOKED THE PROVISIONS OF SECTION 43B OF THE ACT FOR THE REASON THAT THE ASSESSEE-COMPANY HAS NOT PAID THE AMOUNT ON THE DATE OF FILING OF THE RETURN OF INCOME. THESE FACTS WERE BROUGHT TO THE LD. CIT(A) AND THE LD. CIT(A) HAS ACCEPTED THE SAME AND DELETED THE ADDITION. THEREFORE, WE ARE OF THE VIEW THAT NEW FACTS REQUIRE PROPER VERIFICATION BY THE ASSESSING OFFICER. IF THESE FACTS ARE FOUND TO BE CORRECT, THEN NO DISALLOWANCE CAN BE MADE UNDER SECTION 43B OF THE ACT, AS THE ELECTRICITY DUTY RECEIVED FROM THE CONSUMERS WERE TRANSFERRED TO UPPCL AND IN TURN UPPCL HAS ADJUSTED THE ELECTRICITY DUTY FROM SUBSIDY RELEASED BY THE GOVT. TO REDUCE THE LOSS OF THE COMPANY. WE, THEREFORE, RESTORE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER TO DECIDE IT AFRESH AFTER PROPER VERIFICATION. NEEDLESS TO MENTION HERE THAT PROPER OPPORTUNITY BE AFFORDED TO THE ASSESSEE. 22. APROPOS GROUND NO.3, IT IS NOTICED THAT THE ASSESSING OFFICER HAS MADE AN ADDITION OF RS.19,95,19,863/- ON ACCOUNT OF INTEREST PAID TO UPPCL, HAVING INVOKED THE PROVISIONS OF SECTION 43B OF THE ACT. 23. THE ASSESSEE HAS PREFERRED AN APPEAL BEFORE THE LD. CIT(A) WITH THE SUBMISSION THAT WHILE MAKING ADDITION OF THE AFORESAID AMOUNT UNDER THE :- 10 -: HEAD INTEREST UNPAID TO UPPCL, THE ASSESSING OFFICER HAS NOT CONSIDERED THE FACTS THAT THE UPPCL IS A HOLDING COMPANY OF THE SUBSIDIARY, KESCO I.E. ASSESSEE AND BOTH ARE THE GOVT. ORGANIZATIONS. HENCE THE OBSERVATION OF THE ASSESSING OFFICER THAT UPPCL IS A GOVT. ORGANIZATION AND INTEREST PAYABLE AT RS.19,95,19,863/- HAS NOT PAID AND THIS AMOUNT WILL BE DISALLOWED UNDER SECTION 43B OF THE ACT BASED ON THE WRONG FACTS OF THE CASE AND THE SAME SHOULD BE ALLOWED DUE TO THE FACT THAT BOTH ARE THE SISTER CONCERN. BEING CONVINCED WITH THE EXPLANATIONS OF THE ASSESSEE, THE LD. CIT(A) HAS ALLOWED THE CLAIM OF THE ASSESSEE. 24. NOW THE REVENUE IS IN APPEAL BEFORE US AND HAS PLACED RELIANCE UPON THE ORDER OF THE ASSESSING OFFICER; WHEREAS THE LD. COUNSEL FOR THE ASSESSEE HAS CONTENDED THAT IT IS A CONTRACTUAL ARRANGEMENT BETWEEN THE ASSESSEE AND UPPCL, THE HOLDING COMPANY AND IT IS NOT STATUTORY LIABILITY WHICH IS TO BE PAID BEFORE A PARTICULAR DATE AS PER PROVISIONS OF SECTION 43B OF THE ACT. THEREFORE SECTION 43B OF THE ACT CANNOT BE INVOKED UNDER THE GIVEN FACTS AND CIRCUMSTANCES OF THE CASE. 25. HAVING CAREFULLY EXAMINED THE ORDERS OF THE AUTHORITIES BELOW, WE FIND THAT UNDISPUTEDLY UPPCL IS A HOLDING COMPANY OF THE ASSESSEE AND AS PER CONTRACTUAL ARRANGEMENT, THE ASSESSEE-COMPANY WAS REQUIRED TO PAY INTEREST TO UPPCL. BUT SINCE THE PAYMENT OF INTEREST IS NOT STATUTORY LIABILITY, PROVISIONS OF SECTION 43B OF THE ACT CANNOT BE INVOKED. THEREFORE, THE DISALLOWANCE MADE BY THE ASSESSING OFFICER HAVING INVOKED THE PROVISIONS OF SECTION 43B OF THE ACT IS NOT CORRECT. WE ACCORDINGLY FIND OURSELVES IN AGREEMENT WITH THE ORDER OF THE LD. CIT(A) ON THIS ISSUE AND WE CONFIRM THE SAME. 26. APROPOS GROUND NO.4 WHICH RELATES TO TRADE TAX LIABILITY OF RS.7,78,488/- AND RS.13,42,805/- (EMPLOYEES COST) WAS TREATED AS A PRIOR PERIOD EXPENSES BY THE ASSESSING OFFICER WHILE DISALLOWING THE SAME. :- 11 -: 27. BEFORE THE LD. CIT(A), IT WAS CONTENDED THAT THESE LIABILITIES PERTAIN TO FINANCIAL YEAR 2003-04 WHICH HAVE BEEN PAID IN DUE COURSE AND THE ASSESSING OFFICER HAS WRONGLY MENTIONED THAT THE LIABILITIES PERTAIN TO PRIOR PERIOD AND WRONGLY DEBITED UNDER THE HEAD MISCELLANEOUS EXPENSES. IT WAS FURTHER CONTENDED THAT THE EXPENSES OF RS.13,42,805/- WAS INCURRED DURING THE COURSE OF INCORPORATION OF THE COMPANY AND BEFORE TRANSFERRED SCHEME 2000 AND IT SHOULD BE ALLOWED UNDER SECTION 35D OF THE ACT. BEFORE THE LD. CIT(A) ASSESSEE HAS FILED WRITTEN SUBMISSIONS IN THIS REGARD WHICH ARE EXTRACTED HEREUNDER FOR THE SAKE OF REFERENCE:- THAT, IT IS HEREBY SUBMITTED THAT THE ASSESSING OFFICER HAS ALSO DISALLOWED A SUM OF RS.7,78,488.00 UNDER THE HEAD TRADE TAX LIABILITY DUE TO THESE LIABILITY PERTAIN TO EARLIER YEAR AND HAS BEEN PAID IN THE MONTH OF FEBRUARY 2004. IT IS WORTHWHILE TO MENTIONED THAT, FACTS IS THAT THESE LIABILITY PERTAIN TO THE FINANCIAL YEAR 2003-2004 WHICH HAS BEEN PAID IN DUE COURSE AND THE ASSESSING OFFICER HAS WRONGLY MENTION FACTS THAT THESE LIABILITY PERTAIN TO PRIOR PERIOD AND WRONGLY DEBITED UNDER THE HEAD MISC. EXPENSES. HENCE THE DISALLOWANCE MADE BY THE ASSESSING OFFICER MAY KINDLY BE DELETED IN THE INTEREST OF JUSTICE. THAT THE ASSESSEES COMPANY HAS CLAIMED EXPENSES RS.13,42,805.00 ON ACCOUNT OF EMPLOYEES COST UNDER THE HEAD PRIOR PERIOD EXPENSES. IT IS HEREBY SUBMITTED THAT THESE EXPENSES WHERE INCURRED DURING THE COURSE OF INCORPORATION OF THE COMPANY AND BEFORE TRANSFERRED SCHEME 2000 AND IT SHOULD BE ALLOWED U/S 35D OF THE INCOME-TAX ACT, IT IS HEREBY SUBMITTED THAT THE THESE AMOUNT WERE INCURRED BY THE ASSESSEE TO THEIR EMPLOYEES AND ADMINISTRATIVE EXPENSES. A COPY OF ACCOUNTS OF THE SAID HEAD IS ENCLOSED AS PER PAPER BOOK PAGE NO. 22A TO 22D, ACCOUNT GROUP NO. 83. THE ASSESSEE'S COMPANY HAS ALREADY SUBMITTED THE BOOKS OF ACCOUNTS AND DETAILS DURING THE COURSE OF HEARING OF THE CASE. HENCE THE CONTENTION OF THE A.O. IS THAT NO SUCH DOCUMENTARY EVIDENCE HAS BEEN PRODUCE IS NOT CORRECT. HENCE THE EXPENSES CLAIMED UNDER THE HEAD PRIOR PERIOD EXPENSES :- 12 -: RS.13,42,805.00 KINDLY BE ALLOWED IN THE INTEREST OF JUSTICE. THIS ISSUED HAS ALREADY SETTLED IN THE CASE OF PVVNL FOR AY. 2004-05, 2005-06 & 2007-08 BY THE HON'BLE COMMISSIONER OF INCOME TAX (APPEAL), WHICH COPY OF JUDGMENT IS ENCLOSED AS PER PAPER BOOK PAGE NO. 46 TO 60 AND 61 TO 67 28. FINDING FORCE IN THE CONTENTIONS OF THE ASSESSEE, THE LD. CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE AND DELETED THE ADDITION, IN ONE LINE. 29. NOW THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL WITH THE SUBMISSION THAT BEFORE THE ASSESSING OFFICER ASSESSEE HAS NOT FURNISHED THE EXPLANATIONS WHICH HAS BEEN FURNISHED BEFORE THE LD. CIT(A) AND THE LD. CIT(A) INSTEAD OF CALLING ANY COMMENTS FROM THE ASSESSING OFFICER HAS ACCEPTED THE CLAIM OF THE ASSESSEE AND DELETED THE ADDITION. THEREFORE, THERE IS A VIOLATION OF THE PROVISIONS OF RULE 46A OF THE RULES. 30. THE LD. COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND, HAS PLACED RELIANCE UPON THE ORDER OF THE LD. CIT(A) WITH THE SUBMISSION THAT LIABILITY OF RS.7,78,488/- PERTAINS TO FINANCIAL YEAR 2003-04, WHICH HAS BEEN PAID IN DUE COURSE AND THE ASSESSING OFFICER HAS WRONGLY MENTIONED THE FACT THAT THESE LIABILITIES PERTAIN TO PRIOR PERIOD AND WRONGLY DEBITED UNDER THE HEAD MISCELLANEOUS EXPENSES. WITH REGARD TO EXPENSES OF RS.13,42,805/-, IT WAS CONTENDED THAT IT SHOULD BE ALLOWED UNDER SECTION 35D OF THE ACT. 31. HAVING GIVEN A THOUGHTFUL CONSIDERATION TO THE RIVAL SUBMISSIONS AND FROM A CAREFUL PERUSAL OF THE ORDERS OF THE AUTHORITIES BELOW, WE FIND THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER HAS ASKED THE ASSESSEE TO FURNISH EXPLANATIONS, AS THESE EXPENSES APPEAR TO BE PRIOR PERIOD EXPENSES, BUT THE ASSESSEE MADE A GENERAL EXPLANATION WHICH WAS NOT ACCEPTED BY THE ASSESSING OFFICER AND MADE DISALLOWANCE. WHEREAS BEFORE THE LD. CIT(A) ASSESSEE HAS TAKEN ALTOGETHER A DIFFERENT STAND BY RAISING A DIFFERENT PLEA. THE NEW EXPLANATION WAS NEITHER :- 13 -: CONFRONTED TO THE ASSESSING OFFICER NOR THE LD. CIT(A) EXAMINED THE CORRECTNESS OF THE CLAIM, MAKING NECESSARY ENQUIRY BY HIMSELF. IN ONE LINE HE ACCEPTED THE CLAIM OF THE ASSESSEE AND DELETED THE ADDITION. THEREFORE, WE ARE OF THE VIEW THAT THE NEW EXPLANATION FURNISHED BY THE ASSESSEE WAS NOT PROPERLY EXAMINED BY THE LD. CIT(A) AND IT REQUIRES A FRESH ADJUDICATION/EXAMINATION BY THE ASSESSING OFFICER. WE ACCORDINGLY SET ASIDE THE ORDER OF THE LD. CIT(A) IN THIS REGARD AND RESTORE THE MATTER TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO RE-ADJUDICATE THE ISSUE AFRESH AFTER AFFORDING OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 32. APROPOS GROUND NO.5, IT IS NOTICED THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTED THAT ASSESSEE HAS DEBITED A SUM OF RS.38.50 LAKHS ON ACCOUNT OF SURCHARGE OF POWER PURCHASE DUE TO LATE PAYMENT. THE ASSESSEE WAS REQUIRED TO EXPLAIN WHY THE AMOUNT BEING SURCHARGE FOR LATE PAYMENT MAY NOT BE ADDED TO THE TOTAL INCOME, AS IT IS IN THE NATURE OF PENALTY. THOUGH THE ASSESSEE HAS FURNISHED EXPLANATION THAT IT WAS MERE COMPENSATORY IN NATURE, BUT THE ASSESSING OFFICER HAS MADE ADDITION AFTER TREATING THIS PAYMENT TO BE AS PENALTY. 33. AN APPEAL WAS PREFERRED BEFORE THE LD. CIT(A) AND IT WAS CONTENDED THAT NO RULE OR LAW WAS BROKEN IN INCURRING SUCH EXPENSES, THEREFORE, THE PAYMENT IS OF COMPENSATORY IN NATURE. BEING CONVINCED WITH THE EXPLANATIONS OF THE ASSESSEE, THE LD. CIT(A) DELETED THE ADDITION HAVING TREATED THIS PAYMENT TO BE COMPENSATORY IN NATURE. 34. NOW THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL AND HAS PLACED RELIANCE UPON THE ORDER OF THE ASSESSING OFFICER; WHEREAS THE LD. COUNSEL FOR THE ASSESSEE HAS CONTENDED THAT AS PER SCHEDULE B I.E. BULK SUPPLY TARIFF, LATE PAYMENT SURCHARGE ARE REQUIRED TO BE PAID AS ADDITIONAL CHARGES AT A RATE EQUAL TO 2% PER MONTH OR PART THEREOF ON THE AMOUNT WHICH IS :- 14 -: SUBJECT TO DELAY. THEREFORE, THIS AMOUNT WAS RIGHTLY TREATED TO BE PAYMENT OF COMPENSATORY NATURE BY THE LD. CIT(A). 35. HAVING GIVEN A THOUGHTFUL CONSIDERATION TO THE RIVAL SUBMISSIONS AND FROM A CAREFUL PERUSAL OF THE ORDERS OF THE AUTHORITIES BELOW AND SCHEDULE- B OF BULK SUPPLY AGREEMENT, WE FIND THAT THIS CLAUSE 3 DEALS WITH LATE PAYMENT CHARGES, ACCORDING TO WHICH THE ASSESSEE WAS REQUIRED TO PAY ADDITIONAL CHARGE AT THE RATE EQUAL TO 2% PER MONTH OR PART THEREOF ON THE AMOUNT WHICH IS SUBJECT TO DELAY. THE TEXT AND TENURE OF THE CLAUSE SPEAKS THAT LATE PAYMENT SURCHARGE IS OF COMPENSATORY NATURE ON ACCOUNT OF DELAY IN PAYMENT. THEREFORE, IT CAN BE TREATED AS REVENUE EXPENDITURE. IN THE LIGHT OF TERMS OF CLAUSE, WE ARE OF THE VIEW THAT THE PAYMENT IS OF COMPENSATORY NATURE AND NO DISALLOWANCE IS CALLED FOR. ACCORDINGLY WE CONFIRM THE ORDER OF THE LD. CIT(A). 36. IN THE RESULT, APPEALS OF THE ASSESSEE AS WELL AS THE REVENUE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER WAS PRONOUNCED IN THE OPEN COURT ON THE DATE MENTIONED ON THE CAPTION PAGE. SD/- SD/- [A. K. GARODIA] [SUNIL KUMAR YADAV] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED:14 TH NOVEMBER, 2014 JJ:0711 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT :- 15 -: 5. DR ASSISTANT REGISTRAR