Punjab State Electricity Board, Patiala V. ACIT, Patiala

ITA 464/CHANDI/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 5344 (ITAT-CHANDIGARH)
• Duration Of Justice: 2 year(s) 1 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 20-06-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 04-05-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K MITTAL
• Assessee Lawyers: K P BAJAJ
• Keywords: Assessment record
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL,B BENCH, CHA NDIGARH BEFORE SHRI D K SRIVASTAVA, AM AND MS. SUSHMA CHOWL A, JM ITA NO.464 /CHD/2009 AY: 2005-06 PUNJAB STATE ELECTRICITY BOARD V. ACIT, CIRCLE, PATIALA THE MALL, PATIALA PAN: AABCP-7651E APPELLANT BY: SHRI K.P.BAJAJ RESPONDENT BY: SHRI S.K.MITTAL ORDER D K SRIVASTAVA: THE APPEAL FILED BY THE ASSESSEE-BOARD IS DIRECTED AGAINST THE ORDER PASSED BY THE CIT(A) ON 23.03.200 9 ON THE FOLLOWING GROUNDS: 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) WAS NOT JUSTIFIED IN UPHOLDING THE ADDITION OF RS.1 4,80,14,62,276/- MADE ON ACCOUNT OF RURAL ELECTRIFICATION SUBSIDY WR ONGLY CLAIMED AND THEN WRITTEN OFF IN THE PERIOD RELEVANT FOR THE ASS ESSMENT YEAR 2005- 06. 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE-BOARD FILED ITS RETURN OF INCOME ON 27.10.2005 RETURNING TOTAL LOSS AT RS.21,61,88,11,000/-. THE RETURN WAS SELECTED FOR SCRUTINY. ASSESSMENT U/S 143(3) WAS COMPLETED ON 16.10.2007 ASSESSING THE TO TAL LOSS AT RS.6,66,60,16,230/- AFTER ADDITION/DISALLOWANCE AMO UNTING TO RS.14,80,14,62,276/- BEING THE AMOUNT OF SUBSIDY WR ITTEN OFF BY THE ASSESSEE AS IRRECOVERABLE IN THE YEAR UNDER APPEAL. 3. PERUSAL OF THE ASSESSMENT ORDER SHOWS THAT THE A SSESSEE-BOARD WAS ENTITLED TO RECEIVE RURAL ELECTRIFICATION SUBSIDY A S A RESULT OF THE UNDERTAKING GIVEN BY THE GOVERNMENT OF PUNJAB TO TH E WORLD BANK TO COMPENSATE THE ASSESSEE FOR EXPENDITURE IN RESPECT OF RURAL ELECTRIFICATION IN EXCESS OF THE REVENUE RECEIPTS. FOR QUANTIFICATI ON PURPOSES, THE RATE OF SUBSIDY WAS FIXED AT 9.5% OF AVERAGE CAPITAL BASE. SINCE THE COST OF ELECTRICITY KEPT ON INCREASING AND CONSEQUENTLY REV ENUE EXPENDITURE ALSO KEPT ON INCREASING, A REQUEST WAS MADE BY THE ASSES SEE-BOARD TO THE STATE GOVERNMENT TO INCREASE THE PERCENTAGE OF SUBSIDY FR OM 9.5% TO 15% OF THE AVERAGE CAPITAL BASE. THE STATE GOVERNMENT CONSIDER ED THE REQUEST OF THE ITA 464/CHD/2009 PSEB, PATIALA ASSESSEE-BOARD AND REVISED THE RATE OF SUBSIDY ON T HE FOLLOWING TERMS AND CONDITIONS, BY ITS LETTER DATED 11.11.1997: 2. THE GOVERNOR OF PUNJAB IS PLEASE TO ACCORD SANC TION TO THE REVISION OF RATE OF SUBSIDY FROM 9.5% TO 15% WHICH INCLUDES 12% INTEREST ON LOANS TO BE OBTAINED BY THE PUNJAB STAT E ELECTRICITY BOARD FROM THE STATE GOVERNMENT INSTEAD OF 6% FIXED EARLI ER AND 3% RATE OF RETURN AS PROVIDED UNDER SECTION 59 OF THE ELECTRIC ITY (SUPPLY) ACT, 1948. 3. THIS SANCTION IS SUBJECT TO THE CONDITION THAT T HE AMOUNT OF RURAL ELECTRIFICATION SUBSIDY WILL BE RESTRICTED TO THE AMOUNT OF INTEREST PAYABLE BY THE PUNJAB STATE ELECTRICITY BO ARD ON THE LOANS ADVANCED TO IT BY THE STATE GOVERNMENT IN A PARTICU LAR YEAR. FURTHER THE AMOUNT OF SUBSIDY WILL NOT BE PAID TO THE PUNJA B STATE ELECTRICITY BOARD IN CASH IN ANY CASE. 4. PERUSAL OF PARAGRAPH 3 OF THE LETTER DATED 11.11 .1997 (SUPRA) INCREASING THE RATE OF SUBSIDY FROM 9.5% TO 15% SHO WS THAT THE AFORESAID INCREASE WAS SUBJECT TO THE CONDITION THAT THE AMOU NT OF RURAL ELECTRIFICATION SUBSIDY WILL BE RESTRICTED TO THE A MOUNT OF INTEREST PAYABLE BY THE ASSESSEE-BOARD ON THE LOANS ADVANCED TO IT B Y THE STATE GOVERNMENT IN A PARTICULAR YEAR AND FURTHER THAT THE AMOUNT OF SUBSIDY WOULD NOT BE PAID TO THE ASSESSEE-BOARD IN CASH IN ANY CASE. IN ITS EFFORT TO DRAW MAXIMUM BENEFIT OF SUBSIDY FROM THE STATE GOVERNMEN T, THE ASSESSEE- BOARD INCORPORATED THE AFORESAID CLAUSE IN ITS FAVO UR TO MEAN THAT ALTHOUGH THE QUANTIFICATION OF SUBSIDY COULD BE MADE AT 15%, THE AMOUNT EXCEEDING THE INTEREST ON LOANS COULD BE TRIED TO BE ADJUSTED AGAINST THE LOANS PAYABLE TO THE GOVERNMENT. THIS ENDEAVOR OF THE ASS ESSEE DID NOT CLICK AND ULTIMATELY THE SUBSIDY WAS ALLOWED AS PER CLAUSE (3 ) OF THE LETTER CITED SUPRA. ON 26.05.2005, THE ASSESSEE-BOARD SIGNED A M EMORANDUM OF UNDERSTANDING WITH THE CHIEF SECRETARY, GOVERNMENT OF PUNJAB WHEREIN THE INCORRECT NATURE OF CLAIM OF SUBSIDY MADE BY THE AS SESSEE WAS PUT ON RECORD AND ACCORDINGLY A DECISION WAS TAKEN THAT TH E SUBSIDY AS COMPUTED BY THE ASSESSEE-BOARD WAS NOT PAYABLE BY THE STATE GOVERNMENT. THE MATTER WAS THEREAFTER PLACED BEFORE THE BOARD. IT W AS EXPLAINED THAT THE AMOUNT OF SUBSIDY BEING CLAIMED BY THE ASSESSEE WAS NOT PAYABLE BY THE STATE GOVERNMENT INSPITE OF THE SINCERE EFFORTS MAD E BY THE ASSESSEE-BOARD IN THE PAST AND THEREFORE IT WAS NECESSARY TO CLEAN UP THE BALANCE SHEET BY ITA 464/CHD/2009 PSEB, PATIALA WRITING OFF THE AMOUNT AS IRRECOVERABLE IN THE BOOK S FOR ASSESSMENT YEAR UNDER APPEAL. PERUSAL OF THE AGENDA ITEM BEING MEMO RANDUM NO.02/CAO/A&R DATED 01.07.2005 SHOWS THAT A SPECIFI C PROPOSAL WAS PLACED BEFORE THE ASSESSEE-BOARD FOR DECISION TO WRITE OFF RS.3242.41 CR AS LOSS OF THE BOARD IN THE BALANCE SHEET FOR FINANCIAL YEAR 2 004-05, I.E., THE ASSESSMENT YEAR UNDER APPEAL BY CLEARING THE HEAD RE SUBSIDY RECEIVABLE FROM THE STATE GOVERNMENT. THE AGENDA NOTE PREPARE D BY THE CHIEF ACCOUNTS OFFICER, PSEB, PATIALA WAS FIRST APPROVED BY THE MEMNER/F&A, PSEB AND LATER ON BY THE ASSESSEE-BOARD IN ITS MEET ING HELD ON 8.8.2005. IT IS IMPORTANT TO OBSERVE THAT THE DECISION TAKEN BY THE BOARD WAS NOT ONLY TO WRITE OFF THE AMOUNT AS IRRECOVERABLE BUT ALSO T O WRITE ALL THE SAME AS LOSS TO THE BOARD IN THE ACCOUNTS AND BALANCE SHEET FOR FINANCIAL YEAR 2004- 05, I.E., ASSESSMENT YEAR 2005-06. 5. THE AO EXAMINED THE CLAIM OF THE ASSESSEE AND NO TED, IN PARTICULAR, THE SEQUENCE OF DATES. ACCORDING TO HIM, THE MOU BE TWEEN THE ASSESSEE- BOARD AND THE STATE GOVERNMENT WAS SIGNED ON 26.05. 2005 AND THE PROPOSAL TO WRITE OFF THE AMOUNT AS BAD DEBT WAS AP PROVED BY THE ASSESSEE-BOARD ON 08.08.2005 AND THEREFORE THE CLAI M WAS PRE MATURE IN THE ASSESSMENT YEAR UNDER APPEAL AS BOTH THE AFORES AID DATES NAMELY 26.05.2005 AND 08.08.2005 FELL IN THE PREVIOUS YEAR RELEVANT TO THE NEXT ASSESSMENT YEAR, I.E., ASSESSMENT YEAR 2006.07. THE AO THEREFORE DECLINED THE CLAIM OF THE ASSESSEE IN THE YEAR UNDER APPEAL. 6. ON APPEAL, THE LD. CIT(A) HAS CONCURRED WITH THE VIEW TAKEN BY THE AO WITH THE FOLLOWING OBSERVATIONS : 3.4 I HAVE GONE THROUGH THE ASSESSMENT RECORD, THE ORDER OF ASSESSMENT AND WRITTEN SUBMISSIONS FILED BY THE ASS ESSEE. A COPY OF THE SUBMISSION MADE WAS ALSO FORWARDED TO THE AO WH OSE REPLY DATED 19.12.2008 WAS RECEIVED AND PLACED ON FILE. THE ASS ESSEE WAS ALSO SUPPLIED A COPY THEREOF. IN THE REPLY THE AO HAS RE LIED UPON THE FINDINGS OF HIS PREDECESSOR. THE REPLY OF THE ASSES SEE IS AGAIN THAT IT IS A CORRECTION OF THE MISTAKE. ON THE BASIS OF FAC TS ON RECORD, I FIND THAT THE CLAIM MADE BY THE ASSESSEE IS PREMATURE. S INCE THE DECISION WAS TAKEN IN THE PERIOD RELEVANT FOR THE ASSESSMENT YEAR 2006-07, THE ISSUE FOR ADJUDICATION WILL ARISE IN THAT YEAR ONLY . FOR THE YEAR UNDER ITA 464/CHD/2009 PSEB, PATIALA APPEAL, THE CLAIM IS PREMATURE. FOR THIS REASON, TH E APPEAL OF THE ASSESSEE ON THIS ISSUE IS DISMISSED. 7. AGGRIEVED BY THE ORDER PASSED BY THE CIT(A), THE ASSESSEE-BOARD IS NOW IN APPEAL BEFORE THIS TRIBUNAL. IN SUPPORT OF A PPEAL, THE LD. COUNSEL FOR THE ASSESSEE HAS FILED A PAPER BOOK CONTAINING (1) SANCTION LETTER ISSUED BY THE GOVERNMENT OF PUNJAB ENHANCING THE RATE OF SUBS IDY FROM 9.5% TO 15%; (2) COPY OF MEMORANDUM/AGENDA NOTE OF THE CHIEF ACC OUNTS OFFICER PROPOSING TO CLEAN UP THE ACCOUNTS/BALANCE SHEET FO R THE YEAR UNDER APPEAL BY WRITING OFF THE IMPUGNED SUM; (3) COPY OF COMPUT ATION OF INCOME/LOSS FOR THE YEAR UNDER APPEAL; (4) COPY OF THE DECISION TAKEN BY THE BOARD; AND (5) COPY OF ANNUAL STATEMENT OF ACCOUNTS ALONGWITH AUDIT REPORT. HE HAS ALSO FILED WRITTEN SUBMISSIONS THE GIST OF WHICH (B EING LAST PARAGRAPH OF THE WRITTEN SUBMISSIONS) READS AS UNDER: IN THIS CONNECTION IT MAY BE SUBMITTED THAT THE CL AIM OF 15% SUBSIDY WAS NOT ADMISSIBLE AT ALL. IT HAD TO BE CONFINED T O THE AMOUNT OF INTEREST DUE ON THE LOANS OF THE STATE GOVERNMENT. THE INCOME SHOWN BY THE BOARD IN DIFFERENT YEARS WAS, THEREFOR E, EXCESSIVE. THE DECISION TO WRITE BACK WAS THOUGH TAKEN ON 26.05.20 05, SINCE THE BOOKS OF ACCOUNT WERE UNDER AUDIT, THE CLAIM WAS DU LY MADE THEREIN. IN THE CASE OF RAZA BULAND SUGAR CO.LTD. V CIT REPO RTED IN 122 ITR 817. IT HAS BEEN HELD BY THE HON'BLE ALLAHABAD HIGH COURT THAT EVEN WHERE A LIABILITY WAS QUANTIFIED DURING THE ASSESSM ENT PROCEEDINGS, THE ASSESSEE WAS ENTITLED TO MAKE A CLAIM FOR THE S AME. FURTHER IN THE CASE OF CIT V CENTRAL PROVINCE MANGANESE ORE CO. LT D., REPORTED IN 112 ITR 734 THAT EVEN WHERE NO CLAIM WAS MADE BEFOR E THE AO IN RESPECT OF THE ADDITIONAL EXCISE DUTY PAID IN SUBSE QUENT YEAR, THE TRIBUNAL WAS RIGHT IN ENTERTAINING THE CLAIM OF THE ASSESSEE. RELIANCE IN THIS CONNECTION IS ALSO PLACED ON THE D ECISION OF HON'BLE ALLAHABAD HIGH COURT IN THE CASE OF CIT V SWARUP VE GETABLE PRODUCTS, REPORTED IN 210 ITR 716 AND ALSO THE HON'BLE SUPREM E COURT IN THE CASE OF KEDARNATH JUTE MANUFACTURING CO.LTD. V CIT REPORTED IN 82 ITR 363. 8. IN REPLY, THE LD. DR SUPPORTED THE ORDER PASSED BY THE AO AND THE CIT(A). 9. WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY CON SIDERED THEIR SUBMISSIONS. IT IS NOT IN DISPUTE THAT THE ASSESSEE -BOARD WAS NOT ENTITLED TO ITA 464/CHD/2009 PSEB, PATIALA SUCCEED IN ITS CLAIM FOR ENHANCED RATE OF SUBSIDY O WING TO THE TERMS AND CONDITIONS SPELT OUT IN PARA 3 OF THE LETTER DATED 11.11.1997 (SUPRA) AND THUS THE SAID SUM WAS IRRECOVERABLE. IT IS ALSO NOT IN DISPUTE THAT THE MOU WAS SIGNED BETWEEN THE ASSESSEE-BOARD AND THE STATE GOVERNMENT IN WHICH THE AFORESAID FACT WAS DULY ACKNOWLEDGED BY THE ASS ESSEE-BOARD AND ALSO BY THE STATE GOVERNMENT. THE FACT THAT THE AMOUNT W AS ACTUALLY WRITTEN OFF AS IRRECOVERABLE IN THE BOOKS OF THE ASSESSEE FOR T HE YEAR UNDER APPEAL IS ALSO NOT DISPUTED. BESIDES, THE ASSESSEE HAD SHOWN THE INCOME FROM SUBSIDY IN ITS BOOKS OF ACCOUNT AND OFFERED THE SAME FOR TA XATION IN EARLIER ASSESSMENT YEARS. IT WAS THEREAFTER REALIZED THAT THE AMOUNT SHOWN AS INCOME IN EARLIER YEARS WAS REQUIRED TO BE WRITTEN OFF AS IT WAS IRRE COVERABLE FROM THE STATE GOVERNMENT. ON THE AFORESAID FACTS, ALL THE CONDITI ONS STIPULATED BY SECTION 36(1)(VII)/36(2) ARE FULLY SATISFIED. 10. IT IS HOWEVER THE OBJECTION OF THE ASSESSING OF FICER, WHICH HAS ALSO FOUND FAVOUR WITH THE CIT(A) THAT IT WAS PRE-MATURE ON THE PART OF THE ASSESSEE-BOARD TO WRITE OFF THE IMPUGNED SUM AS IRR ECOVERABLE IN THE YEAR UNDER APPEAL. THEY HAVE COME TO THE AFORESAID CONCL USION ON THE BASIS THAT THE MOU WAS SIGNED AND A DECISION WAS TAKEN BY THE ASSESSEE-BOARD AFTER 31.03.2005, I.E., AFTER EXPIRY OF THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER APPEAL. WE ARE HOWEVER NOT CO NVINCED BY THE AFORESAID REASONING FOR THE REASON THAT WHAT WAS AP PROVED BY THE ASSESSEE- BOARD WAS TO WRITE OFF THE IMPUGNED SUM IN THE ACCO UNTS FOR THE ASSESSMENT YEAR UNDER APPEAL PURSUANT TO WHICH THE AMOUNT HAS BEEN ACTUALLY WRITTEN OFF IS IRRECOVERABLE IN THE BOOKS FOR THE YEAR UNDER APPEAL AS THE IMPUGNED SUM WAS ACTUALLY IRRECOVERABLE IN T HE YEAR UNDER APPEAL. SINCE THE ASSESSEE-BOARD HAS TAKEN A SPECIFIC DECIS ION TO WRITE OFF THE IMPUGNED SUM IN THE ACCOUNTS FOR THE FINANCIAL YEAR UNDER APPEAL, THE MERE FACT THAT A FORMAL RESOLUTION WAS PASSED BY THE ASS ESSEE-BOARD AFTER EXPIRY OF THE PREVIOUS YEAR BUT BEFORE THE FINALIZATION OF ACCOUNTS/AUDIT REPORT AND ALSO BEFORE THE DATE FIXED FOR SUBMISSION OF THE RE TURN OF INCOME CANNOT DEFEAT THE CLAIM OF THE ASSESSEE. THE DECISION TAKE N BY THE ASSESSEE-BOARD WAS NOTHING BUT MERE ACKNOWLEDGEMENT OF THE FACT TH AT THE IMPUGNED SUM WAS IRRECOVERABLE AND THEREFORE NEEDED TO BE WRITTE N OFF IN THE BOOKS OF ITA 464/CHD/2009 PSEB, PATIALA THE ASSESSEE FOR THE YEAR UNDER APPEAL PURSUANT TO WHICH THE AMOUNT WAS ACTUALLY WRITTEN OFF BY THE ASSESSEE IN ITS BOOKS F OR THE YEAR UNDER APPEAL. 11. THE ASSESSEE-BOARD HAS BEEN RETURNING SUBSTANTI AL LOSSES ALMOST RIGHT FROM ITS INCEPTION. BESIDES, THE ASSESSEE-BOA RD IS A BODY UNDER THE CONTROL OF THE STATE GOVERNMENT. IN VIEW OF THE MOU NTING LOSSES FROM YEAR TO YEAR, IT WOULD HARDLY MAKE ANY DIFFERENCE IF THE CLAIM IS ALLOWED IN YEAR X OR YEAR Y AS IT WOULD BE TAX NEUTRAL. FOR SIM ILAR REASONS, THE ASSESSEE-BOARD WOULD ALSO NOT GAIN ANYTHING IN THE PROCESS. 12. IN VIEW OF THE FOREGOING, APPEAL FILED BY THE A SSESSEE IS ALLOWED. ORDER PRONOUNCED ON 30 TH JUNE 2011 SD/- SD/- (SUSHMA CHOWLA) (D K SRIVASTAVA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 30 TH JUNE 2011. POONAM COPY TO: 1. THE APPELLANT, 2. THE RESPONDENT, 3. THE CIT(A) 4. THE CIT 4. THE D.R, INCOME-TAX DEPARTMENT, CHANDIGARH ASSISTANT REGISTRAR, ITAT, CHANDIGARH