Dy.Commissioner of Income Tax, Circle-1(1), Hyderabad V. M/s Andhra Pradesh Power Generation Corporation Ltd., Hyderabad

ITA 600/HYD/2014

• Counselvise Citation: 60022514 RSA 2014
• Duration Of Justice: 5 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-09-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 02-04-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D SUDHAKAR RAO
• Assessee Lawyers: M CHANDRAMOULESWARA RAO
• Keywords: Notional interest

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B', HYDERABAD BEFORE SHRI P.M.JAGTAP, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO.600/HYD/14 : ASSESSMENT YEAR 2009 - 10 DY. COMMISSIONER OF INCOME - TAX, CIRCLE 1(1), HYDERABAD V/S. M/S. ANDHRA PRADESH POWER GENERATION CORPORATION LTD., HYDERABAD (PAN - AACCA 2734 J) (APPELLANT) (RESPONDENT) APPELLANT BY : S HRI D.SUDHAKAR RAO DR RESPONDENT BY : SHRI M.CHANDRAMOULESWARA RAO DATE OF HEARING 15 .0 9 .2014 DATE OF PRONOUNCEMENT 17.09.2014 O R D E R PER P.M.JAGTAP, ACCOUNTANT MEMBER : THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) II, HYDERABAD DATED 1.1.2014, WHEREBY HE DELETED THE ADDITION OF RS.233.7 5 CRORES MADE BY TH E ASSESSING OFFICER TO THE TOTAL IN C OM E O F TH E ASSESSEE ON AC C OUN T OF IN TE R E ST INCOME ALLEGEDLY ACCRUED TO THE ASSESSEE AT TH E R ATE OF 15% ON DELAYED PAYMENTS MADE BY THE DISCOMS. 2. THE ASSESSEE IN THE PRESENT CASE IS A STATE GOVERNMENT UNDERTAKING OF ANDHRA PRADESH WHICH IS ENGAGED IN THE BUSINESS OF POWER GENERATION. IT SUPPLIES POWER INTER ALIA TO DISCOMS, WHICH AGAIN ARE UNDERTAKINGS OF THE STATE GOVERNMENT. DURING THE YEAR UNDER CONSIDERATION, HUGE AMOUNT DUE TO THE ASSESSEE BY THE DISCOMS RUNNING INTO THOUSAND OF CORES WAS OUTSTANDING. ACCORDING TO THE ASSESSING OFFICER, THE ASSESSEE HAD RIGHT TO CLAIM INTEREST ON SUCH DUES AND ACCORDINGLY INTEREST RECEIVABLE WORKED I TA NO. 600/H YD/20 14 M/S. ANDHRA PRADESH POWER GENERATION CORPORATION LTD., HYDERABAD 2 OUT AT R S .233.75 CRORES WAS ADDED BY HIM TO THE TOTAL INCOME OF THE ASSESSEE FOR THE FOLLOWING REASONS GIVEN IN THE ASSESSMENT COMPLETED UNDER S.143(3) VIDE ORDER DATED 5.12.2011 , AS SUMMARISED BY THE LEARNED CIT(A) IN HER IMPU GNED ORDER - (A) THAT THE ASSESSEE BEING A COMPANY WAS FOLLOWING MERCANTILE SY S TEM O F ACCOUN T IN G . HOWE VE R, WITH REFERENCE TO THI S PAR T ICUL A R ITEM O F CHARGING IN T ER E ST FROM DISCOM NO IN T ER E ST WAS OFFERED TO TAX ON THE G R OUN D THAT SUCH IN T ER E ST WAS NO T RECEIVED. (B) THAT FROM THE NO T ES FORMING PART OF ACCOUNT S, SCHEDULE 22 PART I POINT 1 1 IT IS STATED THAT SALE O F POWER IS ACCOUNTED FOR BASED ON GUI D ELINES GIVEN BY THE A.P. ELECTRICITY REGULATORY COMMISSION(APERC). (C) THAT THE ASSESSEE ACTUALLY MADE CLAIM BEFORE THE APERC (A.P. ELECTRICITY REGULATORY COMMISSION, IS RESPONSIBLE FOR DETERMINING THE PRICES OF ELECTRICITY BETWEEN APGENCO & APDISCOMS) FOR ITS CLAIM OF INTEREST ON DELAYED PAYMENTS MADE BY APDISCOM. (D) IN THE CORRESPONDENCE MADE BY THE ASS ESSEE WITH APERC THE ASSESSEE CLEARLY CLAIMED 15% INTEREST ON DELAYED PAYMENTS MADE BY DOSCOM. (E) IN ORDER NO.105/2003 DATED 24.03.2003 PASSED BY APERC, THE APERC HELD THAT, A PROVISION MAY BE INCORPORATED IN POWER PROJECTS AGREEMENT FOR OPENING A REVOLV ING LETTER OF CREDIT IN FAVOUR OF APGEEMCOI TO COVER ONE MONTH RECEIVABLES. AS P E R THIS DIR E CTION APDISCOM HAS TO OPEN AN L/C AND HAS TO PAY INTER E ST IF THE PAYM E N T S WERE MADE BEYOND ON E MONTH. (F) THAT THE CONTENTION OF THE ASSESSEE THAT NO BILL S WERE RA ISED AGAINST INTEREST RECEIVABLE DURING THE PR E VIOU S YEAR AS NO INTER E ST WAS PAYABLE BY DISCOM, I S TOTALLY IN CONTRADICTION TO THE NO T ES ON ACCOUNTS WHERE IT WAS STA T ED THAT THE IN T ER E ST WAS ACCOUN T ED FOR ON RECEIPT BASIS. (G) AS PER THE ACCOUNTING STANDARD - 9 REVENUE SHOULD B E RECOGNIZED UNLESS THERE I S A SIGNIFICANT UNCERTAINTY AS TO MEASURABILITY AND COLL E CTABILITY. AND IN TH E PR E SEN T CASE THERE IS NO UNCERTAINTY AS TO THE RECEIPT OF INTEREST. I TA NO. 600/H YD/20 14 M/S. ANDHRA PRADESH POWER GENERATION CORPORATION LTD., HYDERABAD 3 (H) FROM THE YEAR 2003 ONWARDS REGULAR BILL S WERE RA ISED BY THE ASSESSEE FOR PENAL IN T ER E ST. (I) T HERE IS NO BOARD RESOLUTION TO THE EFFECT THAT PEN A L IN T ER E ST SHOUL D NO T B E RECOGNISED, NOR IT WAS WAIVED OFF BY THE BO A RDS RESOLUTION. (J) AS PER THE POWER P ROJECTS AGRE E MENT BETWEEN AP GENCO AND APDISCOM CLAUSE 3.1.15 IN CA S E THE BILL S ARE DELAYED BEYOND TWO MONTHS, L ATE PAYMENT FEE @ 1.25% PER MONTH SHALL B E ALLOWED TO BE LEVIED BY APGENCO. 2. AGAIN S T THE ORDER PASSED BY TH E ASSESSING OFFICER UNDER S.143(3 ) , APPEAL WAS PREFERRED BY THE ASSESSEE BEF ORE THE LEARNED CIT(A) CHALLENGING IN T ER - ALIA THE ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT OF IN T ER E ST ALLEGEDLY RECEIVABLE FROM DISCOMS. B E FORE THE LEARNED CIT(A), THE FOLLO WI NG SUBMI S SION S W ERE MADE ON BEHALF O F THE ASSESSEE IN SUPPORT OF ITS CLAIM THAT THE A DD ITION MADE BY THE ASSESSING OFFICER ON ACCOUNT OF SUCH IN T ER E ST WAS NO T SUSTAINABLE - ( A ) THAT THE APPELLANT COMPANY IS NOT CHARGING ANY INTEREST FOR SUCH DELAYS. HOWEVER, IN THE ANNUAL ACCOUNTS, IT HAS STATED THAT INTEREST ON DELAYED PAYMENTS WILL BE ACCOUNTED FOR ON RECEIPT BASIS. BASING ON SUCH STATEMENT THE ASSESSING OFFICER COMPUTED NOTIONAL INTEREST. ( B ) AS PER ACCOUNTING STANDARD - 9 (AS - 9) REVENUE SHOULD BE RECOGNIZED ONLY WHEN THERE IS NO SIGNIFICANT UNCERTAINTY AS TO MEASURABILITY AND COLLECTABILITY OF THE INCOME. WHEN THERE IS UNCERTAINTY ABOUT ITS MEASURABILITY AND COLLECTABILITY, REVENUE RECOGNITION SHOULD BE POSTPONED. I TA NO. 600/H YD/20 14 M/S. ANDHRA PRADESH POWER GENERATION CORPORATION LTD., HYDERABAD 4 ( C ) THE INCOME IS SAID TO HAVE ACCRUED TO ASSESSEE ONLY IF - (I) THERE EXISTS A L E GAL RIGHT FOR THE ASSESSEE TO CLAIM INTER E ST FOR THE DELAYED PAYM E N T IN ACCORDANCE WITH ANY AGREEMENT. (II) IF SUCH IN T ER E ST IS TO B E LEVIED ONLY WITH THE APPROVAL OF THE REGULATORY AUTHO R I T Y, SUCH APP R O V AL HAS ALREADY BEEN SANCTIONED. (III) I F TH E SE TWO BASIC C ONDIT I ONS ARE SATISFI ED THEN ONLY IN T ER E ST ON BELATED P A Y M E N T S CAN B E SAID TO HAVE ACCRUED TO THE ASSESSEE. ( D ) THE AGREEMENT BETWEEN APGE#NCOI AND APDISCOMS DO NO T PROVIDE FOR CHA R GING OF IN T ER E ST ON LATE PAYMENTS. TH E R E FORE, THE AO CANNOT TAX UNR E AL/HYPOTHETICAL/NOTIONAL INCOME TO TAX WHICH IS LE G ALLY IMPERMISSIBLE. ( E ) IN POWER P URCHASE A G R E EMENT (PPA) DATED 22.12.2009, THERE I S A SP E C IFIC CLAUSE TO CHARGE DELAYED PAYM E N T INTER E ST AT THE RATE OF 1.25% PER M ON TH. HOW E VER, THI S AGR E EMENT IS EFFECTIVE FROM 22.12.2009 AND IS NO T RELEVANT FOR A.Y. 2009 - 10. IN ANY CA S E THIS CLAUSE OF PPA WAS NO T APPROVED BY THE A.P. EL EC TRICITY R E GUL A TORY COMMISSION (APERC). ( F ) THE ASSESSEE H A S NO T RAI S ED ANY BILL S ON THE DISCOM CLAIMING IN T ER E ST ON DELAYED PAYM E N T S. FURTH E R, THERE I S NO PROVISION FOR CHARGING INTEREST IN PPA. TH E R E FORE, THE AO CANNOT CHARGE HYPOTHETICAL INCOME. .. I TA NO. 600/H YD/20 14 M/S. ANDHRA PRADESH POWER GENERATION CORPORATION LTD., HYDERABAD 5 THE LEARNED CIT(A) FOUND M E RIT IN THE SUBMI S SIONS MADE ON BEHALF O F TH E ASSESSEE ON THIS ISSUE AND DELETED THE ADDITION MADE BY THE ASSESSING OFFICER ON ACCO UNT OF INTER E ST RECEIVABLE BY TH E ASSESSEE F R OM THE DISCOMS FOR THE FOLL OW IN G REASON S , GIVEN IN PAR A GAPH NO.8 OF HER IMPU G N E D ORD E R - 8. THE INFORMATION ON RECORD IS CAREFULLY EXAMINED. THE CRUX OF THE ISSUE IS, THE ASSESSING OFFICER HAD BROUGHT NOTIONAL INTEREST TO TAX ON TH E GROUND THAT APGENCO HAS RIGHT TO CLAIM SUCH IN T ER E ST AGAINST APDISCOM. HO W EV E R, IN VIEW OF THE FOREGOING DISCUSSION, THE APPELLANT APGENCO AS A MATTER O F ABUNDANT PRECAUTION AS ALWAYS MAKING A CL A IM OF IN T ER E ST ON DISCOM BUT AT THE SAME TIME IT HAD NO RIGHT TO MAKE SUCH CLAIM. THE POWER PU R CH AS E AGREEMENT BETWEEN APGENCO AND APDISCOM DO NO T P R OVI D E FOR CHARGING SUCH I N T ER E ST. MORE PARTICUL A RLY, THE APERC IN ITS ORDER DATED 08.07.2013 HAD CATEGORICALLY STATED THAT APGENCOS REQUEST FOR LEVYING SUCH IN T E RE ST ON BELATED PAYMENTS WAS FLATLY REJECTED. EVEN OTHERWISE ALSO T HOUSANDS OF CRORES OF AMOU N TS ARE DUE FROM APDISCOMS TO APGENCO. EVEN MAKING THE PAYMENT FOR THE PRINCIPAL AMOUNTS RAISED BY APGENCO HAS BECOME DIFFICULT TASK. SIN C E APERC HAS NOT AGR E ED TO CHARGING IN T ER E ST, TH E QU E STION OF RE C O V ERING IN T ER E ST BY THE APPELLANT DOES NO T A RISE. TH E R E FORE, THE NO T I O NAL IN T ER E ST B R OU G HT TO TAX BY THE ASSESSING OFFICER IS DELETED. 4. AGGRIEVED BY THE O R DER OF THE LEARNED CIT(A), REVENUE HAS PREFERRED THIS APPEAL BEFORE US. 5. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. ALTHOUGH THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS SUBMI T TED THAT AS PER THE POWER P URCHA S E AGREEM E NT BETWE EN THE ASSESSEE AND THE DISCOMS DATED 22 ND DECEMBER, 2009 APPLI C ABLE FOR THE PERIOD FROM 1.4.2006 TO 31.3.2009, INTER E ST FOR DELAYED PAYM E N T S BEYOND A PERIOD OF TWO MONTHS F R OM THE DATE OF BILLINGS WAS RECEIVABLE BY THE ASSESSEE FORM THE DISCOMS AT THE RAT E OF 1.25% PER MONTH IN THE FORM OF I TA NO. 600/H YD/20 14 M/S. ANDHRA PRADESH POWER GENERATION CORPORATION LTD., HYDERABAD 6 SURCHARGE, THE SAID SURCHARGE, AS POINTED OUT BY THE LEARNED COUNSEL F OR THE ASSESSEE FROM CLAUSE 3.1.15 OF THE AGREEMENT IS LEVIABLE ONLY WITH EFFE C T FROM THE DATE OF SIGNING OF THE AGRE E MENT, I.E. 22.12.2009. THE ASSESSEE THUS WAS ENTI T LED TO CH A RGE SUCH IN T ER E ST IN THE FORM O F SURCHARGE TO DISCOMS AS PER THE POWER P URCHASE A G REEM E NT ONLY FROM 22.12.2009 AND NOT FOR THE YEAR UNDER CON S IDERATION, AS RIGHTLY HELD BY THE LEARNED CIT(A) . 6. MOR E OVER, ALTHOUGH INTER E S T A T THE RATE O F 15% WAS CLAIMED BY THE ASSESSEE FORM DISCOMS ON THE DELAYED PAYM E N T S FOR THE Y E AR UNDER CON S IDERATION, EVEN IN TH E A BSENCE OF ANY STIPULATION IN THE REL E VANT AGREEMENT, THE MATT E R WAS REFERRED TO ANDHRA PRADESH EL E CTRICITY REGULATORY COMMI SSION, WHICH BY ITS OR D ER DATED 4.7.2013, HAS REJECTED THIS CLAIM O F TH E ASSESSEE , EXPRESSING ITS VI EWS AS UNDER - COMMISSIONS VIEWS: THE DELAYED PA Y MENT SURCHARGE(DPS) COLLECTED FROM THE CONSUMERS FOR NON - PAYMENT OF BILLED DEMAND AS ON DUE DATE IS ENTIRELY D I F FERENT WHICH CANNOT B E COMPARED WITH AMOUNT TO BE PAID TO APGENCO DUE TO DELAY BY DISCOMS. THE INTENTION OF LEVYIN G DPS IS TO ENFORCE DISCIPLINE AMONG CONSUMERS AND TO PR E VENT FROM DISCONNE CT ION OF SU PPLY. REGARD ING CLAIMS OF PENAL CHAR G ES BY APGENCO ON ACCOUNT OF DELAYED PAYMENT BY DICOMS, THE COMMISSION IS OF THE VIEW TO NO T TO CONSIDER S U C H CHARGES WHILE DETERMINING THE TARIFF, SIN C E THE COM M ISSION HAS ALLOWED PAYMENT O F PROVI SI ONAL AMOUNT TO APGE NCO STATIONS IN RETAIL SUPPLY TARIFF ORDERS. 7. HA VING REGARD TO THE FACTS OF THE CASE INCLUDING ESP E CI A LLY THE ABSENCE OF ANY CLAUSE IN THE REL E VANT AGREEMENT FOR THE LEVY OF INTER E ST OR SURCHARGE F OR THE DELAYED PAY M EN T AND THE ORDER OF THE ANDHRA PRADESH ELECTRICITY REGULATORY COMMI S SION, DENYING THE CLAIM OF THE ASSESSEE FOR SUCH INTEREST/SURCHARGE, WE ARE OF THE VI E W THAT THE ASSESSEE W A S NOT ENTITLED TO CLAIM ANY INTER E ST ON THE DELAYED PAYM E NTS F R OM THE DISCOMS FOR THE Y E AR I TA NO. 600/H YD/20 14 M/S. ANDHRA PRADESH POWER GENERATION CORPORATION LTD., HYDERABAD 7 UNDER CON S ID E RATION, AND SUCH INTER E ST IN C OM E CANNOT BE SAID TO HAVE ACCR U ED TO THE ASSESSEE FOR THE YEAR , A S RI G HTLY H E LD BY THE LEARNED CIT(A). IN TH A T VIEW O F TH E MATTER, WE UPHOL D THE IMPU G N E D ORDER O F THE LEARNED CIT(A) DELETING THE ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT OF I N T ER E ST ALLEGEDLY RECEIVABLE BY TH E ASSESSEE F R OM THE DISCOMS ON DELAYED PAYM E N T S, AND DISMISS THIS APPEAL OF TH E R E VENUE. 8 . IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE COURT ON 17 TH SEPTEMB E R, 2014 SD/ - SD/ - ( SAKTIJIT DEY ) ( P.M.JAGTAP ) JUDICIAL MEMBER ACCOUNTANT MEMBER DT/ - 17 TH SEPTEMBER, 2014 COPY FORWARDED TO: 1. M/S. ANDHRA PRADESH POWER GENERATION CORPORATION LTD., VIDYUT SOUDHA, SOMAJIGUDA, HYDERABAD 2 . DY. COMMISSIONER OF INCOME - TAX CIRCLE 1(1), HYDERABAD 3. 4. COMMISSIONER OF INCOME - TAX(APPEALS) II , HYDERABAD COMMISSIONER OF INCOME - TAX I , HYDERABAD 5. DEPARTMENTAL REPRESENTATIVE, ITAT, HYDERABAD. B.V.S