DCIT, CHENNAI V. M/s. Neyveli Lignite Corporatiion Ltd., Cuddalore

ITA 712/CHNY/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 60965 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 10 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-04-2012
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 11-04-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 14-05-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: CHANDANA RAMACHANDRAN
• Keywords: Reopening of assessment; Business income; Earning of tax free income; Bad and doubtful debts; Difference of opinion; Reason to believe; Change of opinion
• Section: 143(3); 14A; 148; 37; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER I.T.A. NOS. 711, 712 & 713/MDS/2010 (ASSESSMENT YEARS : 2002-03, 2006-07 & 2007-08) THE DEPUTY COMMISSIONER OF INCOME TAX, LARGE TAXPAYER UNIT, CHENNAI - 600 101. (APPELLANT) V. M/S NEYVELI LIGNITE CORPORATION LTD., CORPORATE OFFICE, P.O. NEYVELI-607 801. CUDDALORE DISTRICT. PAN : AAACN1121C (RESPONDENT) APPELLANT BY : SMT. CHANDANA RAMACHANDRAN, CIT-DR RESPONDENT BY : SHRI VIKRAM VIJAYARAGHAVAN, ADVOC ATE DATE OF HEARING : 11.04.2012 DATE OF PRONOUNCEMENT : 11.04.2012 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : THESE ARE APPEALS FILED BY THE REVENUE FOR THE RE SPECTIVE ASSESSMENT YEARS. FOR ASSESSMENT YEAR 2002-03, REV ENUE IS AGGRIEVED THAT CIT(APPEALS) HELD RE-ASSESSMENT PROC EEDINGS TO BE NOT VALID. FOR ASSESSMENT YEARS 2006-07 AND 2007-0 8, REVENUE IS AGGRIEVED THAT CIT(APPEALS) DELETED DISALLOWANCE MA DE UNDER I.T.A. NOS.711, 712 & 713/MDS/10 2 SECTION 14A OF INCOME-TAX ACT, 1961 (IN SHORT 'THE ACT') IN RELATION TO THE INCOME CLAIMED AS EXEMPT BY THE ASSESSEE. FOR ASSESSMENT YEAR 2007-08, REVENUE HAS TAKEN ONE MORE GROUND THA T THE CIT(APPEALS) DELETED AN ADDITION OF ` 5,02,15,00,000/- MADE BY THE A.O. FOR REVERSAL OF SALE FIGURES, FOR PREVIOUS YEA R SALES ADJUSTMENTS. 2. APPEAL OF THE REVENUE FOR ASSESSMENT YEAR 2002-0 3 IS TAKEN UP FIRST FOR DISPOSAL. 3. AS MENTIONED ABOVE, GRIEVANCE RAISED BY THE REVE NUE IN THIS APPEAL IS THAT RE-ASSESSMENT WAS HELD TO BE INVALID BY THE CIT(APPEALS). 4. SHORT FACTS APROPOS ARE THAT ASSESSEE, A PUBLIC SECTOR UNDERTAKING, ENGAGED IN THE BUSINESS OF GENERATION OF ELECTRICITY AND MINING OF LIGNITE, HAD CLAIMED DEDUCTION UNDER SECT ION 80-IA OF THE ACT FOR 30% OF THE PROFITS IN RESPECT OF ITS UNITS NAMED UNIT-V, UNIT-VI OF THERMAL POWER STATION (TPS) STAGE-II. ORIGINAL ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) OF THE ACT ON 29.3.2 005. THEREAFTER, ASSESSING OFFICER ISSUED A NOTICE UNDER SECTION 148 OF THE ACT ON 17.3.2009 AND THE REASONS MENTIONED FOR THE REOPENI NG WAS AS UNDER:- I.T.A. NOS.711, 712 & 713/MDS/10 3 PRIOR TO 01.04.1994, THE ERSTWHILE SECTION 80IA WOU LD APPLY ONLY FOR AN INDUSTRIAL UNDERTAKING, WHICH BEG AN TO MANUFACTURE ARTICLES OR THINGS. GENERATION OF ELEC TRICITY WOULD NOT AMOUNTS TO MANUFACTURE OR PRODUCTION OF ARTICLE S OR THINGS TO QUALIFY FOR THE DEDUCTION. FURTHER, THE INTENTION OF THE LEGISLATURE WAS TO GIVE BENEFIT TO THE ASSESSEES IN VOLVED IN THE GENERATION OF POWER ONLY WHO HAD SET UP IN ANY PART OF INDIA FOR THE GENERATION AND DISTRIBUTION OF POWER AT ANY TIM E DURING THE PERIOD BEGINNING ON THE 01.04.1993 AND ENDING ON 31 .03.2006. BUT THE ASSESSEES FOLLOWING UNITS VIZ. TPS-II/STAG E-II UNIT-IV, UNIT-V, UNIT-VI HAD BEEN STARTED ON 25.01. 1992, 02.06.92, AND 17.03.93 RESPECTIVELY. HENCE, THEY W OULD NOT ELIGIBLE FOR ANY CLAIM OF DEDUCTION FOR POWER GENER ATION U/S 80IA OF THE ACT. BASED ON THE ABOVE FACTS, IT IS CLEAR THAT THE AS SESSEE HAS NOT PRODUCED THE ABOVE MATERIAL FACTS FULLY AN D TRULY BEFORE THE TAX AUTHORITIES. HENCE, I HAVE THE REASON TO BELIEVE THAT; THE INCOM E HAS ESCAPED THE ASSESSMENT BY WAY OF EXCESS CLAIM OF DE DUCTION U/S 80IA FOR THE CURRENT YEAR. THOUGH ASSESSEE OBJECTED TO THE REOPENING STATING T HAT THERE WAS NO FAILURE ON ITS PART TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR ASSESSMENT AND IT WAS AN INDUSTRIAL U NDERTAKING FALLING UNDER EXPLANATION TO SECTION 33B OF THE ACT BEING E NGAGED IN THE BUSINESS OF GENERATION AND DISTRIBUTION OF ELECTRIC ITY AND HENCE, ELIGIBLE TO CLAIM DEDUCTION UNDER SECTION 80-IA OF THE ACT, THIS WAS NOT ACCEPTED BY THE ASSESSING OFFICER. ACCORDING TO THE A.O., THERE COULD NOT BE ANY PRESUMPTION THAT ASSESSING OFFICER HAD EXAMINED I.T.A. NOS.711, 712 & 713/MDS/10 4 ALL POSSIBLE ANGLES AND ASPECTS OF THE CLAIM UNDER SECTION 80-IA OF THE ACT. AS PER THE A.O., ALL INDUSTRIAL UNDERTAKI NGS WOULD NOT BE COVERED BY THE PROVISIONS OF SECTION 80-IA OF THE A CT, AND THE SAID SECTION COULD BE APPLIED ONLY WHERE ASSESSEE WAS MA NUFACTURING ANY ARTICLE OR THING. GENERATION OF ELECTRICITY WA S NOT MANUFACTURE OF ARTICLES OR THINGS AND HENCE, ASSESSEES CASE WAS L EGITIMATELY REOPENED. THUS, THE A.O. PROCEEDED WITH THE RE-ASS ESSMENT AND COMPLETED IT DISALLOWING THE CLAIM MADE BY THE ASSE SSEE UNDER SECTION 80-IA OF THE ACT IN RESPECT OF ITS UNITS-V & VI. 5. IN ITS APPEAL BEFORE LD. CIT(APPEALS), ARGUMENT OF THE ASSESSEE WAS THAT IN THE ORIGINAL ASSESSMENT, ALL ASPECTS RE LATING TO CLAIM UNDER SECTION 80-IA OF THE ACT, WERE PROPERLY CONSI DERED BY THE ASSESSING OFFICER. ASSESSING OFFICER HAD EXCLUDED CERTAIN ITEMS FROM ITS CLAIM OF SECTION 80-IA OF THE ACT. AFTER MAKIN G A DETAILED ANALYSIS OF THE COMPUTATION OF ITS INCOME BASED ON GENERAL T ARIFFS, THE A.O. HELD THAT INCOME-TAX REIMBURSEMENT WAS NOT PART OF SALE PRICE AND ACCORDINGLY, HE HAD REWORKED AND ALLOWED THE CLAIM OF DEDUCTION UNDER SECTION 80-IA OF THE ACT FOR UNITS-V, VI AND VII. LD. CIT(APPEALS) WAS APPRECIATIVE OF THIS CONTENTION. ACCORDING TO HIM, ASSESSING OFFICER HAD CALLED FOR DETAILS REGARDING CLAIM FOR DEDUCTION I.T.A. NOS.711, 712 & 713/MDS/10 5 UNDER SECTION 80-IA OF THE ACT THROUGH HIS QUESTION NAIRE DATED 14.11.2003, DURING THE COURSE OF ASSESSMENT PROCEED INGS, WHICH WAS DULY REPLIED BY THE ASSESSEE. LD. CIT(APPEALS) ALSO NOTED THAT SIMILAR QUESTION HAD ALSO BEEN ASKED IN THE PRECEDI NG ASSESSMENT YEAR 2000-01 AS WELL. ACCORDING TO HIM, THE RE-ASS ESSMENT PROCEEDINGS WERE INITIATED SIMPLY BASED ON CHANGE O F OPINION AND RELYING ON THE DECISION OF HONBLE APEX COURT IN TH E CASE OF CIT V. KELVINATOR OF INDIA LTD. (320 ITR 561) RULED THAT T HE REOPENING OF ASSESSMENT WAS NOT VALID. HE, THUS QUASHED THE REO PENING AND PURSUANT RE-ASSESSMENT. 6. NOW BEFORE US, LEARNED D.R., STRONGLY ASSAILING THE ORDER OF LD. CIT(APPEALS), SUBMITTED THAT JUST BECAUSE ASSESSEE SUBMITTED DETAILS, IT COULD NOT BE CONCLUDED THAT ASSESSING O FFICER HAD FORMED AN OPINION ON EVERY ASPECT OF AN ISSUE. THE QUESTI ON HERE WAS REGARDING ELIGIBILITY OF THE ASSESSEE FOR CLAIMING DEDUCTION UNDER SECTION 80-IA OF THE ACT AND WHETHER ASSESSEE COULD BE CONSIDERED AN INDUSTRIAL UNDERTAKING ELIGIBLE FOR CLAIMING DE DUCTION UNDER SECTION 80-IA OF THE ACT. THIS ASPECT WAS NEVER EX AMINED BY THE ASSESSING OFFICER DURING THE COURSE OF ORIGINAL ASS ESSMENT PROCEEDINGS. ACCORDING TO LEARNED D.R., ASSESSING OFFICER HAD I.T.A. NOS.711, 712 & 713/MDS/10 6 SIMPLY PROCEEDED UNDER A PRESUMPTION THAT DEDUCTION UNDER SECTION 80-IA WAS AVAILABLE TO THE ASSESSEE. THEREFORE, AR GUMENT OF THE ASSESSEE THAT IT HAD DULY FURNISHED ALL THE DETAILS REQUIRED WAS INCORRECT AND IT WAS NOT ON A CHANGE OF OPINION THA T ASSESSING OFFICER INITIATED THE RE-ASSESSMENT PROCEEDINGS. ON THE OT HER HAND, NO OPINION WHATSOEVER WAS FORMED BY THE ASSESSING OFFI CER AT THE TIME OF ORIGINAL ASSESSMENT PROCEEDINGS. THEREFORE, ACC ORDING TO HER, RE- ASSESSMENT PROCEEDINGS WERE VALIDLY INITIATED. 7. PER CONTRA, LEARNED A.R. SUBMITTED THAT ASSESSEE HAD SUBMITTED SUFFICIENT DETAILS REGARDING CLAIM OF DED UCTION UNDER SECTION 80-IA OF THE ACT DURING THE COURSE OF ORIGI NAL PROCEEDINGS AND IN SUPPORT, RELIED ON PAPER-BOOK PAGES 15 TO 28, WH ICH IS A LETTER DATED 18.12.2003 FURNISHED TO THE ASSESSING OFFICER DURING THE COURSE OF ORIGINAL ASSESSMENT PROCEEDINGS. FURTHER , LEARNED A.R. SUBMITTED THAT ALL ASPECTS RELATING TO CLAIM OF DED UCTION UNDER SECTION 80-IA OF THE ACT WERE CONSIDERED BY THE ASSESSING O FFICER AND SUCH CLAIM WAS ALLOWED IN THE EARLIER ASSESSMENTS ALSO. ASSESSING OFFICER HAD RAISED A SPECIFIC QUESTION AS TO HOW MINING OPE RATION WOULD BE ELIGIBLE FOR CLAIMING OF DEDUCTION UNDER SECTION 80 -IA OF THE ACT AND AT PAGE 28 OF PAPER-BOOK, IT WAS SUBMITTED BY THE A SSESSEE THAT I.T.A. NOS.711, 712 & 713/MDS/10 7 MINING OPERATION INVOLVED COMMERCIAL PRODUCTION AND THEREFORE, SECTION 80-IA OF THE ACT WAS APPLICABLE TO SUCH MIN ING OPERATION AS WELL. THEREFORE, ACCORDING TO HIM, ASSESSING OFFI CER, DURING THE COURSE OF ORIGINAL ASSESSMENT PROCEEDINGS, HAD FORM ED A CLEAR OPINION THAT IN RESPECT OF ELECTRICITY PRODUCED BY THE ASSESSEE, DEDUCTION UNDER SECTION 80-IA OF THE ACT WAS AVAILA BLE TO THE ASSESSEE. HENCE, LEARNED A.R. SUBMITTED THAT THE A SSESSMENT WAS REOPENED ONLY BASED ON A CHANGE OF OPINION. 8. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL SUBMISSIONS. IT IS NOT DISPUTED THAT ASSESSMENT FOR IMPUGNED ASS ESSMENT YEAR WAS ORIGINALLY COMPLETED UNDER SECTION 143(3) OF THE AC T. IT IS ALSO NOT DISPUTED THAT THE RE-ASSESSMENT PROCEEDINGS WERE IN ITIATED AFTER FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR. THE REASONS CITED FOR REOPENING THE ASSESSMENT HAVE BEEN REPROD UCED AT PARA 4 ABOVE. AS PER THE A.O., ASSESSEE WOULD NOT BE ELIG IBLE FOR CLAIMING DEDUCTION IN RESPECT OF ITS UNITS-IV, V & VI SINCE PRIOR TO 1.4.1994, SECTION 80-IA APPLIED ONLY FOR INDUSTRIAL UNDERTAKI NGS ENGAGED IN THE MANUFACTURE OF ARTICLES OR THINGS AND GENERATION OF ELECTRICITY WOULD NOT AMOUNT TO MANUFACTURE OF ARTICLES OR THINGS. T HE QUESTION BEFORE US IS WHETHER ASSESSING OFFICER HAD CONSIDERED THE ISSUE VIZ. I.T.A. NOS.711, 712 & 713/MDS/10 8 GENERATION OF ELECTRICITY WHETHER ELIGIBLE FOR DEDU CTION UNDER SECTION 80-IA OF THE ACT, DURING THE COURSE OF ORIGINAL ASS ESSMENT PROCEEDINGS. ASSESSING OFFICER IN HIS LETTER DATED 14.11.2003 ISSUED TO THE ASSESSEE, DURING THE COURSE OF ASSESSMENT PR OCEEDINGS, WHICH IS PLACED AT PAPER-BOOK PAGES 34 TO 38, HAD AT PARA 24 REQUIRED THE ASSESSEE TO PRODUCE ITS PROFIT & LOSS ACCOUNT FOR THE UNITS ON WHICH DEDUCTION UNDER SECTION 80-IA WAS CLAIMED. THIS IN CLUDED UNITS-V, VI & VII AND MINES-II. AT PARA 25, A SPECIFIC QUES TION HAD BEEN RAISED BY THE ASSESSING OFFICER, WHICH IS REPRODUCED HEREU NDER:- 25. DEDUCTION U/S 80 IA HAS BEEN CLAIMED ON THE PRO FITS DERIVED FROM THE MINES. TO BE ELIGIBLE FOR DEDUCTI ON U/S 80 IA, THE UNDERTAKING SHOULD BE ENGAGED IN THE BUSINESS O F MANUFACTURING OR PRODUCING AN ARTICLE OR THING. AS PER THE DECISION OF RAJASTHAN HIGH COURT IN THE CASE OF CIT V. LUCKY MINERAL PVT. LTD. (226 ITR 245) MINING IS NOT EITHE R MANUFACTURING OR PRODUCING AN ARTICLE OR THING. IN THIS REGARD, PLEASE SHOW CAUSE AS TO WHY DEDUCTION CLAIMED UNDER SECTION 80 IA ON MINES-II STAGE-II OF RS. 77.9 CRORES (10 TH YEAR) SHOULD NOT BE DISALLOWED. ASSESSEE HAD CLAIMED DEDUCTION UNDER SECTION 80-IA OF THE ACT NOT ONLY WITH RESPECT TO ELECTRICITY PRODUCED BY IT , BUT ALSO FOR LIGNITE MINED BY IT. ASSESSING OFFICER WAS WELL AWARE THAT THE CLAIM WAS BOTH WITH REGARD TO ELECTRICITY PRODUCED AND WITH R EGARD TO LIGNITE MINED. INSOFAR AS MINING OF LIGNITE WAS CONCERNED, THERE WAS A I.T.A. NOS.711, 712 & 713/MDS/10 9 SPECIFIC QUERY RAISED BY THE A.O. AS MENTIONED ABOV E AND THIS WAS EXPLAINED BY THE ASSESSEE AT PARA 25 OF ITS REPLY D ATED 18.12.2003. SO, THE OBVIOUS CONCLUSION THAT CAN BE ARRIVED IS T HAT THE ASSESSING OFFICER WAS SATISFIED WITH REGARD TO CLAIM OF DEDUC TION UNDER SECTION 80-IA OF THE ACT IN RESPECT OF ELECTRICITY PRODUCED BY THE ASSESSEE AND HE HAD DOUBTS ONLY WITH REGARD TO SUCH CLAIM IN SOFAR AS MINING OF LIGNITE WAS CONCERNED. THEREFORE, THE ARGUMENT OF THE REVENUE THAT ASSESSING OFFICER HAD NOT FORMED AN OPINION AS TO W HETHER PRODUCTION OF ELECTRICITY WAS ELIGIBLE FOR DEDUCTIO N UNDER SECTION 80-IA OF THE ACT AT THE TIME OF ORIGINAL ASSESSMENT, FALL S FLAT. FURTHER, THE ORIGINAL ASSESSMENT ORDER PLACED AT PAPER-BOOK PAGE S 3 TO 13 CLEARLY DEALS WITH THE CLAIM OF DEDUCTION UNDER SECTION 80- IA OF THE ACT WITH RESPECT TO MINES-II, UNITS-V, VI & VII. ASSESSING OFFICER HAD, AFTER DISCUSSING VARIOUS ASPECTS OF SUCH CLAIM, ALLOWED I T BUT, CERTAIN DISALLOWANCES WERE MADE FOR INCOME-TAX REIMBURSEMEN T. HE CONSIDERED INCOME-TAX REIMBURSEMENT NOT AS INCOME D ERIVED FROM POWER GENERATION ACTIVITY. ALL THESE WOULD AMPLY S HOW THAT ASSESSING OFFICER HAD APPLIED HIS MIND AT THE TIME OF ORIGINAL ASSESSMENT PROCEEDINGS. RE-ASSESSMENT HAVING BEEN STARTED AFTER THE LAPSE OF FOUR YEARS PERIOD FROM THE END OF THE RELEVANT ASSESSMENT YEAR, DECISION OF HONBLE APEX COURT IN THE CASE OF I.T.A. NOS.711, 712 & 713/MDS/10 10 KELVINATOR OF INDIA LTD. (SUPRA) WHICH HAD APPROVED THE DECISION OF FULL BENCH OF DELHI HIGH COURT IN THE VERY SAME CAS E, CLEARLY GOES IN FAVOUR OF THE ASSESSEE. RE-ASSESSMENT WAS INITIATE D ONLY BASED ON CHANGE OF OPINION AND THERE WAS NO OTHER TANGIBLE R ECORD AND INFORMATION AVAILABLE WITH THE ASSESSING OFFICER FO R INITIATING SUCH RE- ASSESSMENT PROCEEDINGS. LD. CIT(APPEALS) CORRECTLY HELD IT TO BE BAD IN LAW. WE DO NOT FIND ANY REASON TO INTERFERE . 9. THUS, REVENUES APPEAL FOR ASSESSMENT YEAR 2002- 03 IS DISMISSED. 10. NOW LET US TAKE REVENUES APPEAL FOR ASSESSMENT YEAR 2006- 07. GRIEVANCE IS REGARDING DISALLOWANCE UNDER SECT ION 14A OF THE ACT WHICH WAS DELETED BY THE CIT(APPEALS). 11. WHEN THE MATTER CAME UP, LEARNED D.R. SUBMITTED THAT LD. CIT(APPEALS) HAD NOT CONSIDERED THE DECISION OF SPE CIAL BENCH OF THIS TRIBUNAL IN THE CASE OF ITO V. DAGA CAPITAL MA NAGEMENT (P) LTD. (117 ITD 169) WHICH HELD THAT RULE 8D OF INCOME-TA X RULES, 1962, APPLIED FOR YEARS PRIOR TO ASSESSMENT YEAR 2008-09 ALSO. 12. LEARNED A.R., ON THE OTHER HAND, SUBMITTED THAT EXEMPT INCOME EARNED WAS FROM TAX FREE BONDS ISSUED BY ELECTRICIT Y BOARDS AND I.T.A. NOS.711, 712 & 713/MDS/10 11 SUCH BONDS WERE ISSUED PURSUANT TO GOVERNMENT ORDER . INTEREST WAS AUTOMATICALLY CREDITED TO THE BANK ACCOUNT AND THER E WAS NO EXPENSES FOR SUCH INCOME EARNED. ACCORDING TO LEAR NED A.R., LD. CIT(APPEALS) HAD RIGHTLY FOLLOWED THE DECISION OF H ONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT V. HERO CYCLE S LTD. (325 ITR 518) AND HELD IN FAVOUR OF THE ASSESSEE. 13. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL SUBMISSIONS. INSOFAR AS GROUND OF THE REVENUE THAT LD. CIT(APPEA LS) HAD NOT CONSIDERED THE DECISION OF SPECIAL BENCH OF THIS TR IBUNAL IN THE CASE OF DAGA CAPITAL MANAGEMENT (P) LTD. (SUPRA), WE FIN D THAT THIS DECISION, INSOFAR AS IT RELATES TO APPLICABILITY OF RULE 8D FOR YEARS PRIOR TO ASSESSMENT YEAR 2008-09, STANDS REVERSED BY HON BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ AND BOYCE MFG. CO. LTD VS. DY. CIT (328 ITR 81). HONBLE BOMBAY HIGH COURT CLEARLY HE LD IN THE SAID DECISION THAT RULE 8D WHICH CAME WITH EFFECT FROM 2 4 TH MARCH, 2008, WILL BE APPLICABLE ONLY AFTER THE PERIOD 2008-09. NEVERTHELESS, THEIR LORDSHIP HAS CLEARLY NOTED THAT EVEN PRIOR TO THAT YEAR, A.O. WAS DUTY BOUND TO COMPUTE DISALLOWANCE UNDER SECTION 14A BY APPLYING A REASONABLE METHOD HAVING REGARD TO THE FACTS AND CI RCUMSTANCES OF THE CASE. THEREFORE, DESPITE THE ARGUMENT OF LEARN ED A.R. THAT I.T.A. NOS.711, 712 & 713/MDS/10 12 ELECTRICITY BONDS WERE TAKEN UNDER COMPULSION AND T HERE WAS NO EXPENSES INCURRED FOR EARNING THE INTEREST INCOME, WE ARE INCLINED TO REMIT THE ISSUE BACK TO THE FILE OF A.O. FOR CONSID ERATION AFRESH. WE, THEREFORE, SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND REMIT ON THIS ASPECT BACK TO A.O. FOR CONSIDERATION AFRESH I N ACCORDANCE WITH LAW. ASSESSEE CAN BRING TO THE NOTICE OF THE A.O. ANY CASE LAW RELEVANT TO THE ISSUE AND A.O. SHALL PROCEED IN ACC ORDANCE WITH LAW. 14. THUS, APPEAL OF THE REVENUE FOR ASSESSMENT YEAR 2007-08 IS ALLOWED FOR STATISTICAL PURPOSES. 15. IN ITS APPEAL FOR ASSESSMENT YEAR 2007-08, APAR T FROM A GROUND RELATING TO DELETION OF DISALLOWANCE MADE UNDER SEC TION 14A OF THE ACT, REVENUE IS ALSO AGGRIEVED THAT THE CIT(APPEALS ) DELETED AN ADDITION MADE BY THE A.O. FOR REVERSALS RELATABLE T O EARLIER YEARS SALES ADJUSTMENT. 16. INSOFAR AS THE ISSUE OF DISALLOWANCE UNDER SECT ION 14A IS CONCERNED, WE HAVE ALREADY HELD IN REVENUES APPEAL FOR 2006-07 THAT THE MATTER REQUIRES A RE-VISIT BY THE A.O. SA ME DIRECTIONS ARE GIVEN HERE ALSO. I.T.A. NOS.711, 712 & 713/MDS/10 13 17. COMING TO THE OTHER GROUND REGARDING DELETION O F ADDITION MADE FOR REVERSAL OF SALE FIGURES, FACTS APROPOS ARE THA T ASSESSEE HAD, DURING THE RELEVANT PREVIOUS YEAR, REDUCED FROM ITS SALE A SUM OF ` 502,15,00,000/-. EXPLANATION WAS SOUGHT BY THE ASS ESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS. SUBMI SSION OF THE ASSESSEE WAS THAT IN THE PRECEDING YEARS, BILLINGS WERE MADE BASED ON POWER TARIFFS MENTIONED IN POWER PURCHASE AGREEM ENT ENTERED WITH VARIOUS ELECTRICITY BOARDS. HOWEVER, THE AUT HORITY FOR FIXING POWER TARIFFS ULTIMATELY VESTED WITH CENTRAL ELECTR ICITY REGULATORY COMMISSION (CERC). CERC HAD PASSED ORDERS FIXING S UCH TARIFFS DURING THE RELEVANT PREVIOUS YEAR FOR EARLIER PERIO DS AS WELL, AND ASSESSEE WAS BOUND BY SUCH ORDERS. THEREFORE, IT H AD TO MAKE ADJUSTMENTS FOR DIFFERENCES ARISING OUT OF SUCH POW ER TARIFF RELATING TO EARLIER YEARS. SUCH ADJUSTMENT WAS CARRIED OUT IN THE RELEVANT PREVIOUS YEAR SINCE THE ORDER FROM CERC WAS RECEIVE D ONLY IN THE SAID PREVIOUS YEAR. ASSESSEE ALSO FILED YEAR-WISE BREAK-UP OF ITS CLAIM. AS PER THE ASSESSEE, IN THE EARLIER YEARS, SALES WERE BOOKED BASED ON TARIFFS AS PER POWER PURCHASE AGREEMENT BU T, ORDERS OF CERC BEING BINDING ON IT, REVERSAL MADE TO SALES AC COUNT FOR GIVING EFFECT TO SUCH ORDERS COULD NOT BE DISALLOWED. HO WEVER, THE ASSESSING OFFICER DID NOT ACCEPT THIS EXPLANATION. ACCORDING TO HIM, I.T.A. NOS.711, 712 & 713/MDS/10 14 DIFFERENCE IN TARIFF PERTAINED TO EARLIER YEARS AND NOT FOR THE RELEVANT PREVIOUS YEAR. PROFITS FOR THE YEAR UNDER CONSIDER ATION COULD NOT BE CORRECTLY DETERMINED IF ASSESSEE WAS ALLOWED TO ADJ UST DIFFERENCE ARISING IN EARLIER YEARS PROFITS, WITH THE PROFIT OF THE RELEVANT PREVIOUS YEAR. HE, THEREFORE, REJECTED THE CLAIM AND MADE A N ADDITION OF ` 502,15,00,000/-. 18. IN ITS APPEAL BEFORE LD. CIT(APPEALS), ARGUMENT OF THE ASSESSEE WAS THAT CERC WAS A STATUTORY AUTHORITY ESTABLISHED UNDER ELECTRICITY ACT AND THEREFORE, IT WAS OBLIGED TO GIVE EFFECT TO ITS ORDERS. ORDER BY CERC WAS BINDING AND POWER TARIFFS WERE DETERMINED STARTING FROM 2001-04 AND FOR THE FIVE YEAR PERIOD STARTING FROM 2004-09. THE SUBMISSION OF THE ASSESSEE BEFORE LD. CIT(APPEALS) ARE SUMMARIZED HEREUNDER:- 1. THE APPELLANT HAS BEEN ENTERING INTO POWER PURCH ASE AGREEMENT (PPA) WITH VARIOUS ELECTRICITY BOARDS. 2. THE POWER TARIFF THAT IS FIXED UNDER THE PPA WAS SUBJECT TO REVISION BY THE CENTRAL ELECTRICITY REGULATORY C OMMISSION (CERC) FORMED UNDER THE ELECTRICITY ACT 2003. THE POWER TARIFF IS FINALIZED BASED ON PETITIONS FILED BEFORE THE CE RC AND ARE SUBJECT TO REVISION IN REGARD TO PRIOR PERIODS AS W ELL. 3. THE POWER TARIFF FOR NLC PROJECT WAS REVISED BY THE CERC AS FOLLOWS:- I.T.A. NOS.711, 712 & 713/MDS/10 15 PROJECT PERIOD DATE OF CERC ORDER TS-I 2004-09 26.09.2006 TPS - I EXPANSION 2004 - 2009 23.03.2007 TPS - II 2001 - 2004 23.03.2007 4. ACCORDING TO THE CERC ORDER A REDUCTION WAS MADE IN RESPECT OF POWER INCOME THAT HAS BEEN ALREADY BILLE D, ACCOUNTED AND ALSO TAXED IN PRIOR YEARS TO THE EXTENT OF RS.5 02.15 CRORES. THE ORDER HAVING BEEN RECEIVED DURING THE PREVIOUS YEAR RELEVANT TO THE AY 2007-08, THE AMOUNT OF RS.502.15 CRORES W AS WRITTEN OFF IN THE BOOKS OF ACCOUNTS BY ADJUSTMENT AGAINST SALES. THE LD. A.O. DISALLOWED THE SAME ON THE GROUND THAT THE REV ERSAL RELATES TO PRIOR YEARS. 5. THE APPELLANT SUBMITS THAT THE PROFITS AND GAINS OF THE BUSINESS WILL HAVE TO BE MEASURED IN ACCORDANCE WIT H THE NORMAL SYSTEM OF ACCOUNTING REGULARLY FOLLOWED. THE STAND TAKEN BY THE A.O. WOULD TANTAMOUNT TO A REASONING THAT WERE INCO MES ARE DETERMINED PURSUANT TO PPA, THE ENTIRE ACCOUNTS ARE TO BE KEPT OPEN TILL DISPOSAL BY CERC OF THE ISSUES RELATING T O THE FINAL DETERMINATION OR PURCHASE PRICE. THIS IS NOT THE L AW. ACCOUNTS ARE TO BE CLOSED EVERY YEAR AND PROFITS ARE TAXED B ASED ON THE ACCOUNTS FINALIZED. 6. IT IS NOT THE STAND OF THE A.O. THAT THE ASSESSE E WAS AWARE OF THE IMPENDING REDUCTION IN THE RESPECTIVE YEARS; NOT IT WAS A SITUATION THAT THE PRICES CHARGED IN THE EARL IER YEARS WERE ERRONEOUS, IN THAT THERE WERE COMPUTATIONAL ERRORS. THE SALES ADJUSTMENT WAS ONLY PURSUANT TO DETERMINATION BY A STATUTORY AUTHORITY OF THE FINAL PURCHASE PRICE PURSUANT TO A PPLICATIONS FILED BEFORE THE SAME. 7. THE A.O. OUGHT TO HAVE NOTED THAT PRIOR ITEMS AR E COVERED BY ACCOUNTING STANDARD 2 NOTIFIED U/S 145(2) OF THE ACT, WHICH ONLY COVERS ERRORS AND OMISSIONS AND NOT CASES OF G ENUINE REDETERMINATION OF FINAL PRICE BY A HIGHER STATUTOR Y AUTHORITY. I.T.A. NOS.711, 712 & 713/MDS/10 16 8. THE ORDER OF THE LD. A.O. IS THEREFORE PATENTLY AGAINST THE ACCOUNTING STANDARD 2 (AS 2) NOTIFIED BY THE BOARD. 9. THE ACCOUNTING STANDARD (AS) 5 (E 10) NOTIFIED B Y THE CENTRAL GOVERNMENT U/S 209 OF THE COMPANIES ACT 195 6 ALSO IS TO IDENTICAL EFFECT. THERE IS NO SPECIFIC PROVISION O F LAW DEALING WITH THE SITUATIONS LIKE THIS IN THE COMPUTATION SC HEME ENACTED FOR BUSINESS INCOME. HENCE THE NORMAL METHOD OF AC COUNTING GOVERNING THE ISSUE WILL HAVE TO BE APPLIED FOR DET ERMINATION OF TAXABLE INCOME. 10. THE APPELLANT ACCORDINGLY SUBMITS THAT ITS CASE IS EXPLICITLY COVERED BY THE ACCOUNTING STANDARD NOTIFIED UNDER T HE INCOME- TAX ACT. 19. THEREFORE, AS PER THE ASSESSEE, IT HAD TO BE EI THER ALLOWED AS BAD DEBTS SINCE AMOUNTS WERE IRRECOVERABLE OR AS BU SINESS LOSS. LD. CIT(APPEALS) WAS APPRECIATIVE OF THESE CONTENTIONS. HE HELD THAT ASSESSEE HAVING ALREADY ACCOUNTED AND OFFERED TO TA X THE AMOUNTS AS PER THE TARIFF IN THE POWER PURCHASE AGREEMENT, IT COULD CLAIM AS A BAD DEBT THE EXCESS BILLINGS WHICH IT CAME TO KNOW, ONLY ON DETERMINATION OF TARIFF BY CERC. 20. NOW BEFORE US, LEARNED D.R., STRONGLY ASSAILING THE ORDER OF LD. CIT(APPEALS), SUBMITTED THAT THE PROFITS OF THE IMP UGNED ASSESSMENT YEAR WAS DISTURBED BY THE CHANGE IN TARIFF. ACCORD ING TO HER, EFFECT ON PROFIT FOR THE EARLIER YEAR TARIFF CHANGE, COULD NO T BE GIVEN IN THE IMPUGNED ASSESSMENT YEAR AND ASSESSEE WAS OBLIGED T O TREAT EACH I.T.A. NOS.711, 712 & 713/MDS/10 17 ASSESSMENT YEAR AS SEPARATE AND INCOME HAD TO BE TA XED CONSIDERING EACH ASSESSMENT YEAR SEPARATE. THE CLA IM OF BAD DEBT COULD NOT HAVE BEEN ALLOWED SINCE BILLS WERE RAISED AS PER POWER PURCHASE AGREEMENTS AND NOT ACCORDING TO TARIFF DET ERMINED BY CERC. 21. PER CONTRA, LEARNED A.R. STRONGLY SUPPORTED THE ORDER OF LD. CIT(APPEALS). 22. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL SUBMISSIONS. IT IS NOT DISPUTED THAT CERC IS THE AUTHORITY FOR D ETERMINING POWER TARIFF. IT IS ALSO NOT DISPUTED THAT POWER TARIFFS WERE DETERMINED BY THE CERC IN THE RELEVANT PREVIOUS YEAR FOR EARLIER YEAR S AS WELL. ASSESSEE HAD IN THE EARLIER YEARS BILLED ACCORDING TO POWER PURCHASE AGREEMENT WITH ITS RESPECTIVE CUSTOMERS. EVEN IF W E CONSIDER THAT THE ADJUSTMENT PERTAINED TO INCOME RELATABLE TO EAR LIER YEARS, IT STILL REMAINS A FACT THAT ASSESSEE COULD NOT RECOVER SUCH AMOUNT FROM THE CONCERNED CUSTOMERS SINCE THE CUSTOMERS WERE BOUND TO PAY ONLY AS PER THE TARIFF DETERMINED BY CERC. THIS BEING SO, IF IT IS NOT ALLOWED AS BAD DEBT, IT IS SURELY A BUSINESS LOSS OF THE AS SESSEE. AS HELD BY THE HONBLE APEX COURT IN THE CASE OF CIT V. WOODWA RD GOVERNOR INDIA PVT. LTD. (312 ITR 254), EVEN BUSINESS LOSS I NCURRED IN NORMAL I.T.A. NOS.711, 712 & 713/MDS/10 18 COURSE OF BUSINESS IS ELIGIBLE FOR DEDUCTION UNDER SECTION 37 OF THE ACT. WE ARE, THEREFORE, OF THE OPINION THAT LD. CI T(APPEALS) WAS JUSTIFIED IN ALLOWING THE CLAIM. NO INTERFERENCE I S CALLED FOR. 23. APPEAL OF THE REVENUE FOR ASSESSMENT YEAR 2007- 08 IS PARTY ALLOWED FOR STATISTICAL PURPOSES. 24. TO SUMMARIZE THE RESULT, REVENUES APPEAL IN I. T.A. NO. 711/MDS/2010 IS DISMISSED, I.T.A. NO. 712/MDS/2010 IS ALLOWED FOR STATISTICAL PURPOSES AND I.T.A. NO. 713/MDS/2010 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT AFTER CONCLUSION OF HEARING ON 11 TH APRIL, 2012. SD/- SD/- (CHALLA NAGENDRA PRASAD) (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 11 TH APRIL, 2012. KRI. COPY TO: APPELLANT/RESPONDENT/CIT(A)-LTU, CHENNAI/ CIT(A)-III, CHENNAI/CIT, LTU, CHENNAI/ CIT, CHENNAI-I, CHENNAI/D.R./GUARD FILE