ACIT, CHENNAI v. M/s ST-CMS Electric Co.(P) Ltd., CHENNAI

ITA 1519/CHNY/2010 | 2006-2007
Pronouncement Date: 13-01-2011 | Result: Dismissed

Appeal Details

RSA Number 151921714 RSA 2010
Assessee PAN AACCS2753B
Bench Chennai
Appeal Number ITA 1519/CHNY/2010
Duration Of Justice 3 month(s) 28 day(s)
Appellant ACIT, CHENNAI
Respondent M/s ST-CMS Electric Co.(P) Ltd., CHENNAI
Appeal Type Income Tax Appeal
Pronouncement Date 13-01-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted A
Tribunal Order Date 13-01-2011
Date Of Final Hearing 13-01-2011
Next Hearing Date 13-01-2011
Assessment Year 2006-2007
Appeal Filed On 15-09-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL BENCH A CHENNAI BEFORE SHRI U.B.S. BEDI J.M. & SHRI ABRAHAM P. GEO RGE A.M. I.TA. NO.1519/MDS/2010 ASSESSMENT YEAR 2006-07 THE ASSISTANT COMMISSIONER OF INCOME TAX COMPANY CIRCLE VI(1) AAYAKAR BHAVAN NEW BLOCK 121 M.G. ROAD 7 TH FLOOR CHENNAI 600 034. VS . M/S. ST-CMS ELECTRIC CO.(P) LTD. NO. 79 MRC NAGAR KASTHURI AVENUE RAJA ANNAMALAI PURAM CHENNAI 600 028. [PAN: AACCS2753B] (APPELLANT) (RESPONDENT) REVENUE BY : SHRI SHAJI P. JACOB ASSESSEE BY : SHRI B. RAMANA KUMAR (BSR & CO) O R D E R PER U.B.S. BEDI J.M. THIS APPEAL OF THE DEPARTMENT IS DIRECTED AGAINST THE ORDER PASSED BY THE LD. CIT(A) V CHENNAI DATED 30.06.2010 RELEVANT TO THE ASSESSMENT YEAR 2006-07 WHEREBY THE DEPARTMENT HAS RAISED 4 GROUNDS. GROUND NO. 1 AND 4 ARE GENERAL WHEREAS GROUND NOS. 2.1 2.2 3.1 AND 3.2 WHICH IN VOLVE SINGLE ISSUE RAISED AS UNDER: 2.1 THE LD. CIT(A) HAS ERRED IN DIRECTING THE AO T HAT THERE SHOULD BE NO ADJUSTMENT IN RELATION TO THE ERRONEOUS EXCESS INV OICING IN NORMAL PROFITS. 2.2 HAVING REGARD TO THE DECISION OF THE KERALA HIG H COURTS DECISION IN THE CASE OF VANAMAMALAI RAMANUJA JEER SWAMIGAL V. C IT (208 ITR 161) THE CIT(A) OUGHT TO HAVE APPRECIATED THAT SINC E EACH YEAR IS A SEPARATE UNIT AND THE LIABILITY RELATABLE TO THE EA RLIER YEARS OUGHT TO HAVE BEEN CLAIMED IN THE RESPECTIVE YEARS ONLY. 3.1 THE LD. CIT(A) HAS ERRED IN DIRECTING THE AO TH AT THERE SHOULD BE NO ADJUSTMENT IN RELATION TO THE ERRONEOUS EXCESS INVO ICING IN BOOK PROFITS. IT ITIT ITA NO. A NO. A NO. A NO.1519/MDS/10 1519/MDS/10 1519/MDS/10 1519/MDS/10 2 3.2 THE LD. CIT(A) OUGHT TO HAVE APPRECIATED THAT T HE ASSESSEE CANNOT ASSESSEE REDUCE FROM THE SALE AMOUNT THE AMOUNT WRO NGLY RECOGNIZED AS SALES IN THE EARLIER YEARS FOR THE PU RPOSE OF PREPARING P&L A/CS IN ACCORDANCE WITH THE PROVISIONS OF PART II AND III OF SCHEDULE VI OF THE COMPANIES ACT 1956. 2. THE ASSESSEE HAS ENTERED INTO A POWER PURCHASE AGREEMENT (PPA) WITH THE TNEB FOR THE SALE OF POWER. REVENUE FROM THE SA LE OF POWER IS RECOGNIZED IN ACCORDANCE WITH THE FORMULA BASED TARIFF DETERMINED UNDER THE PROVISIONS OF THE PPA ENTERED INTO WITH TNEB. THE TNEB HAD HELD BACK PAYMENTS DUE ON THE INVOICES RAISED BY THE ASSESSEE. ON THE BASIS OF TH IS THE ASSESSEE DISCOVERED THAT IT HAD INADVERTENTLY INVOICED TNEB IN EXCESS I N ASSESSMENT YEAR 2005-06 (APRIL AND MAY 2004). SUCH HIGHER AMOUNT WAS CONSID ERED AS REVENUES DURING THE ASSESSMENT YEAR 2005-06 AND OFFERED TO TAXES AS WEL L. HOWEVER DURING THE ASSESSMENT YEAR 2006-07 (YEAR UNDER APPEAL) DUE TO THE DISPUTE AND THE REASON BEING IDENTIFIED AND NOTIFIED THE ASSESSEE HAD GIV EN THE CREDIT FOR THE SAME TO TNEB. THEREFORE THE SUM WAS REDUCED FROM THE SALES AMOUNT AS WELL. A CREDIT NOTICE WAS ALSO RAISED IN THIS REGARD IN TNEBS FAV OUR. THIS REDUCTION OF EXCESS INVOICING IN LAST YEARS SALES WAS CLEARLY DISCLOSE D IN THE PROFIT AND LOSS ACCOUNT AND IN THE NOTES TO ACCOUNT. THE ASSESSING OFFICER HAD ADDED THIS AMOUNT IN BOTH THE COMPUTATION OF NORMAL PROFITS AND BOOK PROFITS AS UNDER: NORMAL PROFITS - ON THE BASIS THAT THIS AMOUNT DOE S NOT PERTAIN TO THE ASSESSMENT YEAR UNDER CONSIDERATION. BOOK PROFITS - ON THE BASIS THAT THE AMOUNT CANNOT BE REDUCED AS PER PROVISIONS OF COMPANIES ACT. IT ITIT ITA NO. A NO. A NO. A NO.1519/MDS/10 1519/MDS/10 1519/MDS/10 1519/MDS/10 3 3. THE ASSESSEE TOOK UP THE MATTER IN APPEAL AND I T WAS ARGUED BEFORE THE FIRST APPELLATE AUTHORITY THAT NO ADJUSTMENT SHOULD BE MADE FOR THIS ITEM IN THE COMPUTATION ON THE FOLLOWING GROUNDS: THE AMOUNT REFERRED TO ABOVE HAS BEEN OFFERED TO T AX BOTH UNDER NORMAL PROVISIONS AND BOOK PROFITS IN AY 2005-06 AND THERE FORE CANNOT BE SUBJECT TO TAX TWICE. NORMAL PROFITS - THE REVENUES ARE RECOGNIZED AS PE R AS-9 ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA (ICAI) AND AS PER THE ACCOUNTING POLICY EMPLOYED BY THE APPELLANT AND THE ACCOUNTING PRINCIPLES. THEREFORE THE SAME CANNOT BE ARTIFICIALLY ADJUSTED. FURTHER NO INCOME ACCRUED OR AROSE TO THE APPELLANT AND THE APPELLANT DID NOT H AVE RIGHT TO RECEIVE SUCH INCOME. THEREFORE NO INCOME IS SUBJECT TO TAX AS P ER JUDICIAL PRECEDENTS. BOOK PROFITS - BOOK PROFITS HAVE TO BE COMPUTED ST RICTLY IN ACCORDANCE WITH SECTION 115JB I.E. ONLY PRESCRIBED ADJUSTMENTS NEE D TO BE MADE TO THE AUDITED ACCOUNTS AS PER JUDICIAL PRECEDENTS (APOLLO TYRES LTD. V CIT [2002] 255 ITR 273 (SC) CIT VS KOVAI MARUTHI PAPER AND BO ARD (P) LTD. 294 ITR 57 (MAD) AND CIT VS VIJAYASHREE FINANCE AND INVESTM ENT CO. (P) LTD. 216 CTR 191 (MAD). FURTHER THIS INCOME IS NOT A REAL I NCOME AND THERE IS NO RIGHT TO TAX THE SAME. IF THERE IS AN ADJUSTMENT MADE IN AY 2006-07 THE A MOUNT NEEDS TO BE REDUCED FROM THE INCOME OF AY 2005-06 (BOOK PROFITS AND NOR MAL PROFITS). THE ASSESSEE FURTHER PLACED ON RECORD THE COPIES OF THE CREDIT NOTES ISSUED TO TNEB AND A IT ITIT ITA NO. A NO. A NO. A NO.1519/MDS/10 1519/MDS/10 1519/MDS/10 1519/MDS/10 4 CONFIRMATION FROM TNEB THAT THE AMOUNT WAS WRONGLY INVOICED AND PERTAINED TO ASSESSMENT YEAR 2005-06 (APRIL AND MAY 2004). TNEB IN ITS LETTER VIDE NO. CFC/REVENUE/FCA/ACCTS/DFC/COST/F.ST-CMS/2010 DT. 17 .03.10 HAS MENTIONED THE FOLLOWING: TNEB HAS NOT PAID AN AMOUNT OF ` .2 27 22 718 DUE TO ERROR IN FUEL COST INVOICED BY M/S. ST-CMS IN APRIL & MAY 2004. M/S. S T-CMS HAS SUBSEQUENTLY PASSED ON A CREDIT OF ` .1 98 24 676 VIDE CREDIT NOTE NO. 8/2005-06 DATED 31.03.06. 4. THE LD. CIT(A) CONSIDERED AND ACCEPTED THE PLEA OF THE ASSESSEE TO CONCLUDE AS UNDER: 5.8 CONCLUSION: I HAVE CONSIDERED THE ASSESSMENT O RDER AND THE WRITTEN SUBMISSIONS OF THE APPELLANT. I FIND THAT THE AO HA S NOT CONSIDERED THAT THE AMOUNT HAS BEEN ALREADY BEEN SUBJECTED TO TAX IN AY 2005-06 AND IS INDEED PERTAINING TO AN INVOICE RAISED IN EXCESS INADVERTE NTLY IN AY 2005-06. TNEB HAS ALSO CONFIRMED THIS ADJUSTMENT. THE APPELLANT H AS NO RIGHT TO RECEIVE THIS INCOME. THE ACCOUNTING TREATMENT AND THE TREAT MENT IN THE INCOME-TAX RETURN IS A CONSEQUENCE OF THIS. THEREFORE THERE I S NO REQUIREMENT TO ADD THIS AMOUNT BACK TO THE NORMAL PROFITS OR BOOK PROF ITS. GIVEN THE ABOVE I DIRECT THAT THERE SHOULD BE NO ADJUSTMENT IN RELATI ON TO THE ERRONEOUS EXCESS INVOICING IN BOTH NORMAL AND BOOK PROFITS. THEREFO RE THIS GROUND IS ALLOWED. 5. AGAINST SUCH ACTION OF THE LD. CIT(A) THE DEPA RTMENT HAS CAME UP IN APPEAL AND WHILE RELYING UPON THE GROUNDS OF APPEAL THE LD. DR SUBMITTED THAT THE ORDER OF THE LD. CIT(A) MAY BE SET ASIDE AND THAT O F THE ASSESSING OFFICER IS RESTORED AND WHEN SPECIFIC QUERY WAS RAISED TO POIN T OUT AS TO HOW THE ORDER OF THE LD. CIT(A) IS NOT LEGALLY CORRECT AND THE LD. DR CO ULD NOT POINT OUT THE SAME. WHEREAS THE LD. COUNSEL FOR THE ASSESSEE RELIED UP ON THE ORDER OF THE LD. CIT(A). IT ITIT ITA NO. A NO. A NO. A NO.1519/MDS/10 1519/MDS/10 1519/MDS/10 1519/MDS/10 5 6. AFTER HEARING BOTH THE SIDES AND CONSIDERING TH E MATERIAL ON RECORD WE DO NOT FIND ANY INFIRMITY OR FLAW IN THE ORDER PASSED BY THE LD. CIT(A) WHICH IS FOUND TO BE PROPER AND JUSTIFIED IN VIEW OF THE FACTS AND CI RCUMSTANCES OF THE CASE. AS SUCH WHILE CONCURRING WITH THE FINDING OF THE LD. CIT(A) IN THIS REGARD WE UPHOLD HIS ORDER AND DISMISS THE APPEAL OF THE DEPARTMENT BEIN G DEVOID OF ANY MERITS. 7. IN THE RESULT THE APPEAL OF THE DEPARTMENT STAN DS DISMISSED. ORDER PRONOUNCED SOON AFTER THE CONCLUSION OF HEAR ING ON 13.01.2011. SD/- SD/- (ABRAHAM P. GEORGE) ACCOUNTANT MEMBER (U.B.S. BEDI) JUDICIAL MEMBER CHENNAI DATED THE. 13.01.2011 VM/- COPY TO : APPELLANT/RESPONDENT/CIT(A)- /CIT /DR