DCIT, Hyderabad v. M/s Sri Balaji Bio Mass Power Pvt. Ltd., Hyderabad

ITA 1748/HYD/2008 | 2005-2006
Pronouncement Date: 31-01-2011 | Result: Dismissed

Appeal Details

RSA Number 174822514 RSA 2008
Assessee PAN AAFCS7123L
Bench Hyderabad
Appeal Number ITA 1748/HYD/2008
Duration Of Justice 2 year(s) 1 month(s) 19 day(s)
Appellant DCIT, Hyderabad
Respondent M/s Sri Balaji Bio Mass Power Pvt. Ltd., Hyderabad
Appeal Type Income Tax Appeal
Pronouncement Date 31-01-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted B
Tribunal Order Date 31-01-2011
Date Of Final Hearing 31-12-2010
Next Hearing Date 31-12-2010
Assessment Year 2005-2006
Appeal Filed On 11-12-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B' HYDERABAD BEFORE SHRI G.C.GUPTA VICE PRESIDENT AND SHRI AKBER BASHA ACCOUNTANT MEMBER ITA NO.1748/HYD/08 : ASST T. YEAR 2005-06 DY. COMMISSIONER OF INCOME- TAX CIRCLE 3(2) HYDERABAD V/S. M/S. SRI BALAJI BIO MASS POWER P. LTD. HYDERABAD (PAN - AAFCS 7123 L) (APPELLANT) (RESPONDENT) APPELLANT BY : SMT. VASUNDHARA SINHA RESPONDENT BY : SHRI C.SUBRAMANIAN O R D E R PER AKBER BASHA ACCOUNTANT MEMBER: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE O RDER OF THE CIT (A) IV HYDERABAD DATED 29.8.2007 FOR THE ASSES SMENT YEAR 2005-06. 2. THE ONLY EFFECTIVE GROUND OF THE REVENUE IN THI S APPEAL IS GROUND NO.2 WHICH READS AS FOLLOWS- 2. THE CIT(A) ERRED IN NOT APPRECIATING THE FACT T HAT THE ASSESSEE IS ENTITLED FOR THE RATE RS.3.48 PER UNIT FOR THE FINANCIAL YEAR 2004-05 AS PER PPA ENTERED WITH APTRANSCO. THE ASSESSEE ACCORDINGLY RAISED SALE BIL LS ADOPTING RS.3.48 PER UNIT. ITA NO.1748/HYD/08 M/S. SRI BALAJI BIO MASS POWER P. LTD. HYD 2 3. FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESSEE IS A COMPANY ENGAGED IN GENERATION OF POWER. DURING THE ACCOUNTING YEAR RELEVANT TO ASSESSMENT YEAR 2005-06 ASSESSEE SOLD 3 57 70 400/- UNITS OF POWER TO APTRANSCO AND RAISED INVOICE APPLY ING A RATE OF RS.3.48 PER UNIT WHICH AMOUNTED TO RS.12 44 80 992/-. IN THE BOOKS OF ACCOUNT HOWEVER THE ASSESSEE ACCOUNTED FOR SALES ONLY AT RS.3.18 PER UNIT WHICH AMOUNTED TO RS.11 37 49 872/-. EXPLAI NING THE DIFFERENCE OF RS.1 07 31 120/- IT WAS SUBMITTED BEFORE THE ASSESSING OFFICER THAT THE ASSESSEE HAD GONE INTO PRODUCTION FROM 14.4.2004 AND THE PREVIOUS YEAR UNDER CONSIDERATION WAS THE FIRST YEAR OF OPERATION. IT WAS CLAIMED THAT THE ASSESSEE HAD ENTERED INTO POWER P URCHASE AGREEMENT (PPA) WITH APTRANSCO ON 17.8.2001 AT THE TIME OF SETTING UP THE POWER PROJECT AND AS PER THE SAID PPA THE SALE PRICE PER UNIT WAS FIXED AT RS.2.25/- PER UNIT WITH AN ESCALATION AT THE RATE OF 5% PER ANNUM WITH 1994-95 AS THE BASE YEAR AND WAS TO BE REVI SED ON THE FIRST OF APRIL OF EVERY YEAR. ACCORDINGLY IT WAS STAT ED THAT THE PRICE APPLICABLE FOR THE FINANCIAL YEAR 2004-05 RELEVANT F OR ASSESSMENT YEAR 2005-06 WAS WORKED OUT AT RS.3.48/- PER UNIT AND THE INVOICE WAS RAISED ACCORDINGLY. HOWEVER BY AN ORDER DATED 20.3.20 04 THE APERC REVISED THE TARIFF TO RS.2.88/- PER UNIT FOR THE FIRST YEAR OF OPERATION COMPRISING OF THE FIXED COST PER UNIT AT RS.1.61/- AND V ARIABLE COST PER UNIT OF RS.1.27/-. AGAINST THE SAID REVISION THE ASSE SSEE ALONG WITH OTHER POWER PRODUCING COMPANIES IN THE STATE OF ANDHRA PRADESH WENT TO THE COURT AND THE HONBLE COURT DIRECTED THE APERC VIDE INTERIM ORDER DATED 20.8.2004 TO PAY 50% OF THE DIFFERENTI AL AMOUNT BETWEEN THE OLD AND THE REVISED TARIFF PROVISIONALLY SUBJECT TO THE FINAL ORDERS. IN VIEW OF THE INTERIM ORDERS OF THE HONBLE HIGH COUR T THE APTRANSCO HAS PAID AT THE RATE OF RS.3.18 PER UNIT A ND SETTLED THE BILLS AND CONSEQUENTLY THE ASSESSEE ALSO BOOKED THE INCOME FROM SALE OF POWER AT RS.3.18 PER UNIT OF POWER SUPPLIED THOUGH IT HAD RAISED ITA NO.1748/HYD/08 M/S. SRI BALAJI BIO MASS POWER P. LTD. HYD 3 BILLS AT THE RATE OF RS.3.48 PER UNIT DURING THE RELE VANT FINANCIAL YEAR. THE ASSESSING OFFICER OBSERVING THAT THE BILLS RAISED BY T HE ASSESSEE AT RS.3.48 PER UNIT WERE THE FUNDAMENTAL RECORDS FOR MAIN TENANCE OF ACCOUNTS OF THE ASSESSEE THOUGH THE ASSESSEE HAS RECORDED THE SALES DIFFERENTLY FOR ITS REASONS DEVIATING FROM THE GENERA LLY ACCEPTED METHOD OF ACCOUNTING. HE WAS OF THE VIEW THAT THE ASSESSE E SHOULD HAVE DECLARED THE SALE OF POWER AS PER THE INVOICE RAISE D IN VIEW OF S.5 OF THE ACT AND DECLARED THE SAME WORKED OUT AT RS. 3.48/- PER UNIT FOR TAX PURPOSES SINCE INCOME COMPUTED AT THAT RATE IS DEEMED TO HAVE ACCRUED TO THE ASSESSEE ON THE DAY OF RAISING OF INVO ICE. FOR THESE REASONS AND FINDING NO MERIT IN THE CONTENTION O F THE ASSESSEE THAT ACTUAL INCOME RECEIVED BY THE ASSESSEE ONLY SHOULD BE BROUGHT TO TAX THE ASSESSING OFFICER MADE AN ADDITION OF RS.1 07 31 120/- AND COMPLETED THE ASSESSMENT ON A TOTAL INCOME OF RS.64 78 760 /- VIDE ORDER OF ASSESSMENT DATED 5.11.2007 PASSED UNDER S.143(3) OF THE ACT. 4. ON APPEAL THE CIT (A) ON DETAILED CONSIDERATIO N OF THE SUBMISSION OF THE ASSESSEE CONCLUDED THAT INVOICE WAS RAISED B Y THE ASSESSEE FOR THE POWER SUPPLIED AT A HIGHER RATE SO AS T O BE IN A POSITION TO RECOVER THE DUES IN CASE IT SUCCEEDS IN THE CASE S FILED BY IT AT A LATER DATE AND TO SAFEGUARD ITS CLAIM FROM GETTIN G TIME BARRED. HE FURTHER OBSERVED THAT SUCH INCOME HOWEVER HAD NEITHER BEEN RECEIVED NOR WAS RECEIVABLE DURING THE PREVIOUS YEAR AND NO COR RESPONDING DEBT IN RESPECT OF THE DIFFERENTIAL AMOUNT STOOD CREATED IN THE BOOKS OF THE PURCHASER I.E. APTRANSCO MERELY ON THE BASIS OF THE INVOICES SO RAISED. THE CIT (A) ACCORDINGLY DELETED THE ADDITION MADE BY THE ASSESSING OFFICER. ITA NO.1748/HYD/08 M/S. SRI BALAJI BIO MASS POWER P. LTD. HYD 4 5. AGGRIEVED BY THE ORDER OF THE CIT (A) REVENUE IS IN APPEAL BEFORE US. 6. LEARNED DEPARTMENTAL REPRESENTATIVE STRONGLY REL YING ON THE ORDER OF THE ASSESSING OFFICER SUBMITTED THAT THE A SSESSEE IS ENTITLED FOR THE RATE OF RS.3.48/- PER UNIT FOR THE FINANCIAL YEAR 2004- 05 AS PER PPA ENTERED WITH APTRANSCO. IT IS ONLY FO R THIS REASON THAT ASSESSEE ALSO RAISED SALE BILLS ADOPTING A RATE OF RS.3 .48/- PER UNIT. HAVING RAISED THE INVOICES FOR THE SALES MADE AT T HAT RATE OF RS.3.48/- PER UNIT THE ASSESSEE CANNOT GO BACK AND CONTEND THAT WHAT IS ITS INCOME IS ONLY THE ONE COMPUTED ADOPTING A RATE OF RS.3.18/- PER UNIT I.E. THE RATE AT WHICH THE APTRANSCO SETTLED IT S BILLS. HE SUBMITTED THAT INVOICES RAISED FOR THE SALES MADE CONSTITUT E THE FUNDAMENTAL RECORDS FOR THE MAINTENANCE OF ACCOUNTS AND IN VIEW OF THE PROVISIONS OF SECTION 5 OF THE ACT THE DIFFERENTIA L AMOUNT WHICH THE ASSESSEE ACTUALLY DID NOT RECEIVE ON ACCOUNT OF PENDIN G LITIGATION HAS TO BE TREATED AS HAVING ACCRUED TO THE ASSESSEE AND AS SUCH HAS TO BE ASSESSED AS DEEMED INCOME. SHE ALSO FILED DETAILED WRITTEN SUBMISSIONS BY DISTINGUISHING THE DECISIONS RELIED ON BY TH E LEARNED COUNSEL FOR THE ASSESSEE AND CONCLUDED THAT MERE ABSENCE OF THE AMOUNT IN THE PROFIT AND LOSS ACCOUNT IS NOT INDICATIVE OF THE FACT THAT THE INCOME HAS NOT ACCRUED TO THE ASSESSEE COMPANY. WHAT AR E RELEVANT ARE THE NATURE OF THE RECEIVABLE AND THE IM PLICATIONS OF THE DISPUTE. 7. THE LEARNED COUNSEL FOR THE ASSESSEE ON THE OTHER H AND STRONGLY RELIED ON THE ORDER OF THE CIT (A). HE FURT HER SUBMITTED THAT THE INVOICES WERE RAISED APPLYING A HIGHER RATE JUST TO KEEP THE ISSUE ALIVE AND SAFEGUARD THE INTERESTS OF THE ASSESSEE IN THE EVENT OF IT SUCCEEDING IN THE LITIGATION. HE SUBMITTED THAT WHILE T HE INVOICES ARE ITA NO.1748/HYD/08 M/S. SRI BALAJI BIO MASS POWER P. LTD. HYD 5 RAISED WORKING OUT THE SALES APPLYING TARIFF AS DETERM INED IN TERMS OF THE ESCALATION CLAUSES CONTAINED IN THE POWER PURCHASE AG REEMENT REVENUE IS RECOGNIZED AND ENTRIES WERE MADE IN THE BOO KS OF ACCOUNT APPLYING A RATE OF RS.3.18/- ONLY WORKING OUT THE SAM E AS PER THE INTERIM ORDER OF THE HONBLE HIGH COURT OF ANDHRA PRA DESH NOTWITHSTANDING THE FACT THAT THE APERC HAS FIXED THE PRICE AT RS.2.88 PER UNIT ONLY BASED ON THE REVISED AGREEMENT ENTERE D INTO ON 11.3.2004. HE PLACED RELIANCE ON ACCOUNTING STANDARD 9 OF INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA WHICH IS MANDATORY AN D WHICH DEALS WITH RECOGNITION OF REVENUE. ACCORDING TO THIS ACCOUNTI NG STANDARD HE SUBMITTED THAT UNLESS RECEIPT OF THE REVENUE IS CERTAI N AS ON THE DATE OF BALANCE SHEET IT SHALL NOT BE INCLUDED IN THE REVENUE. HE SUBMITTED THAT A SIMPLE CLAIM WHICH IS MATTER OF LITIGA TION CANNOT CONSTITUTE THE BASIS FOR BOOKING THE INCOME IF THERE IS NO CERTAINTY TO RECEIVE THE AMOUNT AND RECEIPT OF THE AMOUNT DEPENDS O N THE OUTCOME OF THE LITIGATION. IN SUPPORT OF THIS P ROPOSITION HE PLACED RELIANCE ON THE FOLLOWING DECISIONS- (A) CIT V/S. HINDUSTHAN HOUSING AND LAND DEVELOPMENT TR UST LTD. (1986) 161 ITR 524(SC) (B) CUT V/S. NANDLAL MOHANLAL (2010) 191 TAXMAN 152 PLACING RELIANCE ON THE DECISION OF THE ALLAHABAD HIGH COURT IN THE CASE OF CIT V/S. GOVIND PRASAD (171 ITR 417) HE SUBMITTED THAT WHERE AN ASSESSEE ACQUIRES RIGHT TO RECEIVE INCOME THEN ONLY INCOME CAN BE SAID TO ACCRUE THOUGH IT IS RECEIVED LATER. HE ALSO PLACED RELIANCE ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF E.D.SASSOON & CO. V/S. CIT(26 ITR 27) AND SUBMITTED THAT INCOME CA N BE SAID TO ACCRUE WHEN ENFORCEABLE DEBT IS CREATED IN FAVOUR OF T HE ASSESSEE. HE SUBMITTED THAT THERE IS NO ENFORCEABLE RIGHT CREATED IN FAVOUR OF THE ITA NO.1748/HYD/08 M/S. SRI BALAJI BIO MASS POWER P. LTD. HYD 6 ASSESSEE UNLESS IT SUCCEEDS IN THE LITIGATION IN THE MATTER OF TARIFF FOR THE POWER SUPPLIED. EVEN IF IT SUCCEEDS IN THE LITIGAT ION AN ENFORCEABLE DEBT GETS CREATED IN FAVOUR OF THE ASSESSEE ON LY IF IT HAS RAISED BILLS WITHIN THE PERIOD OF LIMITATION APPLYIN G THE RATES CLAIMED BY IT AS DUE. IT IS FOR THIS REASON THAT IT HAS RAISED THE INVOICES FOR THE POWER SUPPLIED AS PER THE RATE WORKED OUT AS PER THE O RIGINAL POWER PURCHASE AGREEMENT IT ENTERED INTO WITH APTRANSCO. HE ALSO PLACED RELIANCE ON THE DECISION OF DELHI HIGH COURT IN THE CASE OF CIT V/S. SARVANTRA ROAD RUNNERS PVT. LTD. (301 ITR 443) WHER EIN IT WAS HELD THAT IF THE ASSESSEE HAS NO RIGHT TO RECEIVE THE MONEY I T CAN BE SAID THAT NO RIGHT HAD ACCRUED OR VESTED AND THEREFORE IN COME COULD NOT BE SAID AS HAVING ACCRUED TO THE ASSESSEE. HE ALSO SUBMITTED THA T WHEN THERE IS A DISPUTE BETWEEN THE PARTIES WITH REGARD TO PAYMENT THERE IS NO REAL ACCRUAL OF INCOME. IN SUPPORT OF HIS ARGUMENT S HE ALSO PLACED RELIANCE ON THE FOLLOWING DECISIONS- (A) FPG LTD. V/S. CIT (326 ITR 444)-BOM. (B) SUTLEJ COTTON MILLS LTD VS. CIT [116 ITR 1]-SC (D) GODHRA ELECTRICITY CO. LTD VS. CIT [225 ITR 746] - SC (E) STATE BANK OF INDIA VS. CIT [157 ITR 67] -SC 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. THERE I S NO DISPUTE WITH REGARD TO THE MATERIAL FACTS OF THE CASE. THE ONLY QUESTION THAT ARISES FOR CONSIDERATION IS WHETHER THE DI FFERENTIAL AMOUNT OF SALES VIZ. WORKED OUT AT RS.3.48/- PER UNI T AS PER THE POWER PURCHASE AGREEMENT APPLYING WHICH INVOICES FOR SUP PLY OF POWER TO APTRANSCO WERE RAISED AND RS.3.18/- APPLYING WHICH IN TERMS OF THE INTERIM ORDERS OF THE HONBLE A.P. HIGH CO URT INVOICES OF THE ASSESSEE WERE SETTLED BY THE APTRANSCO AND ACCOUNTED F OR BY THE ASSESSEE IN THE BOOKS OF ACCOUNT CAN BE TREATED AS THE INCOME OF ITA NO.1748/HYD/08 M/S. SRI BALAJI BIO MASS POWER P. LTD. HYD 7 THE ASSESSEE FOR THE ASSESSMENT YEAR 2005-06. WE FIND THA T THE CIT(A) HAS GIVEN ELABORATE REASONING BEFORE CONCLUDING THAT THE INCOME WORKED AT THE RATE OF RS.3.48/- PER UNIT OF PO WER SUPPLIED HAD NEITHER ACCRUED TO THE ASSESSEE NOR WAS RECEIVABLE DURING THE PREVIOUS YEAR AND THEREFORE NO CORRESPONDING DEBT IN RESPECT OF THE DIFFERENTIAL AMOUNT STOOD CREATED IN THE BOOKS OF THE PURCHASER I.E. APTRANSCO. MERELY BASED ON THE INVOICES RAISED INCOME CANNOT BE DEEMED TO ACCRUE TO THE ASSESSEE WHEN THE DIFFERENTIAL I NCOME WAS SUBJECT MATTER OF LITIGATION AND THERE IS NO CERTAINTY OF THE ASSESSEE BEING ENTITLED TO SUCH INCOME UNLESS IT SUCCEEDS IN SUCH L ITIGATION. EVEN IF AN ASSESSEE SUCCEEDS ULTIMATELY IN THE LITIGATION A DEBT ENFORCEABLE AGAINST THE OTHER PARTY DOES NOT GET CREATE D UNLESS A CLAIM IN THAT BEHALF WAS RAISED BEFORE THE SAME BEING B ARRED BY LIMITATION. IT IS FOR THIS REASON THAT AN ASSESSEE TO KE EP THE ISSUE ALIVE HAS TO RAISE THE CLAIM AGAINST THE OTHER PARTY WITHIN THE PERIOD OF LIMITATION WHICH IN ITS VIEW IS DUE TO IT ACCORDIN G TO THE TERMS OF THE CONTRACT SO AS TO GET AN ENFORCEABLE RIGHT FOR THE RECOV ERY OF THE AMOUNT AS AND WHEN IT SUCCEEDS IN THE LITIGATION. IN THI S VIEW OF THE MATTER THOUGH INVOICES RAISED CONSTITUTE FUNDAMENTAL RE CORD FOR MAINTENANCE OF ACCOUNTS IN THE NORMAL COURSE AS OBSERVED BY THE ASSESSING OFFICER THAT LOGIC DOES NOT HOLD GOOD WHEN THE SUBJECT MATTER WAS UNDER DISPUTE AND WAS UNDER LITIGATION BEFO RE THE JUDICIAL FORA INCLUDING THE JURISDICTIONAL HIGH COURT AND HON BLE SUPREME COURT DURING THE RELEVANT POINTS OF TIME. ASSESSEES METHOD OF ACCOUNTING ONLY THE AMOUNT WHICH WAS NOT SUBJECT MATTER OF LITIGA TION AND WHICH IN FACT WAS RECEIVED BY IT FROM THE APTRANSCO IN TERMS OF THE INTERIM ORDER OF THE A.P.HIGH COURT WAS IN CONFORMITY WITH T HE ACCOUNTING STANDARD 9 AND THE RATIO LAID DOWN BY THE APEX COUR T AMONG OTHERS IN THE CASE LAW DISCUSSED BY THE CIT (A) IN THE IMPUGNE D ORDER AND ALSO IN THE CASE-LAW RELIED UPON BY THE ASSESSEE BEFORE US . IN THIS ITA NO.1748/HYD/08 M/S. SRI BALAJI BIO MASS POWER P. LTD. HYD 8 VIEW OF THE MATTER WE FIND NO INFIRMITY IN THE ORD ER OF THE CIT (A) WHICH IS ACCORDINGLY CONFIRMED AND THE GROUNDS OF APPEAL OF THE REVENUE ARE REJECTED. 9. IN THE RESULT REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE COURT ON 31.1.2011 SD/- SD/- (G.C.GUPTA) (AKBER BASHA) VICE PRESIDENT ACCOUNTANT MEMBER DT/- 31.1.2011 COPY FORWARDED TO: 1. M/S. SRI BALAJI BIO MASS POWER P. LTD. PLOT NO.107 1 ROAD NO.44 JUBILEE HILLS HYDERABAD 2. DY. COMMISSIONER OF INCOME-TAX CIRCLE 3(2) HYDER ABAD . 3. COMMISSIONER OF INCOME-TAX(APPEALS) IV HYDERABAD 4. COMMISSIONER OF INCOME-TAX III HYDERABAD 5. DEPARTMENTAL REPRESENTATIVE ITAT HYDERABAD. B.V.S.