Income Tax Appellate Tribunal - Ahmedabad
The Acit, Circle-2(1)(2),, Ahmedabad vs Maharashtra Eastern Grid Power ... on 13 March, 2020
आयकर अपील य अ धकरण, अहमदाबाद यायपीठ 'बी', अहमदाबाद ।
IN THE INCOME TAX APPELLATE TRIBUNAL
" B" BENCH, AHMEDABAD
BEFORE SHRI SANDEEP GOSAIN, JUDICIAL MEMBER And
SHRI AMARJIT SINGH, ACCOUNTANT MEMBER
आयकर अपील सं./I.T.A. No. 2142/Ahd/2017
( नधा रण वष / Assessment Year : 2014-15)
The ACIT Maharashtra Eastern Grid Power
बनाम/
Circle-2(1)(2) Vs.Transmission Co.Ltd.
Ahmedabad Adani House
Nr.Mithakhali Six Roads
Navrangpura
Ahmedabad
थायी ले खा सं . /जीआइआर सं . /PAN/GIR No. : AAGCM 3620D
(अपीलाथ /Appellant) .. ( यथ / Respondent)
अपीलाथ ओर से / Appellant by : Shri Vidhyut Trivedi, Sr.DR
यथ क ओर से/Respondent by : Shri Vartik Chokshi &
Shri Biren Shah, ARs
सन
ु वाई क तार ख /D at e o f H e ar i ng 11/03/2020
घोषणा क तार ख /D at e of P ro n o u nc em e nt 13 /03/2020
आदे श / O R D E R
PER SHRI SANDEEP GOSAIN, JUDICIAL MEMBER :
The captioned appeal has been filed at the instance of the Revenue against the order of the Commissioner of Income Tax (Appeals)-2, Ahmedabad [CIT(A) in short] vide appeal no.CIT(A)- 2/521/DC.Cir.2(1)(2)/2016-17 dated 04/07/2017 arising in the assessment order passed under s.143(3) of the Income Tax Act, 1961(hereinafter ITA No.2142/Ahd/2017 ACIT vs. Maharashtra Eastern Grid Power Transmission Co.Ltd.
Asst.Year - 2014-15 -2- referred to as "the Act") dated 30/12/2016 relevant to Assessment Year (AY) 2014-15.
2. The Revenue has raised the following solitary ground of appeal:-
1. The Ld.CIT(A) has erred in not considering the fact that since the assessee has followed the mercantile system of accounting, the receipt should have been included during the year under consideration.
2.1. The Revenue has also raised the revised following ground of appeal:
1. Whether the Ld.CIT(A) has erred in law and on facts in deleting the addition of Rs.3,47,00,000/- made on account of alleged suppression of revenue without properly appreciating the facts of the case and material brought on record.
3. The brief facts of the case are that the return of income for the year under consideration was filed by the assessee on 29/11/2014 declaring loss at (-) Rs.126,42,81,675/-. Initially, the return was processed u/s.143(1) of the Act, but the case was selected for scrutiny and after serving statutory notice and seeking reply of the assessee, order of assessment u/s.143(3) of the Act was passed on 30/12/2016 thereby making additions on account of suppression of revenue.
4. Aggrieved by the order of the AO, assessee preferred appeal before Ld.CIT(A), who after considering the case of both the parties, partly allowed the appeal of the assessee and additions made by the Assessing Officer on account of suppression of revenue was deleted.
ITA No.2142/Ahd/2017ACIT vs. Maharashtra Eastern Grid Power Transmission Co.Ltd.
Asst.Year - 2014-15 -3-
5. Aggrieved by the order of the ld.CIT(A), now the Revenue is in appeal before us on the ground(s) mentioned hereinabove.
6. At the outset, it was pointed out that in the appeal filed by the Revenue is barred by limitation and in this respect separate adjudication for seeking condonation of delay has been filed by the Revenue. As per the contents of the said application, it was submitted that the Pr.Commissioner of Income Tax-2, Ahmedabad was holding the additional charge of Pr.CIT-I, Pr.CIT-V & VI, Ahmedabad and also that of CIT(Exemption) during the month of September-2017. According to the Revenue, there was tremendous time barring judicial workload in each of these charges, which required thorough and diligent study and because of the work pressure the present appeal could not file within limitation and thus there was delay of 10 days for filing the appeal.
5. We have heard the Learned Representatives for both the parties. We have also perused the material placed on record. In the instant case, we find that reason mentioned in the application are sufficient cause and, therefore, keeping the principle laid down by the Hon'ble Apex Court pronounced in the case of Collector, Land Acquisition vs. Mst.Katiji & Ors. Reported as 62 CTR 23 (S.C.) :: 1987 AIR 1353 (SC), the delay is hereby condoned and appeal is admitted for hearing.
ITA No.2142/Ahd/2017ACIT vs. Maharashtra Eastern Grid Power Transmission Co.Ltd.
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6. The solitary ground raised by the Revenue relates to challenging the order of CIT(A) in deleting the additions made by the Assessing Officer on account of suppression of revenue by the assessee.
7. The Ld.DR relied upon the order of the Assessing Officer and the relevant extract of the assessment order are contained in para-2.1 of Ld.CIT(A)'s order which is reproduced below:-
"2.1. Assessing Officer's findings :-
The relevant extracts from the assessment order are reproduced here under:-
"3. Addition on a/c of suppression of Revenue 3.1 During the course of assessment proceedings, on verification of the note no. 19 to the Balance Sheet furnished by the assessee it is seen that the assessee has shown unbilled receivable of Rs. 50,24,00,000/- under the head of 'Other Current Assets'. Further, on perusal of Note No. 30(i) of the Audited Financial Statements it is seen that the assessee has stated as under:
" Revenue from transmission line are accounted for' on the basis of submission of Multi Year Tariff order with the Maharashtra Electricity Regulatory Commission for the year ended 2013-14 and includes unbilled revenues accrued upto the end of the accounting year."
3.2 Hence, vide order sheet entry dated 09.11.2016, the assessee was requested to furnish the details of bill raised and copy of first bill. In response, the assessee filed a reply on 28.11.2016 relevant portion of which is reproduced as under:
"In this regard we submit that during the year under consideration the assessee company has booked the accrued income from transmission lines of Rs.50.24 crores. The revenue is based on various parameters and for which the assessee company has also filed the petition for approval of Aggregate Revenue Requirement and ITA No.2142/Ahd/2017 ACIT vs. Maharashtra Eastern Grid Power Transmission Co.Ltd.
Asst.Year - 2014-15 -5- determination of Multi Year Tariff for the Second Control Period to Maharashtra Electricity Regulatory Commission (MERC). Kindly find attached herewith copy of petition with authorities for approval. On perusal of page no.88 of the said petition filed your goodself will find the projections of revenue for three consecutive years i.e. for F.Y. 2013-14, F.Y.2014-15 and F. Y. 2015-16. The projection is based on various parameters and for F. Y.2013-14 and the revenue is booked accordingly to Rs. 50.24 Crores.
In nutshell, the assessee has completed various transmission fines on 23.02.20J4 for which the details is submitted herein below in point no.5 and the revenue of Rs.50.24 Crores is made on projection of revenue of the said lines which required the approval by the Maharashtra Electricity Regulatory Commission. The bills are raised only in next year i.e. from F. Y. 2014-15 after the approval of The Commission is received."
3.3 On perusal of page 88 of the Petition for approval of Aggregate Revenue Requirement and determination of Multi Year Tariff (MYT) for the Second Control Period from F.Y. 2015-16 before the Maharashtra Electricity Regulator} Commission (MERC) it is seen that the Net Aggregate Revenue Requirement for the F.Y. 2013-14 is of Rs. 61.60 crores. The relevant portion of the page 88 is reproduced as under:
S.Xo Particulars FY 13-14 FY 14-15 FY 15-16
5 Other Expenses 0.50 0.75 1.00
6 Income Tax Expense 2.84 34.32 73.36
7 Contribution to Contingency 11.36 13.97 29.74
Reserves
8 Total Revenue Expenditure 50.88 482.78 984.75
9 Return on Equity Capital 10.71 129.41 276.61
10 Aggregate Revenue 61.60 612.19 1,261.36
Requirement
11 Less: Non-Tariff Income - 0.50 1.61
12 Less: Income from Other - -
Business
13 Net Aggregate Revenue 61.60 611.69 1,259.74
Requirement
ITA No.2142/Ahd/2017
ACIT vs. Maharashtra Eastern Grid Power Transmission Co.Ltd.
Asst.Year - 2014-15 -6- 3.4 Hence, vide order sheet entry dated 14.12.2016, the assessee was requested to show cause as to why the unbilled revenue should not be taken to Rs. 61.60 crores as for which the bill is to be raised. The assessee was also requested to explain why revenue to be recognized in the year under consideration when first bill is raised on 01.09.2014 as per order of MERC. In response the assessee furnished a reply on 12.12.2016, relevant portion of which is reproduced as under:
"In this regard, we wish to reiterate that the assessee company is engaged in the business of setting up, operation and maintenance of power transmission lines. In the year under consideration, the assessee company has earned income from transmitting power by operating and maintaining transmission lines in the state of Maharashtra. It is to be noted that the tariff charged by the assessee company for transmitting power through its transmission lines is regulated by Maharashtra Electricity Regulatory Commission (herein after referred to as "MERC"). As per regulation 16,18 & Part G of Maharashtra Electricity Regulatory Commission (Multi Year Tariff) Regulation, 2011, the assessee company being transmission licensee was required to submit Multi Year Tariff (herein after referred to as "MYT") Petition for the Second Control period i.e. F.Y.2013-14 to F.Y. 2015-16.
Accordingly, the assessee company submitted the MYT petition for the Second Control period i.e. F.Y.2013-14 to F.Y.2015-16 to MERC on 5th March, 2014. i.e. before approval of the financial statements by the Board of Directors. The assessee company also submitted revised MYT petition along with annexures and data formats considering the data gaps pointed out by the MERC. Kindly find attached herewith the MYT petition submitted by the assesses company. (Annexure-1). On perusal of page no 88 of the MYT petition your good self would find that the assessee company had worked out Aggregate Revenue Requirement (ARR) claim for the year under consideration at Rs 61.60 Crores, However, while recognizing revenue in the books of account as per prevalent MYT regulation, the assessee company recognized revenue of Rs 50.24 Crores only as this being 1st year of revenue recognition subject to approval of MERC, if conservatively did not consider revenue contribution to Contingency Reserve of Rs 11.36 Crows. Thus recognized, net income of Rs 50.24 Crores (61.60 Crores- 11.36 Crores). This fact is evident on perusal of page no 88 MYT petition submitted vide Annexure-1 of this submission.
Pursuant to submission of MYT petition for the second control period i.e. F.Y.2013-14 to F.Y.2015-16 by the assessee company, MERC issued order ITA No.2142/Ahd/2017 ACIT vs. Maharashtra Eastern Grid Power Transmission Co.Ltd.
Asst.Year - 2014-15 -7- dated 8th August, 2014 approving Aggregate Revenue Requirement (ARR) claim of Rx 53.71 Crores for the F.Y.2013-14 as against Rs 50.24 Crores recognized as revenue in the P&L account in the year under consideration. Kindly find attached herewith copy of order dated 8th August. 2014 of MERC. (Annexure-2) It is worthwhile to note that post determination of ARR vide order dated 8th August, 2014, the MERC suo-motu made amendment to ARR of all transmission licensee and issued final order on 14th August. 2014, the copy of which is attached herewith vide Annexure-3. We would like to draw your good selfs attention to page no 10 of the said order wherein the MERC has finally determined ARR of F.Y.2013-14 at Rs 53.71 Crores as against Rs 50.24 Crores recognized in the P&L account of the year under consideration.
in view of above, it is submitted that though the assessee company has recognized Rs 50.24 Crores as unbilled revenue in the P&L Account of the year under consideration in terms of MERC Regulations, its claim has been allowed by the MERC, an electricity regulator in the State of Maharashtra. Further, it is to be noted that as per para 40 of MERC's order dated I4lh August, 2014, the ARR approved by MERC i.e. Rs 53.71 Crores can be collected by the assessee company by issuing monthly invoices on Stale Transmission Utility (STU) i.e. Maharashtra State Electricity Transmission Co Ltd (herein after referred to as "MSETCL ").
In view of above, we submit that the assessee company has rightly recognized unbilled revenue of Rs 50.24 Crores being income from transmitting power through its transmission lines in terms of the prevalent MYT regulation which has been duly approved by MERC, an electricity regulator in the State of Maharashtra. We are submitting herewith invoices issued for the ARR approved far F.Y.2013-14 & F.Y.2014-15 by MERC for your good self's ready reference. (Annexure-4) Accordingly, we submit that the unbilled revenue of Rs 50.24 Crores recognized in the year under consideration was billed by the assessee company to MSETCL as per the order of MERC, an electricity regulator in the Slate of Maharashtra. Hence, we submit that the assessee company has correctly recognized revenue of Rs 50.24 Crores in the year under consideration by following mercantile system of accounting and having regard to MERC MYT Regulation. Further, we wish to submit that the assessee company has been consistently following the above mentioned method of revenue recognition year on year basis."ITA No.2142/Ahd/2017
ACIT vs. Maharashtra Eastern Grid Power Transmission Co.Ltd.
Asst.Year - 2014-15 -8- 3.5 Further, the assessee furnished another reply on 15.12.2016, relevant portion of which is reproduced as under:
"1.1 In continuation to our submission dated 12th December, 2016 explaining in detail the basis of revenue of Rs 50.24 Crores recognized in the year under consideration, your good self has sought further explanation as to whether MYT petition filed with MERC submitted to your goodself vide above referred submission is an original MYT petition or revised MYT petition.
1.2 In this regard, we would like to clarify that the MYT petition furnished to your good-self vide Annexure-l of our reply dated 12th December, 2016 is an original version of MYT petition filed with MERC. Further, we would like to clarify that the data gaps pointed out by MERC in the original version of MYT petition were furnished through various submissions and hence, this was the only version of MYT petition submitted to MERC by the assessee company.
2.1 Further, on perusal of MYT petition submitted to MERC and orders of MERC dated 8th August, 2014 and 14th August, 2014, your good self has raised a query as to why income of the year under consideration should not be considered as Rs 61.60 Crores as claimed in the MYT petition filed with MERC as against income of Rs 50.24 Crores as recognized in the P&L account of the year under consideration.
2.2 At the outset, we wish to reiterate that MERC has vide order dated 8th August, 2014 approved Aggregate Revenue Requirement (ARR) claim of the assessee company at Rs 53.71 Crores for the F.Y.2013-14 as against Rs 61.10 Crores as claimed in the MYT petition filed by the assessee company. The copy of the said order of MERC is already placed on record. Also we would like to draw your good self's attention to page no 10 of the MERC's order dated 14th August, 2014 wherein the MERC has finally determined ARR of F.Y.2013-14 at Rs 53.71 Crores as against Rs 61.10 Crores as claimed in the MYT petition filed by the assessee company.
2.3 In view of above, we submit that the claim of ARR of Rs 61.10 Crores made in the MYT petition by the assessee company was restricted to Rs 53.71 Crores by the MERC vide final ARR determination order dated 14th August, 2014. Accordingly, we humbly submit that your good self s proposal to consider ARR of the year under consideration as Rs 61.10 Crores as against Rs 53.71 Crores as approved by the MERC is not tenable as it amounts to taxing income which the assessee company is not going to receive at all as per MERC order dated 14th August, 2014.ITA No.2142/Ahd/2017
ACIT vs. Maharashtra Eastern Grid Power Transmission Co.Ltd.
Asst.Year - 2014-15 -9- 2.4 Further, we wish to point out that in case your good self intends to add Rs 3.47 Crores (Rs 53.71 Crores- Rs 50.24 Crores) being difference of ARR as per MERC order and as recognized in the P&L Account to the total income of the assessee company of the year under consideration, it would be tax neutral and futile exercise as the assessee company has offered for tax Rs 3.47 Crores in the immediately succeeding assessment year i.e. A.Y.20I5-I6 in view of para 40 of the MERC order dated 14th August, 2014 and hence, while assessing income of the immediately succeeding year, the said income of Rs 3.47 Crores would be required to be reduced. The copy of invoices raised by the assessee company in compliance with order of MERC recognizing the revenue of Rs 53.71 Crores are already placed on record vide Annexure-4 of our submission dated 12th December, 2016. Also we request your good self not to disturb the accounting policy on revenue recognition followed by the assessee company as apart from it being tax/revenue neutral exercise it would lead to adjustment of income for tax purpose in subsequent years. Also it is worthwhile to note that the assessee company has been paying MAT year on year basis as its income under normal provisions of tax is eligible for tax holiday u/s 80-IA of the IT Act. Accordingly, we submit that such adjustment to taxable income under normal provisions would be tax neutral as the MAT liability of each year would not be affected."
3.6 The contention of the assessee is considered but not found to be acceptable. The assessee has shown unbilled revenue at Rs. 50.24 crores whereas it had applied for Net Aggregate Revenue of Rs. 61.60 crores before the MRKC for the F.Y. 2013-14. So the assessee should have shown the unbilled revenue at Rs, 61.60 crores during the F.Y. 2013-14 and on passing of order by the MRIX the assessee should have adjusted its revenue accordingly. Further, it is gathered from the page No. 62 & 63 of the order of the Maharashtra Electricity Regulator) Commission (MERC) dated 08.08.2014 that the commission has considered Aggregate Revenue Requirement of Rs. 53.71 crores in the case of the assessee as against the petition of Rs. 61.60 crores. The relevant portion of pages 62 & 63 of the said order is reproduced as under :
Sr. Particulars FY 2013-14 FY 20 14- 15 FY 2015- No. 16 1 Operation & Maintenance 4.71 51.48 99.20 Expenses (including lease rentals) ITA No.2142/Ahd/2017
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2 Depreciation Expenses 11.75 142.22 300.16 3 Interest on Long-term Loan 17.68 216.18 424.98 Capital 4 Interest on Working Capital and 0.98 11.51 23.98 on 5 Other Expenses 0.00 0.00 0.00 6 Income Tax 2.75 30.17 70.35 7 Contribution to contingency 5.49 6.76 14.33 reserves 8 Total Revenue Expenditure 43.36 458.32 933.00 9 Return on Equity Capital 10.36 113.75 265.29 10 Aggregate Revenue Requirement 53.71 572.07 1198.28 11 Less: Non Tariff Income 0.00 0.24 0.78 12 Net Aggregate Revenue 53.71 571.83 1197.50 37 From the above said order of the MERC it is clear that the commission considered the revenue of Rs. 53.71 crores and the assessee has shown revenue at Rs. 50.24 crores. Further, the assessee is maintaining its books of account on mercantile basis. As per mercantile system any amount due or accrued and deemed to accrued is to be offered to tax. On basis of mercantile system the assessee has offered revenue of Rs.50.24 crores in its profit & loss account. Hence, the assessee has suppressed its profit by Rs. 3.47 crores which the assessee should have shown in the return of income. Against the claim of Rs. 61.60 crores as the commission has considered the revenue at Rs. 53.71 crores only. Accordingly, the difference of Rs. 3.47 crores which has not been shown by the assessee is added to the total income of the assessee."
8. On the other hand, Ld.AR relied upon the order passed by the CIT(A) and reiterated the same arguments as were raised by him before the CIT(A) which are contained in para-2.2 of the order of the Ld.CIT(A) and the same is reproduced below:-
"2.2. Appellant's submission :-
The relevant extracts from the submission of the appellant is reproduced here under:-ITA No.2142/Ahd/2017
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"1. The only addition which is the subject matter of this appeal is a sum of Rs.3,47,00,000 added by the Assessing Officer on the ground of so-called suppression of revenue as per para-5 of the assessment order. The relevant facts leading to this addition are that the appellant-company is engaged in the business of establishing, commissioning, setting up, operating and maintaining electric-power transmission system/network/power systems/ generating stations in the State of Maharashtra. The tariff charged by the appellant-company for transmitting power through its transmission line is regulated by Maharashtra Electricity Regulatory Commission (MERC). During the year the appellant-company has shown a sum of Rs.50,24,00,000 as income by way of unbilled receivable under the head "other current assets".
As per the Regulations of MERC, the appellant-company was required to submit Multi Year Tariff (MYT) petition for the second control period being financial years 2013-14 to 2015-16. Accordingly, the appellant-company submitted MYT petition to MERC on 5th March, 2014. At page-88 of this petition the appellant-company worked out aggregate revenue requirement (ARR) claim for the year under appeal at a sum of Rs.61.60 crores. This was pending for final verification and approval of MERC and, therefore, while recognizing revenue in the books of account as per prevalent MYT Regulation the appellant-company excluded the sum of Rs.11.36 crores being contribution to contingency reserve from the total claim of Rs.61.60 crores with the result that, as mentioned above, revenue of Rs.50.24 only was recognized while filing the return of income and the same was included in the total income. Ultimately MERC issued order dated 8.8.2014 approving aggregate revenue requirement (ARR) claim of Rs.53.71 crores as against Rs.50.24 crores recognized by the appellant-company. The difference of Rs.3.47 crores was offered for taxation while filing the return of income with the subsequent Assessment Year 2015-16.
2. During the course of the assessment proceedings the Assessing Officer called upon the appellant-company to explain why the aforesaid difference of Rs.3.47 crores be not added during the present year. The appellant-company filed detailed replies dated 12.12.2016 and 15.12.2016 wherein the factual position was fully explained and it was submitted that the proposed addition should not be made on the following grounds:-
(i) Until the petition of the appellant-company is finally verified and approved by MERC the income does not accrue for the purposes of the Income-tax Act.ITA No.2142/Ahd/2017
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(ii) In any case, the proposed addition is not required as the same is revenue neutral for the reason that the said difference has already been added by the appellant-company while filing the return of income for the Assessment Year 2015-16 and thus there is no loss to the Revenue.
(iii) The appellant-company is having huge losses which is apparent from the returns of income filed and the assessments made and for this reason tax is charged under the provisions of MAT.
3. With regard to the relevant factual position pertaining to the addition made by the Assessing Officer vis-a-vis the legal merits of the appellant's claim, it would be appropriate to reproduce below the relevant parts of the appellant's submissions dated 12.12.2016 and 15.12.2016 filed before the Assessing Officer.
(1) Submissions dated 12.12.2016:
"In this regard, we wish to reiterate that the assessee company is engaged in the business of selling up, operation and maintenance of power transmission lines. In the year under consideration, the assessee company has earned income from transmitting power by operating and maintaining transmission lines in the state of Maharashtra. It is to be noted that the tariff charged by the assessee company for transmitting power through its transmission lines is regulated by Maharashtra Electricity Regulatory Commission (herein after referred to as "MERC"). As per regulation 16, 18 & Part G of Maharashtra Electricity Regulatory Commission (Multi Year Tariff) Regulation, 2011, the assessee company being transmission licensee was required to submit Multi Year Tariff (herein after referred to as "MYT") Petition for the Second Control period i.e. F. Y.2013-14 to F. Y.2015-16.
Accordingly, the assessee company submitted the MYT petition for the Second Control period i.e. F.Y.2013-14 to F.Y.2015-J6 to MERC on 5th March. 2014. i.e. before approval of the financial statements by the Board of Directors. The assessee company also submitted revised MYT petition along with annexures and data formats considering the data gaps pointed out by the MERC. Kindly find attached herewith the MYT petition submitted by the assessee company. (Annexure-1). On perusal of page no 88 of the MYT petition your good self would find that the assessee company had worked out Aggregate Revenue Requirement (ARR) claim for the year under consideration at Rs 61.60 Crores. However, while recognizing revenue in the ITA No.2142/Ahd/2017 ACIT vs. Maharashtra Eastern Grid Power Transmission Co.Ltd.
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books of account as per prevalent MYT regulation, the assessee company recognized revenue of Rs 50.24 Crores only as this being 1st year of revenue recognition subject to approval of MERC, it conservatively did not consider revenue contribution to Contingency Reserve of Rs 11.36 Crores. Thus recognized, net income of Rs 50.24 Crores (61.60 Crores- 11.36 Crores). This fact is evident on perusal of page no 88 MYT petition submitted vide Annexure-1 of this submission.
Pursuant to submission of MYT petition for the second control period i.e. F.Y.2013-14 to F.Y.2015-16 by the assessee company, MERC issued order dated 8th August, 2014 approving Aggregate Revenue Requirement (ARR) claim of Rs 53.71 Crores for the F.Y.2013-14 as against Rs 50.24 Crores recognized as revenue in the P&L account in the year under consideration. Kindly find attached herewith copy of order dated 8th August, 2014 of MERC. (Annexure-2).
It is worthwhile to note that post determination of ARR vide order dated 8th August, 2014, the MERC suo-motu made amendment to ARR of all transmission licensee and issued final order on 14th August, 2014, the copy of which is attached herewith vide Annexure-3. We would like to draw your good self's attention to page no 10 of the said order wherein the MERC has finally determined ARR of F.Y.2013-14 at Rs 53.71 Crores as against Rs 50.24 Crores recognized in the P&L account of the year under consideration.
In view of above, it is submitted that though the assessee company has recognized Rs 50.24 Crores as unbilled revenue in the P&L Account of the year under consideration in terms of MERC Regulations, its claim has been allowed by the MERC, an electricity regulator in the State of Maharashtra. Further, it is to be noted that as per para 40 of MERC's order dated 14th August, 2014, the ARR approved by MERC i.e. Rs 53.71 Crores can he collected by the assessee company by issuing monthly invoices on State Transmission Utility (STU) i.e. Maharashtra State Electricity Transmission Co Ltd (herein after referred to as "MSETCL").
In view of above, we submit that the assessee company has rightly recognized unbilled revenue of Rs 50.24 Crores being income from transmitting power through its transmission lines in terms of the prevalent MYT regulation which has been duly approved by MERC, an electricity regulator in the State of Maharashtra. We are submitting herewith invoices issued for the ARR approved for F.Y.2013-14 & F.Y.2014-15 by MERC for your good self's ready-reference. (Annexure-4).
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Accordingly, we submit that the unbilled revenue of Rs 50.24 Crores recognized in the year under consideration was billed by the assessee company to MSETCL as per the order of MERC, an electricity regulator in the State of Maharashtra. Hence, we submit that the assessee company has correctly recognized revenue of Rs 50.24 Crores in the year under consideration by following mercantile system of accounting and having regard to MERC MYT Regulation. Further, we wish to submit that the assessee company has been consistently following the above mentioned method of revenue recognition year on year basis. "
(emphasis supplied) (2) Submissions dated 15.12.2016:
"2.4 Further, we wish to point out that in case your good self intends to add Rs 3.47 Crores (Rs 53.71 Crores- Rs 50.24 Crores) being difference of ARR as per MERC order and as recognized in the P&L Account to the total income of the assessee company of the year under consideration, it would be tax neutral and futile exercise as the assessee company has offered for tax Rs 3.47 Crores in the immediately succeeding assessment year i.e. A.Y.2015-16 in view of para 40 of the MERC order dated 14th August, 2014 and hence, while assessing income of the immediately succeeding year, the said income of Rs.3.47 Crores would be required to be reduced. The copy of invoices raised by the assessee company in compliance with order of MGRC recognizing the revenue of Rs 53.71 Crores are already placed on record vide Annexure-4 of our submission dated 12th December, 2016. Also we request your good self not to disturb the accounting policy on revenue recognition followed by the assessee company as apart from it being tax/revenue neutral exercise it would lead to adjustment of income for tax purpose in subsequent years. Also it is worthwhile to note that the assessee company has been paving MAT year on year basis as its income under normal provisions of tax is eligible for tax holiday u/s 80-IA of the IT Act. Accordingly, we submit that such adjustment to taxable income under normal provisions would be tax neutral as the MAT liability of each year would not be affected."
(emphasis supplied)
4. From the factual position explained above in the letters filed by the appellant-company before the Assessing Officer, it may kindly be appreciated that the appellant-company had filed petition to MERC for the second control period for financial years 2013-14 to 2015-16 and as per page 88 of this petition, in respect of the financial year 2013-14 relevant to the assessment year under appeal, net aggregate revenue requirement was calculated at ITA No.2142/Ahd/2017 ACIT vs. Maharashtra Eastern Grid Power Transmission Co.Ltd.
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Rs.61.60 crores which included contribution to contingency reserve amounting to Rs. 11.36 crores (kindly refer to para 3.3 of the assessment order). As explained above, while recognizing revenue in respect of the present year the aforesaid contribution to contingency reserve was excluded from the total sum of Rs.61.60 crores with the result that net income of Rs.50.24 crores was recognized pending the final verification and approval from MERC. Eventually, MERC issued its order dated 8.8.2014 wherein the aggregate revenue requirement claim was finally determined at Rs.53.71 crores as against the revenue of Rs.50.24 crores recognized by the appellant- company for the present year. First of all, it is strongly contended that no definite income accrued to the appellant-company till an order is passed by the MERC on the petition filed by it and such order was passed in the month of August 2014 which is after the close of the accounting year for the Assessment Year under appeal. The revenue recognition estimated by the appellant-company at Rs.50.24 crores was nearer to the ultimate acceptance by MERC of a sum of Rs.53.71 crores. The difference of Rs.3.47 crores was added to the total income by the appellant-company while filing the return of income for the Assessment Year 2015-16. The aforesaid facts show that the event on the basis of which the income finally accrued to the appellant- company took place in the F.Y. 2014-15 relevant to the Assessment Year 2015-16 and thus the difference was rightly offered for tax by the appellant- company in the subsequent assessment year. As a matter of fact, insofar as the appellant-company is concerned, the right to receive the income did not accrue during the previous year relevant to the Assessment Year under appeal. The appellant-company could not have anticipated the order to be passed by MERC and, therefore, the amount representing contribution to contingency reserve was excluded from the revenue recognition. The legal position on this issue is absolutely clear. The scope of total income is defined u/s.5(1) of the I.T. Act, relevant part of which is reproduced below for ready reference:-
"5. (1) Subject to the provisions of this Act, the total income of any previous year of a person who is a resident includes all income from whatever source derived which--
(a) is received or is deemed to be received in India in such year by or on behalf of such person ; or accrues or arises or is deemed to accrue or arise to him in India during such year; or accrues or arises to him outside India during such year:
ITA No.2142/Ahd/2017ACIT vs. Maharashtra Eastern Grid Power Transmission Co.Ltd.
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Provided that, in the case of a person not ordinarily resident in India within the meaning of sub-section (6) of section 6, the income which accrues or arises to him outside India shall not be so included unless it is derived from a business controlled in or a profession set up in India."
5. From the above, it may kindly be seen that the total income which can be brought to the charge of tax under the Income-tax Act must have been either (a) received or (b) accrued. It has been held by various judicial forums that income accrues only when the right to receive such income materializes or created. Kind reference is invited to the following cases: -
(1) CIT Vs. P & C Constructions (P) Ltd., 318 ITR 113 (Mad.) For ready reference, the Head-note of this case is reproduced below:-
"The assessee entered into a contract according to which the assessee could not receive the retention money retained by the contractee for the purpose of the successful completion of the contract. The Assessing Officer passed an assessment order making additions with respect to the retention money and additional security deposit to the account of the assessee. The Commissioner (Appeals) deleted the addition made by the Assessing Officer. The Tribunal confirmed the order of the Commissioner (Appeals). On appeal:
Held, dismissing the appeal, that when the assessee had no right to receive the money by virtue of the contract between the parties and the assessee also had no right to enforce payment, the right to receive payment of the remaining 10 per cent, of the value of the job had not accrued. The amount of additional security deposit could be repaid by the concerned Department only after the total completion of the contract. Therefore, the Department could not include the amount for the assessment year when actually (his amount had not been paid to the assessee."
(emphasis supplied) (2) FGP vs. CIT, 326 ITR 444 (Bom.) The Headnote of this case is reproduced below for ready reference;-
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"The real income of the assessee can be assessed and the test before the income can be taxed is whether there is real accrual of income.
According to a royalty agreement entered into between the assessee- company and another company, U, certain amounts were due to the assessee-company from U. The assessee-company had not received any amount as the company U had denied that any amount was due and payable by it to the assessee-company and arbitration proceedings were pending. The Commissioner (Appeals) held that no real income had accrued in favour of the assessee in the assessment year. The Tribunal held that once the assessee adopted the mercantile system of accounting, the income of the assessee would be taxable in the assessment year despite the amount not being received in the assessment year. On appeal:
Held, allowing the appeal, that there was no real accrual of income. There was dispute between the parties which was pending in arbitration, during the assessment year. The income received by the assessee would be liable to be assessed only after the passing of an award."
(emphasis supplied) (3) CIT vs. Sriyansh Knitters P. Ltd., 336 ITR 235 (P&H) In this case question No.1 referred to the Hon'ble High Court was as under:-
"(i) Whether on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in law in holding that the duty drawback accrues in the year in which the rate is fixed by the competent authority, after verification of the claim of the assessee to be in order and the amount is quantified and not in the year of export even if the assessee keeps its accounts on the mercantile basis?"
The aforesaid question was answered by the Hon'ble High Court at page 236 of the Report in the following manner:-
"As regards question (i), the view taken by the Tribunal cannot be held to be erroneous. The Tribunal, after examining the scheme for export incentive, found that before quantification based on verification, no income could be held to have accrued to the assessee.ITA No.2142/Ahd/2017
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There is nothing to dispute this factual aspect. In such a situation, the Tribunal rightly held that no income accrued till the claim of the assessee was quantified and verified. We, thus, do not find it necessary to give direction to the Tribunal to refer the said question for opinion of this court."
(4) Amarshiv Construction P. Ltd. vs. DCIT, 367 ITR 659 (Guj.) The relevant parts of the Headnote are reproduced below for ready reference:-
"Mere receipt of income is not the sole test of chargeability. Receipt of income refers to the first occasion when the recipient gets the money under his own control. The words "accrue" and arises" do not mean actual receipt of profits or gains. Both these words are used in contradistinction to the word "receive" and include a right to receive. Thus, if an assessee acquires a right to receive the income, the income can be said to accrue to him though it may be received later on.
..... ....... ... ... .. .. .. .....
Held, that a perusal of the contracts showed that in so far as the assessee's right to receive the amount was concerned, there had been no change by virtue of the amendment in the general conditions contained in the contract. Both before or after amendment, the right to receive the amount was subject to the vital conditions of recoveries and adjustments against the dues found due to S, completion of the defects liability period and certification by the engineer-in-charge that no liability attached to the contractor. The character of the amount did not change. It still retained the character of retention money. Its temporary release to the assessee on furnishing the bank guarantee could not be equated with the right to receive such amount and resultantly with accrual of income because the dominant control over the amount still remained with S. The amount retained did not accrue to the assessee."
(emphasis supplied)
6. In the light of the judgements cited above vis-a-vis the facts of the appellant's case it is submitted that the income did not accrue during the present year and, therefore, the Assessing Officer was wholly unjustified in making addition of Rs.3.47 crores.
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7. It may also be appreciated that the entire exercise of making this addition is totally futile for the reason that the same is tax neutral. Even after making the addition the assessed total loss stands at Rs. 122,95,81,680. For the subsequent assessment year the difference of Rs.3.47 crores has already been added by the appellant-company itself to the total income while filing the return of income. For the Assessment Year 2015-16 also there is no positive income and tax impact is Nil.
8. It may kindly be further appreciated that since the total income is huge loss, tax has been charged under the MAT provisions of section 115JB and for that reason also the addition made by the Assessing Officer during the present assessment year is an exercise in futility.
9. It is, therefore, reiterated that the relevant income did not accrue to the appellant-company during the present year and accordingly it is prayed that the impugned addition of Rs.3.47 crores may kindly be deleted."
9. We have heard the Learned Representatives for both the parties. We have also perused the material placed on record, judgement cited as well as the orders passed by the revenue authorities. Before we decide this issue on merits, it is necessary to analysis and evaluate the orders passed by the Ld.CIT(A) while dealing with this ground. The Ld.CIT(A) has dealt with this issue in question in para-2 of his order, however, the operative portion contained in para-2.3 of his order is reproduced hereunder:
"2.3. I have carefully considered the facts of the case, assessment order and submission of the appellant. The AO has made addition of Rs.3,47,00,000/- on the ground that appellant has suppressed revenue from transmission lines. The brief facts of the case are that appellant is engaged in the business of setting up, operation and maintenance of power transmission lines and during the year under consideration, it has earned income from transmission lines in State of Maharashtra. It is observed that tariff charged by appellant company for transmitting power through its transmission lines is regulated by Maharashtra Electricity Regulatory Commission (MERC) and as per their regulations, Appellant company is required to file Multi-Year Tariff ITA No.2142/Ahd/2017 ACIT vs. Maharashtra Eastern Grid Power Transmission Co.Ltd.
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(MYT) Plan with such Authority. The AO has referred to MYT Petition for Second Control Period i.e. Financial Year 2013-14 to 2015-16 filed with MERC on 5th Marchd, 2014 wherein at page No.88, appellant company had worked out aggregate revenue requirement (ARR) claim for current year at Rs.61.60 crores whereas appellant has shown income of Rs.50.24 crores in profit & loss account. The appellant's explanation to AO is reproduced at page - 4 to 7 of assessment order wherein appellant has mainly contended that while recognising the income in current year, it has not considered revenue contribution to Contingency Reserve for Rs.11.36 crores on the ground that final verification and approval from MERC was pending. The appellant has also submitted before AO that MERC has finally issued order on 8th August, 29014 wherein aggregate revenue requirement was determined at Rs.53.71 crores and, as such order was received in subsequent A.Y., appellant has shown differential income of Rs.3.47 crores in A.Y. 2014-15. However, AO has observed that appellant is maintaining books of account on mercantile basis and as MERC has issued final order considering revenue at Rs.53.71 crores as against revenue of Rs.50.24 crores shown by appellant in current year, differential amount of Rs.3.47 crore is suppressed profit of appellant and same is added to the total income."
10. After having gone through the orders of authorities below and after hearing the parties at length, we find that initially the addition of Rs.3,47,00,000/- were made by the Assessing Officer solely on the ground that assessee has suppressed revenue from transmission lines. Since the assessee-company was engaged in the business of setting up, operation and maintenance of power transmission lines and in the year under consideration, the assessee had earned income from transmission lines in the State of Maharashtra. The tariff charged by the assessee-company for transmitting power through its transmission lines is regulated by Maharashtra Electricity Regulatory Commission (MERC). As per the Regulations of MERC, the assessee-company was required to file Multi Year Tariff (MYT) Plan with such authorities. The assessee-company while filing their petition before MERC ITA No.2142/Ahd/2017 ACIT vs. Maharashtra Eastern Grid Power Transmission Co.Ltd.
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had filed for the Financial Years 2013-14 to 2015-16, wherein assessee- company had worked out aggregate revenue requirement (ARR) for the current year at Rs.61.60 crores but has shown income of Rs.50.24 crores in the Profit & Loss Account. The assessee had clearly filed the explanation before the Assessing Officer which is contained at page Nos.4 to 7 of the assessment order, wherein it has specifically been mentioned that while recognising the income in the current year, the assessee had not considered revenue contribution to contingency reserve for Rs.11.36 crores on the ground that final verification and approval from MERC was pending. As pre records, the MERC had finally issued order on 08/08/2014, wherein aggregate revenue requirement was determined at Rs.53.71 crores and, since such order was received in the subsequent assessment year, therefore assessee has shown differential income of Rs.3.47 crores in AY 2014-15. Ignoring the above facts, Assessing Officer has observed that assessee is maintaining books of account on mercantile basis and since MERC has issued final order considering revenue at Rs.53.71 crores as against revenue of Rs.50.24 shown by the assessee in the current year, therefore differential amount of Rs.3.47 crores was considered by the Assessing Officer as suppressed profit and thus was added to the total income of the assessee.
11. We have meticulously considered the submissions of both the parties and the explanation of the assessee that there is no suppressed profit of Rs.3.47 crores as the assessee has recognised revenue of Rs.50.24 crores in current year subject to approval of MERC and while recognising such income, the assessee had not considered revenue contribution to contingency reserve ITA No.2142/Ahd/2017 ACIT vs. Maharashtra Eastern Grid Power Transmission Co.Ltd.
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for Rs.11.36 crores. As per assessee, until petition is finally verified and approved by MERC, income does not accrue to the assessee. We have also observed that on 08/08/2014, the claim of the assessee was approved by MERC for Rs.53.71 crores for the current assessment year as against Rs.50.24 crores recognised by the assessee in P&L A/c. The MERC sumo moto made amendment to ARR of all transmission licensees and issued final order on 14/08/2014 wherein final income was determined at Rs.53.71 corres.
11.1. After having gone through the details and evidences placed on record, we find that MERC has issued order on 08/08/2014 for the current assessment year which goes to prove that the contention of the assessee that there was no certainty regarding approval of entire claim and even right to receive such income was not materials in the current assessment year. Thereafter, even MERC has made suo moto amendment of all transmission licencees and issued final order on 14/08/2014, wherein ARR of assessee was finally determined at Rs.53.71 crores for AY 2013-14, i.e. the year under consideration. Thus, we observe that recognised revenue of 50.24 crores in current year as against cost of Rs.53.71 crores approved by MERC and in this way, there was no income accrued to the assessee-company till the order was specifically passed by MERC petition filed by assessee. The order of MERC passed for the year under consideration, therefore the claim of ARR made by assessee was finally accepted by MERC for subsequent assessment year as there was no reasonable certainty for receipt of income as per ARR submitted by the assessee. Therefore, in such circumstances, the Ld.CIT(A) ITA No.2142/Ahd/2017 ACIT vs. Maharashtra Eastern Grid Power Transmission Co.Ltd.
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has rightly held the said additions by holding that in subsequent AY 2015-16 (copy of the assessment order has already been placed on record), the assessee has shown loss of Rs.242.68 crores as per normal provisions of the Act and book profit u/s.11JB of the Act at Rs.204.11crores. The Assessing Officer has not made any adjustment of Rs.3.47 corres while computing book profit in the case of assessee which also supports the contention of assessee that entire exercise of taxing income of Rs.3.47 cores in current year as against income shown by assessee in the subsequent assessment year is tax neutral. While reaching to the said conclusion, we also find support from the decision of Hon'ble Supreme Court in the case of CIT vs. Excel Industries Limited reported at 358 ITR 295, wherein the Hon'ble Supreme Court had held "the real question concerning us is the year in which the assessee is required to pay tax. There is no dispute that in the subsequent accounting year, the assessee did make imports and did derive benefits under the advance licence and the duty entitlement pass book and paid tax thereon. Therefore, it is not as if the Revenue has been deprived of any tax. We are told that the rate of tax remained the same in the present assessment year as well as in the subsequent assessment year. Therefore, the dispute raised by the Revenue is entirely academic or at best may have a minor tax effect. There was, therefore, no need for the Revenue to continue with this litigation when it was quite clear that not only was it fruitless (on merits) but also that it may not have added anything much to the public coffers."
11.2. Even before us, no new facts or circumstances have been placed on record in order to controvert the findings of the Ld.CIT(A) while deciding the ITA No.2142/Ahd/2017 ACIT vs. Maharashtra Eastern Grid Power Transmission Co.Ltd.
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said case. Therefore, we find no reason to interfere into or to deviate from such findings of the authorities below and we uphold the findings of the Ld.CIT(A) and reject the ground raised by the Revenue.
13. In the result, Revenue's appeal stands dismissed.
Order pronounced in the Court on 13-03-2020 at Ahmedabad
Sd/- Sd/-
( AMARJIT SINGH) ( SANDEEP GOSAIN)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Ahmedabad; Dated 13/ 03 /2020
ट .सी.नायर, व.$न.स./T.C. NAIR, Sr. PS
आदे श क त!ल"प अ#े"षत/Copy of the Order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent.
3. संब&ं धत आयकर आय(
ु त / Concerned CIT
4. आयकर आय(
ु त(अपील) / The CIT(A)-2, Ahmedabad
5. )वभागीय $त$न&ध, आयकर अपील य अ&धकरण, अहमदाबाद / DR, ITAT, Ahmedabad
6. गाड/ फाईल / Guard file.
आदे शानस ु ार/ BY ORDER, स या)पत $त //True Copy// उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील य अ धकरण, अहमदाबाद / ITAT, Ahmedabad
1. Date of dictation ..11.3.20 (dictation-pad 20- pages attached at the end of this File)
2. Date on which the typed draft is placed before the Dictating Member ..12.3.20
3. Other Member...
4. Date on which the approved draft comes to the Sr.P.S./P.S.................
5. Date on which the fair order is placed before the Dictating Member for pronouncement......
6. Date on which the fair order comes back to the Sr.P.S./P.S.......13.3.20
7. Date on which the file goes to the Bench Clerk.....................13.3.20
8. Date on which the file goes to the Head Clerk..........................................
9. The date on which the file goes to the Assistant Registrar for signature on the order..........................
10. Date of Despatch of the Order..................