Income Tax Appellate Tribunal - Jaipur
Rajasthan Rajua Vidyut Utpadan Nigam ... vs Acit, Jaipur on 15 December, 2016
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IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR
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BEFORE: SHRI KUL BHARAT, JM & SHRI VIKRAM SINGH YADAV, AM
vk;dj vihy la-@ ITA No. 732/JP/16
fu/kZkj.k o"kZ@Assessment Year : 2010-11
Rajasthan Rajya Vidyut cuke The ACIT, Circle-6,
Utpadan Nigam Ltd., Vs. Jaipur
Vidhut Bhawan, Janpath,
Jyoti Nagar, Jaipur
LFkk;h ys[kk la-@thvkbZvkj la-@PAN No. AABCR 7436 B
vihykFkhZ@Appellant izR;FkhZ@Respondent
fu/kZkfjrh dh vksj ls@ Assessee by : Shri P.C. Parwal (CA)
jktLo dh vksj ls@ Revenue by : Shri D.S. Kothari (CIT)
lquokbZ dh rkjh[k@ Date of Hearing : 29.11.2016
?kks"k.kk dh rkjh[k@ Date of Pronouncement : 15/12/2016.
vkns'k@ ORDER
PER SHRI VIKRAM SINGH YADAV, A.M.
This is an appeal filed by the assessee against the order of ld. CIT(A)-2, Jaipur dated 20.05.2016 wherein the assessee has taken the following sole ground of appeal:
"The Ld. CIT(A) has erred on facts and in law in upholding the action of AO in not allowing the claim of write off of inter unit balance of Rs.63,06,01,382/-."
2. The brief facts of the case are that the assessee company was incorporated as one of the successor company of Rajasthan State Electricity Board (RSEB) in view of the Rajasthan Power Sector Reforms Act, 1999 to carry on the business of generation of electricity. At the time of unbundling of RSEB under the transfer scheme, inter unit balances of 78.83 crores were transferred to the assessee company. The ITA No. 732/JP/16 Raj. Rajya Vidyut Utpadan Nigam Ltd. vs. ACIT Circle-6, Jaipur board of directors of the company in its meeting held on 20.10.2008 approved to write off the inter unit balances of Rs. 78.83 crores transferred by the State Government under the transfer scheme in five equal annual instalments beginning from A.Y. 2009-10. Accordingly, the first instalment of Rs. 15.76 crores was written off in A.Y. 2009-20 leaving the remaining balance of Rs.63.07 crores to be written off in the next four years. However, the auditor of the company in its audit report dated 29.12.2009 for A.Y. 2009-10 opined that the inter unit balances of Rs.78,83 crores should have been written off in toto in A.Y. 2009-10 itself and not in five instalments being not reconciled since long. The assessee thus, in the year under consideration, has written off the remaining balance of Rs. 63.07 crores completely and the said treatment has been disclosed by way of para No.22 of the notes on accounts to the audited financial statements reproduced as under:
"In absence of tangible details of inter unit balances of Rs. 78.83 crores transferred by the State Government under the transfer scheme, the Board of Directors of the company in its 137th meeting held on dated 13.05.2008 has approved to write off these balances in five equal annual tranches beginning from 2008-09. Accordingly the second instalment of Rs. 15.76 crores was due for write off in the current year but due to continuous observation of the auditors regarding 100% write off, the matter was examined in the light of AS-I, 9 and 29 and as concluded the remaining balance of Rs. 63.07 crores has been write off complete in compliance to the applicable Accounting Standards in the current Year".
2.1 The AO on perusal of the aforesaid para No.22 of the notes on accounts required the assessee to show cause as to why the inter unit balance of Rs.63.07 crores written off should not be disallowed. The assessee in response to same vide letter dated 17.12.2012 submitted that these are transactions between one unit to another. Due to non receipt of advice, certain transactions between one unit to another remains unresponded in another unit. Normally, these transactions are revenue in nature and all these entries are pending in the reconciliation statement. Since these entries are very old and the auditors are qualifying the audit report, thus the management of the company has decided to write off these entries. These entries are mainly on account of revenue transactions and allowable under section 37(1) of the Act.
2 ITA No. 732/JP/16Raj. Rajya Vidyut Utpadan Nigam Ltd. vs. ACIT Circle-6, Jaipur 2.2 The reply of the assesssee was not found acceptable to the AO. The AO stated that the transactions are unverifiable and the assessee itself has accepted that advice of these transactions was not received. The AO further held that it is not a question of the nature of the transactions but it is a question of verifiability of the transactions. In absence of verifiability of these transactions, these are not admissible expenditure either under section 30 to 36 or u/s 37(1) of the Act. Accordingly, the AO made the disallowance of Rs. 63,06,01,3832/-.
2.3 Being aggrieved, the assessee company carried the matter in appeal before the ld. CIT(A) who has confirmed the disallowance and his relevant findings are contained at para 2.3 of its order which are reproduced as under:
"I have perused the facts of the case, the assessment order and the submissions of the appellant. In the present proceedings also, the authorised representative has reiterated the same submissions as made during the assessment proceedings. No details or evidences of the expenditure incurred have been provided. The authorised representative is himself admitting that since the correct head of expense cannot be identified, they are being charged as inter unit balances. In the absence of any details of these expenditure, the AO's stand of not allowing the write off the such expenditure is upheld. The ground of appeal is dismissed."
2.4 At the outset the ld. AR of the assessee submitted that the first instalment of Rs. 15.76 crores of inter unit balances was written off in A.Y. 2009-10. In the assessment framed u/s 143(3) for that year, the AO has not made any disallowance in this regard. Thus, when the facts are same, the approach should be consistent. For this, reliance is placed in case of Supreme Court decision in case of Radha Swami Satsang vs. CIT 193 ITR 0321 wherein vide para 9 of the order it was held as under:
"We are aware of the fact that, strictly speaking, res judicata does not apply to IT proceedings. Again each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year.3 ITA No. 732/JP/16
Raj. Rajya Vidyut Utpadan Nigam Ltd. vs. ACIT Circle-6, Jaipur On these reasoning, in the absence of any material change justifying the Revenue to take a different view of the matter - and, if there was no change, it was in support of the assessee - we do not think the question should have been reopened and contrary to what had been decided by the CIT in the earlier proceedings, a different and contradictory stand should have been taken."
Therefore, once in the preceding year, the written off of inter unit balances has been accepted, following the principal of consistency, the disallowance of Rs, 63,06,01,382/- sustained by the ld. CIT(A) is unjustified and uncalled for.
The ld AR further submitted that the auditor in its audit report for A.Y. 2009-10 has qualified the accounts of the assessee stating that due to not writing off these balances in its entirety which is outstanding since long, the loss is understated by Rs.63.06 crores. Thus when auditor has held that because of not writing off these outstanding, the loss is understated, writing off this amount in the year under consideration is allowable as business loss irrespective of whether the assessee could reconcile these amounts or not.
It was further submitted that as required by the Hon'ble Bench, we are enclosing herewith the Balance Sheet of the assessee as on 31.03.2001 with the corresponding figure of 19.07.2000 which is allocated by the State Government on unbundling of Rajasthan Electricity Board under the Rajasthan Power sector Reform Act, 1999. From Schedule 13 to the Balance sheet, it can be noted that an amount of Rs. 75.95 crores was allocated by the State Government on 19.07.2000 on account of inter unit accounts which as on 31.03.2001 stood at Rs. 79.50 crores. The balance sheet and the details of the inter unit account is enclosed. Thereafter this amount was reduced to Rs. 78.83 crores of which Rs. 15.76 crores was written off in A.Y. 2009-10 and the remaining amount of Rs. 63.06 crores was written off in A.Y. 2010-11.
It was further submitted that the amount of inter unit balance of Rs. 78.83 crores which is written off by the assessee has been considered by the Rajasthan Electricity Regulatory Commission as other expenses for fixing the tariff of the electricity generated by the assessee. Thus, the amount so written off has been recovered through the tariff rate of the electricity generated by the assessee. Accordingly, when revenue from 4 ITA No. 732/JP/16 Raj. Rajya Vidyut Utpadan Nigam Ltd. vs. ACIT Circle-6, Jaipur the sale of power which includes the expenses so written off has been considered in the income, the inter unit balance written of needs to be allowed as deduction.
The ld AR further submitted that where the credit balances appearing on the liability side are written off, the same are brought to tax under section 41(1) of the Act. On the same analogy, where the debit balances appearing on the asset side are written off, the same should be allowed as an allowable loss/business expenditure.
2.5 The ld CIT DR vehemently argued the matter and supported the order of the lower authorities. He drawn our reference to the auditor's report where at para 13: Inter unit accounts, the auditors have stated as under:
There exists a balance of Rs. 65.78 crores under the head inter unit accounts as on 31.03.2009. This includes amount of Rs.63.06 crores being remaining balance transferred by State Govt. under transfer scheme and an amount of Rs. 2.72 crores is still unreconciled/ unadjusted. In absence of details of inter unit accounts at Head Office and at various other units, the amount by which the profit/loss/assets/liabilities are over/under stated cannot be quantified. The opening balance (as on 01.04.2008) of the inter unit balance transferred by State Govt. under transfer scheme was Rs.78.63 crores (pls refer point No. 24 of notes to account) & as per the decision of BOD in its 140th meeting this balance was to be written of in five equal instalments i.e. 15.76 crores per year. In our opinion since these balance were not reconciled since long these were to be written in the current year itself in toto & not in five instalments. Hence the loss is understated by Rs. 63.06 crores and other current assets are overstated by the same amount.
Drawing reference to above observations of the auditor, the ld CIT DR submitted that even the auditors are not clear as to the exact nature of these inter-unit transactions when they refer to these inter-units accounts as relating to profit/loss/assets/liabilities. Given that the nature of loss whether revenue or capital or both cannot be determined. Further, regarding the contention of the ld AR where he drawn an analogy from the write off of the credit balances and taxability under section 41(1) of the Act, ld CIT DR submitted that it is not in all cases where the credit balances are written off, provisions of section 41 can be 5 ITA No. 732/JP/16 Raj. Rajya Vidyut Utpadan Nigam Ltd. vs. ACIT Circle-6, Jaipur invoked. It is only in cases of trading liabilities where an allowance or deduction has been claimed earlier, that the provisions of section 41(1) can be invoked when the same are written off or no more payable. Similarly, on the debit balances, where the same have been offered to tax earlier, the same can be allowed as an allowable expenditure and not otherwise. Further, regarding the contention of the ld AR that these write offs have been considered by the RERC for fixing the tariff of the electricity generated by the assessee and has been recovered through the tariff rate of the electricity generated by the assessee, it was submitted that methodology of tariff fixation by RERC which can take into account both revenue and capital costs cannot be made the basis for allowance under the provisions of Income tax Act as the latter contains explicit provisions for allowing revenue and capital expenditure.
2.6 We have heard the rival contentions and perused the material available on record. It is not in dispute that there were certain inter-unit balances of 78.83 crores, which at the time of unbundling of RSEB under the transfer scheme, were transferred to the assessee company. It is also not in dispute that the management of the company has approved the write off the inter unit balances of Rs. 78.83 crores in five equal annual instalments. During the year under consideration, based on the auditor's observation that since these inter-unit balances were not reconciled since long, these balances were written off completely instead of write off in five equal installments, resulting in write off of an amount of Rs.63.07 crores during the year under consideration.
2.7 The question that the authorities below have raised relates to non-verifiability of the transactions which has resulted in write off of Rs 63.07 crores during the year under consideration. In this regard, the ld AR has furnished copy of the Balance Sheet of the assessee as on 31.03.2001 with the corresponding figures of 19.07.2000 when an amount of Rs. 75.95 crores was allocated by the State Government on account of inter-unit balances. Further, Schedule 13 to the Balance sheet and enclosed details contains inter-unit balances relating to Fuel, material, capital expenditure& fixed assets, remittance to H.O., funds transferred from H.O, Personnel and other transfer/adjustments. The ld AR has submitted that an amount of Rs. 75.95 crores was allocated by the State Government on 19.07.2000 on account of inter unit accounts which as on 31.03.2001 stood at Rs. 79.50 crores. Thereafter this amount was reduced to Rs. 78.83 crores of which Rs. 15.76 crores was 6 ITA No. 732/JP/16 Raj. Rajya Vidyut Utpadan Nigam Ltd. vs. ACIT Circle-6, Jaipur written off in A.Y. 2009-10 and the remaining amount of Rs. 63.06 crores was written off in A.Y. 2010-11. Given that the assessee has furnished the above details of the various inter-unit transactions which are germane to determination of issue under consideration, the same would require necessary verification by the AO.
2.8 Now coming to the contentions of the ld AR. The ld AR has submitted that the first instalment of Rs. 15.76 crores of inter unit balances which was written off in A.Y. 2009-10 has been allowed and the AO has not made any disallowance in this regard. Following the principle of consistency as held by Hon'ble Supreme Court decision in case of Radha Swami Satsang (Supra), when the facts are same, the approach of the AO should be consistent, there should not be any disallowance in the year under consideration. We have given a careful consideration to the ld AR's contention. For the principle of consistency to be followed, what is to be seen as held by the Hon'ble Supreme Court is that where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year. In other words, what needs to be seen is that the AO has examined and determined an issue for a particular year and the same issue is permeating through the year under consideration.
In the instant case, there is nothing on record to suggest that the issue under consideration relating to write off of inter-unit balances has been examined in the first year i.e, AY 2009-10. The assessment having been completed under section 143(3) is not a conclusive test to determine whether the said issue has been examined by the AO. Therefore, we are unable to accede to the said contentions of the ld AR and the decision of the Hon'ble Supreme Court doesn't support the case of the appellant.
Now, coming to the contention of the ld AR that these write offs of inter-unit balances have been considered by the RERC for fixing the tariff of the electricity generated by the assessee and has been recovered through the tariff rate of the electricity generated by the assessee. In this regard, we agree with the contention of the ld CIT DR that the methodology of tariff fixation adopted by RERC cannot be made the sole basis for allowance of an expenditure, the nature and verifiability of which is in question at first place. In our view, these write offs been considered by the RERC for tariff fixation at best support the proposition 7 ITA No. 732/JP/16 Raj. Rajya Vidyut Utpadan Nigam Ltd. vs. ACIT Circle-6, Jaipur that the expenditure has been incurred or relates to or incidental to the business of the assessee. However, for allowability of the same expenditure for tax purposes, the AO is well within his powers to determine the nature of such expenditure - whether capital or revenue in nature and seek necessary supporting documentation to verify the same.
In light of above discussions, we deem it appropriate to set aside the matter to the file of the AO to examine it a fresh taking into consideration the details of inter-unit balances furnished (referred supra), after providing reasonable opportunity to the assessee.
In the result the appeal filed by the assessee is allowed for statistical purposes.
Order pronounced in the open court on 15/12/2016.
Sd/- Sd/-
(KUL BHARAT) (VIKRAM SINGH YADAV)
U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member
Jaipur
Dated:- 15/12/2016
Pillai
vkns'k dh izfrfyfi vxzfs "kr@Copy of the order forwarded to:
1. vihykFkhZ@The Appellant- Rajasthan Rajya Vidhyut Utpadan Nigam Ltd.
2. izR;FkhZ@ The Respondent- The ACIT, Circle-6, Jaipur
3. vk;dj vk;qDr@ CIT -II, Jaipur
4. vk;dj vk;qDr¼vihy½@The CIT(A)-II, Jaipur
5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur
6. xkMZ QkbZy@ Guard File (ITA No.732/JP/2016) vkns'kkuqlkj@ By order, gk;d iathdkj@ Assistant. Registrar.8 ITA No. 732/JP/16
Raj. Rajya Vidyut Utpadan Nigam Ltd. vs. ACIT Circle-6, Jaipur 9