Income Tax Appellate Tribunal - Delhi
Dakshin Haryana Bijli Vitran Nigam ... vs Department Of Income Tax on 6 November, 2009
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH "B" NEW DELHI
BEFORE SHRI R.P. TOLANI AND SHRI K.D. RANJAN
ITA No. 250/Del/2010
Asstt. Yr: 2006-07
DCIT, Hisar Vs. Dakshin Haryana Bijli Vitran Nigam Ltd.
Ltd., Hisar.
PAN/GIR NO. AABCD0033C
(Appellant ) ( Respondent )
Department by : Shri Krishna CIT DR
Assessee by : Dr. Rakesh Gupta Adv.
ORDER
PER R.P. TOLANI, J.M :
This is Revenue's appeal against CIT(A)'s order dated 6-11-2009 relating to A.Y. 2006-07. Sole ground raised is as under:
"On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the addition of Rs. 2,25,18,23,535/- made by the AO on account of non-realization of provision of surcharge."
2. Brief facts, are that the assessee is a Haryana Govt. undertaking incorporated on 15-3-1999; the objects, inter alia, include distribution of electricity in ten districts of Southern Haryana. Assessee maintains a/c books on mercantile system. In the bills assessee has a practice of levy of sur- charge for delayed payment of electricity bills by consumers after the due date. Assessee's method of accounting, raising of electricity bills remain same as in earlier years.
ITA no. 250/Del/10 2 DCIT Vs. Dakshin Haryana Bijli Vitran Nigam 2.1. As a practice, regularly followed, a sum of Rs. 13.86 crores actually realized as surcharge by the assessee has been offered for assessment as against the surcharge raised amounting to Rs.239.76 Crores (transferred under GH 62.240 to 270 in Schedule 19 as Surcharge). Further, assessee waived a sum of Rs.0.72 Crores out of the bills and the balance amount of Rs.225.18 Crores has been transferred to Account Head "GH 23.934"called as "for Surcharge not realized". The account statements contain Schedule-30 which is captioned in notes in accounts. Under Serial No.20 therein, it is stated that since this amount has not been charged to the Profit & loss Account for the year under consideration, therefore, it is not added to the taxable income while computing tax liability for the subject year. 2.2. The Assessing Officer during the course of the assessment proceedings made various inquiries on this issue, to which assessee replied that accounting was done on realization/collection basis as per the prudential norms since last two years. Accordingly, Surcharge collected at Rs.36.86 Crores during the Financial Year 2005-06 has been reported as income and one as raised through bills at Rs.239.76 Crores (gross) has been retained in the books in the Balance Sheet. There was no change in method of accounting and this practice was regularly followed since A.Y. 2004-05. AO, however, asked the appellant to explain why income from Surcharge of Rs.239.76 Crores should not be taken as income of the assessee company since it is following the Mercantile System of Accounting, as mentioned in ITA no. 250/Del/10 3 DCIT Vs. Dakshin Haryana Bijli Vitran Nigam 7th Annual Report and the notes thereto.
2.3. Assessee submitted that Income-tax is a levy on real income and in case real income does not result, there cannot be a tax even though entries in the books may suggest a hypothetical income. Where no income can be said to have resulted, an entry simpliciter in the books of accounts cannot make the income taxable. Reliance was placed on Apex court decision in CIT Vs. Shoorji Vallabh Ds & Co. 46 ITR 144 (SC) and Delhi High Court decision in CIT v. Modi Rubber Ltd. 230 ITR 817.
2.4. It was contended that even interest on sticky loans though provided for in the books of the bank were still not taxable to income tax in terms of the Board circular No.F.201l21184TTA dated 9th October, 1984 and the Apex Court decision in 237 ITR 889 in the case of UCO Bank v. CIT. Further reliance was placed on the case of Godhra Electricity company v. CIT , decided by Hon'ble Supreme Court in 225 ITR 746, where the enhanced tariff was disputed and the question of recognizing income on accrual arose. It was held that the increased tariff having been stayed only the real income was exigible to tax. Assessee further relied on the decision of the Apex Court in Poona Electricity Supply Co. Ltd. v. CIT 57 ITR 521 for the proposition that rebate to customers could not be considered as part ITA no. 250/Del/10 4 DCIT Vs. Dakshin Haryana Bijli Vitran Nigam of taxable income.
2.5. The AO rejected all these contentions and observed that under the Mercantile System of Accounting where the right to receive money matured, the income embedded in the receipt accrued and was taxable even though it may not be realized. According to the AO as soon as Surcharge is levied in bills for delayed payment, the assessee is vested with the right to receive money which was taxable even though not realized from the consumer. The AO also relied upon the ratio of decisions in the cases of CIT v. Govind Prasad (1988) 177 ITR (All);CIT v. Bharat Petroleum Corpn. Ltd. (1993) 202 ITR 492 (Cal.); Morvi Industries Ltd. Vs. CIT (1971) 82 ITR 835 (SC); Cag IT v. Raj Rajeshwari v. Nari Kelly Estate (1993) 199 ITR 383; State of Kerala Vs. B. Tea Products Co. Ltd. 59 ITR 25 (SC);
2.6. The AO further held that the Delhi High Court decision in CIT v. Modi Rubber Limited, 230 ITR 817 was not applicable to the facts of this case as 'Surcharge' was leviable as per rules and there was no option to consumers for acceptance of terms of supply. The decision of the Apex Court in Godhra Electricity Company v. CIT (supra) was also held to be not applicable because in assessee's case neither there were suits filed nor there any decrees. AO distinguished the decision in Poona Electric Supply ITA no. 250/Del/10 5 DCIT Vs. Dakshin Haryana Bijli Vitran Nigam Company v. CIT, 57 ITR 521 SC by stating that no rebate on account of the portion excess over clear profits has been provided to the consumers by the .assessee company and so the decision was not applicable. The alternative plea that if the entire surcharge were to be reckoned as income, then corresponding rebate U/S 36(1)(vii) be also allowed simultaneously, did not appeal to the AO on the ground that the stipulations u/s 36(2) of the Act were not fulfilled. The right to make a claim was also rejected by the AO on the ground that such could be done only through a revised return. After reiterating that the assessee was keeping its accounts on mercantile accounting basis, the AO brought the entire provision for surcharge though not actually realized to tax.
2.7. Aggrieved, assessee preferred first appeal, where the additions have been deleted by CIT(A).
2.8. Aggrieved, revenue is before us.
3. Learned DR supported the order of AO and contends that this is settled principle of law that principles of res-judicata are not applicable to income-tax proceedings. In case AO inferred that the assessee is following wrong accounting practice, then he had a right to look into the matter and ask the assessee to correctly follow the same. While doing so, AO has to comply the provisions of natural justice by giving the assessee an adequate ITA no. 250/Del/10 6 DCIT Vs. Dakshin Haryana Bijli Vitran Nigam opportunity of being heard, which is duly complied. AO was of the view that though the assessee had adopted mercantile system of accounting, the same was not properly followed as accrued receipts were not considered. In respect of sur-charge i.e. delayed payment of electricity charge, though the same was printed on the bill, it was not being credited to electricity receipts on mercantile/ accrued basis. The practice of crediting on realization of sur- charge amount in the taxable income was contrary to the accounting policy adopted by assessee. Therefore, AO was justified in raising this issue, although in earlier years the assessee's method of accounting was accepted. 3.1. It is pleaded that the accounting policy adopted by the assessee cannot over-ride the specific law. Reliance is placed on the decision of Hon'ble Supreme Court in the case of Tuticorin Alkali Chemicals Vs. CIT 227 ITR 127 for the proposition that when the question is whether a receipt of money is taxable or not or whether certain deductions from that receipts are permissible in law or not, the question has to be decided according to the principles of law and not in accordance with accountancy practice, which cannot over-ride sec. 56 or any other provision of the Act. 3.2. Learned DR thus contends that though assessee had changed this method since A.Y. 2004-05, there was nothing wrong in AO's questioning ITA no. 250/Del/10 7 DCIT Vs. Dakshin Haryana Bijli Vitran Nigam the term of sur-charge in the manner adopted by assessee and principle of res-judicata will not apply to this addition.
3.3. Coming to the merits of the addition, learned DR contends that it has not been disputed that the assessee has adopted mercantile system of accounting, which implies recognition of revenue on the basis of accrual of the receipt. In this case, the sur-charge is levied as per the electricity rules. The percentage of sur-charge payable on the delayed payment of electricity charges is prefixed and is printed on the bill. The levy of sur-charge is thus ascertained liability of consumer and prefixed by rules. Therefore, when the bill is paid belatedly by the consumer, sur-charge becomes an ascertained payment and is thus a recognizable receipt. Reliance is placed on Hon'ble Supreme Court judgment in the case of CIT Vs. Woodward Governor India P. Ltd. (2009) 312 ITR 254 (SC) for the proposition that in mercantile system of accounting, what is due is brought into credit before it is actually received. It brings into debit an expenditure for which a legal liability has been incurred before it is actually disbursed. Learned DR contends that Woodward case lays down a converse analogy for the income also, which implies that it brings into credit an item of receipt for which a legal right has accrued.
ITA no. 250/Del/10 8 DCIT Vs. Dakshin Haryana Bijli Vitran Nigam 3.4. Further reliance is placed on Hon'ble Supreme Court judgment in the case of CIT Vs. G.R. Karthikeyan 210 ITR 866. It lays down the definition of term 'income' in sec. 2(24) is inclusive one and should be interpreted with widest amplitude.
3.5. It is contended that sur-charge being an ascertained levy prescribed by the electricity rules, has been rightly brought to books by the AO on accrual basis in this year.
4. Learned counsel for the assessee, on the other hand, contends that the appellant charges for electricity consumption at pre-agreed rates. Bills are raised periodically at those rates. Those bills contain a notation stating that if payment is made after due date, there would be an imposition of surcharge. In other words, if one were to make payment by the due date or before the due date, the mention of surcharge becomes superfluous, unnecessary and inconsequential. Such mention of surcharge depends upon the contingency of the consumer defaulting on payment by due date. 4.1. No entries are made for surcharge at the time of preparation of the bill. That is logically so because it cannot be predicated at that relevant time when the bill is prepared as to which they will be paid by the due date or not. The entry for surcharge is made only after the customer has paid the electricity charges under protest without paying the surcharge portion. At the point of bill payment, the non-payment of surcharge assumes the characteristic of a dispute raised by customer. When a dispute is raised under protest payment, no income can be said to arise or accrue. There must be an acknowledgement of the debt by the payee to the payer for accrual .
ITA no. 250/Del/10 9 DCIT Vs. Dakshin Haryana Bijli Vitran Nigam Reliance was placed on Apex Court judgment in the case of E.D. Sassoon & co. v. A.V. Viswanatha Sastri & Anr. 26 ITR 27. The same principle was reiterated by the Apex Court in CIT v. Ashokbhai Chimanbhai where the Court pointed out that "Income becomes taxable on the footing of accrual only after the right of the tax payer to the income accrues or arises and in the case of an agreement which makes profit is receivable on the happening of a contingency it cannot be held to have accrued".
4.2. The method of accounting pursued by Nigam is in conformity with accounting and commercial principles and is in consonance with the applicable accounting standard. It is well recognized through a catena of judgments that the taxable income is required to be computed in terms of the standard prescribed by the accounting standards and finally in Supreme Court in 297 ITR 176 in J.K. Industries Ltd. Vs. UOI. This case has upheld the sanctity and utility of accounting standards unless they are ultravires the provisions of companies Act and Constitution of India. There is no allegation that accounting standards followed by the assessee suffer from such infirmity.
4.3. The assessee is pursuing mercantile system of accounting yet revenue recognition for surcharge is done as per AS-l and AS-9. The method pursued is in conformity with Hon'ble Supreme Court judgment in UCO Bank v. CIT 237 ITR 889 and Hon'ble Delhi High Court 230 ITR 817CIT Vs. Modi Rubber Ltd. AO erred in holding that it is not for the consumer of electricity to accept or not to accept the surcharge which is levied as per rules. If the internal rules are so coercive for consumers then how can it be possible that out of total demand of Rs.230 crores, less than Rs.14 crores have been actually collected. This clearly establishes that surcharge payment was not mandatory. The AO failed to appreciate that the accrual of real income is virtually negated by the payer when such a case becomes a suit ITA no. 250/Del/10 10 DCIT Vs. Dakshin Haryana Bijli Vitran Nigam filed account. The decision in 57 ITR 521 is also one concerning real income where the aspect of commercial principles being applicable to income tax was emphasized.
4.3. The demand for surcharge in bill does not result in any income for not only it is contingent due to delayed payment under protest but is also contingent on such acquiescence of the delaying customer as invariably a majority of the customers refute such charges. Therefore printing of surcharge in bill by itself is not decisive to recognize it as revenue in terms of AS-1 and AS-9. Such amounts do not represent real income and so long as real income does not inure or arise there cannot be any hypothetical tax on such income because of printing on a bill.
4.4. The surcharge is imposed on customer not with regard to the transfer of any goods or services, but originates due to a default based on lapse of permitted time for payment, which could be protested by customer. Government Policy has its own way in public utility services, which create various political and social compulsions cause to waiver or reduce such levies. In that background, it will be wrong to qualify such surcharge as real income, ignoring the obvious modalities of policy in the garb of accrual. . 4.5. AO failed to appreciate that the mere making of an entry in the books would not give rise to any taxable income. The assessee's main emphasis on prudential norms of business have been completely missed out by the AO. AS-l which is a recognized standard, states as under on this issue:
Item 5:
ITA no. 250/Del/10 11 DCIT Vs. Dakshin Haryana Bijli Vitran Nigam "The major considerations in selecting accounting policies are prudence, substance over form and materiality. "
4.6. It is contended that prudence refers to the accounting convention according to which profits are not anticipated but recognized only when realized. Provision is made for all known liabilities and losses even though the amount cannot be determined with certainty and represents only a best estimate in the light of available information.
4.7. Substance over form implies that the accounting treatment and presentation of transactions should be governed by their substance and not merely by their legal form.
4.8. Gujarat High Court in the case of Echke Ltd v. ClT [2009J 310 ITR 44 has pointed out that the mercantile system requires accounting only of realizable income so that amounts which are unlikely to be realized cannot be treated as having accrued. Apart from bonafides, even the mercantile system of accounting should spare recognition of such doubtful income.
4.9. The prudential norms as envisaged under AS-I, Item 5, have been given due legal recognition. The Punjab and Haryana High Court in ClT v.
Punjab Financial Corporation Ltd., (2009) by holding that only realizable is taxable.
4.10. AS-9, issued by the Institute of Chartered Accountants regarding revenue's recognition which refers to recognition of revenue from sale of goods as well as rendering of services postulates that there should not be any significant uncertainty existing with regard to the amount of the consideration that would be derived from the sale of the goods. The payment ITA no. 250/Del/10 12 DCIT Vs. Dakshin Haryana Bijli Vitran Nigam of surcharge is always resisted by the customer and assessee has a mechanism to accept the payments of bills in respect of only actual consumption charges and deferring the payment of surcharge. The bill may provide for levy of sur-charge but bills paid in respect of consumption charges are accepted by Nigam. The Nigam to maintain liquidity is thus constrained to collect dues on account of electricity consumption alone. Many a times the accumulated arrears of surcharge are written off in terms of Government directions issued in public interest. In this way the impost of surcharge and its realization is fraught with innumerable uncertainties and with regard to items of such categories the prudent norms postulate that irrespective of accounting method claimed to be employed they have to be accounted for only on receipt.
4.11. The assessee is a state PSU and distributes electricity on the basis of public policy, which was specifically changed for the first time in A.Y. 2004-05. On the recommendation of the audit committee of the Board of Directors by a resolution adopted on 21-2-2003, which is placed on paper book page 90, which reads as under:
"Audit Reports on the Accounts of the DHBVNL for the Financial year 2001-02 The committee went through the Audit Reports of the Statutory Auditors and CAG on the accounts of the Company for the financial year 2001-02 and decided to take up the observations of the Statutory Auditors and CAG in order to prepare the Company to meet the requirements/ observations of the Auditors in future:
On point no. 4(f-iii) it was observed that the Auditors have made a remark about the accounting of income by charging surcharge @ 2% per month of delayed payment being in contravention with the Basic Accounting Assumption of Prudence as being in contravention with the Basic Accounting ITA no. 250/Del/10 13 DCIT Vs. Dakshin Haryana Bijli Vitran Nigam Assumption of Prudence as contained in Accounting Standard-I on DISCLOSURE OF ACCOUNTING POLICY and Accounting Standard-9 on REVENUE RECOGNITION issued by the Institute of Chartered Accountants of India which ahs resulted in revenue recognition of Rs. 107.78 crores during the year 2001-2002 or understatement of losses by that amount and overstatement of sundry debtors in balance sheet. The audit committee was informed that presently even the surcharge is accounted for on the basis of accrual and that the present accounting practice does not allow keeping the surcharge on the basis of receipt. However, the Audit committee felt that in future, recognition of delayed payment surcharge be done on receipt basis only and if required, the billing system of the Company be modified accordingly."
4.12. A perusal of the Committee's recommendation, have been duly accepted by the Board of Directors and in due course by the highest authority in respect of electricity issues of State of Haryana. Such a procedure makes the acceptance of these recommendations as part of the public policy of state of Haryana and cannot be used to recognize revenue company to the state govt. policy on this issue. It has not been disputed that in State of Haryana, consumer bills issued by assessee are accepted at the time of delayed payment even without payment of sur-charge under protest. The fact that consumers can pay the electricity bills without payment of sur- charge itself indicates that such levy can be deferred and in terms of public policy, the same can be waived partially or fully. Therefore, though the electricity bills prints payment of sur-charge, the levy is not enforceable immediately as in case of belated payments are subject to the protest, if any, which is raised by the consumer and such sur-charge is to be deferred. It is akin to sale bill generally issued by any establishment giving a standard note that in case of delayed payment of bills 18% to 24% interest may be charged after one month/ two months. A mention of such stipulation in any ITA no. 250/Del/10 14 DCIT Vs. Dakshin Haryana Bijli Vitran Nigam invoice does not make the levy enforceable and interest taxable on accrual. 4.13. This method of accounting was accepted by the AO in A.Y. 2004-05 without any protest, which has further been accepted in A.Y. 2005-06. Both the assessments are u/s 143(3). All the audit reports, notes on accounts and change in accounting policy was duly intimated to the department in A.Y. 2004-05. Having accepted the assessee's accounting method for two years, without any objection and facts and circumstances being same, the department is barred from re-agitating this issue again on the principle of consistency as laid down by Hon'ble Supreme Court in the case of Radha Swami Satsang 193 ITR 321.
4.14. Learned counsel contends that the concept of mercantile system and accrual system have not been correctly appreciated by the learned AO. Accrual system does not make each and every possible receipt to become taxable income. Various authorities have laid down that what is taxable is real income. The concept of 'real income' has been well defined and what accrues to assessee is the income in these terms. It is not disputed that the sur-charge is for purpose of ensuring payment in time. It is not the case of the AO that the assessee is obliged to collect sur-charge in each and every case along with bill. The proposition of the AO dictates that once you mention the levy of interest or surcharge on belated payment in the bills, the same becomes accrued income even if not realized. This is being applied ignoring the vital facts that consumer can pay the bill without payment of surcharge under protest and agitate the levy of surcharge which is akin in terms of declared public policy and waiver offered by the state govt. and Electricity Board.
ITA no. 250/Del/10 15 DCIT Vs. Dakshin Haryana Bijli Vitran Nigam 4.15. It is contended that the assessee in A.Y. 2004-05 filed original return, thereafter a revised return. Assessee's method of accounting was accepted in a detailed order u/s 143(3) in which various other allowances/ deductions have been amended. Thereafter 154 order dated 27-3-2009 was also passed on this issue. Para giving history of the case is as under:
"Return declaring Nil income was filed by the assessee company on 1-11-2004, which accepted as such while processing the return u/s 143(1) of the Act on 31-1-2005. Consequent upon setting off brought forwarded losses relevant to the A.Y. 2000-01, the assessee declared its current year's income at nil. However, a revised return was filed by the assessee on 26-09-2005 declaring Nil income after adjusting brought forward losses to the extent of Rs. 4,61,07,450/- and sought carry forward of unabsorbed depreciation and unadjusted losses of the earlier years at the revised figure, which was also processed as such on 11-10-2006. Subsequently, the case was taken up for scrutiny under the prevalent Board's instructions. While finalizing the scrutiny assessment, the then AO determined taxable income at Rs. 7,32,61,944/- vide order dated 31-3-2004. However,, the income so determined was set off out of the brought forward business losses relevant to the A.Y. 2001-02 and Nil total income was declared; being the said brought forward losses exceeded the income determined u/s 143(3) of the Act and the balance losses and unabsorbed depreciation were allowed to be carried forward for the succeeding years."
Department has not taken any action u/s 147 or 263 in respect of A.Yrs. 2004-05 and 2005-06.
4.16. The change in accounting was adopted in two years earlier based on prescribed norms of prudence by ICAI. The guidelines are recognized followed by general public policy, PSU, State PSU and the sur-charge being ITA no. 250/Del/10 16 DCIT Vs. Dakshin Haryana Bijli Vitran Nigam subject to the public policy, the disputed surcharge cannot be held to be the income accrued to the assessee. Reliance is placed on the following decisions:
- CIT vs. Shoorji Vallabh Das & Co. 46 ITR 144 (SC);
- CIT vs. Modi Rubber Ltd. 230 ITR 817 (Del.);
- UCO Bank vs. CIT 237 ITR 889 (SC);
- Godhara Electricity Co. Ltd. Vs. CIT 225 ITR 746 (SC);
- Poona Electric Supply Co. Ltd. Vs. CIT 57 ITR 521 (SC);
5. We have heard rival contentions and perused the entire material available on record. Following facts emerge from the record:
(i) Assessee maintains its method on accounting as mercantile system.
(ii) Prior to A.Y. 2004-05, the assessee used to offer surcharge calculated in the bills.
(iii) Vide Audit Committee of Board of Directors meeting dated 21-2-
2003 (supra), on the basis of prudence norms the method of accountancy was change and the sur-charge was held to be accountable on the basis of actual receipt.
5.1. Department has accepted the method of accounting in A.Y. 2004-05 and 2005-06, which is not disputed. This clearly establishes that neither action u/s 148 nor u/s 263 is proposed by the department against A.Y. ITA no. 250/Del/10 17 DCIT Vs. Dakshin Haryana Bijli Vitran Nigam 2004-05 and 2005-0, completed assessments which have become final. 5.2. Coming to the merits, the assessee is a state PSU and the electricity policy of the Electricity Board has been subject to many exigencies, depending on public policy. It has not been disputed that though the assessee's rules provide levy of sur-charge on belated payment of bills but at the same time payment of surcharge is subject to protest/ waiver and is not mandatorily enforceable by assessee at the time of payment of bill. The sur- charge exist in the rule and is printed in the bill but it has not been disputed that the assessee has regular mechanism to accept the bills without payment of sur-charge. The same is deferred till the consumer dispute is settled by the appropriate means which may be provided by the instructions of the declared policy of the government.
5.3. In view of these facts, coupled with the fact that assessee changed its method of accounting after seeking necessary approval of CAG, shows that as far as the assessee is concerned, the collection of sur-charge was contingent and did not accrue due to assessee. The liability will accrue on the basis of crystallization i.e. the payment of the surcharge or passing of a suitable order by the appropriate authority on the dispute raised by the customer.
5.4. Coming to the case laws, Hon'ble Supreme Court in the case of Shoorji Vallabh Das & Co. (supra) had to deal with an issue of managing agency commission transferred by the assessee to two other companies. Subsequent agreement after the end of accounting year resulted in assessee's receiving lesser commission, though book entries of higher ITA no. 250/Del/10 18 DCIT Vs. Dakshin Haryana Bijli Vitran Nigam amount were made. Revenue sought to tax the higher income, Hon'ble Court held that assessee cannot be taxed on the basis of hypothetical income. In our view this judgment is applicable to the facts of assessee's case, keeping in mind following prepositions:
(i) Assessee's method of accounting has been accepted by the department.
(ii) Since the assessee could defer the payment of sur-charge under consumer protest, the taxing of such contingent receipt is a hypothetical income.
5.5. In case of UCO Bank (supra), in case of sticky advances, the interest income though provided in the books of accounts, were not assessable. 5.6. In case of Godhara Electricity Co. Ltd. (supra), though the tariff was revised and was enforceable by rules, its deferment by state of Gujarat was held to be resulting into non-accrual of deferred portion on the basis of real income concept.
5.7. In the case of Poona Electric Supply Co. (supra), also the Hon'ble Supreme Court held that portion exceeds over clear profits returned as rebate to the consumers was not part of taxable income of the assessee. Thus, though the amount from consumers accrued to the assessee, due to the return on account of stipulation provided, rebate was held to be non-taxable ITA no. 250/Del/10 19 DCIT Vs. Dakshin Haryana Bijli Vitran Nigam rebate.
5.8. In case of Modi Rubber Ltd. (supra), The Hon'ble Delhi High Court affirmed the order of ITAT holding that mere unilateral act of the assessee debiting the books of account with the amount of interest, which was disputed by the debtor, did not amount to accrual of income to the assessee. 5.9. There is no dispute on the issue raised by the learned DR that principles of res-judicata are not applicable to income-tax proceedings. However, in view of Hon'ble Supreme Court judgment in the case of Radha Swami Satsang (supra), has laid down rule of consistency, which has been followed in facts of various cases in subsequent judgments. By now it is a settled principle that unless facts and circumstances have drastically changed, the principle of consistency is to be maintained in departmental action. In view thereof, we are of the view that department having accepted a clear cut amendment of method of accounting, as per the provisions of Income-tax Act, in the above mentioned facts, it will not be desirous that the course of action accepted by the department is subject to variation by adopting different interpretation on any settled issue. 5.10. In our view the Woodward Governor case (supra), relied on by ld.
ITA no. 250/Del/10 20 DCIT Vs. Dakshin Haryana Bijli Vitran Nigam D.R. is of no avail to revenue as itself lays down that profits and gains of any previous year are required to be computed in accordance with relevant accounting standards. Similarly, the case of G.R. Karthikeyan (supra) also will not benefit the revenue as it did not decide any controversy of accrual or mercantile system of accounting. The judgment deals with winning from gambling and batting income, there is no issue about accounts or accrual in this case.
5.11. Coming to learned DR reliance on the case of Tuticorin Alkali Chemicals (supra), the same deals with the receipts being in the nature of capital or revenue. The factum of receipt was not disputed and whether the receipt was capital or revenue, Hon'ble Supreme Court held that while deciding the question, the same has to be on the basis of principle of law and not in accordance with the accountancy practice. In our vie the case before us pauses a picture on different facts which have been mentioned in detail above.
5.12. In our considered opinion, all the above judgments clearly favour the stand taken by the assessee. We may hasten to mention that looking at the intricacies the facts may vary, therefore, basic principles of accrual or mercantile system as laid down by various authorities are to be applied in a ITA no. 250/Del/10 21 DCIT Vs. Dakshin Haryana Bijli Vitran Nigam careful manner. The assessee being a state PSU; the sur-charge on delayed payment being disputable item; was not mandatorily payable at the time of payment of electricity consumption bill; was not an accrued receipt in view of the accounting policy accepted by the revenue. Therefore, such amount of surcharge cannot be held to be taxable as it is not the real income of the assessee and is hypothetical by nature in given facts and circumstances. 5.13. In view of the foregoings, we are of the view that the amount of sur- charge not realized by the assessee, does not amount to accrued of receipt taxable as income. CIT(A) has rightly deleted the addition, which we uphold.
6. In the result, revenue's appeal is dismissed.
Order pronounced in open court on 30-11-2011.
Sd/- Sd/- (K.D. RANJAN ) ( R.P. TOLANI ) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 30-11-2011. MP Copy to : 1. Assessee 2. AO 3. CIT 4. CIT(A) 5. DR