2020 (9) TMI 418 - HC - Income Tax

Court dismisses appeals, orders reassessment to prevent double taxation. Emphasizes compliance with accounting standards.

PPN Power Generating Company Private Ltd. Versus Commissioner of Income Tax (Appeals) - III, Assistant Commissioner of Income Tax, Central Circle - 3 (1), Chennai

PPN Power Generating Company Private Ltd. Versus Commissioner of Income Tax (Appeals) - III, Assistant Commissioner of Income Tax, Central Circle - 3 (1), ... Issues Involved:1. Whether the accounts of the assessee were prepared in accordance with the Companies Act, 1956.2. Whether the additions made by the assessing officer were proper.3. Whether the CIT(A) and the Tribunal were right in affirming the findings of the assessing officer.4. Whether the Tribunal should have issued a direction to the assessing officer to take appropriate steps for assessment years 2010-2011 to 2014-2015.Detailed Analysis:1. Preparation of Accounts as per Companies Act, 1956:The primary issue was whether the assessee's accounts were prepared in accordance with the Companies Act, 1956. The assessing officer found that the assessee did not recognize income in accordance with Schedule VI of the 1956 Act. The statutory auditors highlighted this in the audit report, noting the non-recognition of revenue and provisions for cash discounts. The assessing officer concluded that the assessee did not follow the matching concept for revenue and expenses and did not adhere to the accounting standards prescribed by the ICAI.2. Propriety of Additions Made by Assessing Officer:The assessing officer added Rs. 41,76,92,807 under 'Delayed Revenue Recognition' as business income and treated interest income of Rs. 5,93,84,195 as income from other sources, denying deduction under Section 80IA of the Act. The officer also computed the book profit under Section 115JB at Rs. 2,23,21,63,807. The officer's decision was based on the finding that the assessee did not follow accounting standards properly and did not prepare financial statements as per Part II and Part III of Schedule VI of the 1956 Act.3. Affirmation by CIT(A) and Tribunal:The CIT(A) partly allowed the assessee's appeal but concurred with the assessing officer on key points, holding that the books of accounts were not prepared as per the 1956 Act. The Tribunal also upheld this view, finding that the accounts were not in accordance with the 1956 Act. The Tribunal noted that the income to be assessed in a particular year cannot be assessed in any other year, emphasizing the importance of following accounting standards.4. Direction for Subsequent Assessment Years:The assessee argued that the Tribunal should have directed the assessing officer to take appropriate steps for assessment years 2010-2011 to 2014-2015, during which the assessee received the disputed sums and was assessed to tax on these receipts. The Tribunal did not issue such a direction. The court found that if the assessee has paid taxes on these receipts in subsequent years, a direction should be issued to avoid double taxation. Consequently, the court directed the assessing officer to reopen assessments for the years 2010-2011 to 2014-2015 to ascertain if taxes were paid on the impugned receipts and to redo the assessment on this aspect alone.Conclusion:The appeals were dismissed as no substantial question of law arose for consideration. However, the court issued a direction to the assessing officer to reopen the assessments for the years 2010-2011 to 2014-2015 to ensure that the assessee is not subjected to double taxation. The court emphasized the importance of adhering to accounting standards and the provisions of the Companies Act, 1956.