TaxTMI 
TaxTMI 
2017 (8) TMI 1614
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.... crores revenue covered under Power Purchase Agreement in its books. However, it did not recognise revenue to the tune of Rs. 25.07 crores (representing the fuel cost, ROE billing, capital cost, specified taxes, incentives and annual invoices) even though they were part of the bills raised. Further, the AO found that the assessee has treated Rs. 17.16 crores as provision for cash discount. Thus, after giving adequate opportunity to the assessee, considering power purchase agreement between assessee and the TANGEDCO, Accounting Standard (9), the assessee's conduct of revising its income upward by Rs. 70 crores vis a vis the original return, the clarification made by the statutory auditors etc, the AO held that the assessee did not follow the Accounting Standard properly, it had recognised the income properly and it had not prepared its financial statements as per Part II and Part III of Schedule VI to the Companies Act, 1956 and hence added Rs. 41.76 crores to the income of the assessee under normal provisions of Income Tax Act as well as u/s. 115JB. Aggrieved, the assessee filed an appeal before the CIT(A). 3. The CIT(A) , on the issue of reimbursement of specified tax , relying....
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....ulting denial of deduction under Sec 80IA. 8. Additions made u/s 115JB The learned CIT(A) erred in confirming the additions made by the learned A.O in regard to additions made u/s 115JB amounting to Rs. 41.76 crores without appreciating the fact that the accounts were prepared in accordance with the Companies Act, 1956 and such additions are not permissible under the Act." 4. The revenue filed cross appeal with the following grounds: 2. The learned CIT(A) erred in directing the Assessing Officer to delete the addition of Rs. 4,76,28,590/- made by the Assessing Officer towards revenue recognition from reimbursement of specified taxes for the A.Y 2009-10 in the assessee's case. 2.1 Having allowed relief to t e assessee, by following the decision of the Hon'ble ITAT in the assessee's own case for AY 2004-05, the learned CIT(A) erred in not appreciating that the facts are different for the assessment year under consideration, in that, the assessee has not given up its right to reimbursement of the expenditure and offered the same as income in the subsequent assessment years viz. A.Ys 2010-11 and 2013-14. 2.2 Having regard to the mercantile syst....
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.... iii) Operation and Maintenance Charges as a % 0 f Capital Cost indexed to inflation iv) Interest on working capital v) Post tax Return on Equity@ 16% vi) Specified Taxes capped at 16% on ROE Apart from the above, the company is also entitled to monthly incentive claim from TANGEDCO which is based on actual generation. Clause 6 of Schedule A of the PPA provides the basis of computing the incentive for any year which is a percentage of paid up capital (Equity) .Computation of every component mentioned above for any year is linked to the capital cost of the project. As against the capital cost claimed by the company for admission, TANGEDCO had allegedly disallowed capital cost to the tune of Rs. 127 crores and contested the same before TNERC. To keep the claim alive, the provisional capital cost is considered for the purpose of monthly billing was at Rs. 1,364.40 crores, pending finalisation of the capital cost by Tamil Nadu Electricity Regulatory Commission (TNERC). As a norm, the capital cost is funded by a mix of Debt and Equity in the ratio of 70:30 following the power policy of the country. The assessee company evaluated the alleged disallowance....
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..... 11.61 crs. Consequently, following prudence, the company did not recognize income in the books of accounts to the extent of Rs. 4.76 crs. 6.3 Additions relating to Equity Incentive of Rs. 2,62,35,289/- The company is entitled to Incentive based on actual generation which is a percentage factor linked to Equity. The computation of Equity Incentive also follows the definition of ROE in the PPA i.e. Equity on the commercial operation date of Rs. 352.50 crores. The Incentive factor for FY 2008-09 computed as per the provisions of PPA was 4.61722% and following the equity restriction. Rs. 2.62 crs was not recognised as income during the year (i.e. 409.32 crs less 352.50 crs x 4.617220/0) following prudence. 6.4 Disallowance relating to Capital Cost-Rs. 5,66,87,454/- TANGEDCO had disallowed capital cost to the extent of Rs. 127 crores. To keep the claim alive, the provisional capital cost considered for the purpose of monthly billing was Rsl.364.40 crores, pending finalisation of the capital cost by Tamil Nadu Electricity Regulatory Commission (TNERC). Hence, the company had, based on prudence and management estimate pending finalisation of capital cost by the regulat....
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....towards cash discount. Hence the realisability of income (in the form of cash discounts not eligible for) was uncertain which warranted the company to not recognize revenue to the extent of Rs. 17.16 crores based on prudence.. The dispute relating to cash discount was appealed by the appellant before the Tamilnadu Electricity Regulatory Commission (TNERC) and was awaiting adjudication at the time of finalization of accounts for the year under appeal. That cash discount was being deducted by the TANGENDCO is also corroborated in the submissions made by TANGEDCO before the TNERC. 6.7 The AR submitted that all these additions mentioned above, were made under the normal provisions of the Act as well as under Section 115JB of the Act and pleaded to delete them based on its grounds of appeal . The assessee submitted a note which is extracted as under : and submitted that since it has received and admitted the impugned receipts in the subsequent years, the additions made under normal provisions of Income Tax Act as well as u/s. 115JB may be deleted .It further submitted that the rates of taxes remain same in all these years u/s 115JB. 7. Per contra, the DR submitted relying on th....
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....atus of capital cost/tariff determination in accordance with the Power Purchase Agreement and certain claims made by the TNE8 respectively. Note 24 (a) and 24 (c) of Notes to Accounts (Schedule 18) with respect to recognition of additional revenue based on review of certain allowances for uncertainties and the recognition of Interest on delayed receipts (or the reasons stated therein. " 7.1 The DR continued to quote the AO's order stating that the Accounting Standard (AS) 9 brought out by ICAI deals with the bases for recognition of revenue in the statement of profit and loss of an enterprise. The standard is concerned with the recognition of revenue arising in the course of the ordinary activities of an enterprise from sale of goods etc., Revenue is measured by the charges made to customers or clients for goods supplied and service rendered to them. Revenue recognition is mainly concerned with the timing of recognition of revenue. In the statement of profit and loss of an enterprise, the amount of revenue arising on a transaction is usually determined by agreement between the parties involved in the transaction. When uncertainties exist regarding the determinatio....
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....provisions for cash discount made in earlier years and in the current year. Out of a total provision towards cash discount of Rs. 47.32 Crores made during the year, a sum of Rs. 30.96 Crores was added back in the revised return. This shows that the assessee was in the habit of making provisions without reasons. By consistently not followinq applicable Accounting Standards the assessee was regularly recognising income at a later date which resulted in payment of lesser MAT tax to the department. For example, one of the items not recognised as revenue during the financial year 2008-09 was cash discount of Rs. 17.16 Crores. It was the claim of the assessee that every bill payment by TANGEDCO was delayed but on each delayed payment TANGEDCO was in the habit of deducting 2.5% from each bill towards cash discount and paid only the remaining amount and the assessee had to approach the appellate authorities for dispute resolution. 1n such a situation, the assessee had no cause for recognising the cash discount to TNEB as a debit to the profit & toss account. The total billing for the year was Rs. 1914.16 Crores. Had the assessee followed the Accounting Standards correctly, instead of not r....
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....t (PPA), "Specified taxes on income" will not become part of regular billing. However any advance tax payable for the project in any month supported by a certificate of a Chartered Accountant, approved by TNEB, was to be reimbursed in the succeeding month. After the tax assessment was completed for any year and liability was determined by the taxation authorities in India, the excess or shortfall in the tax liability so determined would be adjusted in the invoice for the month next following. 7.8 With regard to the additions made u/s 115JB , the DR invited our attention to the relevant portion of the order of C'sIT(A) which is extracted as under : "The proposition that the book profits cannot be adjusted other than for giving effect to the adjustments specifically listed is supported by the decision of Supreme Court in the case of Apollo Tyres Ltd. Vs. CIT 255 ITR 273 SC (E-3). 10.2 CIT (A)'s remarks and decision: I have considered the submissions of the Id. AR and the findings of the AO. While passing the order u/s 143(3), the AO had considered certain receipts cited supra for the purpose of book profits u/s 115JB. 10.2.1 Before me, the Id. AR has pl....
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....ble Supreme Court in the case of Apollo Tyres and held that it was open to the AO to see whether the accounts were prepared as per Part-Il & Part-Ill of Schedule-6 of the Companies Act, 1956. The relevant part of Special Bench decision is reproduced hereunder: Held: Under Minimum Alternate Tax (MAT) provisions, the Assessing Officer is concerned with the adjustments to be made with the net profit as shown in the profit and loss account. One of the moot question relevant to the issue is whether the Assessing Officer has power to alter the net profit? Yes, it is a settled law that the Assessing Officer has the power to alternate the net profit. In the following two cases, the Assessing Officer can rewrite the profit and loss account, i. e. to say that the Assessing Officer should recalculate the net profit and then follow the adjustments of MAT as usual: (1) If it is discovered that profit and loss account is not drawn up in accordance with Parts II and Part III of Schedule VI to the Companies Act. However; the Assessing Officer cannot disturb the net profit as shown by the assessee where there are no such allegations, fraud or misrepresentation but only a difference of o....
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....ase for ay 2004-05 , except the issue of specified taxes, set aside all other issues to the AO for re-examination and verification of the facts and the status of dispute between the assessee and the then TNEB. From the note submitted by the assessee, as extracted in para 6.7, supra, it is clear that the assessee has received all the disputed sums , including the specified taxes on which the revenue is on cross appeal from ay 2010-11 to ay 2014-15 , in various proportion but in full . Thus, it is clear that the assessee's unilateral action, calling it as a prudence measure, had no basis and hence the additions made by the AO based on various clauses of the PPA and other material , as cited and extracted in para 7, supra, are sustained under normal computation. We have considered the assessee's plea that the additions made u/s 115JB is unwarranted on the basis of the ratio reported in the case of Apollo Tyres Ltd. Vs. CIT 255 ITR 273 SC (E-3) and on account of admission of these sums in the subsequent ays wherein the rate of taxes remained same. We have gone through the decision of the Hon'ble ITAT, 'B' (Special) Bench, Hyderabad in the case of Rain Commodities Ltd. Vs. D....