TaxTMI 
TaxTMI 
2022 (12) TMI 584
X X X X Extracts X X X X
X X X X Extracts X X X X
....der passed by the learned PCIT cancelling the assessment order passed by the A.O. is untenable in the absence of order of the A.O. being erroneous as well as prejudicial to the interest of the Revenue. (3)On the facts and circumstances of the case, the learned PCIT has erred both on facts and in law in ignoring the fact that all the issues raised by him in notice under Section 263 were before the A.O during the assessment proceedings under section 143(3) of the Act and as such the jurisdiction on this issue under Section 263 cannot be assumed. (4)On the facts and circumstances of the case, the learned PCIT has erred, both on facts and in law, in rejecting the contention that the issues raised by the PCIT in his notice has been examined by the A.O. and order has been passed by the A.O. after examination of the reply and evidences submitted by the assessee and due application of mind. (5)On the facts and circumstances of the case, the learned PCIT has erred, both on facts and in law, in setting aside the order under section 263 of the Act without there being any adverse material either at the stage of assessment or in the revisionary proceedings. (....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ade is itself bad in the eyes of law and on facts. (4) On the facts and circumstances of the case, the Ld. CIT(A) has erred both on facts and in law in passing the order without giving reasonable opportunity of being heard in gross violation of principal of natural justice. (5)(i) On the facts and circumstances of the case, the Ld. CIT(A) has erred both on facts and in law in not adjudicating the additions made by the AO holding that the addition has been made as per the directions of Principal Commissioner of Income Tax and the same cannot be challenged before him. (ii)On the facts and circumstances of the case, the Ld. CIT(A) has erred both on facts and in law in holding that challenging the order passed by the AO will indirectly tantamount to challenging the order passed under section 263 passed by Principal Commissioner of Income Tax. (iii)On the facts and circumstances of the case, the Ld. CIT(A) has erred both on facts and in law in ignoring the fact that since the issues raised by the assessee before him have not attained finality the same can be adjudicated by him. (6) On the facts and circumstances of the case, the Ld. CIT(A) ha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s. 2,66,14,34,346/- under section 115JB of the Act. During the year under consideration, assessee has declared the income on account of late payment surcharge (in short 'LPS') of Rs. 1843.15 lakhs under the schedule of other income'. (PB Pg. 78). The Late payment surcharge are charges levied by all power generating companies in case the payment of any bill for charges payable under the regulation of Electricity commission is delayed by beneficiary beyond stipulated time. The assessee is following mercantile system of accounting and it recognizes all of its income on 'accrual' basis only i.e. it is recognized as and when the certainty of its realization arises. Due to high level of uncertainty involved in its ultimate collection of these LPS charges the recognition of the same is postponed by the assessee till the reasonable certainty arises which arises when the income is actually received by the assessee. The said treatment has been accepted by the statutory auditor, CAG as well as the tax auditor. 7. That, during the year under consideration i.e. AY 2014-15 the assessee realized Rs. 1843.15 lakhs on account of delayed payment surcharge and recognized the said amount as its inc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....etailed reply on 05.07.2018 and 23.07.2018 whereby it explained that the delayed payment surcharge is accounted for on cash basis owing to high uncertainty of its realization. The assessee also explained the reasons for the recognition policy of such LPS. Briefly, the assessee explained as under: (a)LPS was recognized as income on year to year till 2001-02 by the assessee and other Power section CPSUs and the same was offered to tax in the year of recognition. (b)However, none of the beneficiaries were paying up these LPS to the generating companies and the amount kept on soaring in the books of the power generating CPSUs creating an unhealthy financial position and cash crunch. This resulted in huge amount of trade receivable becoming due from the beneficiaries. (c)Thereafter in 2001, an Expert Committee constituted by the Govt, of India* under the chairmanship of Dr. Montek Singh Ahluwalia to overcome the crisis, recommended that 60% of the outstanding dues on account of late payment surcharge be waived. This recommendation was adopted and huge amounts had to be written off overnight thereby severely affecting the health of the Power CPSUs. The assessee....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... as well as other power generating PSU suffered acute liquidity crunch. This accrual accounting of surcharge was being followed till 2001-02. This problem was brought to the notice of the Government of India and the GOI was requested to settle the issue and improve the health of the power generating company after taking appropriate measures. The Government of India in order to improve the poor cash condition of the power generating company constituted an expert committee under the Chairmanship of Dr. Montek Singh Ahluwalia, Dy. Chairman, Planning Commission and based on the recommendation of the Expert Committee, the Government came up with an on-time settlement policy of all the outstanding dues of the power generating CPSU. Under the one time settlement scheme waiver of 60% of the dues on account of interest from the outstanding dues was directed. NEEPCO, being a Government Company accepted the recommendation and wrote off the dues as directed. Thereafter also recovery of surcharges has become uncertain from the state beneficiaries. Considering the uncertainty, the Audit Committee in 2003 had pointed out that the accounting of surcharge has to be done on receipt basis to avoid an....
X X X X Extracts X X X X
X X X X Extracts X X X X
....unt of the fact that the same was chargeable to the State Government. Such charging of the delayed payment on cash basis was held to be justified in the decision of ITAT, Delhi in the case of DCIT, Hisar -vs.- Dakshin Haryana Bijli Vitran Nigam Ltd. Hisar (2011)(11) TMI 721- dated 30th November, 2011, which was subsequently affirmed by the Hon'ble Punjab & Haryana High Court and SLP filed by the Revenue was dismissed. Further it was submitted that the assessee is following the same treatment for last many years and since AY 2003-04 the assessee's case is being assessed under section 143(3) of the Act and such treatment of delayed payment charges on cash basis is being accepted by the Department, and, therefore, the principle of consistency is applicable to the assessee. Reliance placed on plethora of judgment including that of Hon'ble Supreme Court in the case of Radhasoami Satsang -vs.- CIT 193 ITR 321; CIT -vs.- Rajasthan Beweries; SLP (C) 1379/2014(SC); CIT -vs.- Realest Builders and Services 307 ITR 202 (SC). Further it was submitted that the books of account are audited by three auditors including the Controller of Auditor General (CAG) and all auditors have accepted the treat....
X X X X Extracts X X X X
X X X X Extracts X X X X
....udicial to the interest of revenue. The issue raised by the ld. PCIT in the SCN relates to accounting of delayed payment surcharge (in short 'LPS') on cash basis. It is observed by ld. PCIT that upto assessment year 2002-03, the assessee was declaring LPS on outstanding credit receivables on accrual basis. But from A.Y. 2003-04, it changed its method of accounting in respect of LPS on unrealisable amount relying on the directions contained in the DO letter of Deputy Secreary (Finance), Ministry of Power dated 19.08.2003. The ld. PCIT was of the view that since the assessee is maintaining the books of account on mercantile system, therefore, hybrid system of accounting is not allowed as per the provisions of section 145(1) of the Act and also the assessee-company, whose main debtor is Meghalaya Electricity Corporation Limited (in short "MECL") and its subsidiaries, bills for LPS are regularly raised to MECL from time to time but the assessee shows income of LPS only when it is received on cash basis. Based on these observations, ld. PCIT held the assessment order as erroneous so far as prejudicial to the interest of revenue. Before adverting to the facts of the case and the justific....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ught to be revised was passed. (3) Notwithstanding anything contained in sub-section (2), an order in revision under this section may be passed at any time in the case of an order which has been passed in consequence of, or to give effect to, any finding or direction contained in an order of the Appellate Tribunal, National Tax Tribunal, the High Court or the Supreme Court. Explanation- In computing the period of limitation for the purposes of sub-section (2), the time taken in giving an opportunity to the assessee to be reheard under the proviso to section 129 and any period during which any proceeding under this section is stayed by an order or injunction of any court shall be excluded." 16. On a bare perusal of the sub section-1 would reveal that powers of revision granted by section 263 to the learned Commissioner have four compartments. In the first place, the learned Commissioner may call for and examine the records of any proceedings under this Act. For calling of the record and examination, the learned Commissioner was not required to show any reason. It is a part of his administrative control to call for the records and examine them. The second feature....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... loss of revenue; or where two views are possible and the ITO has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue unless the view taken by the ITO is unsustainable in law. It has been held by this Court that where a sum not earned by a person is assessed as income in his hands on his so offering, the order passed by the Assessing Officer accepting the same as such will be erroneous and prejudicial to the interests of the revenue - Rampyari Devi Saraogi v. CIT [1968] 67 ITR 84 (SC) and in Smt. Tara Devi Aggarwal v. CIT [1973] 88 ITR 323 (SC)".[Emphasis Supplied] 18. Hon'ble Apex Court in the case of CIT vs. Max India Limited as reported in 295 ITR 0282 has held that: " 2. At this stage we may clarify that under para 10 of the judgment in the case of Malabar Industrial Co. Ltd. (supra) this Court has taken the view that the phrase "prejudicial to the interest of the Revenue" under s. 263 has to be read in conjunction with the expression "erroneous" order passed by the AO. Every loss of revenue as a consequence of an order of the AO cannot be treated as prejudicial to the inte....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 20. In the light of the provisions of section 263 of the Act and a settled position of law, powers u/s 263 of the Act can be exercised by the Pr. Commissioner/Commissioner on satisfaction of twin conditions, i.e., the assessment order should be erroneous and also prejudicial to the interest of the Revenue. By 'erroneous' is meant contrary to law. Thus, this power cannot be exercised unless the Commissioner is able to establish that the order of the Assessing Officer is erroneous and prejudicial to the interest of the Revenue. Thus, where there are two possible views and the Assessing Officer has taken one of the possible views, no action to exercise powers of revision can arise, nor can revisional power be exercised for directing a fuller enquiry to find out if the view taken is erroneous. This power of revision can be exercised only where no enquiry, as required under the law, is done. It is not open to enquire in case of inadequate inquiry. Our view is fortified by the judgment of Hon'ble High Court of Bombay in the case of CIT vs. Nirav Modi, [2016] 71 taxmann.com 272 (Bombay). 21. This view is further supported by the decision of the Hon'ble Gujarat High Co....
X X X X Extracts X X X X
X X X X Extracts X X X X
....neous and prejudicial to the interest of the Revenue, the CIT may pass revisional orders. If, on the other hand, the CIT is satisfied, after hearing the assessee, that the orders are not erroneous and prejudicial to the interest of the Revenue, he may choose not to exercise his power of revision. This is for the reason that if a query is raised during the course of scrutiny by the AO, which was answered to the satisfaction of the AO, but neither the query nor the answer were reflected in the assessment order, this would not by itself lead to the conclusion that the order of the AO called for interference and revision. In the instant case, for example, the CIT has observed in the order passed by him that the assessee has not filed certain documents on the record at the time of assessment. Assuming it to be so, in our opinion, this does not justify the conclusion arrived at by the CIT that the AO had shirked his responsibility of examining and investigating the case. More so, in view of the fact that the assessee explained that the capital investment made by the partners, which had been called into question by the CIT was duly reflected in the respective assessments of the partners w....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nes the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determine the income, the CIT, while exercising his power under s 263 is not permitted to substitute his estimate of income in place of the income estimated by the AO. (vii) The AO exercises quasi-judicial power vested in his and if he exercises such power in accordance with law and arrive at a conclusion, such conclusion cannot be termed to be erroneous simply because the CIT does not fee stratified with the conclusion. (viii) The CIT, before exercising his jurisdiction under s. 263 must have material on record to arrive at a satisfaction. (ix) If the AO has made enquiries during the course of assessment proceedings on the relevant issues and the assessee has given detailed explanation by a letter in writing and the AO allows the claim on being satisfied with the explanation of the assessee, the decision of the AO cannot be held to be erroneous simply because in his order he does not make an elaborate discussion in that regard." 24. Apart from above stated broader principles, one more principle needs to be added in view of the judgment of Hon'ble Delhi H....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y on the issue raised in the impugned show-cause notice during the course of assessment proceedings; and secondly whether the view taken by the ld. Assessing Officer after conducting the enquiry was admissible in the eyes of law and that whether order of ld. Assessing Officer is erroneous as well as prejudicial to the interest of revenue. 26. So far as the enquiry conducted by the ld. Assessing Officer in regard to the said issue of LPS being accounted on cash basis, we find that the ld. Assessing Officer in the notice issued under section 142(1) of the Act dated 17.10.2016 specifically asked the assessee to provide the details of other income, which included the LPS charges also. In reply on 27.10.2016, complete details of the other income were filed which are placed at pages 116 to 119 of the paepr book and clarification for the above accounting treatment of LPS charges on cash basis made following the Accounting Standard-9 issued by the Instituted of Chartered Accountants of India (in short ICAI ) was also mentioned in the notes on account attached to the audited balance-sheet. The ld. Assessing Officer after considering the details filed by the assessee, notes on account app....
X X X X Extracts X X X X
X X X X Extracts X X X X
....spute. Since the assessee offers the income of LPS as and when received only the year of taxability charges but there is no loss of revenue. In the case of Excel Industries Limited and Mafatlal Industries Pvt. Limited (2013) 358 ITR 295, it is held as under:- '32 Thirdly, 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 rt 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." 29. Similar view was also taken by the Hon'ble Delhi High Court in the case of CIT -vs.- Dinesh Kumar Goel....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ions: (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 nonaccrual 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 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 debi....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... The assessee being a state PSU; the surcharge 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 surcharge 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". 30. Further we notice that the said accounting treatment of LPS on cash basis has been consistently followed by the assessee from A.Y. 2003-04 and onwards and the said disclosure appears in the audited balance-sheet which are audited by three auditors including the tax auditor, Government Auditor and Controller Auditor of India and all the auditors have accepted the treatment of assessee and no objection has been raised regarding non-compliance of section 128 of the Companies Act. Section 128 of the Companies Act reads as ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... (Del) 12. Vesta Investmemnt and Trading Co. (P) Limited -vs.- CIT: 70 ITD 200(Chd. ) 31. Further we observe that the assessee is maintaining mercantile system of accounting as per Section 145 of the Act except for the accounting of delayed payment surcharge on cash basis which means that the assessee is following hybrid system of accounting. The assessee being a Government Company was bound to follow the direction of the Ministry of Power so as to change the metehod of LPS from accrual to cash basis.That, in the case of the assessee as well as the other power generation companies, the customers invariably contest to pay the late payment surcharge. Surcharge is a disputable item and many a time is reduced or waived and as a matter of fact, late payment surcharge has been waived many times. Further, there is no corresponding liability acknowledged by the customers. In fact, it is pertinent to point out that none of the customers have deducted TDS in respect of such late payment surcharge which fact too establishes that they have not accounted for liability. Moreover, as per the practical trend, there is no reasonable certainty of collection of such amount. In such circum....
X X X X Extracts X X X X
X X X X Extracts X X X X
....said case, the assessee admitted that accrual took place for AS-9 and that there was reasonable certainty, however, denied the same for the purpose of Income Tax Act. However, in the present case, the assessee has made no such contradictory stand and has maintained that the accrual has not taken place owing to uncertainty in collection of revenue. (iii)In the said case, there is a factual finding that "The assessee has not demonstrated with the facts that recovery through Ministry of Finance is unenforceable". However, in the present case, it is submitted that it is evident from records that, recovery through Ministry of Finance is not sacrosanct. Had it been the case, then there would have been no delays in payment by State Discoms. the payment through tri-party agreement would have been received immediately after the exc y of stipulated period of payment of 90 days, and there would have been no requirement for waiver/settlement scheme. Yet, the payments have not been received for many years as noted above in the case of MeECL and waivers have been granted. There was waiver of 60% of LPS in 2015-16 as well. The said facts itself depict that recovery through Tri-Party Agre....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s consistently being followed from AY 2003-04 onwards and accepted by predecessors and financial statements are duly audited by three auditors including CAG and the assessee has followed the directions of Ministry of Power dated 19.08.2003 and also considering the fact that in the past also huge amount of outstanding LPS are waived of and there is no certainity of receiving LPS charges from the Government companies and also consdiering the fact that similar views of accepting such treatment of LPS charges on cash basis even when the books of account are mainained on mercantile system have been taken by judicial forums, the view taken by the ld. Assessing Officer was permissible in the law and not unsustainable and, therefore, in our considered view, the order of the ld. Assessing Officer dated 24.11.2016 is neither erroneous nor prejudicial to the interest of revenue. We accordingly quash the revisionary proceedings carried out under section 263 of the Act dated 12.12.2018 by ld. PCIT and allow the grounds of appeal raised by the assessee in ITA No. 45/GAU/2019. 34. Now we take up ITA No. 418/GAU/2019 for A.Y. 2014-15. This appeal of the assessee is against the order of ld. CIT(....