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Income Tax Appellate Tribunal, IN THE INCOME TAX APPELLATE TRIBUNAL,
Before: ARUN KHODPIA & ARUN KHODPIA & ARUN KHODPIA
IN THE INCOME TAX APPELLATE TRIBUNAL, IN THE INCOME TAX APPELLATE TRIBUNAL, IN THE INCOME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK BEFORE BEFORE S/SHRI GEORGE MATHAN, JUDICIAL JUDICIAL MEMBER AND ARUN KHODPIA, ACCOUNTANT MEMBER AND ARUN KHODPIA, ACCOUNTANT MEMBER AND ARUN KHODPIA, ACCOUNTANT MEMBER Assessment Year : 2013- Assessment Year : 2014-15 DCIT, DCIT, Corporate Circle Corporate Circle - Vs. GRID Corporation of O GRID Corporation of Orissa 1(1), Bhubaneswar. 1(1), Bhubaneswar. Ltd., Ltd., Janapath, Janapath, Bhubanesw Bhubaneswar. PAN/GIR No. PAN/GIR No.AABCG 5398 P (Appellant (Appellant) .. ( Respondent Respondent) Assessee by : S/Shri Ved Jain/P. Venugopal Rao, ARs Venugopal Rao, ARs Revenue by : Shri M.K.Gautam, M.K.Gautam, CIT DR Date of Hearing : 20/0 02/2023 Date of Pronouncement : 20/0 /02/2023 O R D E R Per Bench ITA No.346/CTK/201 ITA No.346/CTK/2017: A.Y.2013-14.
This is an appeal filed by the revenue against the order of the ld against the order of the ld CIT(A)-1, Bhubaneswar, 1, Bhubaneswar, dated 23.6.2017 in Appeal No. in Appeal No.0504/15-16 for the assessment year assessment year 2013-14.
Shri M.K.Gautam, ld CIT DR appeared for the revenue and S/Shri Ved Shri M.K.Gautam, ld CIT DR appeared for the revenue and S/Shri Ved Shri M.K.Gautam, ld CIT DR appeared for the revenue and S/Shri Ved Jain/P.Venugopal Rao, ld ARs appeared for the assessee. Jain/P.Venugopal Rao, ld ARs appeared for the assessee. Jain/P.Venugopal Rao, ld ARs appeared for the assessee.
Ground No Ground Nos.1,6 & 7 are general in nature.
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4. Ground Nos.2 & 3 read as under:
2. On the facts and in the circumstances of the case and in law, the ld CIT(A) is not justified in deleting the addition made by the AO in the assessment order towards rebate for prompt payment of Rs.31,00,00,000/- 3. For the facts and the reasons stated by the AO in the assessment order, the ld CIT(A) ought to have appreciated that the AO was justified in disallowing the claim of rebate of Rs.31,00,00,000/- and adding the same amount to the total income of the assessee for the A.Y. 2013-14.
Ld CIT DR has filed written submission, as follows: “1. This is a departmental appeal against the appellate order dated 23.06.2017 passed by the Id. CIT(A)-l, Bhubaneswar. The second and third grounds of appeal
pertain to disallowance of rebate of Rs.31 crores by the Assessing Officer for prompt payments made by DISCOMs.
2. The A.O. noticed that such a rebate was adversely commented upon and objected by the Auditors in para-9 & 9.1 of audited accounts and audited report since there were huge outstanding arrears towards receivables from same DISCOMs. It was further commented by the Auditors that any payment received should be first adjusted old trade receivables and allowance of such a rebate showed lack of internal control and defied accounting principles. On the other hand, delayed payment surcharge (DPS) on sale of power was recognized as income when it was actually received. The Auditors also commented that allowing such a rebate without recognizing DPS showed lack of internal control. When confronted, the assessee company stated that rebate was allowed on the basis of OERC tariff order dated 23.03.2012.
3. The Assessing Officer however noticed that para-542 of OERC tariff order dated 23.03.20L2 only mentions that for payment of bills through a letter of credit (LOC) or cash within 2 working days, a rebate of 2% shall be allowed. Further if payments are made by a mode other than LOC within a month of presentation of bills then a rebate shall be allowed. However said para-542 did not mention that the assessee was authorized to allow rebate to DISCOMs on current payments. On the other hand, the assessee company should have adjusted such current payments towards old outstanding arrears.
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The Assessing Officer also found out that rebate was allowed to DISCOMS by the order of OERC dated 23.03.2015 for F.Y. 2015-16 (A.Y. 20L6-17) as discussed in para-6 on page-3 of the assessment order. It was also mentioned therein that DISCOMs were not allowed rebate since excess payments were always adjusted against past arrears. Thus the A.O. inferred that rebate could not be allowed in the current year A.Y. 2013-14.
5. At the same time, the assessee company had resorted to write off of receivables of Rs.143.73 crores from these very DISCOMs. This was alleged to have been done on the basis of Board Resolution dated 26.10.2013 and Finance Department Resolution dated 15.10.2013. However it was pointed out by the Auditors in para-l0.1 of audited accounts and auditor report that there was no mention in the Finance Department Resolution about write off of receivables from DISCOMs. Such write off was disallowed by the A.O. as the assessee company had not placed on record any 'evidence that state government had advised it to write off the receivables of Rs.143.73 crores. Further it was not shown with documentary evidences whether the impugned amount had been offered to tax in A.Y. 2Ol2- 13 as alleged by the assessee company. The A.O. also inferred that it was not understood that how the receivables of F.Y. 2011- 12 had suddenly become non realizable when receivables prior to F.Y. 2011- 12 were not written off and shown as pending receivables. Further the Government of Odisha, Finance Department vide resolution dated 15.10.2013 had provided equity support of Rs.143.73 crores to the assessee company by reduced RST bill in F.Y. 2011-12 as share capital/equity investment. 6. The findings of ld. CIT(A)-I, Bhubaneswar in para-2.2 on page-4 of the appellate order as regards disallowance of rebate are cryptic and non speaking. It has been held that comments of the Auditors only question the wisdom of the assessee company and same has nothing to do with the taxable income. The Id. CIT(A) has further held that how an assessee should run its business, should be left to the wisdom of the assessee and that the A.O. can't put himself in the place of the assessee and determine as to how the business should be run. At the same time, the ld. CIT(A)-l Bhubaneswar has confirmed the action of the A.O. to disallow the write off of receivables from DISCOMs. The action of Id. CIT(A) is thus contradictory.
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7. The Hon'ble Mumbai ITAT in the case of LML Limited vs. JCIT (46 taxmann.com 377) held in para-10.1 as under: "10.1 The A.O., as an assessing authority, cannot adopt his subjective standard of reasonableness, but it is well within his purview to examine that the expenditure or the liability stands incurred in the character of a trader, i.e., on business/trade considerations. The test as laid down in British Insulated and Helsby Cables Ltd. vs. Atherton [1926] AC 205 stands quoted with approval and applied by the apex court in Eastern Investments Ltd. vs. CIT [1951] 20 ITR 1 and CIT vs. Chandulal Keshavlal & Co. [1960] 38 ITR 601 (SC) (at pg.611). Reasonableness, thus, is not ousted from consideration of the A.O. but is to be examined or considered from the standpoint of the business man and, further, based on an objective assessment of the matter. It is trite law that in the expression 'wholly and exclusively' used in section 37(1), the word 'wholly' refers to the quantum of the expenditure, the sums spent, and the word 'exclusively' occurring in the qualifying condition of the said provision refers to the motive or the objective of incurring the expenditure, so that both the purpose, exhibiting the nature or the character of the payment, and its quantum, are relevant and, therefore, would need to be substantiated. Quantum, it is to be appreciated, may have a direct bearing or relation with the genuineness of the expenditure itself. What is proscribed though is the questioning of the decision to make the payment where otherwise made in the capacity of a trader. Again, it may also not be permissible to draw an adverse inference, i.e., as to the nature, on the basis of quantum alone, which though is a relevant consideration and could form, along with others, as well as other corroborative evidences, a reasonable and cogent basis for drawing an adverse inference in the facts of a particular case. It is not open for the assessing authority to, for example, question if the assessee travels business class or economy class, or even if he was at all required to undertake the travel where the purpose is otherwise not in doubt. He cannot, likewise, to cite another example, question if the assessee stays in an ordinary hotel or a five star hotel (say) as long as the purpose of the stay is for business. However, if the assessee books expenditure for business-c1ass, while travels economy, the same would definitely call for explanation, and a disallowance for the difference (say) follow where no satisfactory explanation is furnished and, further, it shall be no ground that the payee has duly accounted for or disclosed the receipt or is not related to the assessee, considerations which may otherwise be P a g e 4 | 12 Assessment Year : 2013-14 relevant and go into forming a view as to the genuineness of the whole expenditure, i.e., as claimed. The burden of proving commercial expediency, it needs to be appreciated, extends to the whole of the expenditure being claimed and not to a part of it, so that, where relevant, the same would need to be established. Further, the issue of quantum, as afore-stated, falls squarely within the scope and ambit of the words 'wholly and exclusively' occurring in section 37(1), the test of which has to be satisfied. The primary onus to prove its return, and thus the claim,/s preferred thereby, is only on the assessee (refer: CIT vs. Calcutta Agency Ltd. [1951] 19 ITR 191 (SC)). What, therefore, the assessee is being called upon to satisfy is the condition of section 37(1). Any other reading of the law would, besides defeating its clear mandate per section 37(1), make the use of the words 'wholly and exclusively' therein otiose. An assessee could book any sum of expenditure, and which may have serious implication on its genuineness. The only limitation on the A.O., whose powers in the matter of assessment are plenary, is that he cannot step into the shoes of the businessman so as to decide what ought to be expended, how and where. He is however, at the same time, duty bound to determine that the expenditure as claimed has been e:rpended for business purposes, viewed of course from a businessman's point of view - nothing more and nothing less. The assessee, being in the intimate know of its affairs, only could explain the purpose of expending the amount as 'actually' expended, so that the issue is essentially with regard to the reality of the expenditure (to the extent claimed). Reasonableness, it would be thus seen, is imbued in and an essential element of the assessment process, being fundamental to its objectivity and cogency, i.e., the parameters on which a valid assessment rests."
8. The Hon'ble Allahabad High Court in the case of CIT vs. Sahu Enterprises (P.) Ltd. (31 ta:onann.com 27O) held in para-2z,23,29 & 30 as under: "22. In the instant case, the assessee company was not having its own capital. It has borrowed the funds from the market on interest @ 20%. Thus, the assessee has paid heavy interest and the returns were filed by showing loss.
On the other hand, the Directors (Brain of the Company) made no attempt to repay the loan. Had they paid the interest free loan, proportionately, borrowing liability might have been reduced. The Company has not acted as a prudential businessman as per the ratio
P a g e 5 | 12 Assessment Year : 2013-14 laid down in the cases of Voltamp Transformers (P) Ltd. vs. CIT [1981) 129 ITR 105/5 Taxman 253 (Guj.); and CIT vs. Walchand & Co. (P.) Ltd. [1967] 65 ITR 381 (SC) where it was observed that yardstick will have to be taken from the businessman point of view but the businessman must be a prudent businessman.
The Commercial expediency would include such purpose as is expected by the assessee to advance its business interest and may include measures taken for preservation, protection or advancement of its business interests. The business interest of the assessee has to be distinguished from the personal interest of its directors or partners, as the case may be. In other words, there has to be a nexus between the advancing of funds and business interest of the assessee. The appropriate test in such a case would be as to whether a reasonable person stepping into the shoes of the directors/partners of the assessee and working solely in the interest of the assessee, would have extended such interest free advances. Some business objective should be sought to have been achieved by extending such interest free advance when the assessee itself is borrowing funds for running its business. It may not be relevant as to whether the advances have been extended out of the borrowed funds or out of the mixed funds, which included borrowed funds. The test to be applied in such cases is not the source of the funds but the purpose for which the advances were extended.
In the light of above discussion, we set aside impugned order passed by the Tribunal and restored the order passed by the assessing officer in this regard for the assessment years mentioned above." This view was also followed by the Hon'ble Delhi High Court in the case of Punjab Stainless Steel Inds. vs. CIT (196 Taxman 4O4). In view of above facts, the addition made by the A.O. on account of disallowance of rebate has to be upheld and decision of ld. CIT(A) should be reversed.”
Ld CIT DR submitted that the independent auditor’s report, which is found at page 54, para 9 and 9.1 of PB clearly shows that the independent auditor had given a report that the granting of rebate to the DISCOMs
P a g e 6 | 12 Assessment Year : 2013-14 especially when there was substantial dues from the DISCOMs defies the principles of commercial prudency. It was the submission that the assessee had granted the DISCOMs 2% rebate on account of prompt payment of the dues. It was the submission that under commercial prudency, the payments should have been first adjusted against the past dues. It was the submission that the assessee instead of settling of the amounts against the past dues, settled the amounts against the current dues and granted the DISCOMs a rebate of 2%. It was the submission that as mentioned by the independent auditor, this clearly showed a lack of internal control. It was the submission that even otherwise, the assessee has, during the relevant assessment year, written off Rs.143.73 crores relating to the immediately preceding assessment year receivable from DISCOMs. It was the submission that no prudent business man would grant rebate to its customers and write off the dues that was pending from the immediately preceding assessment year. It was the submission that admittedly, the ld CIT(A) had deleted the addition by holding that the Assessing Officer could not step into the shoes of the business man and that how to do business would left to the assessee. It was the submission by ld CIT DR that this view of the ld CIT(A) is erroneous. It was submitted by ld CIT DR that reasonableness is not ousted from the consideration of the AO, but admittedly it has to be examined or considered from the point of view of the business man. It was the submission that the Assessing Officer had P a g e 7 | 12 Assessment Year : 2013-14 found that the rebate was uncalled for. It was the further submission that the Assessing Officer, however, has the duty to determine that the expenditure as claimed had been expended for business purposes from business man point of view. the Assessing Officer has also the duty to verify whether such reasonableness is embodied and essential to the element of the expenditure. It was the submission that admittedly, the yardstick in respect of expenditure will have to be taken from the businessman point of view. It was the submission that in assessee’s case, the independent auditor had clearly given a conclusion that what has been done by the assessee in granting the rebate and also the action of the write off the dues from DISCOMs from the immediately preceding assessment year is not something a prudent man will do. Ld CIT(A) has placed reliance on the direction issued by OREC. It was the submission that the OERC order is on 23.3.2015, which directed the assessee to grant 2% rebate on the prompt payments. It was the submission that the order of OERC is relating to assessment year 2015-16 whereas the impugned assessment is 2013-14. It was the submission that thus, the order of the ld CIT(A) is erroneous and liable to be reversed.
In reply, ld AR submitted that the assessee is a State Government Undertaking, which is operating in a regulated regime. The assessee is bound by the direction issued by the Regulatory Authority. The assessee is not a business man per se. The assessee is a State Government
P a g e 8 | 12 Assessment Year : 2013-14 Undertaking providing the services under regulated regime. The assessee sells powers to DISCOMs. Admittedly, the DISCOMs are substantially delaying in the payment of charges to the assessee. OERC as early as dated 23.3.2012 had directed that when DISCOMs make payment within the specified time, the assessee should grant rebate of 2%. In respect of issue of write off of Rs.143.73 crores, it was the submission that it was not write off of the dues from DISCOMs. It was the submission that Rs.143.73 crores was in respect of increase in charges in respect of consumers who are consuming the power between 50 to 100 units. It was the submission that subsequently, the Regulatory Authority directed that this increase in tariff is to be reversed. It was this reversal of tariff which led to write off of Rs.143.73 crores. It was the submission that the write off of Rs.143.73 crores had nothing to do with the rebate of Rs.31,00,00,000/- granted by the assessee to the DISCOMs. It was the submission that admittedly, by an order dated 23.3.2015, OERC had again come down heavily on the assessee for not granting 2% rebate to the DISCOMs. It was the submission that when the assessee attempted to be a prudent business man, OERC forces the assessee to give further deduction. It was the submission that the rebates have already been granted and they would have offered the same as their income. It was the submission that the order of the ld CIT(A) is liable to be upheld.
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We have considered the rival submissions. The facts in the present case clearly show that the rebate of Rs.31 crores given to the DISCOMs are admittedly in no way connected to the write off of the amount of Rs.143.73 crores. This rebate of Rs.31 crores has been granted by the assessee to DISCOMs as per the order of OERC dated 23.3.2012. The assessee is admittedly under the regulated regime. The regulations are provided by OERC. Once a direction is given to the assessee by its Regulatory Authority, there is no option available to the assessee to apply its independent mind to grant or not to grant the rebate. The rebate has been granted only on the basis of the direction of OERC. The claim of the revenue that OERC order is dated 23.3.2015 is not entirely correct insofar as, as per the order dated 23.3.2012 itself OERC has directed the assessee to grant DISCOMs the rebate for prompt payment of dues. This being so, the question of commercial prudency does not come into play in the case of such assessee as the assessee. This being so, we find no reason to interfere with the order of the ld CIT(A) on this issue and same stands upheld.
Ground Nos.4 & 5 read as under:
“4. On the facts and in the circumstances of the case and in law, the ld CIT(A) is not justified in deleting the addition of Rs.45,63,46,128/- made by the AO in his assessment order towards ‘write off of provision for doubtful debt.’ 5. Having regard to the facts and reasons stated by the AO in detail in para 5 of the assessment order, the ld CIT(A) ought to have appreciated that the AO was right in disallowing the claim of the assessee of Rs.45,63,46,128/- towards write off of provision for P a g e 10 | 12 Assessment Year : 2013-14 doubtful debt and thus, adding the same amount to the total income of the assessee in the assessment for the assessment year 2013-14.”
It is noticed from the PB at page 81, which is the copy of the computation of total income, which shows that the assessee has added back the provision for bad and doubtful debt to the extent of Rs.45.63 crores in respect of Orissa Lift Irrigation Corporation. As it is noticed that the assessee in the computation has added back the said amount, the grounds as raised by the revenue no more survive. A perusal of the order of the ld CIT(A) shows that the ld CIT(A) in para 4.2 of the order has considered this fact that the provision of Rs.45.63 crores created in the accounts for the F.Y. 2008-09 has been added back in the computation of income. This being so, as the amount has already been offered to taxation earlier, the same cannot be treated as income during the relevant assessment year. This being so, the findings of ld CIT(A) on this are confirmed
In the result, appeal of the revenue stands dismissed.
This is an appeal filed by the revenue against the order of the ld CIT(A)-1, Bhubaneswar, dated 13.10.2017 in Appeal No.0154/16-17 for the assessment year 2014-15.
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Ld Representatives of the parties agreed that the issue in the present appeal is identical to for the assessment year 2013- 14. Therefore, on identical findings in respect of the issue of rebate, the appeal of the revenue stands dismissed for the assessment year 2014-15.
In the result, appeal of the revenue stands dismissed.
Order dictated and pronounced in the open court on 20/02/2023. Sd/- sd/- (Arun Khodpia) (George Mathan) ACCOUNTANT MEMBER JUDICIAL MEMBER Cuttack; Dated 20/02/2023 B.K.Parida, SPS (OS) Copy of the Order forwarded to : 1. The Appellant : DCIT, Corporate Circle - 1(1), Bhubaneswar 2. The Respondent: GRID Corporation of Orissa Ltd., Janapath, Bhubaneswar 3. The CIT(A)-1, Bhubaneswar 4. Pr.CIT-1, Bhubaneswar 5. DR, ITAT, Cuttack 6. Guard file. //True Copy// By order
Sr.Pvt.secretary ITAT, Cuttack
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