ASST. COMMISSIONER OF INCOME TAX, CIRCLE-1, WARANGAL vs. NORTHERN POWER DISTRIBUTION COMPANY OF TELANGANA LIMITED,, WARANGAL

Briefly stated relevant facts are that the assessee is a company, owned by the Government of Telangana State and is engaged in the business of distribution of electrical power. For the assessment year 2015-16 they have filed their return of income on 29/09/2015 declaring a loss of Rs. 14,63,39,89,456/- which they revised to Rs. 13,09,64,30,283/- on 28/03/2016. Learned Assessing Officer, however, by way of order dated 22/12/2017 passed under section 143(3) of the Income Tax Act, 1961 (‘the Act’) determined the business loss at Rs. 8,14,72,48,741/- after making certain additions which includes a sum of Rs. 4,33,03,32,798/- on account of tariff subsidy receivable from the Government, Rs. 1,05,357/- towards disallowance of corporate social responsibility expense and Rs. 51,52,95,504/- on account of disallowance of consumer contribution amortization. Apart from this, learned Assessing Officer declined to allow the assessee to carry forward the current year losses.

In appeal, learned CIT(A) deleted the disallowance of Rs. 51,52,95,504/- on account of consumer contribution amortization and also allowed the assessee to carry forward the current year losses. Learned CIT(A), however, sustained the addition of Rs. 4,33,03,32,798/- on account of the tariff subsidy receivable from the Government and the disallowance of the corporate responsibility expenses to the tune of Rs. 1,05,357/-. Aggrieved by the additions that are sustained, assessee and aggrieved by the deletions, Revenue preferred these appeals.

Now coming to the addition on account of tariff subsidy, the case of the assessee is that every year it requests the state Government for tariff subsidy to meet the commitments of the Government to consumers and to that extent, it makes a proposal for sanction of the subsidy. The Government, however, never grants the amount of subsidy requested by the assessee but it always grants the lesser amounts as is evidenced by the various GOs and found by the authorities below. Insofar as the financial year 2014-15 is concerned, as against the request of subsidy to the tune of Rs. 4,724.79 crores by the transmission companies, the Government of Telangana approved only Rs. 300 crores per month. So also, the composite state sanctioned only Rs. 202.46 crores for the months of April and May as against the request for Rs. 244.37 crores.

It is, therefore, clear that the difference in question is not the difference between the amounts sanctioned and paid by the Government towards subsidy. A reading of the orders of the authorities below indicate that they have taken the amount that was requested as the amount that was accrued while treating the amount that was sanctioned as the amount that was paid. That is the reason why, learned CIT(A) noted in his order that the company is bound to follow the mercantile basis of accounting and, therefore, the assessee should have taken into consideration the amount due from the state Government while showing the un-realised amount as amount receivable.

It could be seen from the letter dated 30/04/2019 addressed by the assessee to the learned CIT(A) and also the order of the learned CIT(A) passed on 12/07/2019 that the so called difference is not the ‘difference between the amount sanctioned and amount received’ but as a matter of fact, it is the ‘difference between amount requested and the amount sanctioned’. In the event of the Government sanctioning the amount and paying the same, the question of receivables does not arise. By no stretch of imagination can we take the amount requested by the assessee as the amount that was accrued. Accrual comes only when the Government approves the proposal and sanctions the same.

With this view of the matter, we are of the considered opinion that without the claim of the assessee being accrued with the sanction of the Government, the question of assessee showing the same on mercantile basis and showing the amount that was not paid as receivables, does not arise. We, therefore, direct the learned Assessing Officer to verify whether the difference in question arises between the amount requested and sanctioned or between the amount sanctioned and paid. If the difference is not between the amount sanctioned and paid, there will be no difference between the amount accrued and received and consequently the addition cannot be sustained. In such event, the learned Assessing Officer will delete the addition. This ground is accordingly allowed.

Coming to the corporate social responsibility expense, learned CIT(A) noted that subsequent to the amendment to section 37 with effect from 01/04/2015 the corporate social responsibility expenditure is not allowable and accordingly upheld the addition. Assessee, however, submits that out of this amount of Rs. 1,05,357/- a sum of Rs. 65,357/- represents the waiver of power charges on a consumer who is maintaining a home for mentally challenged children, but not the expenditure incurred by the assessee towards corporate social responsibility expenditure. He prayed to allow the same to that extent. It is a verifiable fact. Hence we restore this issue to the file of the learned Assessing Officer for verification and to take a view according to law.

Now coming to the addition of Rs. 21,52,95,504/-, towards consumer contribution amortization, both the counsel submitted that this issue is a continuing one and as a matter of fact, considered by a Co- ordinate Bench of this Tribunal for the assessment years 2013-14 and 2014-15 in which years, the Co-ordinate Bench of this Tribunal thought it fit to restore the issue to the file of the learned Assessing Officer to verify the necessary facts pertaining to the disallowance of depreciation on consumer contribution amortization. In view of this consistent view taken in assessee’s own case, for the assessment years 2013-14 and 2014-15 and taking into consideration the request made by both the counsel, we direct the learned Assessing Officer to verify the relevant facts and take a view in consonance with the view to be taken for the assessment year 2013-14 and 2014-15.

Now the last aspect is in respect of the allowing the assessee to carry forward the current year losses. Learned CIT(A) considered this issue in detail and observed that the due date for filing the return of income in this case was 30/09/2015 and if no return of income is filed by this date, even then, under section 139(4) of the Act, the return could have been filed at any time before the end of relevant assessment year or before the completion of the assessment, whichever is earlier, and as a matter of fact, in this case the assessee filed the return of income before the due date of return, whether such return was based on audited books of accounts or not is immaterial. Learned CIT(A), therefore, held that once the return is filed before the due date, the same could be revised within the time allowed for revision and section 139(3) of the Act does not put any restrictions, except that the return should be filed within the due date if loss has to be carried forward. Learned CIT(A) further observed that the final computation of income was done on the basis of the revised return and, therefore, the learned Assessing Officer cannot preclude the assessee to carry forward the current year losses.

Reasoning given by the learned CIT(A) does not warrant any interference and we, therefore, uphold the same.

In the result, both the appeals are treated as partly allowed for statistical purposes.