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Income Tax Appellate Tribunal, DELHI BENCH “F”NEW DELHI
Before: SHRI NARENDRA KUMAR BILLAIYA & SHRI CHALLA NAGENDRA PRASAD
सुनवाईक�तारीख/ Date of hearing: 18.01.2022 31.03.2022 उ�ोषणाक�तारीख/Pronouncement on आदेश /O R D E R PER C.N. PRASAD, J.M.
All these appeals filed by the Revenue are directed against different orders of the Ld. Commissioner of Income Tax (Appeals) for the AYs 2011-12 to 2014-15. Since the grounds raised by the Revenue are common they were heard together and disposed of by this common order for the sake of convenience.
The first common ground in all these appeals of Revenue except for the figures is relating to surplus profit remained in Bank account maintained for UI/CC/RE charges whether income in the hands of the assessee and the grounds read as under:
I.T.A.Nos.4145/Del/2017, 101/Del/2017, 2718/Del/2016 & 3112/Del/2014
Briefly stated the facts that the assessee company is wholly owned subsidiary of Power Grid Corporation of India, the Government of India Enterprise incorporated on 20.03.2009. Being a Public Limited Company under the Companies Act, 1956 assessee obtained certificate for commencement of business on 23.03.2010. By virtue of Section 27(2) of Electricity Act (EA), 2003 CTU had been operating the Regional Load
I.T.A.Nos.4145/Del/2017, 101/Del/2017, 2718/Del/2016 & 3112/Del/2014 Dispatch Centers (RLDC) till September, 2010. As notified by the Government of India vide notification dated 27th September, 2010 the Assessee Power System Operation Corporation Limited (POSOCO) a wholly owned subsidiary of power grid is operating the National Load Dispatch Center (NLDC) and RLDC from 01.10.2010. For the FY 2010-11 relevant to AY 2011-12 the assessee company filed its return electronically on 29.09.2011 declaring gross total income of Rs. 54,01,87,320/- which was revised on 29th September, 2012 declaring income of Rs. 54,00,01,990/-.
In the course of assessment proceedings assessee also filed a revised computation of income, wherein taxable income was admitted at Rs. 62,19,75,667/-. The assessment was completed u/s 143(3) on 31.01.2014 for the AY 2011-12 determined the income of the assessee under normal provisions of the Act at Rs. 1981,70,00,000/-. The Assessing Officer while computing the income made addition of Rs. 1973,33,00,000/- being surplus remained in Pool account of UI/RE/CC and interest income earned from bank deposit of such UI/RE/CC accounts as income of the assessee. In the course of assessment proceedings the Assessing Officer required the assessee as to why the surplus remained in Pool account for UI/RE/CC and interest income earned from bank deposit on such accounts should not be taxed as income of the assessee. In reply the I.T.A.Nos.4145/Del/2017, 101/Del/2017, 2718/Del/2016 & 3112/Del/2014 assessee submitted vide letter dated 20.11.2013 as under:
Further Assessee vide its letter dated 27.01.2014 submitted as under:
I.T.A.Nos.4145/Del/2017, 101/Del/2017, 2718/Del/2016 & 3112/Del/2014
I.T.A.Nos.4145/Del/2017, 101/Del/2017, 2718/Del/2016 & 3112/Del/2014 3.1 However, not convinced with the submissions made by the assessee the Assessing Officer held that surplus in Pool account under head UI/RE/CC and interest income earned from deposit of those accounts is Revenue receipt taxable in the hands of the assessee by observing as under: -
I.T.A.Nos.4145/Del/2017, 101/Del/2017, 2718/Del/2016 & 3112/Del/2014
The assessee carried the matter before the Ld. Commissioner of Income Tax (Appeals) and the Ld. CIT(Appeals) deleted the addition by holding that these amounts cannot be considered as income of the assessee as the surplus amounts in the regulatory accounts were never received by the assessee as income. The Ld. CIT(Appeals) also held that assessee was merely overseeing the collections in the four regulatory accounts and the amounts were diverted before they reached the assessee at source itself and the assessee cannot use these amounts in the regulatory accounts for any purpose. Against this order the Revenue is in appeal before us.
I.T.A.Nos.4145/Del/2017, 101/Del/2017, 2718/Del/2016 & 3112/Del/2014
The Ld. DR strongly supported the orders of the Assessing Officer and the Ld. Counsel for the assessee placed reliance on the orders of the Ld. Commissioner of Income Tax (Appeals). The Ld. Counsel for the assessee further submits that in view of the notification of Ministry of Finance the amounts in the form of congestion charges, unscheduled interchange charges, RLDC reactive energy charges, etc. are considered as Public Money under the provisions of Electricity Act, 2003 and the Power System Development Fund balance will be deposited in the Public Account. The Ld. Counsel submits that assessee is only a custodian for the funds and by virtue of this notification. The assessee is acting only as a trustee of these funds. The Ld. Counsel therefore, submits that on appreciation of the facts of the assessee and various notifications issued by the Ministry of Finance, Government of India, Central Electricity Regulation Commission (CERC) etc., the Ld. CIT(A) has rightly held that the surplus amounts in Regulatory accounts are not income of the assessee.
Heard rival submissions and perused the orders of the authorities below. We have carefully perused the orders of the Ld. CIT(Appeals) and find that the Ld. CIT(A) on examining various notifications issued by the Government of India, CERC, NLDC which is Nodal Agency and considering the detailed submissions of the assessee which is a Government of India Enterprise he concluded that surplus amounts in the Regulatory Accounts were never received by the assessee as income, the assessee was merely
I.T.A.Nos.4145/Del/2017, 101/Del/2017, 2718/Del/2016 & 3112/Del/2014 overseeing the collections in the Regulatory accounts, the amounts were diverted before they reached the assessee at the source itself. Thus, there is a diversion by overwrite title. The assessee cannot use the amounts in the regulatory accounts for any other purpose. Therefore, the amounts cannot be considered as the income of the assessee. While holding so the Ld. CIT(Appeals) given the following elaborate findings: -
I.T.A.Nos.4145/Del/2017, 101/Del/2017, 2718/Del/2016 & 3112/Del/2014 I.T.A.Nos.4145/Del/2017, 101/Del/2017, 2718/Del/2016 & 3112/Del/2014 I.T.A.Nos.4145/Del/2017, 101/Del/2017, 2718/Del/2016 & 3112/Del/2014 I.T.A.Nos.4145/Del/2017, 101/Del/2017, 2718/Del/2016 & 3112/Del/2014 I.T.A.Nos.4145/Del/2017, 101/Del/2017, 2718/Del/2016 & 3112/Del/2014 I.T.A.Nos.4145/Del/2017, 101/Del/2017, 2718/Del/2016 & 3112/Del/2014 I.T.A.Nos.4145/Del/2017, 101/Del/2017, 2718/Del/2016 & 3112/Del/2014 I.T.A.Nos.4145/Del/2017, 101/Del/2017, 2718/Del/2016 & 3112/Del/2014 I.T.A.Nos.4145/Del/2017, 101/Del/2017, 2718/Del/2016 & 3112/Del/2014 I.T.A.Nos.4145/Del/2017, 101/Del/2017, 2718/Del/2016 & 3112/Del/2014 I.T.A.Nos.4145/Del/2017, 101/Del/2017, 2718/Del/2016 & 3112/Del/2014 I.T.A.Nos.4145/Del/2017, 101/Del/2017, 2718/Del/2016 & 3112/Del/2014 I.T.A.Nos.4145/Del/2017, 101/Del/2017, 2718/Del/2016 & 3112/Del/2014 I.T.A.Nos.4145/Del/2017, 101/Del/2017, 2718/Del/2016 & 3112/Del/2014 I.T.A.Nos.4145/Del/2017, 101/Del/2017, 2718/Del/2016 & 3112/Del/2014 I.T.A.Nos.4145/Del/2017, 101/Del/2017, 2718/Del/2016 & 3112/Del/2014 I.T.A.Nos.4145/Del/2017, 101/Del/2017, 2718/Del/2016 & 3112/Del/2014 I.T.A.Nos.4145/Del/2017, 101/Del/2017, 2718/Del/2016 & 3112/Del/2014 I.T.A.Nos.4145/Del/2017, 101/Del/2017, 2718/Del/2016 & 3112/Del/2014 I.T.A.Nos.4145/Del/2017, 101/Del/2017, 2718/Del/2016 & 3112/Del/2014 I.T.A.Nos.4145/Del/2017, 101/Del/2017, 2718/Del/2016 & 3112/Del/2014 I.T.A.Nos.4145/Del/2017, 101/Del/2017, 2718/Del/2016 & 3112/Del/2014 I.T.A.Nos.4145/Del/2017, 101/Del/2017, 2718/Del/2016 & 3112/Del/2014 I.T.A.Nos.4145/Del/2017, 101/Del/2017, 2718/Del/2016 & 3112/Del/2014 I.T.A.Nos.4145/Del/2017, 101/Del/2017, 2718/Del/2016 & 3112/Del/2014 I.T.A.Nos.4145/Del/2017, 101/Del/2017, 2718/Del/2016 & 3112/Del/2014
None of the above findings were rebutted by the Revenue. It is the finding of the Ld. CIT(A) that the surplus amounts in the regulatory accounts were never received by the assessee a Government of India Enterprise. It is the finding of the Ld. CIT(A) that the amounts in regulatory accounts were diverted before they reached the assessee at the source itself and the assessee was merely overseeing the collections in the regulatory accounts. It is the finding of the Ld. CIT(A) that there is diversion by overriding title and the assessee cannot use the amounts in the regulatory accounts for any purpose and, therefore, it cannot be income of the assessee. These findings have not been rebutted with evidences by the Revenue.
We also observe from the submission of the assessee which was also extracted from the Ld. CIT(Appeals) in his order at page 22 and notification was issued by Ministry of Power for the operationalization of Power System Development Fund (PSDF) and utilization of funds deposited therein. As per the notification the money PSDF shall be deposited under the Public Account. The money is utilized for the schemes sanctioned by Govt. of India after techno-economic appraisal by a committee headed by a Chairperson – CEA and duly approved by the Regulator. The assessee also contended that referring to DOL from Secretary Power to Secretary Revenue letter dated 28.02.2014. It is the contention that as per the Cabinet approval NLDC is the nodal agency for implementation of the scheme formulated for utilization of PSDF funds.
I.T.A.Nos.4145/Del/2017, 101/Del/2017, 2718/Del/2016 & 3112/Del/2014 It is also submitted that the Secretary in his letter dated 28.02.2014 at para 5 had categorically mentioned that POSOCO is only acting as a nodal agency for the said function and the money in these pool accounts belong to CERC/MOP as observed by the CNAG. Assessee also referred to in “as observed by the CNAG in its report that the function of disciplining and regulating the grid are part of function of Central Electricity Regulatory Commission (CERC) and the funds lying in PSDF should not lie outside the Government Accounting System. The assessee further made its submissions before the Ld. CIT(A) as under:
I.T.A.Nos.4145/Del/2017, 101/Del/2017, 2718/Del/2016 & 3112/Del/2014
None of the above submissions of the assessee were counted by the Revenue as not true. Therefore, in view of the elaborate findings of the Ld. CIT(Appeals), we do not see any valid reason to interfere with the findings in holding that the surplus in Pool accounts under the head UI/CC/RE and interest income from banks on these accounts is not income of the assessee. Thus, we sustain the orders of the Ld. CIT(Appeals) for all these assessment years i.e. AY 2011-12 to AY 2014-15 on the issue of taxability of surplus in Pool account of UI/CC/RE and interest income from banks on these deposits in bank account from such accounts. The common ground nos. 1 to 6 raised by the Revenue in all these appeals are rejected.
The second common ground no. 7 raised for the assessment years 2012-13 and 2013-14 relates to deletion of disallowance made u/s 43B(b) of the Act in respect of provision made for post retirement medical benefits to employer. The Assessing Officer while completing the I.T.A.Nos.4145/Del/2017, 101/Del/2017, 2718/Del/2016 & 3112/Del/2014 assessment noticed that the assessee has created provision for retirement/package, post retirement medical benefit in the profit and loss account and the same has not been added back by the assessee in its computation of income. The assessee was asked to justify as to why the same should be allowed as deduction and the assessee submitted that the provision has been made on the basis of actuarial valuation, they are quantified and, therefore, they are allowable as deduction. Not convinced with the submissions the Assessing Officer disallowed provision for post retirement medical benefits u/s 43B of the Act. On appeal the Ld. CIT(Appeals) deleted the disallowance.
The Ld. DR placed reliance on the orders of the Assessing Officer and the Ld. Counsel for the assessee supported the orders of the Ld. CIT(A).
Heard rival submissions. It is not in dispute that the quantification done by the assessee in respect of post retirement medical benefits was on actuarial valuation as per accounting policy of the company. When once the quantification was done on actuarial valuation basis the liability is ascertained liability as held by the Hon’ble Supreme Court in the case of Bharat Earth Movers Vs. CIT [245 IGR 428]. On perusal of the order of the Ld. CIT(Appeals), we observe that the Ld. CIT(Appeals) following the decisions of Supreme Court in the case of Metal Box Company of India Limited [73 ITR 53], Bharat Earth Movers Vs. CIT, Protos Engineering
I.T.A.Nos.4145/Del/2017, 101/Del/2017, 2718/Del/2016 & 3112/Del/2014 Company Pvt. Ltd. Vs. CIT [282 ITR 550] and the decision of the jurisdictional High Court in the case of CIT vs. Ranbaxy Laboratory Limited [334 ITR 431] deleted the disallowance made by the AO u/s 43B(b) of the Act. We see no infirmity in the order passed by the Ld. CIT(Appeals). Thus, we sustain the Ld. CIT(Appeals) order. Ground no. 7 raised by the Revenue in its appeals for 2012-13 and 2014-15 is rejected.
The only ground left for adjudication in Revenue’s appeal in AY 2014-15 is in respect of deletion of prior period expenses for the Ld. CIT(A). The AO while completing the assessment, on perusal of financial statements and notes on accounts no. 2.24 and the Income Tax return filed for the assessee, noticed that assessee debited an amount of Rs. 10.63 crores as prior period expense. The assessee was required to explain as to why this amount should not be disallowed. The assessee explained that interest on pruing up was revised based on CERC order in the year under consideration on the basis of revised calculation for financial years 2010-11 to 2012-13 and, therefore, interest became payable and since this interest is relating to earlier years the same has been claimed as prior period expenses. Not convinced with the submissions of the assessee the AO disallowed 10.63 crores and added to the income of the assessee. On appeal the Ld. CIT(A) deleted the disallowance holding that the adjustments made during the year is on the basis of regulation issued by CERC for which the liability has crystallized during the year under consideration. However, prior period expenditure
I.T.A.Nos.4145/Del/2017, 101/Del/2017, 2718/Del/2016 & 3112/Del/2014 to the extent of 10.17 lakhs on account of training cost, transit hostel maintenance and depreciation pertaining to prior period was held to be not allowable in the absence of supporting furnished by the assessee.
The balance prior period expenses of 10.52 crores has been allowed as deduction by the Ld. CIT(A).
The Ld. DR strongly supported the orders of the AO, whereas the Ld. Counsel for the assessee relied on the orders of the Ld. CIT(Appeals).
This aspect of the matter has been considered by the Ld. CIT(A) with reference to the submissions made by the assessee as well as the averments made by the Assessing Officer and following the decision of the Delhi High Court in the case of DCIT vs. Indag Rubber Limited [280 ITR 194] deleted the prior period expenses to the extent of 10.52 crores observing as under: -
“5.3 I have carefully considered the assessment order, written submission furnished by and the case laws relied upon by the Ld. AR. The AO disallowed Rs. 10,63,03,285/- as prior period expenses debited in the P&L A/c as it was added back in the computation of income. The Ld. AR has submitted that net prior period expenditure/income has been claimed during the year arising from Regulation issued by the CERC for the period 2009-2014 and the said expenditure had arisen on the basis of actual working of Truing up on the basis of base rate on Truing up liability as on 31.03.2014 arising out of the CERC order. In the case of DCIT vs. Indag Rubber Limited (2006) 280 ITR (AT) 194 (Delhi), the Hon’ble Court has observed as under: “It has been held that even though the expenditure relate to previous year, actual carrying on of business which is live business cannot be cut off exactly, especially is an organization where activities are carried out through various site offices. Since prior period expenses were of routine nature in business carried on by assessee and even if the payments were delayed because of procedural delay and due to various administrative reasons, expenses were allowable 41
I.T.A.Nos.4145/Del/2017, 101/Del/2017, 2718/Del/2016 & 3112/Del/2014 in the relevant assessment year. In case no specific material instance the same cannot be disallowed.” 5.4 Considering the facts of the case, I am of the view that the claim is more in the nature of prior period adjustments made during the year on the basis of regulation issued by CERC for which liability has crystallized during the year. In the absence of any contrary finding by the AO, the disallowance is not sustainable. However, the appellant has not substantiated as to how prior period expenditure of Rs. 10,17,947/- on account of training cost, transit hostel maintenance and depreciation pertaining to prior period is allowable during the year. No supporting are available to show that liability for these expenses crystallized during the year. In view thereof, out of the total net prior period expenditure of Rs. 10,63,03,285/-, disallowance of Rs. 10,17,947/- is confirmed and the balance i.e. Rs. 10,52,85,338/- is directed to be deleted. This ground of appeal is partly ruled in favour of the appeal.”
15. On perusal of the Ld. CIT(Appeals) order, we do not see any valid reason to interfere with the findings of the Ld. CIT(Appeal) in deleting the prior period expenses of Rs. 10.52 crores. Thus, we sustain the order of the Ld. CIT(A). Ground no. 7 of grounds of appeal of Revenue for AY 2014-15 is rejected.
In the result, all the appeals of the Revenue are dismissed.
Order pronounced in the open court on 31/03/2022