DCIT, KOLKATA vs. WEST BENGAL STATE ELECTRICITY DISTRIBUTION COMPANY LTD, KOLKATA

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ITA 2571/KOL/2025Status: DisposedITAT Kolkata16 September 2026AY 2010-115 pages
AI SummaryDismissed

What did the Tribunal hold?

The Tribunal upheld the CIT(A)'s decision, finding no infirmity. The amount represented accumulated losses and was already accounted for in the appropriation section, thus its subsequent recovery could not be treated as fresh income, avoiding double taxation.

What were the facts?

The Revenue appealed against the deletion of an addition of ₹17.06 crores made by the AO. The assessee had recognized income from a regulatory mechanism, but a portion of it was routed through the appropriation account as accumulated losses, not the P&L account.

What were the issues?

Whether the amount routed through the appropriation account as accumulated losses, and subsequently recovered, could be treated as taxable income in the relevant assessment year.

Which sections of the Income-tax Act were involved?

Section 115JB

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “D” BENCH, KOLKATA

For Appellant: Shri Anuj Musaddi, AR
For Respondent: Shri Sanat Kumar Raha, DR
Hearing: 27.08.2026Pronounced: 16.09.2026

Per Rajesh Kumar, AM:

This is an appeal preferred by the Revenue against the order of the National Faceless Appeal Centre, Delhi (hereinafter referred to as the “Ld. CIT(A)”] dated 25.08.2025 for the AY 2010-11.

2.

At the outset, we observe from the appeal folder that there is a delay of 6 days in filing the appeal by the department in support of which a condonation petition was filed. It was stated in the condonation petition that the delay has occurred due to obtaining the administrative approval from the competent authorities, which took quite a long time and accordingly, the delay may be condoned. The ld. AR, on the

ITA no. 2571/KOL/2025 West Bengal State Electricity Distribution Company Ltd.; A.Y. 2010-11 other hand, did not oppose the condonation of delay. Considering the reasons cited before us, we are inclined to condone the delay and admit the appeal for hearing.

3.

The only issue raised by the Revenue is against the order of ld. CIT (A) deleting the addition of ₹17,06,00,000/- in respect of income from regulatory mechanism, which was credited in the appropriation section of the P& L account and not in the main profit and loss account.

4.

The facts in brief are that the assessee is a company owned by the State of West Bengal and engaged in the distribution of electricity in the State of West Bengal. The assessee filed the return of income on 12.10.2010, declaring total income at ₹nil. The case of the assessee was selected for scrutiny and statutory notices along with questionnaire were duly issued and served upon the assessee, which were complied with by the assessee. The ld. AO noted during the course of assessment proceedings that assessee’s income through regulatory mechanism was considered at ₹4,359.63 lacs instead of ₹6,065.3 lacs and the balance of ₹1,706 lakh was not shown in the profit and loss account. The assessee replied the query of the assessee, however, the ld. AO treated the said amount of ₹1,706 lacs as income of the assessee by adding the same to the total income under the normal provisions as well as for the purpose of book profit.

5.

In the appellate proceedings, the ld. CIT (A) allowed the appeal of the assessee by observing and holding as under:- Page 2 of 5

ITA no. 2571/KOL/2025 West Bengal State Electricity Distribution Company Ltd.; A.Y. 2010-11 “(ii). On examination of records, it is noted that pursuant to the order dated 28.08.2008 of the West Bengal Electricity Regulatory Commission (WBERC), the appellant had taken over the business of distribution of electricity earlier carried on by Singur Haripal Rural Electric Cooperative Society Ltd., together with all its assets and liabilities. The WBERC order, while approving such takeover, specifically permitted the appellant to recover through future tariff the excess of liability over assets of the said society. Accordingly, the excess liability amounting to Rs. 60.65 crores was recognised as recoverable through tariff and considered as income through regulatory mechanism. Out of this, the appellant accounted for Rs. 43.59 crores as income in the financial year 2009-10, while the balance of Rs. 17.06 crores was shown below the line in the appropriation account, contending that it represented accumulated losses of the Society and, therefore, could not be recognised as income in the Profit & Loss account. (iii). The Assessing Officer, however, observed that since the appellant follows the mercantile system of accounting, the entire sum of Rs. 60.65 crores was required to be recognised as income in the year under consideration. Accordingly, the AO added back the remaining sum of Rs. 17.06 crores in the computation of total income and also in the computation of book profit under Section 115JB. (iv). The appellant, on the other hand, has argued that (i) while computing book profits for FY 2008-09, the excess liability of Rs. 43.59 crores was already taken to the Profit & Loss account and offered to tax; (ii) the balance Rs. 17.06 crores represented accumulated losses and was appropriately routed through the appropriation account as per standard accounting principles; and (iii) since the original debit was in the appropriation section, the reversal also had to be made in the appropriation section, and therefore, there was no justification for treating the same as income of the year under consideration. The appellant further contends that taxing the said amount again in AY 2010-11 would amount to double taxation. The same argument was taken before the AO in the impugned reassessment proceedings but the AO failed to appreciate the difference in the nature of the two treatments meted out to two different segments/components of a composite quantum of 60.65 crores. (v). I have carefully considered the rival contentions. The fact remains that the WBERC order categorically allowed recovery of the entire liability of Rs. 60.65 crores through tariff, and hence, the amount represents income arising through a regulatory mechanism. However, the accounting treatment adopted by the appellant shows that only Rs. 43.59 crores was routed through the Profit & Loss account and offered to tax in AY 2009-10, while Rs. 17.06 crores was taken directly to the appropriation account on the reasoning that it represented accumulated loss. Since no corresponding adjustment was made in the computation of book profit in FY 2008-09, the Assessing Officer has treated the said amount in 2009-10 as taxable income. Page 3 of 5

ITA no. 2571/KOL/2025 West Bengal State Electricity Distribution Company Ltd.; A.Y. 2010-11 (vi). In my view, once the regulatory authority had permitted recovery of the entire liability, there was no justification for splitting the same into two parts and excluding Rs. 17.06 crores from the Profit & Loss account. Nevertheless, since the appellant has demonstrated that the said amount stood debited in the appropriation account in FY 2008-09 and was thus already considered in the regulatory framework of tariff fixation, its subsequent reversal cannot again give rise to taxable income in FY 2009-10 relevant to AY 2010-11. Taxing the same would, in effect, result in double taxation of the same item, which is impermissible. The AO has added the same only for the sole reason of appellant following mercantile system, thus, ignoring the underlying details. (vii). Accordingly, the addition of Rs. 17.06 crores made by the Assessing Officer, both in the normal computation of income and in the computation of book profit under Section 115JB, is directed to be deleted. Accordingly, the Grounds No. 1 and 2 are allowed. 6. After hearing the rival contentions and perusing the materials available on record, we find that ₹1,706 lacs represented the accumulated losses, which was routed through appropriation section of Profit and Loss account and was not debited in the Profit and Loss account. The said amount was part of ₹6,065.30 crores, which was excess liability recognized as recoverable through tariff and considered as income through regulatory mechanism. Out of this the assessee accounted for ₹4,359 crores as income in the F.Y. 2009-10 while the balance of ₹1706 crores was shown below the line in the appropriation account on the ground that it represented accumulated losses and therefore could not be recognized as income in the Profit and Loss account. The ld. CIT (A) allowed the appeal of the assessee on the ground that the loss was depicted in the appropriation section. Therefore, when subsequently would it was recovered the same cannot be treated as income of the assessee. Considering these facts,

Page 4 of 5

ITA no. 2571/KOL/2025 West Bengal State Electricity Distribution Company Ltd.; A.Y. 2010-11 we do not find any infirmity in the order of ld. CIT (A) and accordingly, uphold the same by dismissing the appeal of the Revenue.

7.

In the result, the appeal of the Revenue is dismissed.

Order pronounced on 16.09.2026.

Sd/- Sd/- (PRADIP KUMAR CHOUBEY) (RAJESH KUMAR) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) Kolkata, Dated: 16.09.2026 Sudip Sarkar, Sr.PS Copy of the Order forwarded to: 1. The Appellant 2. The Respondent 3. CIT DR, ITAT, 4. 5. Guard file. BY ORDER, True Copy//

Dy. Registrar Income Tax Appellate Tribunal, Kolkata

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