M/S HIRA FERRO ALLOYS LTD. vs. DEPUTY COMMISSIONER OF INCOME TAX

PDF · subscribers
ITA/4/2003HC ChhattisgarhCGHC01003349200306 May 2013Author: HON'BLE THE CHIEF JUSTICE,HON'BLE SHRI JUSTICE PRITINKER DIWAKER5 pages
AI SummaryPartly Allowed

What did the High Court hold?

The High Court held that the accounts were maintained on the mercantile system. It agreed with the reasoning of the Calcutta High Court in the Hukumchand Jute and Industries Limited case, which dealt with similar contractual terms and mercantile accounting. The Court found that the contract between the Board and the Assessee was similar to that in the Hukumchand case. Therefore, the liability to pay FCA charges accrued in the assessment year in which the electricity was used. Consequently, the High Court allowed the appeal to the extent of granting the deduction of ₹60,61,369. The order of the Tribunal was set aside, and the order of the CIT(A) was upheld in this respect. The appeal was partly allowed with these observations.

What were the facts?

M/s Hira Ferro Alloys Limited (the Assessee) manufactures Ferro Manganese and Silico Manganese, using electricity supplied by the Madhya Pradesh State Electricity Board (the Board) under an agreement requiring provisional and final charges. The Assessee filed its return for AY 1995-96 showing total income of ₹22,11,440. After receiving a final bill on 20.09.1996, the Assessee filed a revised return on 29.11.1996, withdrawing Fuel Cost Adjustment (FCA) charges of ₹18,98,682 and substituting them with an enhanced amount of ₹60,61,369, making the revised income nil. The Assessing Officer (AO) allowed only ₹18,98,682 as deduction, assessing income at ₹57,55,040. The CIT(A) partly allowed the Assessee's appeal, granting deduction of ₹60,61,369 for FCA charges. Both the Assessee and the Department appealed to the Tribunal. The Tribunal allowed the Department's appeal concerning FCA charges, setting aside the CIT(A)'s finding. The Assessee has now appealed to the High Court.

What were the issues?

1. Whether the Tribunal was justified in disallowing the Assessee's claim for deduction of statutory liability on account of fuel cost adjustment (FCA) charges of ₹60,61,369 for electricity consumed during the previous year relevant to AY 1995-96, and if its findings that the Assessee had a contradictory stand were unreasonable and perverse? (Section 260A of the Income Tax Act, 1961) 2. Whether the deduction in respect of FCA charges of ₹60,61,369 could be denied to the Assessee in AY 1995-96 merely because of inadvertence in not making a claim on the same basis in AY 1994-95? Assessee's Contentions: The Assessee argued that the FCA charges of ₹60,61,369 represented a statutory liability that accrued in the assessment year itself or the year electricity was used, as accounts were maintained on the mercantile system. They relied on the Division Bench decision of the Calcutta High Court in Hukumchand Jute and Industries Limited vs. Commissioner of Income Tax (2003) 241 ITR 517 (Calcutta). Revenue's Contentions: The judgment does not explicitly record the revenue's contentions on these specific issues, but their appeal to the Tribunal was allowed, leading to the disallowance of the FCA charges.

Which sections of the Income-tax Act were involved?

Section 260A,Section 142(1),Section 143(2)

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
URE CHHATTISGARH 1g ag‘a/ BILASPUR ‘ IN THE HIGH COURT OF JUDICAT Income Tax Apneal No OH of 2003”, INCOME TAX APPEAL UNDER SECTION 260—A OF THE INCOME - TAX ACT, 1961 I \V ”a“ ’ L) ..... (Appeal against order dated / September 1?, 2002 passed by.w thgfm; e-Tax Appellate T ‘ ugal Nagpur Bench, Nagpur mITANo.\T?16/Nag/ year 1995-96) com 1999 and C.O. No. 49/Nag/1999 for the assessment §, p ; APPELLANT /’ -"" ,A. \k '. WaHira Ur1a1ndustria1Area,RaipumclG.) Ferro Alloys Limited v‘ £03 VERSUS ?' c-e .n‘ x’“ I/VL ?‘:;eé ’...RESPONDENT A Ky/{eputy (Assessment) Cotilmissioner l of Income—Tax " , - Special Range, Bhnai (0G) ’ The appellant begs to submit as under :- 1. ~ FACTS :- f/x. 7 7 l a /__,__ 1 HIGH COURT OF CHHATTISGARH AT BILASPUR DIVISION BENCH HON’LE SHRI YATINRA SINGH, C.J. HON’BLE SHRI PRITINKER DIWAER, J Income Tax Apgeal No. 04 of 2003 M/s Hira Ferro Alloys Limited Deputy Commissioner o Income-Tax (Assessment) Special Range, Bhilai. Income Tax Appeal under Section 260A of the IncomeTax Act, 1961 Appearance: - Shri Shashank Dubey, Senior counsel with Shri AM Tiwari, counsel for the Appellant. Shri Anand Dadaria, counsel for the Respondent. JUDGEMENT (07m May, 2013) 1. This is an appeal by M/s Hira Ferro Alloys Limited (the'Assessee) against the

order of the Income-Tax Appellate Tribunal, Nagpur (the Tribunal) dated 17.09.2002 partly allowing the appeal of the Income Tax Department (the Depanment) setting aside the finding of the Commissioner of income Tax (Appeals) (CIT— A) granting deduction in respect of fuel cost adjustment charges (the FCA- charges) for the assessment year 1995—96. THE FACTS

2.

The Assessee manufactures Ferro Manganese and Silico Manganese. In this production, it uses electricity, which was in the relevant year being supplied by the Madhya Pradesh State Electricity Board (the Board). There was an agreement between the Board and the Assessee. Under the agreement, the Assessee was required to pay provisional charges to the Board. However, the final charges were to be paid whenever they were indicated by the Board.

3.

The Assessee tiled its return on 30.11.1995 showing total income of ¥22,11,440/—. The Assessing Officer (the AO) issued notice under section 142(1) and 143(2) of the Income Tax Act, 1961 (the Act) for finalising the assessment. Before the assessment could be finalised, the CORAM: B D K Appellant : VERSUS f Respondent

2 Assessee received final bill from the Board on 20.09.1996. The Assessee filed its revised return on 29.11 .1996. In this revised return, the FCA— charges of ¥18,98,682/— were withdrawn and they were substituted by the enhanced amount of f60,61,369/—, thus making, the revised income to be nil.

4.

The AO by his order dated 25.03.1998 refused to acknowiege the FCA— charges of ¥60,61,369/—, but aliowed deduction of only ?18,98,682/-, thus declaring the income of the Assessee to ¥57,55,040/—.

5.

The Assessee fiied an appeai before the CIT- A, which was partly aliowed on 18.12.1998. Apart from other deductions, the CIT— A aliowed deduction of FCA— charges of T6061 ,369/— in place of ¥18,98,682/—.

6.

Aggrieved by the aforesaid order of the CIT- A, the Assessee as well as the Department, both filed appeals before the Tribunal. The appeais of the Assessee as well as the Department were partly allowed by the Tribunal. However, so far as deduction of FCA- charges of ¥60,61,369/- was concerned, the Department's appeal was allowed. Hence, the present ”appeal by the Assessee. QUESTIONS INVOLVED IN THIS APPEAL

7.

This appeal was admitted on 04.01.2005 on the following six substantial questions of law. However, the counsel for the Assessee states that he is pressing only question numbers— 2 and 3 that relate to FCA- charges of ¥60,61 ,369/-. (i) 'Whether the Tribunal was justified in law in holding that the deduction on account of quality rebate etc. of E5,50,957/— made by the appellant's customer-in respect of goods supplied and billed for during the previous year relevant to the assessment year 1995-96 was not to be considered for arriving at the income taxable for the said assessment year and the purported finding of the Tribunal that the appellant was not aware of such deduction during the said previous year and disallowing the said claim are arbitrary, ‘unreasonable and perverse? d

L 3 (ii)Whether the Tribunal was justmed1 in Iaw in disallowing the appellant‘s claim for deduction of the” statutory Iiability on account of fuel cost adjustment charges of ¥60 61 369l- in respect of the electnCity units consumed by the appellant during the prewous year reievant to the assessment year 1995-96 and Its purported fndings that the appellant had, contradictory stand and disallowing unreasonable and perverse? (iii)Whether the deduction in respect ;of the fuel cost adjustment charges of #60,61,369l—could be denied to the appellant in the assessment year 1995-96 merely because of the inadvertence on the part of the appellant to make a ciaim on the same basis in the assessment year 1994-95? l (iv)Whether the Tribunal was justified irj law holding tha interest on security deposit with Madhya Pradesh Electricity Board and on margin money deposrt wrth State Bank of India and the Interest received from customers for delayed payment of the price of goods sold was not income derived by the appellant from its industrial undertaking for the purpose of grant of relief under Section 80-l'7 (v) In the event the answer to question No. (iv) above is in the afhrmative, whether the Tribunal sh‘ould have held that interest expenditure incurred by the appellant for earning the interest l income could not be taken into consideration for the purpose of determining the income eligible for relief under Section 80-l? (vi)Whether the purported hndings of the Tribunal that the appellant adopted an InconSIstent/ i {the said claim are arbitrary, had not incurred any expenditure by Way of interest for earning the interest income or that any such position was not in dispute before it are wholly arbitrary, unreasonable or perverse? i: - {(200) 241 ITR 517 (Calcutta)} 1(the Hukumchand case)was also concerned With the same question. The l l I I .I/ a t

\ \. 4 assessee in that case had entered into a contract with the board with similar terms and aiso maintaining its accounts on mercantiie system. In the Hukumchand case, the division bench of the Calcutta High Court after considering the terms of the contract has held as follows: 'Considering the provisions of the agreement referred to above and the Board is constituted under the statute, it is the statutory liability that should be allowed as statutory liability when the assessee consumed the electricity units.'

9.

In the present case the contract between the Board and the Assessee is same as in the Hukumchand case. The Assessee here also carrying on its accounts on the mercantile system and the liability to pay FCA— charges accrued in the assessment year itself or in the year in which the electricity was used. 10. ln view of above, we agree with the reasons mentioned by the Calcutta High Court in the Hukumchand case. The present appeal to the extent of granting deduction of ¥60,61,369/— is allowed. In this respect, the order of the Tribunal is set aside and that of the CIT— A is upheld.

11.

With the aforesaid observations, the appeal is partly allowed. l- Chief Justice Pritinker Diwaker Judge 5 subbu \ t \1

More judgments on Section 142(1)

All 17,244 judgments and leading authorities on Section 142(1) →

Latest GST High Court judgments

Search GST case law →