M/S. TAMILNADU TRANSMISSION CORPN. LTD.,,CHENNAI vs. ACIT, CC-3(1), CHENNAI

आयकरअपील सं./ ITA No.2794/Chny/2019 (िनधा*रण वष* / Assessment Year: 2016-17) & 2. आयकरअपील सं./ ITA No.2040/Chny/2024 (िनधा*रण वष* / Assessment Year: 2016-17) M/s Tamilnadu Transmission Corp. Ltd. #144, NPKRR Maligai, Anna Salai, Chennai-600 002. बनाम / Vs. ACIT Corporate Circle-3(1), Chennai. थायीलेखासं./जीआइआरसं./PAN/TAN No. AADCT-4780-A (अपीलाथ/Appellant) : ( थ / Respondent)

1 The assessee has filed captioned appeals for Assessment Year (AY) 2016-17. First, we take up appeal ITA No.2794/Chny/2019 which arises out of the order of learned Commissioner of Income Tax (Appeals)-11, Chennai [CIT(A)] dated 11-07-2019 in the matter of an assessment framed by Ld. Assessing Officer [AO] u/s. 143(3) of the Act on 30-12-2018. The assessee has filed revised Form No.36 wherein the grounds taken by the assessee read as under: - 1. The order of The Commissioner of Income tax (Appeals) is contrary to law, facts and circumstances of the case. 2. The Commissioner of lncome tax (Appeals) erred in confirming payment of guarantee commission of Rs.11,48,19,190/- to the State of Tamilnadu in respect of loan guaranteed by the State. 3. The Commissioner of Income tax (Appeals) ought to have appreciated that financial institution insisted on the loan granted to Appellant should be guaranteed by the State Government and the State Government charged commission for providing guarantee. Hence the liability to pay commission had accrued and as it is for the purpose of business of the appellant, the same is an allowable deduction. 4. The Commissioner of lncome tax (Appeals) ought to have appreciated that under the Mercantile System of Accounting, liability is allowable deduction on accrual and need not await the actual payment before being allowed. 5. The Commissioner of lncome tax (Appeals) erred in confirming the disallowance of Rs.13,24,68,767/- being the liability towards contribution to recognized provident fund for the employees as per the contributory pension scheme laid down by the Government. 6. The Commissioner of Income tax (Appeals) ought to have appreciated that the actual payment of this amount awaited guideline to be issued by the Government of Tamilnadu regarding the manner of investment by the fund. /However, as the liability to the contribution to the fund has accrued and arisen under the Mercantile system of accounting, the same ought to have been allowed. 7. The Commissioner of Income tax (Appeals) erred in disallowing the provision of insurance reserve of Rs.404,98,92,373/- which was made as per clause 4 of Electricity Supply Annual Accounts Rules 1985. 8 The Commissioner of lncome tax (Appeals) ought to have appreciated that it was the provision made to meet the future losses arising to the Company on account of flood, fire cyclone. etc and hence provision for future liability made in accordance with the statutory rules is an allowable deduction. 9 The Commissioner of lncome tax (Appeals) erred in disallowing excess transmission charges of Rs.75,74,50,757 /- excessively charged and offered to tax in the assessment year 2015-16 now reversed and claimed as a deduction. 10 The Commissioner of Income tax (Appeals) ought to have appreciated that excess amount charged was reversed by way of a credit note raised in January, 2016 and hence this will amount to write off of receivables as not recoverable and hence the same should have been allowed as a deduction. 11 The Commissioner of lncome tax (Appeals) erred in confirming the disallowance of excess billing of Rs.6,70,51,233/- offered for tax in the assessment year 2014-15 and 2015-16 now reversed and claimed as a deduction. 12 The Commissioner of Income tax (Appeals) ought to have appreciated that this represented the write off as irrecoverable of an amount earlier offered for tax and hence should have been allowed as a deduction. 13 The Commissioner of lncome tax (Appeals) erred in confirming the disallowance of excessive operation and maintenance charges of Rs.10,90,54,311/- relating to assessment year 2014-15 and 2015-16 now reversed.

2 The Ld. AR placed on record ground-wise chart and advanced arguments. The Ld. AR has referred to the earlier decision of Tribunal in assessee’s own case, the copies of which has been placed on record. The Ld. CIT-DR also advanced arguments supporting the orders of lower authorities. Having heard rival submissions and upon perusal of case records, our adjudication would be as under. 1.3 As is evident, the issues that fall for our consideration are: - (i) Disallowance of Guarantee Commission of Rs.11.48 Crores as paid to State government of Tamilnadu; (ii) Disallowance of liability towards contribution to recognized provident fund for employees for Rs.13.24 Crores; (iii) Provisions for Insurance Reserves for Rs.404.98 Crores; (iv) Excess Transmission Charges for Rs.75.74 Crores; (v) Excess Billing for Rs.6.70 Crores; (vi) Excess Operation and Maintenance Charges for Rs.10.90 Crores; (vii) Disallowance of interest expenditure for Rs.2.06 Crores; (viii) Disallowance of employees and other costs for Rs.7.85 Crores. 1.4 The assessee is engaged in transmission of power. It was formed with restructuring of erstwhile Tamilnadu Electricity Board. It is subsidiary of TNEB Ltd. which is a state government company. TANGEDCO is 4

2 The main thrust of argument of Ld. AR is that employees who are recruited after 01-04-2003 come under New Pension Scheme called as Contributory Pension Scheme (CPS). As per the Scheme, an amount equal to 10% of basis pay and DA has to be recovered from the employees and an equal sum has to be contributed by the assessee. The subscription and contribution of each employee for each month has to be deposited with PFRDA which in turn would be investing the same in various schemes through pension funds manager. Thought PFRDA was formed by Government of India to act as a regulator for the pension sector, the Government of Tamilnadu have not stipulated the guideline for managing and investment of CPS funds with pension managers. Consequently, the aforesaid amount could not be deposited with PFRDA. When the orders are received from Government of Tamilnadu, the same would be deposited with PFRDA along with applicable interest. To support the same, Ld. AO has referred to various documents viz. GO No.259 of Finance (Pension) Department dated 06-08-2003, Guideline order issued regarding CPS dated 31-01-2005, GO No.59 dated 22-02- 2016, order per (FB) Tangedco, proceeding No.3 dated 16-09-2016 in support of the same. The Ld. AR stated that whenever appropriate directions are received in this regard, this contribution would be deposited by the assessee. Nevertheless, the deduction thereof should be allowed to the assessee. 3.3 Considering the arguments of Ld. AR, we deem it fit to restore this matter back to the file of Ld. AO for fresh adjudication in the light of aforesaid documents as referred to by Ld. AR. The assessee is directed to substantiate its case. The ground thus raised by the assessee stand allowed for statistical purposes.

Prior Period Adjustments 4.1 The assessee claimed net prior period expenses of Rs.1853.75 Crores. The prior period income was netted off against the same and net amount of Rs.1458.29 Crores was claimed as prior period expenditure. Since the expenditure did not relate to this year, the Ld. AO disallowed entire expenditure of Rs.1853.75 Crores. The Ld. CIT(A) partly allowed the same against which the assessee is in further appeal before us. 4.2 The first item is provision for Insurance Reserves for Rs.404.98 Crores. This reserve was created for creating a self-insurance. This amount was kept aside for meeting any loss of assets on account of fire, flood and cyclone. However this amount was never utilized and accordingly, not allowed by Ld. CIT(A). The findings of lower authorities remain undisturbed before us also. Nothing has been shown that this reserve has been created on a scientific basis. Therefore, the same has rightly been disallowed. We order so. 4.3 The next item is excess Transmission Charges for Rs.75.74 Crores. The same represent transmission charges excessively billed in earlier years and offered to tax in AY 2015-16. The credit note was stated to be issued to TANGEDCO during January, 2016 and accordingly, the revenue was reversed in this year. It was pointed out that the TANGEDCO also offered the same to tax in this year. However, Ld. CIT(A) denied the same on the ground that any omissions or mistake on the part of the assessee could not be condoned in subsequent years. We are of the considered opinion, that this item represents excess billing done by the assessee in earlier years which has been reversed in this year by issuance of credit note. The crystallization has happened in this year and the benefitting party has also offered the same to tax in this 7