THE ACIT,, ELURU vs. M/S. JEYPOTE SUGAR COMPANY LTD., CHAGALLU

IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE SHRI V. DURGA RAO, HON’BLE JUDICIAL MEMBER & SHRI D.S. SUNDER SINGH, HON’BLE ACCOUNTANT MEMBER ITA No. 268/VIZ/2015 (Asst. Year : 2010-11) ACIT, Circle-1, vs. M/s. The Jeypore Sugar Eluru. Company Ltd., D.No. 6/69, Chagallu, W.G. District. PAN No. AAACT 9942 R (Appellant) (Respondent) C.O.No. 50/VIZ/2016 (Arising out of ITA No. 268/VIZ/2015) (Asst. Year : 2010-11) M/s. The Jeypore Sugar vs. ACIT, Circle-1, Company Ltd., D.No. 6/69, Eluru. Chagallu, W.G. District. PAN No. AAACT 9942 R (Applicant) (Respondent)

Assessee by : Shri G.V.N. Hari – Advocate. Department By : Shri K.C. Das – Sr.DR

Date of hearing : 17/07/2018. Date of pronouncement : 31/07/2018. O R D E R PER V. DURGA RAO, JUDICIAL MEMBER

This appeal by the Revenue and the Cross Objection by the assessee are directed against the order of Commissioner of Income Tax (Appeals), Rajahmundry, dated 26/03/2015 for

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Assessment Year 2010-11. Since facts are identical, they are clubbed, heard together and disposed of by way of this common order for the sake of convenience. ITA No. 268/VIZ/2015 2. The revenue has raised the following grounds of appeal:-

The CIT(A) erred both in law and in facts of the case. “1. 2. The CIT(A) erred in deleting the addition of Rs.38,65,428/- made for not admitting the income as Per the sale invoices. 3. The CT(A) ought to have considered the decision of the Hon'ble Supreme Court in the case of Sethi Pushalal Marsinghkha Pvt Ltd Vs. CIT reported in 66 ITR 159, where in the Apex Court clearly held that the words "accrue” and “arise" do not mean actual receipt of the profits or gains, but both these words are used in contradistinction to the word „receive‟ and indicate a right to receive. If the assessee acquires the right to receive the income, the income can be said to have accrued to him, though it may be received later, on its being ascertained. 4. The CIT(A) erred in deleting the addition of Rs. 47,04,199/- made for not fulfilling conditions laid down U/s 369(1)(iv) and 40A(7)(b) of the Act. 5. The CIT(A) erred in not recognizing the fact that the assesses had not owned an approved gratuity fund as required 36(1)(iv) and 40A(7)(b), to become eligible for deduction in respect of contribution to gratuity/provisions for gratuity. 6. The CIT(A) erred in not taking cognizance that his predecessor CIT(A) have upheld the decision of the AO on similar set- of facts for the Asst. Years 2007-08, 2008-09 and 2010-11 and confirmed the addition made by the Assessing Officer. 7. The CIT(A) ought to have appreciated the fact that contributions made to unapproved funds will not qualify fo4aeduction U/s.36(l) of the Act and as the deduction claimed by the, assessee was of the nature described in section 36(1)(iv), therefore cannot be allowed under section 37 also. 8. The CIT(A) ought to have followed the order of the Hon'ble Allahabad High Court judgment in the case of CIT Vs Pradeshya Industrial & Investment Corporation of UP Ltd., in 325 ITR 583 (2010) wherein it was held that for gratuity to be deductible under the Act, it must fulfill the conditions laid down in

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Sec.40A(7) and the deduction cannot be allowed on general principles under any other sections of the Act because sub- section(l) of section 40k makes it clear that the provisions of section shall have effect not withstanding anything to the contrary contained in any other provisions of the Act relating to the computation of income the head 'Profits and gains of business or profession. 9. The CIT(A) ought to have sustained the addition made by the AO of Rs 47,04,199/- as the assessee faded to satisfy the conditions laid down in sections 36(1)(v), 40A(7) and 40A(9) of the Act. 10 Without prejudice to the above, the CT(A) ought to have enhanced the addition made by the AO of Rs4794,199/-to Rs8235,658l as the assessee failed to satisfy the conditions laid down in sections 36(1)(v), 40A(7) and 40A(9) of the Act. 11. Any other ground that may be urged at the time of appeal hearing before the Hon'ble ITAT.”

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to explain the same and also state the exact price quoted in the sale invoice submitted to the AP Transco while exporting power to the grid. It was submitted before the Assessing Officer that power supplied to the AP Transco was charged at Rs. 3.48 per unit as per the directions of SISMA. It was contended before the Assessing Officer that the issue is pending sub judice before the Hon'ble High Court and Supreme Court and also before the A.P. Electricity Board Tribunal. It is also submitted that the assessee company has recognized, as income, only the revised rate of Rs.3.15 per unit and not considered the amount of which, the sale invoice is submitted at Rs. 3.48 per unit. During the year, the total quantity of power was reflected at 14200000 units in respect of which the income was shown at Rs. 4,48,41,264/-. The differential amount of Rs. 38,65,428/- was not recognized as income during the year. It was submitted before the Assessing Officer that since the matter was sub-judice, such income had not been actually received and hence could not be recognized. The Assessing Officer after considering the explanation of the assessee has observed that it was undisputed that as per the power purchase agreement, the price of power was fixed at Rs. 3.48 per unit, and the sale invoice submitted to the AP Transco as per the escalated

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price. This being the case, the assessee could not plead its case by taking another view of the issue that since the issue is sub- judice, the escalated price cannot be adopted for revenue recognition. It is not acceptable in view of the established procedure of accountancy and principles of revenue recognition. The assessee is always at liberty to write back the amounts in its books, if the decision lowers the rate per unit. If the assessee acquires the right to receive the income, the income can be said to have accrued to him, though it may be received later, on its being ascertained. Hence, the differential value arrived at by deducting the value of power tariff received from the value of the sale invoices submitted to the AP Electricity Department is added as deemed income of the assessee. Accordingly, the Assessing Officer made the addition of Rs. 38,65,428/- in the hands of the assessee and added to the total income of the assessee. 6. Before the ld. CIT(A), on appeal, the assessee by relying on the decision of ITAT, Hyderabad Bench in the case of DCIT Vs. Sri Balaji Bio Mass Power Pvt. Ltd. in ITA No. 1748/HYD/2008, dated 31/01/2011 submitted that the addition made by the Assessing Officer on the ground that income has been accrued to the assessee though the assessee has not received, is not correct and

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submitted that the addition may be deleted. The ld. CIT(A) after considering the explanation of the assessee, directed the Assessing Officer to delete the addition. 7. On being aggrieved, Revenue carried the matter in appeal before this Tribunal. 8. Ld. Departmental Representative has relied on the order of the Assessing Officer. 9. On the other hand, ld. counsel for the assessee has strongly supported the order passed by the ld. CIT(A) and also the decision of the ITAT, Visakhapatnam Bench in the case of ACIT Vs. M/s.JOCIL Ltd. in ITA No. 68 to 71/VIZ/2016, dated 28/04/2017. 10. We have heard both the sides, perused the material available on record and orders of the authorities below. 11. The assessee is having a co-generation power plant and power is supplied to the grid as per agreement with AP Transco. The assessee has submitted the sale invoice to the AP Transco at Rs. 3.48 per unit as per the directions of the SISMA. However, the assessee only recognised Rs. 3.15 per unit which is actually received by the assessee. When the Assessing Officer asked the assessee, it is submitted that the matter was sub-judice and the differential amount had not been actually received and therefore,

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is not recognized as income. However, the Assessing Officer has not accepted the explanation given by the assessee and is of the opinion that the assessee has to be recognised the income on the basis of sale invoice submitted to the AP Transco, in case, if at all he has not received as per the power purchase agreement, the assessee is always at liberty to write back the amounts in its books, if the decision lowers the rate per unit. According to the Assessing Officer, once sale invoice is submitted to the AP Transco at Rs. 3.48 per unit, the assessee ought to have been recognised the entire amount, not amount recognised of Rs. 3.15 per unit. Accordingly, the addition is made. On appeal, ld. CIT(A) has considered the facts of the case and also the facts in the case of Sri Balaji Bio Mass Power Pvt. Ltd. (supra), deleted the addition by observing as under:- “4.3 I have considered the submissions. I find that the factual matrix in the assessee's case is identical to the facts in the case of M/s. Sri Lalaji Bio Mass Power P Ltd decided by the Honourable ITAT, Hyderabad. The relevant discussion is as under: "We have considered the rival submissions. There is no dispute with regard to the material facts of the case. The only question that arises for considerations whether the differential amount of sales, viz., worked out at Rs.3.48/- applying which in terms of the interim orders of the Honourable AR, High Court, invoices of the assessee were settled by the AP Transco and accounted for by the assessee in the books of account, can be treated as the income of the assessee for the assessment year 2005-06. We find that the CIT(A) has given elaborate reasoning before concluding that the income worked at the rate of Rs.3.48/- per unit of power supplied had neither accrued to the

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assessee nor was receivable during the previous year and therefore, no corresponding debt in respect of the differential amount stood created in the books of the purchaser, i.e., AP Transco. Merely based on the invoices raised, income cannot be deemed to accrue to the assessee, when the differential income was subject matter of litigation, and there is no certainty of the assessee being entitled to such income, unless it succeeds in such litigation. Even if an assessee succeeds ultimately in the litigation, a debt enforceable against the other party does not get created, unless a claim in that behalf was raised before the same being barred by limitation. It is for this reason that an assessee, to keep the Issue alive, has to raise the claim against the other party with in the period of limitation, which in its view is due to it according to the terms of the contact, so as to get an enforceable right for the recovery of the amount as and when It succeeds in the litigation. In this view of the matter, though invoices raised constitute fundamental record for maintenance of accounts in the normal course, as observed by the assessing officer, that logic does not hold good when the subject matter was under dispute and was under litigation before the judicial for a, including the jurisdictional High Court and Honourable Supreme Court during the relevant points of lime Assessee's method of accounting only the amount which was not subject matter of litigation and which in fact was received by it from the AP Transco in terms of the interim order of the A.P. High Court, was in conformity with the Accounting Standard 9 and the ratio laid down by the Apex Court, among others, in the case law discussed by the CIT(A) in the impugned order, and also in the case-law relied upon by the assessee before us. In this view of the mater, we find no infirmity in the order of the CIT(A), which is accordingly confirmed and the grounds of appeal of the Revenue are rejected. Respectfully following the decision of the Honourable Tribunal, the assessing officer is directed to delete the differential amount of Rs.38,65,248/- added to the total income.”

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sale on account of differential sale price claimed by the assessee which is pending before the Appellate Tribunal for Electricity is not accrued to the assessee as revenue for the relevant financial year. The ld. CIT(A) after considering the relevant facts has rightly deleted the addition made by the Assessing Officer. We do not see any error in the order passed by the ld. CIT(A) and hence, inclined to uphold the order of the ld. CIT(A) and dismiss the appeal filed by the Revenue. In the present case, the assessee has received only Rs. 3.15 per unit and not received at Rs. 3.48 per unit. Therefore, the assessee has recognised the amount received as revenue receipt and the balance amount is sub-judice before the AP Electricity Tribunal, High Court and Supreme Court. Therefore, respectfully following the decision of the coordinate bench of the tribunal in the case of M/s. JOCIL Ltd., (supra), we find no reason to interfere with the order passed by the ld.CIT(A). Thus, this ground of appeal raised by the revenue is dismissed. 13. Ground Nos. 4 to 9 relating to addition of Rs. 47,04,199/-. 14. Facts relating to the above issues in brief are that in the assessment order, the Assessing Officer has noted that the assessee has debited an amount of Rs. 82,35,658/- towards incremental liability to group gratuity. The same was paid to LIC

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of India, since the assessee had installed LIC’s group gratuity cum life assurance scheme. During the course of assessment proceedings, the assessee was asked to produce the proof of approval given by the CIT to the said group gratuity fund. The assessee has not filed the relevant details before the Assessing Officer, therefore, the Assessing Officer has considered the same for disallowance. However, the Assessing Officer has considered actual amount paid to the gratuity fund of Rs. 35,31,458/- and the same is allowed. The balance amount of Rs. 47,04,199/- was considered for addition. Accordingly, added the same to the total income of the assessee. 15. On appeal, ld. CIT(A) directed the Assessing Officer to verify what was the actual amount of premium paid to the LIC and directed to such amount may be allowed. Against the order of the ld. CIT(A), the Revenue is in appeal before the Tribunal. 16. We have heard both the sides, perused the material available on record and orders of the authorities below. 17. In this case, the Assessing Officer has allowed the contribution made by the assessee to the gratuity fund of Rs.35,31,458/- and the remaining balance of Rs. 47,04,199/-has been added to the total income of the assessee. On appeal by the

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assessee, ld.CIT(A) has only directed the Assessing Officer to verify what is the actual amount of premium for the year paid to LIC of India and such amount may be allowed. We find no infirmity in the order passed by the ld.CIT(A). Thus, these grounds of appeal raised by the revenue are dismissed. 18. Ground No.10 raised by the revenue is that the ld. CIT(A) ought to have enhanced the addition of Rs. 47,04,199/- to Rs.82,35,658/-. 19. In this case, the Assessing Officer after examining the details, allowed only actual amount paid to the gratuity fund by the assessee for the year under consideration and the remaining balance is added to the total income of the assessee. The ld.CIT(A) by following the decision of the ITAT, Hyderabad Bench in the case of Capital IQ Information System (India) Pvt. Ltd. Vs. Addl. CIT, directed the Assessing Officer to allow the actual amount of premium paid to the LIC of India. The relevant portion of the ld. CIT(A)’s order is extracted as under:- “5.1. During the appeal hearing the authorized representative contended that the premium was paid to LIC of India under Jeypor Sugar Co Ltd Gratuity cum Life Assurance Scheme, which is allowable in view of the decision of Honourable ITAT Hyderabad in the case of Capital EQ Information System (India) P Ltd vs. Addl. CIT wherein It was held that 5. We have carefully gone through the judgment of the jurisdictional High Court in the case of Warner Hindustan Ltd

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(supra), In the case before the jurisdictional High Court, the Provident Fund was not approved by the CIT. The Andhra Pradesh High Court after referring to the judgment of the Bombay High Court in Tata Iron & Steel Co. Ltd. vs. D.V.Bapat, ITO (1975) 101 ITR 292, and the judgment of the Supreme Court in Metal Box Company of India Ltd. vs. The Workmen (1969) 73 ITR 53, held that the amount paid towards an unapproved gratuity fund can be deducted under section 37 of the Income-tax Act, though not under section 37(1)(v). In view of this judgment of the jurisdictional High Court, in our opinion, even if any payment is made to an unapproved gratuity fund, it has to be allowed under section 37. By respectfully following the binding judgment of Andhra Pradesh High Court in the case of Warner Hindustan Ltd (supra), we upheld the order of the CIT(A). Respectfully, following the above decision, the assessing officer is directed to verify wit was the actual amount of premium for the year paid to LIC of India and such amount may be allowed.”

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power to enhance without any basis, therefore the department is questioning the order of the ld.CIT(A) that the ld. CIT(A) is not correct in enhancing, in our opinion is incorrect, invalid and unreasonable. Therefore, this ground of appeal raised by the revenue is also dismissed. 22. So far as Cross objection filed by the assessee is concerned, at the time of hearing, ld. counsel for the assessee has submitted that he does not want to press this CO. In view of the submissions made by the assessee’s counsel, this CO filed by the assessee is dismissed as not pressed. 23. In the result, appeal filed by the revenue and the CO filed by the assessee are dismissed. Order Pronounced in open Court on this 31st day of July, 2018.

Sd/- sd/- (D.S. SUNDER SINGH) (V. DURGA RAO) Accountant Member Judicial Member Dated : 31st July, 2018. vr/-

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Copy to: 1. The Assessee - M/s. The Jeypore Sugar Company Ltd., D.No. 6/69, Chagallu, W.G. District. 2. The Revenue – ACIT, Circle-1, Eluru. 3. The CIT, Rajahmundry. 4. The CIT(A), Rajahmundry. 5. The D.R., Visakhapatnam. 6. Guard file. By order

(VUKKEM RAMBABU) Sr. Private Secretary, ITAT, Visakhapatnam.