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आदेश/Order
PER VIKRAM SINGH YADAV, A.M:
This is an appeal filed by the Assessee against the order of Learned Commissioner of Income Tax(Appeals), Patiala [in short the ‘Ld. CIT(A)’] passed u/s 250(6) of the Income Tax Act, 1961 (in short ‘the Act’) dated 21/01/2019 pertaining to assessment year 2015-16, wherein the sole ground of appeal read as under: “That on the facts and circumstances of the case the Ld. CIT(Appeals) is nto justified in upholding the addition of Rs. 1,43,06,414/- made on account of operation and maintenance service charges of transmission lines which are neither supported by agreement nor even paid by the other party to whom the services were rendered.”
2. Briefly the facts of the case are that the assessee company which is engaged in the business of transmission of power has filed its return of income declaring loss of Rs. 179,93,48,979/- which was subsequently revised to Rs. 202,43,94,235/-. The case of the assessee was selected for complete scrutiny under CASS and notices under section 143(2) and 142(1) alongwith questionnaire were issued, necessary information and documents were called for and examined by the AO.
2.1 One of the issue raised by the AO during the course of assessment proceeding relates to amount of Rs. 1,43,06,414/- in respect of Operation and Maintenance Services in respect of which the bill was raised but not accounted for in the books of accounts by the assessee company during the financial year relevant to impugned assessment year. In this regard, a show cause dt. 10/08/2017 was issued to the assessee seeking its explanation as to why the said amount should not be treated as income of the assessee for the year under consideration particularly when the assessee company is following the mercantile system of accounting drawing drawn reference to the Audit Report submitted by the Statutory Auditor wherein it has been stated that:
“The company is providing Operation and Maintenance Service to 220KV Grid Substation, Mohali & 220 KV Ganguwal-Mohali Transmission Line which is under UT Chandigarh. During the year under audit, a bill for operational and maintenance services amounting to Rs. 1,43,06,414/- is raised and not booked as Income in view of the significant accounting policy adopted by the company. That during the year under audit, Company has accounted for income towards Operation and Maintenance Services amounting to Rs. 97,71,474/- as prior period income in respect of the bills raised by erstwhile PSEB for F.Y. 2010-11. However, the company has contested that as no agreement for such Operation and Maintenance Services are executed and there is an uncertainty regarding the receipt of this income, therefore, the same has been accounted for on the basis of actual receipt.” 2.2 In response, the assessee vide its submission dt. 07/09/2017 submitted that there is an uncertainty regarding the receipt of Rs. 1,43,06,414/- as the billing has been disputed by UT Chandigarh. Moreover there is no agreement regarding this between the assessee and UT Chandigarh. Therefore the same has to be accounted for on receipt basis as per the significant accounting policy adopted by the Company.
2.3 The submission so filed by the assessee was considered but not found acceptable to the AO. As per the AO, the assessee company is following mercantile system of accounting and under the said system of accounting, the income is required to be accounted for in the books of accounts particularly when the expenses, if any, attributable to earning of such income has already been accounted for and debited to the Profit & Loss Account.
2.4 It has been further stated by the AO that it is a matter or record that during the period under consideration, the assessee company has provided Operation and Maintenance Services to 220KV Grid Sub Station, Mohali and 220 KV Ganguwal-Mohali Transmission Line and accordingly, raised a bill of an amount of Rs. 1,43,06,414/- in lieu of such services. As per the AO, as the expenses attributable to earning of such services have already been accounted for in the Profit & Loss Account, invoice value of Rs. 1,43,06,414/- is liable to be part of assessee’s income and accordingly, an addition of Rs. 1,43,06,414/- was made in the hands of the assessee company and assessed income was determined at loss of Rs. 200,99,27,065/- as against the returned loss of Rs. 202,43,94,235/- besides making other addition which are not in dispute before us.
Being aggrieved, the assessee carried the matter in appeal before the Ld. CIT(A). The submissions made before the AO were reiterated. It was submitted that as per the Accounting Standard -9, it provides that the Revenue recognition is mainly concerned with the timing of recognition of revenue in the statement of profit and loss of an enterprise. The amount of revenue arising on a transaction is usually determined by agreement between the parties involved in the transaction. Where the uncertainties exist regarding the determination of the amount or its associated costs, these uncertainties may influence the time of revenue recognition. It was further submitted that the Accounting Standard-9 further clarifies that where the ability to assess the ultimate collection with reasonable certainty is lacking at the time of raising any claim, revenue recognition is postponed to the extent uncertainty involved and in such cases it may be appropriate to recognize revenue only when it is reasonable certain that the ultimate collection will be made. It was submitted that in the present case, there was uncertainty regarding receipt of income as the billing has been disputed by UT Chandigarh and the same is to be accounted for on receipt basis as per the accounting policy adopted by the assessee which even has been clarified by Accounting Standard-9 relating to revenue recognition.
The submission so filed by the assessee were considered but not found acceptable to the Ld. CIT(A). As per the Ld. CIT(A), the accounting policies of the assessee company while applicable to the assessee’s internal accounting cannot supersede the express provisions of Income Tax Act which mandate that the companies follow the mercantile system of accounting. Regarding uncertainties of revenue recognition as discussed in Accounting Standard -9, the Ld. CIT(A) held that the revenue is measurable at time of raising the bill and the uncertainty arises only subsequent to the raising of bills for which the appellant was well within its right to make a separate provision to reflect the uncertainty which has not been done. Accordingly, the addition so made by the AO was sustained by the Ld. CIT(A). Against the said findings, the assessee is in appeal before us.
During the course of hearing, the Ld. AR reiterated the submissions made before the AO and in this regard our reference was drawn to the submissions filed by the assessee before the AO dt. 06/12/2017 which read as under:
“…. as per the significant accounting policy adopted by the Corporation given at Sr.No.7 in Note-2 i.e. Income from natural interstate lines is accounted for on actual receipt basis. In this regard, as mentioned in the management reply of the annual accounts of FY 2014-15 that there is an uncertainty regarding the receipt of Rs. 1,43,06,414/- as the billing has been disputed by UT, Chandigarh. Moreover there is no agreement regarding this between the PSTCL and UT Chandigarh. Therefore the same has to be accounted for on receipt basis. Further as per Accounting Standard-9 Revenue Recognition para 5 emphasised that: - "Revenue recognition is mainly concerned with the timing of recognition of revenue in the statement of profit and loss of an enterprise. The amount of revenue arising on a transaction is usually determined by agreement between the parties involved in the transaction. When uncertainties exist regarding the determination of the amount, or its associated costs, these uncertainties may influence the timing of revenue recognition" (copy attached at CP-1).
Further also clarified in para 9.2 of AS- 9 that: - "Where the ability to assess the ultimate collection with reasonable certainty is lacking at the time of raising any claim, e.g., for escalation of price, export incentives, interest etc., revenue recognition is postponed to the extent of uncertainty involved. In such cases, it may be appropriate to recognize revenue only when it is reasonably certain that the ultimate collection will be made" (copy attached at CP-2). In view of the above facts the amount of Rs. 1,43,06,414/- cannot be treated as income of the company in the year under consideration and cannot be added to ^the income even on the basis of mercantile system of accounting.”
5.1 It was further submitted that the Operation & Maintenance bills for 220 KV Grid Sub Station Mohali and 220 KV Ganguwal – Mohali single CKT Line of Rs. 1,43,06,414/- was raised for the period 2011-12 to 2014-15 to UT Electricity Department vide bill no. 4 dt. 07/04/2014 read with memo no. 929/Comml./ISB- 4/UT dt. 09/04/2014. It was submitted that subsequently, UT Electricity Department contested the above bill and referred the matter to Central Electricity Authority, Ministry of Power, Government of India, New Delhi seeking clarification vide memo no. 2495 dt. 17/07/2014. Our reference was drawn to the context of the said memo which read as under;
“The Accounts Officer/APJl on behalf of Financial Advisor, PSTCL through various Memo No. has been raising the bills on account of 1. O& M charges bill for220 KV Grid Sub Station Mohali. 2. 220 KV Ganguwal-Mohali single Circuit line
The bills have been raised by the PSTCL authorities for Sr. no. (1) and (2) . amounting to Rs. l,43,06,414/-(copy enclosed). In this regard , it is submitted that the UT Chandigarh has no generation of its own and is drawing power from various Central generating Stations i.e. NTPC, NHPC; BBMB , NPC etc. besides procuring power through short term competitive bidding. Accordingly, the UT Chandigarh has been treated as one of the Withdrawal Zone i.e. Chandigarh Withdrawal Zone.
The NRPC has been raising the bills for the Point of Connection charges for the total withdrawal during the period which includes regional transmission account based on scheduled power withdrawal and the transmission deviation account for the over drawls of power - As such UT Chandigarh has been paying the amount for total withdrawals carried out by the UT Chandigarh which includes all transmission facility available for withdrawal of power.
This office is of the opinion that since all the transmission charges for the total withdrawal of power are being paid by UT Chandigarh as raised by NRPC as per the notification of the Regulation on sharing of transmission charges and losses 2011, the payment towards O&M of 220 KV Mohali and 220 KV Ganguwal line should not be paid.
It is therefore requested that the necessary advice in the matter may please be imparted 1. Whether the transmission charges (O&M of 220 kV S/Stn. Mohali) are to be paid additionally in spite of payment of all the PoC charges of withdrawal as raised by NRPC? 2. Whether the cost of O&M of 220 kV Ganguwal- Mohali line is required to be borne by UT Chandigarh in spite of payment of all the PoC charges of withdrawal as raised by NRPC? 3. If charges at (1) and (2) are to be paid, then why the full PoC charges should be borned by UT Chandigarh?
Early reply is solicited please so that the matter may be taken up with the PSTCL authorities accordingly.”
5.2 It was submitted that thereafter after series of long correspondence, the UT Electricity Department agreed to pay O& M charges for 220 KV Ganguwal- Mohali Line for years 2010-11 to 2016-17 on CERC norms fixed for 220KV lines through memo no. 8534 dt. 14/06/2018. It was submitted that the assessee thereafter raised a revised invoice no. 1-R/FA/ISB-4 dt. 28/09/2018 on account of O&M charges in respect of 220 KV Ganguwal-Mohali and 220 KV Ganguwal- Mohali single Line amounting to Rs. 99,11,248/- vide Memo No. 2382/84/Comml/ISB-4 dt. 28/09/2018 which was duly accounted for in the F.Y. 2018-19 relevant to A.Y. 2019-2000 and which has been duly accepted by the Revenue. It was accordingly submitted that where the revenue has already been recognized in the subsequent assessment year and accepted by the department, the same cannot be brought to tax again in the year under consideration especially where the same is contested and was under dispute which has now been settled in the subsequent year. Further it was submitted that the assessee has been incurring losses year after year and it could make hardly any difference if the claim allowed in the impugned year or in the subsequent year as the same would be tax neutral and it was submitted that the said contention was duly accepted by the Coordinate Bench in assessee’s own case for A.Y. 2005-06 (ITA No. 464/Chd/2009 dt. 30/06/2011) wherein the relevant findings read as under:
11. The assessee-Board has been returning substantial losses almost right from its inception. Besides, the assessee-Board is a body under the control of the “State Government. In view of the mounting losses from year to year, it would hardly make any difference if the claim is allowed in year “X or year “Y” as it would be tax neutral. For similar reasons, the assessee-board would also not gain anything in the process.”
Per contra, the Ld. DR relied on the order of the lower authority. It was submitted that when the expenses have been accounted for and claimed by the assessee in the impugned assessment year, corresponding revenues necessarily needs to be recognized and accounted for. It was accordingly submitted that here the question is not of tax neutrality rather the question is of determining net income to be brought to tax for the impugned assessment year as each assessment year is a separate assessment year wherein the AO is required to determine correct income which can be taxed in the hands of the assessee company. It was accordingly submitted that the order so passed by the Ld. CIT(A) be sustained and the appeal of the assessee be dismissed.
We have heard the rival contentions and purused the material available on record. It is noted that the invoice for Rs. 1,43,06,414/- was raised on UT Electricity Department based on certain percentage of capital cost of transmission line and in absence of any agreement vide bill dt. 07/04/2014 read with memo dt. 09/04/2014 and within few days of raising the said invoice, the same was contested by UT Electricity Department and matter was referred to the Central Electricity Authority, Ministry of Power, Government of India, New Delhi seeking clarification on 17/07/2014 and thereafter, the matter was subsequently resolved and revised invoice of Rs. 99,11,248/- was raised on 28/09/2018 which was duly accounted for in the F.Y. 2018-19 relevant to A.Y. 2019-2000 and which has been duly accepted by the Revenue while processing the return of income. We therefore find that the assessee has suitably demonstrated that there were uncertainties regarding the determination of the amount in absence of any agreement with UT Electricity Department as well as its ultimate collection and once, there was resolution and acceptance thereof at the revised figure after indulgence by Central Electricity Authority, the revenue has been duly recognized in the books of accounts in the subsequent financial year. We find that the assessee has been consistent in following the said policy as can be seen from the audit report where bills raised for F.Y. 2010- 11 have been accounted for in the year under consideration and which has infact, formed the basis for the action on part of the Assessing officer where it states that:
That during the year under audit, Company has accounted for income towards Operation and Maintenance Services amounting to Rs. 97,71,474/- as prior period income in respect of the bills raised by erstwhile PSEB for F.Y. 2010-11. However, the company has contested that as no agreement for such Operation and Maintenance Services are executed and there is an uncertainty regarding the receipt of this income, therefore, the same has been accounted for on the basis of actual receipt.
The Assessing officer cannot follow dual approach in taxing the revenues pertaining to earlier financial year and at the same time, disputing the deferrement of revenues for the year under consideration on account of similar uncertainties involved. Therefore, in light of aforesaid discussions and in the entirety of facts and circumstances of the case, we see no justifiable basis to allow the disturbance of well-accepted accounting policy consistently followed by the assessee where the recognition of revenue is deferred where there are visible uncertainties involved in quantifying and realization of revenues. In the result, the addition of Rs. 1,43,06,414/- made on account of operation and maintenance service charges of transmission lines is hereby set-aside and the ground of appeal is allowed.
In the result, appeal of the Assessee is allowed.