DCIT, NEW DELHI vs. M/S. POWER GRID CORPORATION OF INDIA LTD., NEW DELHI

PER H.S. SIDHU, J.M.

assessment years 2006-07 and 2005-06 respectively against

the order of the Ld. CIT(A)-XVII, New Delhi dated 30.10.2012

and 31.10.2012 wherein penalty u/s. 271(1)(c) of the I.T. Act

amounting to Rs. 71,32,55,400/- for AY 2006-07 and Rs.

8.06 crores /- for AY 2005-06 levied by the AO was deleted.

Issues involved in both the appeal are similar and therefore

both the appeals are disposed of by this common order.

under:-

ASSESSMENT YEAR : 2006-07

the Ld. CIT(A) has erred in deleting penalty of Rs. 84.06 crores

u/s 271(1)(c) of the I T Act, 1961.

the Ld. CIT(A) has erred in ignoring the fact that AO had no

initiated penalty proceedings u/s 271(1)(c) in the assessment

order while framing assessment. Initiation of penalty

proceedings is clearly mentioned in the assessment order and a

valid notice was served upon the assessee.

3 Whether on the facts & in the circumstances of the case, the

Ld. CIT(A) has erred in appreciating the that the show cause

notice was issued by the AO having jurisdiction over the case.

The assessee confirmed that order of penalty was time barred

without examine the facts of the case and a misstated

argument of the assessee before the AO, the assessee never

argued on this issue.

4 Whether on the facts & in the circumstances of the case, the

Ld. CIT(A) has erred in allowing relief on account of additions on

Advance Against Depreciation which was later admitted by the

assessee itself in the subsequent years and also assessee had

withdrawn the appeal from Hon'ble ITAT on this ground by

accepting the stand on the Revenue on this ground.

5 The appellant craves to be allowed to add any fresh

grounds of appeal and / or delete or amend any of the grounds

of appeal."

ASSESSMENT YEAR : 2005-06

the Ld. CIT(A) has erred in deleting penalty of Rs. 8.06 crores

u/s 271 (1)( c) of the I T Act, 1961.

the Ld. CIT(A) has erred in ignoring the fact that AO had no

initiated penalty proceedings u/s 271(1) (c) in the assessment

order while framing assessment. Initiation of penalty

proceedings is clearly mentioned in the assessment order and a

valid notice was served upon the assessee.

the Ld. CIT(A) has erred in appreciating the that the show cause

notice was issued by the AO having jurisdiction over the case.

The assessee confirmed that order of penalty was time barred

without examine the facts of the case and a misstated

argument of the assessee before the AO, the assessee never

argued on this issue.

the Ld. CIT(A) has erred in not appreciating the fact that not

credit of income in the P&L a/c tantamount to concealment of

income. The appellant has taken the ground that the AO did not

specify the nature of default for which penalty proceedings

were initiated and itself has admitted that the same was

initiated for furnishing inaccurate particulars as well as

concealment of income.

the Ld. CIT(A) has erred in allowing relief on account of

additions on Advance Against Depreciation which was later

admitted by the assessee itself in the subsequent years and

also assessee had withdrawn the appeal from Hon'ble ITAT on

this ground by accepting the stand on the Revenue on this

ground.

the Ld. CIT(A) has erred in allowing relief on amount of addition

on account of SEB and NER Constituent when the assessee did

not contested this addition even in quantum appeal on

assessment completed under section 143(3).

grounds of appeal and / or delete or amend any of the grounds

of appeal."

in assessment year 2005-06 and 4 effective grounds of appeal

in assessment year 2006-07. Issues involved in these appeals

are

i. whether on disallowance of advance against depreciation

of Rs. 211.90 Crores and Rs. 216.10 crores in

assessment year 2005-06 and 2006-07 respectively

would invite penalty under section 271(1)© of the I.T. Act,

1961 under the charge of ‘ Furnishing inaccurate

particulars of income”.

ii. Whether the addition to income of Income Tax

Recoverable from State Electricity Board of Rs. 1.53

Crores and Transmission charges of Rs. 12.09 crores

would invite penalty u/s 271(1) (c) of the act under the

charge of ‘ Furnishing inaccurate particulars of income’.

assessee is a Public Sector Undertaking engaging in

transmitting power to State Electricity Board from generating

units. For the year under consideration, it filed its return of

income at Rs. NIL, however, paid taxes on the Book Profit

u/s. 115JB of the I.T. Act, 1961. The assessment under

section 143(3) of the Act was made on 28.12.2007 wherein an

addition of Rs. 216.10 crores was made on account of

disallowance of advance against depreciation. Similar

addition was also made to the Book Profit under section

115JB of the I.T. Act. Both these additions were confirmed by

the Ld. First Appellate Authority and before the Coordinate

Bench, the assessee withdrew its Appeal. Therefore, the

penalty proceedings originally initiated were adjudicated upon

by the AO vide order dated 27.8.2012 levying the penalty of

Rs. 7,77,18,59,200/-. The main reason for levy of penalty

was that the assessee had not preferred the appeal and the

amount has been added, hence, the penalty is leviable

holding that assessee has furnished the inaccurate

particulars of its income. The assessee being aggrieved with

the order of the ld. AO preferred an appeal before the Ld.

CIT(A) against the order of penalty. The Ld. CIT(A) after

considering the decision of the Hon’ble Supreme Court of

India in the case of NHPC Limited vs. CIT 320 ITR 374 (SC)

deleted the penalty. With respect to the other addition of Rs.

1.53 crores and Rs. 12.09 crores as transmission charges, it

was submitted by the assessee that these amounts were

billed pursuant to the order of the CERC dated 6.9.2004 and

because of the uncertainty involved in receipt of this money

as Bills have been have been protested by those companies.

It was further stated that as the accrual of the income is not

certain income was not recognized and therefore, on this

sum the penalty is not leviable. However, AO levied the

penalty on all these additions/disallowances. The Ld. CIT(A)

has deleted the penalty on these two additions also for the

reasons that the same has been explained in the assessee’s

Notes on Account No. 14(d) and 17 and further ordered that

this income in assessment year 2007-08, there is no

concealment of income on the part of the assessee with

respect to these two income. Therefore, he deleted the

penalty on this for the assessment year 2007-08 with respect

to disallowance of Rs. 211.19 crores being advance the

depreciation on which the penalty is levied and contested.

the additions have been confirmed and accepted by the

assessee as the amount of advance against depreciation is not

deductible, penalty is correctly levied. Further, with respect

to the short income tax recovery and transmission charges

recovery, the addition has been made in subsequent years

as accepted by the assessee; the AO is correct in levying the

penalty u/s. 271(1) ( c ) of the I.T. Act on account of

adjustment to the Book Profit as well as to the normal

computation of the total income. He further submitted that

the assessee has not agitated this issue at the higher forum

and has withdrawn the Appeal before the Tribunal itself

shows that assessee has claimed these deductions which has

invited the penalty under section 271(1) ( c ) of the I.T. Act,

1961. He therefore, vehemently argued that Ld. CIT(A) has

erroneously deleted the penalties without giving cogent

reasons.

levied on advance against depreciation, in view of the

decision of Hon’ble Supreme Court in the case of NHPC vs.

CIT 320 ITR 374 (SC) wherein it held that advance against

depreciation is not an income. He, therefore, submitted that

the Ld. CIT(A) has rightly deleted the penalty u/s. 271(1)(c) of

the Act. He further submitted that on the income tax

recoverable, the Ld. CIT(A) has held that as assessee has

disclosed the full facts in the Notes on Account, hence, the

penalty was deleted. He further submitted that merely

withdrawal of the appeal by the assessee before the

Coordinate Bench does not advance or hamper the case of the

assessee as far as the issue of levy of penalty is concerned. He

further submitted that after the withdrawal of the appeal by

the assessee the Hon’ble Supreme Court of India has referred

the decision in the case of NHPC vs. CIT (Supra) wherein, it is

held that Advance against depreciation is income received in

advance and it is timing difference, hence, AAD is not a

reserve. He further stated that Coordinate Bench has decided

this issue in ITA No. 3013-3015 dated 309.2014 has also held

that AAD is a liability and is to be discharged in future. He

further stated that similar disallowances were made in earlier

years and no penalty has been initiated on this account.

With respect to other additions, he submitted that there is a

complete disclosure of these two incomes in the Notes on

Accounts of the assessee. He further advanced his

arguments holding that the assessee is a Public Sector

Undertaking and question of any malafide cannot be

attributed. With respect to the Book adjustment, he referred

to the decision of the Hon’ble High Court in the case of CIT

vs. Nalwa Sons Investment Ltd. 327 ITR 543. In the end, he

vehemently submitted that on both the additions, the penalty

cannot be levied under section 271(1) ( c) of the I.T. Act, as

complete and correct particulars of income were furnished by

the asssesse and therefore, the Ld. CIT(A) has correctly

deleted the penalty levied by the AO.

disallowance on which the penalty has been levied by the AO

is advance against depreciation. It is necessary to understand

what the advance against depreciation is in case of electricity

company. The Hon’ble Supreme Court of India in the case of

NHPC vs. CIT 320 ITR 374 (SC) vide para no. 11 has held as

under:-

“11. Since the amount of ADD is reduced from sales, there is no debit in the profit and loss account, the amount did not enter the stream of income for the purposes of determination of net profit at all, hence clause (b) of Explanation 1 was not applicable. Further, “reserve” as contemplated by clause (b) of Explanation 1 to section 115JB of the 1961 Act is required to be carried through the profit and loss account. At this stage, it may be stated that there are broadly two types of reserves, viz., those that are routed through the profit and loss account and those, which are not, carried via the profit and loss account, for example, a capital reserve such a share premium account. ADD is not a reserve. It is not an opportunity of profits. AAD is not meant for an uncertain purposes. AAD is an amount that is under obligation, right from the inception, to get adjusted in the future, hence, cannot be designated as a reserve. AAD is nothing but an adjustment by reducing the normal depreciation includible in the future years in such a manner that at the end of the useful life of the plant (which is normally 30 years) the same would be reduced to nil. Therefore, the assessee cannot use the AAD for any other purpose (which is possible in the case of a reserve) except to adjust the same against future deprecation so as to reduce the tariff in the future years. As stated above, at the end of the life of the plant AAD will be reduced to NIL. In fact, Schedule XII-A to the balance sheet of the financial years 2004-05 onwards indicates recouping. In our view, AAD is “income received in advance”. It is

timing difference. It represents adjustment in future which is inbuilt in the mechanism notified on May 26, 1997. This adjustment may take place over a long period of time. Hence, we are of the view that AAD is not a reserve.”

Court advance against depreciation is an income received in

advance and therefore, is not hit by Clause (b) while working

out the Book Profit of the assessee for the purpose of Income

Tax Returns u/s 115JB of the act. Subsequently, the

Coordinate Bench vide order dated 30.9.2014 decided the

issue with respect to disallowance of the same in the normal

computation of total income. The relevant facts were stated

at par no. 2 to para no. 4 of that decision and subsequently

in para no. 5 wherein it has been held by the Coordinate

Bench that it cannot be added or disallowed under the

computation of income under normal method under section

143(3) of the I.T. Act. Therefore, it is apparent that above two

judicial precedents has clearly established that addition on

account of advance against depreciation cannot be made

either at the time of computation of book profit under section

115JB of the I.T. Act or under the normal computation of

total income. Apparently, in the case of the assessee the

addition in both the method of computation of total income

this amount has been made i.e. normal computation as well

as computation under section 115JB of the Act. We are not

on the issue of disallowance or addition while determining the

income of the assessee, but on the levy of penalty u/s 271(1)

(c) of the act on these disallowances accepted by the

assessee. The issue of disallowance has already reached

finality in the hands of the assessee for both the assessment

years against the assessee. It is a settled principle of law that

where there are two opinions on allowability of expenditure ,

it makes it debatable and on such disallowance penalty u/s

271(1) (c) cannot be levied. The present disallowance of

advance depreciation is ultimately settled by the Hon’ble

Supreme Court of India and that too in favor of the assessee,

therefore even if the assessee has accepted the addition in its

hands, it cannot be said that assessee has furnished

inaccurate particulars of income. Hence on this

disallowance penalty u/s 271(1) ( c) cannot be levied. Hon

Supreme court in case of CIT V Reliance Petro products

Limited [322 ITR 158] (SUPREME COURT ) has held that

“10. We are not concerned in the present case with the mens rea. However, we have to only see as to whether in this case, as a matter of fact, the assessee has given inaccurate particulars. In Webster's Dictionary, the word "inaccurate" has been defined as : "not accurate, not exact or correct ; not according to truth ; erroneous ; as an inaccurate statement, copy or transcript."

* [2007] 291 ITR 519 (SC). ** [2008] 306 ITR 277 (SC).

assessee in its return were found to be incorrect or erroneous or false. Such not being the case, there would be no question of inviting the penalty under section 271(1)(c) of the Act. A mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such claim made in the return cannot amount to the inaccurate particulars.

"So far as the question of penalty is concerned the items which were not included in the turnover were found incorporated in the appellant's account books. Where certain items which are not included in the turnover are disclosed in the dealer's own account books and the assessing authorities includes these items in the dealer's turnover disallowing the exemption, penalty cannot be imposed. The penalty levied stands set aside."”

disallowable Therefore it stands on better footing than the

case decided by honourable Supreme court in above case.

Furthermore, we do not find any provisions under section

271(1) ( c) which depends upon the filing of the Appeal by the

assessee before the Higher Forum contesting the addition.

Therefore, whether the assessee files an appeal or did not

contest the addition or disallowance at higher forums , it

does not have any bearing on the statutory provisions of

section 271(1) ( c) of the I.T. Act, 1961In view of this, we do

not incline to uphold the order of the AO on levy of penalty

under section 271(1) ( c) of the I.T. Act, on advance against

depreciation disallowed while computing the Book Profit

under section 115JB of the I.T. Act as well as under the

normal computation of total income. In view of this, we do

not find any infirmity in the order of the Ld. CIT(A) in

cancelling the penalty levied by the AO.

and Transmission charges, we are of the opinion that both

these issues were amply disclosed in Note No. 14(d) and 17 of

the Audited Accounts of the assesee. These Notes also shows

that the same have been based on the order of the CERC and

the claim has been disputed by the payer. In view of this,

the income have not been shown by the assessee for tax

purposes. Subsequently, on the submission of the assessee,

sum have been added to the income of the assessee for the

assessment year 2007-08. On that basis, the addition was

made in assessment year 2005-06. In the present case, the

accrual of the income itself is in doubt when the payee has

provided the same, but the payer has not admitted the

liability. Further, the Assessee itself has brought on record

before the AO that as the same amounts have been received

in assessment year 2007-08, it can be added in the income of

the current year and may be excluded from assessment year

2007-08. The full facts of particular dispute and uncertainty

arising on account of receipt of the income were disclosed

and reason why assessee did not offer it for taxation was

also available before ld AO. Therefore, it cannot be said that

assessee has furnished inaccurate particulars thereof.

Therefore, We concur with the view of that Ld. CIT(A) in

deleting the penalty under section 271(1)(c) on both these

disallowances. In view of this, we do not find any infirmity in

the order of the Ld. CIT(A) in deleting the penalty on Income

Tax Recoverable from State Electricity Board of Rs. 1.53

Crores and Transmission charges of Rs. 12.09 crores. 11. In the result, we confirm the order of the Ld. CIT(A) deleting

the penalty under section 271(1)(c) of the I.T. Act for AY 2006-

07 and AY 2005-06. 12. In the result, both the Appeals of the Revenue are dismissed.

Order pronounced in the Open Court on 09/01/2017.

SD/- SD/-

(PRASHANT MAHARISHI) (H.S. SIDHU) ACCOUNTANT MEMBER JUDICIAL MEMBER

Dated: 09/01/2017

*SR BHATNAGAR*