PPN POWER GENERATING CO. PVT. LTD.,CHENNAI vs. DCIT, CHENNAI

आदेश /O R D E R

PER S. JAYARAMAN, ACCOUNTANT MEMBER:

In the assessment made for assessment year 2009-10, the Assessing Officer found that the assessee had raised bills for Rs. 194.1416 crores revenue covered under Power Purchase Agreement in its books. However, it did not recognise revenue to the tune of Rs. 25.07 crores (representing the fuel cost, ROE billing, capital cost, specified taxes, incentives and annual invoices) even though they were part of the bills raised. Further, the AO found that the assessee has treated Rs. 17.16 crores as provision for cash discount. Thus, after giving adequate opportunity to the assessee, considering power purchase agreement between assessee and the TANGEDCO, Accounting Standard (9), the assessee’s conduct of revising its income upward by Rs. 70 crores vis a vis the original return, the clarification made by the statutory

:-3-: I.T.A. N0s. 2721 & 3067/Mds/2016 auditors etc, the AO held that the assessee did not follow the Accounting Standard properly, it had recognised the income properly and it had not prepared its financial statements as per Part II and Part III of Schedule VI to the Companies Act, 1956 and hence added Rs. 41.76 crores to the income of the assessee under normal provisions of Income Tax Act as well as u/s. 115JB. Aggrieved, the assessee filed an appeal before the CIT(A).

Aggrieved, against the deletion, the Revenue filed the cross appeal . In respect of other additions, the CIT (A) following the above ITAT order, confirmed them. In respect of the addition made u/s. 115JB, the CIT (A) relying on the Hon’ble ITAT B (Special) Bench, Hyderabad decision in the case of Rain Commodities Vs DCIT and the decision of Hon’ble Supreme Court in the case of Godhra Electricity Company Ltd. Vs CIT 225 ITR 745(SC), confirmed the action of the AO. Aggrieved, the assessee filed this appeal with the following grounds:

2. Addition towards cash discount and wrong amount in the CIT(A) order: The learned CIT(A) erred in confirming the addition towards disputed matter relating to cash discount without appreciating that :-4-: I.T.A. N0s. 2721 & 3067/Mds/2016

TANGEDCO was making payments after deducting towards cash discount on adhoc basis, arbitrarily, since 2001, despite not been entitled to as per the provisions of the PPA

3. Addition towards Return on Equity The CIT(A) erred in confirming the addition towards Return on Equity (Rs 9.09 crores under dispute before TNERC) without appreciating that the definition of Equity as per the PPA is restricted to the subscribed and paid up capital on the date of Commercial Operations.

4. No decision made on appeal relating to Equity Incentive The CIT(A) erred in not deciding on the issue relating to equity incentive amounting to Rs.2.62 crores that was raised as part of Grounds of Appeal

before him.

5. Wrong amount relating to Capital Cost The CIT(A) erred in considering RS.66 crores as capital cost instead of Rs.50 crores.

6. Wrong description of item relating to Fuel cost described by CIT(A) as Fuel Handling Charges The learned CIT(A) erred in confirming the addition of Rs.2.93 crores and describing the same as fuel handling charges instead of fuel cost.

7. Addition towards Income received from TRA Account The Learned CIT(A) erred in confirming the treatment of the interest income received from Trust and Retention Account (TRA) deposits amounting to Rs.5.94 crores as Income from Other Sources and consequently resulting denial of deduction under Sec 80IA.

8. Additions made u/s 115JB The learned CIT(A) erred in confirming the additions made by the learned A.O in regard to additions made u/s 115JB amounting to RS.41.76 crores without appreciating the fact that the accounts were :-5-: I.T.A. N0s. 2721 & 3067/Mds/2016 prepared in accordance with the Companies Act, 1956 and such additions are not permissible under the Act.”

2. The learned CIT(A) erred in directing the Assessing Officer to delete

the addition of Rs 4,76,28,590/- made by the Assessing Officer towards revenue recognition from reimbursement of specified taxes for the A.Y 2009-

10 in the assessee's case.

2.1 Having allowed relief to t e assessee, by following the decision of the Hon'ble ITAT in the assessee's own case for AY 2004-05, the learned CIT(A) erred in not appreciating that the facts are different for the assessment year under consideration, in that, the assessee has not given up its right to reimbursement of the expenditure and offered the same as income in the subsequent assessment years viz. A.Ys 2010-11 and 2013-14. 2.2 Having regard to the mercantile system of accounting regularly followed by the assessee, the learned CIT(A) ought to have upheld the action of the Assessing Officer in bringing to tax, the income assessable, in the hands of the company for AY 2009-10 on accrual basis, especially, when the said income is offered on receipt basis in the subsequent assessment years.

3. The Ld. CIT(A) erred in directing the Assessing Officer to follow the directions of Hon'ble ITAT, '8' bench, Chennai vide order it. dated 02.03.2009, in the assessee's own case for assessment year 2004-05, to decide the issue of revenue recognition from reversal of additional cost for the AY 2009-10 in the assessee's case.

:-6-: I.T.A. N0s. 2721 & 3067/Mds/2016

3.1 Having followed the directions of the Hon'ble ITAT for AY 2004-05 in the assessee's own case, where the Hon'ble IT AT had only remitted the issue to the file of the Assessing Officer, the Ld. ClT(A) erroneously exercised the power of setting aside the issue to the file of the Assessing officer, when such power is not available to the Ld ClT(A), under the provisions of the IT Act 1961, from 01.06.2001. 3.2 The Id.CIT (A) erred in not appreciating the assessee's claim in its stay petition as well as writ petition for stay of demand, filed before the Hon'ble High Court. that it had recognised the revenue subsequently and offered it for taxation in the A.Y 2013-14. 3.3 Having regard to the mercantile system of accounting regularly followed by the assessee, the ld CIT(A), ought to have upheld the action of the Assessing Officer in bringing to tax, the income' arising from reversal of additional cost, assessable in the hands of the assessee for AY 2009-10 on accrual basis, especially, when the said income is offered on receipt basis, in the subsequent assessment year.”

Billing to TANGEDCO comprises of 2 parts namely Variable Fuel Charges (VFC) and Fixed Capacity Charges (FCC). The components of FCC as defined in Schedule A of the PPA include: i) Interest on Debt Payment (i.e. long term project debt) ii) Depreciation

:-7-: I.T.A. N0s. 2721 & 3067/Mds/2016 iii) Operation and Maintenance Charges as a % 0 f Capital Cost indexed to inflation iv) Interest on working capital v) Post tax Return on Equity@ 16% vi) Specified Taxes capped at 16% on ROE

Apart from the above, the company is also entitled to monthly incentive claim from TANGEDCO which is based on actual generation. Clause 6 of Schedule A of the PPA provides the basis of computing the incentive for any year which is a percentage of paid up capital (Equity) .Computation of every component mentioned above for any year is linked to the capital cost of the project. As against the capital cost claimed by the company for admission, TANGEDCO had allegedly disallowed capital cost to the tune of Rs 127 crores and contested the same before TNERC. To keep the claim alive, the provisional capital cost is considered for the purpose of monthly billing was at Rs 1,364.40 crores, pending finalisation of the capital cost by Tamil Nadu Electricity Regulatory Commission (TNERC). As a norm, the capital cost is funded by a mix of Debt and Equity in the ratio of 70:30 following the power policy of the country. The assessee company evaluated the alleged disallowances by TANGEDCO in detail and following prudence and relevant accounting standards, decided to restrict the disputed amount of capital cost to Rs. 50 crores for the purpose of Income recognition in the books of :-8-: I.T.A. N0s. 2721 & 3067/Mds/2016 accounts (i.e Rs 1,314.40 crs being the capital cost for the purpose of Income Recognition).

6.1 Additions relating to Return on Equity of Rs 9,09,12,892/-

The PPA provides for a post tax Return on Equity (ROE) of 16%.

Under the PPA , the Equity to be reckoned for the purpose of ROE is the quantum of paid up subscribed capital on the date of commercial operation . The plant commenced operations on 26.04.2001 and subscribed and paid up capital (Equity) as at that date was Rs 352.50 crs . However, the total equity of the project was to be 30% of Capital cost. The provisional capital cost for the purpose of billing was Rs

1.364.40 crores. Based on the norm of 70:30 Debt Equity mix, the Equity was determined at Rs 409.32crores (i.e 30% of Rs.1.364.40 crores). This equity was brought in subsequent to the date of commercial operations. Having regard to the above, PPN has been invoicing TANGECO reckoning Rs. 409.32 crores as Equity. The ROE component of the tariff was arrived at accordingly. The differential billing based on Equity of Rs 352.50 crores and Rs 409.32 crores for the year (i.e AY 2009- 10) was Rs.909 crores. Since the billing was not to the letter of the PPA (though it was consistent with the intent of the PPA) and since TANGEDCO had still been disputing the capital cost it was imperative that income to the extent of Rs 9.09 crores not be recognised following the uncertainty relating to capital cost. In fact,

:-9-: I.T.A. N0s. 2721 & 3067/Mds/2016 the dispute relating to the final quantum of capital cost is contested before the TNERC and was awaiting adjudication as at the date of finalization of the accounts for the year under appeal and continues even now .

6.2 Additions relating to Specified Taxes of Rs 4,76,28,590/'

The company is entitled to reimbursement of income taxes paid subject to a cap of Tax reimbursement on 16% on Return on Equity. Pursuant to the definition of ROE in the PPA (Equity in the PPA reads as 16% of paid up and subscribed capital at the commercial operation date which was Rs 352.50 crores only), the eligible specified taxes claim from TANGEDCO was only Rs 6.85 crs for AY 2009-10 as against which the company had raised a claim for Rs 11.61 crs. Consequently, following prudence, the company did not recognize income in the books of accounts to the extent of Rs 4.76 crs.

6.3 Additions relating to Equity Incentive of Rs 2,62,35,289/-

The company is entitled to Incentive based on actual generation which is a percentage factor linked to Equity. The computation of Equity Incentive also follows the definition of ROE in the PPA i.e. Equity on the commercial operation date of Rs 352.50 crores. The Incentive factor for FY 2008-09 computed as per the provisions of PPA was 4.61722% and following :-10-: I.T.A. N0s. 2721 & 3067/Mds/2016 the equity restriction. Rs 2.62 crs was not recognised as income during the year (i.e. 409.32 crs less 352.50 crs x 4.617220/0) following prudence.

6.4 Disallowance relating to Capital Cost-Rs 5,66,87,454/-

TANGEDCO had disallowed capital cost to the extent of Rs 127 crores.

To keep the claim alive, the provisional capital cost considered for the purpose of monthly billing was Rsl.364.40 crores, pending finalisation of the capital cost by Tamil Nadu Electricity Regulatory Commission (TNERC). Hence, the company had, based on prudence and management estimate pending finalisation of capital cost by the regulatory authorities (TNERC), did not recognise FCC income in the books to the extent of Rs 50 crores of capital cost being disallowed (i.e. Rs 1.314 crs of capital cost considered for Income Recognition) as against TANGEDCO's disallowance Rs 127 crores .

Accordingly, following uncertainty relating to the final quantum of capital cost the company had not recognised income to the extent of Rs 5.66 crores relating to Interest on debt, Interest on working capital, Depreciation and O&M charges during AY 2009-10, which relate to Rs 50 crs of capital cost disallowance considered for the purpose of Income recognition.

6.5 Disallowance relating to Fuel cost of Rs 2,93,08,827/-

Rs 2.93 crores towards Fuel cost is part of the billing relating to VFC made to TANGEDCO and relates to mooring charges incurred in respect of :-11-: I.T.A. N0s. 2721 & 3067/Mds/2016 naphtha unloading. However, the amount claimed was in excess of our eligible claim as per the terms of the PPA and hence the same was not recognised as revenue during the year under scrutiny.

6.6 Addition towards cash discount – Rs. 17,15,83,128

TANGEDCO is the sole customer of the Appellant and its revenue depends solely upon them. The Appellant had raised monthly tariff invoices on TAGEDCO pursuant to the provisions of the PPA it had entered into for the sale of electricity. Under Clause 102 (a) of the PPA ,TANGEDCO was entitled to a cash discount of 2.5% of the invoice value provided the payment is made in full within five business days from the presentation of invoice and cash discount of I % of the invoice value if payment is made after 5 days but within 30 days (Due date) . TANGEDCO was making payments on an adhoc basis by arrogating to itself the cash discount unilaterally. The set off of the payments against individual bills was not provided by TANGEDCO. Hence, the appellant had to adjust the receipts on First In First Out basis (FIFO). From the invoice amount raised and the adhoc payment received from TANGEDCO, the appellant could deduce that TANGEDCO was making payments beyond due dates by making arbitrary deductions in the invoices raised. The appellant also had learnt that payments made by TANGEDCO were after unilaterally appropriating to itself cash discounts which they weren't entitled too. A one off communications from TANGEDCO (Annexure 2) in this regard establishes their conduct of unilaterally appropriating towards cash discount. Hence the realisability of income (in the form of cash discounts not eligible for) was uncertain which warranted the company to not recognize

:-12-: I.T.A. N0s. 2721 & 3067/Mds/2016 revenue to the extent of Rs. 17.16 crores based on prudence.. The dispute relating to cash discount was appealed by the appellant before the Tamilnadu Electricity Regulatory Commission (TNERC) and was awaiting adjudication at the time of finalization of accounts for the year under appeal. That cash discount was being deducted by the TANGENDCO is also corroborated in the submissions made by TANGEDCO before the TNERC.

6.7 The AR submitted that all these additions mentioned above, were made under the normal provisions of the Act as well as under Section 115JB of the Act and pleaded to delete them based on its grounds of appeal . The assessee submitted a note which is extracted as under : and submitted that since it has received and admitted the impugned receipts in the subsequent years, the additions made under normal

:-13-: I.T.A. N0s. 2721 & 3067/Mds/2016 provisions of Income Tax Act as well as u/s. 115JB may be deleted .It further submitted that the rates of taxes remain same in all these years u/s 115JB.

1 Every bill of the assessee was to be honoured in full by TANGEDCO even In the event of any dispute as to all or any of the bills.

2 When invoices raised by the assessee have disputed, TANGEDCO was entitled to serve a notice on the company.

:-14-: I.T.A. N0s. 2721 & 3067/Mds/2016 3 If resolution of dispute requires the assessee company to reimburse TANGEDCO, the assessee company was to pay the amount with Interest.

4 TANGEDCO does not have a right to dispute any invoice after a period of one year from the due date of any invoice. But in the assessee’s case, apart from the PPA, the guarantee of Tamilnadu government was there as an additional support for TNEBs payment obligations under the agreement.

5 The fact that the assessee was not recognising Income in accordance with Schedule VI to the Companies Act have also been highlighted by the Statutory Auditors of the assessee in their main audit report to the members in paragraph 3 of their report as under:

"3. Without qualifying our opinion, we invite attention to a. Notes 1.3, 3 (e ), 3(d), 10 (ii), 10 (iii) (a) of the Notes to Accounts (schedule 18) with respect to the company's revenue recognition policy, non- recognition of revenue consequent to certain uncertainties and the corresponding receivables from Tamilnadu Electricity Board (TNEB), non- receipt of formal confirmation from TNEB for the balance amount due to the company along with a statement of account/ the status of capital cost/tariff determination in accordance with the Power Purchase Agreement and certain claims made by the TNE8 respectively.

Note 24 (a) and 24 (c) of Notes to Accounts (Schedule 18) with respect to recognition of additional revenue based on review of certain allowances for :-15-: I.T.A. N0s. 2721 & 3067/Mds/2016 uncertainties and the recognition of Interest on delayed receipts (or the reasons stated therein. "

7.1 The DR continued to quote the AO’s order stating that the Accounting Standard (AS) 9 brought out by ICAI deals with the bases for recognition of revenue in the statement of profit and loss of an enterprise. The standard is concerned with the recognition of revenue arising in the course of the ordinary activities of an enterprise from sale of goods etc., Revenue is measured by the charges made to customers or clients for goods supplied and service rendered to them. 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 amount or its associated cost these uncertainties may influence the timings of revenue recognition. Even though the assessee had raised bills for Rs.1914.16 Crores revenue, covered under Power Purchase Agreement in its books, it did not recognise revenue to the tune of Rs.25.07 Crores (representing the fuel cost, ROE billing, capital cost, specified taxes/ incentive and annual invoice) even though these items were part of the bills raised. This is against recognition of income in the statement of profit and loss account as found in the frame work for the preparation and presentation of financial statements issued by the ICAI. Billed revenue to the extent of Rs.25.07 Crores was an increase in future

:-16-: I.T.A. N0s. 2721 & 3067/Mds/2016 economic benefit related to an increase in an asset. This means, in effect, that recognition of income occurred simultaneously with the increase in assets arising on a sale of goods.

7.2 The Cash discount is related to decrease in an asset. This has a direct associatlon with TANGEDCO paying every bill within five days to be eligible for a cash discount of 2.5% or within one month from the due date to be eligible for a cash discount of 1%. When, not even one payment of TANGEDCO (Formerly TNEB) was made in time, there never arose an occasion for the decrease in revenue earned by the assessee. Thus non-recognition of revenue to the extent of Rs.25.07 Crores and provision for cash discount to the tune of Rs.17.16 Crores, clearly shows that the assessee did not follow the matching concept relating to recognition of revenue and expenses and Accounting Standards prescribed by the ICAI.

7.3 Prudence is the inclusion of a degree of caution in the exercise of judgements needed in making the estimate required under conditions of uncertainty, such that assets or income are not overstated and liabilities or expenses are not understated. However, the exercise of prudence does not allow, for example, the creation of hidden reserves or excessive provisions, the deliberate understatement of assets or income, or the deliberate overstatement of liabilities or expenses. In the name of prudence, the assessee had made excessive provisions without even reflecting them in the Profit and loss Account. Further, in the revised return filed on 23.9.2010, an :-17-: I.T.A. N0s. 2721 & 3067/Mds/2016 addition of Rs.70.00 Crores to the income reported in the original return was made. This was on account of adding back provisions for cash discount made in earlier years and in the current year. Out of a total provision towards cash discount of Rs47.32 Crores made during the year, a sum of Rs.30.96 Crores was added back in the revised return. This shows that the assessee was in the habit of making provisions without reasons. By consistently not followinq applicable Accounting Standards the assessee was regularly recognising income at a later date which resulted in payment of lesser MAT tax to the department. For example, one of the items not recognised as revenue during the financial year 2008-09 was cash discount of Rs.17.16 Crores. It was the claim of the assessee that every bill payment by TANGEDCO was delayed but on each delayed payment TANGEDCO was in the habit of deducting 2.5% from each bill towards cash discount and paid only the remaining amount and the assessee had to approach the appellate authorities for dispute resolution. 1n such a situation, the assessee had no cause for recognising the cash discount to TNEB as a debit to the profit & toss account. The total billing for the year was Rs.1914.16 Crores. Had the assessee followed the Accounting Standards correctly, instead of not recognising the billed amounts Rs. 25.07 crores as revenue, it should have recognised the receipts and made a provision. Likewise it should have made a provision for cash discount allowable and in the calculation of income both under the normal provisions of income tax and deemed Income under :-18-: I.T.A. N0s. 2721 & 3067/Mds/2016 sec.115JB, it should have added back these provisions. By not recognizing revenue to the extent of Rs. 25.07 Crores and creating a reserve of RS. 17.16 Crores towards cash discount, the income under normal provisions and income under 115JB have been understated to the extent of Rs. 42.23. After considering a reversal of Rs.0.47 Crores towards annual invoice, the net understatement of income works out to Rs.41.76Crores.

7.4 What is perceived by the company as uncertainties are only perceived uncertainties. With a PPA backed by State Guarantee, there was never an uncertainty about the determination of revenue. Even in case of uncertainty, TANGEDCO had to pay up the amount and raise a dispute later. Delay in payment can never be called an uncertainty. On the one hand, the assessee claims there are uncertainties relating to the payments by TANGEDCO. But TANGEDCO was always considered in the financial statements of the assessee as a "Secured considered good" sundry debtor.

7.5 The assessee's claim that only after adjudication by the appropriate authority could the uncertainty be removed leading to the recognition of income appellate authorities did not create any new law or bestow any new right on the assessee, to remove the uncertainty in recognition of income by the assessee. They only reiterated the assessee's right to revenue (as stated by the PPA and guaranteed by the State Government) as and when the revenue earning activities were performed.

:-19-: I.T.A. N0s. 2721 & 3067/Mds/2016 7.6 Note 22 of the Notes to accounts gives details of a provision of Rs.70.00 Crores (Note 22(b)} for rebate created during the year towards Cash Discount. The revised return was filed precisely to add back this rebate to the 'book profit' and the income under normal provisions. This treatment should have been given to all the other items totalling Rs.41. 76 Crores. By not reporting the turnover correctly, the assessee did not follow the requirements as to profit and loss account as required by Part 1I of Schedule VI of the Companies Act 1956.

7.7 As per Article 10(1)(d)of the power purchase agreement (PPA), "Specified taxes on income" will not become part of regular billing. However any advance tax payable for the project in any month supported by a certificate of a Chartered Accountant, approved by TNEB, was to be reimbursed in the succeeding month. After the tax assessment was completed for any year and liability was determined by the taxation authorities in India, the excess or shortfall in the tax liability so determined would be adjusted in the invoice for the month next following.

7.8 With regard to the additions made u/s 115JB , the DR invited our attention to the relevant portion of the order of C’sIT(A) which is extracted as under :

:-20-: I.T.A. N0s. 2721 & 3067/Mds/2016

“The proposition that the book profits cannot be adjusted other than for giving effect to the adjustments specifically listed is supported by the decision of Supreme Court in the case of Apollo Tyres Ltd. Vs. CIT 255 ITR 273 SC (E-3).

10.2 CIT (A)'s remarks and decision: I have considered the submissions of the Id. AR and the findings of the AO. While passing the order u/s 143(3), the AO had considered certain receipts cited supra for the purpose of book profits u/s 115JB.

10.2.1 Before me, the Id. AR has placed reliance on the ratio of the Hon'ble Supreme Court in the case of Apollo Tyres Ltd. Vs. CIT 255 ITR 273 SC (E-3). I have perused the judgement of the Hon'ble Supreme Court and noticed that the ratio is not applicable to the facts and circumstances of the appellant's case. Hon'ble Apex Court has held that if books of accounts are prepared as per Part-Il & Part-Ill of Schedule-S of the" Companies Act, 1956, and approved by the Annual General Body of the Company then, the AO had no authority to go behind the accounts of the appellant.

10.2.2 I have considered the submissions of the Id. AR and found that the facts of the appellant's case are different and distinguished. It is an admitted fact that appellant's accounts have not been prepared as per the requirements of Part-Il & Part-Ill of Schedule-S of the Companies Act, 1956, which fact is reflected in the Auditors statement which is reproduced as under:

7.6 “3. Without qualifying our opinion, we invite attention to, a. Notes 1.3, 3©, 3 (d), 10(ii), 10(iii)(a) of the Notes to Accounts (Schedule 18) with respect to the company's revenue recognition policy, non-recognition of revenue consequent to certain uncertainties and the :-21-: I.T.A. N0s. 2721 & 3067/Mds/2016 corresponding receivables from Tamilnadu Electricity Board (TNEB), non-receipt of formal confirmation from TNEB for the balance amount due to the company along with a statement of account, the status of capital cost/tariff determination in accordance with the Power Purchase Agreement and certain claims made by the TNEB respectively. b. Note 24(a) and 24(c) of Notes to Accounts (Schedule 18) with respect to recognition of additional revenue based on review of certain allowances for uncertainties and the recognition of interest on delayed receipts for the reasons stated therein." As is seen herein above, there is a clear finding with regard to accounts of the appellant company have not been prepared as per the requirements of Part-Il & Part-Ill of Schedule-6 of the Companies Act, 1956. In the circumstances, Id. AR's reliance on the decision of the Hon'ble Supreme Court is of no help to the appellant.

10.2.3 On the other hand, I am fortified with the decision of the Hon'ble ITAT, 'B' (Special) Bench, Hyderabad in the case of Rain Commodities Ltd. Vs. Dy. CIT, which has considered the decision of Hon'ble Supreme Court in the case of Apollo Tyres and held that it was open to the AO to see whether the accounts were prepared as per Part-Il & Part-Ill of Schedule-6 of the Companies Act, 1956. The relevant part of Special Bench decision is reproduced hereunder: Held: Under Minimum Alternate Tax (MAT) provisions, the Assessing Officer is concerned with the adjustments to be made with the net profit as shown in the profit and loss account. One of the moot question relevant to the issue is whether the Assessing Officer has power to alter the net profit? Yes, it is a settled law that the Assessing Officer has the power to alternate the net profit. In the following two cases, the :-22-: I.T.A. N0s. 2721 & 3067/Mds/2016

Assessing Officer can rewrite the profit and loss account, i. e. to say that the Assessing Officer should recalculate the net profit and then follow the adjustments of MAT as usual: (1) If it is discovered that profit and loss account is not drawn up in accordance with Parts II and Part III of Schedule VI to the Companies Act. However; the Assessing Officer cannot disturb the net profit as shown by the assessee where there are no such allegations, fraud or misrepresentation but only a difference of opinion as to whether a particular amount should be properly shown in the profit and loss account or in the balance sheets. (2) If accounting policies, accounting standards not adopted for preparing such accounts and method, rate of depreciation which have been incorrectly adopted for preparation of profit and loss account laid before the annual general meeting. Except for the above two cases, the Assessing Officer has no power to alter the net profit shown by the companies for the purpose of computing the book profit. Thus, it is clear that under MA T, the Assessing Officer should take the net profit as computed by the assessee and then make the adjustments under Section 11SJB. It is common that some companies follow an accounting year under the Companies Act, which is different from the financial year under the Income-tax Act. These companies generally prepare two sets of accounts - one for Companies Act and another for Income-tax Act. The reason being different accounting policies, standards, depreciation methods and rates are adopted in two sets of account so that higher profit is reported to shareholders and lower profit for the income-tax authorities. To curb the above practice, this recalculation of net profit under MAT was incorporated so that there should a consistency in accounting policies, standards, methods and rates of depreciation within the knowledge of income-tax authorities. [Para 18]."

:-23-: I.T.A. N0s. 2721 & 3067/Mds/2016

10.2.4 In my considered opinion, the above cited decision is quietly applicable to the facts and circumstances of the appellant's case. Respectfully following the decision of the Hon'ble ITAT, Special Bench, Hyderabad, I confirm the action of the AO in so far as recognition of certain income cited supra for the purpose of working out Book Profit u/s 115JB of the Act. Hence, the grounds are dismissed.” and submitted that the assessee did not follow the Accounting Standard properly, it had not recognised the income properly and it had not prepared its financial statements as per Part II and Part III of Schedule VI to the Companies Act, 1956 and hence the addition made at Rs. 41.76 crores to the income of the assessee under normal provisions of Income Tax Act as well as u/s. 115JB may be sustained .

This tribunal in its order in ITA 2393/Mds/2007 dt 02.9.2009 in the assessee’s case for ay 2004-05 , except the issue of specified taxes, set aside all other issues to the AO for re-examination and verification of the facts and the status of dispute between the assessee and the then TNEB. From the note submitted by the assessee, as extracted in para 6.7, supra, it is clear that the assessee has received all the disputed sums , including the specified taxes on which the revenue is on cross appeal from ay 2010-11 to ay 2014-15 , in various

:-24-: I.T.A. N0s. 2721 & 3067/Mds/2016 proportion but in full . Thus, it is clear that the assessee’s unilateral action, calling it as a prudence measure, had no basis and hence the additions made by the AO based on various clauses of the PPA and other material , as cited and extracted in para 7, supra, are sustained under normal computation. We have considered the assessee’s plea that the additions made u/s 115JB is unwarranted on the basis of the ratio reported in the case of Apollo Tyres Ltd. Vs. CIT 255 ITR 273 SC (E-3) and on account of admission of these sums in the subsequent ays wherein the rate of taxes remained same. We have gone through the decision of the Hon'ble ITAT, 'B' (Special) Bench, Hyderabad in the case of Rain Commodities Ltd. Vs. Dy. CIT, which has considered the decision of Hon'ble Supreme Court in the case of Apollo Tyres and held that it was open to the AO to see whether the accounts were prepared as per Part- Il & Part-Ill of Schedule-6 of the Companies Act, 1956. In this case , it is an admitted fact that assessee's accounts have not been prepared as per the requirements of Part-Il & Part-Ill of Schedule-VI of the Companies Act, 1956, which is reflected in the Auditors statement which is reproduced, supra.

Thus, on such issues, as held by the Special Bench of Hyderabad, it was open to the AO to see whether the accounts were prepared as per Part-Il & Part-Ill of Schedule-VI of the Companies Act, 1956. Since, the AO has found that the assessee did not follow the Accounting Standard properly, it had not recognised the income properly and it had not prepared its financial statements as per Part II and Part III of Schedule VI to the Companies Act,

:-25-: I.T.A. N0s. 2721 & 3067/Mds/2016 1956 and made the impugned additions and the assessee has not challenged such findings with relevant material, its pleas are untenable and hence rejected. The income which has to be assessed in a particular year can not be assessed in any other year. Therefore, the impugned items of income are assessable in this assessment year and hence the additions made u/s 115 JB are also confirmed.

Order pronounced on 22nd August, 2017 at Chennai.