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* HON’BLE SRI JUSTICE L.NARASIMHA REDDY
AND
THE HON’BLE SRI JUSTICE T. SUNIL CHOWDARY
R.C. No. 35 of 1999
(Order of the Bench delivered by the Hon’ble Sri Justice L. Narasimha Reddy) % 11-07-2014
#M/s Coromandel Cements Ltd, Hyderabad ..applicant
Vs.
$Commissioner of Income-tax, A.P-I, Hyderabad ..Respondent
!Counsel for the applicant : Sri Shaik Jeelani Basha
^Counsel for the Respondent : Sri S.R. Ashok, Senior Counsel
< GIST:
> HEAD NOTE:
? Cases referred
HON’BLE SRI JUSTICE L.NARASIMHA REDDY
AND
THE HON’BLE SRI JUSTICE T. SUNIL CHOWDARY
R.C. No. 35 of 1999
ORDER: (Per the Hon’ble Sri Justice L. Narasimha Reddy)
The Hyderabad Bench of Income Tax Appellate Tribunal, ‘A’ (for short ‘the Tribunal’), referred the following questions, viz.,
Whether on the facts and in the circumstances of the case, the Tribunal was correct in Law in holding that the applicant had made the claim for deduction of a sum of Rs.303.47 lakhs being the power tariff relating to earlier years was incorrectly claimed as a deduction and whether the alleged incorrect claim was apparent from the records accompanying the return and the documents? 2. Whether on the facts and in the circumstances of the case, the Tribunal was correct in Law in holding that the debate did not exist before the Assessing Officer but only surfaced before the CIT(A), and that therefore the invocation of the summary power to correct errors apparent on the face of the record were available to the Assessing Officer? 3. Whether on the facts and in the circumstances of the case, the Tribunal was correct in Law in holding that the liability
of Rs.303.47 lakhs had not accrued as a liability in the year in question having regard to the fact that the applicant had agreed with the APSEB that it was abiding by the increase in power tariff, which was inevitable?
for answer by this Court, under Section 256(1) of the Income Tax Act, 1961 (for short ‘the Act’).
The appellant is a manufacturing unit and is extended with the High Tension Power Supply by the then A.P. State Electricity Board. During the year 1988-89, the power tariff was revised substantially. Challenging the same, the applicant filed writ petition before this Court, and on dismissal of the same, by this Court, on 02-04-1990, the matter was carried to the Supreme Court. During the assessment years 1988-1989 to 1994-95, a vague reference was made to the amount, representing the difference of tariff. However, in the returns submitted for the assessment year 1994-95, the applicant wanted the revenue to allow deduction of the amounts, representing the difference of tariff, being Rs.4,53,83,917/-. Out of this, Rs.3,03,47,000/- was for certain earlier years, and Rs.1,50,37,000/- was for the concerned account year, under consideration. The Income Tax Officer disallowed the said amount by stating certain reasons. Aggrieved by that, the applicant carried the matter in appeal before the Commissioner. The Appeal was dismissed on 06-10-1995. Hence, the appellant filed I.T.A.No.1727/Hyd/95 before the Tribunal. The Tribunal dismissed the appeal through order dated 30-12-1996. Thereupon, the applicant sought reference of the questions to this Court, and accordingly they were referred.
Sri Shaik Jeelani Basha, learned counsel for the applicant submits that though the issue pertaining to the legality of the increase in the tariff was canvassed before this Court, and on dismissal of the writ petition, the matter was taken to the Supreme Court, and it has been decided to make provision for payment of the relevant amount, and deduction under the Act was sought. He further submits that the liability to pay the enhanced tariff was already fixed, and by the time the deduction was claimed, no relief was granted to the applicant, at all, and accordingly the deduction ought to have been allowed.
Sri S.R. Ashok, learned Senior Counsel for the respondent, on the other hand, submits that the question of allowing deduction of such amounts, arising out of a contractual liability would arise, if only the matter has been settled amicably, or the adjudication has reached finality. He contends that neither of the events have taken place, and all the three authorities have concurrently held that the applicant is not entitled for deduction of amount.
The applicant claimed deduction of a sum of Rs.4,53,83,917/- in the return, submitted for the assessment year 1994-95. Even this has two components, i.e. the amount of Rs.3,03,47,000/-, representing the enhanced tariff for previous years, and Rs.1,50,37,000/- was shown as the difference of tariff for the year of assessment. The deduction of such amounts is permissible not only when the amount has been parted with by the assessee, but also when the liability had accrued. In the second instance, the assessee must be clear in his or its mind. A categorical statement must be made, acknowledging the liability to pay the amount.
The stand of the applicant herein was wavering, throughout. In the three or four assessment years, for which the liability accrued, deduction was not even claimed. Except that a provision was made, it was neither stated that the amount was paid to the electricity supplier, or that the liability has been acknowledged. The Appellate Commissioner as well as the Tribunal took note of a paragraph in page 88 of the annual report of the applicant, for the years 1993-94. The paragraph reads as under:
“Revenue Recognition: All income and expenditure are accounted on accrual basis except for provision made for disputed power tariff.” From this, it is clear that the applicant was equivocal in its stand, as to the liability.
Secondly, it is only when the actual accrual takes place, that allowance can be permitted, irrespective of the actual payment. Such accrual would take place as mentioned by the learned Senior Counsel for the department, only when the matter is settled amicably between the parties to the contract or the adjudication has reached finality. Admittedly, nothing of that has taken place.
The Income Tax Officer, the Appellate Commissioner, as well as the Tribunal have taken the correct view of the matter, duly referring to the binding precedents.
We do not find any basis to take a different view, and accordingly answer the questions against the applicant and in favour of the department.
There shall be no order as to costs.
_________________________ L.NARASIMHA REDDY, J.
__________________________ T. SUNIL CHOWDARY, J. Dt.11-07-2014
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