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Facts
The assessee, M/s. THDC India Ltd., a joint venture in power generation, filed its income tax return claiming deduction under Section 80-IA. The Assessing Officer (AO) completed the assessment, making disallowances under Section 80-IA and adding late payment surcharge. The Pr. Commissioner of Income Tax (PCIT) initiated revision proceedings under Section 263, alleging the assessment order was erroneous and prejudicial to revenue on two issues: incorrect 80-IA deduction on consultancy income and incorrect computation of late payment surcharge. Subsequently, the PCIT introduced a new issue regarding 80-IA deduction on capacity charges.
Held
The Tribunal held that the AO had made adequate inquiries regarding the late payment surcharge, and the difference in computation period (10 vs. 12 months) was a possible view, not rendering the order erroneous or prejudicial, especially since the issue was pending before CIT(A) and deduction under Section 80-IA was consistently allowed on such income. The Tribunal also found that the PCIT exceeded jurisdiction by introducing a new issue (capacity charges) not covered in the initial show-cause notice. Therefore, the PCIT's revision order was set aside.
Key Issues
Whether the assessment order was erroneous and prejudicial to the interest of revenue due to incorrect computation of late payment surcharge and allowability of deduction under Section 80-IA on capacity charges, and whether the PCIT exceeded jurisdiction by introducing new issues during revision proceedings.
Sections Cited
Section 80-IA, Section 143(3), Section 263
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DEHRADUN “DB” BENCH: DEHRADUN
Before: SHRI YOGESH KUMAR U.S & SHRI MANISH AGARWAL
ORDER
PER MANISH AGARWAL, AM :
The present appeal is filed by the assessee against the order dated 27.03.2022 by Ld. Pr. Commissioner of Income Tax, Dehradun [“Ld. PCIT”] passed u/s 263 of the Income Tax Act, 1961 [“the Act”] arising from the assessment order dated 30.12.2019 passed u/s 143(3) of the Act pertaining to Assessment Year 2017-18.
Brief facts of the case are that the assessee is a joint venture company of Government of India and Government of Uttar Pradesh and engaged in the business of generation and supply of hydro- electric as well as wind power and also engaged in construction of hydro power plants. The return of income was filed on 30.10.2017, declaring total income of INR 6,84,04,420/- after claiming deduction u/s 80-IA of the Act of INR 948,40,76,282/-. The book profits was shown at INR 7,84,96,09,382/- and MAT of INR 1,67,52,32,236/- was paid. The case of the assessee was selected for scrutiny and after considering the submissions made, total income was assessed at INR 4,63,78,80,698/- by making disallowance out of deduction claimed u/s 80-IA of the Act to the extent of INR 211,15,54,378/- and further making addition of INR 245,79,21,900/- on account of late payment surcharge on outstanding debtors for the period of 10 months holding the same as taxable on accrual basis and no deduction u/s 80IA was allowed on such addition.
Against the said order, the assessee filed first appeal before Ld. CIT(A) which is pending as on date.
In the meantime, vide notice dated 07.03.2022, available at page 1 & 2 of the Paper Book, PCIT initiated revision proceedings u/s 263 of the Act proposing the assessment order as erroneous and prejudicial to the interest of revenue on following two issues:- (i) Incorrect claim of deduction u/s 80-IA(iv) of the Act on consultancy income of INR 152 Lakhs; (ii) Addition towards late payment surcharge was made by taking debt period of 10 months and it should have been taken for 12 months.
Accordingly, ld. PCIT show-caused the assessee that the assessment order so passed is erroneous and pre-judicial to the interest of the Revenue. After considering the submissions filed by the assessee in response to the show cause notice dt. 07.03.2022, ld. PCIT sought copies of some invoices raised and after perusing the same, has issued another notice on 22.03.2022, placed at page 215 to 216 of PB. In the said notice ld. PCIT observed that receipts towards capacity charges are not qualified for deduction u/s 80-IA and since this issue has not been examined by the AO and therefore, he further show-caused the assessee as to why the assessment order may not be cancelled as erroneous and pre-judicial to the interest of the Revenue. After considering the submissions made by the assessee, ld. PCIT passed the impugned revision order on 27.03.2022, setting aside the assessment order by holding it as erroneous and pre-judicial to the interest of the revenue and direct the AO to pass a fresh order after making due inquiry and investigation with respect to the deduction claimed on capacity charges u/s 80-IA and further directed to charged late payment surcharge from the outstanding debtors for a period of 12 months as against 10 months computed by AO.
6. Aggrieved from the order of Ld. PCIT, the assessee is in appeal before the Tribunal by taking following grounds of appeal:- 1. “That the order dated 27.03.2022 passed u/s 263 of the Act passed by the Hon'ble PCTT is bad in law as the same is against the law prevailing on the subject matter as well as in excess of jurisdiction.
2. That the Hon'ble PCIT has exceeded his jurisdiction in invoking the provisions of section 263 of the Act as the assessment order dated 30.12.2019 passed by the Ld. AO u/s 143(3) of the Act was neither erroneous nor prejudicial to the interest of revenue. 2.1. That the Hon'ble PCIT has failed to appreciate that the assessment proceedings were completed after adequate and proper enquiries were made by the Ld. AO and setting aside of the same is erroneous, in excess of jurisdiction and bad in law.
3. That the Hon'ble PCIT has erred in holding that the assessment order was erroneous and prejudicial to the interest of revenue in so far as the late payment surcharge should be computed for a period of 12 months as against 10 months without appreciating. 3.1. That the late payment surcharge computed by the Ld. AO on accrual basis is not the real income of the Appellant and no addition should have been made on this account. 3.2. The judgement of the Hon'ble Supreme Court in the case of Godhra Electricity Co. Ltd. Vs Commissioner of Income Tax, [1997] 225 ITR 746 (SC). 3.3. Without prejudice, that the CERC Regulations 2014-2019 prescribe a grace period of 60 days from date of billing and the computation of late payment surcharge basis 10 months was correctly done by the Ld. AO.
4. That on the facts and circumstances of the case and in law, the Hon'ble PCIT has erred in travelling beyond the first show-cause notice dated 07.03.2022 by cancelling the assessment made by the Ld. AO on the ground which was not covered in the first show-cause notice.
5. That on the facts and circumstances of the case and in law, the notice dated 22.03.2022 as issued by the Hon'ble PCIT is bad in law as the notice was issued on a ground which was outside the ambit of the definition of the word 'record' in so far as. 5.1. The word 'record includes details available with the Hon'ble PCTT at the time of examination whereas the ground on which the notice dated 22.03.2022 had come to PCIT's attention subsequently during the course of revisionary proceedings. 5.2. The contention raised by the Appellant has not been disposed off by the Hon'ble PCIT.
6. That without prejudice to the above and on the facts and circumstances of the case and in law, the Hon'ble PCIT has erred in holding that the assessment order was erroneous and prejudicial to the interest of revenue in so far as the Appellant was not eligible to claim deduction u/s 80-1A of the Act on the amount of capacity charges without appreciating that 6.1. The capacity charges are a part of revenue from operations of the Appellant and are directly derived by the eligible undertaking 6.2. It is only on account of CERC Regulations that the Appellant is liable to charge tariff under two components, one of them being capacity charges 7. That the Hon'ble PCIT has erred in holding that capacity charges are not directly linked with sale of energy by placing reliance on the judgement in the case of Pandian Chemicals Ltd 262 ITR 278. That the Appellant craves leave to add, amend, modify or withdraw the above grounds of appeal.”
Ground of appeal No.1 is general in nature hence, dismissed. 7.
8. Regarding Grounds of appeal No. 2 to 3.3, before us, Ld.AR for the assessee submits that AO has made due enquiries with respect to the late payment surcharge and has made the addition by computing the late payment surcharge on outstanding debtors by taking the debt period of two months and thus calculated the income for 10 months. Ld. AR submits that against this action of AO, an appeal was filed before the ld. CIT(A) which is pending as on date, thus this issue cannot be made subject matter of revision u/s 263 of the Act.
9. Ld. AR further submits that when the AO has made enquiries which is evident from the fact that the addition has already been made therefore, it cannot be said that AO has not carried out adequate and proper inquiry with respect to the issue before him and further late payment should be computed for the period of 12 months as against 10 months which is nothing but subjective opinion of the AO after duly considering the facts of the case. Ld. AR for the assessee also filed written submissions and requested that the revision order passed by ld. PCIT on this issue deserves to be hold bad in law. The written submission is reproduced as under:-
10. On the other hand, Ld. CIT DR for the Revenue vehemently supported the order of ld. PCIT and submits that AO has not made adequate and proper enquiry and investigation with respect to late payment surcharges and further failed to appreciate the facts that the debtors were outstanding on continuous basis and therefore, the grace period of 60 days allowed by him for the year is compensated by the grace period of preceding year and therefore, ld. PCIT has rightly held that late payment surcharges should be charged for a period of 12 months as against 10 months as computed by the AO in the assessment order. With respect to the contention of the AO that the AO has already made proper and adequate inquiry and investigation, ld. CIT DR submits that ld. PCIT in the revision order clearly demonstrated that AO has failed to appreciate the facts that late payment surcharge was chargeable on the outstanding debtors and therefore, it should be charged for a period of 12 months which fact has not been properly inquired into, therefore, the AO has not made adequate inquiries and investigation before making addition on this count. It is thus, prayed by ld. CIT DR that the revision order be confirmed on this account.
11. Heard the contentions of both the parties and perused the material available on record. At the outset, it is seen that issue on taxability of late payment charges is a legacy issue which is coming since AY 2008-09 and onwards in assessee’s own case where the lower authorities has held the same as not eligible for deduction u/s 80-IA of the Act. Later, the revenue was making additions on accrual basis towards late payment surcharges whereas the assessee has declared income on receipt basis as the recovery of late payment surcharged is very uncertain. It is relevant to state here that Co- ordinate Bench of Tribunal since AY 2008-09 and onwards has allowed the deduction u/s 80-IA of the Act on the income declared by assessee on receipt basis towards late payment surcharge by holding the same as derived from income from business activity and further held that same should be taxable on receipt basis as has been accounted for by the assessee. It is further seen that against the addition made by the AO, an appeal is pending before the ld. CIT(A) therefore, this issue is beyond the jurisdiction of ld. PCIT in revision proceedings.
12. The action of PCIT in the present case of directing the AO to recompute the addition towards late payment surcharge on accrual basis for the period of 12 months as against 10 months is contrary to the settled history of the assessee where income declared by the assessee on “receipt basis” stood accepted by the Co-ordinate Bench of ITAT by observing that the Revenue has not taken consistent approach for taxability of the late payment surcharge wherein some of the AYs, same is allowed to be taxed on receipt basis as declared by the assessee. It is further observed that, the Co-ordinate Bench of ITAT has allowed deduction u/s 80-IA of the Act on late payment surcharge. This being so, even otherwise, the income on account of late payment surcharge whether charged on accrual basis or on receipt basis and further for 10 months or for 12 months makes no difference on the total income since it is eligible for deduction u/s 80- IA of the Act (though the same has not been allowed in the impugned assessment order), on the principal of consistency. Accordingly, there would be no loss of the revenue, by not charging the same for a period of 10 months as against 12 months may be an error however, it is not caused any loss to the Revenue.
13. Regarding the claim of the assessee that AO has already made proper and adequate inquiry, it is observed that AO during the assessment proceedings, asked the assessee to file complete details of income including other income on which deduction u/s 80-IA was claimed and after considering the submissions made by the assessee has made the disallowance of INR 2,11,15,54,378/- out of total deduction claimed u/s 80-IA on other income declared which include late payment surcharge. Further, the AO in his wisdom has made addition of INR 245,79,21,900/- towards late payment surcharge holding the same as taxable on accrual basis for a period of 10 months. This clearly shows that AO has not only made proper and adequate enquiry and investigation in the matter but also applied his mind and reached to a logical conclusion that income towards late payment surcharge on the outstanding debtor on accrual basis for a period of 10 months should have been added in the hands of the assessee. Once the AO has taken a possible view, the assessment order cannot be said to have been passed without inadequate inquiries or investigation. It is merely change of opinion which do not lead to the belief that the assessment order passed is erroneous and pre-judicial to the interest of the Revenue.
In the light of above discussion and further looking to the fact that this issue is pending before ld. CIT(A), in our considered opinion, the assessment order passed by charging the late payment surcharge for a period of 10 months on accrual basis does not hold the assessment order as erroneous and pre-judicial to the interest of the Revenue. Accordingly, Grounds of appeal No. 2 & 3 raised by the assessee are allowed.
15. In Grounds of appeal Nos. 4 & 5, the assessee has challenged the action of ld. PCIT in holding the assessment order as erroneous and pre-judicial to the interest of the Revenue beyond the scope of show cause notice issued at the time of initiation of proceedings u/s 263 thus, has exceeded the jurisdiction.
16. In Grounds of appeal Nos. 6 & 7, the assessee has challenged the action of PCIT in holding that the deduction u/s 80-IA of the Act on capacity charges has wrongly been allowed without making proper and adequate inquiries and erred in directing the AO to re-frame the assessment after making necessary and proper inquiries regarding allowability of deduction u/s 80IA on capacity charges.
17. Before us, Ld.AR for the assessee submits that the ld. PCIT after examination of the material available on records, has initiated the proceedings u/s 263 on two issue out which the issue of allowability of deduction u/s 80IA on the Consultancy charges was dropped and after considering the submission and fresh material provided by the assessee has raised new issue of allowability of deduction u/s 80IA of the Act on Capacity charges. The ld. AR submits that this issue is not borne out from the records verified by the ld. PCIT and deduction u/s 8-IA was never doubted in any of the preceding or subsequent assessment year thus following the principal of consistency also, for this issue the assessment order cannot be held as erroneous and prejudicial to the interest of revenue. Ld. AR further filed written submission on both the issues, which reads as under:-
On the other hand, ld. CIT DR vehemently supports the order of ld. PCIT and submits that ld. PCIT has not exceeded his jurisdiction and based on the material gathered during the hearing in the shape of invoices issued, has observed that the assessee has collected capacity charges on which deduction u/s 80-IA was claimed which is not the income derived from the activity of the undertaking and therefore the action of ld. PCIT in holding the capacity charges as not eligible for deduction u/s 80-IA of the Act is not beyond the jurisdiction u/s 263 of the Act nor it could be said that this issue is raised without referring to the records. It is therefore, requested to confirm the order of ld. PCIT on this issue.
Heard the contentions of both the parties at length and perused the material available on record. In the instant case, the proceedings u/s 263 were initiated in terms of first show cause notice issue don 07.03.2022 wherein two issues were raised by ld. PCIT after examination of the records which are as under:- (i) Allowability of deduction u/s 80-IA on consultancy charges received; (ii) Taxability of late payment surcharge on accrual basis for a period of 10 months as against the period of 12 months.
The assessee had filed reply on 21.03.2021 and after considering the said submission, PCIT asked the assessee to file the sales invoices which were submitted on 22.03.2022. on perusal of the sale invoices, ld. PCIT issued another show cause notice on 22.03.2022, alleging that the AO has not made any enquiry or verification of the fact whether the capacity charges collected by the assessee are eligible for deduction u/s 80-IA of the Act. Accordingly, ld. PCIT vide show cause notice on 22.03.2022 extended the scope of revisionary proceedings and include the issue of allowability of deduction u/s 80-IA on the capacity charges claimed by the assessee.
From the above series of events, we find that satisfaction that the assessment order is erroneous and prejudicial to the interest of revenue was prima facie taken when the ld. PCIT has inspected the material available in the assessment folder and based on such inspection, show cause notice was issued to the assessee to explain as to why the assessment order not be hold as erroneous and pre- judicial to the interest of the revenue on two issues as stated above.
Thereafter, on perusal of the show cause notice on 22.03.2022, placed at pages 215 to 216 of PB, it is observed by us that ld. PCIT has based his allegation solely on the examination of details filed by the assessee on the issue of late payment charges from debtors, when ld. PCIT asked the assessee to file the copies of the sale invoices. As per the said notice, PCIT alleged that the issue of allowability of deduction u/s 80-IA on capacity charges has not been examined by the AO. The notice issued on dated 22.03.2022 is reproduced as under:-
It is further brought to our notice by Ld.AR that the issue of allowability of deduction u/s 80-IA on capacity charges is dealt by the Co-ordinate Bench of ITAT in the case of UJVN Limited vs PCIT in [AY 2017-18] wherein vide order dated 15.09.2023, the Co-ordinate Dehradun Bench of ITAT has taken the view that capacity charges are having nexus with the business of generation of power and therefore, is eligible for deduction u/s 80-IA of the Act and accordingly, quashed the order passed u/s 263 of the Act. While reaching to such conclusion, the Co-ordinate Bench has based its findings on the fact that tariff charged is in accordance with tariff prescribed by the Regulatory Authority. In the instant case also, the tariff has been regulated as per Central Electricity Regulatory Commission Regulations, 2014 (“CERC”)- where in Regulation 20 titled as “Components of tariff” under Chapter 5 deals with “tariff structure”, according to which the tariff for supply of electricity from Hydro Generation station shall have two components:- (1) Capacity charges; (2) Energy charges
The same should be derived in the manner specified in Regulation 31. The Regulation 31 regulates by CERC Regulations prescribed the manner for computation of the capacity which is reproduced herein above in para 6.4 of submissions made by the assessee. The assessee has charged tariff in terms of the tariff structure prescribed by the Regulatory Authorities and therefore, the tariff so collected is part of the income earned from generation and distribution of hydro power which is the core activity of the assessee thus is derived from the business undertaking eligible for deduction u/s 80IA of the Act.
The relevant observations of the Co-ordinate Bench in the case of UJVN Limited (supra) wherein it is held that the capacity charges are eligible for deduction u/s 80-IA of the Act and quashed the order passed u/s 263 of the Act, are reproduced as under:-
“We find that Assessee had derived profits and gains from the undertaking to the tune of Rs. 58,25,01,731/- but had claimed deduction u/s 80IA of the Act only for Rs. 51,94,17,583/-. This fact is also confirmed by the Chartered Accountant in Form NO. 10CCB. This claim of deduction of Rs. 51,94,17,583/- matches with computation of total income enclosed in page 2 of the PB wherein, an identical claim is made. All these facts go to prove that the AO had indeed made adequate enquiries during the course of scrutiny assessment proceedings and since there was no change in the manufacturing activities when compared to AY 2014-15, and in view of the fact that in AY 2014-15 the claim of deduction was accepted by the ld AO, there was no reason for the ld AO to take a divergent stand for the year under consideration as facts are identical. Hence it would be incorrect on the part of the ld PCIT to state that adequate enquiries with regard to claim of deduction u/s 80IA of the Act were not made by the ld AO warranting revision u/s 263 of the Act.
With regard to specific allegation leveled by the ld PCIT in the aspect of capacity charges not having first degree nexus with the sale of energy by the Assessee to UPCL. We find that power purchase agreement entered between Assessee and UPCL on 24.07.2012 is placed on record at page No. 560 of the paper book wherein at page 564 under clause No 6, the expression ‘tariff to be charged’ by the Assessee is mentioned which reads as under:- “6.1 The tariff to be charged and its associated terms and conditions for the energy to be supplied by UJVN Ltd. from the projects shall be as per the Tariff Notifications/orders/directions issued/to be issued by UERC from time to time under the Electricity Act, 2003 and/or any other Act/Regulations as may be enacted/substituted by the GoU/Gol in place of these provisions. Recovery of Income Tax and Foreign Exchange Rate Variation shall be governed as per orders/directions issued by UERC from time to time.”
We find identical issue came up before Hon’ble Madras High Court in the case of M/s. Neyveli Lignite Corporation Ltd Vs. ACIT, Tax Case (Appeal) No. 1317 of 2005 dated 16.07.2012. The questions raised before the Hon’ble Madras High Court are as under:- “1. Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that components of price for sale of electricity fixed on the basis of tax liability should not be taken as part of the transfer price of lignite and sale price of electricity in computing relief under Section 801A/80IB? 2. If the answer to the question No. 1 is in favour of appellant, whether the notional tax reimbursement in the case of Unit VII of Thermal Power Station II whose entire income is deductible u/s 80IA should also be taken into account for computing relief u/s 80IA?”
It would be relevant to reproduce operating paragraphs of the said judgment as under:- “5. It is a matter of relevance to point out herein that in the notification issued on 19.01.2009, Chapter 3 deals with Computation of tariff, wherein clause 13, provided that the components of tariff for the supply of electricity shall comprise of two parts, namely, capacity charge (for recovery of annual fixed cost consisting of the components specified to in regulation 14) and energy charge (for recovery of primary fuel cost and limestone cost where applicable). The tariff for supply of electricity from a hydro generating station shall comprise capacity charge and energy charge to be derived in the manner specified in regulation 22, for recovery of annual fixed cost (consisting of the components referred to in regulation 14) through the two charges. Clause 14 defines Annual Fixed Cost.
A reading of the agreement dated 18.02.1999 entered into between the assessee and the various State Electricity Boards thus show the modalities of arriving at the tariff which includes the tax liability of Neyveli Lignite Corporation. Thus, it is evident that the tariff that was arrived at between the parties consisted of various components including tax liability on the income streams from the core activity of NLC and the quantification was to be done on the basis of the methods given in Clause 6.2 of the agreement. A reading of the same thus makes it clear that in strict sense, there was no reimbursement of the tax liability by the recipient, but was treated as part of the tariff and whatever was done on the receipt of the statement of the tax payable by the assessee was that the tariff price payable on the electricity sold was finally reckoned with reference to the above said tax payment. In the circumstances, it is clear that by "reimbursement", it does not mean that the tax paid by the assessee was very much part of the tariff and hence, part of the sale price.
It is seen from the proceedings of the Commissioner of Income Tax under Section 263 of the Act that the assessment was sought to be revised on the ground that the deduction claimed under Section 801A was not properly considered by the Assessing Officer. The Commissioner further pointed out that on a perusal of the agreement the income tax liability of the assessee had been paid by the Electricity Boards and the amount received by the assessee was shown as receipt of the income and included for claiming deduction under Section 801A. The Commissioner of Income Tax viewed that the receipt of the income tax by way of reimbursement was not an income from the manufacturing or production activity. Consequently, no deduction under Section 801A or 801B is to be allowed. Thus, the Commissioner of Income Tax issued the notice under Section 263.
We agree with the submissions made by the learned counsel for the assessee. As rightly pointed out by learned counsel for the assessee, the Revenue does not dispute the genuineness of the Bulk Power Supply Agreement between NLC and the State Electricity Board dated 18.2.1999. The Revenue also does not dispute the fact that the Notification issued by Ministry of Power dated 30.3.1992 provides for the various components of the tariff to be charged for the sale of electricity by the Generating companies to the Board and the same is relevant for understanding the clauses in the agreement. As already seen, the Notification dated 30.3.1992 provides the basis for working of the tariff for sale of electricity. Clause 1.5(d) of the Notification dated 30.3.1992 refers to the manner of what could be the components that could be included in the tariff to be charged on various income streams. Keeping these guidelines in the background, when we look at the agreement entered into betweenthe various State Electricity Boards and the assessee, we find that the computation of the generation tariff is done on the lines indicated in the notification.
It is no doubt true that clause 6 of the agreement separately deals with tax liability of the assessee which would form part of the tariff as per the Notification. Equally, it is true that Annexure A to the agreement gives the norms and parameters for working out the generation power tariff for the 5 year period 1996-97 to 2000-01. The said Annexure however has to be read in the context of clause 4.1. Hence, going by this, we do not find any income tax payable by the assessee or paid by the assessee figuring in Annexure A. The reason is that in clause 6 of the agreement specifies the tax liability of NLC in respect of the income on generation of power from Power Station II (Stage I) and Power Station II (Stage 1), mining of lignite from Mine II for the purpose of generation of power from Power Station II (Stage I) and Power Station 11 (stage II), the amount of grossed up tax that is payable by NLC on the income streams mentioned at items (i) and (ii) were to be borne by the recipients. viz, the State Electricity Boards. Clause 6.2 clarifies that either the grossed up or the actual tax assessed, whichever is less alone would be the liability for the Recipients to bear.
17. In the context of the direction issued in the notification dated 30.3.1992 and Clause 6 in the agreement, it is clear that tax liability is part of the tariff charged for sale of electricity from Thermal Power Generating Stations and it does not stand independent of the tariff charge. If the contemplation is otherwise, there is absolutely no need at all for anyone to enter into an agreement to make the tax liability of one party viz., the assessee as a liability to be borne by another party to the agreement. When the agreement between the parties is guided by the Notifications issued by the Ministry of Power, Government of India and the deliberations between the parties also pointed out the guidelines, under which the agreement themselves were entered into, we do not think there exists any justification in the contention of the Revenue to treat the tax payment shown under clause 6 of the agreement as payment not connected with the tariff charged on the supply an independent of energy. At the risk of repetition, we would say that the tax component is very much part of the sale of electricity from the Thermal Power Generating Stations and the mere fact that a component of the tariff makes a reference to the tax liability with reference to income streams mentioned in clause 6, it does not make such a component as not income to be excluded in considering the relief under Section 801A/80IB. In the circumstances, we hold that there is no such reimbursement of tax paid by NLC from the State Electricity Board. On the other hand the tariff component is quantified in terms of the liability met by the NLC which by no stretch of imagination could convert such a payment by the recipient as a tax liability of the recipient.
18. In the circumstances, we have no hesitation in accepting the plea of the assessee that the Commissioner committed serious error in dissecting the tariff to come to the conclusion that the tax component specified as part of the tariff is reimbursement of the liability of the assessee and hence it would not form part of the income. As already pointed out, when the Revenue had not questioned the genuineness of the agreement between the parties and liberty is thus available for the parties to arrive at the cost of the energy to be supplied by the assessee as guided by the notifications of the Ministry of Power in this regard, we find no ground to sustain the plea of the Revenue that the relief to be granted under Section SOLA calls for exclusion of the tax component in the sale price of electricity. Consequently, the first question raised in the tax case is answered in favour of the assessee and the order of the Tribunal is set aside.” 12. Ld PCIT in the Assessee’s case had sought to disturb the claim of deduction on similar lines by holding that energy charges and capacity charges which are part of the energy sales bill are not eligible for deduction u/s 80IA of the Act. In this regard, it would be relevant to refer the UERC regulation which are enclosed at page 723 of PB, wherein, the term ‘tariff’ is defined as under:- Regulation- (72) Definition 72 “Tariff” means the schedule of charges for either generation or transmission or wheeling and supply of electricity together with terms and conditions for application thereof. 13. The said regulation also defined “tariff income” as under:- Regulation3 (36) Definition 36 “Tariff Income” states that the income of the generating company, transmission, licensee, distribution licensee and SLDC arising out of all the charges determined by the commission for generation, transmission, wheeling and retails supply of electricity, SLDC charges, as the case may be, shall be considered as tariff income. 14. As per regulation 3(16), ‘Commission’ means the Uttrarakhand Electricity regularity commission constituted u/s 82 of the Electricity Act, 2003. 15. Further, the ‘component of tariff ’ is also defined in the said regulation as under:-
i. The tariff for sale of electricity from a thermal power generating station shall comprise of two parts namely, the recovery of annual fixed charges and energy (variable) charges (for recovery of primary fuel cost). ii. The tariff for sale of electricity from hydro generating station was comprised of two parts namely recovery of annual capacity charges and energy charges. iii. Recovery of capacity charge and incentive by the generating company shall be based on the adjournment of the operational norms specified for regulation 47. (emphasis supplied by us) 16. The expression ‘non-tariff income’ is also defined in the said UERC regulation as under:- “85. Non-Tariff Income The amount of non-tariff income relating to the Distribution Business and/or the Retail Supply Business as approved by the Commission shall be deducted from the Aggregate Revenue Requirement in calculating the revenue requirement from retail sale of electricity of the Distribution Licensee: Provided that the Distribution Licensee shall submit full details of his forecast of non-tariff income to the Commission along with his application for determination of tariff The indicative list of various heads to be considered for Non- Tariff Income shall be as under: (a) Income from rent of land or buildings: (b) Income from sale of scrap: (c) Delayed Payment Surcharge, (d) Rebates for timely payment of bills: (e) Income from statutory investments; (f) Interest on delayed or deferred payment on bills; (g) Interest on advances to suppliers/contractors; (h) Rental from staff quarters, (i) Rental from contractors; (j) Income from hire charges from contactors and others; k) Income from advertisements, etc.; (l) Miscellaneous receipts; (m) Interest on advances to suppliers; (n) Excess found on physical verification: (0) Prior period income.”
Hence, the entire allegation of the ld PCIT is addressed as from the above regulations, it could be seen that Assessee is duly entitled to charge energy charges, capacity charges and shortfall charges. Hence, we hold that the Assessee had rightly collected the sale price which is directly in accordance with the UERC regulations and the tariff prescribed by the UERC. In any case, we find that the charges raised by the assessee company had been duly settled by UPCL. The person to dispute with regard to the pricing would be UPCL and not the Ld. PCIT. Hence, these disputed receipts would form part of tariff to be charged by the Assessee to UPCL. Accordingly, they would have first degree nexus with the business of generation of power and consequentially, the assessee would be eligible for deduction u/s 80IA of the Act on merits.
18. In view of the aforesaid observations, we hold that the ld PCIT grossly erred in invoking the jurisdiction u/s 263 of the Act in the facts of the instant case both on law as well as on merits. Accordingly, the revision order passed by the ld PCIT u/s 263 of the Act is hereby quashed. Grounds raised by the Assessee are allowed.”
As the facts in this case of the assessee are identical to the case of UJVN Limited as stated above, where the coordinate bench of Dehradun ITAT has already quashed the order u/s 263 by holding that the capacity charges are eligible for deduction u/s 80IA of the Act. Further as observed above, except for the year under appeal, doubts were never raised about the allowability of deduction u/s 80IA on capacity charges in any other assessment years though assessment were completed us/ 143(3) of the Act. Thus, by respectfully following the aforesaid judgment of coordinate bench in the case of UJVN Ltd. and further by following the principal of consistency, the assessee is entitled for deduction u/s 80-IA of the Act on capacity charges received which has direct and first-degree nexus with the business of generation of power. Accordingly, we hold that ld. PCIT has erred in invoking jurisdiction of section 263 of the Act on the facts of the present case and in law. In view of the above discussion and after considering the overall facts, we allow the Ground of appeal Nos. 5 & 6 raised by the assessee and the revision order passed u/s 263 of the Act is hereby, quashed.
In the result, appeal of the assessee is allowed.