Ppn Power Generating Company Private Ltd., Jhaver Plaza Iii Floor, 1A, Nungambakkam High Road, Chennai - 600 034 v. Commissioner Of Income Tax (Appeals) - Iii

IN THE HIGH COURT OF JUDICATURE AT MADRAS THE HONOURABLE MR. JUSTICE T.S.SIVAGNANAMAND THE HONOURABLE MRS. JUSTICE V.BHAVANI SUBBAROYAN PPN Power Generating Company Private Ltd.,Jhaver Plaza III Floor,1A, Nungambakkam High Road,Chennai - 600 034 ..Appellant in both the appealsVs. Commissioner of Income Tax (Appeals) - IIINo.121, Mahatma Gandhi Road,Nungambakkam, Chennai - 600 034 ..Respondent in T.C.A.No.60 of 2018 Assistant Commissioner of Income Tax,Central Circle - 3(1)46, Nungambakkam High Road,Chennai - 600 034 ..Respondent in T.C.A.No.61 of 2018 Tax Case Appeals filed under Section 260-A of the Income TaxAct, 1961, are directed against the Orders passed by the IncomeTax Appellate Tribunal “B” Bench in I.T.A Nos.2721/MDS/2016 and3067/MDS/2016 dated 22.08.2017 for the assessment year 2009-10. Appeal filed against the order of the Income Tax AppellateTribunal 'B' Bench, Chennai dated 22/08/2017 in I.T.ANo.2721/MDS/2016 Assessment year 2009-2010 against theCommissioner of Income Tax (Appeals)-3 in ITA No.9/2013-14/CIT(A)-3-dated 30/06/2016 PAN NO. Assessment year 2009-10against Deputy Commissioner of Income Tax, Company Circle (2),PAN NO. Assessment Year 2009-2010. Appeal filed against the order of the Income Tax AppellateTribunal 'B' Bench, Chennai dated 22/08/2017 in I.T.ANo.3067/MDS/2016 Assessment year 2009-2010 against the https://hcservices.ecourts.gov.in/hcservices/ Commissioner of Income Tax (Appeals)-3 in ITA No.9/2013-14/CIT(A)-3-dated 30/06/2016 PAN NO. Assessment year 2009-10against Deputy Commissioner of Income Tax, Company Circle (2),PAN NO. Assessment Year 2009-2010. [Common Judgment of the Court was delivered by T.S.SIVAGNANAM,J.] These appeals have been filed by the assessee under Section260A of the Income Tax Act, 1961 ['the Act', for brevity]challenging the order dated 22.08.2017 passed by the ITAT 'B'Bench, Chennai [Tribunal] in I.T.A Nos.2721/MDS/2016 and3067/MDS/2016 for the assessment year 2009-2010. 2. The assessee has filed two appeals challenging the commonorder passed by the Tribunal dated 22.08.2017 on account of thefact that the assessee's appeal challenging the order passed bythe Commissioner of Income Tax Appeals- III, Chennai wasdismissed and the appeal filed by the Revenue was allowed.However, the issue pertains only to the assessment year 2009-2010. 3. The Assessee is a private limited company, engaged in thegeneration of power, which is sold to the Tamilnadu Generationand Distribution Corporation under a power purchaseagreement entered into between the parties. For the assessmentyear under consideration, AY - 2009-2010, the assessee declareda total income of Rs.4,15,55,069/- under the normal provisionsof the Act. After claiming deduction under Section 80IA of theAct to the tune of Rs.1,06,50,60,712/-, the assessee declared abook profit of Rs.1,11,44,71,000/- under Section 115 JB of theAct. Subsequently, a revised return of income was filed on23.09.2010 adding back Rs.70 Crores being the provisionfor cash discount allowable to TANGEDCO, declaring the very sameincome, Rs.4,15,55,070/- under the normal provisions of the Actand claiming enhanced deduction under Section 80 IA of the Actto the tune of Rs.1,76,50,60,712/-. The assessee admitted abook profit of Rs.1,81,44,71,000/- under Section 115JB of theAct. The return of income was processed under Section 143(1) ofthe Act and subsequently, the case was selected for scrutiny anda notice under Section 143(2) of the Act was issued on24.08.2010. A reference to the Transfer Pricing Officer wasmade on 26.10.2009 under Section 92(C)(A) of the Act fordetermining the arm's length price in respect of the assesse'stransaction on its associated enterprises. 4. The Transfer Pricing Officer by an order dated31.12.2012 stated that no adjustments was necessary to value theinternational transaction entered into by the assessee. Theassessment was completed under Section 143(3) r/w Section 144(1)of the Act on 26.03.2013 computing the total income atRs.10,09,39,254/- under normal provisions of the act and byadding Rs.41,76,92,807/- under the caption 'Delayed RevenueRecognition' as business income for the said assessment year andallowed deduction under Section 80IA of the Act. Further, theassessingofficertreatedtheinterestincomeofRs.5,93,84,195/- as income from other sources thereby denyingthe deduction under Section 80 IA of the Act. The assessingofficer computed the book profit under Section 115 JB of theAct at Rs.2,23,21,63,807/- under the caption 'Delayed RevenueRecognition'. Aggrieved by such order, the assessee filed anappeal before the CIT[A], who by an order dated 30.06.2016partly allowed the appeal and rejected the grounds except theground challenging the deletion of addition towardsreimbursement to specified taxes and a direction was issued tothe assessing officer to follow the decision of the Tribunal inthe assessee's own case for AY-2004-2005 dated 02.03.2009. 5. Aggrieved by the same, the assessee preferred an appealto the Tribunal. The department also filed an appealchallenging the deletion of addition towards reimbursement ofspecified taxes. Both the appeals were heard together and by animpugned common order dated 22.08.2017, assessee's appeal wasdismissed and the revenue appeal was allowed. This is how theassessee is before us by way of these appeals. 6.The only question to be considered by us in these appealsis whether the assessing officer was right in coming to theconclusion that the accounts of the assessee were not preparedin accordance with the Companies Act, 1956 ['1956 Act', forbrevity] and whether the additions made were proper?. The otherissue would be whether the CIT[A] and the Tribunal were right inaffirming the finding of the assessing officer?. 7. We have carefully perused the order passed by theassessing officer and found it to be a speaking order. Theassessing officer has recorded a factual finding that theassessee was not recognising income in accordance with ScheduleVI of 1956 Act and this was highlighted by the statutoryauditors of the assessee in the main audit report in ParagraphNo.3, after explaining with regard to the revenue recognitionand noting the factual position, the assessing officer has heldthat non-recognition of revenue to the extent of Rs.25.07 croresand provisions for cash discount to the tune of Rs.17.16 croresclearly shows that the assessee did not follow matching conceptrelating to the recognition of revenue and expenses andaccounting standards prescribed by the ICAI. 8. Further, while dealing with the stand taken by theassessee there were uncertainities in receiving funds fromTANGEDCO, the assessing officer held that the stand is incorrectbecause the power purchase agreement is backed by the stateguarantee and there was never uncertainity about thedetermination of revenue. Finally, the assessing officer heldthat had the assessee followed the accounting standards properlyand had it recognised the income property and had also preparedits financial statements as Part II and Part III of Schedule VIof the 1956 Act, it could have paid taxes correctly and claimedthese payments as part of its bills to TANGEDCO. 8. Further, while dealing with the stand taken by theassessee there were uncertainities in receiving funds fromTANGEDCO, the assessing officer held that the stand is incorrectbecause the power purchase agreement is backed by the stateguarantee and there was never uncertainity about thedetermination of revenue. Finally, the assessing officer heldthat had the assessee followed the accounting standards properlyand had it recognised the income property and had also preparedits financial statements as Part II and Part III of Schedule VIof the 1956 Act, it could have paid taxes correctly and claimedthese payments as part of its bills to TANGEDCO. 9. The assessee in its appeal before the CIT[A] contendedthat the statutory auditors have not made any qualification inthe audit report and the noting made in the audit report wasmisunderstood by the assessing officer to be a qualification bythe statutory auditor. Further, the assessee relying on thedecision of the Hon'ble Supreme Court in Appolo Tyres Vs.I.T.O., reported in [2002] TIOL - 185 - SC-IT questioned thepower of the assessing officer with regard to the computation onbook profits in so far as the accounts which are otherwiseaccepted under the Company Law. 10. The assessee further stated that they have preparedtheir accounts in accordance with schedule VI of the 1956 Actand the same were also consistent in the concept of 'Prudence'enshrined in AS 1 notified by the CBDT. These contentions weretested for its correctness by the CIT[A], who concurred with theassessing officer and on appreciation of facts, held that thebooks of accounts are not prepared as per 1956 Act. Thedecision in the case of Appolo Tyres was considered by the CIT[A] and recorded a finding as to how the same cannot be appliedto the assessee's case. 11. Before the Tribunal, assessee contended that they haveprepared the accounts in accordance with 1956 Act. Thiscontention was tested by the Tribunal and the Tribunal, as amatter of fact, found that the accounts are not in accordancewith the 1956 Act. After going through the above orders, wefind that the entire matter appears to be factual and noquestion of law much less substantial question of law arises forconsideration on this aspect. 12. At this juncture, it would be relevant to take note offew Judgments, which were referred to by Mr.T.Ravikumar, learnedSenior Standing Counsel for the Revenue. In [DynamicOrthopedics P.Ltd., Vs. C.I.T.], reported in (2010) 321 ITR 0300the Hon'ble Supreme Court held that Section 115 J does not makeany distinction between the public and private limitedcompanies, it legislatively incorporates only the provisions of https://hcservices.ecourts.gov.in/hcservices/ Part II and III of Schedule VI to the 1956 Act by a deemingfiction and therefore, Section 115 J [1A] is to be read in thestrict sense and if the company is a MAT Company, it has toprepare profit and loss account for the purpose of Section 115 Jin accordance with Part II and Part III of Schedule VI of the1956 Act, otherwise the very purpose of enacting Section 115 Jwould stand defeated particularly, as the said section does notmake any distinction between public and private companies.Therefore, it was held that the Judgment in Malayala ManoramaCo., Ltd., Vs. CIT reported in (2008) 300 ITR 251(SC) needsreconsideration by a larger bench. https://hcservices.ecourts.gov.in/hcservices/ Part II and III of Schedule VI to the 1956 Act by a deemingfiction and therefore, Section 115 J [1A] is to be read in thestrict sense and if the company is a MAT Company, it has toprepare profit and loss account for the purpose of Section 115 Jin accordance with Part II and Part III of Schedule VI of the1956 Act, otherwise the very purpose of enacting Section 115 Jwould stand defeated particularly, as the said section does notmake any distinction between public and private companies.Therefore, it was held that the Judgment in Malayala ManoramaCo., Ltd., Vs. CIT reported in (2008) 300 ITR 251(SC) needsreconsideration by a larger bench. 13. On behalf of the Revenue it was argued that there wasexcess provision made by the assessee, which is also animportant factor to be taken note of, in this regard, reliancewas placed on the decision of the Division Bench of this Courtin Commissioner of Income Tax Vs. Forbes Campbell FinanceLimited reported in [2013] 352 ITR 0602. The learned SeniorCounsel also referred to the decision of Hon'ble Supreme Courtin Commissioner of Income Tax V. British Paints India Limitedreported in [1991] 188 ITR 0044, wherein the Court pointed outthe importance of system of accounting and held as follows : '21. Any system of accounting which excludes, for thevaluation of the stock-in-trade, all costs other thanthe cost of raw materials for the goods-in-process andfinished products, is likely to result in a distortedpicture of the true state of the business for thepurpose of computing the chargeable income. Such asystem may produce a comparatively lower valuation ofthe opening stock and the closing stock, thus showing acomparatively low difference between the two. In aperiod of rising turnover and rising prices, the systemadopted by the assessee, as found by the Tribunal, isapt to diminish the assessment of the taxable profit ofa year. The profit of one year is likely to be shiftedto another year which is an incorrect method ofcomputing profits and gains for the purpose ofassessment. Each year being a self- contained unit, andthe taxes of a particular year being payable withreference to the income of that year, as computed interms of the Act, the method adopted by the assesseehas been found to be such that income cannot properlybe deduced therefrom. It is, therefore, not only theright but the duty of the Assessing Officer to act inexercise of his statutory power, as he has done in theinstant case, for determining what, in his opinion, isthe correct taxable income'. 14. The above decisions are having referred to emphasis theimportance of following the accounting standards as prescribedunder the 1956 Act, as already held by us, we find no questionof law or substantial question of law arising on the said issue. 15. We now proceed to consider the alternate submissionsmade by Mr.G.Baskar, learned counsel appearing for the assessee.It is submitted that the Tribunal after taking intoconsideration of the note submitted by the assessee held thatthe assessee has received all the disputed sums including thespecific taxes, on which, the revenue is on cross appeal fromAY-2010-2011 to AY-2014-2015 in various proportions but in full.It is further submitted that the Tribunal while affirming theview taken by the assessing officer that the assessee did notfollow accounting standard properly held that the impugnedadditions made have not been challenged by the assessee withrelevant material and accordingly rejected the plea raised bythe assessee. Further, the Tribunal pointed out that the incomewhich is to be assessed in the particular year cannot beassessed in any other year. 16. It is the submission of Mr.G.Baskar, learned counsel forthe appellant that the Tribunal having recorded the abovefinding, ought to have issued a direction to the assessingofficer to take appropriate steps for assessment years 2010-2011to 2014-2015 during which period, the assessee had received thedisputed sums including the specified taxes and was assessed totax on the said receipts. Therefore, it is submitted thatconsequential direction should have been issued to the assessingofficer. In this regard, the learned counsel has drawn theattention of this Court to Paragraph No.6.7 of the impugnedorder, wherein such a point was canvassed before the Tribunal.Therefore, it is submitted that the order passed by the Tribunalsuffers from error and appropriate direction may be issued tothe assessing officer. 17. Mr.T.Ravikumar, learned senior standing counsel for therespondents submitted that the assessee should be considered asa person never to be aggrieved on such a finding as no suchground was raised and for the first time, in these appeals filedunder Section 260A of the Act it is raised and the same shouldnot be permitted to be raised as it was never a question of lawframed for consideration. 18. After elaborately hearing the learned counsels on eithersides, this Court finds that the assessee has raised a specificground before the Tribunal stating that the additions were madeunder the normal provisions of the Act as well as under Section115 JB, which the assessee prayed for deletion and submittedthat since it has received and admitted, the impugned receiptsfor the subsequent year, the additions made under the normalprovisions of the Act, as well as under Section 115 JB of theAct, may be deleted and the rate of tax remains the same in allthese years under Section 115 JB of the Act. In fact, theground raised by the assessee was to delete the impugnedadditions on the ground that the receipts have been subjected tothe tax in the subsequent year whatever the assessee hadreceived from TANGEDCO. The Tribunal did not agree with theassessee and sustained the addition, if such is the factualposition, the natural consequences that is to flow is to issue adirection to the assessing officer to take appropriate action inso far as the assessments from the year 2010-2011 to 2014-2015,during which the assessee has been taxed on the said receipts.If such a consequential direction is not issued, then, theassessee would be subjected to double taxation which isunauthorised in Law. Thus, we find that this issue can clearlybe brought within the scope of Sub-Section (4) of 260 A and theCourt would be justified in issuing appropriate direction to theassessing officer to reopen the assessments from the year 2010-2011 to 2014 - 2015 on this issue alone and examine whether theassessee has paid taxes on these receipts, which addition havebeen sustained in the impugned assessment year 2009-2010 andafter affording an opportunity to the assessee redo theassessment only on this aspect. 19. In the result, the appeals are dismissed as nosubstantial question of law arises for consideration. In thelight of the reasons assigned by us in the preceding paragraphs,there shall be a direction to the Assessing Officer to reopenthe assessment years 2010-2011 to 2014 - 2015, ascertain as towhether the assessee has paid taxes on the impugned receipts andafford an opportunity of hearing to the assessee, re-do theassessment on this aspect alone. Consequently, connectedmiscellaneous petition is closed. No costs. Sd/- Assistant Registrar //True Copy// Sub Assistant Registrar ssd https://hcservices.ecourts.gov.in/hcservices/ To The Income Tax Appellate Tribunal “B” Bench +1cc to M/s.G.Baskar, Advocate, S.R.No.28867 +1cc to M/s.T.Ravikumar, Advocate, S.R.No.28877 T.C.A.Nos.60 of 2018 and C.M.P.No.668 of 2018 and T.C.A.No.61 of 2018 VSN II (CO)KKV/19/11/2020