Rc/99/1996 Of The Commissioner Of Income Tax Visakhapatnam v. M/S.andhra Ferro Alloys (P) Ltd. Visakhapatnam

THE HON’BLE SRI JUSTICE V.V.S. RAOANDTHE HON’BLE SRI JUSTICE B.N. RAO NALLA REFERRED CASE No.99 OF 1996 ORDER:(Per Hon’ble Sri Justice B.N. Rao Nalla) The respondent – M/s.Andhra Ferro Alloys, (the assessee) is aprivate limited company engaged in the business of manufacture and saleof HC Ferro Chrome. During the year 1991-92, the assessee mostly didconversion processing for M/s. TISCO. In fact, from out of the total incomeof Rs.4,54,52,264/- credited to the profit and loss account, a sum ofRs.3,79,79,687/- was in the nature of conversion charges received fromM/s. TISCO, and out of the remaining, Rs.56,57,540/- was from sale of off-grade HC Ferro Chrome which had been produced during the conversionprocess. The assessee has debited to profit and loss account a sum ofRs.1,67,10,388/- towards ‘power consumed’. The said expenditure hasbeen included under the head of ‘manufacturing and other expenditure’. On being asked to furnish complete particulars in respect of the saidexpenditure and also the copies of demands raised by the AndhraPradesh Electricity Board (for short ‘the APSEB’) as well as the details ofpayments made in pursuance thereof, the assessee complied the same. On scrutiny, it was found by the Revenue that though the demand made bythe APSEB was Rs.1,67,10,388/-, the assesee had paid only a sum ofRs.1,14,86,598/- and the remaining amount of Rs.52,23,790/- was not paideither during the relevant previous year or on or before the time providedunder Section 139(1) of the Income Tax Act,1961 (for short ‘the Act’) forfurnishing the return of income. On being asked by the Revenue forpayment of the balance amount of Rs.52,23,790/- to the APSEB, theassessee disputed the same stating that the original agreement with theAPSEB for assessing the assessee company’s tariff was under Category –I, however it has assessed the tariff under Category – III and raiseddemands for enhanced amounts. On receipt of such demand, theassessee approached this Court by filing writ petition and obtained stay. The Assessing Officer being Deputy Commissioner of Income Tax,Visakhapatnam by order dated 31-03-1994 observing that there is a littledoubt that electricity charges are clearly in the nature of fees because the electricity charges paid as consideration for a distinct service availed of,held that electricity charges come within the ambit of Section 43B of the Actwith effect from 01-4-1989, and therefore, the same can be allowed asdeduction only on payment basis. Accordingly, from out ofRs.1,67,10,388/- raised by the APSEB, the assessee has actually paidonly a sum of Rs.1,14,86,598/- and as such the said sum was allowed asdeduction and the balance of Rs.52,23,790/- was disallowed. Aggrievedthereby, the assessee filed appeal before the Commissioner of IncomeTax (Appeals), Visakhapatnam (for short ‘the CIT’). However, the CITdismissed the appeal confirming the order of the Assessing Officer.Assailing the same, the assessee preferred appeal in ITA No.1780/Hyd/94before the Income Tax Appellate Tribunal, Hyderabad (for short ‘theTribunal’) and the Tribunal by order dated 30.01.1995 allowed the appealholding that the Assessing Officer was not justified in making the addition interms of disallowance under Section 43B of the Act and set aside the orderof the CIT deleting the addition of Rs.52,23,790/- made by the AssessingOfficer. The Tribunal on application of the Revenue under Section 256(1) ofthe Act, referred the following questions stated to be of law arising out of its order for the assessment year 1991-92 for the opinion of this Court.Whether, on the facts and in the circumstances of the case, the Tribunalwas justified in deleting the additions towards unpaid electricity charges onthe ground that the provisions of Section 43B of the Act would not applythereto” The Tribunal on application of the Revenue under Section 256(1) ofthe Act, referred the following questions stated to be of law arising out of its order for the assessment year 1991-92 for the opinion of this Court.Whether, on the facts and in the circumstances of the case, the Tribunalwas justified in deleting the additions towards unpaid electricity charges onthe ground that the provisions of Section 43B of the Act would not applythereto” Whether, on the facts and in the circumstances of the case, the Tribunalwas not in error in overlooking that electricity charges are in the nature of feesand therefore, the provisions of Section 43B(i) would attract if such chargeshave remained unpaid either during the relevant previous year or on or beforethe due date under Section 139(1) of the I.T. Act, 1961. From a perusal of the order of the Assessing Officer and the CIT, itappears that there is a dispute with regard to disallowance of a sum ofRs.52,23,790/- made by the Assessing Officer in terms of Section 43B ofthe Act towards unpaid electricity charges which are said to be in thenature of ‘fees’. The learned standing counsel appearing for the Revenuesubmits that the electricity charges are paid by way of consideration for distinct services availed of and the APSEB in its very scheme of activitiescharges fees for services rendered by the assessee, and as such, electricity charges come within the ambit of Section 43B of the Act witheffect from 01.04.1989. He further submits that such charges can only beallowed on payment basis as per the provisions of Section 43B of the Act,and since the assessee has not paid the amount of Rs.52,23,790/- to theAPSEB within the statutory time limit, the same has been disallowed andadded back to the assessee’s income. The learned counsel for the respondent-assessee submits that theassessee is a private limited company. It follows mercantile system ofaccounting. As per the agreement entered into with the APSEB, assesseewas placed under Category - I for the purpose of payment of electricitycharges. Later, contrary to the agreement, the APSEB charged the rateapplicable to Category - III and raised a higher demand. Then theassessee filed a writ petition before this Court challenging the action of theAPSEB and this Court while granting stay, directed the APSEB to raise thedemand for the net amount after giving the benefit of 25% rebate, and theassessee paid 75% of the bill as per the directions of this Court. Thus, outof a total demand of Rs.1,67,10,388/- raised by the APSEB towardselectricity charges, a sum of Rs.1,14,86,598/- was paid in terms of thedirections of this Court and the balance amount of Rs.52,23,790/- wasshown as liability in the books of account, as the same was covered by the stay granted by this Court. For reappraisal, it is expedient to quote Section 43B of the Act. 43B. Notwithstanding anything contained in any other provision of this Act, adeduction otherwise allowable under this Act in respect of— (a) any sum payable by the assessee by way of tax, duty, cess or fee, by whatever name called, under any law for the time being in force, or duty, cess or fee, by whatever name called, under any law for the time being in force, or (b)any sum payable by the assessee as an employer by way of contributionto any provident fund or superannuation fund or gratuity fund or any otherfund for the welfare of employees, orto any provident fund or superannuation fund or gratuity fund or any otherfund for the welfare of employees, or (c)any sum referred to in clause (ii) of sub-section (1) of section 36, or 43B. Notwithstanding anything contained in any other provision of this Act, adeduction otherwise allowable under this Act in respect of— (a) any sum payable by the assessee by way of tax, duty, cess or fee, by whatever name called, under any law for the time being in force, or duty, cess or fee, by whatever name called, under any law for the time being in force, or (b)any sum payable by the assessee as an employer by way of contributionto any provident fund or superannuation fund or gratuity fund or any otherfund for the welfare of employees, orto any provident fund or superannuation fund or gratuity fund or any otherfund for the welfare of employees, or (c)any sum referred to in clause (ii) of sub-section (1) of section 36, or (d)any sum payable by the assessee as interest on any loan or borrowingfrom any public financial institution or a State financial corporation or aState industrial investment corporation, in accordance with the terms andconditions of the agreement governing such loan or borrowing, orfrom any public financial institution or a State financial corporation or aState industrial investment corporation, in accordance with the terms andconditions of the agreement governing such loan or borrowing, or (e)any sum payable by the assessee as interest on any loan or advances froma scheduled bank in accordance with the terms and conditions of theagreement governing such loan or advances, ora scheduled bank in accordance with the terms and conditions of theagreement governing such loan or advances, or (f)any sum payable by the assessee as an employer in lieu of any leave at thecredit of his employee,credit of his employee, shall be allowed (irrespective of the previous year in which the liability to paysuch sum was incurred by the assessee according to the method ofaccounting regularly employed by him) only in computing the income referredto in section 28 of that previous year in which such sum is actually paid byhim : Provided that nothing contained in this section shall apply in relation to anysum which is actually paid by the assessee on or before the due dateapplicable in his case for furnishing the return of income under sub-section (1) of section 139 in respect of the previous year in which theliability to pay such sum was incurred as aforesaid and the evidence of suchpayment is furnished by the assessee along with such return. Section 43B of the Act does not specifically mention about theelectricity charges. The proviso to the Section says that an assesssee hasto pay the actual liability on or before the due date applicable in his casefor furnishing the return of income. In the instant case, the assesseechallenging the balance electricity charges of Rs.52,23,790/- filed a writpetition before this Court against the APSEB and this Court granted interimstay and the writ petition is pending. As such, the assessee has shownthe said amount as liability. In this view of the matter, we are of theconsidered opinion that the assessee has not paid the disputed electricitycharges of Rs.52,23,790/- to the APSEB as it obtained stay from this Court,and as such, the provisions of Section 43B of the Act would not attract tosuch unpaid electricity charges. Further, non-payment of such disputedelectricity charges to the APSEB cannot be termed as ‘fees’ and that theRevenue has to give deduction to the said amount. The Tribunal while allowing the Appeal held that the electricitycharges partake the nature of statutory liability and accordingly will have tobe allowed as deduction irrespective of whether or not the same has beenpaid and notwithstanding that the assessee has disputed any liability topay any part of such charges. Section 43B of the Act does not speakabout the electricity charges. Nowhere it is mentioned in the Section orproviso to it that unpaid electricity charges are not deductable. TheRevenue cannot interpret the provisions of Section 43B of the Act in itsfavour, since the provisions of Section do not incorporate the electricity The Tribunal while allowing the Appeal held that the electricitycharges partake the nature of statutory liability and accordingly will have tobe allowed as deduction irrespective of whether or not the same has beenpaid and notwithstanding that the assessee has disputed any liability topay any part of such charges. Section 43B of the Act does not speakabout the electricity charges. Nowhere it is mentioned in the Section orproviso to it that unpaid electricity charges are not deductable. TheRevenue cannot interpret the provisions of Section 43B of the Act in itsfavour, since the provisions of Section do not incorporate the electricity charges. Therefore, we are of the considered opinion that such electricitycharges are in the nature of statutory liability and the Revenue has to allowthem as deduction irrespective of whether or not the same has been paidand notwithstanding that the assessee has disputed any liability to pay anypart of such charges. Accordingly, the questions referred to this Court are answered in theaffirmative against the Revenue and in favour of the assessee. The Referred Case shall stand disposed of accordingly. There shallbe no order as to costs. _______________ (V.V.S. RAO,J) _____________________ (B.N. RAO NALLA, J) Date:_______________ STP/PV THE HON’BLE SRI JUSTICE V.V.S. RAOANDTHE HON’BLE SRI JUSTICE B.N. RAO NALLA REFERRED CASE No.99 OF 1996 Date:_________________