T.C.A.Nos.60 and 61 of 2018 IN HIGH COURT OF JUDICATURE AT MADRAS Dated: 03.09.2020 Coram HONOURABLE Mr. JUSTICE T.S.SIVAGNANAM AND HONOURABLE Mrs. JUSTICE V.BHAVANI SUBBAROYAN T.C.A.Nos.60 of 2018 and C.M.P.No.668 of 2018 and T.C.A.No.61 of 2018 PPN Power Generating Company Private Ltd., Jhaver Plaza III Floor, 1A, Nungambakkam High Road, Chennai - 600 034 .. Appellant in both appeals Vs. Commissioner of Income Tax (Appeals) - III No.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 1/16 http://www.judis.nic.in T.C.A.Nos.60 and 61 of 2018 Tax Case Appeals filed under Section 260-A of Income Tax Act, 1961, are directed against Orders passed by Income Tax Appellate Tribunal B Bench in I.T.A Nos.2721/MDS/2016 and 3067/MDS/2016 dated 22.08.2017 for assessment year 2009-10. For Appellant : Mr.G.Baskar For Respondents : Mr.T.Ravikumar Sr.Standing Counsel COMMON JUDGMENT [Common Judgment of Court was delivered by T.S.SIVAGNANAM, J.] These appeals have been filed by assessee under Section 260A of Income Tax Act, 1961 ['the Act', for brevity] challenging order dated 22.08.2017 passed by ITAT 'B' Bench, Chennai [Tribunal] in I.T.A Nos.2721/MDS/2016 and 3067/MDS/2016 for assessment year 2009-2010. 2. assessee has filed two appeals challenging common order passed by Tribunal dated 22.08.2017 on account of fact that assessee's appeal challenging order passed by Commissioner of Income Tax Appeals- III, Chennai [CITA] was 2/16 http://www.judis.nic.in T.C.A.Nos.60 and 61 of 2018 dismissed and appeal filed by Revenue was allowed. However, issue pertains only to assessment year 2009-2010. 3. Assessee is private limited company, engaged in generation of power, which is sold to Tamilnadu Generation and Distribution Corporation [TANGEDCO] under power purchase agreement entered into between parties. For assessment year under consideration, AY - 2009-2010, assessee declared total income of Rs.4,15,55,069/- under normal provisions of Act. After claiming deduction under Section 80IA of Act to tune of Rs.1,06,50,60,712/-, assessee declared book profit of Rs.1,11,44,71,000/- under Section 115 JB of Act. Subsequently, revised return of income was filed on 23.09.2010 adding back Rs.70 Crores being provision for cash discount allowable to TANGEDCO, declaring very same income, Rs.4,15,55,070/- under normal provisions of Act and claiming enhanced deduction under Section 80 IA of Act to tune of Rs.1,76,50,60,712/-. assessee admitted book profit of Rs.1,81,44,71,000/- under Section 115JB of Act. return of income was processed under Section 3/16 http://www.judis.nic.in T.C.A.Nos.60 and 61 of 2018 143(1) of Act and subsequently, case was selected for scrutiny and notice under Section 143(2) of Act was issued on 24.08.2010. reference to Transfer Pricing Officer was made on 26.10.2009 under Section 92(C)(A) of Act for determining arm's length price in respect of assesse's transaction on its associated enterprises. 4. Transfer Pricing Officer [TPO] by order dated 31.12.2012 stated that no adjustments was necessary to value international transaction entered into by assessee. assessment was completed under Section 143(3) r/w Section 144(1) of Act on 26.03.2013 computing total income at Rs.10,09,39,254/- under normal provisions of act and by adding Rs.41,76,92,807/- under caption 'Delayed Revenue Recognition' as business income for said assessment year and allowed deduction under Section 80IA of Act. Further, assessing officer treated interest income of Rs.5,93,84,195/- as income from other sources thereby denying deduction under Section 80 IA of Act. assessing officer computed book profit under Section 115 JB of Act at Rs.2,23,21,63,807/- under caption 'Delayed Revenue Recognition'. 4/16 http://www.judis.nic.in T.C.A.Nos.60 and 61 of 2018 Aggrieved by such order, assessee filed appeal before CIT[A], who by order dated 30.06.2016 partly allowed appeal and rejected grounds except ground challenging deletion of addition towards reimbursement to specified taxes and direction was issued to assessing officer to follow decision of Tribunal in assessee's own case for AY-2004-2005 dated 02.03.2009. 5. Aggrieved by same, assessee preferred appeal to Tribunal. department also filed appeal challenging deletion of addition towards reimbursement of specified taxes. Both appeals were heard together and by impugned common order dated 22.08.2017, assessee's appeal was dismissed and revenue appeal was allowed. This is how assessee is before us by way of these appeals. 6.The only question to be considered by us in these appeals is whether assessing officer was right in coming to conclusion that accounts of assessee were not prepared in accordance with Companies Act, 1956 ['1956 Act', for brevity] and whether additions 5/16 http://www.judis.nic.in T.C.A.Nos.60 and 61 of 2018 made were proper?. other issue would be whether CIT[A] and Tribunal were right in affirming finding of assessing officer?. 7. We have carefully perused order passed by assessing officer and found it to be speaking order. assessing officer has recorded factual finding that assessee was not recognising income in accordance with Schedule VI of 1956 Act and this was highlighted by statutory auditors of assessee in main audit report in Paragraph No.3, after explaining with regard to revenue recognition and noting factual position, assessing officer has held that non- recognition of revenue to extent of Rs.25.07 crores and provisions for cash discount to tune of Rs.17.16 crores clearly shows that assessee did not follow matching concept relating to recognition of revenue and expenses and accounting standards prescribed by ICAI. 8. Further, while dealing with stand taken by assessee there were uncertainities in receiving funds from TANGEDCO, assessing officer held that stand is incorrect because power 6/16 http://www.judis.nic.in T.C.A.Nos.60 and 61 of 2018 purchase agreement is backed by state guarantee and there was never uncertainity about determination of revenue. Finally, assessing officer held that had assessee followed accounting standards properly and had it recognised income property and had also prepared its financial statements as Part II and Part III of Schedule VI of 1956 Act, it could have paid taxes correctly and claimed these payments as part of its bills to TANGEDCO. 9. assessee in its appeal before CIT[A] contended that statutory auditors have not made any qualification in audit report and noting made in audit report was misunderstood by assessing officer to be qualification by statutory auditor. Further, assessee relying on decision of Hon'ble Supreme Court in Appolo Tyres Vs. I.T.O., reported in [2002] TIOL - 185 - SC-IT questioned power of assessing officer with regard to computation on book profits in so far as accounts which are otherwise accepted under Company Law. 7/16 http://www.judis.nic.in T.C.A.Nos.60 and 61 of 2018 10. assessee further stated that they have prepared their accounts in accordance with schedule VI of 1956 Act and same were also consistent in concept of 'Prudence' enshrined in AS 1 notified by CBDT. These contentions were tested for its correctness by CIT[A], who concurred with assessing officer and on appreciation of facts, held that books of accounts are not prepared as per 1956 Act. decision in case of Appolo Tyres was considered by CIT[A] and recorded finding as to how same cannot be applied to assessee's case. 11. Before Tribunal, assessee contended that they have prepared accounts in accordance with 1956 Act. This contention was tested by Tribunal and Tribunal, as matter of fact, found that accounts are not in accordance with 1956 Act. After going through above orders, we find that entire matter appears to be factual and no question of law much less substantial question of law arises for consideration on this aspect. 8/16 http://www.judis.nic.in T.C.A.Nos.60 and 61 of 2018 12. At this juncture, it would be relevant to take note of few Judgments, which were referred to by Mr.T.Ravikumar, learned Senior Standing Counsel for Revenue. In [Dynamic Orthopedics P.Ltd., Vs. C.I.T.], reported in (2010) 321 ITR 0300 Hon'ble Supreme Court held that Section 115 J does not make any distinction between public and private limited companies, it legislatively incorporates only provisions of Part II and III of Schedule VI to 1956 Act by deeming fiction and therefore, Section 115 J [1A] is to be read in strict sense and if company is MAT Company, it has to prepare profit and loss account for purpose of Section 115 J in accordance with Part II and Part III of Schedule VI of 1956 Act, otherwise very purpose of enacting Section 115 J would stand defeated particularly, as said section does not make any distinction between public and private companies. Therefore, it was held that Judgment in Malayala Manorama Co., Ltd., Vs. CIT reported in (2008) 300 ITR 251(SC) needs reconsideration by larger bench. 13. On behalf of Revenue it was argued that there was excess provision made by assessee, which is also important factor to be 9/16 http://www.judis.nic.in T.C.A.Nos.60 and 61 of 2018 taken note of, in this regard, reliance was placed on decision of Division Bench of this Court in Commissioner of Income Tax Vs. Forbes Campbell Finance Limited reported in [2013] 352 ITR 0602. learned Senior Counsel also referred to decision of Hon'ble Supreme Court in Commissioner of Income Tax V. British Paints India Limited reported in [1991] 188 ITR 0044, wherein Court pointed out importance of system of accounting and held as follows : '21. Any system of accounting which excludes, for valuation of stock-in-trade, all costs other than cost of raw materials for goods-in-process and finished products, is likely to result in distorted picture of true state of business for purpose of computing chargeable income. Such system may produce comparatively lower valuation of opening stock and closing stock, thus showing comparatively low difference between two. In period of rising turnover and rising prices, system adopted by assessee, as found by Tribunal, is apt to diminish assessment of taxable profit of year. profit of one year is likely to be shifted to another year which is incorrect method of computing profits and gains for purpose of assessment. Each year being self- contained unit, and taxes of particular 10/16 http://www.judis.nic.in T.C.A.Nos.60 and 61 of 2018 year being payable with reference to income of that year, as computed in terms of Act, method adopted by assessee has been found to be such that income cannot properly be deduced therefrom. It is, therefore, not only right but duty of Assessing Officer to act in exercise of his statutory power, as he has done in instant case, for determining what, in his opinion, is correct taxable income'. 14. above decisions are having referred to emphasis importance of following accounting standards as prescribed under 1956 Act, as already held by us, we find no question of law or substantial question of law arising on said issue. 15. We now proceed to consider alternate submissions made by Mr.G.Baskar, learned counsel appearing for assessee. It is submitted that Tribunal after taking into consideration of note submitted by assessee held that assessee has received all disputed sums including specific taxes, on which, revenue is on cross appeal from AY-2010-2011 to AY-2014-2015 in various proportions but in full. It is further submitted that Tribunal while 11/16 http://www.judis.nic.in T.C.A.Nos.60 and 61 of 2018 affirming view taken by assessing officer that assessee did not follow accounting standard properly held that impugned additions made have not been challenged by assessee with relevant material and accordingly rejected plea raised by assessee. Further, Tribunal pointed out that income which is to be assessed in particular year cannot be assessed in any other year. 16. It is submission of Mr.G.Baskar, learned counsel for appellant that Tribunal having recorded above finding, ought to have issued direction to assessing officer to take appropriate steps for assessment years 2010-2011 to 2014-2015 during which period, assessee had received disputed sums including specified taxes and was assessed to tax on said receipts. Therefore, it is submitted that consequential direction should have been issued to assessing officer. In this regard, learned counsel has drawn attention of this Court to Paragraph No.6.7 of impugned order, wherein such point was canvassed before Tribunal. Therefore, it is submitted that order passed by Tribunal suffers from error and appropriate direction may be issued to assessing 12/16 http://www.judis.nic.in T.C.A.Nos.60 and 61 of 2018 officer. 17. Mr.T.Ravikumar, learned senior standing counsel for respondents submitted that assessee should be considered as person never to be aggrieved on such finding as no such ground was raised and for first time, in these appeals filed under Section 260A of Act it is raised and same should not be permitted to be raised as it was never question of law framed for consideration. 18. After elaborately hearing learned counsels on either sides, this Court finds that assessee has raised specific ground before Tribunal stating that additions were made under normal provisions of Act as well as under Section 115 JB, which assessee prayed for deletion and submitted that since it has received and admitted, impugned receipts for subsequent year, additions made under normal provisions of Act, as well as under Section 115 JB of Act, may be deleted and rate of tax remains same in all these years under Section 115 JB of Act. In fact, ground raised by assessee was to delete impugned additions on 13/16 http://www.judis.nic.in T.C.A.Nos.60 and 61 of 2018 ground that receipts have been subjected to tax in subsequent year whatever assessee had received from TANGEDCO. Tribunal did not agree with assessee and sustained addition, if such is factual position, natural consequences that is to flow is to issue direction to assessing officer to take appropriate action in so far as assessments from year 2010-2011 to 2014-2015, during which assessee has been taxed on said receipts. If such consequential direction is not issued, then, assessee would be subjected to double taxation which is unauthorised in Law. Thus, we find that this issue can clearly be brought within scope of Sub-Section (4) of 260 and Court would be justified in issuing appropriate direction to assessing officer to reopen assessments from year 2010-2011 to 2014 - 2015 on this issue alone and examine whether assessee has paid taxes on these receipts, which addition have been sustained in impugned assessment year 2009-2010 and after affording opportunity to assessee redo assessment only on this aspect. 14/16 http://www.judis.nic.in T.C.A.Nos.60 and 61 of 2018 19. In result, appeals are dismissed as no substantial question of law arises for consideration. In light of reasons assigned by us in preceding paragraphs, there shall be direction to Assessing Officer to reopen assessment years 2010-2011 to 2014 - 2015, ascertain as to whether assessee has paid taxes on impugned receipts and afford opportunity of hearing to assessee, re-do assessment on this aspect alone. Consequently, connected miscellaneous petition is closed. No costs. (T.S.S.J.) (V.B.S.J.) 03.09.2020 Index :Yes / No Internet :Yes / No Speaking Judgment / Non Speaking Judgment ssd To Income Tax Appellate Tribunal B Bench 15/16 http://www.judis.nic.in T.C.A.Nos.60 and 61 of 2018 T.S.SIVAGNANAM,J., AND V.BHAVANI SUBBAROYAN, J., ssd T.C.A.Nos.60 of 2018 and C.M.P.No.668 of 2018 and T.C.A.No.61 of 2018 03.09.2020 16/16 http://www.judis.nic.in PPN Power Generating Company Private Ltd. v. Commissioner of Income-tax (Appeals)-III, Chennai /Assistant Commissioner of Income-tax, Central Circle-3(1), Chennai