Power Charges Provision Based On Actual Bills Not A Contingent Liability: ITAT Rejects CPC Disallowance u/s 143(1) [Read Order]
The ITAT clarified the scope of CPC adjustments, holding that invoice-backed power charge provisions cannot be treated as contingent liabilities.
The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) considered the issue regarding the allowance of a provision created toward payment of bills in power charges supported by invoices in allowing a request under Section 143(1) of the Income-tax Act, 1961 in the return-processing stage.
The assessee who is Grindwell Norton Limited, is in the business of manufacturing and has a manufacturing plant in Tirupati. In order to meet their power requirements, they procured electricity from AP Gas Power Corporation Limited as well as Andhra Pradesh Transmission Corporation Limited.
In the relevant assessment year though the electricity supply by APGPCL is at concessionary rates the transmission corporation subsequently raised their invoices at higher rates after withdrawal of the power credits based on which the assessee prepared their provision for differential power charges in their books of account.
However, in the process of allowing the return under Section 143(1), the Centralised Processing Centre (CPC) disallowed this provision treating it as a contingent liability. This was done only on the basis of Clause 21(g) of the Tax Audit Report wherein this provision was noted as inadmissible expenditure.Aggrieved by the adjustment the assessee filed an appeal before the ITAT.
The assessee submitted that the provision was not contingent in nature but was in the nature of crystallisation and ascertained as it was calculated on the basis of strict invoices issued by the electricity supplier. Further, it was submitted that the amount was discharged through the banking system and the contingent nature of the liability was disclosed in the financial statements separately.
The assessee had stated that such verification of facts was beyond the scope of Section 143(1), as under that section only prima facie adjustments are allowed.However, while defending CPC’s actions the Revenue relied on the reports of tax audits and argued that on the other hand the adjustment was system-driven and allowed.
The Tribunal also observed that Section 143(1) does not empower the CPC to decide doubtful issues which are subject to verification of facts. The Tribunal observed that the provision was based on actual invoices and the disallowance was made because of the apparent mischaracterisation of the tax audit report.
The tribunal comprising Justice Amit Shukla[Judicial Member] Makarand Vasant Mahadeokar [Accountant Member] that a liability exists when there is an invoice supporting it and such a liability cannot be said to be contingent just because there is a pending payment. Such issues have to be verified by the Assessing Officer and cannot be summarily disallowed when the return is being processed.
Accordingly, the Tribunal set aside the adjustment made by the CPC and remanded the issue to the Assessing Officer allowing the assessee an opportunity to do a limited verification.
