Court Upholds Electricity Duty as Inadmissible Under Section 43B (of Income Tax Act, 1961)

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Case Name:

Commissioner of Income Tax vs. Gujarat Urja Vikas Nigam Ltd.(High Court of Gujarat)

Income Tax Reference No.155 of 1995

Date: 4th February 2008

Key Takeaways:

1. Electricity duty payable to the state government on the sale of electricity is considered an inadmissible item under Section 43B (of Income Tax Act, 1961).

2. The Assessing Officer is justified in making adjustments under Section 143(1)(a) (of Income Tax Act, 1961) related to disallowances under Section 43B (of Income Tax Act, 1961).

3. Previous Tribunal decisions may be overturned by High Court rulings on the same matter.

Issue: 

Is the Assessing Officer justified in making adjustments under Section 143(1)(a) (of Income Tax Act, 1961) in relation to disallowances under Section 43B (of Income Tax Act, 1961) for electricity duty payable to the state government?

Facts:

1. The case pertains to the Assessment Year 1991-92, with the relevant accounting period being FY 1990-91.

2. The assessee (Gujarat Urja Vikas Nigam Ltd.) filed a return of income on 31.12.1990, which was later revised on 28.02.1992.

3. The Assessing Officer made adjustments under Section 143(1)(a) (of Income Tax Act, 1961), disallowing Rs.41,65,12,181 under Section 43B (of Income Tax Act, 1961), which was the amount of electricity duty payable to the State Government on the sale of electric power.

4. The assessee filed an application under Section 154 (of Income Tax Act, 1961) on 30.09.1992, claiming that the electricity duty had been adjusted against other amounts receivable from the Government.

5. The matter was appealed to the CIT (Appeals) and then to the Income Tax Appellate Tribunal (ITAT).

Arguments:

Assessee's arguments:

1. The issue was already decided in favor of the assessee by the Tribunal's order dated 29.07.1988 in the case of Ahmedabad Electricity Company Ltd. vs. I.T.O.

2. The electricity duty had been adjusted against other amounts receivable from the Government, so the adjustment under Section 143(1)(a) (of Income Tax Act, 1961) was not warranted.

Revenue's arguments:

1. The decision of the Tribunal in the Ahmedabad Electricity Co. case had been reversed by the High Court in CIT vs. Ahmedabad Electricity Co. Ltd. (2003) 262 ITR 97.

2. The High Court had held that provisions of Section 43B (of Income Tax Act, 1961) are applicable to the duty payable to the Government.

Key Legal Precedents:

1. CIT vs. Ahmedabad Electricity Co. Ltd. (2003) 181 CTR (Guj) 222 :

(2003) 262 ITR 97 (Guj) - This case held that electricity duty on the sale of electricity is an inadmissible item under Section 43B (of Income Tax Act, 1961).

2. Ahmedabad Electricity Co. Ltd. vs. ITO (1988) 32 TTJ (Ahd) 151:

- This earlier Tribunal decision was overturned by the High Court ruling mentioned above.

3. CIT vs. Hindustan Electro Graphites Ltd. (2000) 243 ITR 48:

- While cited by the assessee, the court found this case not directly applicable to the current matter.

Judgement:

1. The court answered the question in favor of the Revenue and against the assessee.

2. It held that the electricity duty on the sale of electricity is to be considered an inadmissible item under Section 43B (of Income Tax Act, 1961).

3. The court based its decision on the earlier High Court ruling in CIT vs. Ahmedabad Electricity Co. Ltd.

4. The Assessing Officer was justified in making adjustments under Section 143(1)(a) (of Income Tax Act, 1961) in relation to disallowances under Section 43B (of Income Tax Act, 1961).

FAQs:

Q1: What is Section 43B (of Income Tax Act, 1961)?

A1: Section 43B (of Income Tax Act, 1961) deals with certain deductions to be allowed only on actual payment. In this case, it was applied to electricity duty payable to the state government.

Q2: Why didn't the court consider the Tribunal's earlier decision in favor of the assessee?

A2: The court noted that the earlier Tribunal decision had been overturned by a subsequent High Court ruling, which takes precedence.

Q3: What is the significance of Section 143(1)(a) (of Income Tax Act, 1961) in this case?

A3: Section 143(1)(a) (of Income Tax Act, 1961) allows the Assessing Officer to make certain adjustments to the returned income, which in this case included disallowing the electricity duty under Section 43B (of Income Tax Act, 1961).

Q4: Does this judgment apply to all cases involving electricity duty?

A4: While this judgment sets a precedent, it's important to note that each case may have unique circumstances. However, it strongly suggests that electricity duty payable to the state government is likely to be considered inadmissible under Section 43B (of Income Tax Act, 1961).

Q5: Can the assessee appeal this decision further?

A5: The judgment doesn't mention further appeal options, but generally, decisions of High Courts can be appealed to the Supreme Court if there are substantial questions of law involved.

1. The Income Tax Appellate Tribunal, Ahmedabad Bench 'B' has referred the following question for the opinion of this Court under Section 256(1) (of Income Tax Act, 1961) (the Act) at the instance of the Commissioner of Income Tax :

“Whether on the facts and in the circumstances of the case the Tribunal is right in holding that the liabilities on electricity duty tax payable to government amounting to Rs.49,65,181/- on sale of electricity cannot be considered as inadmissible item u/s. 43B (of Income Tax Act, 1961) and the same is outside the purview of adjustment under sec.143(1)(a) (of Income Tax Act, 1961)?”

2. For Assessment Year 1991-92 the relevant accounting period is F.Y. 1990-91. The return of income was filed on 31.12.1990 which was later on revised on 28.02.1992. The Assessing Officer made adjustments and issued an intimation under Section 143(1)(a) (of Income Tax Act, 1961) in relation to various items disallowable under Section 43B (of Income Tax Act, 1961), one of them being Rs.41,65,12,181/-, being the amount of electricity duty payable to the State Government by the assessee on sale of electric power. The assessee moved an application u/s. 154 (of Income Tax Act, 1961) on 30.09.1992, relying on a letter issued by the Under Secretary to the Government of India, Energy and Petrochemicals Department to contend that the electricity duty payable had been adjusted against other amounts receivable from the Government and hence, the adjustment made u/s. 143(1)(a) (of Income Tax Act, 1961) and levy of additional tax u/s.143(1A) (of Income Tax Act, 1961) was not warranted. The Assessing Officer negatived the claim made by the assessee holding that there was no proof of such adjustment having been made within the stipulated period. The assessee carried the matter in appeal before CIT (Appeals) but did not succeed.

3. In Second Appeal before the Tribunal the assessee contended that the issue was squarely concluded in favour of the assessee by virtue of Tribunal's order dated 29.07.1988 rendered in case of Ahmedabad Electricity Company Ltd. Vs. I.T.O. In ITA No. 378/AHD/1988 for A.Y. 1984-85. The Tribunal accepted the submissions of the assessee in the following terms :

“4.1 In our view the sum of Rs.49,65,12,181/- cannot be considered as an inadmissible item of expenditure and is outside the purview of sec. 143(1)(a) (of Income Tax Act, 1961) and the a.o. was not justified in making the adjustment of the said sum to the loss declared. We are holding so on the basis of the order passed by this Tribunal in the case of Ahmedabad Electricity Co. Ltd. Supra and direct the a.o. to delete adjusted amount of Rs. 49,65,12,181/-”.

4. Mr. B.B. Naik, learned Standing Counsel for applicant- revenue submitted that the decision of the Tribunal in case of Ahmedabad Electricity Co. (supra) has since been reversed by this Court in the case of CIT Vs. Ahmedabad Electricity Co. Ltd. (2003) 262 ITR 97 and it has been held by the High Court that provisions of Section 43B (of Income Tax Act, 1961) are applicable to the duty payable to the Government.

5. On behalf of the respondent-assessee Shri M.J.Shah, learned Advocate placed strong reliance on decision of the Apex Court in the case of CIT V/s. Hindustan Electro Graphites Ltd. (2000) 243 ITR 48 to submit that once the Apex Court had come to the conclusion that the additional tax was in nature of penalty, no such additional tax could be levied on an assessee who had adopted a law prevalent on the date of filing of the return. For this purpose attention was invited to the fact that decision of the Tribunal was dated 29.07.1988 whereas the return of income had been filed on 31.12.1990. It was also submitted that in any view of the matter, the issue was debatable and Section 143(1)(a) (of Income Tax Act, 1961) would not be attracted and no adjustment was permissible.

6. In rejoinder, Shri Naik contended that the issue before the Apex Court in the case of CIT Vs. Hindustan Electro Graphites Ltd. pertained to amendment of the law which was made retrospectively applicable, but in a case where the jurisdictional High Court had pronounced upon law which was already existing, the issue would stand on a different footing and the ratio laid down by the Apex Court cannot be pressed into service.

7. For the present, it is not necessary for the Court to enter into the larger controversy for the simple reason that there is no finding by the Tribunal as regards the adjustment in question being debatable in nature as no such issue was raised before the lower authorities by the assessee. In fact, the finding of the Tribunal as reproduced hereinbefore makes it clear that the Tribunal has not recorded any independent opinion as to applicability or otherwise of provisions of Section 43B (of Income Tax Act, 1961) in relation to the electricity duty payable in light of earlier order of the Tribunal in case of Ahmedabad Electricity Co. Ltd. Hence, the contention raised on behalf of the assessee does not arise out of the impugned order of the Tribunal dated 14.10.1990.

8. In the circumstances, the question referred to this Court for opinion is answered in the negative i.e. in favour of the revenue and against the assessee on the basis of earlier decision rendered by this Court in the case of CIT Vs. Ahmedabad Electricity Co. Ltd. (supra) wherein it is held that electricity duty on sale of electricity has to be considered as an inadmissible item under Section 43B (of Income Tax Act, 1961). In so far as the remaining contentions are concerned it is left open to the parties to raise the same in accordance with law, if permissible, before the Tribunal.

9. The Reference stands disposed of accordingly with no order as to costs.

(D.A. Mehta, J.)

(Z.K. Saiyed, J.)