IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE K.SURENDRA MOHAN MONDAY, THE 21ST FEBRUARY 2011 / 2ND PHALGUNA 1932 ITA.No. 256 of 2010() -------------------- ITA.724/COCH/2008 OF INCOME TAX APPELLATE TRIBUNAL,COCHIN BENCH ................... APPELLANT / APPELLANT : --------------------------------------- THE COMMISSIONER OF INCOME TAX, COCHIN. BY ADVS. SRI.P.K.R.MENON, SR.COUNSEL, GOI (TAXES) SRI.JOSE JOSEPH, SC, INCOME TAX RESPONDENT / RESPONDENT : --------------------------------------------- M/S.MET ROLLA STEELS LTD., MUVATTUPUZHA - 61. BY ADV. SRI.A.KUMAR THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 21/02/2011, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: Mn C.N.RAMACHANDRAN N AIR& K. SURENDRA MOHAN, JJ. ------------------------------------------------------------ I.T.A. NO: 256 OF 2010 ----------------------------------------------------------- Dated this the 21st February, 2011. JUDGMENT Ramachandran Nair, J. The question raised is whether the Tribunal was justified in allowing a provision for liability created by the respondent assessee towards differential tariff payable to the KSEB for the assessment years 2000-2001 and 2001-2002. We have heard senior counsel appearing for the revenue and Adv A. Kumar appearing for the respondent. 2. The assessment involved is 2002-2003. The assessee which was entitled to concessional power tariff debited the P& L account with a huge amount of Rs.1,90,73,392/- said to be the arrears billed by the KSEB towards liability for the preceding two years 2000-2001 and 2001-2002. The case of the revenue is that the assessee was entitled to concessional tariff and assessee has no case that the arrear bills raised by KSEB which were disputed by them were honoured or paid by the assessee at any time. Further the liability for power charges debited in the profit and loss is not a liability of the previous year but based on arrear ITA 256/2010 2 bills of earlier years. The contention of the assessee on the other hand is that since arrear bills were raised in the previous year provision ought to be made in the accounts in the year in which the bills are raised and the assessee though contested the matter by filing writ petition had in fact made part payments. However, strangely Tribunal has not considered any of these matters and allowed the claim just by stating that if bill is reversed or cancelled the amount could be assessed under Section 41(1) of the Income Tax Act. We are unable to uphold the order of the Tribunal because 41(1) does not justify an assessee claiming liability without any substance in it. However, if the assessee has made part payment and liability was pressed by K.S.E.B and disconnection was prevented by stay orders obtained from Court then certainly assessee is entitled to deduction of at least the amount paid under interim orders of the Court or even the full bill amount depending on the nature of liability and the contest. Since there is no material to support the contention of the assessee in the findings of the Tribunal we feel one more opportunity can be granted to the assessee to substantiate the case before the Assessing Officer. We make it ITA 256/2010 3 clear that if recovery of the bill is not stayed by the Court then the necessary consequence would have been disconnection by the Board and in the absence of any contest and interim orders issued by the Court or disconnection the assessee has no justification to debit P & L account merely because some arrear bills are received from the KSEB. Standing counsel submitted that genuineness or correctness of the bills itself should be doubted because KSEB did not raise the bills for the relevant years namely, 2000-2001 and 2001-2002 to which the liability relates. Since the facts are not on record and since the findings of the Tribunal are not tenable, for the reasons stated above, we allow the appeal by setting aside the order of the Tribunal and that of the first appellate authority and remand the matter to the Assessing Officer for reconsidering the developments that took place based on evidence to be produced by the assessee and in fact the ultimate settlement of liability which would have taken place in the course of the last eight years. The assessee is given freedom to produce all the records before the Assessing Officer who will reconsider the matter and decide the issue afresh if necessary after collecting information from KSEB also about the ITA 256/2010 4 nature of liability and the progress of contest in court and the orders issued in the High Court against KSEB. C.N.RAMACHANDRAN NAIR Judge K. SURENDRA MOHAN Judge jj ITA 256/2010 5