Facts of the Case

The assessee, Paschimanchal Vidyut Vitran Nigam Ltd., is engaged in the distribution of electricity and is a 100% subsidiary of UPPCL (Uttar Pradesh Power Corporation Limited). The company operates as part of the state electricity distribution framework where revenue collected from consumers is credited as sales in the assessee’s books.

As per the Government of Uttar Pradesh policy, the collections from electricity distribution are automatically transferred to UPPCL, the holding company, and subsequently funds are provided back to the assessee as required for operational expenses.

During the relevant assessment year, the assessee showed a closing balance of ₹4,25,79,05,650 receivable from UPPCL. The Assessing Officer treated this receivable as income and added the same to the assessee’s total income despite the fact that the related sales had already been offered to tax.

Similarly, another amount receivable from UP Power Transmission Corporation Ltd. was also treated as income by the Assessing Officer. Further, the Assessing Officer made ad-hoc disallowance of printing, stationery, and miscellaneous expenses due to non-production of all vouchers for multiple operational units.

 

Issues Involved

  1. Whether the amount receivable from UPPCL, already recognized as sales income, can again be treated as income and added to the total income of the assessee.
  2. Whether the amount receivable from UP Power Transmission Corporation Ltd. can be treated as income when accounting adjustments already reduce expenses in the profit and loss account.
  3. Whether ad-hoc disallowance of printing, stationery, and miscellaneous expenses is justified due to inability to produce all vouchers across numerous operational units.

 

Petitioner’s (Assessee’s) Arguments

The assessee submitted that the amount receivable from UPPCL represents the closing balance of inter-company transactions, which arises due to the operational structure mandated by the Government of Uttar Pradesh.

It was argued that all revenues collected from consumers were already credited to sales and offered as income in the profit and loss account. Therefore, adding the receivable balance separately would amount to taxing the same income twice.

With respect to the amount receivable from UP Power Transmission Corporation Ltd., the assessee explained that whenever goods are received, the profit and loss account is debited, and when goods are transferred, the account is credited, thereby reducing expenses. Consequently, the receivable amount reflected in the balance sheet already affects the profit and loss account and should not be treated as additional income.

Regarding the disallowance of expenses, the assessee stated that it operates through 115 decentralized units across several districts, each maintaining its own books of accounts. All expenditures were duly authorized, audited by independent chartered accountants appointed by the Comptroller and Auditor General of India (C&AG), and subject to internal controls. Due to the scale of operations, producing vouchers for every unit and month before the Assessing Officer was practically difficult.

 

Respondent’s (Revenue’s) Arguments

The Revenue contended that the closing balance shown as receivable from UPPCL constituted income of the assessee and therefore was rightly added to the total income.

Similarly, the Revenue treated the amount receivable from UP Power Transmission Corporation Ltd. as income.

In relation to expenses, the Revenue argued that since the assessee failed to produce complete supporting bills and vouchers, the Assessing Officer was justified in making ad-hoc disallowance of printing, stationery, and miscellaneous expenses.

Court Findings

The Income Tax Appellate Tribunal observed that the assessee had already recorded the sales in its books and offered them to tax. The receivable amount from the holding company represented only the balance of inter-company accounting transactions, and therefore treating it again as income would result in double taxation.

The Tribunal held that the lower authorities failed to properly understand the accounting treatment and the operational structure of the assessee’s business. Accordingly, the addition of ₹4,25,79,05,650 was deleted.

With respect to the receivable from UP Power Transmission Corporation Ltd., the Tribunal noted that the accounting entries already impacted the profit and loss account and therefore adding the receivable balance as income would again lead to double addition. The deletion granted by the CIT(A) was upheld.

On the issue of ad-hoc disallowance of printing, stationery, and miscellaneous expenses, the Tribunal observed that similar disallowance had been deleted in the assessee’s own case for the earlier assessment year, and therefore the same view was followed.

Court Order

  • The appeal of the assessee was allowed.
  • The appeal of the Revenue was dismissed.

The Tribunal deleted the additions made by the Assessing Officer relating to receivable balances and confirmed the deletion of the ad-hoc disallowance of expenses.

Important Clarification

The Tribunal clarified that amounts already recognized as sales income cannot again be taxed merely because they appear as receivables in the balance sheet. Doing so would amount to double addition of the same income.

The decision also reinforces that ad-hoc disallowance of expenses is not justified when the assessee maintains audited accounts and proper internal controls, especially in large decentralized organizations.

 

Link to download the order -  https://itat.gov.in/public/files/upload/1735644230-yyN28z-1-TO.pdf

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