Facts of the Case

The assessee, Paschimanchal Vidyut Vitran Nigam Ltd., is engaged in the business of electricity distribution and is a 100% subsidiary of Uttar Pradesh Power Corporation Limited (UPPCL). The company collects revenue from electricity consumers, which is recorded as sales income in its books of accounts.

As per the policy of the Government of Uttar Pradesh, the collections from consumers are automatically transferred to the holding company, UPPCL, and funds are subsequently provided back to the assessee for operational expenses such as salaries, maintenance, administrative costs, finance charges, and repayment of loans.

During the assessment proceedings for Assessment Year 2011-12, the Assessing Officer treated certain inter-company receivable balances from UPPCL and other related entities as income of the assessee and made additions to the total income.

 

Issues Involved

  1. Whether the amount receivable from UPPCL (inter-company balance) can be added again as income when the same amount had already been recorded as sales and offered to tax.
  2. Whether the amount receivable from UP Power Transmission Corporation Ltd. can be treated as income of the assessee.
  3. Whether ad-hoc disallowance of printing, stationery and miscellaneous expenses without proper justification is sustainable.

 

Petitioner’s Arguments

  • The amounts received from electricity consumers were already recorded as sales revenue and offered to tax.
  • The receivable balance shown from UPPCL merely represented inter-company accounting adjustments arising due to operational arrangements between the subsidiary and the holding company.
  • Adding the closing receivable balance again would result in double taxation of the same income.
  • With respect to receivables from UP Power Transmission Corporation Ltd., the accounting entries already adjusted the expenses through the Profit & Loss Account.
  • Therefore, the receivable balance appearing in the balance sheet had already been reflected in income computation indirectly.
  • Regarding printing, stationery and miscellaneous expenses, the assessee submitted that:
    • The company operates through 115 decentralized units across several districts.
    • All expenditures are properly authorized and audited by independent chartered accountants appointed by the Comptroller and Auditor General (C&AG).
    • Producing vouchers for every unit and every month was practically difficult, but expenses were genuine and incurred wholly for business purposes.

Respondent’s Arguments

  • The balances shown as receivable from UPPCL and other entities represented amounts due to the assessee, and therefore the same should be treated as income.
  • The Assessing Officer further held that since supporting vouchers for all expenses were not produced during assessment proceedings, ad-hoc disallowance of certain expenses was justified. 

Court Order / Findings

The Income Tax Appellate Tribunal, Delhi Bench, held as follows:

1. Addition of Receivable from UPPCL

The Tribunal observed that the assessee had already accounted for the entire sales revenue and offered it to tax.

The receivable balance from the holding company was merely an accounting reflection of inter-company transactions and did not represent additional income.

Therefore, adding the same amount again would result in double taxation, which is not permissible. The addition was accordingly deleted.

2. Receivable from UP Power Transmission Corporation Ltd.

The Tribunal noted that the accounting treatment already adjusted the relevant entries in the Profit & Loss Account.

Hence, treating the receivable balance as income would again result in double addition.

Accordingly, the Tribunal upheld the relief granted by the CIT(A) and dismissed the Revenue’s ground.

3. Ad-hoc Disallowance of Expenses

The Tribunal held that the assessee’s operations are spread across 115 units and expenses are subject to government control and audit mechanisms.

Further, a similar issue in the assessee’s own case for AY 2010-11 had already been decided by the Tribunal in favour of the assessee.

Following the earlier decision, the Tribunal deleted the ad-hoc disallowance made by the Assessing Officer.

 

Important Clarification

  • Inter-company receivable balances cannot be treated as income when the underlying transaction has already been recorded and offered to tax.
  • Any such addition would amount to double taxation of the same income, which is impermissible under tax law.
  • Ad-hoc disallowance of expenses without proper evidence or reasoning cannot be sustained, especially when the assessee operates under strict audit and government supervision.

Link to download the order -  https://itat.gov.in/public/files/upload/1735644309-QGBPA9-1-TO.pdf

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