Electricity duty is not a tax, duty cess or fee, section 43B is not attracted in respect of electricity duty collected by MSEB

Brief of the case:

In the case of ACIT Vs. M/s. Maharashtra State Electricity Distribution Co. Ltd. ITAT adjudicated two appeals against the order of CIT (A) who allowed the appeal of assessee in part. Both revenue as well as assessee filed appeal against the order of CIT (A). During the year under consideration AO made various disallowances against the claim of assessee. Assessee is engaged in the production and supply of electricity in the state of Maharashtra. Aggrieved from the assessment order assessee filed appeal before CIT (A). During appellate proceedings CIT (A) also allowed additional evidence under rule 46 and sought remand report also.

Facts of the case:

• M/s. MSEB was engaged in the activity of generation, transmission and distribution of electricity in the State of Maharashtra. During the year, the MSEB was trifurcated into three new companies and each company took over one activity of MSEB.
• Assessee was under statutory control of Maharashtra Electricity Regulatory Commissioner (MERC) in respect of tariff of electricity to be charged from the public and assessee has to purchase electricity from MSE Power Generation Co. Ltd. as per the rate approved by MERC.
• The assessee’s previous year ended on 31.3.2006 and till that date, the MERC order was not received. Therefore, apart from electricity charges, the appellant provide / accounted for revenue of Rs. 1063.95 crore towards FOCA (i.e. Fuel and Other Cost Adjustment to be charged from public) till the end of previous year.
• The MERC vide order dtd. 5.5.2006 and 1.6.2006 authorized the appellant to charge FOCA from public at enhanced rate i.e. Rs. 1410.52 crore. The MERC also ordered that the excess FOCA charges (at Rs.346.57 crore) was to be received / collected from the public in the billing months of June, July and August, 2006.
• The appellant collected that amount of Rs. 346.57 crore from public in the previous year 2006-07 and accordingly, offered the same as revenue in the AY 2007-08.
• AO observed that the revenue of the assessee company was understated by an amount of Rs.346.56 crores in this manner. Accordingly AO made addition in this connection.
• The amount of Rs.346.57 crores was included in its income by the assessee company in AY 2007-08, whereas the AO’s stand was that the same should have been accounted for in the year under consideration i.e. AY 2006-07.
• Assessee claimed write-off of capital items of Rs.7.41 lakhs which was disallowed by AO by holding that this amount on the ground that the expenditure was capital in nature.
• AO, further, has rejected the claim of the assessee of set off of brought forward /loss/ unabsorbed depreciation. The assessee company made the claim in terms of section 72(A)(4) of the Income Tax Act 1961.
• AO also made disallowance on account of excess provision for interest/ finance charges amounting to Rs.52.79 lakhs.
• AO made disallowance on account of excess provision for purchase of power amounting to Rs.320.72 crores.
• Further AO made disallowance of Rs.39.23 lakhs on account of capitalization of interest.
• AO further made addition on account of recovery from temporary service communication amounting to Rs.7.68 crores.
• AO has observed that the recovery is made amounting to Rs.7.68 crores from temporary service communication were transferred to liability account by the assessee company.
• The AO further observed that statutory auditor have also pointed out that this amount should have been added to the miscellaneous income in the profit and loss account of the assessee but the assessee did not include the said amount in its income.
• During the course of assessment proceedings the AO noticed that the assessee company had shown liability to the tune of Rs.23291.59 lakhs.
• AO was of the opinion that the said amount of duty was collected but was not paid to the Government and consequently the provisions of section 43B were attracted and the impugned amount was disallowable and accordingly, the AO made an addition of this amount to the income of the assessee.
• Assessee produced additional evidence before CIT (A) which were accepted by CIT (A).

Contention of the revenue: