Grindwell Norten Limited Vs DCIT (ITAT Mumbai)
In Grindwell Norton Limited Vs DCIT, the ITAT Mumbai examined the validity of an adjustment made under Section 143(1) of the Income-tax Act for Assessment Year 2022–23. The adjustment pertained to disallowance of ₹5,23,94,136 claimed as provision for power liability.
The assessee had filed its revised return declaring total income of ₹4,12,57,79,905. While processing the return under Section 143(1), the Central Processing Centre (CPC), Bengaluru, proposed adjustments. Although most were dropped after the assessee’s response, the CPC disallowed the provision for power liability on the ground that it was reported as a contingent liability in clause 21(g) of the tax audit report. Consequently, total income was recomputed at ₹4,17,81,74,040. The appellate authority confirmed the adjustment.
The assessee explained that it operated a plant at Renigunta, Andhra Pradesh, procuring power from the Southern Power Distribution Company of Andhra Pradesh (Transmission Company) and A.P. Gas Power Corporation Ltd. (APGPCL). After the Transmission Company sold its stake in APGPCL in November 2020, it stopped granting credit for power purchased from APGPCL and demanded higher rates for all units. The assessee continued payments to APGPCL and adjusted payments to the Transmission Company accordingly.
For the period November 2021 to March 2022, the assessee created a provision of ₹5,24,47,323 representing the differential between invoices raised by the Transmission Company and amounts paid. This provision was recorded in financial statements by debiting power and fuel expenses and crediting current liabilities. For earlier months, the differential was disclosed as contingent liability. The tax auditor, however, erroneously reported the ₹5,23,94,136 provision as contingent liability in clause 21(g). The assessee appended a note in the computation clarifying that the provision was based on actual bills and was not contingent in nature, and that payments were made in the subsequent year.
