Audited accounts and consistent accounting practice can defeat disallowance where the Revenue shows no specific basis for rejection.

Audited accounts and consistent accounting practice supported the assessee's claims for transmission expenses, write-off of intangible assets and bond interest, interest paid on loans shown against fictitious assets, and apportionment of common establishment expenses. The Revenue could not sustain disallowance or enhancement of capitalization on mere conjecture or general apprehension; it had to identify a specific and rational basis for rejecting the expenditure or the accounting method. Where the liability was subsisting, the expenditure was vouched, and the method had been consistently accepted in earlier years and in industry practice, the adjustments were treated as unjustified and the claims were held allowable.

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Issues: (i) Whether the disallowance of a part of the transmission expenses was justified. (ii) Whether the amount written off towards intangible assets and interest on bonds was allowable as a deduction. (iii) Whether interest paid to the State Government in respect of loans shown against fictitious assets was deductible. (iv) Whether the apportionment and capitalization of common establishment and general expenses as revenue expenditure was .

Issue (i): Whether the disallowance of a part of the transmission expenses was justified.

Analysis: The assessee's accounts were audited, and the Revenue did not establish that the expenditure was unverifiable or unsupported. The disallowance was made on a general apprehension that the expenditure might be capital in nature, without identifying any specific entry of capital expenditure. The finding of the Tribunal was based on appraisal of evidence and treated the addition as wrongly sustained.

Conclusion: The disallowance was not justified and the issue was answered in favour of the assessee.

Issue (ii): Whether the amount written off towards intangible assets and interest on bonds was allowable as a deduction.

Analysis: The bonds had been issued earlier at a discount and the write-off was being consistently spread over a five-year period in accordance with the accounting practice followed by electricity boards and accepted in earlier years. The interest liability on the borrowed funds was a current revenue liability, and the allowance did not result in any prejudice to the Revenue merely because the amount varied from year to year. The Tribunal accepted the claim on these facts.

Conclusion: The claim was allowable as a deduction and the issue was answered in favour of the assessee.

Issue (iii): Whether interest paid to the State Government in respect of loans shown against fictitious assets was deductible.

Analysis: The compensation paid by the State Government on acquisition of private electricity undertakings had been converted into loans in the Board's accounts with a stipulation to pay interest. The liability remained subsisting during the relevant year, and the interest paid on such loans was a business expenditure. The lower authorities found that the interest could not be disallowed on the footing that it related to fictitious assets.

Conclusion: The interest was deductible and the issue was answered in favour of the assessee.

Issue (iv): Whether the apportionment and capitalization of common establishment and general expenses as revenue expenditure was proper.

Analysis: The assessee had followed a uniform accounting method of capitalizing only a fixed percentage of common expenses for combined construction and maintenance units, and that method had been consistently accepted. The Tribunal and the appellate authority found that the Revenue failed to show any rational basis for enhancing the capitalization percentage. The method adopted was also in line with the general practice of electricity boards.

Conclusion: The assessee's apportionment method was proper and the issue was answered in favour of the assessee.

Final Conclusion: All the referred questions were resolved in favour of the assessee, and no interference was warranted with the Tribunal's factual findings.

Ratio Decidendi: A disallowance or capitalization adjustment cannot be sustained merely on conjecture; where the accounts are audited, the expenditure is vouched, and a consistent accounting method is supported by practice and evidence, the Revenue must identify a specific basis for rejection.

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