2014 (8) TMI 793 - AT - Income Tax

Tribunal rules in favor of Assessee on electricity charges but dismisses borewell expenses appeal

The Tribunal partially allowed the Assessee's appeal on the disallowance of electricity charges paid to Torrent Power AEC Ltd for A.Y. 2007-08, citing ... Electricity charges paid to Torrent Power AEC Ltd. – Power connected on obtaining inspection certificate - AO treated the expenses crystallized and written off as prior period expense – Held that:- The electrical installation was obtained for its project “Radhe Kishan Villa” which was a multi storeyed building the permissions for electricity was received on 25.01.2007 relevant to assessment year 07-08 which was also supported by the certificate issued by the electricity Inspector – the contention of the assessee has not been controverted by the Revenue by placing any contrary material on record - the genuineness of the payment has not been doubted by Revenue - the commencement of supply of energy started on 25.01.2007 and the claim of allowance of expenditure needs to be allowed – Decided in favour of Assessee. Borewell expenses – Expenses incurred for business purpose or not – Held that:- CIT(A) while upholding the disallowance has noted that the expenses were incurred in AY 04-05 and were carried forward as advances and further no evidence was brought on record to demonstrate that the bore well was put to use during the previous year and the location of the borewell - no material has been placed on record to demonstrate that the bore well was put to use during the year – assessee could not controvert the findings of CIT(A) – there was no reason to interfere with the order of CIT(A) – Decided against Assessee. Issues involved:1. Disallowance of electricity charges paid to Torrent Power AEC Ltd.2. Disallowance of borewell expenses.Detailed analysis:1. Disallowance of electricity charges:The appeal was filed against the order of CIT(A) for A.Y. 2007-08 regarding the disallowance of electricity charges paid to Torrent Power AEC Ltd. The Assessee claimed the expenses as an allowable deduction for the year under review. The Assessing Officer (A.O) disallowed the amount as it pertained to earlier years under the mercantile system of accounting. The CIT(A) partially upheld the disallowance, leading to the Assessee's appeal. The dispute revolved around whether the expenses were related to the year under consideration. The Assessee argued that the expenses were incurred for obtaining electricity connection for a specific project, supported by documentary evidence. The Tribunal found in favor of the Assessee, noting that the work was completed in the relevant assessment year, as confirmed by a certificate from the Electricity Department. The Tribunal directed the deletion of the disallowance, considering the genuine nature of the payment and the completion of the work in the year under appeal.2. Disallowance of borewell expenses:The second issue concerned the disallowance of borewell expenses amounting to &8377;2,51,072 related to A.Y. 2004-05 but written off in the previous year. The A.O disallowed the claim, stating that the expenses pertained to an earlier year under the mercantile system of accounting. The CIT(A) upheld the disallowance, emphasizing the lack of evidence regarding the utilization of the borewell during the previous year. The Assessee contended that the expenses should be allowed as a deduction, but the Tribunal found no evidence to support the claim that the borewell was operational in the previous year. Consequently, the Tribunal dismissed the appeal on this ground, affirming the order of the CIT(A) regarding the disallowance of borewell expenses.In conclusion, the Tribunal partly allowed the Assessee's appeal concerning the disallowance of electricity charges but dismissed the appeal regarding the disallowance of borewell expenses. The judgment highlighted the importance of substantiating expenses with relevant evidence and ensuring that deductions align with the principles of accounting and income computation.