TaxTMI 
TaxTMI 
2017 (9) TMI 649
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....t year 2004-05 may be taken as a lead case. Accordingly, for appreciating the facts, we are taking appeal pertaining to A.Y. 2004-05 as lead case and the respective grounds of appeal taken and contentions advanced by both the parties are considered in succeeding paragraphs. Assessee's grounds of appeal (ITA No. 362/JP/16) "Under the facts & circumstances of the case the Ld. CIT(A) has erred in confirming the:- (1) Addition of Rs. 4,64,27,170 show under the prior period expenses claimed. (2) Addition for disallowance of depreciation of Rs. 12,15,15,004 on non- existing assets. (3) Addition for disallowance of depreciation of Rs. 22,05,23,697 u/s 43(1) (Wrongly figure taken by Ld CIT(A) at Rs. 12,61,87,639)." Assessee's grounds of appeal (ITA No. 361/JP/16) "Under the facts & circumstances of the case, the Ld. CIT(A) has erred in confirming the :- (1) Addition of Rs. 4,64,27,170 shown under the prior period expenditure. (2) Disallowance of depreciation of Rs. 23,04,20,000 (Now rectified to Rs. 12,15,15,004 in the assessment order dated 30.12.2009 passed u/sec. 143(3)/148 for assessment year 2004-05)" Revenue's gr....
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....g the year has distorted the profits of the year as the assessee is following mercantile system of accounting and expenditure not related to the previous year cannot be allowed to be deducted from income of the subject previous year. It was further stated by the AO that this expenditure also does not fall under the provisions of section 35D of the Act. Regarding assessee company's contention that the issue has been decided in its favour by the ld. CIT(A) for A.Y. 2002-03, the Assessing Officer stated that since the Revenue is an appeal before the Tribunal against the said order, he is not in a position to follow the order of the ld. CIT(A). Finally, the Assessing Officer, following the past history of the assessee, disallowed the prior period expenditure amounting to Rs. 4,64,27,170/-. 5. Being aggrieved, the assessee carried the matter in appeal before the ld. CIT(A) and reiterated its submission made before the Assessing Officer. It was further submitted that the issue has since been decided by the Tribunal in assessee's own case in its favour for A.Y. 2002-03 and A.Y. 2003-04. The ld. CIT(A) didn't consider the decision of the Tribunal for the earlier years. Further, the ld. ....
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....9 dated 19.05.2017 for AY 2003-04 wherein the following question of law was raised for its consideration:- "1. Whether on the facts and circumstances of the case the Tribunal was justified in conforming the deletion of prior period expense of Rs. 1,55,40,777/- made by the Assessing Officer which cannot allowed while following mercantile system of accounting." The relevant findings of the Hon'ble High Court are contained in para 6 and 7 of its judgement which are reproduced as under:- "6. Counsel for the respondent contended that the issue is covered by the decision of Delhi High Court in case of SMCC Construction India Ltd. vs. Assistant Commissioner of Income Tax reported in [2013] 38 taxmann.com 146 (Delhi) wherein in para 13 & 14 it has been held as under:- "13. The prior period expenses are eligible for deduction during the current year provided the liability was determined and crystallized during the relevant year. 14.The reason to believe recorded by the Assessing Officer "that the assessee has debited a sum of Rs. 1,20,765 in the P&L account on account of prior period expenses after netting income of Rs. 30,34,463/- and expenditure of R....
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....h the principle of res judicata doesn't apply in the income tax proceedings but where the same "fundamental aspect" permeates in different assessment years and the assessee is consistent in its accounting policy, as in the instant case, of accounting for the liabilities in the year in which it is crystallised, the Courts have held that the settled position should not be disturbed unless there are glaring changes in the facts and circumstances of the case or there are change in law which call for a fresh examination. Further, the Courts have held that where the rate of tax remained the same in the present assessment year as well as in the subsequent assessment year, the dispute raised by the Revenue is entirely academic or at best may have a minor tax effect. In the instant case, we have been informed that the assessee is subject to corporate tax rate of 35% and there is no change in the said tax rate in the subsequent assessment year. 11. In the entirety of facts and circumstances of the case and respectfully following the decision of the Hon'ble Rajasthan High Court in assessee's own case, the AO is directed to allow the claim of deduction of the prior period expenses amounting....
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....ard the matter on 16/6/2016. During the course of hearing, it was submitted on behalf of the assessee that the erstwhile Rajasthan State Electricity Board was not assessable to income tax and therefore, it was not filing the income tax return. However, thereafter on going through the record and the judgment passed by the Hon'ble High Court and Hon'ble Supreme Court, it transpires that the Rajasthan State Electricity Board is an taxable entity and therefore the matter was fixed for hearing on 29/6/2016 for the purposes of clarification. On 29/6/2016, the ld AR alongwith representatives of the assessee were present in the court. Ld AR submitted that the Board have filed the return of income for the assessment year 2001-02 and have also provided the chart for depreciation in respect of fixed assets of the assessee. 9.1 Even otherwise Section 80 of the Electricity Supply Act, 1948 provides as under:- "80. Provision relating to Income Tax and Super Tax.- (1) For the purposes of the Indian Income-tax Act, 1922 (XI of 1922), 4 the Board shall be deemed to be a company within the meaning of that Act and shall be liable to income tax and super tax accordingly on it....
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....required and therefore, the assessee is entitled to depreciation on the written down value of the assets a per Income Tax Act 1961, subsequent to the transfer from the assets from Rajasthan State Electricity Board. 9.3 It is an admitted case that the assessee company was constituted under the Act of Rajasthan and under the statutory transfer scheme, therefore, in view of Section 43 of the Act, transfer of assets had been fall within the realm of transfer as envisaged under the Act. As per explanation-6 of Section 43(1), the actual basis of transferee company would have to be written down value of the transferor company meaning thereby the block of assets, which was transferred by the Rajasthan Electricity Board with the original cost of acquisition, shall be determined the written down value for the assessee company. The Hon'ble Delhi High Court in the case of Dalmia Ceramic Industries Ltd. Vs. CIT (2005) 277 ITR 219 has held that "what would be the actual cost of the transferee company on the date of transfer is indicated in Section 43(1), explanation-6, thus the actual cost of transferee company will be written down value of the holding company." 9.4 Since the o....
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....o him under the Act. In the instant case Explanation 2 to clause (6) of section 43 is relevant and is reproduced hereunder : " Explanation 2.-When any capital asset is transferred by a hold ing company to its subsidiary company or by a subsidiary company to its holding company, then, if the conditions of clause (iv), or, as the case may be, of clause (v) of section 47, are satisfied, the written down value of the transferred capital asset to the transferee-company shall be taken to be the same as it would have been if the transferor-com pany had continued to hold the capital asset for the purpose of its business." 11. There is no dispute that the case falls under clause (iv) of section 47. Therefore, it is clear that the actual cost would be the written down value of the transferor-company. This aspect is required to be borne in mind while considering the question. We will now have to turn to Explanation 6 to section 43(1) which reads as under : " Explanation 6.-When any capital asset is transferred by a hold ing company to its subsidiary company, or by a subsidiary company to its holding company, then, if the conditions of clause (iv) or, as the case may....
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....not static and it is required to be determined year to year. No doubt there may be a situation which may require the Assessing Officer to examine the case and re-determine the actual cost. In fact the apex court has considered this aspect at page 306 and pointed out instances. The apex court at page 309 (see [1992] 194 ITR) as under: "In principle, therefore, we are unable to accept the contention that the actual cost cannot be determined year after year on the factual or legal position applicable for the relevant previous year and that the actual cost once determined cannot be altered except in the three situations outlined by counsel where the original figure itself requires a modification." 9.5 In view thereof, this ground of the assessee's appeal is allowed." 16. We have heard the rival submissions and perused the material available on record. Undisputedly, there is no change in the facts and circumstances of the case. No contrary authority has been brought to our notice subsequent to the above referred decision of the Coordinate Bench. In light of the same, following the decision of the Coordinate Bench, the ground is allowed in favour of the assessee comp....
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....ame proportion as such asset bears to all the assets in respect of or with reference to which the subsidy or grant or reimbursement is so received, shall not be included in the actual cost of the asset to the assessee.] A bare reading of the Explanation 10 of Section 43 of the Act, which clearly provides that where a portion of the cost of an asset acquired by the assessee has been met directly or indirectly by the Central Government or a State Government in the form of a subsidy or grant or reimbursement, then, so much of the subsidy or grant or reimbursement shall not be included in the actual cost of the asset to the assessee. Admittedly, the amount has been received by the assessee in the form of grant/reimbursement/subsidy from the state Government therefore, in our view, the order passed by the ld CIT(A) is required to be upheld and the value of the assets shall be taken by the ld Assessing Officer after adjusting the subsidy/grant/reimbursement from the State Govt. or the other government departments. Accordingly, this issue is decided against the assessee and in favour of the revenue." 19. We have heard the rival submissions and perused the material available on....
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....le to the assessee's company and the ground is thus allowed in favour of the assessee company. ITA. No. 361/JP/16 23. This appeal is arising out of the order passed by the ld CIT(A) pursuant to assessment order u/s 143(3) of the Act for AY 2004-05 wherein the assessee has challenged the addition of Rs. 4,64,27,170/- towards prior period expenditure and disallowance of depreciation of Rs. 23,04,20,000 since rectified to Rs. 12,15,15,004. In ITA No. 362/JP/16 for AY 2004-05 arising out of the order passed by the ld CIT(A) pursuant to reassessment under section 147 read with section 143(3) of the Act, we have already examined both these issues in detail. Our findings and directions contained in ITA No. 362/JP/2016 shall apply mutatis mutandis to this appeal as well. In the result, both the grounds taken by the assessee are allowed. ITA. No. 357/JP/16 24. In this appeal for AY 2004-05, the Revenue has challenged the action of ld CIT(A) in deleting the disallowance of excess depreciation claimed by the assessee company amounting to Rs. 22,05,23,697/- while working out the book profits as per provisions of section 115JB of the Act. 25. In ITA No. 362/JP/16 (supra), we have....
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....nging issue of notice u/s 148 of the Act, the same was not pressed. Hence, the same is dismissed as not pressed. 29. Regarding Revenue's ground challenging the deleting the disallowance of excess depreciation claimed by the assessee company while working out the book profits as per provisions of section 115JB of the Act, as we have held above that the provisions of section 115JB are not applicable, the subject ground of appeal becomes academic and is dismissed being infructious. 30. With the above directions, the grounds of appeal for AY 2005-06 are disposed off. Assessment Year 2007-08 (ITA No. 366/367/JP/16 & ITA No. 359/JP/16) 31. For AY 2007-08, there are two appeals filed by the assessee. In ITA No. 366/JP/2016, the assessee has challenged the order of ld CIT(A) dated 22.01.2016 passed pursuant to the assessment order u/s 143(3) of the Act and has taken grounds of appeal relating to disallowance of prior period expenses, disallowance of depreciation on non-existing assets, disallowance of depreciation under section 32 r/w section 43(1) of the Act and applicability of MAT provisions under section 115JB of the Act. In ITA No. 367/JP/2016, the assessee has challenged ....
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....the assessee has challenged the order of ld CIT(A) dated 20.01.2016 passed pursuant to the rectification order u/s 154 of the Act and has taken grounds of appeal challenging action of AO invoking provisions of section 154 on issues which are not mistake apparent from record, applicability of MAT provisions under section 115JB of the Act, disallowance of depreciation on stolen fixed assets worth Rs. 1.49 Crores, on non-existence assets, on assets lying idle and excess depreciation under section 32 r/w section 43(1) of the Act. In ITA No. 360/JP/16, the Revenue has challenged the action of ld CIT(A) in deleting the disallowance of excess depreciation claimed by the assessee company amounting to Rs. 12,61,87,639/- while working out the book profits as per provisions of section 115JB of the Act. 37. We have examined the subject issues in detail in ITA No. 362/JP/16 for AY 2004-05 relating to disallowance of depreciation on non-existing assets, disallowance of excess depreciation under section 32 r/w section 43(1) of the Act and applicability of MAT provisions under section 115JB of the Act. Undisputedly, both the parties agreed that the facts and circumstances of the case are identi....
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....016 shall apply mutatis mutandis to this appeal as well. 45. Regarding disallowance of provision for doubtful debts, the AO on verification of profit/loss account observed that the assessee company has claimed provision for bad and doubtful debt of Rs. 30,63,23,038. The AO stated that any provision for uncertain liability is to be added back to the book profits. He accordingly added back the subject provision while computing the total income as per normal provisions of the Act and also for the purposes of computing the book profits under section 115JB of the Act. 46. Being aggrieved, the assessee carried the matter in appeal before the ld CIT(A) who has confirmed the said disallowance. The relevant findings of ld CIT(A) are contained at para 6.3 of his order which is reproduced as under:- "6.3 I have gone through the assessment order, statement of facts, grounds of appeal and written submission carefully. The provision for doubtful debt is not a deduction admissible in view of the specific provision of clause (vii) of sub-section 1 of section 36. Under no other provisions of the Act, unascertained liability can be allowed as deduction for the purpose of computing bus....
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....those accounts-Vithaldas H. Dhanjibhai Bardanwala V. CIT(1981) 130ITR 95(Guj.) Entries in profit and loss account and debt reserve account will suffice-it the assessee has posted entries in the profit and loss account and the corresponding entries are posted in the bad debut reserve account, it would be sufficient compliance with the provisions of the statutory requirement for writing off as irrecoverable the concerned debut in the books of the assessee- CIT V. GIC of India (No.2)(2002) 254 ITR 204 (Bom/(2001)114 Taxman 13 (Bom.) The Ld. CIT(A) while rejecting assessee's claim has stated the provision for doubtful debut is not a deduction admissible in view of the specific provision of clause (vii) of sub-section 1 of section 36. Under no other provisions of the act, unascertained liability can be allowed as deduction for the purpose of computing business income. Whereas it is not terminology but the intention & act of assessee is important to justify the act of "write off". 48. We have heard the rival submissions and purused the material available on record. The assessee company has contended that it is not a provision but an actual write off. It was submitted that as per....