TaxTMI 
TaxTMI 
2015 (9) TMI 1682
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.... 2. On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in deleting the addition of Rs. 1,61,64,03,000/- being interest in borrowed capital disallowed by the Assessing Officer . 3. On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in allowing the deduction on account of prior period expenditure which was not in accordance with the method of accounting stipulated in section 145 of the Act. 4. The appellant craves leave to add to, amend or withdraw the aforesaid ground of appeal. " ITA/1647/Mum/2010-AY. 02-03: "1. Whether on the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in allowing the deduction of Rs. 254,38,67, 152/- on account of prior period expenditure which was not in accordance with the method of accounting stipulated in section 145 of the Act. 2. The appellant craves leave to add to, amend or withdraw the aforesaid ground of appeal. " ITA/1648/Mum/2010-AY. 03-04: "1. Whether on the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in allowing the deduction of Rs. 39,45,99,179/- on account ....
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....ncome-tax (Appeals) has erred in partially confirming the disallowance made by the Assessing Officer out of the losses suffered b) the assessee on account of storm, theft, accident, etc. 3 : 2 The assessee submits that considering the facts and circumstances 01' its case and the la» prevailing on the subject the losses suffered by it on account or storm, theft. accident. ctc . . are wholly and exclusively for the purpose or its business and is therefore allowable as such and the Commissioner of Income-tax (Appeals) ought to have held as such. 3 : 3 The a se see submits that the Assessing Officer be directed to delete the disallowance so made by him and to re-compute its total income accordingly. 4 : 0 Re. : Disallowance of a sum of Rs. 1,95,04,370/- being write off of intangible assets: 4: 1 The Commissioner of Income-tax (Appeals) has erred in confirming the disallowance Rs. 1,95,04,370/- made by the Assessing Officer representing intangible assets written off during the year. 4 : 2 The assessee submits that considering the facts and circumstances or its case and the law prevailing on the subject the amounts of intangible asse....
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....h and the CIT (A) ought to have held as such. 2. 3 The assessee submits that the Assessing Officer be directed to delete the disallowance so made by him and to re-compute its total income accordingly. 3. 0 Re: Disallowance of loss amounting to Rs. 58,80,940/- suffered by the Appellant on account of flood, cyclone, fire etc. 3. 1 The Commissioner of Income-tax (Appeals) has erred in confirming the disallowance of Rs. 58,90,940/- made by the Assessing Officer representing losses suffered by the assessee on account of flood, cyclone, fire, etc. 3 : 2 The assessee submits that considering the facts and circumstances or its case and the law prevailing on the subject the losses suffered by it on account of flood, cyclone, fire. etc . . were incurred by it during the course of its business and are allowable while computing its total income and the Commissioner of Income-tax (Appeals) ought to have held as such. 3: 3 The assessee submits that the Assessing Officer be directed to delete the disallowance so made by him and to re-compute its total income accordingly. 4. 0 Re. : General: 4 :1 The Appellant craves leave to add. alte....
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....ible assets written off during the year are allowable while computing its total income and the Commissioner of Income-tax (Appeals) ought to have held as such. 3 : 3 The assessee submits that the Assessing Officer be directed to delete the disallowance so made by him and to re-compute its total income accordingly. 3 : 4 Without prejudice to the foregoing, the assessee submits that in case it is held that the intangible assets written off during the year under consideration are not allowable as a deduction during the year under consideration then the Assessing Officer be directed to allow the same as a deduction during the year in which the said expenses were incurred. 4: 0 Re. : General: 4 : 1 The assessee craves leave to add, alter, amend, substitute and/or otherwise modify in any manner whatsoever all or any of the foregoing grounds of cross objection at or before the hearing. " Assessee is a state government undertaking and is engaged in the business of generation and distribution of electricity. Details of dates of filing of returns,incomes returned,dates of assessme -nts,assessed incomes,dates of orders of the CIT(A)can be summarise....
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....t it was a reduction of the receipt of earlier year was rather erroneous that the receipt had been disclosed in the returns of income on mercantile basis, that it received less than what was disclosed earlier in view of the decision of the state government taken during the year that loss claimed by the assessee was allowable. Finally he deleted the addition made by the AO. 2.2. Before us the Departmental Representative(DR)supported the order of the AO. Authorised Representative(AR)stated that the Govt. of Maharashtra had paid subsidy @4. 5%for initial two AY. s. that later on it informed the assessee that subsidy would be paid @3% that the assessee had overlooked the profits reversed that while filing the return it made necessary amendments. He referred to page no. 26,320 and 131 of the Paper book. 2.3. We have heard the rival submissions and perused the material before us. We find that the assessee was entitled to get subsidy @3% from the state government that as per the agreement with WB it was decided that it would get higher subsidy i. e. @4. 5%, that subsequently the state government reduced the subsidy to 3% that the assessee hadin pursuance of the agreement, showed sub....
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....o with World Bank would not be received-during the year under appeal. Therefore in our opinion the FAA has rightly held that the assessee was entitled to show lesser receipt during the year. Confirming his order we decide first ground of appeal against the AO. 3. Next ground of appeal pertains to deletion of addition of Rs. 161. 64 Crores being interest of borrowed capital. During the assessment proceedings the AO found that the assessee had claimed expenditure of Rs. 1,61,64,03,000/-in respect of various capital projects undertaken by it and which were capitalised in the books of accounts that same expenditure was claimed u/s. 36(1)(iii) of the Act. He rejected the claim made by the assessee on the ground that that the same could be allowed only if it is payable in respect of the period after the assets have been put to use in terms of the provisions of Explanation 8 to section 43(1) of the Act, that the assessee could not follow two methods of accounting one for the purposes of its books and the other for the purposes of computing its total income that even if the interest is allowable it would be disallowed u/s. 43B of the Act as proof of payment has not been produced. 3.1....
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....ing the above judgment we decide ground no. 2 against the AO. 4. Last ground of appeal deals with disallowance of prior period expenses. During the assessment proceedings the AO found that the assessee had debited a sum of Rs. 9,44,00,69,767/-as prior period expenses. He asked the assessee as to why the expenses should not be disallowed as prior period expenses unless crystallised during the year were not allowable u/s. 37(1)of the Act. He also asked the assesse as to why the prior period income should not be taxed u/s. 41(1)of the Act. The assessee vide its letter,dated 24. 11. 2003,filed its reply. After considering the submissions of the assessee the AO held that prior period expenses/loss of Rs. 944 crores could not be allowed as deduction in absence of any details filed by the assessee stating whether they were crystallised during the year. 4.1. Before the First Appellate Authority(FAA) the assessee contended that the expenses had crystallised during the year under consideration, that same was in accordance with the method of accounting regularly followed by the assessee in the earlier years, that it was the state wide organization having big network of number of offices....
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....rted the order of the FAA and relied upon the cases of Nagri Mills Co. Ltd. (33 ITR 681);Vishnu Industrial Gases Pvt. Ltd. (229 ITR 1988 6 May 2008) ;Excel Industries(38 Taxmann. com 100) and Toyo Engineering Ltd. (5 SOT 616), Bank of India(27taxmann335). 4.3. We have heard the rival submissions and perused the material before us. We find that the AO had disallowed the claim of the assessee as it had not filed any evidence in that regard that the FAA had held that the assessee had itself disallowed two item that the expenditure of earlier years' could be allowed in subsequent years. As fare as the suo motto disallowance is made we are of the opinion that the FAA was correct in holding that no addition could be made in that regard. But for other expenses we have to consider the relevant facts. Before that it would be useful to deliberate upon the cases relied upon by the assessee. In the case of Nagri Mills Co. Ltd. (supra) facts were that the assessee-company which maintained its accounts on the mercantile basis did not make any entry towards bonus for the calendar year 1951 that on a dispute regarding bonus payable to the workers for that year being referred to the conciliat....
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....sessee is following the mercantile system of accounting it is supposed to file an explanation that the expenses were not booked in earlier years due to some reasonable cause like to nonreceipt of details pending litigation decision regarding unliquidated damages an agreement entered in to for making payments for earlier period etc. and that such expenses got crystallised during subsequent assessment year. Thus there are two limbs for allowing prior period expensesfirstly the expenses should have been incurred in earlier years and should not have been claimed in those years as same were not quantified and crystallised and seconldly crystallisation of such expenses should take place in the subsequent years. Like any other expense to be allowed u/s. 37 of the Act,claim for prior period expenses has to be supported by documentary evidence. If there is no evidence that the expenses were crystallised in a particular year then same would not be allowed as an deductible expenditure for that year. Mere making a claim that certain expenditure is prior period expense is not sufficient. It has to be supported by evidences. In the case under consideration the AO has given a categorical findi....
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....res. During the assessment proceedings the AO found that in the note -5 to computation of income the assessee had stated that the provisions of section 43(b) of the Act was not applicable to electricity duty. He directed the assessee to furnish the details of electricity duty collected and to state as to why same should not be disallowed u/s. 43B of the Act in view of the decision of the HSC deliverd in the case of Chowranghee Sales Bureau (222 ITR 344). In its reply the assessee stated that the electricity duty was payable by the consumers for consumption of energy, that as a licencee it had to recover the amount from the consumers on behalf of the state government, that in event of default by the consumer it was not liable to pay any amount to State government, that it was acting as an agent to collect electricity duty from the consumers on behalf of the State Govt. , that it was neither direct not indirect expense of the assessee that it had not claimed excise duty in its revenue account, that provisions of section 43B applied to a deduction allowable under the Act, that item which was not allowable for purpose of computing total income was outside the purview of section 43B tha....
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....hat issue of applicability of the provisions of section 43B of the Act has been discussed and decided by the Hon'ble Kerala High Court in the case of Kerala State Electricity Board(supra) as under: "Section 43B(a) deals with "any sum payable by the assessee by way of tax, duty, . . . under any law for the time being in force". The words, "by way of tax" are indicative of the nature of liability. The liability to pay and the corresponding authority of the State to collect the tax (flowing from a statute) is essentially in the realm of the rights of the sovereign, whereas the obligation of the agent to account for and pay the amounts collected by him on behalf of the principal is purely fiduciary. The nature of the obligation continues to be fiduciary even in a case wherein the relationship of principal and agent is created by a statute. Section 43B(a) deals with amounts payable to the sovereign qua sovereign not amounts payable to the sovereign qua principal. Therefore section 43B cannot be invoked in the case of the Electricity Board with regard to electricity duty collected by it pursuant to the obligation under section 5 of the Kerala Electricity Duty Act, 1963. " &nb....
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....re of the assessee and therefore, it was outside the preview of section 43B of the Income Tax Act. It was further argued that the ration of Chouranghee Sales Bureau could not be applied in the case of appellant since that case was pertaining to Sales tax collected, whereas the appellant's case was in respect of collection of electricity duty in the light of section 4 of Bombay Electricity Act 1958. 30. It was further argued by the assessee before the Ld. CIT(A) without prejudice that in case if the provisions of section 43B are held to be applicable to the electricity duty, then in the alternative appropriate direction must be given to the AO to allow as deduction the electricity duty paid upto the date of filing of the return. For the purpose of payment of electricity duty the appellant argued that since the duty payable to GOM are settled by adjustment of the amount receivable by it towards the sale of power, the adjustment of such amount between the appellant and Govt. be considered as payment of electricity duty in this regard. 31. The Ld. CIT(A) considered the arguments of the assessee but did not accept its claim but with a partial relief by giving a directi....
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....judgment of Hon'ble Bombay High Court in the case of 'CIT vs. Ovira Logistics Pvt. Ltd.' (su. ),wherein their Lordships have held that in the case of service tax payment by that assessee where it was found that before end of the year amount on which service tax was payable have not been received from the parties to whom services were rendered, the claim of service tax paid could not be disallowed. It was held that s. 43B does not contemplate liability to pay the service tax before actual receipt of funds in the account of the assessee and it was further held that the liability to pay service into the treasury will arise only upon the assessee receiving funds and not otherwise and it was accordingly held that liability to pay the service tax in respect of consideration payable will arise only upon receipt of such consideration, and not otherwise. In the case before us, the admitted position is that because of some settlements pending between the assessee company and the Government of Maharashtra, payments could not be made during the financial year. It is further seen that the admitted facts are that the assessee has not routed this amount through the P&L account. We rely with the j....
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....ernment, the statute provides mechanism for the Government to recover the same from the licensee. Even iii a case where the licensee is unable to recover the duty but recovers the energy charges, the statutes still provides a procedure for the Government to recover the duty either from the consumer or from the licensee. This view of ours finds support from the decision of the Andhra Pradesh High Court in the case of Commissioner of Income Tax-vs. -Devatha Chandraiah (supra). Though the said case deals with sales tax, the principle laid down in that case supports our view. The mischief that Section 43B of the Income Tax Act intended to present, is taken care of by the provisions of the Bengal Electricity Duty Act itself. " 34. Thus, in our considered view, the assessee deserves to succeed. The disallowance made by Ld. AO on this ground for Rs. 23291. 59 lakhs is hereby deleted and ground no. 2 of the assessee is allowed. " Following the above mentioned two decisions,we reverse the order of the FAA and decide ground no. 1 in favour of the assessee. 6. Second and third grounds are about disallowance of loss of Rs. 6. 95 lacs and Rs. 4. 08 lacs respectively suffered by t....
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....roceedings the AO found that the assessee had claimed that it would amortise intangible assets over the estimated period during which it was going derive benefits therefrom, that a proportionate amount calculated with reference to the benefits during the year such as additional revenue arising as a result of the asset was being charged to revenue account for each of the years benefitted. However, the AO disallowed the claim on the ground that the same was capital in nature. 7.1. Before the FAA ,during the appellate proceedings the assessee submitted that treatment given to the intangible assets was in accordance with the electricity rules. It relied upon the case of Tapadia Tools Ltd. (260 ITR 102). It was also stated that similar issue was decided in favour of the assessee by the then FAA while deciding the appeal for A. Y. 97-98. The FAA ,after considering the submission of the assessee and the assessment order,held that the details of the calculation of amounts written off towards intangible assets were not available that the assessee was writing off a part of the costs of the fixed assets every year, it was not allowable as revenue expenditure that the similar claim was d....