TaxTMI 
TaxTMI 
2021 (2) TMI 423
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....llowing the employee benefit expenses Rs. 84,77,015/-, other expenses Rs. 34,62,051/- and depreciation Rs. 3,69,362/-, on the ground that the same are to be reimbursed by ESCOMs, as the ESCOMS are to reimburse, only. the working expenditures, as per MOU between ESCOMs and the Assessing Company. 2. The learned Respondent Assessing officer has erred in law by allowing, only, Rs. 10,00.000/- towards corporate expenses as the entire expenditure debited to the Profit and Loss account are, only, the corporate expenses. 3. The learned Respondent Assessing officer has failed to appreciate the fact that the assessing company debited all working expenditure incurred by them to the seed money received from the ESCOMs. 4. The learned Respondent has failed to appreciate the Memorandum of Understanding (MOU) between the ESCOMs and the Assessing Company, particularly the clauses 5, 7 and 8, where in, it is very clearly stated that the ESCOMs are to bear the working capital expenditure, only. as per the percentage indicated there in. 5. The learned Respondent Assessing officer has failed to appreciate that the Assessing Company has the corporate expenditure in t....
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....ssee after the setting up of the Company, are allowable deductions in spite the fact there being no income. 11. It is a settled position that for allow ability of expenses which are revenue in nature it is not the business should have actually commenced. What is important is that the .........e been set up which means the Assessee should be ready to commence expenses which are revenue in nature not being personal expenses and which are .7,-siness expenses incurred after the date of setting up of business have to be allowed. z:,:7enses incurred prior to setting up of the business would not be permissible deduction. is supported by the judgment of Hon'ble High Court of Bombay in the case of ..:stern India Vegetable Products Ltd. vs. CIT( 1954)26ITR, 151(Born). 12. On the other hand as contended by the Department, if the corporate expenditures are to be treated as the responsibility of ESCOMs, even the interest income has to be credited to ESCOMs. With the result PCKL will have no expenditure and no income. 13. The learned officer has erred in law by not setting off the losses against the miscellaneous income and the income from other source. 14....
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....elated administration activities like accounts department, administrative department, company annual filing charges, auditor expenses, depreciation which are not directly related to the project activities are debited to profit and loss account. 6. The assessee company had filed its return of income for the year under consideration declaring business loss of Rs. 46,76,754, income from other source Rs. 2,50,859 and net income of Rs. 2,03,60,110. However, the Assessing Officer (AO) disallowed the business loss of Rs. 46,76,754 on the grounds that there is no matching concept between the expenditure and the relatable income and disallowed the expenses relating to employees benefit Rs. 84,77,015, other expenses Rs. 34,62,051 and Depreciation and amortization expenses Rs. 3,69,362 of which allowing Rs. 10,00,000 being maintenance of corporate entity u/s.37 on the ground that the same are to be shared by all the five ESCOMS. Aggrieved on the above issues, the appellant filed appeal before the CIT(Appeals). 7. The main grounds raised by the assessee before the CIT(Appeals) was that the AO disallowed the employee benefit expenses of Rs. 84,77,0151, other expenses of Rs. 34,62,051 and ....
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.... CIT(A) observed that the main income of the assessee is interest income and against this the assessee has disallowed expenses to a tune of Rs. 1,23,07,658, whereas its revenue from business is only 9,87,226 and this income is "other operating revenue''. Matching principle is a fundamental principle in accounting. This principle states that only expenses relatable to a head of income should be claimed in P&L Account as expense. Those expenses that do not relate to a 'head of revenue' should be either capitalized or not to be claimed or to be claimed under the 'correct head of income. According to the CIT(A), in the instant case, the assessee has total revenue of Rs. 2,60,24,085 (as per audit report) consisting of interest income and other operating revenues. The assessee has claimed expenses of Rs. 1,23,07,658, when its business income is only Rs. 9,87,226 (other operating income). The contest of the assessee is that expenses are to be incurred to maintain the corporate entity, an expense of Rs. 10,00,000 (including depreciation claimed under IT Act) was allowed out of the expenses claimed of Rs. 1,23,07,658 and the balance of Rs. 1,13,07,658 was disallowe....
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.... including purchase of power through Energy Exchanges, Banking (SWAP) as well as bilateral transactions. The appellant also co-ordinates with other States, Central Government, SRPC, CERC, KERC, SRLDC etc., on power related issues. In addition, it acts as facilitator to ESCOMs for the following activities:- a. Land acquisition through Revenue Department / KIADB. b. Allocation of water from the Water Resource Department. c. Allocation of fuel linkages / coal blocks from Ministry of Power, Ministry of Coal, Govt. of India. d. Arranging environment impact assessment, pre-feasibility reports and detailed projects reports through Consultants / Experts. e. Power evacuation system pertaining to projects through Case-II competitive bidding route. f. Negotiation with power trader, generators for short term procurement and preparation of PPA's on behalf of ESCOMs. g. Forecasting energy availability and demand. h. Preparation / scrutiny of PPA's on conventional power plants. i. Pre and Post PPA's issues relating IPP's projects, Mall projects and Joint Venture. j. Procuring power through ex....
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....re which is incurred wholly and exclusively for the purpose of business must be allowed in its entirety in the year in which it is incurred. It cannot be spread over a number of years even if the assessee has written it off in his books, over a period of years. However, the facts may justify an assessee who has incurred expenditure in a particular year to spread and claim it over a period of ensuing years. In fact, allowing the entire expenditure in one year might give a very distorted picture of the profits of a particular year. Therefore, Method of Accounting followed by the assessee is relevant because accrual of income is to be seen in the light of Method of Accounting. This Matching concept is also covered by Section 36(1)(m) read with Section 43(2), which defines the word "Paid". Both these sections form part of Chapter IV - Computation of Business Income. If the Matching concept is not applied then, the profits get distorted. In his order, the AO has recorded a finding of fact which categorically brings out the matching concept. Ordinarily revenue expenditure incurred only and exclusively for business purposes must be allowed in its entirety in the year in which it is incurr....
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....hd/2018 (2020-TIOL-1482-ITAT-AHM). (2) Awasthi Traders v. DCIT, ITA No.119 & 441/Agr/2018 dated 08.07.2020. (3) ACIT v. Motorola India Electronics Pvt. Ltd. (2014-TIOL-87-Karnataka High Court) (4) CIT v. Prestige Estate Projects Pvt. Ltd. (2020-TIOL-982-Karnataka High Court). 14. On the other hand, the ld. DR relied on the order of CIT(Appeals) and submitted that the expenditure incurred by the assessee was either met out from interest earned by assessee or by the seed money provided by ESCOMs. Being so, it cannot be allowed as a business expenditure. 15. We have heard both the parties and perused the material on record. The first contention of the lower authorities is that the expenditure incurred is not corresponding to the income earned by the assessee. So applying the matching principle, the claim of deduction of expenditure of Rs. 123,07,658 was denied by the AO and he has allowed deduction only to the tune of Rs. 10 lakhs. However, the CIT(Appeals) has disallowed the entire amount. In our opinion, for allowing the expenditure assessee's business should have been set up and ready to commence. In this case, there is no dispute the assessee's bus....
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.... was decided in the meeting of the Board of Directors held on 4th December 2007, subject 1/26, to meet the day to day expenditure of PCKL out of seed money received from ESCOMs. The seed money of Rs. 99 lakhs needs to be replenished whenever shortfall arises, for which Managing Director, PCKL will address ESCOMs for additional funds. 5. In the absence of any Revenue / Income streams for the Company other than miscellaneous receipts by way of sale of bid documents etc., such time, all the five ESCOMs shall share the expenditure of PCKL as per the percentage indicated below. BESCOM: 50%; MESCOM: 15%; CESC: 15%; HESCOM: 10%; GESCOM:10%. 6. The expenditure so incurred as stated in Para (5) shall be shared by all the five ESCOMs in accordance with the Para (7) and accordingly PKCL shall intimate its expenditure monthly/quarterly to all the five ESCOMs in order to exhibit the same in their books of accounts against the seed money provided to PCKL. The credits if any to given towards interest earned on the deposits of surplus fund will be afforded/adjusted against the expenditure at the end of the financial year. 16. Being so, the claim of the expenditure by ....