TaxTMI 
TaxTMI 
2021 (5) TMI 629
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....peals)-2, Mumbai in appeal No. CIT(A)-1/IT/14/07-08, CIT(A-2/IT/115/09-10 dated 30/11/2009 (ld. CIT(A) in short) against the order of assessment passed u/s.143(3) of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 31/12/2007 by the Dy. Commissioner of Income Tax-1(2), Mumbai (hereinafter referred to as ld. AO). Identical issues are involved in all these appeals and hence they are taken up together and disposed of by this common order for the sake of convenience. 2. Deduction on account of prior period expenditure Ground No.1 of Revenue Appeal in Asst Year 2004-05 Ground No.1 of Revenue Appeal in Asst Year 2005-06 With the consent of both the parties, the facts of Asst Year 2004-05 are taken up for adjudication and the decision rendered thereon would apply with equal force for Asst Year 2005-06 also except with variance in figures. 2.1. We have heard the rival submissions and perused the materials available on record. The assessee company is engaged in the business of generation and distribution of electricity. The return of income for the Asst Year 2004-05 was filed by the assessee company on 29.10.2004 declaring total loss of Rs. 415,79,84,240/-. We find that....
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....assessee is a State Government undertaking engaged in generation and distribution of electricity. We find that the ld. AO by placing reliance on the figures mentioned in the tax audit report submitted by the assessee under the head "prior period expenses‟ / "prior period income‟, sought details of the same during the course of assessment proceedings. The assessee furnished the details of prior period income and prior period expenses which are duly tabulated by the ld. AO in page 5 of his order. The assessee earned prior period income of Rs. 84,48,47,317/- and prior period expenditure of Rs. 944,00,69,767/-. The net prior period expenses amounting to Rs. 859,52,22,450/-. The ld. AO brought to tax the amount already offered by the assessee in the return in respect of prior period income and disallowed entire prior period expenditure (gross) while completing the assessment by holding that these expenses did not crystallise during the year under consideration. It is pertinent to note that out of total details of prior period expenses submitted by the assessee in a tabular form, the assessee had voluntarily made disallowance in the return of income towards depreciation amoun....
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....othing but spill over of the earlier period and which were not considered while submitting returns for the earlier period. MSEB Accounts thus prepared in keeping with the rules of Electricity (Supply) (Annual Accounts) Rules 1985 prescribed under section 69 of the Electricity Supply Act, 1948 and C.A.G. also accepts this accounting system. 8.4 The appellant further submitted that the total income of the appellant required to be computed was in accordance with the method of accounting regularly followed by it as laid down by the provisions of sec. 145 of the Income-tax Act, 1961. In this connection attention was drawn to the accounting standard No. II issued by the CBDT notified vide notification no. SO69(E) dtd. January 25,1996 in terms of which it has been stated in Para 7 that :- 'Prior period items shall be separately disclosed in P&L account in the previous year together with their nature and amount in a manner so that their impact on profit and loss in the previous year can be perceived'. 8.5 Hence it was submitted that the objective of the above mentioned Accounting Standard is that every assessee is required to disclose the prior period item separately. Had it ....
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....rned, the treatment given to them is according to the guidelines framed for preparing the accounts of the electricity companies. The facts showing the entirety of the appellant's operations and its huge net work explains the time taken to account for various expenses. The accounts of the appellant are audited by internal auditors and statutory auditors under the Companies Act and the Income-tax-Act. Further the reference to the Board's Circular is also in favour of the appellant. The AO has not come out with any finding that any of these expenses are not allowable as deduction. Since the expenses are otherwise allowable, the appellant cannot denied the deduction which has been claimed following proper accounting standards. Further, the AO has included the prior period revenue in the appellant‟s income. So there is no logic to disallow the prior period expenses. In view of this the AO is directed to allow the prior period expenses as claimed." 4.1. It is not in dispute that the accounts of the assessee have been prepared in accordance with the mandate provided under the Electricity Act. We also find that the ld. AR drew our attention to the page 254 of the paper book....
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....d., reported in 42 Taxmann.com 40 had an occasion to go through the same issue. The question raised before the Hon‟ble Jurisdictional High Court was as under:- "B. Whether on the facts and in the circumstances of the case and in law, the Tribunal was correct in confirming the order of CIT(A) in deleting the disallowance of Rs. 92,91,343/- made by the Assessing Officer on account of prior period expenses?" 4.2. The Hon‟ble Jurisdictional High Court disposed off the aforesaid question by holding as under:- "4) Regarding Question B : (a) In its return of income for assessment year 2004-05 while declaring total income of Rs. 100.76 crores the Respondent-assessee claimed an expenditure of Rs. 92.81 lacs as prior period expenses. The Assessing Officer disallowed the expenditure relating to prior period on the ground that as the respondent followed mercantile system of accounting expenditure relatable to an earlier year cannot be allowed as deduction in the assessment year under consideration. Thus an amount of Rs. 92.81 lacs was added to the income of the Respondent assessee. b) In appeal, the CIT(A) held that the method of accounting consistently followed since man....
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....ystallized during the assessment year under consideration as done in the earlier years. This finding of fact has not been shown to be perverse. In view of the above we see no reason to entertain question B as the same does not raise any substantial question of law as it is essentially a finding of fact arrived at by two authorities concurrently." 4.3. In view of the aforesaid observations and respectfully following the decision of the Hon‟ble Jurisdictional High Court referred to supra, we find no infirmity in the order of the ld. CIT(A) granting relief to the assessee in respect of prior period expenditure. Accordingly, the grounds raised by the revenue in this regard are dismissed. 2.3. Respectfully following the said decision, we dismiss the Ground No. 1 raised by the revenue for both the years in appeal before us. 3. Disallowance of Capital Expenditure written off - Rs. 15,59,789/- Ground No.2 of Revenue Appeal in Asst Year 2004-05 We have heard the rival submissions and perused the materials available on record. At the outset, the ld DR pointed out that the correct figure which was subject matter of disallowance was only Rs. 15,59,789/- and the same has been erro....
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....assessee company to The Executive Engineer 400KV L.C.Division, Kalwa, wherein it was specifically pointd out the Chief Engineer (Tr.Plng) Mumbai had informed that the work of 400KV Tarapur-Boisar Line with extention unit 3 and 4 (2 *500MW) shall be executed by Power Grid Corporation of India Ltd i.e other than M.S.E.B (assessee herein) . Accordingly, the assessee had intimated in the said letter that the amounts incurred towards capital expenditure has been written off in the appropriate head amounting to Rs. 15.60 lakhs. We further find that the ld CITA had given a categorical finding that- a) Capital expenditure incurred by the assessee was not doubted by the ld AO. b) The said expenditure was incurred for the purpose of extension of project was not doubted by the ld AO. c) The said extension project has been given up by the assessee and hence the asset generated thereon is not in use. These factual observations were not controverted by the revenue before us. 3.3. We also find that the co-ordinate bench of this tribunal in the case of DCIT vs Essar Oil Ltd reported in 47 SOT 139 (Mumbai Trib) for the Asst Year 2003-04 had addressed the similar issue by following the tribunal....
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....made by the Assessing Officer following order of ITAT in assessee's own case in assessment years 1996-97 to 1998-99 in ITA Nos. 3643 to 3645/M/02, wherein identical issue had been decided in favour of the Assessee by the Tribunal. Aggrieved by the order of CIT(A), the Revenue has preferred Ground No. 1 before the Tribunal. 4. At the time of hearing it was accepted by the parties before us that the Tribunals order relied upon by the CIT(A) for deleting the addition made by the Assessing Officer has already been confirmed by the Hon'ble Bombay High Court in ITA No. 921 of 2006. The Tribunal in ITA Nos. 3643 to 3645/M/02 on identical issue held as follows: "13. The second issue to be considered for the assessment year 1996-97 is regarding the expenditure of Rs. 1,60,04,350 incurred by the assessee company in the previous year for exploration and production of oil and gases. The assessee company is engaged in the business of operation of rigs for extraction of oil, undertaking off-shore contracts for laying of pipelines and setting up of refineries, etc. The assessee company during the previous year relevant to the assessment year under appeal had been bidding for various c....
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....ngly , the Ground No. 2 raised by the revenue for the Asst Year 2004-05 is dismissed. 4. In the result, both the appeals of the revenue are dismissed. 5. Let us take up the Cross Objections of the assessee. With the consent of both the parties, the facts of Asst Year 2004-05 are taken up for adjudication and the decision rendered thereon would apply with equal force for Asst Year 2005-06 also except with variance in figures. 6. Disallowance of Electricity Duty u/s 43B of the Act Ground Nos.1.1. to 1.3. of Cross Objections of assessee for Asst Year 2004-05 Ground Nos.1.1. to 1.3. of Cross Objections of assessee for Asst Year 2005-06 We have heard the rival submissions and perused the materials available on record. We find that the ld AO on perusal of Schedule 28 of Audited financial statements observed that assessee company had shown the liability to the tune of Rs. 631,01,65,577/- as on 31.3.2004 relevant to Asst Year 2004-05, eventhough the same was collected but not paid to the Government. The ld AO observed that in this regard, the assessee had clarified in Note 4 of the Computation of Income stating that in terms of section 4 of the Bombay Electricity Duty Act, 1958, the ....
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....erala 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." In the matter of Maharashtra State Electricity Distribution Co. Ltd.(supra)the Tribunal has decided the issue follow: "28. Ground no.2,this ground deals with th....
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....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 ITA/3813 &others/Mum/09-MSEB/01-02to03-04 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 direction that payment by way of adjustment made and actual payment both till date of filing of return should be allowed. The operative para of Ld. CIT(A)'s order....
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....ound 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 judgment of Hon'ble Calcutta High Court in the case of CESC Ltd.(su.) and Hon'ble Kerala High Court in the case of 'Kerala State Electricity Board' (supra) to hold that the electricity duty....
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....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 ". 6.3. Respectfully following the said decision of this tribunal in assessee's own case for earlier years as referred to supra, the Cross Objections raised by the assessee in Ground Nos. 1.1. to 1.3. for both the Asst Years are allowed. 7. Disallowance of loss on account of obsolescence of fix....
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....e correspondences in this regard containing documentary evidences are enclosed in pages 36 to 45 of the paper book filed before us. On perusal of the same, we find that the assessee had rightly claimed deduction on account of aforesaid deferred revenue expenditure written off in the years under consideration. Accordingly, we reverse the order of the ld CITA in this regard. 7.2. We find that the aforesaid remaining 3 issues were subject matter of adjudication by this tribunal in assessee's own case for the Asst Years 2001-02 to 2003-04 in CO Nos. 11, 196 and 197/Mum/2010 dated 30.9.2015 wherein it was held as under:- "6.Second and third grounds are about disallowance of loss of Rs. 6.95 lacs and Rs. 4.08 lacs respectively suffered by the assessee on account of flood, cyclone/storm, theft etc. During the assessment proceedings the AO found that the assessee had incurred loss of properties to the extent of Rs. 6.80 crores due to storm, theft, accident. As per the AO, detailed nature of the assets was not furnished by the assessee. He held that the loss was capital in nature and hence not allowable as deduction. 6.1.Before the FAA it was contended that under the electricity supply....
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....m 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 disallowed by the FAA in the AYs.99-00 and 00-01.Following them, he upheld the order of the AO and dismissed the ground raised by the assessee . 7.2.Before us, the AR contended that the assessee was amortising the expenses ,that those expenses pertained to purchase of software and payment lawyer's fee etc, that the assessee had incurred expenses towards fee paid with regard to Dabhol Project. He referred to page No.340 of ....
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.... of assessee for the Asst Year 2004-05 Ground Nos. 5.1. to 5.3. of Cross Objections of assessee for the Asst Year 2005-06 We have heard the rival submissions and perused the materials available on record. We find that the ld AO had observed from Schedule 12 of financial statements that assessee company had claimed cost of raising finance under different heads such as stamp duty, legal charges, advertisement, service fee, credit fee, commitment charges, lease management fees paid for HVDC Project, late fees paid for HVDC Project, State Government Guarantee Fees and other expenses aggregated to Rs. 2,42,41,827/- for the Asst Year 2004-05. We find that the ld AO observed that these expenditure are capital in nature and accordingly disallowed the same in the assessment. 8.1. We find that the ld CITA identified the break up of the aforesaid expenditure as under:- Stamp duty - Rs. 46,02,345/- Service Fee - Rs. 88,00,795/- Commitment Charges - Rs. 57,86,787/- Other Expenses - Rs. 50,51,900/- We find that the ld CITA applied the proviso to section 36(1)(iii) of the Act which is applicable from Asst Year 2003-04 onwards by stating that all expenses on borrowed funds could be all....
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.... direct the ld AO to grant deduction towards cost of raising funds for both the Asst Years in appeal before us. Accordingly, the Ground Nos. 6.1. to 6.3. for the Asst Year 2004-05 and Ground Nos. 5.1. to 5.3. for the Asst Year 2005-06 raised by the assessee are allowed. 9. Disallowance of Penal Interest in respect of capital liabilities Ground Nos. 7.1. to 7.3. of Cross Objections of assessee for the Asst Year 2004-05 We have heard the rival submissions and perused the materials available on record. We find that the ld AO had observed that assessee company had paid penal interest of Rs. 4,55,562/- towards its capital liabilities. He observed that since amount is penal in nature, the same is not allowable as deduction u/s 37(1) of the Act by applying the Explanation thereon. We find that since the ld AO had not given any reasoning for the disallowance of the aforesaid expenditure, the ld CITA called for the details of the expenditure from the assessee which were duly provided as under:- (i) Provision made towards interest on delayed payment of purchase of assets payable to Lasalgaon Electricity Co-operative Society - Rs. 23,650/- (ii) Provision made towards interest on delaye....