TaxTMI 
TaxTMI 
2022 (6) TMI 838
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....IT(A) erred deleting the addition of Rs.8.80 lakhs of legal and professional charges without appreciating the fact that the allowance must be granted in the year in which the liability is incurred, irrespective of the question whether the disbursement has been made or not. 2. On the facts and circumstances of the case and in law, the CIT(A) erred in deleting the addition of Rs. 1530.50 lakhs on account of overstatement of interest and finance charges. 3. On the facts and circumstances of the case the CIT(A) has erred in deleting the disallowance of prior period expenses of Rs. 28,71,38,221/- 4. On the facts and circumstances of the case and in law, the CIT(A) has erred in deleting the addition of RS. 12,86,00,000/- on account of the employee cost by holding that it was notional and not realized. 5. On the facts and circumstances of the case and in law, the CIT(A) erred in deleting the disallowance of Rs.5,54,08,761/- being provision for interest shortfall on provident fund liability without appreciating the fact that no evidence or details were furnished to establish that liability was ascertained. 6. On the facts and circumstances of th....
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....orities for the assessment years 1999-2000, 2000-01 and from assessment years 2002-03 to 2006-07. The Assessing Officer, vide order dated 14/03/2013, passed under section 143(3) of the Act, inter-alia, on the basis of Comptroller & Auditor General ("C&AG') report under section 619(4) of the Companies Act, 1961 made the addition of the aforesaid legal and professional charges by treating the same to be prior period expenses pertaining to the period from the assessment years 1999-2000 to 2006-07. 6. In appeal before the learned CIT(A), the assessee submitted that the invoices were raised by the Tax Consultant only after the various orders were passed by the Tax Department during the year ended 31/03/2010, and thus, the expenditure was crystallized during the year under consideration. The learned CIT(A), vide impugned order, allowed the appeal filed by the assessee on this issue. Being aggrieved, the Revenue is in appeal before us. 7. During the course of hearing, Shri C.T. Mathews, the learned Departmental Representative ("learned D.R."), by vehemently relying upon the order passed by the Assessing Officer submitted that the addition was made on the basis of views expressed in ....
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....er was passed on 14/03/2013, and the impugned order was passed on 03/02/2015, while the assessment year under consideration is 2010-11. In such a scenario, if the Tax Consultant following its general practice raises the invoice upon conclusion of the matter after passing of the order by the concerned authority, we are of the considered view that such expenditure cannot be treated as prior period expenses. Particularly, it is only when the invoices for legal and professional services are raised by the Consultant, the liability arises / crystallizes in the hands of the assessee and it is only in that year such expenditure will be allowable to the assessee. In view of the above, we find no infirmity in the order passed by the learned CIT(A) on this issue. Accordingly, ground no.1, raised in Revenue"s appeal is dismissed. 10. The issue arising in ground no.2, raised by the Revenue is pertaining to deletion of addition of Rs.1530.50 lakhs on account of overstatement of interest and finance charges. 11. The brief facts of the case pertaining to the issue, as emanating from the record are: Pursuant to the aforesaid demerger, some of the liabilities of the erstwhile MSEB which were t....
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....eceived from the erstwhile MSEB. It was submitted by the assessee that the aforesaid amount appeared in the "account code 46.737" (interest accrued but not due on Indian currency loan ILFS) - Rs.0.42 crs. AND "account code - 46.746" (private bonds interest accrued but not due) - Rs.14.88 crs i.e totalling Rs.15.30 crs, which were to be cleared at the time of finalization of the transfer scheme. For the sake of clarity, the reply filed by the assessee in context of the issue in question as was submitted before the A.O is reproduced as under: "This is as per the opening balances of Transfer Schemes received from the erstwhile MSEB. The said amount appears in the a/c code 46.737 (interest accrued but not due on Indian currency loan ILFS) - Rs.0.42 crs. & a/c code - 46.746 (private bonds int accrued but not due) - Rs.14.88 crs i.e total Rs.15.30 crs. This will be cleared at the time of finalization of the Transfer Scheme." However, the A.O did not find favour with the aforesaid explanation of the assessee. Observing, that the liability of Rs.15.30 crore represented an unexplained credit that was neither in existence nor payable, the same was added by him under Sec. 68....
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....books of accounts. However, the question for consideration is whether there could be any unexplained credit in the books of account of the appellant, the appellant Government. The appellant has explained that the interest Rs.15.30 crores was on account of transfer of certain unbundling of erstwhile MSEB. The said liabilities were appearing balance sheet as opening balances as on 01.04,2007 and no fresh entries were passed during the year. Since such liabilities were not pertaining to the year under consideration, the same could not have been considered in the year under consideration for the purpose of addition u/s.68 of the Act, Since the liabilities were pertaining to the earlier years, duly shown in the balance sheets of earlier year and also as opening balance in the year under consideration, the appellant correctly made entries of interest accrued on such old liabilities. Such liabilities were received by the appellant on account of unbundling of erstwhile MSEB, which fact was not disputed. In support of its claim of liabilities (on which interest accrued during the year) pertaining to the earlier years* the appellant has filed copies of balance sheets of the concerne....
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....ssed by the learned CIT(A) on this issue. Accordingly, ground no.2, raised in Revenue"s appeal is dismissed. 17. The issue arising in ground no.3, raised in Revenue"s appeal is pertaining to deletion of disallowance of prior period expenses of Rs.28,71,38,221. 18. The brief facts of the case pertaining to the issue, as emanating from the record are: During the course of assessment proceedings, it was noticed that the assessee while computing surplus as per revenue accounts has debited an amount of Rs.28,71,38,221, in the computation. The Assessing Officer vide order passed under section 143(3) of the Act treated the said expenses as prior period expenses and disallowed the same. 19. The learned CIT(A) by following its earlier decision rendered in assessee"s own case for preceding assessment year deleted the addition and allowed the appeal of the assessee. 20. During the course of hearing, the learned D.R. vehemently relied upon the order passed by the Assessing Officer. 21. While, the learned A.R. submitted that similar issue has been decided in favour of the taxpayer by the decisions of the Co-ordinate Bench of Tribunal rendered in the case of erstwhile MSEB. 22.....
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....4,00,69,767 on the ground that such expenditure cannot be allowed unless it has crystallized during the year. 8.2 Before me the Ld.AR of the appellant submitted that the expenses have crystallized during the year under consideration. Further, it was also stated that the same is in accordance with the method of accounting regularly followed by the Appellant in the earlier years. 8.2 Before me the Ld.AR of the appellant submitted that the expenses have crystallized during the year under consideration. Further, it was also stated that the same is in accordance with the method of accounting regularly followed by the Appellant in the earlier years. 8.3. The Ld.AR of the appellant submitted that that MSEB is a statewide organisation having big net work of number of offices for power Stations Constructions. 400KV/Trans. Lines Constructions. Sub-station Constructions, Power Station, Major Stores and for each of these activities like construction, Generation, transmission, distribution and maintenance, etc. MSEB has got a number of zonal offices, section offices, etc. spread throughout the Maharashtra State. This being so, there is always a communication gap and s....
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....rior period expenses are a meager percentage of the turnover, then the prior-period expenses should be allowed: Escorts Ltd. v/s. IAC reported in (2004) 89 TTJ 221 (Del) Unreported decisions of the Mumbai Bench of the Income Tax Appellate in the case of Rashtriya Chemicals & Fertilizers Ltd. v/s. JCIT ITA Nos. 1013/Mum/2001 and 3863/Mum/2006. 8.7. Further reliance was placed on the decision of the Delhi High Court in the case of CIT vs. Vishnu Industrial Gases P. Ltd. in ITR No.229/1988 wherein the High Court, while dealing with a case where the department had not disputed that the expenditure was deductible in principle but was only disputing the year in which the deduction could be allowed, held, that as the tax rates were the same in both years, the department should not fritter away its energies in raising questions as to the year of deducibility/taxability. 8.8. Without prejudice to the foregoing, the Ld.AR submitted that the following amounts (out of the prior-period expenses) have been suomoto disallowed by the Appellant and hence disallowing the same once again would tantamount to double deduction: 1. Depreciation under provided - Rs. 31,....
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....ce between an accounting estimate made for accrual and actual values involved or on account of any other reason. The State accounting mandate statutorily stated that the same shall be accounted only prospectively and no retrospective re-stating of past years figures was permitted in the accounts. This clear statutory mandate issued by the Government with regard to maintenance of accounts enabled the assessee company, being a Public Sector Undertaking (PSU), to disclose the prior period expenses and prior period income separately in its accounts. Moreover, we find that the ld. CIT(A) had duly recognised the method of accounting regularly followed by the assessee in the instant case. We find that the ld. CIT(A) had taken due cognizance of each and every item pertaining to prior period expenses and had understood the modus operandi thereon and duly appreciated the fact of assessee company conducting its operations with huge net work which eventually explains the time taken for accounting of various expenses contributing to the delay and slippage of an annual accounting year. The ld. CIT(A) also took note of the accounts of the assessee company getting scrutinized by Statutory Auditors....
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....the person who did the work and/or rendered services. The CIT(A) also noted that the Assessing Officer had taxed income attributable to work rendered in the earlier years in the year under consideration depending upon the time when the amounts were crystallized. On the same principle, the expenses attributable to earlier years but crystallized in the year under consideration ought to be allowed. In view of the above, the CIT(Appeals) held that in view of the consistent practice followed by the Respondent-assessee and accepted by the Revenue the prior period expenses which were crystallized during the assessment year under consideration, on receipt of the bills are to be allowed as an expenditure. (c) On further appeal by the revenue the Tribunal upheld the finding of fact arrived at by the CIT(Appeals) and held that prior period expenditure was claimed in respect of the bills received during the assessment year 2004-05, even though the work/services was received in an earlier year. This has been consistent practice followed by the respondent-assesses according to which the liability is to be accounted when the bills are received and the payments made in the subsequent year....
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.... pertaining to deletion of addition of Rs.12.86 crores, on account of notional increase in employee's cost. 26. The brief facts of the case pertaining to the issue as emanating from the record are: The assessee pays a fixed contribution vis-a-vis Provident Fund at a pre-determined rate along with employee's contribution to MSEB Contributory Provident Fund Trust ("CPF Trust'). The fund so received by the CPF Trust are invested by the assessee in various securities segregated as Special Deposit Scheme, Central Government Schemes, State Government Securities, Public Sector Bonds and Financial Institution, etc. During the year under consideration, a valuation exercise was carried out for the purpose of complying with the requirement of Accounting Standard-15 - Employee Benefits, issued by the Institute of Chartered Accountants of India through an actuary on the investments held by the CPF Trust so as to compute the fair market of the said investment and to arrive at the shortfall / surplus of the investment over a funded liabilities of the assessee. During the year under consideration, the aforesaid valuation exercise resulted in surplus / excess in planned assets amounting to Rs.12....
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....accounted this income properly. As it is seen from the above facts of the case, this amount is only a notional entry and this belongs to Employees Accounting Standard - 15. This amount was not even realized during the year. Even if there is a deficiency in the account though it is passed from the profit and loss account while computing the income as per IT computation, this amount, has to be added to the profit and loss account. Hence as it is a notional entry and it is not realized during the year, addition of AO is not justified. Therefore, AO's addition is deleted and ground of appeal is allowed." 28. During the course of hearing, the learned D.R. submitted that once the surplus planned asset is credited in the Profit & Loss Account, the same is required to be included while computing the income for the year under consideration. 29. While, the learned A.R. placing reliance upon the findings in the impugned order on this issue submitted that surplus is only a notional entry and, therefore, cannot be considered as an income for the purpose of the Act. 30. We have considered the rival submissions and perused the material available on record. On a perusal of the record,....
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....as provided as provision in the accounts of appellant and appellant had claimed this amount in the P&L account. The appellant's main contention is that this is business liability which is arising in this year though it is paid in the later year, this claim has to be considered and expenditure is to be allowed in the year in which liability has arisen. Further the appellant submits that this case is not covered by Sec.43B(b) wherein the contribution interest is not' included in the PF is allowed on the payment basis. Here it is the case of interest which is not part of Sec.-43B(b), hence, this liability which is arisen in this year should be allowed to the appellant. The appellant further relied on the case of Bharat Earth Movers vs. CIT (2000) 112 Taxman (SC) wherein it is held that "even when the business liability was unquantified as against the case of the appellant where the actuary has quantified the liability of the appellant" that if a liability has arisen in the accounting year, the deduction should be allowed although the liability may have to be quantified and discharged at the future date. When we consider that case it is clear that this interest under PF will no....
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....ing the year under consideration is allowable even though the same may have to be discharged at a future date. In view of the above, we find no infirmity in the impugned order passed by the learned CIT(A) on this issue. Accordingly, ground no.5, raised in Revenue"s appeal is dismissed. 37. The issue arising in ground no.6 and 6.1 in Revenue"s appeal, is pertaining to the addition of Rs.40 crores with regard to advance paid by the assessee. 38. The brief facts of the case pertaining to the issue, as emanating from the record are: As stated earlier in this order, the assessee is formed pursuant to demerger / unbundling of the erstwhile MSEB. The accounts of the assessee are subject to audit by C&AG in terms of the provisions of section 619(4) of the Companies Act, 1956. During the course of audit, C&AG observed that in the absence of details of lease agreement and repayment made in respect thereof, the impact of Rs.153.78 crores could not be ascertained on the Balance Sheet and the Profit & Loss Account of the assessee. In response to the C&AG remarks, the assessee submitted that the said amount of Rs.153.78 crores being advance paid for lease finance project were received by i....
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....ere from the submissions of the appellant it appears that the appellant had discharged lease liability through lease rentals in the form of interest and finance charges and paid the total lease amount to ILFS. This was carried from Profit and loss account. However, in the liability account, this was not properly settled. Liability account is in the form of capital in nature. Hence no addition is required on this account. I had examined all the details filed by the appellant. However, he had not filed the profit and loss account of MSEB from 1999 to 2000 till date was that this amount can be verified whether these facts are correct. Hence appellant is directed to appear before the AO and submit all the profit and loss account and balance sheet of MSEB. If all these balance sheet and profit and loss accounts are submitted, the AO may verify the details and if the appellant had carried out properly all the transactions in the profit and loss account and as stated by the appellant, he had examined all the details, balance sheet properly, then only, this addition is deleted as it appears that lease liability account is capital in nature. If the accounts submitted to the A.O. are not pro....
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.... 1:3 The Appellant submits that the Assessing Officer be directed to delete the disallowance so made by him and to re-compute its total income accordingly. 2:0 Re.: General 2:1 The Appellant craves leave to add, alter, amend, substitute and/or modify in any manner whatsoever all or any of the foregoing grounds of appeal at or before the hearing of the appeal." 45. The only grievance of the assessee in this appeal is against the disallowance of expenditure on repairs of plant and machinery. 46. The brief facts of the case pertaining to the issue, as emanating from the record are: The assessee has debited repairs on account of repair to machinery. During the course of assessment proceedings, the assessee was asked to justify the repairs and to explain as to whether they are current repairs or otherwise. In reply, the assessee submitted sample copy of certain bills providing following details and submitted that these expenditures pertained to maintenance of machinery:- Date Bill no. Particulars Amount (Rs.) Remarks 17.03.2009 259-RA-2 Fixing of Vibrating Dampers cum Spacers 7783595 These expenses are not current repairs hence....
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....ot be denied that the assessee is required to maintain the transmission lines for which in the normal course of business, the assessee is also required to incur certain expenditure for the purpose of same. As per the assessee, the expenditure incurred is required for preservation, maintenance, proper utilisation or for restoring the existing assets to its original condition and hence, the said expenditure is to be allowed under section 31(i) of the Act. Section 31 of the Act is reads as under:- "Repairs and insurance of machinery, plant and furniture. 31. In respect of repairs and insurance of machinery, plant or furniture used for the purposes of the business or profession, the following deductions shall be allowed- (i) the amount paid on account of current repairs thereto ; (ii) the amount of any premium paid in respect of insurance against risk of damage or destruction thereof. Explanation.-For the removal of doubts, it is hereby declared that the amount paid on account of current repairs shall not include any expenditure in the nature of capital expenditure." 52. Thus, as per the provisions of section 31(i) of the Act, any amount ....