TaxTMI 
TaxTMI 
2022 (12) TMI 582
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....e provisions of the Electricity (Supply) Act, 2003) and the rules framed thereunder, w.e.f. 10/6/2003, trifurcating it's business on functional lines, i.e., generation, transmission and distribution of power. Vide Notification dated 31/5/2005, the State Government of Madhya Pradesh (GoMP) handed-over the assets and liabilities of the erstwhile MPSEB to the respective entities to form their opening balance-sheet as on 01/6/2005, the transfer or effective date. The values, as indeed the composition of these assets and liabilities, were, to begin with, provisional for a period, and which could be amended by GoMP, varying/modifying the same as well as the incident terms and conditions. The assets and liabilities, so assigned, were, subject to the adjustments occasioned upon audit and finalisation, final and binding on all the stakeholders. The provisional opening balance-sheet of the assessee-company as on 01/6/2005 is as: (PB-I, pg. 47/PB-II, pg.8) BALANCE SHEET AS ON 01/06/2005 (PROVISIONAL) (Amount in Rs. Crore) LIABILITIES AMOUNT ASSETS AMOUNT EQUITY FROM GoMP 845 GROSS FIXED ASSETS 2,407 LONG TERM LOANS LESS: ACCUMU....
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....may next delineate the adjudication thereof by the assessing and first appellate authority, as indeed the respective cases of the parties before us. The AO, on being confronted with the matter, held as under: (pg. 4) "During the course of assessment proceedings the assessee was asked to explain as per point No.14 of notes to accounts where it has been mentioned that loss of the year has been overstated by Rs. 4754.76 lakhs. Give details of same with year-wise breakup and give reasons why the same should not be added back to income of assessee. Assessee vide its reply dated 04/10/2010 submitted that sum of Rs. 4754.70 lacs was charged to P/L a/c to give effect of final opening balance sheet provided by Govt. of MP on 12/06/2008 and hence the same cannot be classified as prior item. Therefore, it could not be added back to income. The same situation is being explained in note No.14 of notes to accounts. The arguments of the assessee is not acceptable as the statutory Auditor has specifically qualified it as prior period item, also the said expenses does not pertain to asstt. year 2008-09 and the hence amount so claimed is disallowed and added to the total income of ....
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....o accounts. On the other hand, the arguments of the assessee was not considered as acceptable by the Assessing Officer as the statutory Auditor has specifically qualified it as prior period item, also the said expenses did not pertain to asstt .year 2008-09 and the hence amount so claimed is disallowed and added to the total income of the assessee. 6.1.4 I have carefully considered the facts of the case and the finds of the Assessing Officer as well as the arguments advanced on behalf of the appellant. I have also gone through details furnished on behalf of the appellant as per accounting Standards AS-4 and AS-5. Obviously the appellant company has done its accounting and hence not treated final Opening Balance Sheet adjustments as prior period items as they were not known to the company previously. Final opening balance sheet was notified by the State Government in the Official Gazette vide notification no. 292 dated 12th June 2008, i.e., in the FY 2008-09, as the books of the company for FY 2007-08 were not closed by that date. In this back-ground, the appellant company's giving full effect of change in opening balance in the year 2007-08 itself following mercantile ....
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....it and loss account Final opening balance sheet was notified by the State Government during the year under consideration is justified and therefore, the disallowance made by the Assessing Officer on account of over-statement of expenses of Rs. 4754.76 lacs is deleted. Aggrieved, the Revenue is in appeal before us. 3.2. Before us, both the sides would rely on the orders by the authority below, i.e., as favourable to it. Shri Jain, the ld. counsel for the assessee, would, on enquiry, clarify during hearing that the General Provident Fund (GPF), as indeed gratuity/pension, is not only in respect of the assessee's employees but those of other entities as well; the assessee having been assigned the said liability on restructuring of MPSEB, and for which reference was made by him to cl.(k) of the Notification dated 12/6/2008 (PB-I, pg.65 & PB-II, pg.14), which reads as under:- "(k) The past unfunded pension liabilities of pensioners and employees of MPSEB existing as on 31st may 2005 are to be assessed by Actuarial valuation and is therefore retained with Residual MPSEB for the time being. The actual pension/gratuity payments shall be claimed by MP Power Transmission Co. L....
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....cs representing a lower provision for depreciation on fixed assets, ostensibly on account of a smaller assignment of fixed assets to the assessee-company. It is not clear if the differential depreciation is on account of the revision therein for the current year and/or the preceding year/s. 4.3 Continuing further, while the AO relied on the statutory auditor's report, further stating that the impugned expenditure does not relate to the current assessment year, the ld. CIT(A) has allowed relief on the basis that the liability has crystalized only during the year under consideration. In fact, the sense that we got on hearing the parties, as indeed the documents referred to thereat, was that it is the increased liability/s as on 31/5/2005, i.e., in the opening statement of assets and liabilities (balance-sheet) as on 01/6/2005, to the extent modified by GoMP, that stands claimed by the assessee through debit to the profit & loss account, i.e., the operating statement, for the relevant year. The same, even as also observed by the Bench during hearing, are capital liabilities, of course at net of capital assets. As even, notwithstanding the fact that they stand - to the extent modifi....
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....nd liabilities at the original and the revised values, as balance-sheet items. The first component (of the impugned sum) is the interest liability on the increased values to the extent they relate to the two preceding years that stand lapsed in the interim, i.e., the delay in notifying the correct assets and liabilities to be taken-over, or the correct values thereof, being fys. 2005-06 & 2006-07. The same, sure, relate to these years and, accordingly, classified by the Auditor as a prior period expenditure. Also, the same stand accrued during the said preceding years. The accounting of interest liability in their respect would only be in terms of underlying arrangement/s, i.e., under which the interest obligation on these liabilities arises. Interest being a function of time, would stand to accrue on the basis of time. The same, thus, though accounted for during the current year, stands since accrued, i.e., during the fys. 2005-06 & 2006-07. The question before us is if the same could be regarded as the assessee's liability/s arising to it for the current year. This is as the assessee following mercantile system of accounting, it is only in such a case that it could be allowed in ....
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.... in the assessee's hands, and which stands incorporated at its value as on 31/5/2005. The foregoing is, further, subject to a caveat, i.e., qua interest on GPF. It is only the interest (for the period 01/6/2005 to 31/3/2007) to the extent it relates to the assessee's employees that would stand to be regarded as the assessee's trading liability, and not on the GPF in respect of the employees of the other entities that along with the assessee succeeded MPSEB or the residuary entity (Board). Even if the assessee's obligation under the terms the restructure/reorganisation of MPSEB, the same cannot be regarded as the liability, capital or, as the case may be, revenue, of the assessee's business, profits and gains of which, representing a source of income, are assessable to tax. The accounts, it may be appreciated, are in respect of the assessee's business. It is the income - which by definition is net of expenditure, of this business that would stand to be provided and taken into account. The expenditure on the salary or GPF of the employees of other entities and, correspondingly, interest thereon, cannot possibly be the liability of the assessee's business, even if statutorily assum....
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.... quantum, and which may though result in an income, qua which the AO shall of course seek clarification, and issue clear and definite finding/s. e). the interest as per (a) and (d) shall be allowable u/s. 36(1)(iii) (loan) or s. 37(1) (GPF), in computing the assessee's business income. However, the interest liability shall, where and to the extent subject to the condition of tax deduction at source and/or of payment, its deductibility would subject to relevant provisions, viz. s. 40(a)(ia); 43B, et. al. Needless to add, the requisite data, information and explanation/s for the purpose shall be furnished by the assessee, as also the necessary working. The AO shall make necessary verification in the manner deemed proper and, in case of any difference, extend reasonable opportunity to the assessee to present and explain it's working, deciding as per law issuing clear findings of fact. We decide accordingly. 4.7 The second component of the impugned sum is the liability in respect of the terminal benefits, being pension and gratuity, provided at defined rates for the two preceding years, i.e., fys. 2005-06 & 2006-07. Our adjudication qua interest per the preceding paras, ....