2017 (3) TMI 1667 - AT - Income Tax

Additions made on account of difference between the original and the revised return - Held that - Once the AO was given a chance to rebut the evidences produced by the assessee, there was no justification for raising the ground of admitting additional evidences by him - since FAA has followed the procedure has laid down by law the ground raised by AO is dismissed - Decided in favor or of assessee. Relief in respect of claim of reversal of excess interest capitalised - Held that - In original return the assessee had capitalised the interest and in revised return treated it as revenue expenditure - since AO had not commented upon the claim made by the assessee while filing the remand report, neither he had not brought any evidence on record to prove that expenditure was of capital nature - ground raised by AO is dismissed - Decided in favor or of assessee. Material cost variance and exchange rate variance allowance in the revised return - Held that - As already discussed the issues of furnishing of additional evidences, calling for remand report by the FAA, and offering of no comments by the AO in the report about the various items of income/ expenditure - since the claim of the assessee is supported by the audited accounts - expenditure under both the heads are allowed - Decided in favor of assessee. Loss on pursuance of fixed assets and intangible assets - Held that - We find that the assessee itself had stated that amount in question was not allowable. Therefore, in our opinion,the FAA was not justified in allowing the claim. Reversing his order, we decide ground number five in favour of the AO. Whether the cost of insuring the project has to be capitalised in the books of account? - Held that - the expenses incurred by the assessee were for running the project - FAA had disallowed 50% of the expenditure incurred under the head insurance expenses - thus there is no contention with AO that project was a new project and the expenses were to be capitalized - ground raised by AO is dismissed - Decided in favor of assessee. Addition in respect of the electricity duty - Held that - Payment made by the assessee was on account of inspection charges, that same was allowable as revenue expenditure, that the same was outside the purview of section 43B of the Act. Set off of brought forward losses/ unabsorbed depreciation allowable - Held that - There was a demerger of MSEB and trifurcation into three new entitles, including that of appellant - thus in terms of section 72A( 4) r. w.s. 2(19AA) of the Act, the appellant was entitled for benefit of set off of balance b/f. losses / depreciation of MSEB against its income - Decided in favor of assessee.

Summary

Issues Involved:
1. Addition of ?2.65 crores due to differences between original and revised returns.
2. Admission of additional evidence in violation of Rule 46A of the Income Tax Rules, 1962.
3. Allowance of reversal of excess interest capitalized amounting to ?5.89 lakhs.
4. Allowance of claims regarding material cost variance and exchange rate variance.
5. Allowance of claim regarding loss on settlement of claims.
6. Allowance of claim regarding loss on fixed assets and intangible assets.
7. Disallowance of expenses related to the High Voltage Direct Current (HVDC) project.
8. Deletion of addition regarding electricity duty.
9. Allowance of set-off of brought forward losses/unabsorbed depreciation.

Detailed Analysis:

1. Addition of ?2.65 Crores:
The AO added ?2.65 crores to the total income due to differences between the original and revised returns, which were not reconciled by the assessee. The FAA held that the revised return was filed within the permissible time and based on audited accounts, justifying the difference as due to material changes in income and expenditure items. The FAA concluded that the AO should have assessed the income based on the revised return, thus disallowing the addition.

2. Admission of Additional Evidence:
The FAA admitted additional evidence under Rule 46A, which included a reconciliation statement not initially requested by the AO. The AO objected, but the FAA followed the procedure by forwarding the evidence to the AO for comments. The Tribunal found no procedural fault in the FAA's actions and dismissed the AO's objection.

3. Reversal of Excess Interest Capitalized:
The FAA allowed the reversal of excess interest capitalized amounting to ?5.89 lakhs, which was claimed as revenue expenditure in the revised return. The AO did not provide comments on this during the remand report. The Tribunal confirmed the FAA's decision, finding no legal or factual infirmity.

4. Material Cost and Exchange Rate Variance:
The FAA allowed the claims regarding material cost variance (?1.86 crores) and exchange rate variance (?1.09 crores), supported by audited accounts. The AO did not comment on these expenses in the remand report. The Tribunal upheld the FAA's decision, finding the claims justified.

5. Loss on Settlement of Claims:
The FAA allowed the claim of ?2.84 lakhs related to loss on settlement of claims, as it was written off in the books of accounts. The Tribunal agreed with the FAA's decision, finding it justified.

6. Loss on Fixed Assets and Intangible Assets:
The FAA allowed the claim of ?28,920 for loss on fixed assets and intangible assets. However, the Tribunal found that the assessee itself had stated the amount was not allowable. Thus, the Tribunal reversed the FAA's decision, deciding in favor of the AO.

7. HVDC Project Expenses:
The AO disallowed expenses related to the HVDC project, considering them capital expenditures. The FAA found that the project was an existing unit and the expenses were for running the project. The FAA allowed the expenses except for 50% of the insurance charges pertaining to the subsequent year. The Tribunal upheld the FAA's decision, dismissing the AO's grounds.

8. Electricity Duty:
The AO added ?70,000 for electricity duty, considering it unpaid. The FAA found it to be inspection charges, not duty, and thus outside the purview of Section 43B. The Tribunal confirmed the FAA's decision, finding the charges to be inspection fees.

9. Set-off of Brought Forward Losses/Unabsorbed Depreciation:
The AO rejected the set-off claim, stating the losses belonged to the erstwhile MSEB. The FAA allowed the claim, directing verification of facts. The Tribunal, referencing its earlier decision for AY 2006-07, upheld the FAA's decision, directing the AO to verify the claim.

Conclusion:
The appeal by the AO was partly allowed, with several grounds decided against the AO, confirming the FAA's decisions on most issues. The Tribunal emphasized the need for verification of facts regarding the set-off of brought forward losses/unabsorbed depreciation.