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2017 (3) TMI 1675 - AT - Income TaxDisallowance of excess provision for purchase of power - Addition to the returned income on account of non considering the reversal of excess billing - assessee company in its return of income had claimed setting off of the carried forward losses of erstwhile MSEB in its hands, on the basis that as MSEB was demerged into three companies - Held that - The tariff chargeable by the assessee company from MSEDCL for the F.Y. 2005-06 would stand regulated by the order of MERC dated. 07.09.2006. Our aforesaid view stands fortified by the order in the case of M/s Maharashtra State Electricity Distribution Co. Ltd. Vs. ACIT,10(1), Mumbai 2015 (10) TMI 597 - ITAT MUMBAI wherein confirmed the disallowance of excess provision for purchase of power amounting to ₹ 320.72 crores by MSEDCL from the assessee company, viz. Maharashtra State Power Generation Co. Ltd. We thus while disposing of the appeal of the purchaser company, viz. MSEDCL, had already related the order of the Commission, viz. MERC with the year under consideration, i.e A.Y. 2006-07, therefore we find no reason to take a different view, and as such delete the addition of ₹ 320,72,82,510/- in the hands of the assessee company. The Ground of appeal No. 1 is thus allowed in terms of our aforesaid observations. Admission of additional evidence - Held that - CIT(A) had called for a remand report from the A.O, and thereafter perusing the contentions of both the parties, viz. the assessee and the revenue, had therein adjudicated the respective issues. Thus in the backdrop of the facts involved in the present case, we do not find any infirmity in the admission of additional evidence by the CIT(A), and are thus unable to persuade ourselves to subscribe to the contention of the A.O that the CIT(A) had erred in admitting the additional evidence . We thus uphold the order of the CIT(A) on the issue under consideration, and as such dismiss the Ground of appeal No.1 raised by the department before us. Addition u/s 43B - interest payable to Power Finance Corporation ( P.F.C ) which had become due during the period 31.05.2005 to 31.03.2006, which in case of non payment would had attracted a disallowance u/s 43B - Held that - The interest of ₹ 5,492.54463 (in lac), which had become due on the Project loan raised by the assessee company from P.F.C, as had become due during the period 31.05.2005 to 31.03.2006, would had called for a disallowance u/s 43B, if the said interest would had been payable as on 31.03.2006, and had not been paid by the assessee company upto the due date of filing of its return of income. We find that as claimed by the assessee company that no part of the interest on the P.F.C loan was payable as on 31.03.2006, therefore there was no occasion to carry out any disallowance of any part of such interest u/s 43B of the Act - though find ourselves to be in agreement with the contention of the Ld. A.R, but then are of the considered view that the said factual position was supposed to be verified by the CIT(A), whom we find had dispensed with the same and had gone by and accepted the contention of the assessee at the very face of it, thus restore the matter to the file of the CIT(A). Interest eligible for capitalization - Held that - A.O vide his remand report had categorically raised his objection on the issue under consideration, to which the assessee had reverted vide his reply dated. 09.11.2009, but then the CIT(A) merely stating that the interest and finance charges were allowable u/s 36(1)(iii) r.w.s 43(1) had on the basis of a non-speaking order, which except for making a mere reference to the statutory provisions, is absolutely bereft and devoid of any reasoning, had summarily accepted the claim of the assessee company without placing on record a satisfactory reasoning as regards the same. As the CIT(A) had allowed the aforesaid claim of the assessee on the basis of a non-speaking order, therefore in all fairness we herein restore the issue Allowing the claim of the prior period expenses made by the assessee company in its revised return of income - Held that - On consideration to the aforesaid grounds of appeal so raised by the revenue before us and are of the considered view that the same are misconceived and do not emerge from the order of the CIT(A), as the latter at Page 19 Para 2.3(f) had concluded that since it was the first year of the assessee company, therefore there could not have been any prior period expenses. Thus in light of the aforesaid facts, now when the Ground of appeal no. 4 and Ground of appeal no. 5 do not arise from the order of the CIT(A), therefore the same are dismissed. Claim of set off of b/f loss/unabsorbed depreciation - Held that - We find that the CIT(A) had merely given directions to the A.O for carrying out certain verifications as regards the assessed brought forward unabsorbed losses and depreciation of erstwhile MSEB, as was available as a final outcome of the further appellate orders passed in the case of MSEB. Final outcome of the exercise carried out by the A.O in pursuance to the directions of the CIT(A), would safely take care of the issues assailed by the revenue vide Ground of appeal no. 6 , hereinabove. Thus in the backdrop of the aforesaid facts as they so remain, we find no infirmity in the aforesaid directions of the CIT(A), and finding no reason to interfere in the said directions of the CIT(A).
Issues Involved:
1. Addition of ?320,72,82,510/- due to non-consideration of the reversal of excess billing. 2. Addition of ?2,41,00,000/- to the closing stock. 3. Admission of additional evidence by the CIT(A). 4. Relief in respect of interest payable to Power Finance Corporation under Section 43B. 5. Acceptance of the claim of interest capitalization without verification. 6. Allowance of prior period expenses. 7. Allowance of claim of reduction on account of prior period billing. 8. Allowance of set-off of brought forward loss/unabsorbed depreciation. Detailed Analysis: 1. Addition of ?320,72,82,510/- due to non-consideration of the reversal of excess billing: The assessee company argued that the addition of ?320,72,82,510/- was erroneous as it was based on the reversal of excess billing following an order by the Maharashtra Electricity Regulatory Commission (MERC). The CIT(A) initially upheld the addition, stating that the MERC order dated 07.09.2006 was applicable prospectively from September 2006 and not for the financial year 2005-06. However, the Tribunal found that the MERC’s letter dated 16.07.2009 clarified that the tariff approved by the order dated 07.09.2006 was applicable for the financial year 2005-06. The Tribunal concluded that the addition of ?320,72,82,510/- was unjustified and deleted it. 2. Addition of ?2,41,00,000/- to the closing stock: The assessee did not press this ground of appeal, and it was dismissed as not pressed. 3. Admission of additional evidence by the CIT(A): The revenue contended that the CIT(A) erred in admitting additional evidence without appreciating that sufficient opportunities were given to the assessee. The Tribunal upheld the CIT(A)’s decision, noting that the additional evidence was admitted after calling for a report from the AO and satisfying the conditions under Rule 46A. The Tribunal found no infirmity in the CIT(A)'s order and dismissed this ground of appeal. 4. Relief in respect of interest payable to Power Finance Corporation under Section 43B: The revenue argued that the CIT(A) allowed the relief without verifying the relevant records. The Tribunal noted that the CIT(A) accepted the assessee's contention without verification and restored the matter to the CIT(A) for a speaking order after proper verification. This ground was allowed for statistical purposes. 5. Acceptance of the claim of interest capitalization without verification: The revenue contended that the CIT(A) accepted the claim of interest capitalization without examining the relevant details. The Tribunal found that the CIT(A) had allowed the claim based on a non-speaking order and restored the issue to the CIT(A) for a detailed examination. This ground was allowed for statistical purposes. 6. Allowance of prior period expenses: The revenue argued that the CIT(A) erred in allowing prior period expenses. The Tribunal noted that the CIT(A) had concluded there could not have been any prior period expenses as it was the first year of the assessee company. Therefore, this ground was dismissed as it did not arise from the CIT(A)'s order. 7. Allowance of claim of reduction on account of prior period billing: The revenue contended that the CIT(A) erred in allowing a reduction of ?4.27 lakhs on account of prior period billing. The Tribunal found that the CIT(A) had not allowed such a claim and dismissed this ground as it did not arise from the CIT(A)'s order. 8. Allowance of set-off of brought forward loss/unabsorbed depreciation: The revenue argued that the CIT(A) erred in allowing the set-off of brought forward loss/unabsorbed depreciation. The Tribunal noted that the CIT(A) had directed the AO to verify the assessed brought forward unabsorbed losses and depreciation of MSEB. The Tribunal found no infirmity in the CIT(A)'s directions and dismissed this ground. Conclusion: The appeal of the assessee was partly allowed, with the addition of ?320,72,82,510/- being deleted. The appeal of the revenue was partly allowed for statistical purposes, with issues related to interest payable to Power Finance Corporation and interest capitalization being restored to the CIT(A) for further verification. Other grounds raised by the revenue were dismissed.
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