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2017 (9) TMI 649 - AT - Income TaxAllowability of Prior Period Expenses - PSU carrying on business of transmission,distribution and supply of electricity - Held that - Though the principle of res judicata doesn t apply in the income tax proceedings but where the same fundamental aspect permeates in different AY s and the assessee is consistent in its accounting policy,of accounting for the liabilities in the year in which it is crystallised, the Courts have held that the settled position should not be disturbed unless there are glaring changes in the facts and circumstances of the case or there are change in law which call for a fresh examination. - no additions - Decided in favor of assessee. Disallowance of depreciation on non-existing assets worth 115.21 Cr - Physical Verification of assets could not be done - Held that - CIT(A) confirmed the disallowance done by AO of depreciation on the nonexisting assets of ₹ 115.21 Crore on grounds that assessee does not prepare the list of fixed assets on physical verification and if the assessee himself cannot find where the assets are located, then the question of putting them to use for business purposes doesn t arise. - But as per the submissions of Ld. AR for earlier AY 2003-04, the same case with same facts was decided by Tribunal in favor of assessee, therefore following the decision of the Co-ordinate Bench 2016 (9) TMI 399 - ITAT JAIPUR there is no change in the facts and circumstances in the present case same is allowed in favor of assessee. Disallowance of depreciation u/s 32 r/w sec 43(1) - Contribution, grants and subsidies towards cost of capital assets - AO has disallowed the amount of ₹ 22,05,23,697/- as excess depreciation claimed by assessee on the grounds that as per section 32(1)(iii) read with section 43(1) and Explanation 10 contribution, grants and subsidies received for Capital Assets are to be reduced from the cost of capital assets and therefore AO recalculated the depreciation allowable to the assessee. - Held that - the same issue has been decided against the assessee by Co-ordinate Bench supra therefore, following the decision of the Coordinate Bench referred supra,there is no change in the facts and circumstances of the case - Decided against assessee. Applicability of MAT provisions u/s 115JB - Held That - following the favorable decision of the Coordinate Bench,in assessee s own case the provisions of section 115JB are held not applicable to the assessee in present case also and there is no change in the facts and circumstances of the present case nor in the legal position. - Decided in favor of assessee. Disallowance of provision for doubtful debts - Held That - Unless and until, the accounting treatment in the books of accounts is clear and through which it can be demonstrated that the assessee company has actually write off the bad debts in its books of accounts, merely contending that the intention is to write off the bad debts would not be sufficient enough to claim a deduction under the provisions of the Act. - The provisions of section 36(1)(vii) read with explanation 1 are clearly attracted and the assessee has not able to demonstrate how the said provisions are not applicable in the instant case. - Decided against assessee.
Issues Involved:
1. Prior period expenditure. 2. Disallowance of depreciation on non-existing assets. 3. Disallowance of depreciation under section 32 read with section 43(1). 4. Applicability of Minimum Alternate Tax (MAT) provisions under section 115JB. 5. Disallowance of provision for doubtful debts. Issue-wise Detailed Analysis: 1. Prior Period Expenditure: The assessee claimed prior period expenses amounting to ?4,64,27,170/-. The Assessing Officer (AO) disallowed the claim, stating that the expenses did not pertain to the previous year and could not be deducted from the income of the subject year. The AO also noted that the expenses did not fall under section 35D of the Act. The CIT(A) confirmed the AO's decision, stating that the assessee failed to provide documentary evidence to prove that the liability crystallized in the year under consideration. However, the Tribunal noted that the assessee consistently followed an accounting policy where prior period expenses and income were accounted for in the year they crystallized. The Rajasthan High Court had also ruled in favor of the assessee for AY 2003-04. Consequently, the Tribunal directed the AO to allow the deduction of the prior period expenses. 2. Disallowance of Depreciation on Non-Existing Assets: The AO disallowed depreciation on assets worth ?115.21 Crores, which could not be physically verified, amounting to ?12,15,15,004/-. The CIT(A) upheld the AO's decision, stating that depreciation cannot be allowed on non-existing assets. The Tribunal, however, referred to its earlier decision for AY 2003-04, where it was established that the assets were transferred from the Rajasthan State Electricity Board (RSEB) and formed part of the block of assets. The Tribunal ruled that physical verification was not required for assets forming part of the block of assets and allowed the depreciation claim. 3. Disallowance of Depreciation under Section 32 read with Section 43(1): The AO reduced contributions, grants, and subsidies from the cost of capital assets for calculating depreciation, resulting in a disallowance of ?22,05,23,697/-. The CIT(A) confirmed this disallowance. The Tribunal noted that the issue had been decided against the assessee by the Coordinate Bench in its consolidated decision dated 14.07.2016. According to Explanation 10 to Section 43(1), the cost of an asset should be reduced by the amount of subsidy or grant received. The Tribunal upheld the CIT(A)'s decision, disallowing the excess depreciation. 4. Applicability of MAT Provisions under Section 115JB: The AO included disallowed depreciation in the calculation of book profits under section 115JB. The Tribunal, however, referred to its earlier decision, which held that MAT provisions were not applicable to the assessee company. This decision was based on the ruling by the Advance Rulings (Income Tax), New Delhi, and the fact that similar entities were not subjected to MAT. Consequently, the Tribunal ruled in favor of the assessee, stating that the provisions of section 115JB were not applicable. 5. Disallowance of Provision for Doubtful Debts: For AY 2010-11, the AO disallowed a provision for doubtful debts amounting to ?30,63,23,038/-, stating that it was an unascertained liability and not deductible under section 36(1)(vii). The CIT(A) confirmed the disallowance. The Tribunal noted that the assessee contended the amount represented an actual write-off of bad debts, consistent with accounting norms for electricity companies. However, the Tribunal found no evidence of the accounting treatment in the books and upheld the CIT(A)'s decision, disallowing the provision for doubtful debts. Conclusion: The Tribunal's consolidated order addressed multiple assessment years and issues, consistently applying prior rulings and legal principles. The Tribunal allowed the claims for prior period expenses and depreciation on non-existing assets but upheld the disallowance of excess depreciation under section 32 read with section 43(1) and the provision for doubtful debts. The MAT provisions were held inapplicable to the assessee company.
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