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2023 (2) TMI 196 - AT - Income TaxUnastertained liability - Difference between the liabilities as on 31.03.2006 and as on 31.03.2007 payable to the financial institution as shown under the head current liabilities and provisions by holding that interest accrued became payable and had not been paid by the assessee - HELD THAT - As evident from the details as given above that the amount of interest was duly paid in the month of April,2007 and the remaining amount of interest which has been capitalized under the capital work in progress account and was not charged to the profit and loss account at all. Considering the above facts, we are of the view that both the authorities below have failed to appreciate the facts correctly as the said amount of interest accrued which according to both the authorities below became payable was in fact capitalized to the capital work-inprogress and was never charged to the profit and loss account and, therefore, the provisions of section 43B of the Act are not applicable. We accordingly set aside the order of the ld. CIT(Appeals) and direct the ld. Assessing Officer to delete the disallowance - Consequently ground no. 1 is allowed. Delayed employer s contributions to pension fund - assessee maintains two types of funds namely Contributory Provident Fund(CPF) and General Provident fund(GPF) - whether the provisions of section 43B, 36(1)(va) and 40A(7) of the Act are applicable in the case of any contributions/provisions credited in GPF Account of the assesse company? - HELD THAT - Gratuity as per Gratuity Act is funded with LIC (Gratuity CPF), through creation of trust. Similarly GPF is a separate Fund maintained by the assesse company as per The West Bengal Power Development Corporation Ltd. Employees (Death Cum Retirement) Benefit Regulation, 1992 hereinafter referred to as WBPDCL Employees (Death Cum Retirement) Benefit Regulation, 1992. This fund is maintained for only those employees who opt for defined benefit plans under the WBPDCL regulation In the case of WBPDCL, as discussed, GPF was created by notification in official Gazette under PF Act, 1925 and since, the GPF is a fund under PF Act, 1925 , it is excluded from the ambit of provisions of Recognized Provident Fund by virtue of PART A of Fourth Schedule of Income Tax Act, 1961. So considered these provisions , we find merit in the arguments of AR that provisions of Income Tax Act are not applicable in case of GPF as established by the assessee under PF Act. As perused Rule 22 of the WBPDCL GPF Rules a copy of which is placed at page 95 of the paper book which provides that that all sums paid into the Fund under these Rules shall be credited in the Books of Corporation to an account named The GPF . Further in terms of section 8(2) of the Provident Fund Act, the GPF account is maintained with the Government i.e.(WBPDCL) and hence, the GPF account is maintained with the appellant only and all contributions either by employer or by employee, both are to be considered as paid in the GPF Account with the credit of these contributions. We also note that all the funds as collected under the GPF are invested in the securities strictly in terms of Provident Fund Act. When the ld DR confronted with the query why a corporation which is wholly owned by State Govt and after fulfilling all the conditions has maintained the GPF account under the Provident Fund Act, 1925 after bringing out the necessary notification, no cogent and convincing counter could be made - provisions of section 43B of the Act would not be applicable to the assessee and even in the worse case scenario, the provisions of section 43B of the Act were to be applied, then the contribution would be considered as paid as the account was maintained by WBPDCL which is extended arm or instrumentality of the State Govt only. Accordingly Grounds No. 1 2 are allowed. Disallowance of prior period expenses - whether these expenses crystalized during the year? - HELD THAT - we find merit in the arguments of the ld. A.R. that these expenses were in fact crystallized in the year as liability on these expenses only crystallized during the year as bills were received in the current year and therefore has to be allowed. The case of the assessee finds force from the decision of Coordinate Bench of this Tribunal in the case of Kellogg India Pvt. Limited 2012 (12) TMI 664 - ITAT MUMBAI wherein it has been held that the prior period expenses was not occurred due to mistake and or omission but arose for expenses booked after cut off date for finalization of accounts due to receipt of bills after the end of financial year and allowable under section 145(1) of the Act. As decided in M/S MAHANAGAR GAS LTD. 2013 (7) TMI 118 - BOMBAY HIGH COURT AO disallowed the expenditure relating to prior period on the ground that as the respondent followed mercantile system of accounting expenditure relatable to an earlier year cannot be allowed as deduction in the assessment year under consideration. Thus an amount was added to the income of the Respondent-assessee. Thus we direct the ld. Assessing Officer to delete the disallowance. Disallowance for fuel and fixed cost by holding the same as unascertained liability and contingent in nature - HELD THAT - We note that fuel and fixed cost adjustments are unbilled revenue as firmly set out by WBERC. We have perused the audited financial statements and are of the view that the assessee has unbilled income because of fuel cost adjustment and fixed cost adjustment as set out by WBERC. Therefore, the same could not be denied on the ground that the assessee has made provision for unbilled fuel cost and fixed cost adjustment under the revenue from operation and including the same to be taxable under section 115JB of the Act. Further we note that WBERC has passed the order dated 05.09.2013 directing to make adjustment for the same in financial year 2013-14, which is evident from chapter III of the Report which is filed at page no. 246 of the paper book no. 3. Considering the above facts, we are of the view that the ld. CIT(Appeals) has not appreciated the facts correctly and therefore we set aside the order of ld. CIT(Appeals) on this issue and direct the ld. Assessing Officer to delete the addition. Addition of provision for expenses not paid during the year - whether the same liability accrued during the previous year but was paid after the year end and hence allowable? HELD THAT - We find that undisputedly the provisions for expenses are in respect of expenditure which were relating to the month of March, for which bills were received in the month od April. Subsequently the assessee has accounted for these expenses following the mercantile system of accounting which provides for accounting of income and expenses relating to particular period irrespective of the income is actually received or not or expenses are actually discharged or not. Accordingly we do not find any infirmity in the accounting system followed by the assessee. In our opinion, where the liability has arisen in the accounting year, the deduction has to be allowed, nonetheless the liability may have to be quantitative or discharged at a future date but what should be definite is incurring of liability. The case of the assessee finds force from the decision of Hon ble Apex Court in the case of Bharat Earth Movers 2000 (8) TMI 4 - SUPREME COURT - we set aside the order of ld. CIT(Appeals) and direct the ld. Assessing Officer to delete the disallowance.
Issues Involved:
1. Condonation of delay in filing the appeal. 2. Addition of Rs. 17,29,58,525/- on account of difference in liabilities. 3. Disallowance of Rs. 99,69,33,912/- under section 43B for employer's contributions to the pension fund. 4. Disallowance of Rs. 78,90,20,392/- under section 36(1)(va) for employees' contributions to the provident fund. 5. Disallowance of Rs. 12,73,29,000/- for prior period expenses. 6. Disallowance of Rs. 4,06,03,630/- for provision for gratuity. 7. Disallowance of Rs. 47,51,08,000/- for fuel and fixed cost. 8. Disallowance of Rs. 50,54,681/- for provision for expenses not paid during the year. Detailed Analysis: 1. Condonation of Delay in Filing the Appeal: The Tribunal condoned the delay of 52 days in filing the appeal, attributing it to unintentional oversight by the assessee's staff in checking the ITBA portal. The Tribunal relied on the decision in Collector, Land Acquisition vs. Mst. Katiji (1987) 167 ITR 471 (SC) to justify the condonation. 2. Addition of Rs. 17,29,58,525/- on Account of Difference in Liabilities: The Tribunal noted that the interest accrued but not due, amounting to Rs. 17,29,58,525/-, was capitalized under "capital work-in-progress" and not charged to the profit and loss account. Therefore, the provisions of section 43B were not applicable. The Tribunal directed the Assessing Officer to delete the disallowance. 3. Disallowance of Rs. 99,69,33,912/- under Section 43B for Employer's Contributions to the Pension Fund: The Tribunal held that the General Provident Fund (GPF) maintained by the assessee was a Government Provident Fund under the Provident Fund Act, 1925. As such, the provisions of section 43B were not applicable. The Tribunal directed the deletion of the disallowance of Rs. 99,69,33,912/-. 4. Disallowance of Rs. 78,90,20,392/- under Section 36(1)(va) for Employees' Contributions to the Provident Fund: Applying the same reasoning as in the previous issue, the Tribunal held that the provisions of section 36(1)(va) were not applicable to the GPF maintained by the assessee. The Tribunal directed the deletion of the disallowance of Rs. 78,90,20,392/-. 5. Disallowance of Rs. 12,73,29,000/- for Prior Period Expenses: The Tribunal found that the expenses had crystallized during the year and were allowable under section 145(1) of the Act. The Tribunal relied on decisions from Coordinate Benches and various High Courts to support its conclusion. The Tribunal directed the deletion of the disallowance. 6. Disallowance of Rs. 4,06,03,630/- for Provision for Gratuity: The Tribunal held that the provisions of section 43B were not applicable to the contributions to the GPF, which was governed by the Provident Fund Act, 1925. The Tribunal directed the deletion of the disallowance of Rs. 4,06,03,630/-. 7. Disallowance of Rs. 47,51,08,000/- for Fuel and Fixed Cost: The Tribunal noted that the provisions for fuel and fixed cost adjustments were common in the power generation business and were based on regulatory requirements. The Tribunal directed the deletion of the disallowance, finding that the provisions were not unascertained liabilities or contingent in nature. 8. Disallowance of Rs. 50,54,681/- for Provision for Expenses Not Paid During the Year: The Tribunal held that the expenses were allowable as they had accrued during the year, following the mercantile system of accounting. The Tribunal relied on the decision in Bharat Earth Movers vs. CIT (2000) 245 ITR 428 (SC) to support its conclusion. The Tribunal directed the deletion of the disallowance. Conclusion: The Tribunal allowed all the appeals of the assessee, directing the deletion of various disallowances and additions made by the Assessing Officer and upheld by the CIT(A). The Tribunal's decisions were based on detailed analysis and application of relevant legal principles and precedents.
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