2015 (5) TMI 151 - AT - Income Tax

Disallowance of prior period expenses - Held that - The assessee is a state government undertaking and therefore it cannot be postulated that there was any deliberateness in not furnishing the relevant details before the departmental authorities. Some details filed before us shows that some bills were received only in August 1996 but they relate to September to December 1994 and March 1995. We therefore set aside this issue to the file of the Assessing Officer who shall take a fresh decision in accordance with law after affording due opportunity to the assessee to substantiate, its claim. - Decided in favour of assessee for statistical purposes. Disallowance of bad debts - Held that - Claim of bad debts was disallowed by the A.O as he was of the view that the bad debts can only be allowed as deduction when the same are written off in the accounts. Before us, Assessee has not placed any material on record to demonstrate that all the necessary evidence was produced before Ld CIT(A). We further find that Ld. CIT(A) decided the ground of Assessee in its favour subject to verification by AO and further the decision of ld. CIT(A) on the issue to be cryptic. We also find that ld. CIT(A) had directed the A.O to verify the figures and thereafter allow the loss of the amount actually written off in the books. On the issue of setting aside by CIT(A), it is to be noted that the Finance Act, 2001 has w.e.f. 1st June, 2001 withdrawn the power of CIT(A) to set aside the assessment and refer the case back to the AO for making a fresh assessment in accordance with the directions given by CIT(A). In view of the aforesaid amendment made by Finance Act 2001, we are of the view that Ld. CIT(A) does not have power to remand and therefore we do not approve the action of ld. CIT(A) in remitting the issue to the file of A.O. However at the same time, it is also a fact that before us, no details of the bad debts claimed have been filed by the assessee and therefore we are also unable to peruse the details and decide the issue at our end. Considering the aforesaid facts and in the interest of justice, we are of the view that the factual aspect needs re-examination at the end of A.O. - Decided in favour of assessee for statistical purposes. Disallowance of expenditure incurred on rehabilitation and restoration work as a result of cyclone - Disallowance on account of miscellaneous losses - Addition on account of under statement of income determined by C & AG - disallowance u/s. 43B - CIT(A) has remitted the issue to be file of AO - Held that - In view of the amendment made by Finance Act 2001, we are of the view that Ld. CIT(A) does not have power to remand and therefore we do not approve the action of ld. CIT(A) in remitting the issue to the file of A.O. However at the same time, it is also a fact that before us, no details of the loss claimed have been filed by the assessee and therefore we are also unable to peruse the details and decide the issue at our end. Considering the aforesaid facts and in the interest of justice, we are of the view that the factual aspect needs re- examination at the end of A.O. - Decided in favour of assessee for statistical purposes. Disallowance of employees' cost - Held that - We find that this ground was not taken by the Assessee before ld. CIT(A) but it arises out of the order of A.O for A.Y. 98-99. Considering the fact that A.O has disallowed the claim in A.Y. 1998-99 for the reason that liability has crystallized in A.Y. 1999-2000, we are of the view that the issue needs to be re-examined at the end of A.O. We therefore set aside this ground to the file of A.O to decide it afresh - Decided in favour of assessee for statistical purposes. Infructuous capital expenses written off and loss of obsolesce of fixed assets - Held that - The appellant is directed to provide complete details of such revenue items. The rest of loss on capital items is to be adjusted through the block of assets. It is a fact that in the P & L A/c., the loss on obsolescence, loss on sale and loss on sale of scrap of fixed assets, loss on pilferage, loss of small items etc. are claimed. The appellant was specifically requested to explain the various journal entries in this regard and also treatment of such loss for purposes of income-tax but these were not furnished. Further it is likely that miscellaneous losses and write off, loss due to natural calamities etc. would affect the capital stock as well as the revenue items. With a system of block of assets any loss on capital item is allowed with reference to the opening WDV and the asset lost/discarded is not reduced from the opening WDV. In effect the appellant is entitled to higher claim of depreciation instead of loss on assets. Any notional or actual scrap value or sale of assets is to be reduced from the opening WDV for purposes of depreciation. It is also to be appreciated that in case a block is empty or has no WDV, no depreciation is admissible. Although it is emphasized before me that all the items are revenue in nature but in the absence of details, this fact could not be verified. The appellant is directed to provide necessary details to the AO and elaborate that none of the capital items is part of the loss claimed and that the capital items have been suitably considered in the depreciation calculation and is not part of the loss claimed. However if there are capital items which are claimed as loss these would stand disallowed with corresponding higher depreciation as per provisions of sec.32, 2(11), 43(1) and 43(6). - Decided in favour of assessee for statistical purposes. Disallowance of loss on Exchange rate variation - Held that - The issue is now covered against Assessee by the decision of Apex Court in the case of ACIT vs. Elecon Engg. Co. Ltd. (2010 (2) TMI 23 - SUPREME COURT OF INDIA) and therefore the issue has to be decided against the Assessee. Disallowance of waiver of HBA loans - Held that - The housing loans are disbursed to the employees at interest as a facility and to earn their loyalties and thus the expenditure is for business purposes. The Appellant is in the business of generation and in distribution of power and the advances are not in the course of the carrying on of the business but these are only having some connection with operational efficiency of the business. Thus the loss claimed is plain and simple capital loss which is not allowable. See Badridas Daga Versus Commissioner Of Income-Tax 1958 (4) TMI 2 - SUPREME Court - Decided against assessee. Disallowance of cost of raising finance - Held that - Amendment made by Finance Act 2001, we are of the view that Ld. CIT(A) does not have power to remand and therefore we do not approve the action of ld. CIT(A) in remitting the issue to the file of A.O. However at the same time, it is also a fact that before us, no details of the expenses have been filed by the assessee before us and therefore we are also unable to peruse the details and decide the issue at our end. Considering the aforesaid facts and in the interest of justice, we are of the view that the factual aspect needs re- examination at the end of A.O. - Decided in favour of assessee for statistical purposes.

Summary

Issues Involved:

1. Disallowance of prior period expenses.
2. Disallowance of bad debts.
3. Disallowance of extraordinary items related to rehabilitation and restoration work due to cyclone.
4. Disallowance of miscellaneous losses and write-offs.
5. Addition on account of alleged understatement of income reported by C&AG.
6. Disallowance under section 43B for unpaid bonus.
7. Additional ground regarding employees' cost.

Issue-wise Detailed Analysis:

1. Disallowance of Prior Period Expenses:
The Assessee claimed deduction of Rs. 100,77,79,806/- under "net prior period credit," which included expenses from earlier years. The AO disallowed Rs. 51,04,89,092/- due to lack of evidence. The CIT(A) upheld the AO's decision. The Tribunal noted that a similar issue in A.Y. 1997-98 was remitted back to the AO for re-verification. Following the precedent, the Tribunal restored the matter to the AO for fresh examination, directing the Assessee to provide necessary details.

2. Disallowance of Bad Debts:
The AO disallowed Rs. 3,81,76,827/- as the debts were not written off in the books but merely provisioned. The CIT(A) allowed the claim subject to AO's verification. The Tribunal noted the Finance Act, 2001, withdrew CIT(A)'s power to remand cases. The Tribunal set aside the issue to the AO for re-examination, directing the Assessee to submit all relevant details.

3. Disallowance of Extraordinary Items Related to Cyclone:
The AO disallowed Rs. 21,91,00,234/- claimed as losses due to cyclone, considering them estimates. Additionally, Rs. 10 crore received from the Government was treated as income. The CIT(A) remitted the issue to the AO for verification. The Tribunal, noting the Finance Act, 2001, set aside the issue to the AO for re-examination, directing the Assessee to provide necessary details.

4. Disallowance of Miscellaneous Losses and Write-offs:
The AO disallowed Rs. 50,07,138/- due to lack of details. The CIT(A) allowed the claim subject to verification. The Tribunal set aside the issue to the AO for fresh examination, directing the Assessee to furnish all relevant details.

5. Addition on Account of Alleged Understatement of Income Reported by C&AG:
The AO added Rs. 9,28,00,000/- based on C&AG's report. The CIT(A) upheld the addition, allowing adjustment in A.Y. 2000-01 if already offered for tax. The Tribunal set aside the issue to the AO for re-examination, directing the Assessee to provide necessary details.

6. Disallowance Under Section 43B for Unpaid Bonus:
The AO disallowed Rs. 10,05,543/- due to lack of evidence. The CIT(A) allowed the claim subject to verification. The Tribunal set aside the issue to the AO for fresh examination, directing the Assessee to submit all relevant details.

7. Additional Ground Regarding Employees' Cost:
The Assessee claimed Rs. 4,75,22,871/- for A.Y. 1999-2000, disallowed in A.Y. 1998-99 as crystallized in A.Y. 1999-2000. The Tribunal set aside the issue to the AO for re-examination, directing the Assessee to provide necessary details.

Other Assessment Years (2000-01 to 2005-06):
The Tribunal noted that similar grounds were raised for subsequent assessment years. Following the reasoning and directions given for A.Y. 1999-2000, the Tribunal allowed these grounds for statistical purposes, directing the AO to re-examine the issues.

Conclusion:
The Tribunal allowed the appeals for statistical purposes, directing the AO to re-examine the issues afresh, considering the submissions of the Assessee and in accordance with the law. The Assessee was directed to cooperate with the Revenue authorities by promptly submitting all required details.