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TMI Blog2016 (12) TMI 946X X X X Extracts X X X X X X X X Extracts X X X X ..... 43(1) of the Act we find it justified to restore the issue back to the file of Assessing Officer to adjudicate afresh after verifying the apportioned amount of grant relating to different assets and calculate the depreciation at the rates applicable to such assets. Needless to mention that all necessary details will be provided by the assessee to the Assessing Officer in order to calculate the correct amount of depreciation, Ld. Assessing Officer to provide proper opportunity of being heard should be given to the assessee. Disallowance under the head small and low value items written off - Held that:- Looking to the overall business exposures of the company and from the perspective of business and practical approach we are of the view that expenditure is relating to carrying on and conducting of the business which has not been disputed by the Revenue, therefore, the assessee needs to be allowed the claim of expenditure being value of small and low value items. Disallowance of prior period expenses - Held that:- Apart from the bifurcation of prior period expenses as referred and general submission of assessee that the amount has been received pursuant to transfer of running bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... total income of the assessee, such failure would necessarily mean mistake apparent from the record. Respectfully following the decision of the Co-ordinate Bench referred above and in the given facts and circumstances of the case, we are of the view that assessee was eligible for deduction of deferred tax asset of ₹ 6,40,52,414/- from the net profit as per audited profit and loss account for the purpose of calculating business income as well as book profit u/s. 115JB of the Act. Further we direct the Assessing Officer to allow the assessee to claim deduction of deferred tax from book profit so as to arrive at the correct tax u/s. 115JB of the Act. Suo motu added service tax payable to the profits as profit and loss account u/s. 43B - Held that:- Assessee has been unable to place on record any detail to prove that service tax payable of ₹ 13,56,000/- was in relation to those services on which service tax are payable only when the due amount from customers is received and the particular provisions of service tax is applicable to assessee for the year under appeal. Assessee came away with the mere plea that it is a collecting agent and service tax is not reflected in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act dated 24.10.2007 followed by notice u/s. 142(1) of the Act was duly served upon the assessee. Necessary details were called for and supplied by assessee. Various additions were made. However, due to set off of brought forward business loss income was assessed at NIL and book profit u/s. 115JB of the Act was assessed at ₹ 19,12,33,031/-. Appeal before ld. CIT(A) brought part relief to the assessee. 3. Now aggrieved, assessee is in appeal before the Tribunal and Revenue has filed the Cross Objection. 4. First we will take assessee's appeal wherein ground No. 1 reads as under:- 1.0 The learned Commissioner of Income Tax (Appeals) erred in law and on facts has confirmed the aggregate additions of ₹ 41,41,436/- made on account of (i Bad and Doubtful Debts written off ₹ 34,03,318/- and (ii) Miscellaneous losses) and write off ₹ 7,38,118/- without giving any cogent reasons whatsoever. 5. Brief facts relating to this ground are that ld. Assessing Officer on the basis of report of Comptroller and Auditor General of India dated 15.2.2007 observed that bad debts of ₹ 41.41 lacs (bad and doubtful debts written of ₹ 34.3 lacs and mis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A) sustaining the disallowance of ₹ 41.41 lacs on account of bad debts of ₹ 34,03,318/- and miscellaneous loss written off at ₹ 7,38,118/-. 10. We observe that there was a major reshuffling in GEB pursuant to which 7 different companies came into operation for carrying out various activities generation, distribution, transmission etc. Assessee company is engaged in power transmission got its assets and liabilities as opening balance w.e.f. 1.4.2005. As submitted by ld. AR that there existed opening balance of bad debt provisions assigned to the company against which bad debts and balance written off have been adjusted. As against bad debts of ₹ 34,03,118/- they relate to bad debts written off of ₹ 305150/- towards dues not recovered from consumers and ₹ 3098168/- for provision for bad debt for consumer dues. As regards miscellaneous loss written off at ₹ 7138118/- is a residual balance left out of the total expenses incurred under this head at ₹ 2501,509/-. 11. However, we observe that assessee has not provided necessary information and explanation along with relevant copies of accounts or documentary evidences before the lower ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he asked as to how the accounting treatment has been given to these reserves. It was stated before the AO that out of 115.04 crores ₹ 17.41 crores has been routed through profit and loss account and the balance of ₹ 97.63 crores received towards grant and capital contribution, 10% of the same is routed through profit and loss account every year. The AO raised a question as to why the amount of ₹ 97.63 crores should not be brought to tax during the year instead of only 10%. It was contended before the AO that the consumer contribution and capital grant received towards cost of capital assets has not been reduced from the cost of capital assets. These are treated as deferred credits and 10% of the yearend balance is transferred to profit and loss account. The AO after considering the appellant's reply came to the conclusion that since the capital grant and consumer contribution were received towards cost of capital assets, the cost of the assets should be reduced to that extent for the purpose of depreciation. He accordingly worked disallowable depreciation at ₹ 10.84 crores 6.1 Before me, it has been argued that such subsidy are not granted to meet t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e observe that the Government gives grant/subsidy to the holding company and then it is allocated to the assessee which is one of the subsidiary company and further such subsidy are not granted to actually to meet the cost but are granted as an inclusive of rural economically backward unviable areas. Assessee received subsidies on different schemes viz. Rural Electrification and Tribal area Electrification and the assets cannot be bifurcated into Rural/Tribal area etc. 17.1 There is no dispute to the fact that the grants received from the Government are capital in nature but they have not been given specifically for acquiring a particular asset. In such situation provision of section 43(1) Explanation 10 of the Act squarely applies for the treatment of such capital grant. Relevant provisions of section 43(1) of the Act read as under:- 43. In sections 28 to 41 and in this section, unless the context otherwise requires:- (1) actual cost means the actual cost of the assets to the assessee, reduced by that portion of the cost thereof, if any, as has been met directly or indirectly by any other person or authority:- [Provided that where the actual cost of an asset, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tual cost of the assets. In a case, where such subsidy or Grant or reimbursement, is of such nature that, it cannot be directly relatable to any particular assets, so much of the amount which bears to the total subsidy or reimbursement or Grant the same proportion as such asset bears to all the assets in respect of which or with reference to which such grant or subsidy or reimbursement is received shall no be included in the actual cost of that assets to the assessee. 4.3 In view of the clear provisions of the Act as stated supra and the assessee himself have admitted that the subsidy and grant received are towards Capital assets, the assessee should have reduced the same from the Capital asset to arrive at the actual cost. However the assessee has failed to do so and also not furnished the details of fixed assets in respect of which the subsidy and grants have been received. Hence and inference is drawn that the Govt. grants/subsidy and consumers' contribution are relatable to fixed assets of plant and machinery. The assessee has claimed depreciation on Plant and Machinery as under: 17.3 We further observe that similar type of issue came up before the Tribunal in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 1,08,030/- was made by Assessing Officer towards the claim of assessee of write off of small and low value items of ₹ 1,08,030/- as the actual cost of machinery and plant individually was not exceeding ₹ 5,000/-. However, ld. Assessing Officer was of the view that w.e.f. 1.4.1996 no such provision exists for debiting the cost of assets as expenditure value of which is less than ₹ 5,000/-. Even before first appellate authority, ld. CIT(A) dismissed the ground of assessee as no details were available on record bifurcating the assets as per block. 20. Now before the ld. Tribunal ld. AR the items booked under the head small and low value items include calculators, mobile phones etc. which considering the nature, cannot be capitalized as these items due to damage, theft, misplaced then it becomes difficult to adjust such loss as it is very difficult and cumbersome to find out the WDV of the lost item. 21. Ld. DR supported the orders of lower authorities. 22. We have heard the rival contentions and perused the material on record. Through this ground assessee is aggrieved that ld. CIT(A)s decision for sustaining the addition of ₹ 1,08,030/- being b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee is against the action of ld. CIT(A) disallowing prior period expenditure of ₹ 20,69,096/-. We find that following prior period expenditure were claimed during the year:- Other generation cost Rs.900/- Employees cost Rs.5,17,070/- Depreciation Under Provided Rs.03,478/- Other excess provision Rs.4,28,098/- Other prior period expenditures Rs.11,19,550/- Rs.20,69,096/- 29. We further observe that apart from the bifurcation of prior period expenses as referred and general submission of assessee that the amount has been received pursuant to transfer of running business undertaking and no other documentary evidence has been placed on record in order to prove that the liability for the expenditure crystallized during the year. It is true that the books of account of assessee are audited and no major defect has been pointed out by the Assessing Authority and they have been accepted. However, during the course of assessment proceedi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax in the event of matter being decided favourably. 33. Aggrieved assessee then went in appeal before ld. CIT(A) raising two grounds. Firstly against non-allowability of deduction of deferred tax asset while computing business income and secondly for not allowing deduction of deferred tax on assets u/s. 115JB of the Act without giving any finding in the assessment order. Ld. CIT(A) dismissed the ground of assessee claiming deduction of deferred tax asset for calculation of business income by observing as under:- 13.2 I have given my careful consideration to the submission and also considered relevant provisions of law in this regard. The appellant has reduced deferred tax amounting to ₹ 6.40 crore from the regular computation of income. It is to be noted that for the purpose of regular computation, the tax is worked out on. the income recorded in the book as adjusted by various figures in terms of the different provisions of I.T. Act i.e. additions and deletions are made from the declared profits as per the specific provisions of LT. Act only. The appellant has not brought any provision of law as to how an amount', much is included in the taxable profit is to be r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profit before tax to arrive at profit after tax at ₹ 171794810/-. Calculation of tax adjustment of ₹ 44614193/- is as follows:- Income-tax (MAT) Rs.11693372 Deferred tax asset (Rs.64052414) Wealth tax Rs.67361 Fringe benefit tax Rs.7677488 Rs.4461419 Now when we move to see the effect of tax expenditure in the computation of income we find that assessee has rightly added provisions for wealth tax, provisions for income-tax and fringe benefit tax to the net profit as per profit and loss account of ₹ 174131929 (net profit after tax at ₹ 171794810 + net prior period credit at ₹ 2337119). Further assessee has rightly deducted deferred tax asset from the net profit for the purpose of calculating business income. To this extent assessee has made no mistake in calculating the business income and has rightly deducted deferred tax asset. Had it been deferred tax liability, it would have been added to the net profit. We are, therefore, of the view that l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le furnishing return of income, deduction cannot be denied merely because it was not claimed in the computation of income. If the assessee has rightly moved an application u/s. 154 of the Act to rectify the intimation sent by Assessing Officer then Assessing Officer should rectify such intimation and allow the claim of assessee. We find that the decision of the Co-ordinate Bench, Ahmedabad in the case of Zen Tobacco Co. P. Ltd. comes to rescue to the plea of the assessee wherein the Co-ordinate Bench has observed that in the provisions of section 139(1), 139(5) and 143(1) of the Act, it is evident that it is not the case that Revenue authorities have to accept whatever stated in the return of income computing the income mechanically. As per provisions of section 143(1) of the Act is concerned the Revenue has to examine whether any claim as made by the assessee is correct or not. This includes under statement and over statement of the income. If Revenue authorities fail to take note of incorrect claim with regard to total income of the assessee, such failure would necessarily mean mistake apparent from the record. Respectfully following the decision of the Co-ordinate Bench referred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (I)(P) Ltd.. 42. Aggrieved, Revenue is now in Cross Objection before the Tribunal. 43. Ld. DR submitted that provisions of section 43B sub sec. (a) refers to any sum payable by the assessee by way of tax, duty, cess or fee, by whatever name called, under any law for the time being in force. Service tax payable related to service tax which has been charged by the assessee to its customers and it stood as liability at the end of the year, ld. DR submitted that there cannot be any possibility of claim of service tax payable as expenditure in the profit and loss account because it is the tax collected by assessee on behalf of the government and it needs to be paid to the government on the due date. Ld. DR further submitted that liability of service tax is same to that of other tax or duty which assessee has charged from its customers and if the tax so payable is not deposited before the due date of filing of return then it needs to be added to the net profit of the assessee u/s. 43B of the Act. 44. Ld. DR further differentiated the fact of the case with those dealt by Hon. Delhi High Court in the case of CIT vs. Noble and Hewitt (I)(P) Ltd. (supra) by submitting that Hon. Hig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (ii) Further, under Rule 6 of Service Tax Rules, 1994, as applicable in Asst. Year 2006-07, service tax was to be paid only after the receipt of service tax by the assessee from the persons to whom he has rendered the services. In other words, the assessee under Service Tax Act is only a collecting agent, who has liability to pay service tax to the Government on or after the receipt thereof. In view of the peculiarity of this provision, it is worth noting that in accountancy, because the assessee is a mere collecting agent, this item will not be reflected in the Profit and Loss Account of the concerned assessee under the Service Tax Act but will be reflected only in the Balance Sheet to keep track of the payment of service tax to be paid by the service receivers and to square of that Service Tax Account when the service tax is paid off to the Government. This method of accounting is being followed by all assessees because they are mere collecting agents, as it has been followed in the case of the assessee. 46. We have heard the rival contentions and perused the record. The crux of the issue raised in this Cross Objection is whether provisions of section 43B of the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loss account. Ratherit is in the nature of check by the statute to ensure that the assessee makes payment of the tax collected to the concerned department and if he is unable to do so the amount is added to its income. 47. Ld. AR has referred and relied on the decision of Hon. Bombay High Court in the case of CIT vs. Ovira Logistics (P) Ltd. (2015) 377 ITR 129 (Bom). We find that the facts of the case are completely different as it refers to service tax amount which were not payable as on 31.3.2007 as per the provisions of Service Tax Act wherein in same situation the liability to pay service tax ceases only when the value of service including service tax has been received from the parties. Further in the decision so relied on by the assessee, there was a bifurcation available on record about the service tax payable and not payable at the close of the year. However, going through the record placed before us, we find that assessee has been unable to place on record any detail to prove that service tax payable of ₹ 13,56,000/- was in relation to those services on which service tax are payable only when the due amount from customers is received and the particular provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X
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