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TMI Blog2017 (4) TMI 1352X X X X Extracts X X X X X X X X Extracts X X X X ..... body are transferred to one or more resulting companies on a going concern basis - thus Explanation–4 to section 2(19AA) are satisfied in case of present assessee - hence relief is granted with a rider that only the finally assessed loss / depreciation of MSEB should be allowed to be set–off - decided in favor of assessee. Whether the prior period expenditure be allowed as deduction - Held that:- when the AO accepts the prior period income offered by the assessee with reference to the audited Profit & Loss account, logically, he should also have allowed assessee’s claim of prior period expenditure - decided in favor of assessee. - ITA no.2406, ITA no.7725, ITA no.7726, ITA no.7727, ITA no.2493 , ITA no.7831, ITA no.7830 Mum./2011, ITA no.7563/Mum./2012, ITA no.334/Mum./2013, ITA no.5904/Mum./2013, ITA no.6178/Mum./2013 - - - Dated:- 21-4-2017 - SHRI JASON P. BOAZ, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER Assessee by : Shri Soli E. Dastur a/w Shri Niraj Sheth Revenue by : Shri B.C.S. Naik O R D E R PER BENCH These bunch of 11 appeals both by the assessee and the Revenue are directed against separate orders of the first appellate a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peal before the learned Commissioner (Appeals). 7. The learned Commissioner (Appeals) after considering the submissions of the assessee followed his own order in assessee s own case for the assessment year 2007 08 and disallowed assessee s claim of interest expenditure. 8. Learned Authorised Representative submitted, on demerger / unbundling of MSEB, the assessee was formed as an investment company holding shares of three other companies formed in pursuance to the demerger. He submitted, assets of MSEB to the extent they pertained and were specifically allocable to generation, transmission and distribution undertakings were transferred to those companies. The remaining assets of MSEB once used by all the other three undertakings were transferred to the assessee. Similarly, liabilities of MSEB to the extent they pertained to or were directly relatable to a particular undertaking were transferred to the said undertaking and the residual liabilities were transferred to the assessee. Thus, as a result, the State Government loans and interest accrued thereon were transferred to the assessee. It was submitted, since such interest liability is wholly and exclusively for the purpose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stake its claim for deduction of interest and financial charges. The learned Authorised Representative submitted, withdrawal of its claim of interest expenditure is only because of subsequent development relating to taking over of the loan liability of erstwhile MSEB with retrospective effect, hence, should not be construed to mean, assessee had given upon its claim on merit. 10. Learned Departmental Representative strongly relying upon the reasoning of the learned Commissioner (Appeals) submitted, since the interest expenditure claimed by the assessee is not wholly and exclusively for the purpose of business, it is not allowable under section 36(1)(iii). He further submitted, the scheme of transfer under which the assets and liabilities were transferred to the assessee is provisional, hence, the amendment made to the said scheme by notification on 31st March 2016, should not be taken into account and disallowance should be confirmed. 11. We have heard the rival contentions and perused the material available on record. Undisputedly, as per the scheme of transfer, formulated on demerger of MSEB a part of the assets and liabilities of MSEB, including the loan liability arising ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d no.2.5. 12. In the course of hearing before the first appellate authority, the assessee without prejudice to the deduction claimed on account of interest and finance charges of ₹ 418,24,52,835, made a claim that an amount of ₹ 59,49,98,586 out of the interest expenditure was reversed while finalizing the accounts of assessment year 2007 08 and was credited to the Profit Loss account as prior period income. It was submitted, the said amount was taxed as income in assessment year 2007 08 and such addition was also confirmed by the learned Commissioner (Appeals). Therefore, it was submitted, since the said amount has already been assessed in assessment year 2007 08, it should be allowed as a deduction in the impugned assessment year. The learned Commissioner (Appeals), however, did not find merit in the submissions of the assessee. He was of the view that the interest expenditure claimed by the assessee cannot be set off either against the income from house property or income from other sources. He observed, since the assessee had not earned any business income, the interest expenditure cannot be allowed. Further, he held that the entire interest expenditure being o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounsel for the assessee on the instruction of his client expressed his intention not to press the additional ground. Accordingly, additional ground is dismissed as not pressed . 18. In the result, assessee s appeal is partly allowed for statistical purposes. ITA no.7830/Mum./2011 Revenue s Appeal A.Y. 2006 07 19. The solitary issue arising in this appeal relates to allowance of assessee s claim of set off of brought forward loss and unabsorbed depreciation of erstwhile MSEB. 20. In the course of assessment proceedings, the Assessing Officer noticing that the assessee has set off brought forward business loss and unabsorbed depreciation of MSEB which were allocated to the assessee on demerger, called upon the assessee to justify its claim. Though, the assessee made detailed submissions before the Assessing Officer justifying its claim of set off, however, the Assessing Officer rejecting the submissions of the assessee disallowed the claim of set off. While doing so, the Assessing Officer relied upon the reasoning of the Assessing Officer while making similar disallowance in assessee s own case for assessment year 2007 08. Assessee challenged the disallowance b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CO, TRANSCO and DISCOM. Further, argument of the Department that the demerger is provisional and not fully established is without any basis. This fact is clear not only from the Transfer Scheme of 2005 but also the subsequent notification issued by the State Government on 2nd June 2006 and 31st March 2016. Moreover, a perusal of the learned Commissioner (Appeals) s order passed in assessee s case for assessment year 2007 08, reveal that while deciding the issue, he has followed his own decision in the case of other three companies formed on the demerger of MSEB. It is worth mentioning, while deciding Revenue s appeal against the order of the learned Commissioner (Appeals) in respect of other three companies, the Tribunal has upheld the decision of the learned Commissioner (Appeals) the reference of which are as under: i) ACIT v/s Maharashtra State Electricity Distribution Co. Ltd. ITA no.762/Mum./2010 and ITA no.720/Mum./2010, dated 12th August 2015; ii) Maharashtra State Power Generation Co. Ltd. v/s ACIT, ITA no.302/Mum./2010 and ITA no.418/Mum./2010 dated 03.03.2017; and iii) DCIT v/s Maharashtra State Electricity Transmission Co. Ltd., ITA no.419/Mum./2010 dated 10.03 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessing the rental income offered by the assessee. Subsequently, the assessee having noticed that the said rental income offered as prior period income has already been offered in assessment year 2006 07 raised an additional ground before the learned Commissioner (Appeals) seeking exclusion of the said rental income from the rental income assessed by the Assessing Officer. 32. The learned Commissioner (Appeals), however, refused to entertain the additional ground raised by the assessee stating that the additional ground did not emanate out of the assessment order, hence, is not maintainable. 33. Learned Authorised Representative submitted, the rental income which is subject matter of dispute was not received in the assessment year 2006 07, hence, not credited in the books of account. However, the assessee offered the same as income in the return of income filed for the assessment year 2006 07. The learned Authorised Representative submitted, on receipt of the rental income in assessment year 2007 08, the assessee credited the same to the books of account and in the return of income filed for assessment year 2007 08, offered it as prior period income overlooking the fact that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the said amount formed part of the rental income offered by the assessee on receivable basis in assessment year 2006 07. Learned Authorised Representative has tried to establish this fact by bringing to our notice certain documentary evidences submitted in the paper book. On a perusal of the financial statements for assessment year 2007 08 and 2006 07, it appears that the rental income of ₹ 31,49,55,816, though, formed part of rental income in assessment year 2006 07, (as appears from the revised statement of income), however, the said amount has again been offered in the return of income for the impugned assessment year as prior period income. The explanation offered by the assessee for doing so is, the said rental income since was received in the impugned assessment year, it was credited to the books of account in assessment year 2007 08 and assessee offered it as prior period income. However, assessee has already offered the income on receivable basis in assessment year 2006 07. In our view, the matter requires verification at the end of the Assessing Officer for the reason that the same income cannot be assessed twice. If the assessee has already offered the aforesaid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d income of ₹ 91,28,99,951, as per Schedule O of the Profit Loss account, however, he did not allow prior period expenditure of ₹ 11,89,244 claimed by the assessee. The assessee challenged the disallowance of prior period expenditure before the learned Commissioner (Appeals) and the learned Commissioner (Appeals) accepting assessee s claim allowed the expenditure. 41. Learned Departmental Representative challenging the decision of the learned Commissioner (Appeals) submitted that the issue does not emanate from the assessment order. Hence, the learned Commissioner (Appeals) was not justified in allowing assessee s claim. 42. Learned Authorised Representative on the other hand submitted, the facts relating to prior period income and prior period expenditure claimed by the assessee was very much before the Assessing Officer, as such facts are disclosed in the audited accounts of the assessee. Learned Authorised Representative submitted, when the Assessing Officer referring to the audited accounts of the assessee has assessed the prior period income, there is no reason why he should disallow the prior period expenditure. 43. We have heard the rival contentions a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in Para 35 of the order, we have directed the Assessing Officer to verify whether such income was offered by the assessee in assessment year 2006 07 and in case it is found to be so, to exclude the same in the impugned assessment year. In view of the aforesaid decision, while deciding ground no.2 in ITA no.2493/Mum./2011, this ground has become infructuous, hence, dismissed. 52. In the result, assessee s appeal is dismissed. ITA no.7727/Mum./2011 Assessee s Appeal A.Y. 2008 09 53. The solitary issue raised is challenging the disallowance of interest and finance charges of ₹ 369,04,40,324. 54. This issue is identical to the issue raised in ground no.2.1 to 2.4 of assessee s appeal in ITA no.7725/Mum./2011. Following our decision in Para 11 of this order, we uphold the disallowance of interest for the reasons stated therein. This ground is dismissed. 55. In the result, assessee s appeal is dismissed. ITA no.7831/Mum./2011 Revenue s Appeal A.Y. 2007 08 56. Ground no.1, is in relation to allowance of assessee s claim for prior period expenditure of ₹ 87,31,688. 57. This ground is similar to ground no.1 of Revenue s appeal in ITA ..... X X X X Extracts X X X X X X X X Extracts X X X X
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