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TMI Blog2017 (3) TMI 1667X X X X Extracts X X X X X X X X Extracts X X X X ..... M.S.E. Generation Co. (MSEGC), M.S.E. Transmission (MSET) and M.S.E.Distribution Co.Ltd.(MSEDCL). Each of the newly formed companies took over the activity/business of MSEB as its business activity.The assessee company took over Transmission activity of MSEB . During assessment proceedings,the AO noticed that in the original as well as revised return, the total income, before set off of b/f losses had been reduced from Rs. 536,22,64,112/- as per original return to Rs. 533,57,51,543/- in the revised return. A.O was of the opinion that the difference of Rs. 2,65,12,569/- in the total income, prior to set off of losses, as per original and revised return, was not reconciled by the appellant company.He observed that during the course of assessment proceedings, sufficient opportunities were provided to the assessee to explain and substantiate the claims made in the returns filed by the assessee,that the issue was not explained nor was any plausible reconciliation of the difference was submitted.The AO further noticed that the computation forming part of the return showed that the deprecation claimed had been increased and the addition on account of adjustments u/s. 28 to 44 had been re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uments filed by the appellant had been lost sight off by the A.O such as statement showing computation of total income of the original and the revised return, copy of original and revised return which included complete details of unaudited and audited revenue accounts and tax audit report prepared on the basis thereof,that the exact reconciliation of the difference between the income (prior to set off of losses )as per the original and revised return was not furnished,that complete figures in respect thereof were on record. 2.2.a.Before the FAA,the assessee explained the reconciliation/difference between the original and revised return as under: A.Other income: i.Compensation paid on accidental death of an employee Rs. 2,50,386/ recovered from Govt. of Maharashtra. ii.Interest and financial charges - excess provision made in respect of interest accrued and due for loans - withdrawn - Rs. 46,44,1681- (comprising of three figures of Rs. 280653/-, Rs. 1859349/- & Rs. 25,04,166/- ) iii.Interest and financial charges capitalize -Rs.5,98,770/- B.Other debits - Expenses: i.Negative material cost variances - Rs. 1,86,27,663/- . ii.Loss on exchange variation - Rs. 1,09,21,726/- i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was a valid and justified reason for the appellant for revising the return,that the AO was not justified in holding that the assessee had failed to prove discovery of any omission or wrong statement in the original returntht once the valid revised return was filed, the original return stood as withdrawn,that the AO should have assessed the income on the basis of revised return only. With regard to disallowance of the difference of Rs. 2.65 crores in original and revised return, the FAA held that during appellate proceedings, the appellant filed copies of original return as well as revised returns,and exact details of difference / reconciliation between the original and revised return,that during assessment proceedings, no specific question was raised by the AO for explaining the difference.In respect of items of income, that was offered by the assessee in revised return,the FAA observed that same needed no comments.He further observed that the item of material cost variance at Rs. 1,86,27,663/- was wrongly transferred to reserve account,that after pointing out by Auditors the same was correctly transferred to material cost variance,that the second major item i.e. loss on exchange ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the AO had not directed the assessee to file reconciliation, that the argument advanced by the AO that during assessment proceedings proper and illegitimate of budgetary was afforded to the assessee was not correct, that the case of the assessee was covered by clause (c) and clause (d) of the Rule 46A of the Rules. 3.1.During the course of hearing before us,the Departmental Representative (DR) stated that matter could be decided on merits.The Authorised Representative (AR) stated that at the time of filing of original return audited accounts were not available, that later on revised return was filed, that the AO did not raise any specific query in that regard, that he made an addition of Rs. 2.65 crores to the income of the assessee on account of difference between the two returns, that the assessee filed a reconciliation statement before the FAA, that a remand report was called from the AO and the issue was decided accordingly. 3.2.We have heard the rival submissions and perused the material before us.We find that the assessee had filed a revised return after receiving audited accounts from the competent authority, that the AO had made certain addition to the total income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the revised return the expenditure was claimed under the head revenue expenditure,that the AO had not commented upon the claim made by the assessee while filing the remand report,that he had not brought any evidence on record to prove that expenditure was of capital nature.In the circumstances, we are of the opinion that the order of the FAA does not suffer from any legal or factual infirmity. Confirming his order, we dismiss second ground of appeal. 5.Next Ground is about allowing the claim regarding material cost variance (Rs.1.86 crores) and exchange rate variance(Rs.1.09crores)in the revised return. In its reconciliation statement the assessee, under the head other debits -expenses mentioned the above referred to amounts and claimed the same as expenditure incurred during the year under consideration. As the claim made by the assessee was part of the additional evidences produced by it before the FAA,so, he called for report from the AO.In his report, the AO did not offer any comment about the said expenses. As the expenditure was certified by the auditor,so, the FAA allowed the same. 5.1.Before us,the DR advanced the same arguments that were argued for last ground of appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nditure on lease rentals was not capitalized,so, he disallowed the claim made by the assessee. Similarly an expense of Rs. 3.83 lakhs and 41.95 lakhs claim under the heads taxes and charges were disallowed by the AO is the expenditure was not capitalised/it pertained to capital assets. 8.1.Aggrieved by the order of the AO,the assessee preferred an appeal before the FAA.Before him,it was argued that the project had already been commission,that disallowance is were made without any discussion with the assessee,that the HDVC project was commenced by MSEB on 13/11/1998 and was transferred to the assessee, that the project was an existing unit, that the AO had ignored the schedule F to the scheme of unbundling, that the assessee were transferred from BHEL to MSEB on 13/11/1998, that the expenditure of Rs. 89.44 lakhs pertain to the insurance charges for the project for the period 01/10/2005 to 30/09/2006. During the appellate proceedings, the assessee filed a copy of these agreement dated 21/05/ 1997 and office notes dated 28/04/1999 and 25/05/1999 to substantiate the claim that as HDVC project was not a new one and was existing since last for many years. It was stated that these docum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stion, that the assessee had not produced any proof of payment of the disputed amount on or before the due date of filing of returns of income.Referring to the judgment of Chowranghee Sales Bureau(222 ITR 344), the AO made an addition of Ruby 70,000/-to the income of the assessee. 9.1.Before the FAA,during the appellate proceedings, the assessee argued that the financial statements were prepared in format prescribed under Electricity Supply Annual Accounts Rules,1985,that the disputed amount represented inspection charges payable to the govern - ment for electrical inspection of substations and was disclosed accordingly under the aforesaid heading, that during the assessment proceedings it was brought to the notice of the AO that the amount in question did not consist electricity duty and that same were inspection charges. The FAA,after considering the available material, held that payment made by the assessee was on account of inspection charges, that same was allowable as revenue expenditure, that the same was outside the purview of section 43B of the Act. Finally, he deleted the addition made by the AO. 9.2.Before us, the DR stated that no evidence was produced before the AO. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t years.The Ld. AO denied the claim for set off of brought forward business loss and unabsorbed depreciation due to the following reasons: (i)The basis of apportionment of the said losses among the three trifurcated entities of MSEB is not explained. (ii) The figures of losses submitted are based on the returns filed by MSEB, but the assessed losses are not reported by the assessee company. (iii) The petition claimed to have been made before the CBDT is still pending and no approval has been granted. (iv) The assessee company has claimed demerger from the original entity i.e. MSEB. However, the said demerger has not been proved by it for which the onus was on itself. (v) The eligibility of the assessee company to claim set off and carry forward of the brought forward losses of M/ s.MSEB is not established. (vi) The information relating to the trifurcation of carried forward assessed loss was also not given. (vii) The assessment order for the AY 2006-07 has been passed in the case of M/ s MSEB. The total income is computed at NIL after set-off of brought forward losses/ unabsorbed depreciation to the extent of income available i.e. Rs. 838,65,23, 1291 -. However, neither any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7- refer page No.06 to 07 or of the compilation. ii. Order dated 10 March 2010 passed u/s.154 of the Income tax, Act 1961 for the assessment year 2007-08- refer page nos.08 to 09 of the compilation iii. Order dated 16 March 2011 passed u/s.154 of the Income tax, Act 1961 for the Assessment Year 2007-08 refer page no.11 of the compilation iv. Order dated 02 May 2011 passed u/s.154 of the Income-tax Act 1961 for the Assessment Year 2007-08 - refer page no.13 of the compilation. 17.We have considered arguments of both sides and material placed before us for our considerat ion. I t is seen that the AO has himsel f allowed this claim to the assessee in subsequent years. The Ld. CIT(A) has passed speaking order and the reasoning given by Ld.CIT(A)in allowing this claim is justified and does not need any interference of o ur p ar t .Fu r th e r ,Ld.CIT(A) ha s al l owed th i s c l aim su bj e c t t o verification by the AO to ascertain the correct fact before allowing this claim. Under these circumstances we do not find if any prejudice would be caused to the revenue.In view of the above ground no.4 of the revenue being devoid of merits is hereby dismissed." Respectfully, followin ..... 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