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TMI Blog2021 (5) TMI 629X X X X Extracts X X X X X X X X Extracts X X X X ..... relevant annexure to the Tax Audit Report and by stating that the prior period expenditure debited in the books mainly pertain to expenditure in respect of which, a provision was made in earlier year and the exact amounts have been ascertained in the year under consideration and exact amounts have been ascertained in the year and hence the differential amount between provision and actual sum has been debited as prior period expenditure. As submitted that the said expenditures are mainly in the nature of incentives payable to staff, payment of fees to contractors, payment of arrears to suppliers of power etc. Detailed statements giving account head wise, location code wise were furnished before the ld AO. The assessee also drew the attention of the ld AO that assessee is required to maintain its books of accounts as per Rule prescribed u/s 69 of Electricity Supply Act, 1948, which mandates disclosure of prior period expenditure separately in the books. As CIT-A had deleted the said disallowance by stating that this is a recurring issue from earlier years and the said issue has been decided in favour of the assessee by his predecessor for the Asst Year 2001-02. We further find ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be considered to a trading receipt in the hands of the licensee. It does not constitute income of the licensee and cannot be included in the licensee's income for the purpose of computation of income tax. It is not a business receipt of the licensee which the licensee collects on its own behalf in connection with its business of generating and supplying electricity. The licensee does not collect the electricity duty for its own consumption or utilization. If the licensee collects the duty but does not pay the same to the Government, the statute provides mechanism for the Government to recover the same from the licensee. Even iii a case where the licensee is unable to recover the duty but recovers the energy charges, the statutes still provides a procedure for the Government to recover the duty either from the consumer or from the licensee. This view of ours finds support from the decision of Commissioner of Income Tax-vs.-Devatha Chandraiah [ 1983 (4) TMI 6 - ANDHRA PRADESH HIGH COURT] . Though the said case deals with sales tax, the principle laid down in that case supports our view. The mischief that Section 43B of the Income Tax Act intended to present, is taken care ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITA No.1649/Mum/2010) And CO No.171/Mum/2010 (Arising out of ITA No.945/Mum/2010 - - - Dated:- 21-4-2021 - Shri M. Balaganesh, AM And Shri Ravish Sood, JM For the Assessee : Shri Jagangir Mistri For the Revenue : Shri Rahul Raman ORDER PER BENCH: ITA No1649/Mum/2010 CO No.198/Mum/2010 This appeal in ITA No.1649/Mum/2010 CO No.198/Mum/2010 for A.Y.2004-05 arise out of the order by the ld. Commissioner of Income Tax (Appeals)-2, Mumbai in appeal No. CIT(A)-1/IT/14/07-08, CIT(A-2/IT/115/09-10 dated 22/12/2009 (ld. CIT(A) in short) against the order of assessment passed u/s.143(3) of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 24/11/2006 by the Dy. Commissioner of Income Tax-1(2), Mumbai (hereinafter referred to as ld. AO). ITA No. 945/Mum/2010 CO No.171/Mum/2010 This appeal in ITA No.945/Mum/2010 CO No.171/Mum/2010 for A.Y.2005-06 arise out of the order by the ld. Commissioner of Income Tax (Appeals)-2, Mumbai in appeal No. CIT(A)-1/IT/14/07-08, CIT(A-2/IT/115/09-10 dated 30/11/2009 (ld. CIT(A) in short) against the order of assessment passed u/s.143(3) of the Income Tax Act, 1961 (hereinafter referred to as Act) dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y Supply Act, 1948, which mandates disclosure of prior period expenditure separately in the books. We find that the ld AO not satisfied with the reply of the assessee , completely ignored the entire submissions with elaborate details submitted thereon and proceeded to make disallowance of prior period expenditure in the sum of ₹ 501,72,79,228/- in the assessment for the Asst Year 2004-05. 2.2. We find that the ld CITA had deleted the said disallowance by stating that this is a recurring issue from earlier years and the said issue has been decided in favour of the assessee by his predecessor for the Asst Year 2001-02. We further find that this tribunal in Asst Year 2001-02 in assessee s own case vide its order in ITA No. 3813/Mum/2009 dated 17.2.2021 had upheld the action of the ld CITA. The relevant operative portion of the said order of the tribunal is reproduced hereunder:- 4. We have heard rival submissions and perused the materials available on record. We find that assessee is a State Government undertaking engaged in generation and distribution of electricity. We find that the ld. AO by placing reliance on the figures mentioned in the tax audit report submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Sub-station Constructions, Power Station, Major Stores and for each of these activities like construction, Generation, transmission, distribution and maintenance, etc. MSEB has got a number of zonal offices, section offices, etc. spread throughout the Maharashtra State. This being so, there is always a communication gap and some of the payments / income due or accrued, cf the year may not be accounted for during the year. This is inspite of the fact that MSEB has got a system of proper Internal, Control and pre-audit. Further, it has got separate department headed by Director of Internal Audit for regular Internal Audit and Inspection under the D.O.I.A. for Inspection work and there are number of Inspection teams attached to circle offices for carrying out regular Inspection work. Ld.AR of the appellant mentioned that appellant's audit is conducted by CAG. In spite of above at the instant of the Government Audit, certain items of expenses and Income pertaining to earlier period are required to be accounted for. These items are nothing but spill over of the earlier period and which were not considered while submitting returns for the earlier period. MSEB Accounts thus prepare ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8.8. Without prejudice to the foregoing, the Ld.AR submitted that the following amounts (out of the prior-period expenses) have been suo-moto disallowed by the Appellant and hence disallowing the same once again would tantamount to double deduction: 1. Depreciation under provided - ₹ 31,02,01,481 /- 2. Excess provision of income-tax / short provision - ₹ 156,66,42,865/- Documents were filed evidencing the fact that the aforesaid items have been suo-moto disallowed. 8.9. I have carefully considered the submissions of the Ld.AR and gone through the material brought before me. First of all, if the appellant has worked out the loss computed as per return of income after disallowing and adding back short provisions for income tax amounting to ₹ 156,66,42,865/- and short provision of depreciation amounting to ₹ 31,02,01,481/-, the same two items cannot be added back again to the returned loss which has been adopted by the AO. The AO is directed to verify and make necessary corrections in this regard. 8.10 So far as the other items are concerned, the treatment given to them is according to the guidelines framed for preparing the account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see company conducting its operations with huge net work which eventually explains the time taken for accounting of various expenses contributing to the delay and slippage of an annual accounting year. The ld. CIT(A) also took note of the accounts of the assessee company getting scrutinized by Statutory Auditors, Internal Auditors and also by the Controller of Auditor General of India. It is pertinent to note that none of them had given any adverse remarks about the aspect of prior period expenditure. We find that the ld. CIT(A) had categorically given a finding that all the expenses reflected in the prior period expenses except the one which were voluntarily disallowed by the assessee in the return of income, though debited to prior period expenditure during the year, got crystallised during the year under consideration and hence, becomes allowable expenditure. None of these findings given by the ld. CIT(A) were rebutted by the Revenue before us. We also find that the Hon‟ble Jurisdictional High Court in the case of yet another Public Sector Undertaking in CIT vs. Mahanagar Gas Ltd., reported in 42 Taxmann.com 40 had an occasion to go through the same issue. The questio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aimed in respect of the bills received during the assessment year 2004-05, even though the work/services was received in an earlier year. This has been consistent practice followed by the respondent-assesses according to which the liability is to be accounted when the bills are received and the payments made in the subsequent year. Thus the appeal of the Respondent-assessee was allowed. (d) The Revenue's grievance is that in mercantile system of accounting the respondent assessee has to account for the expenditure in the year in which the work/service was received by them and not when the bills were received by the respondent assesses. (e) We find that the liability in respect of work/services rendered in earlier year was crystallized only on receipt of the bill in the current assessment year. Moreover, the method adopted by the respondent assesses has been accepted by the revenue for the earlier assessment year and also while accounting for the income earned in respect of the work done in earlier years. In the circumstances, the Revenue is required to adopt consistent approach and allow the expenditure which was crystallized during the assessment year under cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion project got rejected and was never taken up. Accordingly, it was decided to write off the said incurrence of capital expenditure in the books of assessee and deduction claimed for the same on account of infructuous / abandoned projects. 3.2. We find that the write off capital expenditure on infructuous / abandoned projects has been accounted by the assessee in its books of accounts in accordance with The Electricity (Supply) (Annual Accounts) Rules, 1985 which is mandatorily to be followed by the assessee company. The said rules also mandate that the expenditure incurred on identification, survey and feasibility studies before the project is considered for sanction or rejection and later if the said project is rejected, then the full amount of expenditure shall be charged to the revenue as infructuous capital expenditure in the year in which the project is rejected. Hence it could be safely concluded that the assessee had written off the expenditure in accordance with the mandate provided by the aforesaid rules. It is not in dispute that the project got rejected during the year under consideration. We also find in page 33 of the paper book containing letter addressed by a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ery. The Assessee submitted that as part and parcel of activity (a) and (b) it has been bidding for various contracts, exploration sites and had incurred expenditure on travelling bidding for tenders, exploration activities at blocks etc. The expenditure so incurred were revenue expenditure in nature. In books of account these expenses have been shown as deferred revenue expenses. The Assessee submitted that since the expenses were in the nature of revenue and directly related with the ongoing business, entire expenses incurred during this financial year should be allowed. The Assessing Officer however was of the view that the expenses incurred were only in the nature of preliminary expenses which can not be related to any business activity carried on by the assessee during the year. The Assessing Officer held that these expenses are to be capitalized in the books as preoperative expenditure on successful completion of the bid and award of contract. The Assessing Officer held that in assessment years 1994-95 1995-96, the assessee's claim for similar deduction was disallowed and for the reasons given therein, the deduction claimed was disallowed. 3. On appeal by the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut it was part of the existing business carried on by it under the control and supervision of the same management. The activities were inter-connected and there was no inter-lacing of funds and resources. The activities were carried out as inseparable from the existing line of business. Therefore, in the light of the decisions of the Supreme Court in the cases of Produce Exchange Corporation Ltd. v. CIT 77 ITR 739 and Veecumsees v. CIT 220 ITR 185 , these expenses need to be allowed as revenue in nature. The very same principle has been followed in the decision of the Tata Chemicals Ltd. v. DCIT by the Bombay Tribunal in 72 ITS 1. Therefore, in the facts and circumstances of the case, we direct the assessing authority to allow the sum of ₹ 1,60,04,350 as deduction on computing the taxable income of the assessee company. The above reasoning of the ITAT would equally apply to the impugned expenditure incurred during the previous year for setting up refinery. We, therefore, confirm the order of the CIT(A) and dismiss Ground No. 1 3.4. In view of our aforesaid observations and respectfully following the judicial precedent relied upon hereinabove, we find no infirmi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Ahmedabad Electricity Company Ltd reported in 262 ITR 97 (Guj). We find that the ld CITA by accepting the alternative argument of the assessee , had also directed the ld AO to grant deduction for payment of electricity duty made by the assessee before the due date of filing the return of income u/s 43B of the Act. 6.2. We find that this issue was the subject matter of adjudication by this tribunal in assessee s own case for the Asst Years 2001-02 to 2003-04 in CO Nos. 11, 196 and 197/Mum/2010 dated 30.9.2015 wherein it was held as under:- 5.2.Before us,the AR argued that assessee was not accounting for the duty collected by it, that it had not claimed same in the books of account, that duty was paid to the government in the year under appeal or the subsequent year, that for applicability of section 43B there should be some allowance. He referred to cases of Kerala State Electricity Board (329 ITR 91),Maharashtra State Electricity Distribution Co. Ltd.(ITA/762/Mum/2010-AY-06-07 dated 12.8.2015).DR supported the order of the FAA . 5.3.We have heard the rival submissions and perused the material before us.We find that issue of applicability of the provisions of section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same to the Government. It was further submitted that since the GOM itself was required to make payment to the appellant under a variety of accounts, or to certain poor or backward region/section of society, at Nil or subsidized charges, to be recovered from the government, the GOM settles its inter se accounts with the appellant on account of electricity duty by setting off/adjusting the amount receivable against the amount payable. The inter se payments were thus effected through set off of mutually receivable/payable balances, for which notifications were issued by the GOM from time to time. The process of issue of such notification was complex and time consuming, since it involved a variety of procedure with various authorities. During the appellate proceedings the appellant furnished a copy of notification dt.31.03.2008 issued by the GOM in support of its contention. 29. It is further submitted before the Ld. CIT(A) that the assessee did not account for this amount through its profit and loss account and only the net amount was duly effected in the balance sheet and thus electricity duty was not expenditure of the assessee and therefore, it was outside the preview of sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No.82/110/83/84 of 2004/2005 (ii) Kerala State Electricity Board vs. DCIT reported in (2010) 329 ITR 91 (iii) A.W. Figgis Co. Ltd. vs. CIT reported in (2003) 256 ITR 268 (iv) CIT vs Ovira Logistics Pvt. Ltd. reported in (2015) 58 taxmann.com 206 33. It was further submitted by Ld. Counsel that the credit for the similar amount was granted by the AO in the assessment order passed for A.Y. 2007-08 copy of the assessment order is placed in paper book at page no.161 to 175 on our attention has been drawn on page no.174. On the other hand, Ld. DR relied upon the orders of authorities below and requested for confirming the order of Ld. CIT(A). 33A. We have gone through the arguments made by both the sides as well as the material placed before us.We have also considered the case laws relied upon by the ld. Counsel on this issue, copies of which have also been placed before us. It is seen that in the case of 'Kerala State Electricity Board'(su.),it was held by the Hon'ble High Court that in these circumstances the provisions of s.43B would not be applicable. We also placed reliance on the judgment of Hon'ble Bombay High Court in the case of 'C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me Tax (supra). We are of the opinion that Section 43B of the Income Tax Act is attracted to a case where payable is to be made to the State Government in the capacity of the State as a sovereign and not to a case where payment is to be made to the State Government in its capacity as a principal by an agent. In the instant case, the relationship between the State and the licensee is of a principal and agent/fiduciary and not that of a sovereign and a subject. 20) Looking at the issue from another angle, the electricity duty collected by the licensee from the consumers is so done by the licensee as an agent of the State and, hence, the same cannot be considered to a trading receipt in the hands of the licensee. It does not constitute income of the licensee and cannot be included in the licensee's income for the purpose of computation of income tax. It is not a business receipt of the licensee which the licensee collects on its own behalf in connection with its business of generating and supplying electricity. The licensee does not collect the electricity duty for its own consumption or utilization. If the licensee collects the duty but does not pay the same to the Governmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was asked to explain as to why the said expenditure should not be disallowed in the assessment. The ld AO observed that no explanation was furnished by the assessee in this regard and hence he disallowed the same as capital expenditure in the assessment as the same was categorised as capital expenditure in the tax audit report. We find that the ld CITA held that these are recurring issues in the case of the assessee company from year on year and by following the order passed by his predecessor for the Asst Year 2001-02, upheld the action of the ld AO in respect of loss on obsolescence of fixed assets and disallowance of Intangible assets written off. With regard to loss to fixed assets due to flood, cyclone, fire etc, we find that the ld CITA had observed that assessee had not furnished any details to prove that loss had been incurred and accordingly upheld the action of the ld AO. With regard to disallowance of Deferred Revenue Expenditure written off, we find that the ld CITA had observed that assessee had not furnished any details regarding the same and hence upheld the action of the ld AO. 7.1. We find with regard to disallowance made on account of deferred revenue expenses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eciation on the assets, that the assets were part of the block of assets, that depreciation should be allowed as per provisions of section 43(6)(c) of the Act, that loss of ₹ 4.06 pertained to loss of stock-in-trade, that same was allowable. He referred to page no.254 and 370 of the paper book and relied upon the cases of Unitex Products Ltd. (22 SOT 429); Packwell Printers (359 ITD 340).Departmental Representative(DR) supported the order of the FAA . 6.3.We have heard the rival submission. As far as loss of stock in concerned, we are opinion that ITA/3813 others/Mum/09-MSEB/01-02to03-04 same is to be allowed as revenue expenditure. So,the order of the FAA is reversed to that extent. For the balance amount we hold that the assets were forming part of block of assets. Therefore, depreciation should be allowed with regard to them.We find that issue of the claim of depreciation about assets of block has been decided in favour of the assessee by the decision of Tribunal relied upon by the assessee. Ground no.2-3 are allowed in favour of the assessee, in part. 7.Last ground of appeal is about write off of intangible assets of ₹ 1.95 crores. During the assessment p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the expenditure was to be allowed. We find that lawyer's fees has been held to allowable expenditure in the matter of Bombay Cycle and Motor agencies Ltd.(supra).In that matter fees was paid to draw up lease agreement. We find that the FAA has followed the orders for AY.99-00 and 2000-01,but has not distinguished the facts of the case of AY.1997-98 and the facts of the matter under appeal. Order passed without giving any reason for not following the decision favouring the assessee, comes under the category of non speaking order. The order of the FAA falls under that category, hence cannot be endorsed. So, reversing his order, we decide last ground in favour of the assessee. 8.As the grounds raised by the AO.s and the assessee in the appeals and in the CO.s are almost similar to the ground raised by the them in the appeal and CO for the AY.2001-02,so following our order for that year, we partly allow their Appeals/CO.s for the above mentioned two years. 7.3. Respectfully following the said decision of this tribunal in assessee s own case for earlier years as referred to supra, we direct the ld AO to (i) grant depreciation on loss on obsolescence of fixed assets ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... office notes evidencing the said payment were enclosed by the appellant. b. Service Fees- ₹ 11,94,598/-. This comprises of payments towards service fees for trusteeship for MSEB Bonds to IL FS Trust company. Photo copies of JV alongwith other relevant office notes evidencing the said payments were also enclosed. 7. We noted from the above that the assessee is able to prove that these expenses were routine expenses incurred by the assessee during the course of business for the reason that on account of these loans no capital asset has been created by incurring such expenditure. We noted that even Hon‟ble Supreme Court in the case of India Cement Ltd. vs. CIT (1966) 60 ITR 52 SC held that the stamp duty, registration fee, lawyers fee etc., paid for obtaining loan was eligible for business expenditure. We noted that the aforesaid amounts were reflected in the schedule 12 of the balance sheet in the Revenue‟s account as interest and finance charges. Also the assessee has suo moto capitalize the expenses which were to be capitalized as is evident from Schedule 13 of the balance sheet, which is in Revenue‟s account. We noted from the copies of the agree ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he ld AO by the assessee that this sum of ₹ 16,060/- represent interest on balance amount (interest on delayed payment) of purchase of assets payable to Ex.Licensee viz M/s Ahmedabad Cantonment Board , Aurangabad and that the same is payable as per C.E. (Comm) letter No. CE(Com)/PG/Acctts-32/832 dated 23.3.2004 by the assessee. Hence this is a statutory payment made by the assessee which is squarely compensatory in nature and hence cannot be construed as penal in nature. Accordingly, the provisions of Explanation to Section 37(1) of the Act would not be applicable to the same. Moreover, the said interest of ₹ 16,060/- is similar to the interest payable in the sum of ₹ 4,15,852/- to REC which has been allowed by the ld CITA. We find that the nature of both the transactions are similar. Hence we find that the ld CITA is not justified in upholding the disallowance on account of ₹ 16,060/- alone. Accordingly, the Ground Nos. 7.1. to 7.3. raised by the assessee are allowed. 10. In the result , the Cross Objections preferred by the assessee for the Asst Year 2004-05 is partly allowed and Cross Objections preferred by the assessee for the Asst Year 2005-06 is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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