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TMI Blog2021 (5) TMI 1030X X X X Extracts X X X X X X X X Extracts X X X X ..... he order of assessment passed u/s.143(3) of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 30/12/2008 by the ld. Dy. Commissioner of Income Tax-1(2), Mumbai (hereinafter referred to as ld. AO). 2. The only issue to be decided in this appeal is as to whether the ld. CIT(A) was justified in deleting the disallowance made on account of prior period expenses in the facts and circumstances of the instant case. 3. We have heard rival submissions and perused the materials available on record. We find that assessee is a State Government undertaking engaged in generation of distribution of electricity. We find that in the assessment, the ld. AO proceeded to disallow the sum of Rs.158,21,51,478/- on account of prior period expenses since the same disallowance was made in the earlier years in assessee's own case. We find that the ld. CIT(A) by placing reliance on the order by his predecessor for A.Y.2001-02 in assessee's own case, deleted the said disallowance. The ld. CIT(A) also observed that the facts for the year under consideration are exactly identical to the facts prevailing in A.Y.2001-02 while deleting the disallowance. Aggrieved by this order, the Revenue is in ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore me the Ld.AR of the appellant submitted that the expenses have crystallized during the year under consideration. Further, it was also stated that the same is in accordance with the method of accounting regularly followed by the Appellant in the earlier years. 8.3. The Ld.AR of the appellant submitted that that MSEB is a statewide organisation having big network of number of offices for power Stations Constructions. 400KV/Trans. Lines Constructions. 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, of 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 circl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vs. Vishnu Industrial Gases P. Ltd. in ITR No.229/1988 wherein the High Court, while dealing with a case where the department had not disputed that the expenditure was deductible in principle but was only disputing the year in which the deduction could be allowed, held, that as the tax rates were the same in both years, the department should not fritter away its energies in raising questions as to the year of deducibility/taxability. 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 - Rs. 31,02,01,481 /- 2. Excess provision of income-tax / short provision - Rs. 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 R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... od expenses and prior period income separately in its accounts. Moreover, we find that the ld. CIT(A) had duly recognised the method of accounting regularly followed by the assessee in the instant case. We find that the ld. CIT(A) had taken due cognizance of each and every item pertaining to prior period expenses and had understood the modus operandi thereon and duly appreciated the fact of assessee 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 duri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dent-assessee and accepted by the Revenue the prior period expenses which were crystallized during the assessment year under consideration, on receipt of the bills are to be allowed as an expenditure. (c) On further appeal by the revenue the Tribunal upheld the finding of fact arrived at by the CIT(Appeals) and held that prior period expenditure was claimed 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 ..... 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