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TMI Blog2022 (6) TMI 838X X X X Extracts X X X X X X X X Extracts X X X X ..... and professional charges without appreciating the fact that the allowance must be granted in the year in which the liability is incurred, irrespective of the question whether the disbursement has been made or not. 2. On the facts and circumstances of the case and in law, the CIT(A) erred in deleting the addition of Rs. 1530.50 lakhs on account of overstatement of interest and finance charges. 3. On the facts and circumstances of the case the CIT(A) has erred in deleting the disallowance of prior period expenses of Rs. 28,71,38,221/- 4. On the facts and circumstances of the case and in law, the CIT(A) has erred in deleting the addition of RS. 12,86,00,000/- on account of the employee cost by holding that it was notional and not realized. 5. On the facts and circumstances of the case and in law, the CIT(A) erred in deleting the disallowance of Rs.5,54,08,761/- being provision for interest shortfall on provident fund liability without appreciating the fact that no evidence or details were furnished to establish that liability was ascertained. 6. On the facts and circumstances of the case and in law, the CIT(A) erred in merely directing the AO to examine the facts with regar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing Officer, vide order dated 14/03/2013, passed under section 143(3) of the Act, inter-alia, on the basis of Comptroller & Auditor General ("C&AG') report under section 619(4) of the Companies Act, 1961 made the addition of the aforesaid legal and professional charges by treating the same to be prior period expenses pertaining to the period from the assessment years 1999-2000 to 2006-07. 6. In appeal before the learned CIT(A), the assessee submitted that the invoices were raised by the Tax Consultant only after the various orders were passed by the Tax Department during the year ended 31/03/2010, and thus, the expenditure was crystallized during the year under consideration. The learned CIT(A), vide impugned order, allowed the appeal filed by the assessee on this issue. Being aggrieved, the Revenue is in appeal before us. 7. During the course of hearing, Shri C.T. Mathews, the learned Departmental Representative ("learned D.R."), by vehemently relying upon the order passed by the Assessing Officer submitted that the addition was made on the basis of views expressed in C&AG report and the impugned expenses pertained to the period prior to the relevant assessment year and thus is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deration is 2010-11. In such a scenario, if the Tax Consultant following its general practice raises the invoice upon conclusion of the matter after passing of the order by the concerned authority, we are of the considered view that such expenditure cannot be treated as prior period expenses. Particularly, it is only when the invoices for legal and professional services are raised by the Consultant, the liability arises / crystallizes in the hands of the assessee and it is only in that year such expenditure will be allowable to the assessee. In view of the above, we find no infirmity in the order passed by the learned CIT(A) on this issue. Accordingly, ground no.1, raised in Revenue"s appeal is dismissed. 10. The issue arising in ground no.2, raised by the Revenue is pertaining to deletion of addition of Rs.1530.50 lakhs on account of overstatement of interest and finance charges. 11. The brief facts of the case pertaining to the issue, as emanating from the record are: Pursuant to the aforesaid demerger, some of the liabilities of the erstwhile MSEB which were transferred / allocated to the assessee were not discharged by the assessee and were accordingly being reflected in its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t not due on Indian currency loan ILFS) - Rs.0.42 crs. AND "account code - 46.746" (private bonds interest accrued but not due) - Rs.14.88 crs i.e totalling Rs.15.30 crs, which were to be cleared at the time of finalization of the transfer scheme. For the sake of clarity, the reply filed by the assessee in context of the issue in question as was submitted before the A.O is reproduced as under: "This is as per the opening balances of Transfer Schemes received from the erstwhile MSEB. The said amount appears in the a/c code 46.737 (interest accrued but not due on Indian currency loan ILFS) - Rs.0.42 crs. & a/c code - 46.746 (private bonds int accrued but not due) - Rs.14.88 crs i.e total Rs.15.30 crs. This will be cleared at the time of finalization of the Transfer Scheme." However, the A.O did not find favour with the aforesaid explanation of the assessee. Observing, that the liability of Rs.15.30 crore represented an unexplained credit that was neither in existence nor payable, the same was added by him under Sec. 68 of the Act. On appeal, it was observed by the CIT(A) that the assessee was one of the successor companies to the erstwhile MSEB and was formed in the previous year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent. The appellant has explained that the interest Rs.15.30 crores was on account of transfer of certain unbundling of erstwhile MSEB. The said liabilities were appearing balance sheet as opening balances as on 01.04,2007 and no fresh entries were passed during the year. Since such liabilities were not pertaining to the year under consideration, the same could not have been considered in the year under consideration for the purpose of addition u/s.68 of the Act, Since the liabilities were pertaining to the earlier years, duly shown in the balance sheets of earlier year and also as opening balance in the year under consideration, the appellant correctly made entries of interest accrued on such old liabilities. Such liabilities were received by the appellant on account of unbundling of erstwhile MSEB, which fact was not disputed. In support of its claim of liabilities (on which interest accrued during the year) pertaining to the earlier years* the appellant has filed copies of balance sheets of the concerned year and has also explained that similar objection was raised by CAG in the F.Y.2Q06-07 pertaining to A.Y.2007-08 which is reproduced as under: A/c code 46.7 - Accrued/unclaim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of disallowance of prior period expenses of Rs.28,71,38,221. 18. The brief facts of the case pertaining to the issue, as emanating from the record are: During the course of assessment proceedings, it was noticed that the assessee while computing surplus as per revenue accounts has debited an amount of Rs.28,71,38,221, in the computation. The Assessing Officer vide order passed under section 143(3) of the Act treated the said expenses as prior period expenses and disallowed the same. 19. The learned CIT(A) by following its earlier decision rendered in assessee"s own case for preceding assessment year deleted the addition and allowed the appeal of the assessee. 20. During the course of hearing, the learned D.R. vehemently relied upon the order passed by the Assessing Officer. 21. While, the learned A.R. submitted that similar issue has been decided in favour of the taxpayer by the decisions of the Co-ordinate Bench of Tribunal rendered in the case of erstwhile MSEB. 22. We have considered the rival submissions and perused the material available on record. We find that the Co-ordinate Bench of the Tribunal in DCIT v/s Maharashtra State Electricity Board, in ITA no.3813/Mum./2009 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deration. 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. 8.2 Before 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 net work 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, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... & Fertilizers Ltd. v/s. JCIT ITA Nos. 1013/Mum/2001 and 3863/Mum/2006. 8.7. Further reliance was placed on the decision of the Delhi High Court in the case of CIT 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 suomoto 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. Firs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the Government with regard to maintenance of accounts enabled the assessee company, being a Public Sector Undertaking (PSU), to disclose the prior period 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsideration ought to be allowed. In view of the above, the CIT(Appeals) held that in view of the consistent practice followed by the Respondent-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/ser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CPF Trust are invested by the assessee in various securities segregated as Special Deposit Scheme, Central Government Schemes, State Government Securities, Public Sector Bonds and Financial Institution, etc. During the year under consideration, a valuation exercise was carried out for the purpose of complying with the requirement of Accounting Standard-15 - Employee Benefits, issued by the Institute of Chartered Accountants of India through an actuary on the investments held by the CPF Trust so as to compute the fair market of the said investment and to arrive at the shortfall / surplus of the investment over a funded liabilities of the assessee. During the year under consideration, the aforesaid valuation exercise resulted in surplus / excess in planned assets amounting to Rs.12.86 crores. The said amount was ignored while computing the total income for the year under consideration. The Assessing Officer, vide order passed under section 143(3) noted that in the Schedule-15 of employee cost, the assessee has credited an amount of Rs.12.86 crores as income due to surplus / excess in planned assets, however, while computing the income in the computation, this amount has been reduced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loss account. Hence as it is a notional entry and it is not realized during the year, addition of AO is not justified. Therefore, AO's addition is deleted and ground of appeal is allowed." 28. During the course of hearing, the learned D.R. submitted that once the surplus planned asset is credited in the Profit & Loss Account, the same is required to be included while computing the income for the year under consideration. 29. While, the learned A.R. placing reliance upon the findings in the impugned order on this issue submitted that surplus is only a notional entry and, therefore, cannot be considered as an income for the purpose of the Act. 30. We have considered the rival submissions and perused the material available on record. On a perusal of the record, it is evident that surplus in planned assets pursuant to valuation exercise by actuary on the investment held by the aforesaid CPF Trust was for the purpose of complying with the requirements of Accounting Standard-15. The same was done to compute the fair market value of the investments held in CPF Trust and to arrive at the shortfall / surplus of the investments over the liabilities of the assessee. The assessee has r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the contribution interest is not' included in the PF is allowed on the payment basis. Here it is the case of interest which is not part of Sec.-43B(b), hence, this liability which is arisen in this year should be allowed to the appellant. The appellant further relied on the case of Bharat Earth Movers vs. CIT (2000) 112 Taxman (SC) wherein it is held that "even when the business liability was unquantified as against the case of the appellant where the actuary has quantified the liability of the appellant" that if a liability has arisen in the accounting year, the deduction should be allowed although the liability may have to be quantified and discharged at the future date. When we consider that case it is clear that this interest under PF will not be covered u/s.43B(b) and also it is business liability which has arisen in this year that payment has to be made in the future date. In view of the above decision of Supreme Court, appellant's claim is allowed. The addition made by A.O. is deleted. This ground of appeal is allowed." 34. During the course of hearing, the learned D.R. vehemently relied on the order passed by the Assessing Officer. 35. On the other hand, the le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 38. The brief facts of the case pertaining to the issue, as emanating from the record are: As stated earlier in this order, the assessee is formed pursuant to demerger / unbundling of the erstwhile MSEB. The accounts of the assessee are subject to audit by C&AG in terms of the provisions of section 619(4) of the Companies Act, 1956. During the course of audit, C&AG observed that in the absence of details of lease agreement and repayment made in respect thereof, the impact of Rs.153.78 crores could not be ascertained on the Balance Sheet and the Profit & Loss Account of the assessee. In response to the C&AG remarks, the assessee submitted that the said amount of Rs.153.78 crores being advance paid for lease finance project were received by it pursuant to the transfer scheme and were opening balance of the transfer scheme received from erstwhile MSEB and hence would be settled / sorted out subsequently. The Assessing Officer, vide order passed under section 143(3) of the Act, made an addition of Rs.40 crores pertaining to capital expenditure which was claimed as lease rental payment. 39. In appeal before the learned CIT(A), the assessee submitted that the advance paid for lease f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filed by the appellant. However, he had not filed the profit and loss account of MSEB from 1999 to 2000 till date was that this amount can be verified whether these facts are correct. Hence appellant is directed to appear before the AO and submit all the profit and loss account and balance sheet of MSEB. If all these balance sheet and profit and loss accounts are submitted, the AO may verify the details and if the appellant had carried out properly all the transactions in the profit and loss account and as stated by the appellant, he had examined all the details, balance sheet properly, then only, this addition is deleted as it appears that lease liability account is capital in nature. If the accounts submitted to the A.O. are not proper in nature then the addition will be confirmed. Thus ground of appeal is partly allowed based on the submissions of the appellant." 40. During the course of hearing, the learned D.R. submitted that the learned CIT(A) instead of deciding this issue has set aside the same to the file of the Assessing Officer which is beyond the powers now available to the learned CIT(A). 41. On the other hand, the learned A.R. fairly agreed with the submissions made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... achinery. 46. The brief facts of the case pertaining to the issue, as emanating from the record are: The assessee has debited repairs on account of repair to machinery. During the course of assessment proceedings, the assessee was asked to justify the repairs and to explain as to whether they are current repairs or otherwise. In reply, the assessee submitted sample copy of certain bills providing following details and submitted that these expenditures pertained to maintenance of machinery:- Date Bill no. Particulars Amount (Rs.) Remarks 17.03.2009 259-RA-2 Fixing of Vibrating Dampers cum Spacers 7783595 These expenses are not current repairs hence capitalized 17.03.2009 263-RA-4 Fixing of Vibrating Dampers cum Spacers 6098487 These expenses are not current repairs hence capitalized 17.03.2009 267-RA-6 Fixing of Vibrating Dampers cum Spacers 1925838 These expenses are not current repairs hence capitalized 24.03.2009 280-RA-4 Fixing of Vibrating Dampers cum Spacers 3771432 These expenses are not current repairs hence capitalized 17.03.2009 260-RA-1 Fixing of Vibrating Dampers cum Spacers 314437 These expenses are not current rep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct of repairs and insurance of machinery, plant or furniture used for the purposes of the business or profession, the following deductions shall be allowed- (i) the amount paid on account of current repairs thereto ; (ii) the amount of any premium paid in respect of insurance against risk of damage or destruction thereof. Explanation.-For the removal of doubts, it is hereby declared that the amount paid on account of current repairs shall not include any expenditure in the nature of capital expenditure." 52. Thus, as per the provisions of section 31(i) of the Act, any amount paid in respect of current repair of plant and machinery or furniture used for the purpose of business or profession is allowed as deduction. The Hon'ble Supreme Court in CIT v/s Saravana Spinning Mills Pvt. Ltd., [2007] 293 ITR 201 (SC), held that the object behind the provisions of section 31(i) of the Act is to preserve and maintain the asset and not to bring in a new asset. The Hon'ble Supreme Court further held that the basic test to find out as to what would constitute current repairs is that the expenditure must have been incurred to "preserve and maintain" an already existing asset, and t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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