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TMI Blog2023 (2) TMI 196X X X X Extracts X X X X X X X X Extracts X X X X ..... ly set aside the order of the ld. CIT(Appeals) and direct the ld. Assessing Officer to delete the disallowance - Consequently ground no. 1 is allowed. Delayed employer s contributions to pension fund - assessee maintains two types of funds namely Contributory Provident Fund(CPF) and General Provident fund(GPF) - whether the provisions of section 43B, 36(1)(va) and 40A(7) of the Act are applicable in the case of any contributions/provisions credited in GPF Account of the assesse company? - HELD THAT:- Gratuity as per Gratuity Act is funded with LIC (Gratuity CPF), through creation of trust. Similarly GPF is a separate Fund maintained by the assesse company as per The West Bengal Power Development Corporation Ltd. Employees (Death Cum Retirement) Benefit Regulation, 1992 hereinafter referred to as WBPDCL Employees (Death Cum Retirement) Benefit Regulation, 1992. This fund is maintained for only those employees who opt for defined benefit plans under the WBPDCL regulation In the case of WBPDCL, as discussed, GPF was created by notification in official Gazette under PF Act, 1925 and since, the GPF is a fund under PF Act, 1925 , it is excluded from the ambit of provisions of Rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e end of financial year and allowable under section 145(1) of the Act. As decided in M/S MAHANAGAR GAS LTD. [ 2013 (7) TMI 118 - BOMBAY HIGH COURT] AO disallowed the expenditure relating to prior period on the ground that as the respondent followed mercantile system of accounting expenditure relatable to an earlier year cannot be allowed as deduction in the assessment year under consideration. Thus an amount was added to the income of the Respondent-assessee. Thus we direct the ld. Assessing Officer to delete the disallowance. Disallowance for fuel and fixed cost by holding the same as unascertained liability and contingent in nature - HELD THAT:- We note that fuel and fixed cost adjustments are unbilled revenue as firmly set out by WBERC. We have perused the audited financial statements and are of the view that the assessee has unbilled income because of fuel cost adjustment and fixed cost adjustment as set out by WBERC. Therefore, the same could not be denied on the ground that the assessee has made provision for unbilled fuel cost and fixed cost adjustment under the revenue from operation and including the same to be taxable under section 115JB of the Act. Further we no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... against the order of ld. Commissioner of Income Tax (Appeals), Kolkata-10 dated 05.12.2019 passed under section 250 of the Income Tax Act, 1961 for A.Y. 2009-10. 2. First of all, we would like to adjudicate ITA No. 333/KOL/2020, wherein the assessee has raised the following grounds:- (1) That the ld. CIT(A) erred on facts and in law in having upheld the addition of Rs.17,29,58,525/- being the difference of liability as on 31.03.2006 and 31.03.2007 amounting to Rs.6,02,50,992/- and Rs.23,32,09,517/- respectively payable to financial institution under the head Current liabilities and provision by holding that interest accrued was become payable and the same had not been paid by the assessee. (2) That the ld. CIT(A) erred in having upheld the addition of Rs.17,29,58,525/- being the difference in liability payable to the financial institution but not actually paid on accrual basis as not an allowable deduction u/s 43B of the Act inspite of the fact that the liability created by debiting the P/L account was duly paid before the due date of filing ROI and further TAR did not mention anything contrary to that. (3) That, as the order of ld. CIT(A) on the above issues su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ally on 29.10.2007 declaring total income at NIL under the normal provisions and showing book profit under section 115JB of the Act of Rs.287,31,79,600/-. The assessment was completed under section 143(3)/115WE(3) of the Act vide order dated 30.11.2009 by determining total income at NIL and adjusted book profit of Rs.287,32,29,610/-. Thereafter the case of the assessee was reopened under section 147 of the Act by issuing notice under section 148 of the Act dated 30.03.2012 and assessment was framed vide order dated 28.03.2013 passed under section 147/143(3) of the Act determining total income at Rs.27,18,35,03,233/-.Once again the case of the assessee was reopened under section 147 of the Act by issuing notice under section 148 of the act dated 17.02.2014 on the ground that Rs.17,29,58,525/- being interest accrued and payable to financial institution has not been paid and thus the income has escaped assessment to that extent. The ld. Assessing Officer observed that interest accrued but not due to financial institutions , which was shown under the head current liabilities and provisions as on 31.03.2006 and as on 31.03.2007 were of Rs.6,02,50,992/- and Rs.23,32,09,517/- respec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... placed at page 71 of the paper book, out of which interest of Rs.3,69,19,946/- related to loan from financial institutions and the remaining of Rs.83,15,07,509/- was relating to the loan taken from the Government of West Bengal. We also note from the records before us that as on 31.03.2017, the interest accrued but not due of Rs.22,87,74,980/- related to interest capitalized under capital work-in-progress and only interest accrued but not due as on 31.03.2007 was Rs.44,34,537/- which was charged to profit loss account. Thus on the basis of these documents we observe that the aggregate of interest shown as interest accrued but not due came to Rs.23,32,09,517/-. The assessee has also filed before us the details of payments of interest institution wise, which are reproduced as under for ready reference:- Accrued interest claimed as expenditure during the year Sl. No. Particulars Interest amount Date of payment 1. PFC Rs.5,18,748/- 13.04.2007 2. PFC-R M Rs.30,43,202/- 12.04.2007 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. That the Ld. AO erred and the Ld. CIT(A) wrongly confirmed the disallowance of Rs. 78,90,20,392/- u/s 36(1)(va) and addition of the same to the total income u/s 2(24)(x) of the Act ont eh alleged ground that employees contributions to P.F. were not at all deposited in spite of the fact that the said pension fund was established under the provision s of the P.F. Act, 1925 vide Notification dated 11.01.2007 and as per the first proviso of the Fourth Schedule, this part shall not apply to any provident fund to which the P.F. Act, 1925 applies. 4. That as the order of Ld. CIT(A) on the above issues suffer from illegality and is devoid of any merit, the same should be quashed and your appellant be given such relief(s) as prayed for. 5. That the appellant craves leave to amend, alter, modify, substitute, add to, abridge and/or rescind any or all of the above grounds. 11. The issue raised in Grounds No. 1 is against the confirmation of disallowance of Rs.86,03,24,802/- and Rs.13,66,09,110/- aggregating to Rs.99,69,33,912/- on account of employer s contributions to pension fund by ld. CIT(Appeals), as disallowed by the ld. Assessing Officer on the ground that the amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is a separate Fund maintained by the assesse company as per The West Bengal Power Development Corporation Ltd. Employees (Death Cum Retirement) Benefit Regulation, 1992 hereinafter referred to as WBPDCL Employees (Death Cum Retirement) Benefit Regulation, 1992. This fund is maintained for only those employees who opt for defined benefit plans under the WBPDCL regulation. According to the ld. Assessing Officer, the employers contribution to pension fund of Rs. 99,69,33,912/- is covered under the provisions of section 43B of the Act and no deduction would be allowed to the assesse and accordingly the same was ,inter alia, added to the income of the assesse in the assessment framed u/s 143(3) r.w.s. 147 of the Act dated 31.03.2015. 13. In the appellate proceedings, the ld. CIT(Appeals) simply affirmed the order of the ld. Assessing Officer by rejecting the contentions of the assessee that the said contribution to pension fund is covered under the GPF Act, 1925 to which the provisions of section 43B were not applicable. 14. The ld. A.R. vehemently submitted before us that provisions of section 43B of the Act were applicable only in respect of the contributions to provident fund ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as banked with other States having power deficit and same is used to be returned to the State in the critical months as is clear and apparent from the website of power department a copy of which is placed at page no. 1-2 of PB-III. 16. The ld. Counsel submitted that the these bodies as referred to above are instrumentalities of the State Govt. to carry on the activities and discharge the functionalities , which were carried on by the State itself hitherto. The ld Counsel for the assessee stated that with the increase in the scope of work of the Government and state becoming welfare state, it was realized by the Government that the state civil services could not cope with the ever increasing developmental works and also pressure and challenges connected therewith on account the nature of activities being highly specialized and technical. So these corporations/bodies have come into being as extended arms or instrumentalities of the Govt. and the concept has gained ground and prominently in vogue for carrying out public functions which were earlier discharged by the Govt. The ld AR referred to the decision of the ld. Ajay Hasia Vs Khalid Mujib Sehravadi , AIR(1989)1SCC 712 wherein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the West Bengal Govt. from time to time and also its Chairmans is apparent from second para of Annexure -11of the Directors Report para I of Annual Report filed at page no. 16 of PB. The ld AR submitted the assessee was formed for generation of power for the State which means that it is discharging the functions of the State and is a State itself. This is apparent from website of power department of Govt. of West Bengal filed at page 1 2 of PB-111.Besides the ld AR stated that most of the directors on the board of the assessee are Govt. nominees and are from the power department of the Govt. Lastly the ld AR submitted that the assesseefulfilled and satisfiedmost of the conditions as laid down by the Hon ble Supreme Court for the purpose of definition of the State in the Article 12 of the Constitution.The ld AR also referred to the following decisions wherein it has been held that Government companies were held to be State under article 12 of the Constitution namely i)Mysore Papers Mills Ltd Vs Mysore Papers Mills Officers Association and ors(2002)37 SCL 742 SC/(2002) 108 COMP CASE 652(SC)and ii) H Purushotham Vs Union of India (1997)14 SCL 191 (Cal) 19. The ld AR also referr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of his/her joining either for General Provident Fund or Contributory Provident fund meaning thereby that under regulation 5B the company maintains two types of funds namely Contributory Provident Fund(CPF) and General Provident Fund(GPS) and the employees of WBPDCL has options to opt for any of the two. The ld Counsel further clarified that CPF is a fund maintained by the CPF Trust and all contributions towards CPF are accounted for on accrual basis and remitted regularly to CPF Trust as is evident from the note no. 11(A)(i) of the Annual Report for F.Y. 2008-09 on Employee Benefits as filed at page 49 of PB II. Similarly gratuity as per Gratuity Act is funded with LIC through creation of Gratuity Trust. Second fund namely GPF is a separate fund maintained by the assessee company as per WBPDCL employees (Death cum Retirement ) Benefit Regulation 1992 and this fund is maintained only for those employees who opt for defined benefit plans under the WBPDCL regulation as is evident and clear from note no.11(A)(ii) of Annual accounts as filed at page 49of PB II as well as para 5A and 5B of the Regulation. Lastly ,ld counsel submitted that the employees who opt for CPF are not covered und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ply to it accordingly. Further Section 8(2) of PF Act, 1925 also provides that the authority having custody of the fund shall also be treated as Government. Hence, GPF is a Government Provident Fund by virtue of provision of section 8(2) of the PF Act, 1925.Rule 3 of WBPDCL GPF Rules at page 88 of the Paper Book III provides that the Fund shall be maintained by the Corporation (WBPDCL). Thus WBPDCL is an authority having custody of the Fund and is treated as Government by virtue of section 8(2) of the PF Act,1925. From the above, it is clear that the GPF is a Government Provident fund maintained by WBPDCL itself being a Government under PF Act, 1925 .In view of the above, it is clear that WBPDCL maintains two accounts i.e. CPF which is under the control of CPF Trust and GPF (Government Provident Fund) which is under the control of the assessee (WBPDCL). 23. Now the question arises whether the provisions of section 43B, 36(1)(va) and 40A(7) of the Act are applicable in the case of any provisions credited in GPF Account of the Company. In this regard, firstly, reference is made to PART A of the Fourth Schedule of Income Act, 1961which contains the provisions for Recognized Provide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fact remains that this has not been paid but mere credited in the fund maintained by the assesse which is not permissible under the Act. The ld DR strongly contended that contributions to pension fund as maintained under GPF cannot be treated as payment by the assessee as the assessee is not State do these acts. The ld DR strongly opposed to the arguments as presented by the ld AR to prove his point on the assessee being a State for the purpose of Provident fund Act. The ld DR contended that only State Govt. or Central Govt. can maintain the GPF account and not the corporation as contended by the ld AR. The ld DR submitted that if this plea of the assessee is allowed, then every corporation of the State will start maintaining GPF itself which is not the spirit of the GPF Act, 1925. The ld DR therefore prayed that the order of ld. CIT(A) is very cogent and correct passed after appreciating the position of law correctly and may be affirmed by dismissing the appeal of the assesse. 26. We have heard the rival contentions and perused the relevant material placed before us including the Provident Fund Act, 1925 and various regulations and notifications issued in order to make applica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Annual Report filed at page no. 16 of PB. We observe that the assessee has fulfilled and satisfied most of the conditions as laid down by the Hon ble Supreme Court for the purpose of definition of the State in the Article 12 of the Constitution. The case of the assessee also find supports from the following decisions wherein it has been held that Government companies were held to be State under article 12 of the Constitution namely i)Mysore Papers Mills Ltd Vs Mysore Papers Mills Officers Association and ors(supra)and ii)H PurushothamVs Union of India (supra).So having considered the facts in the light of decisions as referred to above we have no doubt in our mind that the assessee i.e. WBPDCL is a wholly owned Govt. enterprise and is an instrumentality and agency of the State Government. 27. Further we have also perused Article 309 of the Constitution which deals with recruitment and conditions of Service of persons serving the Union or the State especially the proviso which provides that The president or such other person as he may he may direct in the case of serves and posts in connection with affairs of Union and State. We also note that in exercise of the powers conferred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the note no. 11(A)(i) of the Annual Report for F.Y. 2008-09 on Employee Benefits as filed at page 49 of PB II. Similarly gratuity as per Gratuity Act is funded with LIC through creation of Gratuity Trust. We also note that a second fund namely GPF is maintained by the company as per WBPDCL employees (Death cum Retirement ) Benefit Regulation 1992 and this fund is maintained only for those employees who opt for defined benefit plans under the WBPDCL regulation as is evident and clear from note no.11(A)(ii) of Annual accounts as filed at page 49of PB II as well as para 5A and 5B of the Regulation. Thus is clear from the above discussion that the employees who opt for CPF are not covered under WBPDCL Regulation and they are paid benefits as per Gratuity Act , 1972 and EPF Scheme, 1952 by creating separate trust for the same. Those employees who opt for WBPDCL Regulation are paid as per the regulation as separate GPF is created for the same and not as per Gratuity Act ,1972 and CPF 1952. 28. We have also perused Regulation 29(b) of WBPDCL Regulation a copy of which is filed at page 42 of the Paper Book which provides that the employees who will exercise option for Pension cum Gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 25 .From the above, it is clear that the GPF is a Government Provident fund maintained by WBPDCL itself being a Government under PF Act, 1925 .In view of the above, it is clear that WBPDCL maintains two accounts i.e. CPF which is under the control of CPF Trust and GPF (Government Provident Fund) which is under the control of Government (WBPDCL). 30. Now the question arises whether the provisions of section 43B, 36(1)(va) and 40A(7) of the Act are applicable in the case of any contributions/provisions credited in GPF Account of the assesse company. We have perused PART A of the Fourth Schedule of Income Act, 1961 which contains the provisions for Recognized Provident Funds. Section 1 of the PART A of the Fourth Schedule provides that This Part shall not apply to any provident fund to which the PF Act, 1925 (19 of 1925), applies. In the case of WBPDCL, as already discussed, GPF was created by notification in official Gazette under PF Act, 1925 and since, the GPF is a fund under PF Act, 1925 , it is excluded from the ambit of provisions of Recognized Provident Fund by virtue of PART A of Fourth Schedule of Income Tax Act, 1961. So considered these provisions , we find merit in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,this part shall not apply to any PF to which PF Act, 1925 applies. 34. We have already decided the issue in principle in Ground No. 1 above (supra), wherein we have held that the provisions of section 43B are not applicable to the pension Fund as the said fund is covered under the provisions of PF Act, 1925 vide Notification dated 11.01.2007 and as per first proviso of the Fourth Schedule, this part shall not apply to any PF to which the P.F. Act, 1925 applies. Applying the same analogy to this ground as well, we allow the ground no. 3 by setting aside the order of ld. CIT(Appeals) and directing to delete all the disallowances. Accordingly ground no. 3 of the appeal of the assessee is allowed. ITA No. 335/KOL/2020:- 35. The issue raised in Ground No. 1 is against the confirmation of disallowance of Rs.12,73,29,000/- by the ld. CIT(Appeals) as made by the ld. Assessing Officer in respect of prior period expenses without considering the facts that these expenses crystalized during the year. 36. The ld. Assessing Officer during the course of assessment proceedings observed on the basis of auditor s report in Form 3CD and Note No. 28 of the Profit Loss Account that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reiterated before the Tribunal was that the expenses were not booked due to non-receipt of details and information thereof on time, which was beyond the control of the assessee. It was also explained that the aforesaid expenses to the tune of Rs. 41.95 lakhs were marginal as compared to enormous size of the assessee-company. It was also explained that as per the accounting policy followed by the assessee, such expenses were booked in the year in which they were settled for payment. The Tribunal went into details of each and every such expense and recorded the finding of fact that all these expenses were settled during relevant year. It was also recorded that more than 50 per cent of expenses could be claimed only on actual expenses, as they were covered under section 43B(d). 39. Similarly Hon ble Gujarat High Court in the case of Saurashtra Cement and Chemical Industries Limited vs.- CIT (1995) 213 ITR 523 (Guj.) has held as under:- Merely because an expense relates to a transaction of an earlier year it does not become a liability payable in the earlier year unless it can be said that the liability was determined and crystallized in the year in question on the basis o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e issue raised in Ground No. 3 is against the confirmation of disallowance of Rs.4,06,03,630/- by ld. CIT(Appeals) as made by the ld. Assessing Officer on account of provision for gratuity by ignoring the fact that the said amount was duly deposited/transferred to General Provident Fund maintained by the Company and as per first proviso of the Fourth Schedule, this part shall not apply to any contributions to which the P.F. Act, 1925 applies. The issue raised in this ground No. 3has been decided by us in Ground No. 1 in ITA No. 334/KOL/2020 in principle by holding that as per the first proviso of the Fourth Schedule, this part shall not apply to any contribution/fund to which the P.F. Act, 1925 applies. Accordingly our decision in ITA 334/KOL/2020 would, mutatis mutandis, apply to this ground as well and consequently ground no. 3 is allowed 44. The issue raised in Ground No.4 was not pressed by the ld. Counsel for the assessee at the time of hearing. Therefore, this ground raised by the assessee is dismissed as not pressed. 45. The ground raised in Ground No.5 is against the confirmation of disallowance of Rs.47,51,08,000/- by the ld. CIT(Appeals) as made by the ld. Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation against reduction in income in future. 1 agree with the view as taken by the AO in the matter that it is unascertained liability and was contingent in nature. Keeping in view of the facts as mentioned above, in the absence of any cogent material evidence, I do not find any infirmity in the order of the assessing officer and the same is hereby upheld. In view of above, this ground of appeal is dismissed . 48. After hearing the rival submissions and perusing the material available on record, we find that the assessee is a Public Sector Undertaking and is under regulatory regime where tariff is determined in advance by Regulatory Commission and fuel and fixed cost adjustment are unbilled revenue determined as per formula set out in the WBERC (Terms and conditions of Tariff), Regulation 2011 which would be recovered after receipt of order from WBERC. We note that the assesse has included the unbilled income on account of Future Fixed cost adjustment and Future Fuel Cost Adjustment as per the said formula as set out in WBERC(Terms and Conditions Tariff) Regulation 2011. Therefore it is not in doubt that assesse has made provisions for unbilled Future Fuel and Fixed cost Adjust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es amounting to Rs.47,51,08,000/- was accepted by the ld. Assessing Officer as accrued during the year and the same was not disallowed under normal provisions of section 37 of the Act. We note that fuel and fixed cost adjustments are unbilled revenue as firmly set out by WBERC. We have perused the audited financial statements and are of the view that the assessee has unbilled income because of fuel cost adjustment and fixed cost adjustment as set out by WBERC. Therefore, the same could not be denied on the ground that the assessee has made provision for unbilled fuel cost and fixed cost adjustment under the revenue from operation and including the same to be taxable under section 115JB of the Act. Further we note that WBERC has passed the order dated 05.09.2013 directing to make adjustment for the same in financial year 2013-14, which is evident from chapter III of the Report which is filed at page no. 246 of the paper book no. 3. Considering the above facts, we are of the view that the ld. CIT(Appeals) has not appreciated the facts correctly and therefore we set aside the order of ld. CIT(Appeals) on this issue and direct the ld. Assessing Officer to delete the addition. ITA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bilities are not understated in the books of accounting. The ld. A.R. submitted that the assessee had made provisions for expenses in the month of March, 2014 for those expenditures for which the bills were received in next year and the payment was also made in the next year. Ld. A.R. relied on the decision of the Hon ble Supreme Court in the case of Calcutta Company Limited vs.- CIT reported in [1959] 37 ITR 1 (SC); Bharat Earth Movers vs.- CIT reported in [2000] 245 ITR 428 (SC); CIT vs.- Hewlett Packard India Sales (P) Ltd. Reported in [2014] 364 ITR 499 (Karnataka). Deduction should be allowed in respect of these expenses. 54. Ld. D.R., on the other hand, relied on the order of the authorities below. 55. After hearing the rival submissions and perusing the relevant material available on record, we find that undisputedly the provisions for expenses are in respect of expenditure which were relating to the month of March, for which bills were received in the month od April. Subsequently the assessee has accounted for these expenses following the mercantile system of accounting which provides for accounting of income and expenses relating to particular period irrespective ..... X X X X Extracts X X X X X X X X Extracts X X X X
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