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TMI Blog2023 (6) TMI 212X X X X Extracts X X X X X X X X Extracts X X X X ..... n nature and also carrying a mandate of compliance by the assessee cannot be prospective only. The administrative directions in financial matter of Government entities have to be taken to be retrospective to time to which controversy relates unless specifically directed to be prospective. Accordingly, Ld. CIT(A) erred in disallowing the reversal of amount received as bank guarantees and interest for earlier years - Decided in favour of the assessee. Addition of prior period expenses towards superannuation benefits - HELD THAT:- The Bench is of the considered view that the settled provisions of law is that if any liability, though relating to the earlier year, depends upon making a demand and its acceptance by the assessee and such liability have been actually claimed and paid in the latter previous years it cannot be disallowed as deduction nearly on the basis that the accounts are maintained on mercantile basis and that it can relate to transactions of the previous years. Reliance can be placed on the judgement Saurashtra Cement and Chemical Industries Ltd [ 1994 (10) TMI 30 - GUJARAT HIGH COURT ] Since the change and accounting and computation is outcome of binding nature of depa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (hereinafter referred as the Ld. AO). The grounds of appeal for of AY 2015-16 is covered in appeal for AY 2013-14, so facts of AY 2013-14 are taken up for discussion on merits. 2. The return of the assessee company for AY 2013-14, was filed declaring total income at nil and current losses to be carried forward. During the scrutiny assessment proceedings it was observed by the Ld. AO from the P & L account and note No. 7 pertaining to other current liabilities that the assessee had reduced an amount of Rs. 1,15,82,16,659/- under the head exceptional items and an amount of Rs. 1,37,80,38,503/- was shown as liabilities as on 31/03/2013. It was also observed that an amount of Rs. 13,95,00,000/- was received as liquidated damages which was not credited to the P & L account. The assessee was asked to explain as to why Rs. 115,82,16,659/- of the encashed bank guarantee amount including interest on it up to financial year 2011-12 and interest of Rs. 8,40,70,447/- on the investment of the bank guarantee amount for the financial year 2012-13 should not be treated as income. In response it was submitted that that the assessee had been appointed as nodal agency for Jawaharlal Nehru National S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Solar Power Developers and since the contracts were made by the assessee, who itself forfeited bank guarantee and offered it to income in the previous years. Ld. AO also held that the assessee was rightly booking the income from forfeiture of bank guarantees in relation to such projects since the income was accruing to the assessee company and not to any other entity. Ld. AO noted that the shift in the policy and cessation of declaring the income arising from the forfeiture of bank guarantees was triggered by the letter of the Ministry containing the directions that such income was not to be considered as income of the assessee company. He further noted that no accounting taxing event happened to necessitate such change and it was a mere change of opinion on the part of the superior of the assessee company be binding on the assessee by reasons of hierarchy. Hence, the amount of Rs. 138,17,87,106/- (reversal amount +current year undisclosed amount+ interest income) was added to the income of the assessee. 2.2 Further, by note sheet entry dated 21/12/2016 the Ld. AO asked the assessee to explain why Rs. 1.34 crores under employee benefit expenses towards superannuation benefits pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nes issued by the Department of Public Enterprises, Government of India every Central public sector enterprises is obligated to spend a share of its net profit for the project serving the interests of society under the concept of corporate social responsibility. Being a government enterprise, the assessee spend the amount on various projects for the interest of the society. The reply of the assessee was considered but was not found to be acceptable. It was noted that the assessee company is engaged the business of production of thermal power and as per section 37(1), for being allowable as deduction, the expenditure should have been laid out wholly and exclusively for the purpose of business. It was also noted that the nexus between the expenditure in the business in connection with which the expenditure has been incurred has to be established before the assessee becomes entitled to deduction under section 37(1). Since the assessee failed to discharge the said onus, the expenditure of Rs. 11,75,593/- claimed in the P&L account was disallowed and added back to the income. 3. The Ld. CIT(A) has taken in to consideration the extracts from "Guidelines for Selection of New Grid Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e AO was directed to delete the addition made on account of amounts received on encashment of bank guarantees during the FY 2012-13 along with interest accrued on the encashed bank guarantees for the FY 2012-13. However, the addition made on account of reversal amount realized through bank guarantees of SPDs and the interest earned thereon received till 31/03/2012 was upheld. 3.1 In regard to the expenses pertaining to superannuation benefits Ld. CIT(A) observes that it is the contention of the appellant that liability to pay the expense crystallised during the year and is not in the nature of a prior period expense. It is also the contention of the appellant that during the FY 2012-13 government audit was conducted and based on an observation as a result of the audit it has been inferred that the appellant has to follow the DPE guidelines for superannuation fund in respect of employees deputed on secondment. However, from the submissions made it is seen that the only basis on which the expense has been booked and the methodology revised is based on a communication from NTPC Ltd., whose employees are deputed on secondment with the appellant. Ld. CIT(A) concluded that the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , alter or forgo any ground/(s) of appeal either before or at the time of hearing." 5744.Del.2019, A.Y. 2015-16 "1. Whether on the facts and circumstances of the case, the Ld. CIT(A) has erred in deleting the addition of Rs. 37,30,24,001/- on account of retention of bank guarantee encashment? 2. That the appellant craves leave to add, amend, alter or forgo any ground/(s) of appeal either before or at the time of hearing." 6. The Assessee is in appeal before the Tribunal raising following grounds :- 1. "On the facts and circumstances of the case the order passed by the learned CIT(A) is bad both in the eyes of law and on facts. 2. (i) On the facts and circumstances of the case learned CIT(A) has erred both on facts and in law in confirming the addition of Rs. 115,82,16,659/-made by the AO on account of forfeiture of bank guarantee. (ii) That the above said addition has been confirmed despite the fact that the amount realized out of encase bank guarantee and the interest accrued on deposits made on this account belongs to the Ministry of New & Renewable Energy, Government of India and not to the assessee. 3. (i) On the facts and circumstances of the case, the lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in financial matter of Government entities have to be taken to be retrospective to time to which controversy relates unless specifically directed to be prospective. Accordingly, Ld. CIT(A) erred in disallowing the reversal of amount received as bank guarantees and interest for earlier years to the extent of Rs. 1,15,82,16,659/-. Accordingly, the issue in the Revenue's appeals are decided against the Revenue and the issue no. 1 in the appeal of assessee is decided in favour of the assessee. 7.3 Ground no. 2 in the appeal of assessee : The Bench is of the considered view that the settled provisions of law is that if any liability, though relating to the earlier year, depends upon making a demand and its acceptance by the assessee and such liability have been actually claimed and paid in the latter previous years it cannot be disallowed as deduction nearly on the basis that the accounts are maintained on mercantile basis and that it can relate to transactions of the previous years. Reliance can be placed on the judgement of Hon'ble Gujrat High Court in Saurashtra Cement and Chemical Industries Ltd Versus CIT 1994(10) TMI 30 for same. It can be observed that Ld. AO has not doubted the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndertaking, working under the Ministry of Health and Family Welfare. The Government of India had issued certain Guidelines dated 09.04.2010 to all Central Public Sector Enterprises on CSR. The Guidelines issued by the Central Government dated 09.04.2010, is placed at pages 9 to 27 of the paper book filed by the assessee. As per the Guidelines as indicated under "5. Funding", all PSUs should mandatorily spend a percentage of net profit for CSR activities. The CSR expenses that has been incurred by the assessee is based on the specific directions of the Government of India and the A.O. in the assessment order passed u/s 143(3) dated 19.03.2015 had allowed the CSR expenditure. 9.5 The CSR expenses has been incurred as per the directions of Government of India. The Hon'ble Kerala High Court in the case of Travancore Titanium Products Ltd. (supra) had held that a Government Undertaking is duty bound to comply with Governmental orders. The relevant findings of the Hon'ble jurisdictional High Court reads as follows :- "Being a company under the control of the Government, it is bound to comply with all the Government orders and the Board of Directors itself is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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