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TMI Blog2023 (10) TMI 1268X X X X Extracts X X X X X X X X Extracts X X X X ..... ORDER PER KAVITHA RAJAGOPAL, J M: This appeal has been filed by the assessee, challenging the order of the learned Commissioner of Income Tax (Appeals)-22, Mumbai ( ld.CIT(A) for short) passed u/s. 250 of the Income Tax Act, 1961 ( the Act'), pertaining to the Assessment Year ( A.Y. for short) 2012-13. 2. The solitary ground of appeal raised by the assessee in this is challenging the disallowance of net prior period expenses made by the Assessing Officer ('A.O.' for short) and confirmed by the ld. CIT(A) on the ground that the assessee has not proved that the same was crystallized during the year under consideration. 3. The brief facts are that the assessee company was engaged in the business of distribution of electricity in the State of Maharashtra. The assessee had filed its return of income dated 28.09.2012, declaring loss of Rs. 1179,96,17,308/- and had filed a revised return of income dated 01.11.2013 declaring total loss of Rs. 2909,14,51,735/-. The assessee s case was selected for scrutiny and notice u/s. 143(2) and 142(1) of the Act were issued and served upon the assessee. The ld. A.O. then passed the assessment order dated 29.03.2015 det ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rticulars Amount in Lakhs Prior period income (A) Rs. 31,192.95 Prior period expenses (B) Rs. 38,461.57 Net prior period expenditure (A-B) Rs. 7,268.61 9. The ld. CIT(A) upheld the disallowance made by the ld. A.O. for the reason that the assessee has not furnished any documentary evidence neither before the ld. A.O. nor before the first appellate authority to substantiate that the said expenditure had crystallized during the impugned year. The ld. CIT(A) further held that as the assessee has been following mercantile method of accounting, for which the expenses of earlier years has to be allowed only in the year in which the liability has crystallized. The ld. CIT(A) rejected the claim of the assessee for the reason that no evidence was produced by the assessee to substantiate the crystallization of the said amount during the year under consideration. 10. The ld. AR for the assessee has relied on the decision of the Tribunal in earlier years where the said claim of the assessee has been allowed on identical facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 atta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lhi 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 suo-moto ITA No.3813/Mum/2009 and other appeals Maharashtra State Electricity Board 6 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 which were voluntarily disallow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ught 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/service ..... X X X X Extracts X X X X X X X X Extracts X X X X
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