Income Tax Appellate Tribunal - Chandigarh
Punjab State Electricity Board, ... vs Assessee on 26 August, 2013
IN THE INCOME TAX APPELLATE TRIBUNAL
CHANDIGARH BENCH 'A', CHANDIGARH
BEFORE SHR I T.R.SOOD, ACCOUNTANT MEMBER
AND Ms. SUSHMA CHOWLA, JUDICIAL MEMBER
ITA No.387 /Chd/2011
(Assessment Year : 2007-08)
Punjab State Electricity Board, Vs. The A.C.I.T.,
The Mall, Patiala. Circle Patiala
PAN: AABCP7651E
(Appellant) (Respondent)
Appellant by : Shri K.P.Bajaj
Respondent by : S m t . J yo t i K u m a r i , D R
Date of hearing : 26.08.2013
Date of Pronouncement : 25.09.2013
O R D E R
Per SUSHMA CHOWLA, J.M. :
The appeal filed by the assessee is against the order of the Commissioner of Income-tax (Appeals), Patiala dated 21.02.2011 r e l a t i n g t o a s s e s s m e n t ye a r 2 0 0 7 - 0 8 a g a i n s t t h e o r d e r p a s s e d u n d e r section 143(3) of the Income Tax Act, 1961 (in short 'the Act').
2. The learned A.R. for the assessee at the outset pointed out that the issues in the present appeal are covered by the order of the Tribunal in assessee's own case in ITA No.1130/Chd/2009 relating to assessment year 2006-07, along with cross appeal in ITA No.1127/Chd/2009 vide order dated 31.1.2013.
3. The learned D.R. for the Revenue palced reliance on the order of the CIT (Appeals).
4. We have heard the rival contentions and perused the record. 2
5. The ground No.1 raised by the assessee is as under:
"1. That on facts and circumstances of the case the Id. CIT(A) was not justified in upholding the addition of Rs. 8,33,621/- made on account of provision of bad & doubtful debts when such amount represents actual debts."
6. Similar issue arose before the Tribunal in assessee's own case r e l a t i n g t o a s s e s s m e n t ye a r 2 0 0 6 - 0 7 a n d t h e T r i b u n a l v i d e p a r a 5 2 a t pages 21 and 22 held as under:
"52. We have heard the rival contentions and perused the record. The perusal of the annual statement of account i.e. Schedule 15(A) at reverse of page 58 of the Paper Book reflects that under the head 'other debts' totaling Rs.4.43 crores, the assessee had claimed expenditure of bad and doubtful debts written off/provided for as per account code 79.4 at Rs.13,37,113. The assessee had also made a provision for doubtful debts from the customer under account code 23.9 at Rs.25,87,71,432/- debited under Schedule 26B at page 66 of the Paper Book. Where the assessee had written off of bad debts in its account the said is allowable as an expenditure in view of the provisions of section 36(1)(vii) r.w.s. 36(2) of the Act. The necessary details and evidence in this respect are not available on record and consequently we direct the Assessing Officer to verify the claim of the assessee and decide the issue in accordance with law. Reasonable opportunity of hearing shall be afforded to the assessee. The ground No.5 raised by the assessee is allowed for statistical purposes."
7. The issue arising in the present appeal is identical to the issue raised before the Tribunal in assessee's own case relating to assessment year 2006-07 and in line with the order of the Tribunal we set aside the present issue back to the file of the Assessing Officer to follow the said directions and decide the issue after affording reasonable opportunity of hearing to the assessee. The ground No.1 raised by the assessee is allowed for statistical purposes.
8. The ground No.2 raised by the assessee is as under:
"2. That on facts and circumstances of the case the Id. CIT(A) was not justified in upholding the addition of Rs. 19,82,248/- made on account of sundry expenses for amortization of intangible assets."3
9. Similar issue arose before the Tribunal in assessee's own case r e l a t i n g t o a s s e s s m e n t ye a r 2 0 0 6 - 0 7 a n d t h e T r i b u n a l v i d e p a r a s 2 8 a n d 29 at pages 10 and 11 held as under:
"28. We have heard the rival contentions and perused the record. The expenditure claimed by the assessee under the head 'sundry expenses' is on account of writing off of lease management fee paid by the assessee. The assessee claims to have taken on lease various assets from year to year where the period of lease was for 10 years. The lease management fee paid by the assessee was amortized by the assessee in its books of account and 1/10th of the expenditure was claimed from year to year. The copy of the lease agreement is placed at pages 3 to 22 of the Paper Book under which the assessee had leased energy saving device where the total value was Rs.36.75 crores, against which the lease management fee of Rs.36.75 lacs was to be paid as per agreement dated 29.9.1995. The assessee had also placed on record the details of sundry expenses debited to its books of account at pages 1 and 2 of the Paper Book. The assessee had debited a sum of Rs.38,05,913/- on account of write off of lease management fee and further a sum of Rs.5,17,548.77 on account of further write off of the lease management fee. The perusal of the said details reflects that the lease finance arrangements were executed in the preceding year/s and 1/10th of such amount was debited during the year under consideration. The break up of the expenditure debited by the assessee during the year under consideration was as under:
S.No. Lease Finance LMF Rs. Amount of Period
Amount
Arrangement in lacs lease finance
Rs.in Cr.
-------------------------------------------------------------------------------------------
1. 9/96 173.87 58.25 10 Yrs. 1738700
2. 3/97 24.93756 24.93756 12 Yrs. 207813
3. 3/98 25.00 25.00 10 Yrs. 500000
4. 9/98 135.94 135.94 10 Yrs. 1359400
------------
3805913/-
Amount VIth Year_____ Total Seven Year
JV No. & Month Now adjusted
2827954.83 14 of 3/2000 471325.81
277337.70 15 of 3/2000 46222.96
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517548.77
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29. The perusal of the above said reflects the assessee to have booked the expenditure on account of lease arrangements entered into by the assessee in the preceding years. Similar expenditure was being claimed from year to year. The Revenue was failed to controvert the claim of the assessee that similar deferred revenue expenditure has been allowed in the earlier years. The assessee had claimed expenditure of Rs.2.33 crores in assessment year 2003-04, Rs.1.22 crores in assessment year 2004-05 and Rs.1.64 crores in assessment year 2005-06. During the 4 year under consideration the assessee has claimed expenditure of Rs.43,23,462/-. In view of the nature of the expenditure and the facts and circumstances of the case we direct the Assessing Officer to allow the expenditure of Rs.43,23,462/- debited under the head 'sundry expenses' being in the nature of amortization of lease management fee. The ground No.1 raised by the assessee is thus allowed."
10. The issue arising in the present appeal is identical to the issue raised before the Tribunal in assessee's own case relating to assessment year 2006-07 and following the same parity of reasoning we allow the expenditure of Rs.19,82,248/- under the head sundry expenses. The ground No.2 raised by the assessee is allowed.
11. The ground No.3 raised by the assessee reads as under:
"3. That on facts and circumstances of the case the Id. CIT(A) was not justified in upholding the disallowance of Rs. 32,01,25,318/- claimed on account of prior period expenses in accordance with established practice."
12. Similar issue arose before the Tribunal in assessee's own case r e l a t i n g t o a s s e s s m e n t ye a r 2 0 0 6 - 0 7 a n d t h e T r i b u n a l v i d e p a r a s 3 5 t o 4 0 at pages 13 to 16 held as under:
"35. We have heard the rival contentions and perused the record. The assessee during the year under consideration had claimed prior period expenditure of Rs.101.63 crores, break up of which is as under:
2 Prior period expenses / losses Purchase of Power 83.1 27,57,69,624 (51,09,51,620 Fuel related losses & expenses 83.2 30,13,57,621 5,21,64,628 Operating expenses 83.3 79,23,898 94,55,006 Employee costs 83.5 8,65,73,882 12,63,11,590 Depreciation unprovided in previous years 83.6 34,28,14,102 8,26,64,649 Interest & finance charges 83.7 2,05,063 (2,46,96,006) Administrative expenses 83.820 13,90,237 13,54,85,979 Freight & other purchase related expenses 83.840 2,85,744 (10,68,962) Total 1,01,63,20,171 (13,06,34,736 Net prior period credit /(charges)(1-2) (61,31,52,036) 47,73,85,001)
36. The perusal of the above said details reflects that the expenditure booked on account of prior period expenses was on account of purchase of power of Rs.27.59 crores, fuel related losses and expenses totaling Rs.30.13 crores, employees' cost of Rs.8.65 crores and depreciation unprovided in the previous years of Rs.34.28 crores and others, totaling 5 Rs.101.63 crores. The assessee during the year under consideration had also reflected income relating to previous year, break up of which is as under:
Sr. Particulars Account This Year Previous Year
No. Code 2005-2006 2004-2005
Rs. Rs.
1 Income relatinq to previous year.
Fuel related gains 65.1 0 0
Sale of Power 65.2 6,07,09,044 12,11,95,707
Interest on FDR's 65.4 0 0
Excess prov. for Income Tax 65.5 0 0
Excess prov. for depreciation 65.6 20,76,20,563 17,93,34,791
Excess prov for Interest \/
& finance Charges 65.7 18,412 33,17,976
Other excess provisions 65.8 1,59,52,590 29,69,290
Other Incomes 65.9 11,88,67,526 3,99,32,501
Sub Total 40,31,68,135 34,67,50,265
37. The claim of the assessee vis-a-vis depreciation unprovided in the previous years is allowable in the hands of the assessee in case the assessee is able to establish its claim of having not provided the depreciation in the earlier years. The assessee had also made excess provision for depreciation at Rs.20.76 crores which was included as income of the assessee. The Assessing Officer is directed to verify the claim of the assessee and if found correct the said expenditure under the head 'prior period expenses/losses' totaling Rs.34.28 crores is to be allowed in the hands of the assessee.
38. In respect of the balance expenditure booked by the assessee under the head 'prior period expenses', the claim of the assessee was that similar expenses were being booked and allowed in the hands of the assessee on account of prior period expenses. The law relating to allowability of prior period expenses has been deliberated upon by various Courts and Hon'ble Gujarat High Court in Saurashtra Cement a n d C h e m i c a l I n d u s t r i e s L t d . v . C I T ( 1 9 9 5 ) [ 2 1 3 I T R 5 2 3 ( G u j )] i t w a s held that merely because an expense related to a transaction of an earlier year 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. In Addl. CIT v. Farasol Ltd. (1987) 163 ITR 364 (Raj), the Hon'ble High Court held that the assessee entered into a contract with Oil and Natural Gas Commission in February, 1964. The operation started in December, 1964. The assessee claimed deduction of expenses for the period September 10, 1964 to December 31,1965 after the communication of approval in the assessment year 1966-67. The High Court held that the expenditure incurred in earlier years can be allowed as a deduction in the assessment year 1966-67 as it crystallized only when approval was received.
39. The Hon'ble Delhi High Court in CIT Vs. Exxon Mobil Lubricants P. Ltd. (supra) held that the liability to pay arose and crystallized on the signing of the agreement, though it related to the period prior to the previous in which the agreement was signed. It was further held by the 6 Hon'ble High Court that where the assessee had shown prior period income which was not excluded while working out current years taxable income, then there was no reason to disallow only part of the prior period adjustment i.e. prior period expenditure.
40. Now coming to the facts of the present case before us, admittedly, the income relating to prior period totaling Rs.40.31 crores has been included as income in the hands of the assessee and prior period expenses totaling Rs.101.63 crores has been disallowed by the authorities below, which includes depreciation unprovided in the previous years totaling Rs.34.28 crores. The said issue has already been set aside to the file of the Assessing Officer for verification. However, in respect of the expenditure on account of purchase of power the issue needs verification. In case the said liability arose during the year itself though relatable to the earlier year, the same is allowable in the hands of the assessee. Similarly, the claim of fuel related losses and expenses totaling Rs.30.14 crores is allowable in the hands of the assessee in case the liability to pay the same arose during the year under consideration. Similar is the case of employees' cost totaling Rs.8.66 crores. The assessee has failed to furnish complete details in respect thereof and in all fairness, we remit the issue back to the file of the Assessing Officer to verify the said claim of the assessee and if found to be correct, the said expenditure is allowable in the hands of the assessee, on the same parity of reasoning under which prior period income has been included in the hands of the assessee. Thus ground No.2 raised by the assessee is allowed for statistical purposes."
13. The issue arising in the present appeal is identical to the issue raised before the Tribunal in assessee's own case relating to assessment year 2006-07 and following the same parity of reasoning, we set aside the present issue back to the file of the Assessing Officer to verify the claim of the assessee and decide the same in line with our directions. The ground No.3 raised by the assessee is allowed for statistical purposes.
14. The ground No.4 raised by the assessee is as under:
"4. That on facts and circumstances of the case the Id. CIT(A) was not justified in upholding the disallowance of Rs. 4,91,65,541/- on account of deferred cost."
15. The learned A.R. for the assessee pointed out that similar issue arose b e f o r e t h e T r i b u n a l i n a s s e s s e e ' s o w n c a s e r e l a t i n g t o a s s e s s m e n t ye a r 2006-07 and the Tribunal vide para 41 at page 16 had allowed the claim of the assessee. The Tribunal in assessment year 2006-07 had considered the expenditure of Rs.2,93,114/- being incurred by the 7 assessee on survey and feasibility study of projects and had allowed the said claim. The relevant para reads as under:
"41. The ground No.3 raised by the assessee is on account of disallowance of Rs.2,93,114/- on account of deferred cost. The aforesaid expenditure of 2,93,114/- was incurred by the assessee on account of survey and feasibility study of projects. The said expenditure was disallowed in the hands of the assessee. We find no merit in the said disallowance of Rs.2,93,114/- as admittedly the expenditure was incurred on survey and feasibility study of projects obtained by the assessee which relate to such projects, which were ultimately not sanctioned. The said report being obtained during the course of running of the business by the assessee Board is an allowable business expenditure. Thus ground No.3 raised by the assessee is allowed."
16. However, the perusal of the assessment order passed by the Assessing Officer reflects that the expenditure booked by the assessee d u r i n g t h e ye a r u n d e r c o n s i d e r a t i o n u n d e r t h e h e a d d e f e r r e d c o s t w a s i n the nature of compensation for premature licencees and preliminary expenses on account of survey and feasibility of projects which had not been sanctioned. The observations of the Assessing Officer are in paras 8.1 to 8.3 and thereafter under para 9.1 of the assessment order.
17. The CIT (Appeals) vide para 9.2 noted the proceedings before the Assessing Officer and the said para reads as under:
9.2 Before me, the counsel for the appellant has stated that various projects are taken up by the Board at various branches all over State of Punjab. Expenditure was incurred on survey and feasibility of such projects. In case the project was through, the expenditure was capitalized, however, the expenditure in respect of the projects which are abandoned was written off as miscellaneous loses and write offs and sundry expenses were charged to the profit and loss account under the head 'Other debits'. During the course of assessment proceedings the appellant was required to explain the nature of such debits. Vide explanation dated
18.12.2009 it was explained that the same was amortization of the expenditure on account of premature preliminary expenses. The expenditure had been booked as per accounting policies notified by the Central Government vide Schedule-23, the account code given as 17 in the Annual Account Rules, 1985. Since the expenditure was written off according to the guidelines prescribed by the Government, no disallowance should have been made. 8
18. The submissions of the assessee were forwarded to the Assessing Officer who in his Remand Report submitted as under:
9.3 The A.O. in his remand report has submitted that during the course of assessment proceedings the appellant failed to furnish any documentary evidence in support of its claim. The appellant had only relied upon the accounting policies notified by the Govt. The appellant had failed to substantiate that the impugned projects and surveys were commenced in order to generate, transmit or distribute the electricity and they were not feasible. They had been abandoned and the expenses incurred thereto were debited to the P&L account as deferred cost. The appellant had failed to discharge its onus as to the claim of expenditure as revenue expenditure.
19. The CIT (Appeals) accordingly disallowed the claim of the assessee in relation to the expenditure on account of amortization of intangible assets and writing off of deferred revenue expenditure, because of the failure of the assessee to intimate how the amount was written off. The learned A.R. for the assessee had failed to meet the above said observations of both the Assessing Officer and the CIT (Appeals) and had merely relied upon the order of the Tribunal which was only in respect of the expenditure incurred on survey and feasibility study of projects. However, the expenditure in the present case is in relation to the amortization of intangible assets and writing off of the deferred revenue expenditure, which admittedly was incurred in the e a r l i e r ye a r s . I n t h e a b s e n c e o f t h e r e q u i s i t e d e t a i l s i t c a n n o t s a i d t h a t the issue is covered by the earlier order of the Tribunal. However, in the interest of justice we remit the issue back to the file of the Assessing Officer who shall adjudicate the issue de-novo in accordance with law after affording reasonable opportunity of hearing to the assessee. The assessee is directed to furnish complete details before the Assessing Officer in respect of the said expenditure. The ground No.4 raised by the assessee is allowed for statistical purposes. 9
20. The ground No.5 raised by the assessee reads as under:
5. That on facts and circumstances of the case the Id. CIT(A) was not justified in upholding the disallowance of Rs. 3,53,79,00,000/- on a/c of observations made by an auditor."
21. Similar issue arose before the Tribunal in assessee's own case r e l a t i n g t o a s s e s s m e n t ye a r 2 0 0 6 - 0 7 a n d t h e T r i b u n a l v i d e p a r a 4 9 a t page 20 held as under:
"We have heard the rival contentions and perused the record. The auditors in their annual statement of accounts observed discrepancies in the accounts maintained by the assessee. The auditors in the annual statement of account had prepared a statement showing the impact of comments on accounts as per Annexure-C annexed at reverse of page 33 of the Paper Book. The comments of the auditors advice are at pages 33 to reverse of page 34 of the Paper Book. Admittedly, the assessee is following the mercantile system of accounting and certain expenses have not been booked though relatable to the year under consideration. Similarly, the income arising in the period under consideration on certain accounts was not booked by the assessee claiming that it was following the cash system of accounting in respect thereof. The assessee is to account for the receipts and expenditure which are relatable to the previous year while preparing its accounts for the year under consideration. The claim of the assessee is that in the under-statement of surplus worked out by the auditors of Rs.53.56 crores the figure of the earlier years are also included as similar statement was being prepared from year to year. During the course of hearing it was put to both the authorized representatives that the said fact needs verification and both the authorized representatives fairly agreed for the verification exercise to be carried by the Assessing Officer. In the totality of the facts and circumstances we remit this issue back to the file of the Assessing Officer to verify the claim of the assessee and wherein the figures of the earlier years, if included in the said statement under any of the heads of income/expenditure, the same is to be ignored in order to compute the surplus which is to be included in the hands of the assessee in line with the observations of the auditors while preparing the accounts of the assessee. The ground No.4 raised by the assessee is allowed for statistical purposes."
22. The issue arising in the present appeal is identical to the issue raised before the Tribunal in assessee's own case relating to assessment year 2006-07 and in line with the order of the Tribunal we set aside the 10 present issue back to the file of the Assessing Officer to decide the same in line with our directions. The ground No.5 raised by the assessee is allowed for statistical purposes.
23. In the result, the appeal filed b y the assessee is partly allowed.
Order pronounced in the open court on this 25th day of September, 2013.
Sd/- Sd/-
(T.R.SOOD) (SUSHMA CHOWLA)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated : 25 t h September, 2013
*Rati*
Copy to: The Appellant/The Respondent/The CIT(A)/The CIT/The DR.
Assistant Registrar, ITAT, Chandigarh