Income Tax Appellate Tribunal - Ahmedabad
Gujarat State Energy Generation Ltd.,, ... vs Assessee
IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD
AHMEDABAD "D" BENCH
(BEFORE S/SHRI G.D.AGARWAL, VICE-PRESIDENT AND
MUKUL KUMAR SHRAWAT, JUDICIAL MEMBER)
ITA No.1729/Ahd/2007 and ITA No.2800/Ahd/2008
[Asstt. Year : 2004-2005 and 2005-2006]
ACIT, Gandhinagar Vs. Gujarat State Energy Generation Limited.
Gandhinagar. 3rd Floor, Block No.15, Udyog Bhavan
Sector 11, Gandhinagar.
ITA No.1829/Ahd/2007 and 2973/Ahd/2008
[Asstt. Year : 2004-2005 and 2005-2006]
Gujarat State Energy Generation Limited. Vs. ACIT, Gandhinagar
3rd Floor, Block No.15, Udyog Bhavan Gandhinagar
Sector 11, Gandhinagar.
(Appellant) (Respondent)
Revenue by : Shri Shyam Kumar
Assessee by : Shri S.N.Soparkar and
Shri Pankaj Shah
ORDER
PER G.D. AGARWAL, VICE-PRESIDENT : These are cross appeals by the Revenue and the assessee as against the orders of the Commissioner of Income Tax (Appeals), Gandhinagar arising out of the orders of the Assessing Officer passed under Section 143(3) of the Income Tax Act. Since issues are common in all the appeals, we dispose of all the cross-appeals by this consolidated for the sake of convenience.
ITA No.1829/Ahd/2007 - Assessee's Appeal A.Y:2004-2005 ITA No.1729/Ahd/2007 - Revenue's Appeal A.Y.2004-20052. First, we shall take up the assessee's appeal for A.Y.2004-2005. The Ground No.1 of the assessee's appeal reads as under:
"1. The ld.AO erred in law and on facts in granting depreciation to the appellant on the basis of SLM rates at Rs.42,10,781,803/- as against Rs.86,22,69,449/- claimed by the appellant on WDV rates basis as per its claim in the earlier assessment year. The learned CIT(A) erred in confirming the same. It is submitted that it be so held now and the claim ACIT, Gandhinagar Vs. Gujarat State Energy Generation Limited.
of depreciation on WDV rates as put up by the appellant on the basis of revised return filed for Assessment Year 2002-03 be allowed to the appellant."
3. We have heard both the parties and perused the material placed before us. We find that this issue to be squarely covered in favour of the assessee by the decision of the ITAT in assessee's own case for A.Y.2002-03 vide ITA No.1221/Ahd/2006 dated 3-3-2009 wherein the ITAT held as under:
"16. As regards claim of depreciation of WDV basis as against claimed allowed as per SLM basis as per original return, ld.counsel for the assessee submitted that the assessee can alter the claim of depreciation by filing revised return. For these purposes reliance was placed on following decisions:
(1) CIT V/s.Arund Textile 'C', 192 ITR 700 (Guj);
(2) CIT Vs. Mahendra Mills, 243 ITR 56 (SC);
(3) CIT Vs. Sree Senhavalli Textiles P. Ltd., 259 ITR 77
(Mad);
(4) BECO Engineering Co. Ltd. Vs. CIT, Rahatak, 1248 ITR
478 (P&H);
(5) 134 ITR 352;
(6) Delhi Cloth & General Mills Co. Ltd.Vs. State of UP &
Others, 118 ITR 227 (SC);
16.1 Ld.DR, on the other hand, relied upon appellate order. He submitted that though the assessee is entitled to claim depreciation on WDV method, yet for claiming so the option has to be exercised before the due date of furnishing return of income prescribed under Section 159(1) of the Act. Since the revised return was filed beyond the period prescribed under section 139(1) the assessee is not entitled to claim depreciation on the basis of WDV method.
17. The effect of filing revised return is that if it effaces the original return and in its place substitutes a return which partakes the character of the original return. Since the original return is substituted by the revised return, only the revised return can be considered to be filed as required under section 139(1) of the Act. Hon'ble Gujarat High Court in the case of Arun Textile Co. (supra) held that once a revised return is filed under section 139(5) the original return is substituted by the revised return. It was also held that though the assessee has claimed depreciation allowance in the original return filed but withdrawn the claim in the revised return furnished, the effect is that the assessee has not claimed depreciation allowance by making the intention clear. Therefore, it was not upon to the Assessing Officer to advert to the -2- ACIT, Gandhinagar Vs. Gujarat State Energy Generation Limited.
original return for the purpose of allowing depreciation which can be expressly withdrawn by filing the revised return. This view has been approved by Hon'ble Supreme Court in the case of CIT Vs. Mahendra Mills, 243 ITR 56. Hon'ble Supreme Court held that if the revised return is valid return and the assessee has withdrawn the claim of depreciation it cannot be granted relying on the original return as assessment is based on revised return. Hon'ble Allahabad High Court in the case of Niranjan Vs. CIT, 134 ITR 352 has considered whether a revised return which has been filed under section 139(5) itself can be revised or not. Hon'ble Allahabad High Court held that a revised return may be furnished at any time before the assessment is made by person who has furnished the return under section 139(1). Once a revised return has been filed under section 139(5), the original return is substituted by the revised return. The return filed under section 139(5) being a voluntary return is of the nature of a return under section 139(1), therefore, a second revised return can be filed under section 139(5) correcting omission and wrong statement made in the first revised return, for the first revised return filed under section 139(5), in law be a return under section 139(1) also.
17.1 The effect of all these decisions is that since the original return gets substituted by revised return and the revised return being considered as filed under section 139(1) of the Act, the opinion exercised in original return cannot be said to have been exercised at all. The option which can be said to be exercised is only in revised return as the original return is non est or is effaced. Hon'ble Supreme Court in the case of Delhi Cloth and General Company Ltd. Vs. State of UP., 118 ITR 277 was considering a claim which was required to be considered as per the option which was required to be exercised by the assessee. Hon'ble Supreme Court observed as under:
xxxxx From the aforesaid ruling of Hon'ble Supreme Court, it can be held that where the assessee is required to exercise an option before a particular date and thus such op9tion is exercised in the original return, yet if the assessee files a valid revised return, the option cannot be said to have been exercised and he will have right to change his option by filing a fresh and revised return before the assessment is made for that year. In view of this, it can be held that the option exercised by the assessee in respect of claim on depreciation on SLM method gets substituted by the option of claim of depreciation as per WDV method. Accordingly, the Assessing Officer is directed to allow the depreciation on the basis of revised claim made in the revised return."-3-
ACIT, Gandhinagar Vs. Gujarat State Energy Generation Limited.
This decision was also followed by the ITAT for A.Y.2003-04 vide ITA No.2753/Ahd/2006 dated 19-6-2009. Since the facts of the year under consideration are identical, we respectfully following the above decision in assessee's own case for A.Y.2002-2003 and 2004-2004, uphold the order of the CIT(A) on this point and allow ground no.1 of the assessee.
4. Ground No.2 of the assessee's appeal reads as under:
"2. The ld.CIT(A) erred in confirming disallowance of Rs.6,00,000/- following his appellate order in assessment year 2002- 03 as expenses attributable to earning exempt income u/s.14A even though no dividend was received during the year and even though there was no nexus established by learned AO between borrowed funds of the appellant and the investment made."
5. At the time of hearing before us, the learned counsel fairly admitted that on this point the ITAT set aside the matter back to the file of the AO in A.Y.2002-03 and 2003-04. He therefore submitted that for this year also the matter may be sent back to the file of the AO. The learned DR, on the other hand, relied upon the orders of the authorities below.
6. We have considered rival arguments of both the sides and we find that the ITAT has considered identical issue in assessee's own case for A.Y.2002- 03 and 2003-04 and has set aside the same back to the file of the AO. Respectfully following the above decision of the ITAT, we also set aside the order of the authorities below and restore the mater back to the file of the AO. We direct him to re-adjudicate the same in accordance with law.
7. Ground No.3 of the assessee's appeal reads as under:
"3. The ld.CIT(A) erred in confirming disallowance of Rs.1,04,732/- in respect of purchase of power from GEB as prior year expenses and also Rs.15,00,058/- in respect of plant dedication ceremony expenses (which were capitalized in earlier assessment year and now came to be decapitalized following the objection from C&AG Audit) as prior year expenses."-4-
ACIT, Gandhinagar Vs. Gujarat State Energy Generation Limited.
8. The only ground raised in the Revenue's appeal is also similar to this ground of the assessee. Therefore, we shall consider the ground raised by the Revenue along with ground no.3 of the assessee's appeal. The ground raised in the Revenue's appeal reads as under:
"1. The ld.CIT(A) has erred in law and on facts of the case in directing the AO to allow the prior period expenses of Rs.18,19,314/- as the same is not allowable as per accounting standards applicable to mercantile system of accounting."
9. The facts of the case are that for the year under consideration, the AO disallowed a sum of Rs.33,15,639/- being prior period expenditure. On appeal, the CIT(A) deleted the disallowance to the extent of Rs.13,19,314/- against which the Revenue is in appeal, while the CIT(A) confirmed the disallowance amounting to Rs.1,04,732/- and Rs.15,00,058/- against which the assessee is in appeal.
10. At the time of hearing before us, it was pointed out by the learned counsel that for A.Y.2003-04, the ITAT set aside the matter back to the file of the CIT(A) for adjudication of the issue afresh. However, he has stated that in the year under consideration all the facts were available on record and therefore there is no necessity of setting aside the matter back to the file of the AO. The learned DR, on the other hand stated that before the AO, the assessee had not filed any evidences to establish that the liability of prior period expenditure was crystalised during the year under consideration. The assessee is having mercantile system of accounting. The burden is on the assessee to establish that the liability is crystalized during the year under consideration and then only the expenditure can be allowed. He therefore submitted that the order of this CIT(A) on this point may be reversed and that of the AO may be restored.
11. We have carefully considered the rival submissions and considered the material available on record. The AO has discussed this issue as under:
-5-ACIT, Gandhinagar Vs. Gujarat State Energy Generation Limited.
(4) PRIOR PERIOD EXPENSES:
4.1 A close scrutiny of the tax audit reflects that certain expenses/income pertaining to prior period were made part of the Profit & Loss Account of the period under consideration. The details of such items as per col. No.22(b) of Tax Audit Report u s 44AB are as under:
i) Debit entries to P & L A/c Rs.36.56 lacs
ii) Credit entries to P & L Rs.3.72 lacs
Net debit effect to P Rs.324S lacs
Since the assessee is following mercantile system of accounting, they were asked to explain reasons and justification of debiting the P & L A/c of current year with the expenditure pertaining to earlier years as mentioned in the Tax Audit Report. The assessee's reply submitted vide letter dated 1/1 1 /06 is reproduced as under:
"As regards to the prior period expenses, we are submitting herewith the detain account at Annexure BI which gives net figure of Rs.33,15,639/-. This is correct figure which is debited in the P & L Account and the difference in the figure of these items inform no.3CD may please be ignored.
We also enclose herewith at Annexure 'B2", our clalni for the deduction of Rs.19,24, 046/- out of the total amount of Rs.33,1 S, 639/- since these expenses were either crystallized/settled during the year or were claimable on cash basis u/s 43B of the Act, even if they pertained to earlier years."
The assessee's contention is considered and held as not tenable on legal and factual ground on various accounts. As admitted in Tax Audit Report, the assessee follows the mercantile system and these expenses were incurred in earlier years which is also mention in the 3CD report. The assessee's perception that these prior period expenditures have been crystallized or settled during the subsequent time period under consideration amounts to a subjective assessment towards actual occurrence of such transactions. This peculiar treatment is allowable only in the "cash system of accounting", whereas the assessee is consistently following "mercantile system of accounting". In this regard the Court has also opined that under the mercantile system, income and expenditure are recorded at the time of their occurrence -6- ACIT, Gandhinagar Vs. Gujarat State Energy Generation Limited.
during the relevant previous year. For instance, income accrued during the previous year is recorded whether it is received during the previous year or during a year preceding or following the previous year. Similarly expenditure is recorded if it is due during the previous year irrespective of fact whether it is paid during the previous year or not (Indermani Jatia Vs. CIT, 351 ITR 298 (SC)]. Under the above circumstances, it is held that since the assessee is following the mercantile system of accounting, therefore, expenses incurred prior to relevant accounting period are not allowable as expenses in subsequent year under consideration. Accordingly, a sum of Rs.312,15,639/- pertaining to earlier period and claimed during the period under consideration, is disallowed and added back to the total income of the assessee."
From the above, it is evident that before the AO the assessee produced the details of only Rs.19,24,046/-. Even in respect of such details the claim of the assessee was vague because the assessee mentioned that these expenditure were either crystallized/settled during the year or were allowable on cash basis as per Section 43B of the Income Tax Act. However, the AO has not made any comment in respect of the details furnished by the assessee. The CIT(A) has also not considered the details furnished by the assessee, but simply stated that on the basis of the details furnished before the AO, most of the expenditure out of Rs.19,24,046/- were crystallized during the year under consideration. In our opinion, the matter needs proper examination at the end of the AO. We therefore set aside the order of the authorities below on this issue and restore the matter back to the file of the AO. We direct the AO to allow adequate opportunities to the assessee to produce the evidences so as to establish that the liability in respect of prior period expenditure was crystallized during the year under consideration or the expenditure is covered by Section 43B. On furnishing of the details by the assessee, the AO will pass a speaking order in respect of each expenditure, in accordance with law.
12. Ground No.4 of the assessee's appeal reads as under:
"4. The ld.CIT(A) erred in confirming disallowance of Rs.24,03,599/- paid by the appellant to GEB for power purchase out of Rs.39,59,199/--7-
ACIT, Gandhinagar Vs. Gujarat State Energy Generation Limited.
on the ground that liability to the extent of Rs.24,03,599/- is under dispute with GEB and hence is not allowable against income."
13. At the time of hearing before us, it was pointed out by the learned counsel that this issue is covered in favour of the assessee by the decision of the ITAT in assessee's own case for A.Y.2003-2004 (supra) wherein the ITAT held as under:
"46. We have heard the rival submissions and perused the orders of the lower authorities and the materials available on record. The Assessing Officer observed that the assessee had disputed bill of Rs.87,76,228/- and Rs.14,00,291/- received from GEB. He, therefore, disallowed deduction claimed in respect of the same. The ld. CIT(Appeals) observed that the assessee purchased Electricity from GEB. In respect of this, bill was raised GEB of Rs.87,76,228/- and Rs.14,00,291/-., The assessee finding that the rate per unit of Electricity charges in the bills were exorbitant, disputed its liability and the matter was referred to arbitration. Therefore, the ld.CIT(Appeals) deleted the disallowance in its entirety. We find that it is not a dispute that the Electricity was consumed by the assessee and therefore, the assessee was legally liable to pay to GEB in respect of such consumption. The mere fact that the assessee has disputed the bill amount does not empower the Assessing Office to disallow the claim in full. The dispute is in respect of quantum only and not in respect of actual use of Electricity for business purposes of the assessee. Thus, in our considered opinion, the Assessing Officer was not justified in disallowing the claim in its entirety. It is not the case of the Revenue that the bills raised by GEB was bogus or GEB has allowed any rebate or reduction in respect of the said bills to the assessee during the year under consideration. We therefore, do not find any error in the order of the ld. CIT(A). It is, therefore, confirmed and the ground of appeal of the Revenue is dismissed."
Admittedly, the facts of the year under consideration are identical to the facts for A.Y.2003-04, therefore respectfully following the decision of ITAT in assessee's own case for A.Y.2003-04, we allow Ground no.4 of the assessee's appeal.
14. Ground No.5 of the assessee's appeal is against charging of interest under Section 234B. At the time of hearing before us, the learned counsel -8- ACIT, Gandhinagar Vs. Gujarat State Energy Generation Limited.
fairly conceded that this issue would be consequential. Therefore, we direct the AO to re-compute the interest under Section 234B in accordance with law after the final determination of the income as our above order.
ITA No.2800/Ahd/2008 for A.Y.2005-2006 (Revenue's appeal) ITA No.2973/Ahd/2008 for A.Y.2005-2006 (Assessee's appeal)15. Ground No.1 of the assessee's appeal is identical to the Ground No.1 of the assessee's s appeal for A.Y.2004-2005. For the detailed discussion above, in para-3, Ground No.1 of this appeal of the assessee is allowed.
16. Ground no.2 of this assessee's appeal is identical to the Ground No.2 of the assessee's appeal for the A.Y.2004-2005. For the detailed discussion in para-5 the order of the authorities below on this point is set aside and the issue is restored to the file of the AO to be adjudicated in accordance with law. Needless to mention that while re-adjudicating the issue, the AO will allow adequate opportunity of being heard to the assessee.
17. Ground No.3 of the assessee's appeal and only ground in the Revenue's appeal are identical to the Ground No.3 in the assessee's appeal for A.Y.2004- 2005. For the detailed discussion in para-11, we set aside the order of the authorities below on this point and restore the matter back to the file of the AO for re-adjudication as per our direction for A.Y.2004-2005. Needless to mention that the AO will give adequate opportunity for hearing to the assessee while re-adjudicate the issue.
18. Ground No.4 of the assessee's appeal reads as under:
"4. The ld.CIT(A) erred in law in dismissing the ground of the appellant to direct learned AO to quantity unabsorbed depreciation and carry forward of business loss in the event of the appellant succeeding in appeal before the ITAT in the assessment year 2002-03 and subsequent assessment years. It is submitted that it be so held now."-9-
ACIT, Gandhinagar Vs. Gujarat State Energy Generation Limited.
19. At the time of hearing before us, the learned counsel fairly stated that this issue is purely consequential and the only request made by the assessee in this ground of appeal is for the quantification of unabsorbed depreciation and carry forward loss in view of the decision of the ITAT for A.Y.2002-03. The request of the assessee is quite fair and reasonable. The AO is duty bound to give effect to the order of the ITAT of each year and thereafter work out, unabsorbed depreciation or the business loss, if any, and carry forward and set off against the business profit, if any of the subsequent year. We therefore direct the AO to act in accordance with law in this regard.
20. Ground No.5 is against charging of interest under Section 234B. At the time of hearing before us, it is stated by the learned counsel that the charging of interest is consequential. We therefore direct the AO to re-work out the interest under Section 234B in accordance with law after final determination of the income as per our order.
21. In result, the assessee's appeals are allowed partly, while the Revenue's appeals are deemed to be allowed for statistical purpose.
Order pronounced in Open Court on 26th November, 2010.
Sd/- Sd/-
(MUKUL KUMAR SHRAWAT) (G.D. AGARWAL)
JUDICIAL MEMBER VICE-PRESIDENT
Place : Ahmedabad
Date : 26-11-2010
Copy of the order forwarded to:
1) : Appellant
2) : Respondent
3) : CIT(A)
4) : CIT concerned
5) : DR, ITAT.
BY ORDER
DR/AR, ITAT, AHMEDABAD
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