Income Tax Appellate Tribunal - Chandigarh
Punjab State Electricity Board,, ... vs Assessee on 5 December, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
CHANDIGARH BENCH 'A', CHANDIGARH
BEFORE Ms. SUSHMA CHOWLA, JUDICIAL MEMBER
AND SHRI MEHAR SINGH, ACCOUNTANT MEMBER
ITA No.1127/Chd/2009
( Assessment Years : 2006-07)
The A.C.I.T., Vs. M/s Punjab State Electricity Board,
Circle Patiala. Patiala.
PAN: AABCP7651E
And
ITA No.1130/Chd/2009
( Assessment Years : 2006-07)
M/s Punjab State Electricity Board, Vs. The A.C.I.T.,
Patiala. Circle Patiala.
PAN: AABCP7651E
(Appellant) (Respondent)
Assessee by : Shri K.P.Bajaj
Department by : Shri N.K.Saini, DR
Date of hearing : 05.12.2012
Date of Pronouncement: 31.01.2013
O R D E R
Per SUSHMA CHOWLA, J.M. :
The cross appeals filed by the Revenue and the assessee are against the order of the Commissioner of Income-tax (Appeals), Patiala dated
28..10.2009 relating to assessment year 2006-07 against the order passed u/s 143(3) of the Income Tax Act, 1961.
2. The cross appeals filed by the assessee and Revenue were heard together and are being disposed off by this consolidated order for the sake of convenience.
3. The Revenue has raised the following grounds of appeal : 2
"1. In the facts and circumstances of the case, the CIT(A) has erred in holding that payment had been made for use of the satellite and in the process no asset of enduring benefit had been acquired and accordingly the usage Charges could not be treated us capital expenditure, ignoring that the assessee had failed to substantiate its claim by filing an evidence that the payment to Punjab Wireless Systems was for the services rendered and that no asset of enduring benefit had come into existence.
2. In the facts and circumstances of the case, the CIT(A) has erred in directing the AO to allow the claim of lease rentals to the assessee on the ground that the lease was duly executed through agreements, which have not been ' proved to be false, ignoring the fact that the issue involved is not the genuineness per-se of the documents but the intention behind the drafting of such documents.
3. The CIT(A). has further erred in not appreciating the fact that the arrangement made between the assessee and the financial institutions, by executing the impugned agreements, is in the nature of colourable device to reduce the tax liability artificially of both the parties in contravention of the findings of Hon'ble Apex Court in the case of McDowell Ltd., V CTO (1985) 154 ITR 148(SC).
4. In the facts and circumstances of the case, the CIT(A) has erred in law in allowing the set-off of B/F business losses against the income assessed under the head 'Income from other sources' in violation of the provisions of Section 72 of the Income Tax Act, 1961.
4. The assessee has raised the following grounds of appeal :
"1. That the Id. C.I.T (A) was not justified in upholding the addition of Rs.43,23,462/- out of sundry expenses for amortization of intangible assets.
2. That the Id. Commissioner of Income-tax (Appeals) was not justified in upholding the disallowance of Rs.101,63,20,271/- claimed on account of prior period expenses in accordance with the established practice.
3. That the Id. Commissioner of Income-tax (Appeals) was not justified in upholding the disallowance of Rs.2,93,114/- claimed on account of deferred cost.
4. That the Id. CIT(A) was not justified in upholding the disallowance of Rs.53,56,00,000/- as per the observations of the auditors.
5. That the Id. CIT(A) was not justified in disallowing the claim of the assessee in respect of bad debts amounting to Rs.13,37,113/-."ITA No.1127/Chd/2009:
5. The brief facts of the case are that the assessee was a Board and was engaged in the generation, transmission and distribution of 3 e l e c t r i c i t y. T h e a s s e s s e e f o r t h e ye a r u n d e r c o n s i d e r a t i o n h a d f u r n i s h e d return of income declaring nil income after claiming set off of unabsorbed depreciation and brought forward losses against net profit earned at Rs.3,38,28,107/-. During the course of assessment proceedings the Assessing Officer noted the assessee to have claimed expenditure of Rs.29,28,651/- as satellite charges. The explanation of the assessee as regards the nature and justification of allowability of the expenditure is incorporated under para 2 at page 2 of the assessment order. The Assessing Officer was of the view that the said expenses were of capital nature and thus an addition of Rs.29,28,651/- was made to the returned income.
6. Before the CIT (Appeals) the claim of the assessee was that the Assessing Officer has failed to consider the factual aspect of the said p a ym e n t b e i n g m a d e f o r u s i n g t h e s e r v i c e o f t h e s a t e l l i t e a n d n o s a t e l l i t e of its own was installed by the assessee Board. The copy of the written submissions filed by the assessee before the CIT (Appeals) were forwarded to the Assessing Officer, who in turn projected that the assessee had failed to file the evidence in support of the fact that the p a ym e n t w a s m a d e o n a c c o u n t o f t h e u s e r o f t h e s a t e l l i t e . The CIT (Appeals) allowed the claim of the assessee in view of the fact that the p a ym e n t w a s m a d e f o r u s e o f s a t e l l i t e a n d i n t h e p r o c e s s n o a s s e t o f enduring benefit acquired.
7. The Revenue is in appeal against the order of CIT (Appeals). The learned D.R. for the Revenue placed reliance on the order of the Assessing Officer.
8. The learned A.R. for the assessee pointed out that the aforesaid satellite charges were paid for the usage of the equipment and were not 4 against the purchase of the asset and consequently the same were to be allowed as an expenditure in the hands of the assessee.
9. We have heard the rival contentions and perused the record. The a s s e s s e e 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 h a d b o o k e d e x p e n d i t u r e o n account of satellite charges totaling Rs.29,28,651/-. The explanation of the assessee in relation to the nature of expenditure was that an e q u i p m e n t w a s p l a c e d o n P u n j a b W i r e l e s s S ys t e m , S A S N a g a r , M o h a l i , called V-sat Satellite by that concern for providing communication s ys t e m t o t h e a s s e s s e e . It was used for collecting data for supervisory control and data acquisition. The assessee claims that the said amount was on account of operational and usage charges of the V-sat Satellite communication system which were incidental to the business of the PSEB. Before the CIT (Appeals), the assessee claimed that the copy of the written submissions filed b y the assessee before the CIT (Appeals) were forwarded to the Assessing Officer, who projected that the assessee h a d f a i l e d t o f i l e e v i d e n c e i n s u p p o r t o f t h e f a c t t h a t t h e p a ym e n t m a d e was on account of user of the satellite. The CIT (Appeals) vide para 2.5 observed as under:
"2.5 I have gone through the facts sof the case,e the written submissions filed by both the parties from time to time. It is a fact that the payment was made for use of the satellite and in the process no asset of enduring benefit was acquired. The audit report and final account from part of the record from which it is not evident that the asset was acquired. In these circumstances the usage charges paid cannot be treated as capital expenditure."
10. The factual finding of the CIT (Appeals) that the payment was m a d e f o r u s e o f s a t e l l i t e a n d n o a s s e t w a s a c q u i r e d d u r i n g t h e ye a r h a s not been disputed by the Revenue. Further the perusal of the Audit Report and the final accounts does not reflect the acquisition of the said 5 asset. In the totality of the above said facts and circumstances, we are in conformity with the order of the CIT (Appeals) and upholding the same we dismiss ground No.1 raised by the Revenue.
11. The issue in ground Nos.2 and 3 raised by the Revenue is against the claim of expenditure on account of lease rentals.
12. The learned A.R. for the assessee at the outset pointed out that the said issue is covered in favour of the assessee by the ratio laid down by t h e H o n ' b l e P u n j a b & H a r ya n a H i g h C o u r t i n C I T V s . P u n j a b S t a t e Electricit y Board [320 ITR 469 (P&H)]. It was further pointed out by the learned A.R. for the assessee that the SLP filed by the Revenue has been dismissed by the Hon'ble Apex Court.
13. The assessee had claimed lease rentals on sale and lease back of assets totaling Rs.7,27,31,128/-. The assessee had sold leased back a s s e t s a m o u n t i n g t o R s . 3 5 3 . 4 7 c r o r e s u p t o t h e ye a r 2 0 0 5 - 0 6 , o u t o f w h i c h p a ym e n t o f l e a s e r e n t a l s a m o u n t i n g t o R s . 7 . 2 7 c r o r e s i n r e s p e c t o f t h e s a i d l e a s e d o u t a s s e t s r e l a t e d t o t h e f i n a n c i a l ye a r 2 0 0 5 - 0 6 a n d t h e same was claimed as an expenditure. The Assessing Officer vide para 9 requisitioned the assessee to explain why the addition should not be m a d e o n t h e b a s i s o f t h e e a r l i e r ye a r s .
14. The CIT (Appeals) allowed the claim of the assessee in view of the ratio laid down by the Tribunal in assessee's own case relating to earlier years. We find that the issue of deductibility of lease rentals stands settled by the Hon'ble Punjab & Haryana High Court in CIT Vs. Punjab State Electricity Board (supra) wherein it has been held as under:
"Held, dismissing the appeal, that merely because tax liability was reduced, that could not be conclusive of arrangement being sham or a device. The Tribunal had held that no colourable device had been adopted by the assessee and it could not be said that any and every 6 attempt at tax planning was illegal/illegitimate. Every transaction or arrangement which was perfectly permissible under the law, having the effect of reducing the tax burden on the assessee could not simply be discarded because it was the businessman/assessee who was to take a decision in view of its business expediency. There was no substantial question of law."
15. The facts in the present case being identical to the facts of the e a r l i e r ye a r s a n d f o l l o w i n g t h e r a t i o l a i d d o w n b y t h e P u n j a b & H a r ya n a High Court we uphold the order of the CIT (Appeals) in allowing deduction on account of lease rentals amounting to Rs.7.27 crores. The ground Nos.2 and 3 raised by the Revenue are thus dismissed.
16. The ground No.4 raised by the Revenue is against the direction of CIT (Appeals) in allowing set off of business losses against the income assessed under the head 'income from other sources'.
17. The learned A.R. for the assessee fairly pointed out that the i n c o m e f r o m o t h e r s o u r c e s d e c l a r e d b y t h e a s s e s s e e d u r i n g t h e ye a r under consideration was Rs.13.67 crores, against which unabsorbed depreciation relating to assessment years 2000-01 to 2005-06 had been adjusted in view of the provisions of section 32(2) of the Act and there was no merit in the ground of appeal raised by the Revenue in which it was alleged that the brought forward business losses had been adjusted against the head 'income from other sources'. It was put to the learned A.R. for the assessee during the course of hearing that the above said fact of adjustment of unabsorbed depreciation is not apparent from record to which the learned A.R. for the assessee fairly agreed that the said fact may be verified by the Assessing Officer and the said set off may be allowed.
18. The learned D.R. for the Revenue placed reliance on the order of the Assessing Officer.
7
19. We have heard the rival contentions and perused the record. A d m i t t e d l y, t h e a s s e s s e e h a d d e c l a r e d i n t e r e s t i n c o m e u n d e r t h e h e a d 'income from other sources' totaling Rs.13.67 crores. The plea of the assessee was that the unabsorbed depreciation not set off against the business income declared by the assessee in the preceding years is to be carried forward as current depreciation in the succeeding years under the provisions of section 32(2) of the Act, which is to be allowed as a d e d u c t i o n a s c u r r e n t d e p r e c i a t i o n o f t h e s u c c e e d i n g ye a r s . We are in conformity with the plea of the assessee that the unabsorbed depreciation 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 1 - 0 2 a n d s u b s e q u e n t a s s e s s m e n t ye a r s i s t o b e c a r r i e d f o r w a r d t o t h e s u c c e e d i n g ye a r a n d i s t o b e m e r g e d w i t h c u r r e n t d e p r e c i a t i o n o f t h e s u c c e e d i n g ye a r . The same is adjustable against the income under any head of income for the instant assessment year in view of the provisions of section 71 of the Act. The provisions of section 32(2) of the Act w.e.f. 1.4.2002 provide that in case where depreciation claimed by the assessee on its assets is not adjusted against t h e p r o f i t s e a r n e d b y t h e a s s e s s e e f o r t h e r e l e v a n t ye a r , s u c h u n a d j u s t e d d e p r e c i a t i o n l o s s i s t o b e c a r r i e d f o r w a r d t o t h e s u c c e e d i n g ye a r / s . The loss, if any arising on account of unabsorbed depreciation, becomes the l o s s o f t h e c u r r e n t ye a r u n d e r t h e h e a d ' i n c o m e f r o m b u s i n e s s ' a n d t h e same is adjustable against the income under any other head of income for t h e s a i d ye a r i n v i e w o f t h e p r o v i s i o n s o f s e c t i o n 7 1 o f t h e A c t .
20. In the totality of the facts and circumstances of the case where the assessee claims that unabsorbed depreciation relates to the assessment years 2001-02 to 2005-06 and the same becomes part and parcel of c u r r e n t ye a r ' s d e p r e c i a t i o n 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 same is adjustable against the income from other sources of assessment year 2006-07. In view of the provisions of the Act we hold that the 8 unabsorbed depreciation relating to the assessment year 2001-02 onwards, becomes part and parcel of the depreciation of the succeeding a s s e s s m e n t ye a r a n d t h e l o s s e s u n d e r t h e h e a d b u s i n e s s , i f a n y, a f t e r such adjustment of unabsorbed depreciation is to be allowed to be set off against the income of the assessee under any other head of income of the s a i d p r e v i o u s ye a r .
21. In the present case before us the income from interest was assessed under the head 'income from other sources'. The balance income of the assessee was adjusted against brought forward business losses, but the income from other sources was brought to tax. The assessee is entitled to the benefit of set off of such brought forward depreciation which in turn becomes part of the current depreciation and the same is to be allowed to be set off against the income earned under the head 'income from other sources'. However, the claim of the assessee needs verification and accordingly we direct the Assessing Officer to carry out the necessary exercise and compute the income assessable in the hands of the assessee. The assessee is entitled to the benefit of unabsorbed depreciation pertaining to the preceding assessment ye a r except a s s e s s m e n t ye a r s 1 9 9 7 - 9 8 t o 1 9 9 9 - 2 0 0 0 . The Assessing Officer shall compute the brought forward depreciation in the hands of the assessee e x c e p t r e l a t i n g t o a s s e s s m e n t ye a r s 1 9 9 7 - 9 8 a n d 1 9 9 9 - 2 0 0 0 , w h i c h cannot be carried forward because of the amended provisions of the Act at the relevant time. Reasonable opportunity of hearing shall be provided to the assessee. The ground No.4 raised by the Revenue is thus allowed for statistical purposes.
20. The appeal of the Revenue is partly allowed.
9ITA No.1130/Chd/2009:
23. The issue in ground No.1 raised by the assessee is against the addition of Rs.43,23,462/- out of sundry expenses.
24. The brief facts relating to the issue are that the assessee had debited expenditure of Rs.4,43,32,312/- as other debits, which included expenditure of Rs.43,23,462/- as sundry expenses. The claim of the assessee was that the said expenditure was on account of amortization of intangible asset, write off of the deferred revenue expenditure and other miscellaneous debits. The assessee further claimed that the said expenditure was incidental to the business and as per the Annual Account Rules 1985 the expense head was provided for that purpose and hence the same was allowable. The Assessing Officer was of the view that the assessee had failed to substantiate its claim and the said expenditure was not allowable deduction and hence addition of Rs.43,23,462/- was made.
25. The CIT (Appeals) upheld the order of the Assessing Officer observing as under:
"3.3 I have considered the rival submissions. It is found that the claim of expenditure on account of amortization of intangible assets and written of the deferred revenue expenditure are regular features but it is the duty of the assessee to intimate as to how the amount has been written off. This having not been done, the appeals of the assessee on this ground is dismissed."
26. The learned A.R. for the assessee pointed out that the details of the sundry expenses are provided at pages 1 and 2 of the Paper Book. The learned A.R. for the assessee further submitted that the assessee had t a k e n o n l e a s e v a r i o u s a s s e t s w h e r e p e r i o d o f l e a s e w a s f o r 1 0 ye a r s . A s the lease expenses of 1/10th of the said expenditure was amortized every 10 y e a r w h i c h p r a c t i c e h a d b e e n f o l l o w e d b y t h e a s s e s s e e f r o m ye a r t o ye a r a n d n o d i s a l l o w a n c e w a s m a d e o n t h i s a c c o u n t i n t h e e a r l i e r ye a r s . Our attention was drawn to the copy of agreement for lease of equipment placed at pages 3 to 22 of the Paper Book. The learned A.R. for the a s s e s s e e f u r t h e r p o i n t e d o u t t h a t ye a r - w i s e b r e a k u p o f t h e e x p e n d i t u r e i s t a b u l a t e d a t p a g e 2 6 o f t h e P a p e r B o o k a n d d u r i n g t h e ye a r u n d e r consideration the expenditure was much lower as compared to the earlier years.
27. The learned D.R. for the Revenue placed reliance on the orders of the authorities below.
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. T h e a s s e s s e e c l a i m s t o h a v e t a k e n o n l e a s e v a r i o u s a s s e t s f r o m ye a r t o y e a r w h e r e t h e p e r i o d o f l e a s e w a s f o r 1 0 ye a r s . The lease management fee paid by the assessee was amortized by the assessee in its books of a c c o u n t a n d 1 / 1 0 t h o f t h e e x p e n d i t u r e w a s c l a i m e d f r o m ye a r t o ye a r . 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 p r e c e d i n g ye a r / s a n d 1 / 1 0 t h o f s u c h a m o u n t w a s d e b i t e d d u r i n g t h e ye a r 11 under consideration. The break up of the expenditure debited by the a s s e s s e e 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 w a s a s u n d e r :
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
----------------
517548.77
----------------
29. The perusal of the above said reflects the assessee to have booked the expenditure on account of lease arrangements entered into by the a s s e s s e e i n t h e p r e c e d i n g ye a r s . S i m i l a r e x p e n d i t u r e w a s b e i n g c l a i m e d f r o m ye a r t o ye a r . T h e R e v e n u e w a s f a i l e d t o c o n t r o v e r t t h e c l a i m o f t h e assessee that similar deferred revenue expenditure has been allowed in t h e e a r l i e r ye a r s . The assessee had claimed expenditure of Rs.2.33 c r o r e s i n a s s e s s m e n t ye a r 2 0 0 3 - 0 4 , R s . 1 . 2 2 c r o r e s i n a s s e s s m e n t ye a r 2 0 0 4 - 0 5 a n d R s . 1 . 6 4 c r o r e s i n a s s e s s m e n t ye a r 2 0 0 5 - 0 6 . D u r i n g t h e ye a r 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.
30. The issue in ground No.2 raised by the assessee is against the disallowance of prior period expenses totaling Rs.1,01,63,20,271/-. 12
31. The brief facts relating to the issue are that the assessee had debited sum of Rs.1,01,63,20,171/- as prior period expenses/losses. The assessee was show caused to explain the nature of the said expenditure a n d a l s o t o j u s t i f y i t s a l l o w a b i l i t y. The explanation of the assessee before the Assessing Officer is reproduced under para 6 of the assessment order. The plea of the assessee was that the assessee Board was having constant heavy losses and the outcome does not affect the taxability of the income. The Assessing Officer disallowed the claim as t h e e x p e n s e s d e b i t e d p e r t a i n e d t o e a r l i e r ye a r s , w h i c h w e r e t o b e c l a i m e d i n t h e ye a r t o w h i c h i t p e r t a i n e d .
32. The CIT (Appeals) upheld the order of the Assessing Officer as it was undisputed that the expenditure pertained to the prior period and the s a m e d i d n o t p e r t a i n t o t h e ye a r u n d e r c o n s i d e r a t i o n .
33. The learned A.R. for the assessee pointed out that the said expenses were claimed on account of the correction of fundamental error in accounts of prior period and also on account of short or excess p r o v i s i o n m a d e i n t h e p r e v i o u s ye a r . Further the expenditure also i n c l u d e d w a i v e r o f a n y l i a b i l i t y r e l a t e d t o r e v e n u e e x p e n s e s o f p a s t ye a r s was treated as the prior period income. The total prior period income r e l a t i n g t o p r e v i o u s ye a r s s h o w n 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 w a s Rs.40,31,68,135/-. The prior period expenses/losses claimed by the assessee during the ye a r under consideration totaled to Rs.1,01,63,20,171/- and the net prior period expenses charged to the Profit & Loss Account was Rs.61,31,52,036/-. The break up of the expenses was submitted as part of the annual statement of accounts in t h e ye a r u n d e r c o n s i d e r a t i o n , c o p y o f w h i c h i s p l a c e d a t r e v e r s e o f p a g e 59 of the Paper Book. The plea of the assessee was that the period income has been added to the income of the assessee but the prior period 13 expenses have not been allowed in the hands of the assessee. Reliance was placed by the learned A.R. for the assessee on the decision of Hon'ble Delhi High Court in CIT Vs. Exxon Mobil Lubricants P. Ltd. [328 ITR 17 (Del)].
34. The learned D.R. for the Revenue placed reliance on the orders of the authorities below.
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 R s . 3 0 . 1 3 c r o r e s , e m p l o ye e s ' c o s t o f R s . 8 . 6 5 c r o r e s a n d d e p r e c i a t i o n u n p r o v i d e d i n t h e p r e v i o u s ye a r s o f R s . 3 4 . 2 8 c r o r e s a n d o t h e r s , t o t a l i n g Rs.101.63 crores. T h e a s s e s s e e 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 h a d a l s o r e f l e c t e d i n c o m e r e l a t i n g t o p r e v i o u s ye a r , b r e a k u p o f w h i c h i s a s under:
14
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 p r e v i o u s ye a r s i s a l l o w a b l e i n t h e h a n d s o f t h e a s s e s s e e i n c a s e t h e assessee is able to establish its claim of having not provided the d e p r e c i a t i o n i n t h e e a r l i e r ye a r s . 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 ex penditure booked b y 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 and Chemical Industries Ltd. v. CIT (1995) [213 ITR 523 (Guj)] it was held t h a t m e r e l y b e c a u s e a n e x p e n s e r e l a t e d t o a t r a n s a c t i o n o f a n e a r l i e r ye a r d o e s n o t b e c o m e a l i a b i l i t y p a y a b l e i n t h e e a r l i e r ye a r u n l e s s i t c a n b e s a i d t h a t t h e l i a b i l i t y w a s d e t e r m i n e d a n d c r ys t a l l i z e d i n t h e ye a r i n 15 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 b y the Hon'ble High Court that where the assessee had shown prior period i n c o m e w h i c h w a s n o t e x c l u d e d w h i l e w o r k i n g o u t c u r r e n t ye a r s t a x a b l e income, then there was no reason to disallow only part of the prior period adjustment i.e. prior period expenditure.
40. N o w c o m i n g t o t h e f a c t s o f t h e p r e s e n t c a s e b e f o r e u s , a d m i t t e d l y, 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 p r e v i o u s ye a r s t o t a l i n g R s . 3 4 . 2 8 c r o r e s . T h e s a i d i s s u e h a s a l r e a d y b e e n 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. I n c a s e t h e s a i d l i a b i l i t y a r o s e d u r i n g t h e ye a r i t s e l f t h o u g h r e l a t a b l e t o t h e e a r l i e r ye a r , t h e s a m e i s a l l o w a b l e i n t h e h a n d s o f the assessee. S i m i l a r l y, t h e c l a i m o f f u e l r e l a t e d l o s s e s a n d e x p e n s e s 16 totaling Rs.30.14 crores is allowable in the hands of the assessee in case t h e l i a b i l i t y t o p a y t h e s a m e a r o s e 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 .
S i m i l a r i s t h e c a s e o f e m p l o ye e s ' c o s t t o t a l i n g R s . 8 . 6 6 c r o r e s . 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.
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.
42. The ground No.4 raised by the assessee is against the addition of Rs.53.56 crores on account of adjustment made on account of observations of the auditors. The Assessing Officer vide para 8 during the course of assessment proceedings on the perusal of the Audit Report show caused the assessee to explain the nature and justification of allowablity of the under-mentioned expenses/non-accounting of income:- 17
"(a) As per page (Para5) of the Annual Statement of Accounts, there is an excess debiting of interest amounting to Rs.14.83 Crores on State Govt. Loans which is not an allowable deduction.
Please justify its allowability.
(b) As per page VII (Para2(i) of the Annual Statement of accounts there is an excess provision towards purchase of power from NTPC Ltd., Which is not an allowable deduction during the year under consideration: Please justify its allowability.
(c) As per Page V (Para2(ii), ah amount of Rs. 4.08 Crores as meter Rental from A.P. Consumer for the period 1.9.2005 to 31.03.2006 has not shown as receivable resulting in understatement of tariff compensation from Stale Govt. Please explain as to why it should not be added to the income returned.
(d) As per Page V (Para2(iii), an amount of Rs.16.13 Crores was payable by the Punjab Govt. on account of enhancement of A.P. Subsidy. However, this amount has not been shown as receivable resulting in understatement of tariff compensation from the State Govt. to the tune of Rs. 16.13 Crores. Being an income of the Board, the same is liable for inclusion in the income. Please explain as to why it should not be added to the income returned.
(e) As per Page IV (Para2(iv), it is provided that PSERC approved the subsidy to A.P.Consumers for 2005-06 amounting to Rs.1133.43 Crores on the basis of provisions consumption of 7000 MU's on the basis of which subsidy worked out to Rs.11.83.78 Crores. Difference of subsidy amounting to Rs.51.35 Crores was not shown as receivable resulting in understatement of tariff compensation from State Govt. which is liable for inclusion in the income. Please explain as to why it should not be added to the income returned."
43. The reply of the assessee vide letter dated 30.10.20087 is reproduced under para 8.1, which reads as under:
"(a) The payment of interest was approved by the Punjab State Electricity Regulatory Commission at Rs. 480.73 Crores. The claim was- made as such Later, in the financial year 2006-07 it was revised by the PSERC at Rs.
465.20 crores. The interest was provided accordingly."
(b) Purchase of Power is made from various sources, inter alia, NTPC, The total claim on this account was made at Rs. 124.16 crores which included bill of NTPC at Rs. 123.50 crores which was received in the financial year 2006-07. Since the accounts were not finalized, the claim was made accordingly. However, the amount of claim and bill sent by the NTPC is same i.e. 123.50 crores.
(c) & (d) The meter rentals and subsidy from the Government is accounted for on cash basis as in earlier years. The A.P. meter rentals and subsidy form part of the amount of subsidy received from the - State Government and has been duly accounted for as per the method regularly followed by the Board.
18
(e) As per .the above the subsidy is accounted for as sanctioned by the State Govt. The income is accordingly accounted for, It may be further submitted that as per para 13 of the Annual Statement of Account at page VIII of is excess 12.89 crores but since the objections raised by the audit were not admitted by the Board no impact to the same was given in the accounts. Point wise reply to the objections is enclosed."
44. The Assessing Officer on examination of the annual statement of accounts and after considering the explanation of the assessee vide paras 8.2 and 8.3 observed as under:
"8.2 From the nature and justification as given by the assessee and on examination of annual statement of accounts as annexed with the return of income, it is evident that the impact of the above discrepancies is given in annexure 'C' of the annual statement of accounts, which is reproduced below:
Anne xure- C Statement showing impact of comments on accounts on the Revenue Account of Board Particulars Comment No. Amount (Rs. in Cro A Surplus as per Revenue Account I Revenue expenditure understated
i) Repair & Maintenance F-3 2..13
ii) Employees Cost F-4(i) 24.20
iii) Employees Cost F-4(ii) 6.45
iv) Other Debits F-6(i) 7.87
v) Other Debits F-6(ii) 7.96 48.61 II Revenue Income overstated
i) Revenue from Sale of Power F-1 2..70
ii) Tariff compensation from State Government F-2(i) 113.00 115.70 164.31 B Total: l+ll III Revenue Income Understated
i) Tariff compensation from State Government F-2(ii) 4.08
ii) Tariff compensation from State Government F-2(iii) 16.13
iii) Tariff compensation from State Government F-2(iv) 51.35
iv) Prior Period Income F-7 1.26 72.82 IV Revenue Expenditure overstated
i) Interest and Finance charges F-5 14.83 19
ii) Other current liability G-12(i) 123.50
iii) Other current liability G-12 (ii) 6.72 145.05 C Total III+IV D 217.87 D Net Surplus during the year- 66.45 (A-B+C) = 12.89-164.31+217.87= Understatement of Surplus 53.56 (D-A) = 66.45-12.89 "8.3 From the above details sit is clear that the impact of above discrepancies as per detail given above is covered in the adjustments as discussed above. By taking into account the ultimate impact, it would be appropriate to make an addition of Rs.53.56 Crores to the income returned. Accordingly, an addition of Rs.53.56 Crores is made to the income returned.
Penalty proceedings u/s 271(1)(c) for furnishing inaccurate particulars of income thereby resulting in concealment of income are initiated."
45. The explanation of the assessee before the CIT (Appeals) was as under:
"7.1 While finalizing the audit of the accounts of the Board, the Comptroller and Auditor General makes certain observations on the same. These are explained before the finalization of the accounts. The practice is that no effect thereto is given in the books of account. In earlier years, the resultant figures used to be ignored by the assessing officer. It is only for the year under appeal that the same have been brought to charge. This being a deviation from the established practice and there being nothing on record that the objections have been accepted, the addition made is not justified. It is, therefore, requested that the same may kindly be deleted."
46. The CIT (Appeals) vide para 7.4 held as under:
"7.4 I have considered the rival submissions. The difference in income has been pointed out by the audit which was though not admitted by the assessee yet it relates to the accounts. The fact that the observation regarding the difference were ignored in earlier years is also not relevant as the principle of res-judicate is not applicable in income-tax proceedings. Keeping the facts and circumstances in view, the addition made at Rs.53,56,00,000/- is sustained. The assessee fails on this ground."
47. The assessee is in appeal against the said addition. The learned A.R. for the assessee referred to the statement of accounts and pointed 20 o u t t h a t t h e f i g u r e s o f t h i s ye a r a n d e a r l i e r ye a r w e r e p a r t o f t h e f i g u r e of Rs.53.56 crores.
48. The learned D.R. for the Revenue placed reliance on the order of the authorities below.
49. 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 f o l l o w i n g t h e m e r c a n t i l e s ys t e m o f a c c o u n t i n g a n d c e r t a i n e x p e n s e s h a v e n o t b e e n b o o k e d t h o u g h r e l a t a b l e t o t h e ye a r u n d e r c o n s i d e r a t i o n . S i m i l a r l y, t h e i n c o m e a r i s i n g i n t h e p e r i o d u n d e r c o n s i d e r a t i o n o n certain accounts was not booked by the assessee claiming that it was f o l l o w i n g t h e c a s h s ys t e m o f a c c o u n t i n g i n r e s p e c t t h e r e o f . T h e a s s e s s e e is to account for the receipts and expenditure which are relatable to the previous ye a r while preparing its accounts for the ye a r 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 t h e e a r l i e r ye a r s a r e a l s o i n c l u d e d a s s i m i l a r s t a t e m e n t w a s b e i n g p r e p a r e d f r o m ye a r t o ye a r . 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 totalit y 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 21 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.
50. Ground No.5 raised by the assessee is in respect of bad debts totaling Rs.13,37,113/-. The Assessing Officer noted that the assessee had debited expenditure of Rs.4.43 crores as other debts as per the details given in Schedule-15(A) which included expenditure of Rs.13,37,113/- as provision for bad and doubtful debts. The assessee was asked to explain the nature and allowability of the said expenditure. The claim of the assessee was that the provision made of doubtful debts which in turn became bad was booked to the account head. The Assessing Officer was of the view that the expenses having been debited on provision basis were not allowable as deduction and consequently addition of Rs.13,37,113/- was made, which was confirmed by the CIT (Appeals). The learned A.R. for the assessee pointed out that the expenditure of Rs.13,37,113/- was on account of bad debts written off and the provision of bad and doubtful debts totaling Rs.25.87 crores was not written off.
51. The learned D.R. for the Revenue pointed out that the assessee had failed to furnish the evidence of the bad debts having been written off and hence there was no merit in the claim of the assessee.
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 22 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.
53. In the result, both the appeals of the assessee and the Revenue are partly allowed.
O r d e r P r o n o u n c e d i n t h e O p e n C o u r t o n 3 1 s t d a y o f J a n u a r y, 2 0 1 3 .
Sd/- Sd/-
(MEHAR SINGH) (SUSHMA CHOWLA)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated : 31st January, 2013
*Rati*
Copy to: The Appellant/The Respondent/The CIT(A)/The CIT/The DR.
Assistant Registrar, ITAT, Chandigarh 23