2018 (11) TMI 1868 - AT - Income Tax

Liability crystallized and quantified during the previous year - Additions on account of Prior period expenses ERPC Charges and Integrated income on SLDC UI Fund WBSETCL - whether AO was not justified in making the disallowance as whatever expenses claimed by the appellant are already disallowed by the A.O. separately? - HELD THAT - Prior period expenses - liability of expenses has been crystallized during the previous year relevant to the assessment year under consideration. As per mercantile basis of accounting the liability is recorded when obligation to pay arises. In the assessee s case the liability to pay arises in the assessment year under consideration therefore assessee has rightly claimed the expenses - we decline to interfere in the order passed by the ld CIT(A) his order on this issue is hereby upheld and the grounds of appeal raised by the Revenue on this issue is dismissed. ERPC Charges - These payments would not attract any of the provisions relating to the requirement for making TDS while making the impugned payments as these were statutory contributions made to a Government Body and not contractual payments and hence these payments would not attract any of the provisions relating to the requirement for making TDS. That being so we decline to interfere with the order of Id. C.I T.(A) deleting the aforesaid additions. His order on this addition is therefore upheld and the grounds of appeal of the Revenue is dismissed. Accrual of Income - Interest income on SLDC-UI Fund-WBSFTCL - We note that on the identical issue the Division Bench in assessee s own case, . 2014 (10) TMI 942 - ITA T KOLKATA deleted the addition. As the issue is squarely covered in favour of the assessee and there is no change in the facts and law and the Ld. CIT(A) has allowed the appeal of the assessee by relying the judgment of the Division Bench - Appeal filed by the Revenue is dismissed.

Summary

Issues Involved:

1. Prior period expenses of Rs. 12,65,000/-
2. ERPC Charges of Rs. 14,50,000/-
3. Interest income on SLDC UI Fund WBSETCL of Rs. 7,46,19,000/-

Issue-wise Detailed Analysis:

1. Prior Period Expenses of Rs. 12,65,000/-:

The Revenue contended that the prior period expenses of Rs. 12,65,000/- claimed by the assessee were not allowable as per the Income Tax Act, 1961. The Assessing Officer (AO) disallowed these expenses, arguing they were not crystallized during the relevant assessment year. However, the Commissioner of Income Tax (Appeals) [CIT(A)] found that the AO did not issue a specific showcause notice or ask for details before making the disallowance. The CIT(A) cited the Gujarat High Court's decision in Saurashtra Cement & Chemical Industries Ltd. vs CIT, which stated that expenses are allowable in the year they are crystallized under the mercantile method of accounting. The CIT(A) concluded that the liability for these expenses crystallized in the relevant assessment year, making them allowable. The Tribunal upheld the CIT(A)'s decision, noting that the liability to pay arose in the assessment year under consideration, and thus the expenses were rightly claimed by the assessee.

2. ERPC Charges of Rs. 14,50,000/-:

The assessee, being a member of the Eastern Regional Power Committee (ERPC), contributed to the ERPC Establishment Fund and ERPC Fund as per statutory requirements. The AO disallowed these contributions, arguing they required Tax Deducted at Source (TDS). The CIT(A) examined the ERPC regulations and found that these contributions were statutory and not contractual payments, thus not attracting TDS provisions. The Tribunal agreed with the CIT(A), noting that the payments were statutory contributions to a government body and did not require TDS. The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's appeal on this issue.

3. Interest Income on SLDC UI Fund WBSETCL of Rs. 7,46,19,000/-:

The AO included Rs. 7,46,19,000/- as the assessee's interest income from investments made out of the UI Charges belonging to the West Bengal Electricity Regulatory Commission (WBERC), under the custody of the State Load Despatch Centre (SLDC). The CIT(A) found that this amount belonged to WBERC and not the assessee. The CIT(A) cited a previous Tribunal decision in the assessee's favor for the same issue in the assessment year 2009-10. The Tribunal reviewed the facts and confirmed that the interest income belonged to WBERC, a government entity, and thus was not taxable in the hands of the assessee. The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's appeal on this issue as well.

Conclusion:

The Tribunal dismissed the Revenue's appeal on all three issues, upholding the CIT(A)'s order and confirming that the disallowances made by the AO were not justified. The Tribunal's decision was pronounced in the open court on 12.11.2018.