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TMI Blog2013 (6) TMI 408X X X X Extracts X X X X X X X X Extracts X X X X ..... by Delhi ITAT in the case of Power Finance Corporation Ltd. v. JCIT, Spl. Range-22 (2006) 10 SOT 190 (Del.), in which it has been decided that deduction u/s 36(1)(viia) (c) is allowable even if provisions/reserve for bad and doubtful debts is made below the line in "Profit & Loss Appropriation Account." 3. The Ld CIT(A) has erred in not allowing prior period expenses of Rs.10,65,060/- considering the same not crystallized. 4. The Ld CIT(A) has wrongly confirmed levy of interest u/s 234B of the Income Tax Act, 1961. 5. The CIT(A) has erred in upholding the action of the Addl. CIT for initiating penalty proceedings u/s 271(1)( c) of the Income Tax Act, 1961. 2. The brief facts of the case are that assessee is dealing in business of providing finance for rural electrification. The assessee is NBFC which is financing power generation, transmission and distribution projects. It is exclusively into the activity of financing and it raises funds by issue of priority and non priority sector bonds, 54EC bonds, Infrastructure Bonds etc. The return of income was filed on 31.10.2005 which was revised on 5.1.2006 with a revised income of Rs.6535010100/- as against original income of Rs.6548 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vide leter dated 12.1.2006 replied that the assessee is a public institution and provides long term loans to various firms and during the year under consideration had made a provision under this section by appropriately its P&L and transferring the amount to reserve named as reserve u/s 36(1(vii)(c ) of the Act. It was further submitted that although the provision was termed as reserve u/s 36(1)(viia)( & (c ) yet for the purpose of income tax act, the amount was a provision out of profits of the company and therefore the assessee was eligible for deduction. The Assessing Officer relying upon the various case laws for differentiating between provision and reserve arrived at the conclusion that there was a difference between the reserve and provision and assessee had not created any provision. Therefore as per law, it was not entitled for deduction. 4. The Assessing Officer also observed that assessee had claimed an amount of Rs. 10,65,060/- as prior period expenses stating that it has crystallized during the year. The Assessing Officer observed that the expenses pertained to earlier years and hence they were not allowable as the assessee was following mercantile system of accountin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... viia)(c) amounting to Rs. 34.51 crores In this regard, the AO has mentioned in the assessment order as under: I have gone through the submission made by the appellant. As per the provision of! section 36(1 )(viia)(c), the appellant has to make a provision for bad and doubtful debt during the year. From the facts of the case and as has been clearly dealt with by the A.O., it is very clear that the appellant has not made a provision for bad and .doubtful debt during the: year'. It had only; created a reserve for bad and doubtful debt in the balance sheet. Provisions and reserve are not the same. The appella'nt has not fulfill the condition laid down u/s 36(1) (viia)(c). It has to be followed strictly. The opinion of ICAI cannot overrule the provision of the Act. , Therefore, the appellant is not eligible for deduction' u/s 36(1 )(viia)(c) and hence the action of the AO. is confirmed and appeal of the appellant is dismissed. The third ground: of appeal is that the ACIT has wrongly disallowed a claim of Rs.10,65,060 considering the same as prior period expenses not crystallized during the year. In fact these expenses had been crystallized during the year and i were fully allowable. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8. The Ld DR, on the other hand, submitted that first & second ground was though covered in favour of the assessee whereas in respect of ground No.3 he argued that crystallization of expenses has to be verified to see as to whether crystallization had occurred during the year or not. In this respect reliance was placed on the case law of CIT v. Modipon Ltd. decided by the Hon'ble Delhi High Court reported at 334 ITR 102. 9. We have heard the rival submissions of both the parties and have gone through the material available on record. We find that out of ground No.1, Sl. No.1 & 2 has not been pressed and therefore are treated as withdrawn and dismissed. The swapping premium as indicated in Sl.No.3 of ground No1. is covered in favour of assessee by the order of AAR Order No.758 dated 23.12.2008 in respect of assessee itself wherein the AAR had dealt the issue at pages 37 to 39 of paper book. Respectfully following the same, we are of the considered opinion that swapping premium is nothing but discounted interest and had originated in the long term finance initially advance. The premium is actually traced to the original source and is not kept remedy of business of providing long te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e taken to have complied With the requirement of making the said provision for c1aiming deduction under clause (viia)(c) of section 36( 1) We further find that unlike various other sections there is no pre-condition, that the amount claimed under clause (vlia)(c) cannot be allowed under the same if it is debited above the line in the profit and loss account because such a condition for example is a pre-requisite for claiming the deduction for investment allowance under 32A(4)(ii)." Respectfully following the above judgment, we allow ground No.2 of the appeal as the facts and circumstances of the case are similar. 11. With respect to ground No.3, we find from the break up of prior period expenses placed at paper book at page 103 that these expenses are such the estimate of which can really be made while finalizing the accounts of a year. 12. The Ld AR did not produce any evidence to demonstrate that these expenses crystallized during the year under consideration. The assessee is following mercantile system of accounting and in mercantile system of accounting the expenses relate to that year though not incurred has to be provided on estimate basis provided the incurring of such ex ..... X X X X Extracts X X X X X X X X Extracts X X X X
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