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TMI Blog2014 (11) TMI 594X X X X Extracts X X X X X X X X Extracts X X X X ..... ecurity of Rs. 1.40 crores, having invoked the provisions of section 43B of the Income-tax Act, 1961 (hereinafter called in short "the Act"). 5. So far as first ground is concerned, it is noticed from the orders of the lower authorities that the Assessing Officer, during the course of assessment proceedings, has noted that the assessee has made provision for bad and doubtful debts amounting to Rs. 24,33,42,403/-. The assessee was required to explain why this amount should not be disallowed and added to the total income of the assessee. In response thereto, it was submitted that provision for bad and doubtful debts was made in the accounts @ 15% of the incremental totals during the year while in practice this provision for bad and doubtful debts is insufficient. The assessee further submitted that the recovery from the debtors is about 70 to 85% keeping in view the trend of recovery of past years. It was further contended that although in the accounts the bad and doubtful debts is not written off, but in future it shall be written off through that account. Accordingly a request was made to allow this provision as business expenditure. The Assessing Officer has disallowed the provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of the amount of any bad debt or part thereof, which is written off as irrecoverable in the accounts of the assessee for the previous year, can be allowed subject to the provisions of sub-section (2) of section 36 of the Act. Under this sub-section, only claim of deduction of bad and doubtful debts on its written off or irrecoverable can be allowed and not provision for bad and doubtful debts. The other clause (vii)(a) of section 36(1) of the Act deals with the issue of claim of provision for bad and doubtful debts made by the Scheduled Bank or non- Scheduled Bank or Corporation Bank, etc. In the instant case, the assessee has claimed deduction for provisions of bad and doubtful debts under section 36(1)(vii) of the Act which only deals with actual claim of deductions. In the light of these facts, we are of the view that provision for bad and doubtful debts cannot be allowed under section 36(1)(vii) of the Act. We, therefore, find no infirmity in the order of the ld. CIT(A) and accordingly, we confirm his order on this issue. 10. The other ground relates to the disallowance of interest on consumer security deposit, having invoked the provisions of section 43B of the Act. 11. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpilation of the assessee in order to establish that interest on consumer security deposit were charged and at the year ending on 31.3.2004 it was raised upto Rs. 24.98,293/-. The ld. counsel for the assessee has further contended that though interest accrued on consumer securities has not paid but the provision made for it should be allowed. 15. The ld. D.R., on the other hand, has submitted that only payment of interest made by the assessee can be allowed and the payment of interest to the consumer which depend upon the happening of certain events as per assessee itself cannot be allowed. Therefore, unless and until payment is made, it should not be allowed. 16. Having given a thoughtful consideration to the rival submissions and from a careful perusal of the orders of the authorities below, we find that undisputedly assessee has made provision for payment of interest on consumer securities, but it was not in fact paid even in succeeding years, as it depends upon certain happenings or the events. If the assessee has debited a particular interest to this account, a corresponding credit entry should have been made in the accounts of the consumer. But the assessee without creditin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de Tax Liability & Employees Cost respectively without appreciating the fact that these expenses relate to prior period and cannot be adjusted against the income of the current year. 5. The CIT(A) has erred in law and on facts in law and on facts in allowing the relief of Rs. 38,50,00,000/- on account of surcharge of power purchase due to late payment ignoring the fact that the nature of this payment is penal and not compensatory and therefore, it cannot be allowed as expenditure. 6. The order of the CIT (A), Kanpur being erroneous, unjust and bad in law be vacated and the order of the AO be restored. 18. Apropos grounds No.1 & 2, it is noticed that disallowance of electricity of Rs. 9,90,82,803/- was made, having invoked the provisions of section 43B of the Act, as it was not paid within the end of the relevant financial year. 19. In appeal, the assessee has contended that the assessee-company is a Government organization and has received electricity duty from consumers against sale of powers of Rs. 9,90,8,803/- and in the regular process electricity duty adjusted from revenue subsidy released by the U.P. Govt. The assessee has transferred these amounts to UPPCL who is a holdi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... store this issue to the file of the Assessing Officer to decide it afresh after proper verification. Needless to mention here that proper opportunity be afforded to the assessee. 22. Apropos ground No.3, it is noticed that the Assessing Officer has made an addition of Rs. 19,95,19,863/- on account of interest paid to UPPCL, having invoked the provisions of section 43B of the Act. 23. The assessee has preferred an appeal before the ld. CIT(A) with the submission that while making addition of the aforesaid amount under the head interest unpaid to UPPCL, the Assessing Officer has not considered the facts that the UPPCL is a holding company of the subsidiary, KESCO i.e. assessee and both are the Govt. organizations. Hence the observation of the Assessing Officer that UPPCL is a Govt. organization and interest payable at Rs. 19,95,19,863/- has not paid and this amount will be disallowed under section 43B of the Act based on the wrong facts of the case and the same should be allowed due to the fact that both are the sister concern. Being convinced with the explanations of the assessee, the ld. CIT(A) has allowed the claim of the assessee. 24. Now the Revenue is in appeal before us and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence the disallowance made by the assessing officer may kindly be deleted in the interest of justice. "That the assessee's company has claimed expenses Rs. 13,42,805.00 on account of employees cost under the head prior period expenses. It is hereby submitted that these expenses where incurred during the course of incorporation of the company and before transferred scheme 2000 and it should be allowed u/s 35D of the Income-tax Act, it is hereby submitted that the these amount were incurred by the assessee to their employees and administrative expenses. A copy of accounts of the said head is enclosed as per paper book page No. 22A to 22D, account group no. 83. The assessee's company has already submitted the books of accounts and details during the course of hearing of the case. Hence the contention of the A.O. is that no such documentary evidence has been produce is not correct. Hence the expenses claimed under the head prior period expenses Rs. 13,42,805.00 kindly be allowed in the interest of justice. This issued has already settled in the case of PVVNL for AY. 2004-05, 2005-06 & 2007-08 by the Hon'ble Commissioner of income tax (Appeal), Which copy of judgment is enclose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e course of assessment proceedings, the Assessing Officer noted that assessee has debited a sum of Rs. 38.50 lakhs on account of surcharge of power purchase due to late payment. The assessee was required to explain why the amount being surcharge for late payment may not be added to the total income, as it is in the nature of penalty. Though the assessee has furnished explanation that it was mere compensatory in nature, but the Assessing Officer has made addition after treating this payment to be as penalty. 33. An appeal was preferred before the ld. CIT(A) and it was contended that no rule or law was broken in incurring such expenses, therefore, the payment is of compensatory in nature. Being convinced with the explanations of the assessee, the ld. CIT(A) deleted the addition having treated this payment to be compensatory in nature. 34. Now the Revenue is in appeal before the Tribunal and has placed reliance upon the order of the Assessing Officer; whereas the ld. counsel for the assessee has contended that as per Schedule -B i.e. bulk supply tariff, late payment surcharge are required to be paid as additional charges at a rate equal to 2% per month or part thereof on the amount ..... X X X X Extracts X X X X X X X X Extracts X X X X
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