TMI Blog2017 (3) TMI 1675X X X X Extracts X X X X X X X X Extracts X X X X ..... A.Y. 2006-07, therefore we find no reason to take a different view, and as such delete the addition of ₹ 320,72,82,510/- in the hands of the assessee company. The ‘Ground of appeal No. 1’ is thus allowed in terms of our aforesaid observations. Admission of additional evidence - Held that:- CIT(A) had called for a ‘remand report’ from the A.O, and thereafter perusing the contentions of both the parties, viz. the assessee and the revenue, had therein adjudicated the respective issues. Thus in the backdrop of the facts involved in the present case, we do not find any infirmity in the admission of ‘additional evidence’ by the CIT(A), and are thus unable to persuade ourselves to subscribe to the contention of the A.O that the CIT(A) had erred in admitting the ‘additional evidence’. We thus uphold the order of the CIT(A) on the issue under consideration, and as such dismiss the ‘Ground of appeal No.1’ raised by the department before us. Addition u/s 43B - interest payable to ‘Power Finance Corporation’ (‘P.F.C’) which had become due during the period 31.05.2005 to 31.03.2006, which in case of non payment would had attracted a disallowance u/s 43B - Held that:- The interest o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order of the CIT(A), therefore the same are dismissed. Claim of set off of b/f loss/unabsorbed depreciation - Held that:- We find that the CIT(A) had merely given ‘directions’ to the A.O for carrying out certain verifications as regards the assessed brought forward unabsorbed losses and depreciation of erstwhile MSEB, as was available as a final outcome of the further appellate orders passed in the case of MSEB. Final outcome of the exercise carried out by the A.O in pursuance to the directions of the CIT(A), would safely take care of the issues assailed by the revenue vide ‘Ground of appeal no. 6’ , hereinabove. Thus in the backdrop of the aforesaid facts as they so remain, we find no infirmity in the aforesaid directions of the CIT(A), and finding no reason to interfere in the said directions of the CIT(A). - ITA No. 302/MUM/2010, 418/MUM/2010 - - - Dated:- 3-3-2017 - Shri D.Karunakara Rao,AM And Shri Ravish Sood,JM Assessee by :S/Shri S.E.Dastur Niraj Sheth Revenue by :Shri N.P. Singh, CIT D.R. ORDER Ravish Sood, JM The present appeals filed by the assessee company and the department are directed against the order passed by the CIT(A)-21, Mumbai, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arked as 418/Mum/2010, had therein assailed the order of the CIT(A) by raising the following grounds of appeal:- 1. On the facts and in the circumstances of the case, the ld. CIT(A) erred in admitting the additional evidences without appreciating that the appropriate and sufficient opportunities were given to the assessee to explain the reduction of income in revised return, which the assessee failed to explain and prove. 2. On the facts and in the circumstances of the case, the ld. CIT(A) erred in allowing relief in respect of the interest payable to Power Finance Corporation u/s 43B without verification of the relevant records. 3. On the facts and in the circumstances of the case, the ld. CIT(A) erred in accepting the claim of the assessee that wherever required, interest was capitalized without calling for and examining the relevant details and evidences of such capitalization. 4. On the facts and in the circumstances of the case, the ld. CIT(A) erred in allowing the claim of prior period expenses made in the revised return by the assessee company without appreciating that the said expenses pertained to the period prior to existence of the assessee company and henc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al return of income was based on unaudited accounts, the revised return of income on the other hand was compiled on the basis of the audited accounts, which thus explained the difference in the total income shown in the said respective returns, as well as the reasons which had prompted the revision of the return of income, and read as under:- The return of income is being revised as the original return of income for the AY 2006-07 was filed on the basis of unaudited accounts as the accounts were not audited till the due date of filing of return of income. This is as per the letter dtd. 14.02.2007 bearing reference No. GM/CA/Rev.return/ MSPGCL/2007. 4. The case of the assessee company was thereafter taken up for scrutiny assessment u/s 143(2) of the Act . The A.O during the course of the assessment proceedings on a perusal of the audit report furnished by the assessee u/s 44AB of the Act , therein observed that the said tax audit of the assessee company was completed on 12.02.2007, when the report u/s 44AB was signed and issued by the auditors in Form No.3CA/3CD . The A.O further on perusing the revised return of income of the assessee, as against its Original return of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... after deliberating on the contention of the assessee company, therein declined to allow the claim of such set off of the B/forward business loss and unabsorbed depreciation, for multiple reasons, viz (i) the basis of apportionment of the losses amongst the three trifurcated entities of MSEB was not explained; (ii) though the losses in the hands of MSEB was based on its returns of income, but the assessed losses were not reported by the assessee company; (iii) the petition claimed by the assessee company before the CBDT for allowing the set off of the carried forward losses had not crystallized into an approval; (iv) the claim of demerger of the assessee company from the original entity, i.e. MSEB was unsubstantiated; (v) the eligibility of the assessee company to claim set off and carry forward of the B/forward losses of the MSEB was not established; (vi) the information relating to trifurcation of carried forward assessed losses was not given, and (vii) assessment order for A.Y 2006-07 had been passed in the case of MSEB, wherein the total income was computed at Nil after set off of B/forward losses/unabsorbed depreciation to the extent of the income available, i.e. ₹ 838,65 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11.2006, therefore it could safely be held that there might have been compelling reasons for filing of the return of income by the assessee company within the statutory period contemplated u/s 139(1) of the Act , though on the risk of unaudited accounts. The CIT(A) thus duly appreciating that in light of the aforesaid circumstances, now when the assessee company had thereafter received the statutory audit report u/s 44AB from its auditor, therefore on the basis of the same the Revised return would have been filed. Thus in the backdrop of the aforesaid factual matrix, the CIT(A) duly appreciating that now when as per the mandate of law an assessee stands vested with the statutory right to revise his return of income if he discovers any omission or wrong statement in the original return of income so filed by him, therefore the assessee company finding that its income as per the audited accounts was ₹ 288,90,26,607/-, as against the income of ₹ 623,47,43,689/- shown in the original return of income which was filed on the basis of the unaudited accounts, therefore finding that a huge difference of ₹ 334,57,16,988/- which had emerged on account of material changes i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ching the issue therein observed that even if it was to be presumed that the assessee had failed to put forth an explanation as regards the difference of the income of ₹ 334,57,16,988/-(supra) in the revised return, the same merely for the said reason could not be added to the total income of the assessee company without affording the latter a sufficient opportunity for explaining the same. The CIT(A) finally concluding that the allegation of the A.O that despite affording sufficient opportunities to the assessee for explaining the difference in the income, the latter had failed to put forth an explanation, therein called for the assessment record and after perusing the same therein observed that the A.O had vide his queries only raised a general question and had asked the assessee to furnish a copy of the revised return along with the reasons leading to filing of the same. The CIT(A) observed that not only the assessee had duly complied with the query so raised by the A.O and had furnished its reply, but rather interestingly, the A.O as a matter of fact was not even aware of the filing of the revised return, though the same had been processed u/s 143(1) and an intimation dat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A.O that on the basis of MERC order dated 07.09.2006, necessary adjustments could not have been made in the books of accounts of the assessee for the previous year ending on 31.03.2006, was not acceptable. It was thus observed by the CIT(A) that the assessee company had justifiably made adjustments in its accounts on the basis of MERC order dated 07.09.2006. The CIT(A) further fortifying his aforesaid observations that now when it remained as a matter of fact that the assessee company had omitted to give effect to the MERC order dated 07.09.2006 in its original return of income, therefore when the said defect/error was pointed out by the statutory auditor, the assessee company thus realizing the aforesaid omission therein gave effect to the said order by filing a revised return of income. The CIT(A) referring to Accounting Standard No. 4 (AS 4) issued by ICAI, as well Electricity (Supply) (Annual accounts) Rules, 1985 applicable to the assessee company, which permitted adjustments to assets and liabilities which were required on the basis of events occurring after the balance sheet date that provide additional information materially affecting the determination of amounts. Thus in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nued to claim higher expenditure, which thereafter was disallowed in the assessment framed in the case of MSEDCL, and the same was thereafter sustained as such in appeal. It was further concluded by the CIT(A) that the acceptance of the claim of the assessee company would in no way lead to any loss to the revenue, for the reason that as the tax rate for the year under consideration as well as the subsequent year in the case of the assessee company were the same, therefore whether the reversal of excess billing is allowed in the hands of the assessee company during the year under consideration, or in the next year, the same would be tax neutral. 8. The CIT(A) thereafter adverting to the reversal of 12 hours excess billing of ₹ 10,09,28,973/-, which was the second limb of the reconciliation of the difference of income of ₹ 334,57,16,988/-,therein observed that while compiling the original return of income, as the billing revenue was calculated upto afternoon 12:00 clock of 01.04.2006, instead of restricting the same to the midnight of 31.03.2006, therefore on realization of the said mistake, the assessee had rectified the same in its revised return of income. The CIT(A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenses of ₹ 1121.62 lac : The CIT(A) observed that deferred revenue expenses of ₹ 1121.62 lac in fact pertained to reduction in expenses, i.e. retransferred from expenses to deferred revenue expenses. The CIT(A) further observed that expenses of ₹ 71.24 lac pertaining to other successor companies, had thus to the said extent been reduced/claimed less. It was further observed by the CIT(A) that depreciation of ₹ 35.70 lac on capital asset Pophali had not been claimed. (vi). Interest on Power Finance Corporation : The CIT(A) observed that the assessee company had explained that interest on Power Finance Corporation was allowable u/s 43B. It was further observed by the CIT(A) that the other interest and finance charges were allowable u/s. 36(1)(iii) r.w.s. 43(1) of the Act , and the interest wherever required, was already capitalized. (vii). Steel value difference of ₹ 22.93 lac :The CIT(A) observed that the steel value difference of ₹ 22.93 lac was also allowable, since initially the value was booked by respective stores which was subject to approval/ reconciliation by head office. (viii). Coal cost freight issued Bhusaval ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to the year under consideration, viz. F.Y. 2005-06, therein vide his submission dated. 09.11.2009 placed on record of the CIT(A) a letter dated. 16.07.2009 of MERC signed by Director (Tariff) of MERC, which therein explained that the tariff chargeable by the assessee company from MSEDCL for F.Y. 2005-06 was as approved by the Commission vide its order dated.07.09.2006 in Section III Chapter 4. The aforesaid submissions of the assessee however did not find favor with the CIT(A), who thus being of the view that Section III Chapter IV of MERC order dealt with the topic/subject Annual Revenue Requirement for F.Y. 2005-06 , and holding a conviction that Annual Revenue Requirement and Determination of Tariff were two different items, therefore concluded that it could safely be held that MERC vide its order dated. 07.09.2006 had not directed the assessee company to charge lower Tariff from its client, viz. MSEDCL for F.Y. 2005-06. Thus the CIT(A) holding a conviction that the material acted upon by the assessee company to justify the lowering of the tariff, which therein had led to difference of income of ₹ 320,72,82,510/- (out of total ₹ 334,57,16,988/-) in the rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hort MSEB ) trifurcated into 3 companies, viz Maharashtra State Power Generation Co. Ltd. (i.e. the assessee), Maharashtra State Electricity Distribution Co. Ltd., and Maharashtra State Electricity Transmission Co. Ltd. That the Ld. A.R therein submitted that each of the aforesaid companies were to look into one of the three aspects of the erstwhile MSEB, viz. generation, distribution and transmission, respectively, as a result whereof the assessee company was engaged in the business of electricity generation. It was submitted by the ld. A.R that as the audit of accounts of the assessee company was not completed, therefore it had on the basis of the Provisional Accounts and the Tax Audit Report, dated. 28th, November, 2006, had filed its return of income for A.Y. 2006-07 on 30.11.2006, declaring Nil income after claiming the set off of brought forward losses and unabsorbed depreciation aggregating to ₹ 623,47,43,689/-. It was further averred by the ld. A.R that the assessee company during the year under consideration, i.e its very first year of operation had generated electricity and sold to another company i.e. Maharashtra State Electricity Distribution Co. Ltd.(for short ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amounting to ₹ 288,90,26,701/-. The assessee company in its revised return of income had appended a Note below the statement of its computation of income, therein elaborating that while for the original return of income was based on unaudited accounts, the revised return of income on the other hand was compiled on the basis of the audited accounts, which therein explained the reason for filing of the revised return of income. The Ld. A.R submitted that both the assessee company and MSEDCL remained under the statutory control of MERC in respect of fixation of tariff and other items. It was in the backdrop of the aforesaid factual position, therein averred by the Ld. A.R that pursuant to the order of MERC, dated. 07.09.2006, wherein it was ultimately decided that the assessee company should charge lower tariff, as a result whereof the revenue from sale of electricity shown in the accounts of the assessee company (as per the mutual consent of both companies) which was shown as such in the original return of income was recorded in excess to the extent of ₹ 320,72,82,510/-, therefore the assessee company had correctly reversed the excess revenue of ₹ 320,72,82,510/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the aforesaid letter dated. 16.07.2009 therein read as under:- MAHARASHTRA ELECTRICITY REGULATORY COMMISSION 13th Floor, Centre No. 1, World Trade Centre, Cuffe Parade, Colaba, Mumbai 400 005 Tel No. 022 2216 3964/2216 3969 * Fax 022-2216 3976 * Website: www.mercindia.org.in E-mail: merc@mercindia.org.in MERC No. MERC/TRF/Case No. 48 of 2005/1373 July 16,2009 The Chief General Manager(Accounts) Maharashtra State Power Generation Company Limited Plot No. g-9, Prakashghad, Aliyavar Jung Marg, Station Road, Bandra (East), Mumbai 400 051 Dear Sir, Sub:Applicability of MERC Order dated September 7,2006 in Case No.48 of 2005 This is with reference to your letter dated July 14, 2009, seeking clarification on the applicability of the Commission s above said Order for the FY 2005-06. It is confirmed that for the year ended March 31, 2006 [Financial year 2005-06] the tariff charged by the Maharashtra State Power Generation Company Ltd. (MSPGCL) from the Maharashtra State Electricity Distribution Co. Ltd. (MSEDCL) was as approved by the Commission vide its Order dated September 7, 2006 in Case No. 48 of 2005 [refer Section III Chapter thereof an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Maharashtra State Electricity Distribution Co. Ltd. Vs. ACIT,10(1), Mumbai, ITA No. 720/Mum/2010, A.Y. 2006-07, wherein the Tribunal had confirmed the disallowance of excess provision for purchase of power amounting to ₹ 320.72 crores by MSEDCL from the assessee company, viz. Maharashtra State Power Generation Co. Ltd. The Ld. A.R drew our attention to Page 19 Para 22 -23 of the order of the ITAT, wherein the Tribunal confirming the disallowance of ₹ 320.72 crores in the hands of the assessee before them, viz. MSEDCL (the company to whom the assessee company had sold electricity), while disposing of the latters appeal for A.Y. 2006-07, had therein held as under:- We have heard both the sides on this issue and we find that the ld. CIT(A) was fair enough to give requisite direction to the AO to allow the relief to the assessee company in A.Y. 2007-08 after due verification. In our view the assessee should not be aggrieved when appropriate direction has already been issued to allow the claim in the correct manner and in the correct year. We find the ground of the assessee to be devoid of of merits and the same is dismissed upholding the order of the Ld. CIT(A) on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ame was thus liable to be dismissed. 13. We have heard the Ld. Authorized representatives of both the parties, perused the orders of the lower authorities as well as the material placed on record. We find that the order of the CIT(A) therein upholding the validity of the revised return as well as dislodging the other adverse inferences raised by the A.O in the course of the assessment proceedings, as regards the issue of the revision of the return of income had been accepted by the department, and the same not having been assailed before us, thus to the said extent had attained finality. We now advert to the sole issue which survives in the appeal of the assessee company, viz. whether the order dated. 07.09.2006 of MERC which exercised statutory control in respect of tariff structure of power and other items of the assessee company, is relatable to the year under consideration, i.e F.Y. 2005-06 as claimed by the assessee, or was applicable only w.e.f F.Y. 2006-07, as canvassed by the department. We have given a thoughtful consideration to the facts of the case and had purposively, intentionally and consciously, for the sake of clarity had dealt with at length the findings and ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould be applicable for the F.Y. 2005-06 in the hands of the assessee company, then the same would not have dispelled the doubts in our mind as regards the issue in context of which the applicability of the order of the Commission for F.Y. 2005-06 was being referred to in the hands of the assessee company, but then the fact as it so remains is that the Commission, viz. MERC by categorically referring about the applicability of the order dated. 07.09.2006 in context of the tariff chargeable by the assessee company from MSEDCL for the F.Y. 2005-06, had thus put all the doubts to rest. We are unable to persuade ourselves to subscribe to the observations of the CIT(A), who by restricting himself to the words Annual Revenue Requirements used in the order dated 07.09.2006, had therein concluded that the order of MERC dated. 07.09.2006 was in respect of determination of tariff for F.Y. 2006-07 only. We are of a strong conviction that in light of the clarificatory letter dated. 16.07.2009 obtained by the assessee company from MERC, on the very issue as to whether the order dated. 07.09.2006 of the Commission would be applicable as regards the tariff chargeable by the assessee company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itting the additional evidences without appreciating that the appropriate and sufficient opportunities were given to the assessee to explain the reduction of income in revised return, which the assessee failed to explain and prove . 1.1. The Ld. D.R had averred that the CIT(A) had erred in admitting the additional evidences without appreciating that the assessee was afforded appropriate and sufficient opportunities to explain the reduction of the revised income, which the assessee had failed to explain and prove. The Ld. A.R on the other hand placed reliance on the order of the CIT(A). We have given a thoughtful consideration to the issue raised before us and are of the considered view that the CIT(A) while admitting the additional evidence U/rule 46A had called for a report of the A.O, and thereafter only on being satisfied that the assessee duly satisfied the requisite conditions contemplated under Clause (a) (d) of Rule 46A, had therein admitted the same. That still further we find that the CIT(A) had called for a remand report from the A.O, and thereafter perusing the contentions of both the parties, viz. the assessee and the revenue, had therein adjudicated the resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the amount of Interest was due on loan from P.F.C as on 31.03.2006. The Ld. A.R therein to drive home his aforesaid contention, therein referred to the observations of the CIT(A) recorded at Page 22 Para 2.3(i) of the order of the CIT(A), and therein submitted that the CIT(A) only after making the necessary verifications and on being satisfied had not carried out any disallowance u/s 43B in the hands of the assessee company. 2.2 We have heard the Ld. Representatives for both the parties, perused the orders of the lower authorities and the material produced before us. We find that Sec. 43B(d) specifically provides that any sum payable by an assessee as interest on any loan or borrowing from any public financial institution [or a State financial corporation or a State Industrial investment corporation], in accordance with the terms and conditions of the agreement governing such loan or borrowing, irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him, shall be allowed as a deduction in the hands of the assessee in respect of the previous year in which the liability t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the claim of the assessee company by the CIT(A), that wherever required, interest was capitalized without calling for and examining the relevant details and evidences of such capitalization by the CIT(A), vide Ground of appeal No.3 , as under:- On the facts and in the circumstances of the case, the ld. CIT(A) erred in accepting the claim of the assessee that wherever required, interest was capitalized without calling for and examining the relevant details and evidences of such capitalization . 3.1 We find that the A.O in his remand report taking cognizance of the Interest and finances charges capitalized, had therein averred that it ws not explained by the assessee as to why and which block of asset has the interest been capitalized, and as such it was not clear as to whether the said interest was eligible for capitalization or was outrightly disallowable. The assessee vide his rejoinder dated. 09.11.2009 to the aforesaid remand report , had therein referring to the 1st proviso of Sec. 36(1)(iii) and Explanation 2 of Sec. 41(1), had therein claimed that it had rightly capitalized the interest, and the complete details as regards the same were given in Schedule 13A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appreciating that vide letter dt. 20.05.2009 submitted during the course of the appellate proceedings, the assessee itself had stated that the said amount is taxable in the year under consideration . 4.1 We have given a thoughtful consideration to the aforesaid grounds of appeal so raised by the revenue before us and are of the considered view that the same are misconceived and do not emerge from the order of the CIT(A), as the latter at Page 19 Para 2.3(f) had concluded that since it was the first year of the assessee company, therefore there could not have been any prior period expenses. Thus in light of the aforesaid facts, now when the Ground of appeal no. 4 and Ground of appeal no. 5 do not arise from the order of the CIT(A), therefore the same are dismissed. 5. The revenue had vide Ground of appeal no. 6 therein averred that the CIT(A) had erred in allowing the claim of set off of b/f loss/unabsorbed depreciation without appreciating that in the case of MSEB no loss or unabsorbed depreciation was allowed to be carried forward in the final order for A.Y. 2006-07 and hence, there cannot be any eligibility for set-off or allowance of loss or unabsorbed depreciatio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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