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TMI Blog2019 (12) TMI 1233X X X X Extracts X X X X X X X X Extracts X X X X ..... the addition of Rs. 7,65,83,965/- made by the AO on account of prior period's expenses under the heads purchase of power, employees cost and interest expenses; ignoring the fact that the assessee has been following mercantile system of accounting and, therefore, the prior period's expenses are not allowable as deduction. 3. On the facts and in the circumstances of the case, the Ld.CIT(Appeals) has erred in deleting the disallowance of Rs. 48,70,125/- made by the AO on account of expenses claimed under the head "loss due flood, cyclone & fire"; ignoring the fact that the loss sustained pertains to loss of poles, wires etc. and these assets are capital in nature on which the assessee has been claiming depreciation and, therefore, the loss if any, is required to be reduced from the WDV of the assets instead of debiting it to the P&L account." 3. The grounds of appeal raised by the assessee are as under:- "That on the facts and in the circumstances of the case and in law the learned CIT(A) erred in confirming the following actions of the Assessing Officer- (i) initiating proceedings u/s 148 of the Income-tax Act, 1961 and passing order u/s 143(3)/l 48 of the Act; (ii) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owable. The plea of the assessee that it was a contingent liability for expenses wherein the same accounting treatment was being followed, was not accepted and sum of Rs. 7.66 crores was disallowed in the hands of the assessee. The third item of disallowance was loss on sale of fixed assets totaling Rs. 48,70,125/-. The explanation of the assessee was that the same was on account of loss occurring due to fire, accident and natural calamities and was not a capital loss. The assessee explained that the said expenditure was similar to that of repair and maintenance. However, this plea of the assessee was also not accepted and hence the addition. The next item which was recorded as reasons for reopening the assessment was the liabilities of Rs. 11.62 crores which was debited under the head Municipal Taxes and other liabilities. The AO noted that the aforesaid amount was not deposited and hence was required to be disallowed u/s 43B of the Act. 8. The CIT(A) accepted the explanation of the assessee and deleted the addition on account of prior period expenses of Rs. 5.88 crores, prior period expenditure of Rs. 7.66 cores and loss on sale of fixed assets of Rs. 48,70,125/-. However, the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y. He further pointed out that the said item had not been debited to Profit & Loss Account but the assessee had declared whatever amount was not collected as receivable and was shown as payable to the State. In such circumstances, he stressed that the provisions of section 43B of the Act were not attracted. He further referred to the order of the CIT(A) and pointed out that he was incorrect in coming to conclusion that the assessee had failed to rely on any case laws. He stressed that before the CIT(A) and even before us, strong reliance is placed on the decision of the Hon'ble Calcutta High Court in the case of CESC Ltd. vs CIT, Kolkata, (2015) 125 DTR 41; (2015) 235 Taxman 6(Cal.) and also placed reliance on another decision of Kerala High Court in the case of Kerala State Electricity Board vs DCIT (2011-ITS-69-HC-Kerl). He stressed that from assessment year 1999-2000, no addition on this account was made. 12. The Ld. DR for the Revenue, on the other hand, stressed that grounds against reopening of assessment was not raised before the CIT(A). The Ld. DR for the Revenue has placed reliance on the order of the Assessing Officer/CIT(A). 13. The Ld. AR for the assessee in reply st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provision of section 147 of the Act, in case where four years have lapsed from the end of the assessment year. Accordingly, we find no merit in the re-assessment proceedings carried out u/s 147 of the Act against the assessee. 16. Coming to the merits of the addition upheld by the CIT(A) i.e. in respect of outstanding municipal tax liability of Rs. 11.63 crores. The relevant facts of the issue are that the Governor of Haryana had notified that the committee shall impose tax on the consumption of electricity @ 5 paise for every unit of electricity consumed by any person within the limits of the municipality in the State of Haryana. The said tax had to be collected by Haryana Vidyut Prasaran Nigam Ltd. (in short "HVPNL") and paid as an electricity duty payable to the State Government under the Punjab Electricity (Duty) Act, 1958. Similar practice was adopted in case of municipal taxes by the Municipal Committee/Council while paying their dues on account of consumption of electricity to the Nigam as per Government of Haryana circular dated 16.05.2000. The Assessing Officer did not accept the plea of the assessee and held that since the said amount of municipal taxes collected by it, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same and allow Ground No.2 raised by the assessee on merits. 19. Now coming to the appeal of the Revenue wherein the first issue which is raised is against the order of the CIT(A) in deleting the addition of Rs. 5.87 crores made by the Assessing Officer on account of prior period expenses of fixed assets. The Revenue is aggrieved that where the fixed assets were capital in nature, the said expenditure could not be allowed in the hands of the assessee. 20. In the facts and circumstances of the case, the assessee pointed out before the Assessing Officer that it was not prior period expenditure but the amount related to non-existing fixed assets which were written off in the year under consideration. It was explained that during the division of HVPNL into two units events were as under:- "Sir, during the division of HVPNL into two units named DHBVNL and UHBVNL, HVPNL has transferred fixed assets to DHBVNL amounting to Rs. 709.90 crores through opening balance sheet along with accumulated depreciation thereon up to 30.06.1999. Out of the same, constructed assets amounting to Rs. 10.82 crores found included in the above referred figures without details in the Fixed assets Register ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the Revenue. 23. The issue vide Ground of appeal No.2 raised by the Revenue is against the deletion of addition of Rs. 7.66 crores made on account of prior period expenses. The case of the Assessing Officer was that where the assessee was following Mercantile System of accounting, no such expenditure on account of prior period expenditure could be allowed in the hands of the assessee. The case of the assessee before us is two-fold. First of all, it is claimed from the details of the prior period expenses totaling to Rs. 7.66 crores which is placed at page 61 of the paper book, that the sum of Rs. 7.66 crores includes the provision of Rs. 5.88 crores which was separately added by the Assessing Officer. We have in the above paras already upheld the order of the CIT(A) in deleting the addition of Rs. 5.88 crores. We further hold that once an addition was made under the head provision of prior period expenses of fixed assets, no further addition could be made under the garb of prior period expenses. This addition is double addition, which is not allowable. Now coming to the balance expenditure which is claimed by the assessee; the CIT(A) vide para 19 of page 10 of appellate order ..... X X X X Extracts X X X X X X X X Extracts X X X X
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