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TMI Blog2015 (9) TMI 1682X X X X Extracts X X X X X X X X Extracts X X X X ..... and in law, the ld. CIT(A) erred in deleting the addition of Rs. 1,61,64,03,000/- being interest in borrowed capital disallowed by the Assessing Officer . 3. On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in allowing the deduction on account of prior period expenditure which was not in accordance with the method of accounting stipulated in section 145 of the Act. 4. The appellant craves leave to add to, amend or withdraw the aforesaid ground of appeal. " ITA/1647/Mum/2010-AY. 02-03: "1. Whether on the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in allowing the deduction of Rs. 254,38,67, 152/- on account of prior period expenditure which was not in accordance with the method of accounting stipulated in section 145 of the Act. 2. The appellant craves leave to add to, amend or withdraw the aforesaid ground of appeal. " ITA/1648/Mum/2010-AY. 03-04: "1. Whether on the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in allowing the deduction of Rs. 39,45,99,179/- on account of prior period expenditure which was not in accordance with the method of accounting stipulated in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... theft, accident, etc. 3 : 2 The assessee submits that considering the facts and circumstances 01' its case and the la» prevailing on the subject the losses suffered by it on account or storm, theft. accident. ctc . . are wholly and exclusively for the purpose or its business and is therefore allowable as such and the Commissioner of Income-tax (Appeals) ought to have held as such. 3 : 3 The a se see submits that the Assessing Officer be directed to delete the disallowance so made by him and to re-compute its total income accordingly. 4 : 0 Re. : Disallowance of a sum of Rs. 1,95,04,370/- being write off of intangible assets: 4: 1 The Commissioner of Income-tax (Appeals) has erred in confirming the disallowance Rs. 1,95,04,370/- made by the Assessing Officer representing intangible assets written off during the year. 4 : 2 The assessee submits that considering the facts and circumstances or its case and the law prevailing on the subject the amounts of intangible assets written off during the year are allowable while computing its total income and the Commissioner or Income-tax (Appeals) ought to have held as such. 4: 3 The assesee submits that the Assessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8,80,940/- suffered by the Appellant on account of flood, cyclone, fire etc. 3. 1 The Commissioner of Income-tax (Appeals) has erred in confirming the disallowance of Rs. 58,90,940/- made by the Assessing Officer representing losses suffered by the assessee on account of flood, cyclone, fire, etc. 3 : 2 The assessee submits that considering the facts and circumstances or its case and the law prevailing on the subject the losses suffered by it on account of flood, cyclone, fire. etc . . were incurred by it during the course of its business and are allowable while computing its total income and the Commissioner of Income-tax (Appeals) ought to have held as such. 3: 3 The assessee submits that the Assessing Officer be directed to delete the disallowance so made by him and to re-compute its total income accordingly. 4. 0 Re. : General: 4 :1 The Appellant craves leave to add. alter, amend, substitute and/or otherwise modify in any manner whatsoever all or any of the foregoing grounds or appeal at or before the hearing or the appeal. CO No. 197/Mum/10-AY. 2003-04: "1 : 0 Re. : Disallowance of loss amounting to Rs. 1,04,70,059/- on account of storm, theft, accident, f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee submits that in case it is held that the intangible assets written off during the year under consideration are not allowable as a deduction during the year under consideration then the Assessing Officer be directed to allow the same as a deduction during the year in which the said expenses were incurred. 4: 0 Re. : General: 4 : 1 The assessee craves leave to add, alter, amend, substitute and/or otherwise modify in any manner whatsoever all or any of the foregoing grounds of cross objection at or before the hearing. " Assessee is a state government undertaking and is engaged in the business of generation and distribution of electricity. Details of dates of filing of returns,incomes returned,dates of assessme -nts,assessed incomes,dates of orders of the CIT(A)can be summarised as under : A. Y. ROI filed on Returned Income(Rs. ) Assessment dt. Assessed Income(Rs. ) Dt. of orders of CIT(A) 2001-02 03. 07. 2002) (-)28,14,99,90,586/- 28. 11. 2003 (-)11,42,23,44,130 18. 03. 2009 2002-03 30. 10. 2001 (-)419,59,15,168/- 28/03/2005 889,58,44,328/- 09. 12. 2009 2003-04 28. 11. 2003 Nil 13. 9. 2005 Nil 09. 12. 2009 ITA/3813/M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pported the order of the AO. Authorised Representative(AR)stated that the Govt. of Maharashtra had paid subsidy @4. 5%for initial two AY. s. that later on it informed the assessee that subsidy would be paid @3% that the assessee had overlooked the profits reversed that while filing the return it made necessary amendments. He referred to page no. 26,320 and 131 of the Paper book. 2.3. We have heard the rival submissions and perused the material before us. We find that the assessee was entitled to get subsidy @3% from the state government that as per the agreement with WB it was decided that it would get higher subsidy i. e. @4. 5%, that subsequently the state government reduced the subsidy to 3% that the assessee hadin pursuance of the agreement, showed subsidy at higher rate that after resolution of the state government it decided to reverse the entries of subsidy disclosed in the earlier years. We have perused the resolution and it clearly shows that the assessee was informed by the state government about reduction in subsidy during the year under consideration only. Therefore, if the reduced the unrealised subsidy-that was disclosed in the returns of incomes of earlier years in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee had claimed expenditure of Rs. 1,61,64,03,000/-in respect of various capital projects undertaken by it and which were capitalised in the books of accounts that same expenditure was claimed u/s. 36(1)(iii) of the Act. He rejected the claim made by the assessee on the ground that that the same could be allowed only if it is payable in respect of the period after the assets have been put to use in terms of the provisions of Explanation 8 to section 43(1) of the Act, that the assessee could not follow two methods of accounting one for the purposes of its books and the other for the purposes of computing its total income that even if the interest is allowable it would be disallowed u/s. 43B of the Act as proof of payment has not been produced. 3.1. Aggrieved by the order of the AO the assessee preferred an appeal before the First Appellate Authority(FAA). Referring to the provisions of section 36(1)(iii) the FAA held that the proviso to the section was inserted w. e. f. 01. 04. 2004 that same was not applicable for the year under appeal. He relied upon the case of Core Health Care Ltd. (298ITR194). He further held that the claim could not disallowed u/s. 43B of the Act that the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the assesse as to why the prior period income should not be taxed u/s. 41(1)of the Act. The assessee vide its letter,dated 24. 11. 2003,filed its reply. After considering the submissions of the assessee the AO held that prior period expenses/loss of Rs. 944 crores could not be allowed as deduction in absence of any details filed by the assessee stating whether they were crystallised during the year. 4.1. Before the First Appellate Authority(FAA) the assessee contended that the expenses had crystallised during the year under consideration, that same was in accordance with the method of accounting regularly followed by the assessee in the earlier years, that it was the state wide organization having big network of number of offices,it had number of zonal officer, station offices etc. spread throughout Maharashtra that there was always a communication gap and some of the payments/income due or accrued of the year might not be accounted for during that year, that inspite of the proper system of internal control and pre audit such incidences occurred, that assessee's audit was conducted by CAG that certain items of expenses pertaining to earlier period were required to be accounted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d held that the assessee had itself disallowed two item that the expenditure of earlier years' could be allowed in subsequent years. As fare as the suo motto disallowance is made we are of the opinion that the FAA was correct in holding that no addition could be made in that regard. But for other expenses we have to consider the relevant facts. Before that it would be useful to deliberate upon the cases relied upon by the assessee. In the case of Nagri Mills Co. Ltd. (supra) facts were that the assessee-company which maintained its accounts on the mercantile basis did not make any entry towards bonus for the calendar year 1951 that on a dispute regarding bonus payable to the workers for that year being referred to the conciliation board, the board, by its award in June, 1952, directed the company to pay bonus out of the profits for that year that the company in making the return claimed to deduct for the year 1951 the bonus which it distributed in December,1952. Deciding the matter the Hon'ble Bombay High Court held as under: ".... . under section 10(5) of the Income-tax Act actual payment was not necessary for the purpose of deduction and it was sufficient if the liability to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he expenses should have been incurred in earlier years and should not have been claimed in those years as same were not quantified and crystallised and seconldly crystallisation of such expenses should take place in the subsequent years. Like any other expense to be allowed u/s. 37 of the Act,claim for prior period expenses has to be supported by documentary evidence. If there is no evidence that the expenses were crystallised in a particular year then same would not be allowed as an deductible expenditure for that year. Mere making a claim that certain expenditure is prior period expense is not sufficient. It has to be supported by evidences. In the case under consideration the AO has given a categorical finding of fact that in spite of given a chance the assessee choose not file any detail to prove that crystallisation of prior period expenses had taken place during the year under appeal. The assessee had not filed any application before the AO u/s. 154 of the Act stating that the fact mentioned about not furnishing details about prior period expenses was incorrect i. e. that the assessee has actually filed details of crystallization of expenses during the year under considerat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee stated that the electricity duty was payable by the consumers for consumption of energy, that as a licencee it had to recover the amount from the consumers on behalf of the state government, that in event of default by the consumer it was not liable to pay any amount to State government, that it was acting as an agent to collect electricity duty from the consumers on behalf of the State Govt. , that it was neither direct not indirect expense of the assessee that it had not claimed excise duty in its revenue account, that provisions of section 43B applied to a deduction allowable under the Act, that item which was not allowable for purpose of computing total income was outside the purview of section 43B that the sales tax and electricity duty could not be compared in light of the section 4 of the Bombay Electricity Duty Act, 1948. After considering the submission of the assessee the AO held that the facts of the case were similar to the facts of the Chowranghee Sales Bureau that the provisions of section 43B were applicable to electricity duty also, accordingly he reduced a sum of Rs. 445. 41 crores from the total loss claimed by the assessee. 5.1. Aggrieved by the order of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x (flowing from a statute) is essentially in the realm of the rights of the sovereign, whereas the obligation of the agent to account for and pay the amounts collected by him on behalf of the principal is purely fiduciary. The nature of the obligation continues to be fiduciary even in a case wherein the relationship of principal and agent is created by a statute. Section 43B(a) deals with amounts payable to the sovereign qua sovereign not amounts payable to the sovereign qua principal. Therefore section 43B cannot be invoked in the case of the Electricity Board with regard to electricity duty collected by it pursuant to the obligation under section 5 of the Kerala Electricity Duty Act, 1963. " In the matter of Maharashtra State Electricity Distribution Co. Ltd. (supra)the Tribunal has decided the issue follow: "28. Ground no. 2 this ground deals with the action of Ld. CIT(A) in holding that electricity duty collected and paid/adjusted by the assessee company amounting to Rs. 23291. 59 lakhs is covered under the provisions of section 43B of the Income Tax Act 1961. The ld. AO has discussed this issue at para no. 12. 1 to 12. 2 on pages 3 to 4 of the assessment order where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he provisions of section 43B are held to be applicable to the electricity duty, then in the alternative appropriate direction must be given to the AO to allow as deduction the electricity duty paid upto the date of filing of the return. For the purpose of payment of electricity duty the appellant argued that since the duty payable to GOM are settled by adjustment of the amount receivable by it towards the sale of power, the adjustment of such amount between the appellant and Govt. be considered as payment of electricity duty in this regard. 31. The Ld. CIT(A) considered the arguments of the assessee but did not accept its claim but with a partial relief by giving a direction that payment by way of adjustment made and actual payment both till date of filing of return should be allowed. The operative para of Ld. CIT(A)'s order is reproduced as under : "I have considered the facts of the case. The appellant company came into existence as a result of trifurcation of MSEB. Earlier MSEB was paying electricity duty to Govt. and the issue of disallowance u/s. 43B of unpaid electricity duty was also there. In the appellant proceedings of MSEB, it was held that the provision of section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the liability to pay service into the treasury will arise only upon the assessee receiving funds and not otherwise and it was accordingly held that liability to pay the service tax in respect of consideration payable will arise only upon receipt of such consideration, and not otherwise. In the case before us, the admitted position is that because of some settlements pending between the assessee company and the Government of Maharashtra, payments could not be made during the financial year. It is further seen that the admitted facts are that the assessee has not routed this amount through the P&L account. We rely with the judgment of Hon'ble Calcutta High Court in the case of CESC Ltd. (su. ) and Hon'ble Kerala High Court in the case of 'Kerala State Electricity Board' (supra) to hold that the electricity duty is not being a sum payable by the assessee as a primary liability by way of tax, duty cess or fee, section 43B is not attracted to the assessee in respect of electricity duty collected by it for being passed on the State Govt. Two relevant paras from the recent order of the Hon'ble Calcutta High Court in the case of 'CESC Ltd. (supra), vide its order dated 14. 05. 2015 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w. The mischief that Section 43B of the Income Tax Act intended to present, is taken care of by the provisions of the Bengal Electricity Duty Act itself. " 34. Thus, in our considered view, the assessee deserves to succeed. The disallowance made by Ld. AO on this ground for Rs. 23291. 59 lakhs is hereby deleted and ground no. 2 of the assessee is allowed. " Following the above mentioned two decisions,we reverse the order of the FAA and decide ground no. 1 in favour of the assessee. 6. Second and third grounds are about disallowance of loss of Rs. 6. 95 lacs and Rs. 4. 08 lacs respectively suffered by the assessee on account of flood,cyclone/storm, theft etc. During the assessment proceedings the AO found that the assessee had incurred loss of properties to the extent of Rs. 6. 80 crores due to storm, theft, accident. As per the AO,detailed nature of the assets was not furnished by the assessee. He held that the loss was capital in nature and hence not allowable as deduction. 6.1. Before the FAA it was contended that under the electricity supply Rules losses incurred on account of natural calamities were to be treated as losses for the year in which they had occurred, that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tangible assets was in accordance with the electricity rules. It relied upon the case of Tapadia Tools Ltd. (260 ITR 102). It was also stated that similar issue was decided in favour of the assessee by the then FAA while deciding the appeal for A. Y. 97-98. The FAA ,after considering the submission of the assessee and the assessment order,held that the details of the calculation of amounts written off towards intangible assets were not available that the assessee was writing off a part of the costs of the fixed assets every year, it was not allowable as revenue expenditure that the similar claim was disallowed by the FAA in the AYs. 99-00 and 00-01. Following them,he upheld the order of the AO and dismissed the ground raised by the assessee . 7. 2. Before us the AR contended that the assessee was amortising the expenses that those expenses pertained to purchase of software and payment lawyer's fee etc that the assessee had incurred expenses towards fee paid with regard to Dabhol Project. He referred to page No. 340 of the paper book. He relied upon the case of Tapadia Tools (372ITR 605),Raychem RPG Ltd. (346 ITR138), Richardson Hindustan Ltd. (169 ITR 516)and Bombay Cycle and M ..... X X X X Extracts X X X X X X X X Extracts X X X X
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