TMI Blog2022 (6) TMI 838X X X X Extracts X X X X X X X X Extracts X X X X ..... we consider the assessment year under consideration, as an example, the assessment order was passed on 14/03/2013, and the impugned order was passed on 03/02/2015, while the assessment year under consideration is 2010 11. In such a scenario, if the Tax Consultant following its general practice raises the invoice upon conclusion of the matter after passing of the order by the concerned authority, we are of the considered view that such expenditure cannot be treated as prior period expenses. Particularly, it is only when the invoices for legal and professional services are raised by the Consultant, the liability arises / crystallizes in the hands of the assessee and it is only in that year such expenditure will be allowable to the assessee - Decided against revenue. Addition of overstatement of interest and finance charge - CIT(A) deleted the addition - HELD THAT:- We find that on similar issue, the Co ordinate Bench of the Tribunal in assessee s own case in ACIT v/s Maharashtra State Electricity Transmission Co. Ltd [ 2021 (7) TMI 490 - ITAT MUMBAI] held that the interest accrued liability was transferred to the assessee on demerger/unbundling of the erstwhile MSEB; and as th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enditure by the assessee during the year under consideration - HELD THAT:- It cannot be denied that in case of actual payment made by the assessee in respect of Provident Fund such payments are allowable under section 43B of the Act. However, in the present case, the claim made by the assessee is on the basis of the provisions made for interest shortfall on Provident Fund liability. As the assessee is following mercantile system of accounting, in view of the decision of the Hon'ble Supreme Court in Bharat Earth Movers [ 2000 (8) TMI 4 - SUPREME COURT] which has rightly been followed by the learned CIT(A,) such a liability which has arisen during the year under consideration is allowable even though the same may have to be discharged at a future date. In view of the above, we find no infirmity in the impugned order passed by the learned CIT(A) on this issue. Accordingly, ground no.5, raised in Revenue s appeal is dismissed. Addition with regard to advance paid by the assessee - assessee submitted that the advance paid for lease finance project was transferred / allocated to the assessee in terms of the transfer scheme notification no. Reform 1005/CR 9061(1) MRG 5, dated 04 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Further, unlike other observations of the C AG on other aspects, the C AG has not found any wrong in accounts of the assessee on this issue. At this stage, it is also pertinent to note the description on sample invoices, forming part of the paperbook reads as Fixation of vibration dampers cum spacers by Hot Line method including replacement tightening of Nut bolts of Existing jumpers cone/dead end of towers. Thus, in view of the above, we direct the Assessing Officer to delete the disallowance made by treating the expenditure on repairs of plant and machinery as capital in nature. Accordingly, grounds raised by the assessee are allowed. - ITA No. 2782/Mum./2015 And ITA No. 2942/Mum./2015 - - - Dated:- 14-6-2022 - Shri Pramod Kumar, Vice President And Shri Sandeep Singh Karhail, Judicial Member For the Assessee : Shri Ketan Ved, C.A., Shri Ninad Patade, C.A. For the Revenue : Shri C.T. Mathews, Sr. AR ORDER PER SANDEEP SINGH KARHAIL, J.M. The present cross appeals have been filed by either parties challenging the impugned order dated 03/02/2015, passed under section 250 of the Income Tax Act, 1961 ( the Act ) by the learned Commissioner of Income T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icity in the State of Maharashtra. For the year under consideration, the assessee filed its return of income on 29/09/2010, declaring total income of Rs.148,99,92,376. 4. The issue arising in ground no.1, raised by the Revenue is pertaining to deletion of addition of Rs.8.80 lakh in respect of legal and professional charges. 5. The brief facts of the case pertaining to the issue, as emanating from the record are: The assessee is one of the successor companies to the erstwhile Maharashtra State Electricity Board ( MSEB ) and was formed in the previous year relevant to assessment year 2006 07 on the demerger / unbundling of the said MSEB. On the demerger / unbundling, the assets of MSEB to the extent it pertained and were specifically allocable to the transmission undertaking were transferred to the assessee. Similarly, liabilities of MSEB to the extent it pertained to/were directly relatable to the transmission undertaking were transferred to the assessee. Accordingly, the sum of Rs.8.80 lakh being legal and professional fees, though pertaining to the erstwhile MSEB was debited to the Profit Loss Account of the assessee on the basis of the apportioned brought forward losses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the undertaking, being transferred by the demerged company, immediately before the demerger, becomes the property and liability of the resultant company by virtue of the demerger. Thus, as a result, the professional fees invoices were raised on the assessee for the various professional and legal services provided by the Tax Consultant to the erstwhile MSEB for the assessment years 1999 2000, 2000 01 and from assessment years 2002 03 to 2006 07. As is evident from the record, the said invoices were raised by the Tax Consultant on 31/03/2010. As per the assessee, the said invoices were raised after various orders were passed by the Income Tax Department in the proceedings for the aforesaid assessment years and thus the expenditure has only crystallized during the year under consideration, which is an allowable expenditure. As noted above, the Assessing Officer has disallowed the claim by treating such expenses as prior period expenses i.e., not pertaining to the year under consideration. It cannot be denied that it is a general practice among the Consultants to raise their invoices upon conclusion of the matters before the concerned authorities after the orders are passed by the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the assessee follows mercantile system of accounting and in view of the C AG report, there is a clear overstatement of interest and finance charges and understatement of profits by the assessee. 14. On the other hand, the learned A.R. submitted that this issue has been decided in favour of the assessee in the preceding assessment year by Co ordinate Bench of the Tribunal. 15. We have considered the rival submissions and perused the material available on record. We find that on similar issue, the Co ordinate Bench of the Tribunal in assessee s own case in ACIT v/s Maharashtra State Electricity Transmission Co. Ltd., in ITA no.6834/Mum./2011, vide order dated 18/06/2021, for the assessment year 2008 09, observed as under: 8. The revenue has assailed the deletion of an addition of Rs.15.30 crore that was made by the A.O u/s 68 of the Act. For a fair appreciation of the controversy leading to the impugned addition, we shall briefly cull out the facts germane to the same. During the course of the assessment proceedings, it was observed by the A.O that the Comptroller Auditor General (for short CAG ) had observed that de hors any corresponding bond or loan existing i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ities on unbundling/demerger of erstwhile MSEB and was appearing in the balance sheet of the assessee as an opening balance on 01.04.2017 and no fresh credit entries were passed during the year. In the backdrop of the aforesaid facts, the CIT(A) was of the view that since liabilities in question did not pertain to the year under consideration, the same, thus, could not have been added as an unexplained cash credit u/s 68 of the Act. It was, thus, observed by the CIT(A) that as submitted by the assessee, and rightly so, there were no unexplained credits and unexplained liabilities. Observing, that as per the audit objection raised by CAG the liabilities in question pertained to the earlier years, it was, thus, concluded by the CIT(A) that by no means an addition u/s 68 could have been made in the hands of the assessee. The CIT(A) while concluding as hereinabove had observed as under: 3.3. I have carefully considered the facts of the case. The A.O. made addition of Rs.15.30 crores u/s.68 of the Act holding the sum as unexplained credit. The A.O. made addition on the basis of audit objection raised by CAG. However, the CAG only pointed out that the corresponding loan of bond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s.15.30 crores accrued during the year on the old liabilities received from erstwhile MSEB on unbundling of the MSEB. There is force in appellant's argument that in the facts and circumstances the provisions of sec.68 were not applicable. Even the audit objection raised by CAG in the immediately preceding year shows that the liabilities (considered in the year under consideration) were pertaining to the earlier years. It is worth to mention here that in assessment order of A.Y.2007-08, though this objection was raised by CAG but no addition was made by A.O. on this account. We have given a thoughtful consideration to the aforesaid issue and concur with the view taken by the CIT(A), viz. that the interest accrued liability of Rs.15.30 crore was transferred to the assessee on demerger/unbundling of the erstwhile MSEB; and as the said liabilities in question pertained to the earlier year, the same, thus, could not have been added during the year under consideration as an unexplained cash credit u/s 68 of the Act. We, therefore, finding no infirmity in the view taken by the CIT(A) uphold the deletion of Rs.15.30 crore. The Ground of appeal No.1 is dismissed. 16. The lear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are duly tabulated by the ld. AO in page 5 of his order. The assessee earned prior period income of Rs.84,48,47,317/- and prior period expenditure of Rs.944,00,69,767/-. The net prior period expenses amounting to Rs.859,52,22,450/-. The ld. AO brought to tax the amount already offered by the assessee in the return in respect of prior period income and disallowed entire prior period expenditure (gross) while completing the assessment by holding that these expenses did not crystallise during the year under consideration. It is pertinent to note that out of total details of prior period expenses submitted by the assessee in a tabular form, the assessee had voluntarily made disallowance in the return of income towards depreciation amounting to Rs.31,02,01,481/- and income tax provision of Rs.156,66,42,865/- which was again disallowed by the ld. AO while framing the assessment, thereby leading to double addition. This mistake of double addition was duly rectified by the ld. CIT(A) in his order. The ld. CIT(A) deleted the remaining amount of disallowance made by the ld. AO by holding in detail as under:- 8.1 Facts briefly, are that the appellant had credited its Revenue Account fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lectricity (Supply) (Annual Accounts) Rules 1985 prescribed under section 69 of the Electricity Supply Act, 1948 and C.A.G. also accepts this accounting system. 8.4 The appellant further submitted that the total income of the appellant required to be computed was in accordance with the method of accounting regularly followed by it as laid down by the provisions of sec. 145 of the Income-tax Act, 1961. In this connection attention was drawn to the accounting standard No. II issued by the CBDT notified vide notification no. SO69(E) dtd. January 25,1996 in terms of which it has been stated in Para 7 that :- 'Prior period items shall be separately disclosed in P L account in the previous year together with their nature and amount in a manner so that their impact on profit and loss in the previous year can be perceived' 8.5 Hence it was submitted that the objective of the above mentioned Accounting Standard is that every assessee is required to disclose the prior period item separately. Had it been laid down that prior period expenditure is not allowable as per the LT.Act,1961, as alleged by the Assessing Officer there was no requirement for CBDT to issue an Accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tirety of the appellant's operations and its huge net work explains the time taken to account for various expenses. The accounts of the appellant are audited by internal auditors and statutory auditors under the Companies Act and the Incometax-Act. Further the reference to the Board's Circular is also in favour of the appellant. The AO has not come out with any finding that any of these expenses are not allowable as deduction. Since the expenses are otherwise allowable, the appellant cannot denied the deduction which has been claimed following proper accounting standards. Further, the AO has included the prior period revenue in the appellant s income. So there is no logic to disallow the prior period expenses. In view of this the AO is directed to allow the prior period expenses as claimed. 4.1. It is not in dispute that the accounts of the assessee have been prepared in accordance with the mandate provided under the Electricity Act. We also find that the ld. AR drew our attention to the page 254 of the paper book containing the statutory mandate in the form of Commercial Accounting System for State Electricity Boards together with the Electricity (Supply) Annual Acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... B. Whether on the facts and in the circumstances of the case and in law, the Tribunal was correct in confirming the order of CIT(A) in deleting the disallowance of Rs.92,91,343/- made by the Assessing Officer on account of prior period expenses? 4.2. The Hon ble Jurisdictional High Court disposed off the aforesaid question by holding as under:- 4) Regarding Question B : (a) In its return of income for assessment year 2004-05 while declaring total income of Rs.100.76 crores the Respondent-assessee claimed an expenditure of Rs.92.81 lacs as prior period expenses. The Assessing Officer disallowed the expenditure relating to prior period on the ground that as the respondent followed mercantile system of accounting expenditure relatable to an earlier year cannot be allowed as deduction in the assessment year under consideration. Thus an amount of Rs.92.81 lacs was added to the income of the Respondent assessee. b) In appeal, the CIT(A) held that the method of accounting consistently followed since many years by the respondent was that expenses were claimed as a liability as and when the bills were received even though the work was done in earlier year and not in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the above we see no reason to entertain question B as the same does not raise any substantial question of law as it is essentially a finding of fact arrived at by two authorities concurrently. 4.3. In view of the aforesaid observations and respectfully following the decision of the Hon ble Jurisdictional High Court referred to supra, we find no infirmity in the order of the ld. CIT(A) granting relief to the assessee in respect of prior period expenditure. Accordingly, the grounds raised by the revenue in this regard are dismissed. 23. We further find that similar findings were rendered by the Co ordinate Bench of the Tribunal in DCIT v/s Maharashtra State Electricity Board, in ITA no.1649/Mum./2010, etc., vide order dated 21.04.2021, for assessment years 2004 05 and 2005 06. And in DCIT v/s M/s Maharashtra State Electricity Board, in ITA no.1650/Mum./2010, vide order dated 20.05.2021, for assessment year 2006 07. 24. The learned D.R. could not show us any reason to deviate from the aforesaid orders. As, the assessee is one of the successor companies to the erstwhile MSEB, thus, respectfully following the aforesaid decisions rendered in case of erstwhile MSEB, we f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... F Trust (CPF Trust). The funds so received by CPF Trust are invested by the appellant, in various securities as required in Accounting Standard-15 - under Institute of the Chartered Accountants of India [ISCA] through an actuary and valuation is carried out on investment held by CPF of the trust. It was found that Rs.12,86,00,000/- was surplus amount as per this exercise. This is on account of shortfall or excess in the CPF Trust asset which is reflected. in the profit and loss account as notional account and it is accounted in the credit side of the accounts. Here it is clear that this shortfall or excess, in the investment of CPF trust is not realized in the year and it is only a value of the assets as at the end of the year. In order to know the real value of the funds in CPF Trust. In this year there was excess in the account. Hence this excess was credited in the profit and loss account as excess in the CPF Trust. While computing income for income tax purposes, this excess is deducted from income as per profit and loss account as it is a notional entry and this amount was not realized during the year by the appellant. However, this amount also does not represent the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order passed by the learned CIT(A). Thus, ground no.4, raised in Revenue s appeal is dismissed. 31. The issue arising in ground no.5, in Revenue s appeal is pertaining to deletion of disallowance of Rs.5,54,08,761, being provision for interest shortfall on Provident Fund liability. 32. The brief facts of the case pertaining to the issue, as emanating from the record are: During the year under consideration, based on certificate of actuary, the assessee had re-cognised a sum of Rs.5,54,08,761, as shortfall in interest payable on Provident Fund liability to beneficiaries as at year end. As the assessee is following mercantile system of accounting, the assessee made provisions for interest shortfall on Provident Fund liability in respect of the said amount and claimed the same as allowable expenditure. The Assessing Officer vide order passed under section 143(3) of the Act, disallowed the claim made by the assessee. 33. The learned CIT(A) allowed the appeal filed by the assessee on this issue by observing as under: 15.3 I have considered appellant's submissions. The appellant had made provision for short fall on interest payable on PF liability to beneficiaries at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds were treated as Defined Benefit Plans. Since the assessee is obliged to meet interest shortfall, if any, with respect to covered employees, the actuary had certified an amount of Rs.5,54,08,761, as shortfall in interest payable on Provident Fund liability to the beneficiaries as at year end. On the basis of such report, the assessee made provisions for the same. As per the assessee, the provisions so made was a business liability which is arising in this year though it is paid in a later year and thus the same should be allowed as expenditure in the year in which the liability has arisen. In the present case, the Revenue has only denied the claim of the assessee on the basis that it is merely based on the provisions so made and there is no actual expenditure by the assessee during the year under consideration. It cannot be denied that in case of actual payment made by the assessee in respect of Provident Fund such payments are allowable under section 43B of the Act. However, in the present case, the claim made by the assessee is on the basis of the provisions made for interest shortfall on Provident Fund liability. As the assessee is following mercantile system of accounting, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ashtra State Electricity Board (MSEB) and earlier under lease finance arrangement with Infrastructure Leasing and Financial Services by acquiring assets of High Voltage Current Project in the Asstt. Year 1999 2000. Copy of the lease agreement was submitted by the appellant. Appellant contends that this Advance for lease finance project is for Rs. 153.78 crores. This lease finance assets acquired through lease finance arrangement from ILFS on which lease rentals paid. The appellant states that discharge of lease financial liability and no liability exists towards lease rental as on March 2010. The company booked the entire lease rentals through profit, and loss account i.e. interest and finance charges instead of liability account to the extent of principal repayment and profit and loss account to the extent of interest finance charges and therefore the liability account remained unsettled. The appellant mainly states that settled lease liability with ILFS paid all the lease rentals by March 2010. Hence as per their records, this liability was discharged by paying in the form of settled rentals from ILFS. However in the earlier MSEQ account Rs. 40,00,00,000/- lease liability was rem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of section 251(1)(a) of the Act. In view of the above, we direct the learned CIT(A) to adjudicate this issue de novo. The learned CIT(A) shall have the liberty to seek remand report, if any, from the Assessing Officer. Needless to say that before passing any order, opportunity of hearing shall be granted to assessee. Accordingly, grounds no.6 and 6.1, raised in the Revenue s appeal are allowed for statistical purpose. 43. In the result, appeal by the Revenue is partly allowed for statistical purpose. ITA no.2942/Mum./2015 Assessee s Appeal A.Y. 2010 11 44. In its appeal, the assessee has raised the following grounds: 1:0 Re.: Disallowance of expenditure on repairs to plant and machinery - Rs. 2,27,75,501/- 1:1 The Commissioner of Income-tax (Appeals) has erred in confirming the action of the Assessing Officer of making a disallowance of expenditure on repairs to plant and machinery by holding the same to be capital in nature. 1:2 The Appellant submits that considering the facts and circumstances of its case and the law prevailing on the subject the repairs and maintenance expenditure incurred during the year is revenue expenditure and the stand taken ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s are not current repairs hence capitalized 17.03.2009 261 RA 2 Fixing of Vibrating Dampers cum Spacers 6900919 These expenses are not current repairs hence capitalized 26794708 47. The Assessing Officer vide order passed under section 143(3) of the Act held that the expenditures are not in the nature of current repairs and indicate substantial addition in the assets which are of enduring in nature. Accordingly, the Assessing Officer treated the expenditure as capital expenditure and allowed depreciation @ 15% on the same to the assessee. 48. In appeal, the learned CIT(A), vide impugned order, upheld the conclusion reached by the Assessing Officer on this issue. 49. During the course of hearing, the learned A.R. submitted that the aforesaid expenditures were incurred in the normal course of business and have not resulted in the acquisition of any new asset or obtaining any advantage of enduring nature. The learned A.R. further submitted that the assessee has a policy, wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Supreme Court further held that the basic test to find out as to what would constitute current repairs is that the expenditure must have been incurred to preserve and maintain an already existing asset, and the object of the expenditure must not be to bring a new asset into existence or to obtain a new advantage. In the present case, apart from a mere allegation by Revenue that by way of these expenditure substantial addition in the assets were made, the Revenue has not proved by way of any material that new asset has come into existence by incurring these expenditure by the assessee. Further, the Revenue has also not doubted the policy of assessee whereby assessee suo-moto capitalise its repairs and maintenance expenditure, which needs to be capitalised. Further, unlike other observations of the C AG on other aspects, the C AG has not found any wrong in accounts of the assessee on this issue. At this stage, it is also pertinent to note the description on sample invoices, forming part of the paperbook from page nos. 256-261, which reads as Fixation of vibration dampers cum spacers by Hot Line method including replacement tightening of Nut bolts of Existing jumpers cone/dead e ..... X X X X Extracts X X X X X X X X Extracts X X X X
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