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TMI Blog2023 (2) TMI 196X X X X Extracts X X X X X X X X Extracts X X X X ..... e ld. CIT(A) erred on facts and in law in having upheld the addition of Rs.17,29,58,525/- being the difference of liability as on 31.03.2006 and 31.03.2007 amounting to Rs.6,02,50,992/- and Rs.23,32,09,517/- respectively payable to financial institution under the head "Current liabilities and provision" by holding that interest accrued was become payable and the same had not been paid by the assessee. (2) That the ld. CIT(A) erred in having upheld the addition of Rs.17,29,58,525/- being the difference in liability payable to the financial institution but not actually paid on accrual basis as not an allowable deduction u/s 43B of the Act inspite of the fact that the liability created by debiting the P/L account was duly paid before the due date of filing ROI and further TAR did not mention anything contrary to that. (3) That, as the order of ld. CIT(A) on the above issues suffer from illegality and is devoid of any merit, the same should be quashed and your appellant be given such relief(s) as prayed for. 3. At the time of hearing, it was pointed out that there is a delay of 52 days in filing the appeal. we noticed that the appeal is time barred by limitation of 52 days. The Ld ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rs.287,32,29,610/-. Thereafter the case of the assessee was reopened under section 147 of the Act by issuing notice under section 148 of the Act dated 30.03.2012 and assessment was framed vide order dated 28.03.2013 passed under section 147/143(3) of the Act determining total income at Rs.27,18,35,03,233/-.Once again the case of the assessee was reopened under section 147 of the Act by issuing notice under section 148 of the act dated 17.02.2014 on the ground that Rs.17,29,58,525/- being interest accrued and payable to financial institution has not been paid and thus the income has escaped assessment to that extent. The ld. Assessing Officer observed that interest accrued but not due to financial institutions , which was shown under the head "current liabilities and provisions" as on 31.03.2006 and as on 31.03.2007 were of Rs.6,02,50,992/- and Rs.23,32,09,517/- respectively and accordingly came to the conclusion that the difference in these two amounts represented interest accrued but not due to the financial institutions, which has remained unpaid before the due date of filing of the income tax return. The assessing officer also observed that the tax audit report did not mentio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... due of Rs.22,87,74,980/- related to interest capitalized under capital work-in-progress and only interest accrued but not due as on 31.03.2007 was Rs.44,34,537/- which was charged to profit & loss account. Thus on the basis of these documents we observe that the aggregate of interest shown as interest accrued but not due came to Rs.23,32,09,517/-. The assessee has also filed before us the details of payments of interest institution wise, which are reproduced as under for ready reference:- Accrued interest claimed as expenditure during the year Sl. No. Particulars Interest amount Date of payment 1. PFC Rs.5,18,748/- 13.04.2007 2. PFC-R & M Rs.30,43,202/- 12.04.2007 3. Allahabad Bank Rs.8,72,587/- 03.04.2007 It is evident from the details as given above that the amount of interest of Rs.44,34,537/- was duly paid in the month of April,2007 and the remaining amount of interest which has been capitalized under the "capital work in progress account" and was not charged to the profit and loss account at all. Considering the above facts, we are of the view that both the authorities below have failed to appreciate the facts correctly as the said amount of interest accrued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r from illegality and is devoid of any merit, the same should be quashed and your appellant be given such relief(s) as prayed for. 5. That the appellant craves leave to amend, alter, modify, substitute, add to, abridge and/or rescind any or all of the above grounds. 11. The issue raised in Grounds No. 1 is against the confirmation of disallowance of Rs.86,03,24,802/- and Rs.13,66,09,110/- aggregating to Rs.99,69,33,912/- on account of employer's contributions to pension fund by ld. CIT(Appeals), as disallowed by the ld. Assessing Officer on the ground that the amount was not paid within the due date of filing of the return of income under section 139(1) of the Act by ignoring the fact that pension fund was established under the provisions of the P.F. Act, 1925 vide Notification dated 11.01.2007 and as per the first proviso of the Fourth Schedule, this part would not apply to any provident fund to which the P.F. Act, 1925 applies. 12. The facts in brief are that the assesse filed the return of income on 11.10.2010 declaring loss of Rs. 271,00,42,810/-. The case of the assesse was selected for scrutiny and assessment was framed u/s 143(3) of the Act vide order dated 21.12.2011 ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , added to the income of the assesse in the assessment framed u/s 143(3) r.w.s. 147 of the Act dated 31.03.2015. 13. In the appellate proceedings, the ld. CIT(Appeals) simply affirmed the order of the ld. Assessing Officer by rejecting the contentions of the assessee that the said contribution to pension fund is covered under the GPF Act, 1925 to which the provisions of section 43B were not applicable. 14. The ld. A.R. vehemently submitted before us that provisions of section 43B of the Act were applicable only in respect of the contributions to provident fund or superannuation fund or gratuity fund or any other fund which are covered under EPF Scheme, 1952, gratuity Act, 1961, ESI Act and other pension Acts as the due dates for the payments of contributions under these Statutes are duly prescribed under the respective Acts however, the GPF created by WBPDCL is not a fund within the meaning of these Acts. The ld AR submitted that the moment, the contributions are credited to GPF account in the books of the assesse , these are treated as paid and therefore, provisions of section 43B of the would not apply to contributions under GPF. 15. The ld counsel of the assesse presented a d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the state civil services could not cope with the ever increasing developmental works and also pressure and challenges connected therewith on account the nature of activities being highly specialized and technical. So these corporations/bodies have come into being as extended arms or instrumentalities of the Govt. and the concept has gained ground and prominently in vogue for carrying out public functions which were earlier discharged by the Govt. The ld AR referred to the decision of the ld. Ajay Hasia Vs Khalid Mujib Sehravadi , AIR(1989)1SCC 712 wherein corporation came into being to overcome the inadequacy of civil services and to handle the highly technical and specialized activities .The ld. AR also referred to the decision of the Hon'ble Apex court in the case of Ramaana Dayaram Shetty Vs. International Airport Authority of India and Others(1979)3 SCR1014 wherein it has been held corporation may be created in two ways i) by establishing by statute or incorporated under a Law such as the Companies Act, 1956 or the Societies Registration Act,1860. 17. The ld AR vehemently submitted that WBPDCL is a wholly owned State Govt. undertaking set up by the Govt. of West Bengal unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assesseefulfilled and satisfiedmost of the conditions as laid down by the Hon'ble Supreme Court for the purpose of definition of the State in the Article 12 of the Constitution.The ld AR also referred to the following decisions wherein it has been held that Government companies were held to be State under article 12 of the Constitution namely i)Mysore Papers Mills Ltd Vs Mysore Papers Mills Officers Association and ors(2002)37 SCL 742 SC/(2002) 108 COMP CASE 652(SC)and ii) H Purushotham Vs Union of India (1997)14 SCL 191 (Cal) 19. The ld AR also referred to Article 309 of the Constitution which deals with recruitment and conditions of Service of persons serving the Union or the State especially the proviso which provides that The president or such other person as he may he may direct in the case of serves and posts in connection with affairs of Union and State. The ld AR argued that in exercise of the powers conferred by the proviso to Article 309 of Constitution of India , The Governor of West Bengal had made applicable the West Bengal Services(Death Cum Retirement Benefit) Rules 1971{WBS(DCRB) Rules, 1971} vide notification no. 5827-F dated 1.12.1971. The WBS(DCRB) Rules, 1971 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er Gratuity Act is funded with LIC through creation of Gratuity Trust. Second fund namely GPF is a separate fund maintained by the assessee company as per WBPDCL employees (Death cum Retirement ) Benefit Regulation 1992 and this fund is maintained only for those employees who opt for defined benefit plans under the WBPDCL regulation as is evident and clear from note no.11(A)(ii) of Annual accounts as filed at page 49of PB II as well as para 5A and 5B of the Regulation. Lastly ,ld counsel submitted that the employees who opt for CPF are not covered under WBPDCL Regulation and they are paid benefits as per Gratuity Act , 1972 and EPF Scheme, 1952 by creating separate trust for the same. Those employees who opt for WBPDCL Regulation are paid as per the regulation as separate GPF is created for the same and not as per Gratuity Act ,1972 and CPF 1952. 21. The ld AR then referred to Regulation 29(b) of WBPDCL Regulation a copy of which is filed at page 42 of the Paper Book which provides that "The employees who will exercise option for Pension cum Gratuity (including Family Pension Scheme will be guided by the GPF Rules framed separately. Thus, in accordance with the Regulation 29(b) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, 1925 .In view of the above, it is clear that WBPDCL maintains two accounts i.e. CPF which is under the control of CPF Trust and GPF (Government Provident Fund) which is under the control of the assessee (WBPDCL). 23. Now the question arises whether the provisions of section 43B, 36(1)(va) and 40A(7) of the Act are applicable in the case of any provisions credited in GPF Account of the Company. In this regard, firstly, reference is made to PART A of the Fourth Schedule of Income Act, 1961which contains the provisions for Recognized Provident Funds. Section 1 of the PART A of the Fourth Schedule provides that " This Part shall not apply to any provident fund to which the PF Act, 1925 (19 of 1925), applies. In the case of WBPDCL, as already discussed, GPF was created by notification in official Gazette under PF Act, 1925 . The ld AR stated that since, the GPF is a fund under PF Act, 1925 , it is excluded from the ambit of provisions of Recognized Provident Fund by virtue of PART A of Fourth Schedule of Income Tax Act, 1961. The ld AR ,therefore, argued that provisions of Income Tax Act are not applicable in case of GPF established and operated under PF Act. 24. The ld. A.R. re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee is allowed, then every corporation of the State will start maintaining GPF itself which is not the spirit of the GPF Act, 1925. The ld DR therefore prayed that the order of ld. CIT(A) is very cogent and correct passed after appreciating the position of law correctly and may be affirmed by dismissing the appeal of the assesse. 26. We have heard the rival contentions and perused the relevant material placed before us including the Provident Fund Act, 1925 and various regulations and notifications issued in order to make applicable provisions of Provident Fund Act, 1925 to the assessee. The issue for adjudication before us whether the assesse can be treated as State to maintain GPF as contemplated by the Provident Fund Act 1925 and whether the employer's contribution to pension fund under the GPF is outside the scope and ambit of provisions of Section 43B of the Act. In order to address this issue we have to first decide whether the assesse is a State and whether it can operate provident fund schemes as contemplated under Provident Fund Act ,1925. We note that the assesse(WBPDCL) is a wholly owned State Govt undertaking set up by the Govt of West Bengal under companies A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... doubt in our mind that the assessee i.e. WBPDCL is a wholly owned Govt. enterprise and is an instrumentality and agency of the State Government. 27. Further we have also perused Article 309 of the Constitution which deals with recruitment and conditions of Service of persons serving the Union or the State especially the proviso which provides that The president or such other person as he may he may direct in the case of serves and posts in connection with affairs of Union and State. We also note that in exercise of the powers conferred by the proviso to Article 309 of Constitution of India , The Governor of West Bengal had made applicable the West Bengal Services(Death Cum Retirement Benefit) Rules 1971{WBS(DCRB) Rules, 1971} vide notification no. 5827-F dated 1.12.1971. The WBS(DCRB) Rules, 1971 are specially framed for Govt employees of the Govt of West Bengal and do not have any relation with Gratuity Act ,1972, Employees Provident Fund and Miscellaneous Provisions Act, 1952 or any other pension Act. We also note that separate regulation called WBPDCL Employees (Death Cum Retirement ) Benefit Regulation ,1992(WBPDCL Regulation) was framed which come into force from 21.08.1990 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mployees who opt for CPF are not covered under WBPDCL Regulation and they are paid benefits as per Gratuity Act , 1972 and EPF Scheme, 1952 by creating separate trust for the same. Those employees who opt for WBPDCL Regulation are paid as per the regulation as separate GPF is created for the same and not as per Gratuity Act ,1972 and CPF 1952. 28. We have also perused Regulation 29(b) of WBPDCL Regulation a copy of which is filed at page 42 of the Paper Book which provides that the employees who will exercise option for Pension cum Gratuity (including Family Pension Scheme will be guided by the GPF Rules framed separately in accordance with the Regulation 29(b) of the Regulation, We also note that "The GPF (The West Bengal Power Development Corporation Limited Employees (Death cum Retirement) Benefit Rules. 2004 (referred to as WBPDCL GPF Rules)"were made and duly notified in Official Gazette on 11.01.2007 through Notification No WBPDCL/R-VI1/249 a copy of the Notification is enclosed at page 87-95 of the Paper Book III and the very first paragraph of the Notification at page 87 of the Paper Book III provides that GPF Rules are created in accordance with Regulation 29(b) of WBPDCL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ized Provident Funds. Section 1 of the PART A of the Fourth Schedule provides that " This Part shall not apply to any provident fund to which the PF Act, 1925 (19 of 1925), applies. In the case of WBPDCL, as already discussed, GPF was created by notification in official Gazette under PF Act, 1925 and since, the GPF is a fund under PF Act, 1925 , it is excluded from the ambit of provisions of Recognized Provident Fund by virtue of PART A of Fourth Schedule of Income Tax Act, 1961. So considered these provisions , we find merit in the arguments of AR that provisions of Income Tax Act are not applicable in case of GPF as established by the assessee under PF Act. 31. We have also perused Rule 22 of the WBPDCL GPF Rules a copy of which is placed at page 95 of the paper book which provides that that "all sums paid into the Fund under these Rules shall be credited in the Books of Corporation to an account named "The GPF". Further in terms of section 8(2) of the Provident Fund Act, the GPF account is maintained with the Government i.e.(WBPDCL) and hence, the GPF account is maintained with the appellant only and all contributions either by employer or by employee, both are to be considered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal of the assessee is allowed. ITA No. 335/KOL/2020:- 35. The issue raised in Ground No. 1 is against the confirmation of disallowance of Rs.12,73,29,000/- by the ld. CIT(Appeals) as made by the ld. Assessing Officer in respect of prior period expenses without considering the facts that these expenses crystalized during the year. 36. The ld. Assessing Officer during the course of assessment proceedings observed on the basis of auditor's report in Form 3CD and Note No. 28 of the Profit & Loss Account that the assessee had debited a sum of Rs.12,73,29,000/-under the prior period expenses. Accordingly a show-cause notice was issued to the assessee, which was replied by the assessee by submitting that the prior period expenses were not in fact occurred due to mistake and/or omission but arose for the expenses booked after cut-off date for finalization of accounts and allowable u/s 145(1) of the Income Tax Act, 1961. However, the contention of the assessee was not accepted by the ld. Assessing officer on the ground that the assesse is following mercantile system of accounting and further that as per the provisions of section 37(1), only the expenses incurred during the year are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of expenses could be claimed only on actual expenses, as they were covered under section 43B(d). " 39. Similarly Hon'ble Gujarat High Court in the case of Saurashtra Cement and Chemical Industries Limited -vs.- CIT (1995) 213 ITR 523 (Guj.) has held as under:- "Merely because an expense relates to a transaction of an earlier year it does not become a liability payable in the earlier year unless it can be said that the liability was determined and crystallized in the year in question on the basis of maintaining accounts on the mercantile basis. In each case where the accounts are maintained on mercantile basis it has to be found in respect of any claim, whether such liability was crystallized and quantified during the previous year so as to be required to be adjusted in the books of accounts of that previous year. If any liability, though relating to the earlier year, depends upon making a demand and its acceptance by the assessee and such liability has been actually claimed and paid in the later previous years cannot be disallowed as deduction merely on the basis the accounts are maintained on mercantile basis and that it related to a transaction of the previous year. The tru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Accordingly our decision in ITA 334/KOL/2020 would, mutatis mutandis, apply to this ground as well and consequently ground no. 3 is allowed 44. The issue raised in Ground No.4 was not pressed by the ld. Counsel for the assessee at the time of hearing. Therefore, this ground raised by the assessee is dismissed as not pressed. 45. The ground raised in Ground No.5 is against the confirmation of disallowance of Rs.47,51,08,000/- by the ld. CIT(Appeals) as made by the ld. Assessing Officer for fuel and fixed cost by holding the same as unascertained liability and contingent in nature in spite of the fact that Hon'ble Commission (WBERC) passed fuel cost adjustment order and fixed cost adjustment order when fuel cost adjustment and fixed cost adjustment became final. 46. The facts in brief are that the ld. Assessing Officer during the course of assessment proceedings observed that the assessee has charged to the profit & loss account provisions for fuel and fixed cost. The ld. Assessing Officer while computing the book profit under section 115JB of the Act disallowed the same by holding that expenditure for provision against any possible shortfall in income was based on estimation aga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ormula set out in the WBERC (Terms and conditions of Tariff), Regulation 2011 which would be recovered after receipt of order from WBERC. We note that the assesse has included the unbilled income on account of Future Fixed cost adjustment and Future Fuel Cost Adjustment as per the said formula as set out in WBERC(Terms and Conditions Tariff) Regulation 2011. Therefore it is not in doubt that assesse has made provisions for unbilled Future Fuel and Fixed cost Adjustment under the revenue from operation and also including the same to be taxable u/s 115JB of the Act and paid taxes accordingly. We note that assesse has made provisions at 5% as expenditure that may be incurred in relation to the provisional income at Rs. 4,751.08 lacs. For the ready reference the table of provisional incomes is extracted below: Sl. No. Particulars Amount (Rs. In Lakh) Amount (Rs. In Lakhs) 1. Kolaghat Thermal Power Station (KTPS) 1758.48 26998.19 2. Bakreshwar Thermal Power Station (BKTPS) 11496.85 20825.00 3. Bandel Thermal Power Station (BTPS) (5692.70) 6992.29 4. Santaldih Thermal Power Station (STPS) 1732.70 20348.97 5. Sagardighi Thermal Power Station (SgTPS) (718.08) 11279. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITA No. 336/KOL/2020 is covered by ground no. 5 of ITA No. 335/KOL/2020 supra. Since we have decided these issues as discussed above and consequently grounds No. 1 &2 of the assessee are allowed. 50. The issue raised in Ground No. 3 is against the order of ld. CIT(Appeals) upholding the disallowance of Rs.50,54,181/- as made by the ld. Assessing Officer on account of provision for expenses not paid during the year by ignoring the fact that the same liability accrued during the previous year but was paid after the year end and hence allowable. 51. The facts in brief are that the assessee has claimed Rs.30,16,66,858/- under the head 'other expenses and accordingly the AO called for the details of the said expenses. The ld. Assessing Officer observed from the details filed by the assessee that assessee has debited various heads of expenses transport charges of Rs.8,16,079/-, electricity charges of Rs.23,39,002/-, facility management of Rs.2,56,378/-, office upkeep of Rs.2,86,409/-, office expenses of Rs.13,56,313/- , which are unascertained and held these expenses to be inadmissible and consequently added the same to the income of the assessee. The said expenses aggregating to Rs.50 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ystem followed by the assessee. In our opinion, where the liability has arisen in the accounting year, the deduction has to be allowed, nonetheless the liability may have to be quantitative or discharged at a future date but what should be definite is incurring of liability. The case of the assessee finds force from the decision of Hon'ble Apex Court in the case of Bharat Earth Movers (supra), wherein it has been held as under:- "Section 37(1) of the Income Tax Act, 1961- Business expenditure- year in which deductible-assessment year 1978-79- whether if a business liability has definitely arisen in accounting year, deduction should be allowed although liability may have to be quantified and discharged at a future date but what should be definite is incurring of liability - held, yes, provision was made by assessee-company for meeting liability towards leave encashment proportionate to entitlement earned by employees of company subject to ceiling on accumulation as applicable on relevant date- whether assessee should be entitled to deduction of such provision out of gross receipts for accounting year during which provision was made for liability inasmuch as liability was not a con ..... X X X X Extracts X X X X X X X X Extracts X X X X
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