TMI Blog2009 (11) TMI 20X X X X Extracts X X X X X X X X Extracts X X X X ..... Present for the Commissioner : Mr. M.N. Maurya. RULING By Mr. J. Khosla - The applicant is a Government company engaged in the business of power distribution in the State of Rajasthan. The Rajasthan State Electricity Board was split into three companies, namely, Electricity Generating company, Electricity Transmission Company and Distribution Companies as per the provisions of Rajasthan Power State Reforms Act, 1999. Out of the three distribution companies, the applicant is one, said to be the successor of the erstwhile Rajasthan State Electricity Board. The income tax return filed by it for the assessment year 2004-05 was adjudicated by the Assessing Officer and order under section 143(3) of the Income-tax Act, 1961 ('Act' for short) was passed on 29.12.2006 against the company. An appeal filed against this impugned order before the Commissioner of Income-tax (Appeals), Jodhpur yielded partly in its favour. Further appeal before the Income Tax Appellate Tribunal, Jodhpur is pending. The assessing authority invoked section 115JB of the Act on the premise that there was book profit and made assessment on notional income under that Section. He disallowed the alleged ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he company which have been shown as recoverable in the audited accounts are Rs. 1271.04 crores and the book loss for the year under consideration amounted to Rs. 303.76 crores and these losses are shown as recoverable from the Government of Rajasthan as per the printed balance sheet. It is argued that the Assessing Officer has erroneously ignored the losses and assessed it under section 115JB of the Income-tax Act. 4. So far as the 1st question regarding depreciation under section 32 is concerned, this question was not pressed by the applicant in the further submissions made by it and the question no. (1) is withdrawn by the applicant. Therefore, it is unnecessary to discuss this issue further. 5. Question No. 2: Whether the amount of interest paid to RRVPN Rs. 1168841/- on the amount of FDR loan raised by RRVPN from financial institutions on behalf of assessee company is allowable to the assessee company. The learned Authorized Representative of the applicant has shown us copies of the statements of April, 2003 onwards sent by Rajasthan Rajya Vidyut Prasaran Nigam Ltd. (for short 'RVPN') showing the receipt and payment on behalf of the applicant wherein against S.No. 38 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inciple of law that it is the duty of the 1 person who has debited some expenditure to prove that expenditure was incurred for his business only and that burden has not been discahrged. 7. We extract below section 36(1)(iii) of the Act which reads as follows: "Section 36. Other deductions (1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28- (i) (ii) xx xx xx xx xx xx xx xx (iii) the amount of the interest paid in respect of capital borrowed for the purposes of the business or profession: [Provided that any amount of the interest paid, in respect of capital borrowed for acquisition of new asset for extension of existing business or profession (whether capitalized in the books of account or not); for any period beginning from the date on which the capital was borrowed for acquisition of the asset till the date on which such asset was first put to use, shall not be allowed as deduction.] It is argued by the Revenue that the loan was not raised by the assessee applicant but by the RRPVN and therefore the interest paid by the assessee is rightly disa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... where assessee did not know the liability in that year. The assessee in the instant case has not given any proof, neither before the Ld. AO nor before me to show as to how and why liability of these expenditure was not known to it in the year to which they pertain. Therefore, in view of the decision of the Hon'ble ITAT Delhi Bench in the case of Innovative Tech Park Ltd. Vs. ACIT (79 ITD 445), I hereby dismiss the appeal of assessee and uphold the action of the Ld. AO." The learned authorized representative of the applicant has submitted that the adjustment of Rs. 5.89 crores for the purpose of book profit under section 115JB was completely erroneous as it represented bona fide adjustments of expenses pertaining to earlier years but which were accounted for on being apprised of them by RVPN and others through various letters and other communications. All such expenses became known to the assessee during the year after the finalization of financial accounts for the earlier years and could be accounted only for this period. The applicant has given item wise details relating to the disputed expenses /liabilities along with the relevant documents as follows: (i) Rs. 1.29 cror ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee in view of the provisions of section 115JA(2) read with section 211 of the Companies Act, 1956, the assessee was required to show the prior period items/extraordinary items separately so that their impact on the current profit or loss could be perceived. 10. For answering the question whether the prior period expenses/liabilities can be claimed as business expenditure for the relevant assessment year, the point to be considered is whether the claims were ascertained and crystallized only during the year under consideration. The assessee who is maintaining the mercantile method of accounting could not have provided for such expenses in the earlier year's accounts unless the liability to incur the expenditure was definite, certain or ascertained. No doubt, the explanation given by the applicant before the assessing authority in this regard was quite vague. Even before the appellate authority, the relevant details were not furnished. At the same time, the applicant has clarified the position before this Authority and filed the relevant communications and orders from RVPN and other concerned authorities raising the demands on account of statutory dues etc.. The details in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... VI to the Companies Act, 1956 (1 of 1956): Provided that while preparing the annual accounts including profit and loss account - (i) the accounting policies; (ii) the accounting standards adopted for preparing such accounts including profit and loss account; (iii) the method and rates adopted for calculating the depreciation, shall be the same as have been adopted for the purpose of preparing such accounts including profit and loss account and laid before the company at its annual general meeting in accordance with the provisions of section 210 of the Companies Act, 1956 (1 of 1956). Provided further . (i) the accounting policies; (ii) the accounting standards adopted for preparing such accounts including profit and loss account; (iii) the method and rates adopted for calculating the depreciation, shall correspond to the accounting policies, accounting standards and the method and rates for calculating the depreciation which have been adopted for preparing such accounts including profit and loss account for such financial year or part of such financial year falling within the relevant previous year. Explanation: For the purposes of this section, "bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pressed the view that in the light of the material now furnished by the applicant, the claim is prima facie sustainable, but the factual details have to be verified and therefore the claim has to be considered afresh. If that amount is taken as allowable expenditure, it will have inevitable bearing on the book profit/loss. Thirdly, the underlying basis for re-calculation of the depreciation by rejecting the figures in the P L account will not hold good if the applicant's contention regarding the accounting principles to be adopted is to be accepted. The main reason for recomputing and reducing the depreciation amount seems to be that the subsidy received by the applicant towards the cost of capital assets has not been reduced from the cost. It is the case of the applicant that the claim of depreciation by the applicant was perfectly in order as per the Accounting principles contained in Electricity (Supply) Annual Accounts Rules, 1985. Para 2.36 of Annexure III to the rules dealing with "Basic accounting principles and policies" lays down the manner of accounting for cost of capital asset and basis of claiming depreciation. Para 2.36 occurs under the heading "Contribution, Grants a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the annual accounts, the requirement of the first proviso to section 115JB (2) has been adhered to by the applicant. The counsel for the applicant in the written submissions as well as in the course of arguments invited the attention of this Authority to the relevant provisions in the Companies Act, Electricity Supply Act, and the Electricity (Supply) Annual Accounts Rules. It is clarified that although the Electricity Supply Act was repealed by the Electricity Supply Act, 2003, yet, as per Section 185(2)(d) of the Act of 2003, all rules made under sub-section (1) of the earlier Act of 1948 shall continue to have effect until such rules are rescinded or modified. Section 69 of the Electricity Supply Act, 1948 deals with accounts and audit. The relevant rules in Annexure III of Electricity Supply Annual Accounts Rules [para 2.33 and 2.36] have already been referred to above. Contrary to the said provision by which the applicant is bound, the assessing officer had imported the concept of cost as found in the Income-tax Act and Companies Act and gave primacy to accounting standard-12. The learned counsel has then brought to our notice the relevant provisions in the Companies Act itsel ..... X X X X Extracts X X X X X X X X Extracts X X X X
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