Assistant Commissioner of Income Tax 2(1), V. M/s M.P Power Transmission Company Ltd., Jabalpur

ITA 146/JAB/2016

AI Insights

The case revolves around an appeal by the Revenue against the order of the Commissioner of Income Tax (Appeals)-2, Jabalpur, which had allowed the appeal of M.P. Power Transmission Company Ltd. The core issue was the disallowance of Rs. 4754.76 lacs claimed by the assessee, which was initially disallowed by the Assessing Officer due to it being classified as a prior period item. The Tribunal examined the adjustments made in the financial statements following the final opening balance sheet notified by the Government of Madhya Pradesh on 12/06/2008, which differed from the provisional balance sheet. The Tribunal's decision emphasized the application of the mercantile system of accounting and the proper recognition of liabilities and assets as per the revised balance sheet.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 112977 (ITAT-JABALPUR)
• Duration Of Justice: 6 year(s) 5 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-12-2022
• Appeal Filed By: Department
• Order Result: PartlyAllowedPartlyAllowed
• Bench Allotted: DB
• Next Hearing Date: 11-09-2022
• Assessment Year: 2008-2009
• Appeal Filed On: 05-07-2016
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Capital asset converted into stock in trade; Depreciation; Business expenditure
• Section: 56; 143(3); 37(1); 195; 44AB; 13; 22

Judgement Text

1 | P a g e IN THE INCOME TAX APPELLATE TRIBUNAL JABALPUR BENCH, JABALPUR BEFORE SHRI SANJAY ARORA, HON‟BLE ACCOUNTANT MEMBER & SHRI MANOMOHAN DAS, HON'BLE JUDICIAL MEMBER I.T.A. No. 146/JAB/2016 (Asst. Year: 2008-09) Appellant by : Shri Shravan Kumar Gotru, CIT-DR Respondent by : Shri Manoj Jain, FCA Date of hearing : 12/09/2022 Date of pronouncement : 09/12/2022 O R D E R Per Sanjay Arora, AM: This is an Appeal by the Revenue against the Order by the Commissioner of Income Tax (Appeals)-2, Jabalpur („CIT(A)‟ for short) dated 22/04/2016, allowing the Assessee‟s appeal contesting it‟s assessment under section 143(3) of the Income Tax Act, 1961 („the Act‟ hereinafter) for Assessment Year (AY) 2008-09. 2. The appeal raises a sole issue, i.e., the disallowance of the expenditure claimed in the sum of Rs. 4754.76 lacs by the Assessing Officer (AO) on account of overstatement of expenditure, since deleted by the ld. CIT(A), vide Gds.1-3. The assessee-company is one of the five entities that succeeded the erstwhile Madhya Pradesh State Electricity Board (MPSEB) on its restructuring (under the provisions of the Electricity (Supply) Act, 2003) and the rules framed thereunder, w.e.f. 10/6/2003, trifurcating it‟s business on functional lines, i.e., generation, Asstt. CIT, Circle-2(1), Jabalpur. vs. M.P. Power Transmission Company Ltd., Block No.2, Rampur, Jabalpur (MP) [PAN : AADLM 4432 C] (Appellant) (Respondent) ITA No. 146/JAB/2016 (AY: 2008-09) Asst. CIT v. M.P. Power Transmission Co. Ltd. 2 | P a g e transmission and distribution of power. Vide Notification dated 31/5/2005, the State Government of Madhya Pradesh (GoMP) handed-over the assets and liabilities of the erstwhile MPSEB to the respective entities to form their opening balance-sheet as on 01/6/2005, the transfer or effective date. The values, as indeed the composition of these assets and liabilities, were, to begin with, provisional for a period, and which could be amended by GoMP, varying/modifying the same as well as the incident terms and conditions. The assets and liabilities, so assigned, were, subject to the adjustments occasioned upon audit and finalisation, final and binding on all the stakeholders. The provisional opening balance-sheet of the assessee-company as on 01/6/2005 is as: (PB-I, pg. 47/PB-II, pg.8) BALANCE SHEET AS ON 01/06/2005 (PROVISIONAL) (Amount in Rs. Crore) LIABILITIES AMOUNT ASSETS AMOUNT EQUITY FROM GoMP 845 GROSS FIXED ASSETS 2,407 LONG TERM LOANS PFC LOAN 321 LESS: ACCUMULATED DEP. NET FIXED ASSET 1,076 1,331 SADA GWALIOR 15 LOAN FROM STATE GOVT. ADB 195 CAPITAL WIP 847 LOAN FROM MPSEB 835 REGULATORY ASSET TOWARDS PENSION LIABILITY 3,910 CURRENT LIABILITIES STAFF RELATED LIABILITIES 20 INTEREST ACCRUED BUT NOT DUE 13 PENSION LIABILITY CURRENT ASSET PROVISON FOR PENSION 3447 STOCK 66 PROVISION FOR GRATUITY 463 6,154 6,154 These assets and liabilities were co-opted in the books of the assessee-company in 31/3/2005 inasmuch as it‟s books for fy 2004-05 had not been closed as on 31/5/2005. Subsequently, vide Notification dated 12/6/2008, the GoMP, through its Department of Energy, Bhopal, notified the final figures of assets and liabilities as on 31/5/2005, and which were to, therefore, to the extent at variance, substitute the provisional balance/s. The final statement of Assets & Liabilities as on 01/6/2005, referred to in the Annual Accounts, is as under: (PB-I/II, pg. 47/15): ITA No. 146/JAB/2016 (AY: 2008-09) Asst. CIT v. M.P. Power Transmission Co. Ltd. 3 | P a g e BALANCE SHEET AS ON 01/06/2005 (FINAL) (Amount in Rs. Crore) LIABILITIES AMOUNT ASSETS AMOUNT OTHER CURRENT LIABILITIES 159.25 GROSS FIXED ASSETS LESS: ACCUMULATED DEP. 2932.75 1205.95 PAYMENT DUE ON CAPITAL LIABILITIES 267.9 NET FIXED ASSET 1726.80 CAPITAL LIABILITIES 572.26 CAPITAL WORK IN PROGRESS 198.46 EQUITY FROM GoMP 730.43 CURRENT ASSET LOAN FROM STATE GOVT. 473.05 STOCK 34.41 CASH & BANK 10.76 LOAN & ADVANCES 37.34 SUNDRY RECEIVABLE 195.12 2202.89 2202.89 The assessee-company accounted for the adjustments consequent to the said revision in figures in 31/3/2008 inasmuch as, again, the books for fy 2007-08 had not been closed as on 12/6/2008. The issue arising is the disallowance of the claim for Rs. 4754.76 lacs consequent to the adjustments made pursuant to the final Notification. 3. We may next delineate the adjudication thereof by the assessing and first appellate authority, as indeed the respective cases of the parties before us. The AO, on being confronted with the matter, held as under: (pg. 4) “During the course of assessment proceedings the assessee was asked to explain as per point No.14 of notes to accounts where it has been mentioned that loss of the year has been overstated by Rs. 4754.76 lakhs. Give details of same with year-wise breakup and give reasons why the same should not be added back to income of assessee. Assessee vide its reply dated 04/10/2010 submitted that sum of Rs. 4754.70 lacs was charged to P/L a/c to give effect of final opening balance sheet provided by Govt. of MP on 12/06/2008 and hence the same cannot be classified as prior item. Therefore, it could not be added back to income. The same situation is being explained in note No.14 of notes to accounts. The arguments of the assessee is not acceptable as the statutory Auditor has specifically qualified it as prior period item, also the said expenses does not pertain to asstt. year 2008-09 and the hence amount so claimed is disallowed and added to the total income of the assessee.” It may be relevant to reproduce the said Note to the assessee‟s final accounts for the relevant previous year, i.e., fy 2007-08: (PB-I, pg.49) ITA No. 146/JAB/2016 (AY: 2008-09) Asst. CIT v. M.P. Power Transmission Co. Ltd. 4 | P a g e „14. As per AS-5 (Prior Period Items) Para no.16 the terms prior period items as defined in the statement, refers only to income or expenses which arise in the current period as a result of Errors or Omissions in the preparation of the financial statements of one or more prior periods. The term ‘prior period’ does not include other adjustment necessitated by circumstances, which though related to prior period are determined in the current period. Accordingly, all the adjustments amounting to Rs. 4754.76 lacs (Loan interest: Rs. 788.06 lacs, GPF interest: Rs. 205.03 lacs, Provision for terminal benefit Rs. 4005.01 lacs & depreciation (-) 243.34 lacs) necessary due to adoption of Final Opening Balance Sheet notified by the GoMP on 12/06/08 have been considered as current year transactions. Amount of Rs. 4754.76 lacs has been charged to profit & loss account.‟ The relevant part of the Auditor‟s Report, referred to in Revenue‟s Gd. 2, reads as under: (PB-I, pg. 27) „6(vi) (a) to (i)....... (j) Note No.14 of Schedule 23 regarding prior period items adjustments amounting to Rs. 4754.76 Lacs (Loan interest: Rs. 788.06 Lacs, G.P.F. interest: Rs. 205.03 lacs, Provision for Terminal benefits: Rs. 4005.01 Lacs, and Depreciation: Rs. (-) 243.34 Lacs), necessary due to adoption of final opening Balance Sheet notified by the Government of Madhya Pradesh on 12/6/08 have been considered as current year transactions, hence Accounting Standard-5 “Net Profit or Loss for the Period, Prior Period Items and Change in the Accounting Policies” issued by the Institute of Chartered Accountants of India has not been complied with due to which loss for the year is over stated by Rs. 4754.76 lacs.‟ (emphasis, ours) The matter travelled to the first appellate authority, who held as under: “6.1.3 DECISION: The claim of the appellant company is that it had charged sum of Rs. 4754.70 lacs to P/L a/c to give effect of final opening balance-sheet provided by Govt. Of MP on 12/06/2008 and hence the same cannot be classified a prior period item. Therefore, according to the appellant, it could not be added back to income and that the same situation is being explained in note No. 14 of notes to accounts. On the other hand, the arguments of the assessee was not considered as acceptable by the Assessing Officer as the statutory Auditor has specifically qualified it as prior period item, also the said expenses did not pertain to asstt. year 2008-09 and the hence amount so claimed is disallowed and added to the total income of the assessee. 6.1.4 I have carefully considered the facts of the case and the finds of the Assessing Officer as well as the arguments advanced on behalf of the appellant. I have also gone through details furnished on behalf of the appellant as per accounting Standards AS-4 and AS-5. Obviously, the appellant company has done its accounting and hence not treated final Opening Balance-Sheet adjustments as prior period items as they were not known to the company previously. Final opening balance-sheet was notified by the State Government in the Official Gazette vide notification no. 292 dated 12 th June 2008, i.e., in the FY 2008-09, as the books of the company for FY 2007-08 were not closed by that date. In this back-ground, the appellant company's giving full effect of change in opening ITA No. 146/JAB/2016 (AY: 2008-09) Asst. CIT v. M.P. Power Transmission Co. Ltd. 5 | P a g e balance in the year 2007-08 itself following mercantile system of accounting and following Accounting Standard 4, Contingencies and Events Occurring after the Balance Sheet date issued by Institute of Chartered Accountants of India, does not appear to be incorrect or inadmissible. In this regard, the following legal propositions may be referred to: (i) 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 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. [Jodhpur Vidyut Vitran Nigam Ltd., In re (2009) 227 CTR (AAR) 322: (2010) 321 ITR 18 (AAR)]. (ii) In Dy. CIT vs. Ethico Drugs & Chemicals Manufacturing Co. Ltd. (2005) 4 ITJ 488 (Tribunal- Indore), where assessee claimed expenditure during the year as the liability crystalized during year only, the Assessing Officer disallowed the same as there was no provision in the books for last years of the same while assessee following mercantile system. It was the claim of the assessee that expenditure could only be booked in the previous year in which liability is finalized. CIT(A) deleted the addition. On Departmental appeal, the Hon'ble Tribunal held that liability pertains to "transactions of previous year whereas the same becomes final during the year can be claimed as business expenditure during the previous year in which the same is finalised or crystallized. (iii) In the case of CIT vs. Beekay Engineering Corporation (2010) 323 ITR 252 (CG), where services received by assessee from Dec. 1988 to June 1989, bill received in August 1989 and paid thereafter, the assessee claimed the expenditure in F.Y. 1989- 90, the Assessing Officer held that since assessee was following mercantile system, it should have claimed the same in F.Y. 1988- 89. It has been held that expenditure was not ascertainable at the year end and that the claim of expenditure in F.Y. 1989-90 was justified. 6.1.5 In view of the foregoing discussion of the facts and the ratio laid down in the cases cited supra, I am of the opinion that the claim of expenditure charged in the profit and loss account Final opening balance sheet was notified by the State Government during the year under consideration is justified and therefore, the disallowance made by the Assessing Officer on account of over-statement of expenses of Rs. 4754.76 lacs is deleted. Aggrieved, the Revenue is in appeal before us. 3.2. Before us, both the sides would rely on the orders by the authority below, i.e., as favourable to it. Shri Jain, the ld. counsel for the assessee, would, on ITA No. 146/JAB/2016 (AY: 2008-09) Asst. CIT v. M.P. Power Transmission Co. Ltd. 6 | P a g e enquiry, clarify during hearing that the General Provident Fund (GPF), as indeed gratuity/pension, is not only in respect of the assessee‟s employees but those of other entities as well; the assessee having been assigned the said liability on restructuring of MPSEB, and for which reference was made by him to cl.(k) of the Notification dated 12/6/2008 (PB-I, pg.65 & PB-II, pg.14), which reads as under: „(k) The past unfunded pension liabilities of pensioners and employees of MPSEB existing as on 31 st may 2005 are to be assessed by Actuarial valuation and is therefore retained with Residual MPSEB for the time being. The actual pension/gratuity payments shall be claimed by MP Power Transmission Co. Ltd. in its ARR till requisite fund equivalent to the past unfunded liabilities is built up in the manner provided in Rule 10 & 11 notified earlier vide No. 4003-FRS-17-13-2002 dated 13 th June 2005.‟ He would also take us to both the statutory auditor‟s report and the tax-audit report (PB-II, pg.160), reporting the over-statement of expenses, i.e., on account of the same relating to a prior period, at Rs. 4754.76 lacs and Rs. 24,638 respectively, emphasizing on the latter. The decisions relied upon by the ld. CIT(A) are not placed on record nor were adverted to by him during hearing. 4. We have heard the parties, and perused the material on record. 4.1 Both the Revenue authorities have not discussed the nature of the liability/s under reference. We, therefore, proceed by examining the adjustment entries passed by the assessee in it‟s accounts for the current period, i.e., fy 2007-08, as tabulated by it, for ready reference, with a view to ascertain the same, for which reference be made to Annexure 1 to this order: (source: PB-II, pg. 1). We shall take up each of the four figures comprising the impugned claim for its admissibility as deduction in computing the income assessable u/s. 28(i) for the current year. As a preliminary observation, it may though be stated that the claim made by the assessee and, accordingly, the sum under reference, is at Rs. 4998.10 lacs; the apparently lower figure of Rs. 4754.76 lacs arising in view of a credit qua depreciation. The same, even otherwise an independent allowance (u/s. 32(1)), can by no stretch of imagination, be in a credit (negative) sum. ITA No. 146/JAB/2016 (AY: 2008-09) Asst. CIT v. M.P. Power Transmission Co. Ltd. 7 | P a g e 4.2 As would be readily seen, the pension liability as originally assigned to the assessee-company (Rs. 3910 cr.), along with corresponding assets, was withdrawn (refer para 2). The terminal benefit claimed, at Rs. 4005.01 lacs, represents the provision for pension and gratuity, provided @ 22.91% & 3.14% respectively, at Rs. 3522.26 lacs and Rs. 482.75 lacs for fys. 2005-06 & 2006-07 respectively (PB- II, pg. 24). Like-wise for the other two sums, being on account of interest for these years, at Rs. 993.09 lacs. Thus, the impugned sum comprises three sums aggregating to Rs. 4998.10 lacs, representing liabilities on account of interest and employee terminal benefits, admittedly pertaining to the immediately two preceding years, while the fourth is a credit for Rs. 243.34 lacs representing a lower provision for depreciation on fixed assets, ostensibly on account of a smaller assignment of fixed assets to the assessee-company. It is not clear if the differential depreciation is on account of the revision therein for the current year and/or the preceding year/s. 4.3 Continuing further, while the AO relied on the statutory auditor‟s report, further stating that the impugned expenditure does not relate to the current assessment year, the ld. CIT(A) has allowed relief on the basis that the liability had crystalized only during the year under consideration in view of the communication of the final opening balance-sheet as on 01/6/2005 on 12/6/2008. In fact, the sense that we got on hearing the parties, as indeed the documents referred to thereat, was that it is the increased liability/s as on 31/5/2005, i.e., in the opening statement of assets and liabilities (balance-sheet) as on 01/6/2005, to the extent modified by GoMP, that stands claimed by the assessee through debit to the profit & loss account, i.e., the operating statement, for the relevant year. The same, even as also observed by the Bench during hearing, are capital liabilities, of course at net of capital assets. As even, notwithstanding the fact that they stand – to the extent modified or varied, intimated and confirmed by GoMP only later, so that they could not be co-opted in the books of account on 31/5/2005 (31/3/2005), but only ITA No. 146/JAB/2016 (AY: 2008-09) Asst. CIT v. M.P. Power Transmission Co. Ltd. 8 | P a g e later, i.e., on 12/6/2008 (31/3/2008), would be of no consequence inasmuch as the same does not alter the nature of the liability (asset) as on capital account, but only its quantum. The Bench, rather, communicated this by way of a ready example: Assets & Liabilities (as assigned) on reorganisation of business Particulars/Date 31/5/2005 12/6/2008 Difference Assets 200 225 25 Equity Loan Liability Current Liability 50 100 50 50 115 60 0 15 10 200 225 25 Each of these assets outstanding as on 31/5/2005, forming part of the opening balance-sheet as on 01/6/2005, have been taken-over (from another) and, as such, the question of the same being written off to the operating statement, as for example, the increased liability, where not accompanied by increased asset/s – in which case the same would imply a corresponding decrease in the opening capital, does not arise. A less than matching increase in the corresponding assets would, by implication, mean a balancing decrease in the opening capital (equity or quasi equity) as, for example, where the assets, going by our example, increase by Rs. 10 only. The corresponding figure of capital would be Rs. 35 (as against Rs. 50), so that the changes would stand to be stated as under; the figure in bracket representing a negative (decreased) sum: Assets 10 Capital (15) Total liabilities 25 That is, considered either way, a matching or, as the case may be, disproportionate increase in assets vis-à-vis liabilities, would only impact the opening balance-sheet as on 01/6/2005. In fact, the assets and liabilities of the erstwhile Board are taken- over as a going concern, i.e., stand assumed on the takeover of it‟s business, and do not represent the assets and liabilities of the assessee-company itself. There is no question of the same being the assessee‟s liabilities, much less on trading (revenue) account. The same would thus stand to modify the value of the ITA No. 146/JAB/2016 (AY: 2008-09) Asst. CIT v. M.P. Power Transmission Co. Ltd. 9 | P a g e corresponding assets and liabilities taken over and accounted for as it‟s opening balance-sheet as on 01/6/2005. 4.4 So, however, as we have seen (paras 4.1 & 4.2), the assessee has duly accounted for the assets and liabilities at the original and the revised values, as balance-sheet items. The first component (of the impugned sum) is the interest liability on the modified values to the extent they relate to the two preceding years that stand lapsed in the interim, i.e., the delay in notifying the correct assets and liabilities to be taken-over, or the correct values thereof, being fys. 2005-06 & 2006-07. The same, sure, relate to these years and, accordingly, classified by the Auditor as a prior period expenditure. Also, the same stand accrued during the said preceding years. The accounting of interest liability in their respect would only be in terms of underlying arrangement/s, i.e., under which the interest obligation on these liabilities arises. Interest being a function of time, would stand to accrue on the basis of time. The same, thus, though accounted for during the current year, stands since accrued, i.e., during the fys. 2005-06 & 2006-07. The question before us is if the same could be regarded as the assessee‟s liability/s arising to it for the current year. This is as the assessee following mercantile system of accounting, it is only in such a case that it could be allowed in the computation of it‟s income for the current year. The assessee‟s case is that the same stand notified on 12/6/2008 only and, therefore, accounted for on 31/3/2008 inasmuch as the accounts for fy 2007-08 had not been closed by that date (12/6/2008). That is, in view of the peculiar circumstances, the expenditure would stand not to be categorized as a prior period expenditure. In fact, the assessee would also have provided interest accrued on the enhanced capital liability for fy 2007-08, though the same being in relation to the current year, stands not classified as a prior period expense in the accounts by it‟s Auditors. 4.5 In our considered opinion, the interest liability for the 22 month period, i.e., from 01/6/2005 to 31/3/2007, would, in the given facts and circumstances of the ITA No. 146/JAB/2016 (AY: 2008-09) Asst. CIT v. M.P. Power Transmission Co. Ltd. 10 | P a g e case, stand to arise to the assessee only on 12/6/2008, i.e., during fy 2008-09, corresponding to AY 2009-10. However, the assessee following mercantile system of accounting, with prudence and conservatism being fundamental accounting principles, the same stands correctly provided for on 31/3/2008 inasmuch as the books for fy 2007-08 had not been closed by that date (12/6/2008). The assessee could not have provided for the same at any time earlier; the books for fys. 2005- 06 & 2006-07 having been since closed, and the delay in making the provision in its respect is not on account of any error or omission in finalizing the accounts for those years. Reference in this regard may be made to Accounting Standards I & II issued by the Central Government u/s. 145(2) of the Act. It is therefore not necessary to dwell on the accounting standards by ICAI. Section 5, which defines the scope of total income under the Act, is subject to the other provisions of the Act and, thus, to s. 145, which provides for computation of income as per the method of accounting regularly followed, observing the accounting standards. The interest liability for the 22-month period, being concomitant to the capital liability that stands assumed by the assessee, would thus stand to be allowed as a deduction in the computation of income for fy 2007-08, the relevant previous year. There is no question of accrual and, resultantly, accounting for the interest obligation for the period prior to 01/6/2005, i.e., the period prior to the transfer date, as, as afore- explained, it is a capital liability in the assessee‟s hands, and which stands incorporated at its value as on 31/5/2005. The foregoing is, further, subject to a caveat, i.e., qua interest on GPF. It is only the interest (for the period 01/6/2005 to 31/3/2007) to the extent it relates to the assessee‟s employees that would stand to be regarded as the assessee‟s trading liability, and not on the GPF in respect of the employees of the other entities that along with the assessee succeeded MPSEB or the residuary entity (Board). Even if the assessee‟s obligation under the terms the restructure/reorganisation of MPSEB, the same cannot be regarded as the liability, capital or, as the case may be, revenue, of the assessee‟s business, profits and gains of which, representing a ITA No. 146/JAB/2016 (AY: 2008-09) Asst. CIT v. M.P. Power Transmission Co. Ltd. 11 | P a g e source of income, are assessable to tax. The accounts, it may be appreciated, are in respect of the assessee‟s business. It is the income – which by definition is net of expenditure, of this business that would stand to be provided and taken into account. The expenditure on the salary or GPF of the employees of other entities and, correspondingly, interest thereon, cannot possibly be the liability of the assessee‟s business, even if statutorily assumed by the assessee. The Income Tax Act is, as is well-settled, a separate code in itself for the computation and assessment of income liable to charge to tax thereunder. The same would therefore, where so, need to be segregated. Reference be made to, inter alia, the decision in CIT v. A. Abdulkadar [1961] 41 ITR 545 (SC). We may though hasten to add that if, however, a separate, dedicated funding in its respect, i.e., the capital liability/ salary in respect of the employees other than the assessee‟s employees, stands provided for by GoMP on reorganisation, though it does not appear to be so, the income arising on these assets shall stand to be assessed u/s. 56 as „Income from other sources‟ and, consequently, corresponding interest liability deductible as expenditure there-against u/s. 57(iii). 4.6 The matter shall accordingly travel back to the file of the AO, who shall: (a) subject to (b), compute the qualifying amount for deduction of interest expenditure on GPF (at Rs. 2317.76 lacs) for the 22-month period (from 01/6/2005 to 31/3/2007), as per the interest arising under the relevant arrangement/s. (b) segregate the interest on GPF to the extent it relates to the employees other than the assessee‟s employees, and exclude it from the total interest on GPF (i.e., Rs. 2317.76 lacs); (c) set-off the interest liability as excluded (as per (b)) against income, if any, arising to the assessee from the separate, dedicated funding, if any, provided by GoMP in respect of the proportionate GPF. If not, the said excluded amount cannot be set-off by regarding it as the liability of the assessee‟s business. (d) Likewise for the interest cost on loan for Rs. 1318.75 cr. (as against earlier figure of Rs. 1379 cr.), i.e., as per (a). It would though need to be clarified as to how the interest liability (which is to be in terms of underlying agreement/s) arises; the final loan (capital borrowed), rather than exhibiting an increase with reference ITA No. 146/JAB/2016 (AY: 2008-09) Asst. CIT v. M.P. Power Transmission Co. Ltd. 12 | P a g e to the provisional sum, stands decreased by Rs. 6025.44 lacs in the final opening balance sheet (as on 01/6/2005). There ought to be thus, on the contrary, a reversal of the interest provided on the excess loan for the preceding two years, resulting in a prior period income, i.e., on the same basis and principle as the increased liability results in an additional interest cost/liability. The adjudication, thus, though in agreement with the assessee‟s stand in principle, would need to be determined on quantum, and which may though result in an income, qua which the AO shall of course seek clarification, and issue clear and definite finding/s. e). the interest as per (a) and (d) shall be allowable u/s. 36(1)(iii) (loan) or s. 37(1) (GPF), in computing the assessee‟s business income. However, the interest liability shall, where and to the extent subject to the condition of tax deduction at source and/or of payment, its deductibility would subject to relevant provisions, viz. s. 40(a)(ia); 43B, et. al. Needless to add, the requisite data, information and explanation/s for the purpose shall be furnished by the assessee, as also the necessary working. The AO shall make necessary verification in the manner deemed proper and, in case of any difference, extend reasonable opportunity to the assessee to present and explain it‟s working, deciding as per law issuing clear findings of fact. We decide accordingly. 4.7 The second component of the impugned sum is the liability in respect of the terminal benefits, being pension and gratuity, provided at defined rates for the two preceding years, i.e., fys. 2005-06 & 2006-07. Our adjudication qua interest shall, for the same reasons, equally apply thereto. No liability for the period prior to 01/6/2005, the effective date, could be allowed; the liability up to which date assumes the character of a capital liability. The provision for fy 2005-06, thus, shall be restricted to 10 months, i.e., 01/6/2005 onwards. That is, the quantum of provision is to be governed by the underlying arrangement/s. We make it clear that the allowance of provision shall though be subject to specific provisions, if any, under the Act in respect thereof viz. s. 40A(7); s.43B, etc. Further, if and to the extent the same relates to the employees of other than the assessee‟s business, i.e., employed by it and working therefor, the same shall be subject to the same directions/adjudication as in respect of GPF. We are conscious that the pension ITA No. 146/JAB/2016 (AY: 2008-09) Asst. CIT v. M.P. Power Transmission Co. Ltd. 13 | P a g e liability could be in respect of the retired (i.e., as on 31/5/2005) employees of the Board. The same shall be subject to the same adjudication as qua the employees of other than the assessee‟s business. The AO shall, upon verification, allow the assessee‟s claim accordingly, granting it reasonable opportunity to present and explain its working. We decide accordingly. 4.8 The third and the last component of the impugned sum is the credit for a lower depreciation charge. The same presents no problem inasmuch as the same gets merged in the depreciation allowance u/s. 32(1) for the current year. The written down value (WDV) of the fixed assets is to be u/s. 43(6) the actual cost less depreciation actually allowed. The actual cost to the assessee-company, it may be clarified, would be the transfer price (value), i.e., at which it takes-over/is assigned the fixed asset/s. The AO shall work the depreciation claim exigible u/s. 32(1) based on the revised working, adopting the cost as now revised, and modify the assessee‟ claim for depreciation, i.e., if and to the extent not consistent with the working u/s. 32(1) r/w s. 43(6), of course, upon allowing the assessee an opportunity to present and explain itself working. Reference in this context be made to Maharana Mills (P.) Ltd. v. ITO [1959] 36 ITR 350 (SC). We are conscious that the fixed assets as finally allotted to the assessee are at an increase (i.e., by Rs. 252.74 lacs, after adjusting the capital WIP), rather than a decrease, over that initially assigned, and which should therefore result in an enhanced charge for depreciation. So, however, the methodology adopted, which is to be in terms of s. 32(1) r/w s. 43(6), would coalesce the charge of depreciation for the current year to a single sum, obviating the need for any reversal of, or additional, charge for depreciation for the current year. We decide accordingly. 4.9 Before parting with our order, we may clarify two things. We have stated that the AO shall cause verification of the assessee‟s claims as deemed proper. This is as, though there is nothing on record to exhibit the same, it may well be that the AO had in the original proceedings called for and examined the relevant ITA No. 146/JAB/2016 (AY: 2008-09) Asst. CIT v. M.P. Power Transmission Co. Ltd. 14 | P a g e agreements (for interest on Loan and GPF, and qua provision for gratuity and pension), as well as the satisfaction of the relevant provisions of law, i.e., qua corresponding claims for the current year. Two, the assessee‟s argument alluding to the tax audit report (para 3.2), though inconsistent with the undisputed facts and, in fact, rendered inconsequential in view of our adjudication, is also without any basis in law inasmuch as the statutory audit report (PB-I, pgs. 25-32) is also a part of the tax audit report u/s. 44AB of the Act. 5. In the result, the Revenue‟s appeal is decided on the afore-said terms. Order pronounced in open Court on December 09, 2022 Sd/- S d/- (Manomohan Das) (Sanjay Arora) Judicial Member Accountant Member Dated: 09/12/2022 vr/- C o p y t o: 1. T h e A p p e l l a n t : ACIT, Circle-2(1), Jabalpur 2. T h e R e s p o n d e n t : M.P. Power Transmission Company Ltd., Block No.2, Rampur, Jabalpur (MP). 3. P r i n c i p a l C IT-2 , J a b a l p u r ( M P ) . 4. C IT ( A )-2, J a b a l p u r . 5. T h e C IT-D R , IT A T , J a b a l p u r . 6. G u a r d Fi l e . By order (VUKKEM RAMBABU) Sr. Private Secretary, ITAT, Jabalpur. 15 | P a g e STATEMENT SHOWING EFFECT OF FINAL OPENING BALANCE SHEET NOTIFIED ON 12/06/2008 ANN. 1 Sl.No. Particular (Balance Sheet Item) Amt. in Final Opening Balance Sheet Notified on 12/06/08 Amt. in Provisional Opening Balance Sheet Notified on 31/05/05 Particular (Effect of Final Opening Balance Sheet on P&L A/c for FY 2007-08) Amt. to be accounted for in preceding FY (as per Final Opening Balance Sheet) Amt. accounted for on basis of Provisional Opening Balance Sheet Difference Diff. Accounted for in FY 2007-08 1 Fixed Assets 29,32,75,44,922 24,07,00,00,000 Depreciation for the period increased by proportionate amt 2,77,51,12,875.64 2,79,94,46,571.64 -2,43,33,696 JV No.680003 Dt 31/03/08 2 Terminal Benefits Pension liability of Rs. 3910 crore along with corresponding assets was entrusted through provisional Opening Balance-Sheet (Notified on 31/05/05) which was withdraw in Final Opening Balance Sheet (Notified on 12/06/08). However, it was stated that same shall be considered on direction of MPERC. 40,05,01,049.00 - 40,05,01,049 JV No.680012 Dt 31/03/08 3 GPF 23,17,76,163 Interest on contribution was provided for FY 2005-06 & 2006- 07 in FY 2007-08 2,05,03,529.00 - 2,05,03,529 JV No.682073 Dt 31/03/08 4 Loan 13,18,74,56,384 13,79,00,00,000 Interest was provided for FY 2005-06 & 2006- 07 in FY 2007-08 7,88,05,555.00 - 7,88,05,555 JV No.680034 Dt 31/03/08 Total 47,54,76,437 NB: This Annexure is an integral part of the order dated 09/12/2022, and is to be read along with.