DCIT 1(2), MUMBAI V. MAHARSHTRA STATE ELECTRICITY BOARD, MUMBAI

ITA 1649/MUM/2010

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 4734 (ITAT-MUMBAI)
• Duration Of Justice: 11 year(s) 1 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-04-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 21-02-2017
• Assessment Year: 2004-2005
• Appeal Filed On: 03-03-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: JAGANGIR MISTRI
• Keywords: Capital asset; Business income; Depreciation; Business expenditure; Question of law; Relationship of principal and agent; Non passing of speaking order; Revenue expenditure; Capital expenditure
• Section: 43B; 37(1); 72; 13; 22; 69; 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL , B BENCH MUMBAI BEFORE : SHRI M. BALAGANE SH, AM & S HRI RAVISH SOOD, JM ITA N O. 1649/ MUM / 2010 ( ASSESSMENT YEAR : 200 4 - 0 5 ) & ITA N O. 945 / MUM / 2010 ( ASSESSMENT YEAR : 200 5 - 0 6 ) DCIT 1( 2), MUMBAI R.NO. 535, 5 TH FLOOR AAYAKAR BHAVAN M.K.ROAD, MUMBAI - 400020 VS. M/S. MAHA RASHTRA STATE ELECTRICITY BOARD B.A. SECTION, 6 TH FLOOR, PRAKASHGANGA, PLOT NO.C - 19, E BLOCK, BANDRA KURLA COMPLEX, BANDRA (E) MUMBAI 400 051 PAN /GIR NO. AAACM7507P (APPELLANT ) .. ( RESPONDENT ) CO N O. 198 / MUM / 2010 ( ARISING OU T OF ITA N O. 1649/ MUM / 2010 ) ( ASSESSMENT YEAR : 200 4 - 0 5 ) & CO N O. 1 71/ MUM / 2010 (ARISING OU T OF ITA N O. 945 / MUM / 2010 ( ASSESSMENT YEAR : 200 5 - 0 6 ) M/S. MAHA RASHTRA STATE ELECTRICITY BOARD B.A. SECTION, 6 TH FLOOR, PRAK ASHGANGA, PLOT NO.C - 19, E BLOCK, BANDRA KURLA COMPLEX, BANDRA (E) MUMBAI 400 051 VS. DCIT 1( 2), MUMBAI R.NO.535, 5 TH FLOOR AAYAKAR BHAVAN M.K.ROAD, MUMBAI - 400020 ITA NO . 1649/MUM/2010 AND OTHER AP PEALS M AHARASHTRA STATE ELECTRICITY BOARD 2 PAN /GIR NO. AAACM7 507P (APPELLANT ) .. (RESPONDENT ) REVENUE BY SHRI RAHUL RAMAN ASSESSEE BY SHRI JAGANGIR MISTRI DATE OF HEARING 08 / 03 /202 1 DATE OF PRONOUNCEMENT 21 / 04 /202 1 / O R D E R PER BENCH: ITA NO1649/MUM/2 010 & CO NO.198/MUM/2010 THIS APPEAL IN ITA NO. 1649 /MUM/20 10 & CO NO.198/ MUM/2010 FOR A .Y. 2004 - 05 ARISE OUT OF THE ORDER BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS) - 2 , MUMBAI IN APPEAL NO. CIT(A) - 1/IT/ 14 / 07 - 08 , CIT(A - 2/IT/115/09 - 10 DATED 22 / 12 /2009 (LD. CIT(A) IN SHORT) AGA INST THE ORDER OF ASSESS MENT PASSED U/S.143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS ACT) DATED 2 4/11/2006 BY THE DY . COMMISSIONER OF INCOME TAX - 1 (2) , MUMBAI (HEREINAFTER REFERRED TO AS LD. AO). ITA NO . 945 /MUM/2 010 & CO NO.1 71 /MUM/2010 THIS APPEAL IN ITA NO. 9 45 /MUM/20 10 & CO NO.1 71 / MUM/2010 FOR A. Y. 200 5 - 0 6 ARISE OUT OF THE ORDER BY THE LD. COMMISSIONER OF INCOME TAX ITA NO . 1649/MUM/2010 AND OTHER AP PEALS M AHARASHTRA STATE ELECTRICITY BOARD 3 (APPEALS) - 2 , MUMBAI IN APPEAL NO. CIT(A) - 1/IT/ 14 / 07 - 08 , CIT(A - 2/IT/115/09 - 10 DATED 30/11 /2009 (LD. CIT(A) IN SHORT) AGA INST THE ORDER OF ASSESS MENT PASSED U/S.143(3) OF THE INCOME TAX A CT, 1961 (HEREINAFTER REFERRED TO AS ACT) DATED 31/12/2007 BY THE DY . COMMISSIONER OF INCOME TAX - 1 (2) , MUMBAI (HEREINAFTER REFERRED TO AS LD. AO). IDENTICAL ISSUES ARE INVOLVED IN ALL THESE APPEALS AND HENCE THEY ARE TAKEN UP TOGETHER AND DISPOSED OF BY T HIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. DEDUCTION ON ACCOUNT OF PRIOR PERIOD EXPENDITURE GROUND NO.1 OF REVENUE APPEAL IN ASST YEAR 2004 - 05 GROUND NO.1 OF REVENUE APPEAL IN ASST YEAR 2005 - 06 WITH THE CONSENT OF BOTH THE PARTIES, THE FACTS OF ASS T YEAR 2004 - 05 ARE TAKEN UP FOR ADJUDICATION AND TH E DECISION RENDERED THEREON WOULD APPLY WITH EQUAL FORCE FOR ASST YEAR 2005 - 06 ALSO EXCEPT WITH VARIANCE IN FIGURES. 2.1. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD . THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS O F GENERATION AND DISTRIBUTION OF ELECTRICITY. THE RETURN OF INCOME FOR THE ASST YEAR 2004 - 05 WAS FILED BY THE ASSESSEE COMPANY ON 29.10.2004 DECLARING TOTAL LOSS OF RS 415,79,84,240/ - . WE FIND THAT THE L D AO ON VERIFICATION OF VARIOUS DETAILS FILED BY TH E ASSESSEE COMPANY IN THE RETURN OF INCOME AND DURING THE COURSE OF ASSESSMENT PROCEEDINGS OBSERVED THAT ASSESSEE HAD DEBITED PRIOR PERIOD EXPENDITURE TO THE TUNE OF RS 501,72,79,228/ - AND CLAIMED THE SAME AS DEDUCTION DURING THE YEAR UNDER CONSIDERATION A ND WAS ASKED TO FURNISH THE DETAILS WITH EVIDENCES ITA NO . 1649/MUM/2010 AND OTHER AP PEALS M AHARASHTRA STATE ELECTRICITY BOARD 4 TO PROVE THAT THE SAID EXPENDITURE GOT CRYSTALLISED DURING THE ASST YEAR 2004 - 05. WE FIND THAT THE ASSESSEE HAD REPLIED BEFORE THE LD AO BY DRAWING SPEC IFIC REFERENCE TO THE RELEVANT ANNEXURE TO THE TAX AUDIT REPORT AND BY STATING THAT THE PRIOR PERIOD EXPENDITURE DEBITED IN THE BOOKS MAINLY PERTAIN TO EXPENDITURE IN RESPECT OF WHICH, A PROVISION WAS MADE IN EARLIER YEAR AND THE EXACT AMOUNTS HAVE BEEN AS CERTAINED IN THE YEAR UNDER CONSIDERATION AND EXACT AMOUNTS HAVE BEEN ASCERTAINED IN THE YEAR AND HENCE THE DIFFERENTIAL AMOUNT BETWEEN PROVISION AND ACTUAL SUM HAS BEEN DEBITED AS PRIOR PERIOD EXPENDITURE. IT WAS SUBMITTED THAT THE SAID EXPENDITURES ARE M AINLY IN THE NATURE OF INCENTIVES PAYABLE TO STAFF, PAYMENT OF FEES TO CONTRACTORS, PAYMENT OF ARREARS TO SUPPLIERS OF POWER ETC. DETAILED STATEMENTS GIVING ACCOUNT HEAD WISE, LOCATION CODE WISE WERE FURNISHED BEFORE THE LD AO. THE ASSESSEE ALSO DREW TH E ATTENTION OF THE LD AO THAT ASSESSEE IS REQUIRED TO MAINTAIN ITS BOOKS OF ACCOUNTS AS PER RULE PRESCRIBED U/S 69 OF ELECTRICITY SUPPLY ACT, 1948, WHICH MANDATES DISCLOSURE OF PRIOR PERIOD EXPENDITURE SEPARATELY IN THE BOOKS. WE FIND THAT THE LD AO NOT SA TISFIED WITH THE REPLY OF THE ASSESSEE , COMPLETELY IGNORED THE ENTIRE SUBMISSIONS WITH ELABORATE DETAILS SUBMITTED THEREON AND PROCEEDED TO MAKE DISALLOWANCE OF PRIOR PERIOD EXPENDITURE IN THE SUM OF RS 501,72,79,228/ - IN THE ASSESSMENT FOR THE ASST YEAR 2004 - 05. 2.2. WE FIND THAT THE LD CITA HAD DELET ED THE SAID DISALLOWANCE BY STATING THAT THIS IS A RECURRING ISSUE FROM EARLIER YEARS AND THE SAID ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY HIS PREDECESSOR FOR THE ASST YEAR 2001 - 02. WE FURTHE R FIND THAT THIS TRIBUNAL IN ASST YEAR 2001 - 02 IN A SSESSEES OWN CASE VIDE ITS ORDER IN ITA NO. 3813/MUM/2009 DATED 17.2.2021 HAD UPHELD THE ACTION OF THE LD CITA. THE RELEVANT OPERATIVE PORTION OF THE SAID ORDER OF THE TRIBUNAL IS REPRODUCED HEREUNDER: - ITA NO . 1649/MUM/2010 AND OTHER AP PEALS M AHARASHTRA STATE ELECTRICITY BOARD 5 4 . WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT ASSESSEE IS A STATE GOVERNMENT UNDERTAKING ENGAGED IN GENERATION AND DISTRIBUTION OF ELECTRICI TY. WE F IND THAT THE LD. AO BY PLACING RELIANCE ON THE FIGURES MEN TIONED IN THE TAX AUDIT REPORT SUBMITTED BY THE ASSESSEE UNDER THE HEAD PRIOR PERIOD EXPENSES / PRIOR PERIOD INCOME, SOUGHT DETAILS OF THE SAME DURING THE COURSE OF ASSESSMENT PROCEEDING S. THE A SSESSEE FURNISHED THE DETAILS OF PRIOR PERIOD INCOME AND P RIOR PERIOD EXPENSES WHICH 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/ - . T HE NET PRIOR PERIOD EXPENSES AMOUNT ING 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 COMPLETI NG THE A SSESSMENT BY HOLDING THAT THESE EXPENSES DID NOT CRYSTALLI SE 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 DIS ALLOWANCE IN THE RETURN OF INCOME TOWARDS DEPRECIATION AMO UNTING 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 MIS TAKE OF DOUBLE ADDITION WAS DULY RECTIFIED BY THE LD. CIT(A) IN HI S 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 AC COUNT FOR THE YEAR BY AN AMOUNT O F RS.84,48,47,317/ - AS PRIOR PER IOD INCOME. SIMILARLY A SUM OF RS.9,44,00,69,767/ - WAS DEBITED AS PRIOR PERIOD EXPENSES. DETAILED BREAK - UP OF THE AMOUNTS INCLUDED IN THE AFORESAID SUM OF RS. 944 CRORES HAS BEEN GIVEN IN THE ASSESSMENT ORDER. THE AO DISALLO WED THE EXPENDITURE OF RS.9,44,0 0,69,767 ON THE GROUND THAT SUCH EXPENDITURE CANNOT BE ALLOWED UNLESS IT HAS CRYSTALLIZED DURING THE YEAR. 8.2 BEFORE ME THE LD.AR OF THE APPELLANT SUBMITTED THAT THE EXPENSES HAVE CRYSTALLI ZED DURING THE YEAR UNDER CONSIDE RATION. FURTHER, IT WAS ALSO STA TED THAT THE SAME IS IN ACCORDANCE WITH THE METHOD OF ACCOUNTING REGULARLY FOLLOWED BY THE APPELLANT IN THE EARLIER YEARS. 8.3. THE LD.AR OF THE APPELLANT SUBMITTED THAT THAT MSEB IS A STA TEWIDE ORGANISATION HAVING BIG NE T WORK OF NUMBER OF OFFICES FOR POWER STATIONS CONSTRUCTIONS. 400KV/TRANS. LINES CONSTRUCTIONS. SUB - STATION CONSTRUCTIONS, POWER STATION, MAJOR STORES AND FOR EACH OF THESE ACTIVITIES LIKE CONSTRUCTION, GENERATION, TRANSMIS SION, DISTRIBUTION AND MAINTENANC E, ETC. MSEB HAS GOT A NUMBER OF ZONAL OFFICES, SECTION OFFICES, ETC. SPREAD THROUGHOUT THE MAHARASHTRA STATE. THIS BEING SO, THERE IS ALWAYS A COMMUNICATION GAP AND SOME OF THE PAYMENTS / INCOME DUE OR ACCRUED, CF THE YEAR MAY NOT BE ACCOUNTED FOR DURING THE YEAR. THIS IS INSPITE OF THE FACT THAT MSEB HAS GOT A SYSTEM OF PROPER ITA NO . 1649/MUM/2010 AND OTHER AP PEALS M AHARASHTRA STATE ELECTRICITY BOARD 6 INTERNAL, CONTROL AND PRE - AUDIT. FURTHER, IT HAS GOT SEPARATE DEPARTMENT HEADED BY DIRECTOR OF INTERNAL AUDIT FOR REGULAR INTERNAL AUDIT AND INSPECT ION UNDER THE D.O.I.A. FOR INSPEC TION WORK AND THERE ARE NUMBER O F INSPECTION TEAMS ATTACHED TO CIRCLE OFFICES FOR CARRYING OUT REGULAR INSPECTION WORK. LD.AR OF THE APPELLANT MENTIONED THAT APPELLANT'S AUDIT IS CONDUCTED BY CAG. IN SPITE OF ABOVE AT THE I NSTANT OF THE GOVERNMENT AUDIT, C ERTAIN ITEMS OF EXPENSES AND INC OME PERTAINING TO EARLIER PERIOD ARE REQUIRED TO BE ACCOUNTED FOR. THESE ITEMS ARE NOTHING BUT SPILL OVER OF THE EARLIER PERIOD AND WHICH WERE NOT CONSIDERED WHILE SUBMITTING RETURNS FOR THE EARLIER PERIOD. MSEB ACCOUNTS THU S PREPARED IN KEEPING WITH THE R ULES OF ELECTRICITY (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 FU RTHER SUBMITTED THAT THE TOTAL IN COME OF THE APPELLANT REQUIRED T O 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 NOTIF IED 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 T HEIR 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 REQU IRED TO DISCLOSE THE PRIOR PERIOD ITEM SEPARATELY. HAD IT BEEN LA ID 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 ACCOUNTING STANDARD IN RESPECT THEREOF. 8.6 LD.AR FURTHER SUBM ITTED THAT THE QUANTUM OF PRIOR PERIOD EXPENSES IS VERY NEGLIGIBLE IN COMPARISON TO THE TOTAL EXPENSES CLAIMED. REFERENCE WAS MADE TO THE FOLLOWING JUDICIAL PRONOUNCEMENTS WHEREIN IT HAS BEEN HELD THAT IN THE CASE, THE PRIO R PERIOD EXPENSES ARE A MEAGER PE RCENTAGE OF THE TURNOVER, THEN T HE PRIOR - PERIOD EXPENSES SHOULD BE ALLOWED: ESCORTS LTD. V/S. IAC REPORTED IN (2004) 89 TTJ 221 (DEL) UNREPORTED DECISIONS OF THE MUMBAI BENCH OF THE INCOME TAX APPELLATE IN THE CASE OF RASH TRIYA CHEMICALS & FERTILIZERS LTD . V/S. JCIT ITA NOS. 1013/MUM/20 01 AND 3863/MUM/2006 8.7. FURTHER RELIANCE WAS PLACED ON THE DECISION OF THE DELHI HIGH COURT IN THE CASE OF CIT VS. VISHNU INDUSTRIAL GASES P. LTD. IN ITR NO.229/1988 WHEREIN THE HIGH COUR T, WHILE DEALING WITH A CASE WHER E THE DEPARTMENT HAD NOT DISPUTE D THAT THE EXPENDITURE WAS DEDUCTIBLE IN PRINCIPLE BUT WAS ONLY DISPUTING ITA NO . 1649/MUM/2010 AND OTHER AP PEALS M AHARASHTRA STATE ELECTRICITY BOARD 7 THE YEAR IN WHICH THE DEDUCTION COULD BE ALLOWED, HELD, THAT AS THE TAX RATES WERE THE SAME IN BOTH YEARS, THE DEPART MENT SHOULD NOT FRITTER AWAY ITS ENERGIES IN RAISING QUESTIONS AS TO THE YEAR OF DEDUCIBILITY/TAXABILITY. 8.8. WITHOUT PREJUDICE TO THE FOREGOING, THE LD.AR SUBMITTED THAT THE FOLLOWING AMOUNTS (OUT OF THE PRIOR - PERIOD EXPENSES) HAVE BEEN SUO - MOTO DISALLO WED BY THE APPELLANT AND HENCE DI SALLOWING THE SAME ONCE AGAIN WO ULD TANTAMOUNT TO DOUBLE DEDUCTION: 1. DEPRECIATION UNDER PROVIDED - RS. 31,02,01,481 / - 2. EXCESS PROVISION OF INCOME - TAX / SHORT PROVISION - RS. 156,66,42,865/ - DOCUMENTS WERE FILE D EVIDENCING THE FACT THAT THE AF ORESAID ITEMS HAVE BEEN SUO - MOTO DISALLOWED. 8.9. I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE LD.AR AND GONE THROUGH THE MATERIAL BROUGHT BEFORE ME. FIRST OF ALL, IF THE APPELLANT HAS WORKED OUT THE LOSS COMPUTED A S PER RETURN OF INCOME AFTER DISA LLOWING AND ADDING BACK SHORT PR OVISIONS FOR INCOME TAX AMOUNTING TO RS.156,66,42,865/ - AND SHORT PROVISION OF DEPRECIATION AMOUNTING TO RS.31,02,01,481/ - , THE SAME TWO ITEMS CANNOT BE ADDED BACK AGAIN TO THE RETURNED LOSS WHICH HAS BEEN ADOPTED BY THE AO. THE AO IS DIRECTED TO VERIFY AN D MAKE NECESSARY CORRECTIONS IN THIS REGARD. 8.10 SO FAR AS THE OTHER ITEMS ARE CONCERNED, THE TREATMENT GIVEN TO THEM IS ACCORDING TO THE GUIDELINES FRAMED FOR PREPARING T H E ACCOUNTS OF THE ELECTRICITY COMPANIES. THE FA CTS SHOWING THE ENTIRETY 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 U NDER THE COMPANIES ACT AND THE IN COME - TAX - ACT. FURTHER THE REFERE NCE 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 OTHE RWISE ALLOWABLE, THE APPELLANT CA NNOT DENIED THE DEDUCTION WHICH HAS BEEN CLAIMED FOLLOWING PROPER ACCOUNTING STANDARDS. FURTHER, THE AO HAS INCLUDED THE PRIOR PERIOD REVENUE IN THE APPELLANTS INCOME. SO THERE IS NO LOGIC TO DISALLOW THE PRIOR PERIOD EXPE NSES. IN VIEW OF THIS THE AO IS D IRECTED TO ALLOW THE PRIOR PERI O D EXPENSES AS CLAIMED. 4 .1. IT IS NOT IN DISPUTE THAT THE ACCOUNTS OF THE ASSESSEE HA VE BEEN PREPARED IN ACCORDANCE WITH THE MANDATE PROVIDED UNDER THE ELECTRICITY ACT. WE ALSO FIND THAT TH E LD. AR DREW OUR ATTENTION TO TH E PAGE 254 OF THE PAPER BOOK CON TAINING THE STATUTORY MANDATE IN THE FORM OF COMMERCIAL ACCOUNTING SYSTEM FOR STATE ELECTRICITY BOARDS TOGETHER WITH THE ELECTRICITY (SUPPLY) ANNUAL ACCOUNTS RULES 1985 ISSUED BY THE GOVERNME NT OF INDIA, MINISTRY OF ENERGY, DEPARTMENT OF POWER , WHEREIN IT HAS BEEN CATEGORICALLY STATED THAT THE PR IOR PERIOD EXPENSES OR PRIOR PERIOD REVENUES ARE TO BE SHOWN SEPARATELY WHICH ARISE ON ACCOUNT OF ITA NO . 1649/MUM/2010 AND OTHER AP PEALS M AHARASHTRA STATE ELECTRICITY BOARD 8 DIFFERENCE BETWEEN AN ACCOUNTING ESTIMATE MADE FOR ACCRUAL AND ACTUAL VALUES INVOLVED OR ON ACCOUNT OF ANY OTHER REA SON. THE STATE ACCOUNTING MANDATE STATUTORILY STATED THAT THE SAME SHALL BE ACCOUNTED ONLY PROSPECTIVELY AND NO RETROSPECTIVE RE - STATING OF PAST YEARS FIGURES WAS PERMITTED IN THE ACCOUNTS. T HIS CLEAR STATUTORY MANDATE ISSUED BY THE GOVERNMENT WITH REGARD TO MAINTENANCE OF ACCOUNTS ENABLED THE ASSESSEE COMPANY, BEING A PUBLIC SECTOR UNDERTAKING (PSU), TO DISCLOSE THE PRIOR PERIOD EXPENSES AND PRIOR PERIOD INCOME SEPARATELY IN ITS ACCOUNTS. MOR EOVER, WE FIND THAT THE LD. CIT(A) HAD DULY RECOGNISED THE METHOD OF ACCOUNTING REGULARLY FOLLOWED BY THE ASSESSEE IN THE INSTANT CASE. WE FIND THAT THE LD. CIT(A) HAD TAKEN DUE COGNIZANCE OF EACH AND EVERY ITEM PERTAINING TO PRIOR PERIOD EXPENSES AND HAD UNDERSTOOD THE MODUS OPERANDI THERE ON AND DULY APPRECIATED THE FA CT OF ASSESSEE COMPANY CONDUCTING ITS OPERATIONS WITH HUGE NET WORK WHICH EVENTUALLY EXPLAINS THE TIME TAKEN FOR ACCOUNT ING OF VARIOUS EXPENSES CONTRIBUTING TO THE DELAY AND SLIPPAGE OF AN AN NUAL ACCOUNTING YEAR. THE LD. CIT(A) A LSO TOOK NOTE OF THE ACCOUN TS OF THE ASSESSEE COMPANY GETTING SCRUT I NI Z ED BY STATUTORY AUDITORS, INTERNAL AUDITORS AND ALSO BY THE CONTROLLER OF AUDITOR GENERAL OF INDIA. IT IS PERTINENT TO NOTE THAT N ONE OF THEM HAD G IVEN ANY ADVERSE REMARKS ABOUT THE ASPECT OF PRIOR PERIOD EXPENDI TURE. WE FIND THAT THE LD. CIT(A) HAD CATEGORICALLY GIVEN A FINDING THAT ALL THE EXPENSES R EFLECTED IN THE PRIOR PERIOD EXPENSES EXCEPT THE ONE WHICH WERE VOLUNTARILY DISALLOWED BY THE ASSESS EE IN THE RETURN OF INCOME, THOUGH DEBITED TO PRIOR PERIOD EXPEND ITURE DURING THE YEAR, GOT CRYSTALLISED DURING THE YEAR UNDER CONSIDERATION AND HENCE, BECOM ES ALLOWABLE EXPENDITURE. NONE OF THESE FINDINGS GIVEN BY THE LD. CIT(A) W ERE REBUTTED BY THE REVEN UE BEFORE US. WE ALSO FIND THAT THE HONBLE JURISDICTIONAL HIGH C OURT IN THE CASE OF YET ANOTHER PUBLIC SECTOR UNDERTAKING IN CIT VS. MAHANAGAR GAS LTD., REPO RTED IN 42 TAXMANN.COM 40 HAD AN OCCASION TO GO THROUGH THE SAME ISSUE. THE QUESTION RAISED BEFORE THE HONBLE JURISDICTIONAL HIGH COURT WAS AS UNDER: - B. WHETHE R ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE TRIBUNAL WAS CORRECT IN C ONFIRMING 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 HONBLE JURISDICTIONAL HIGH COURT DISPOSED OFF THE AFORESAID QUESTION BY HOLDING AS UNDER: - 4) REGA RDING 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 EXP ENDITURE OF RS.92.81 LACS AS PRIOR PERIOD EXPENSES. THE ASSESSING OFFICER DISALLOWED THE EXPE NDITURE RELATING TO PRIOR PERIOD ON THE GROUND THAT AS THE RESPONDENT FOLLOWED MERCANTILE SYSTEM O F ACCOUNTING EXPENDITURE RELATABLE TO AN EARLIER YEAR CANNOT BE A LLOWED AS DEDUCTION IN THE ASSESSMENT YEAR UNDER ITA NO . 1649/MUM/2010 AND OTHER AP PEALS M AHARASHTRA STATE ELECTRICITY BOARD 9 CONSIDERATION. THUS AN AMOUNT OF RS.92.81 LA CS WAS ADDED TO THE INCOME OF THE RESPONDENT ASSESSEE. B) IN APPEAL, THE CIT(A) HELD THAT THE MET HOD OF ACCOUNTING CONSISTENTLY FOLLOWED SINCE MANY YEARS BY THE R ESPONDENT WAS THAT EXPENSES WERE CLAIMED AS A LIABILITY AS AND WHEN THE BILLS WERE RECEIVED E VEN THOUGH THE WORK WAS DONE IN EARLIER YEAR AND NOT IN THE ASSESSMENT YEAR UNDER CONSIDERATION. T HE LIABILITY TO MAKE PAYMENT FOR WORK AND SERVICES RECEIVED IN AN EARLIER YEAR WAS CRYSTALLIZED ONLY IN CURRENT ASSESSMENT YEAR WHEN THE BILLS WERE RECEIVED B Y THE RESPONDENT ASSESSES FROM THE PERSON WHO DID THE WORK AND/OR RENDERED SERVICES. THE CIT(A) AL SO NOTED THAT THE ASSESSING OFFICER HAD TAXED INCOME ATTRIBUTABLE TO WORK RENDERED IN THE EARLIER YEARS IN THE YEAR UNDER CONSIDERATION DEPENDING UPON THE TIM E WHEN THE AMOUNTS WERE CRYSTALLIZED. ON THE SAME PRINCIPLE, THE EXPENSES ATTRIBUTABLE TO EARLIER YEARS BUT CRYSTALLIZED IN THE YEAR UNDER CONSIDERATION OUGHT TO B E ALLOWED. IN VIEW OF THE ABOVE, THE CIT(APPEALS) HELD THAT IN VIEW OF THE CONSISTENT PRACTIC E FOLLOWED BY THE RESPONDENT - ASSESSEE AND ACCEPTED BY THE REVENUE THE PRIOR PERIOD EXPENSES WHICH WERE CRYSTALLIZED DURING THE ASSESSMENT YEAR UNDER CONSIDERATION, ON RECEIPT OF THE BILLS ARE TO BE ALLOWED AS AN EXPENDITURE. (C) ON FURTHER APPEAL BY THE R EVENUE THE TRIBUNAL UPHELD THE FINDING OF FACT ARRIVED AT BY THE CIT(APPEALS) AND HELD THAT PRIOR PERIOD EXPENDITURE WAS CLAIMED IN RESPECT OF THE BILLS RECEIVED D URING THE ASSESSMENT YEAR 2004 - 05, EVEN THOUGH THE WORK/SERVICES WAS RECEIVED IN AN EARLIER Y EAR. THIS HAS BEEN CONSISTENT PRACTICE FOLLOWED BY THE RESPONDENT - ASSESSES ACCORDING TO WHICH THE LIABILITY IS TO BE ACCOUNTED WHEN THE BILLS ARE RECEIVED AND THE PAYMENTS MADE IN THE SUBSEQUENT YEAR. THUS THE APPEAL OF THE RESPONDENT - ASSESSEE WAS ALLOWED. (D) THE REVENUE'S GRIEVANCE IS THAT IN MERCANTILE SYSTEM OF ACCOUNTING THE RESPONDENT ASSESSEE H AS TO ACCOUNT FOR THE EXPENDITURE IN THE YEAR IN WHICH THE WORK/S ERVICE WAS RECEIVED BY THEM AND NOT WHEN THE BILLS WERE RECEIVED BY THE RESPONDENT ASSESSES. (E) WE FIND THAT THE LIABILITY IN RESPECT OF WORK/SERVICES RENDERED IN EARLIER YEAR WAS CRYSTALLI ZED ONLY ON RECEIPT OF THE BILL IN THE CURRENT ASSESSMENT YEAR. M OREOVER, THE METHOD ADOPTED BY THE RESPONDENT ASSESSES HAS BEEN ACCEPTED BY THE REVENUE FOR T HE EARLIER ASSESSMENT YEAR AND ALSO WHILE ACCOUNTING FOR THE INCOME EARNED IN RESPECT OF THE WORK DONE IN EARLIER YEARS. IN THE CIRCUMSTANCES, THE REVENUE IS REQUI RED TO ADOPT CONSISTENT APPROACH AND ALLOW THE EXPENDITURE WHICH WAS CRYSTALLIZED DURING THE ASSESSMENT YEAR UNDER CONSIDERATION AS DONE IN THE EARLIER YEARS. THIS FINDING OF FACT HAS NOT BEE N SHOWN TO BE PERVERSE. ITA NO . 1649/MUM/2010 AND OTHER AP PEALS M AHARASHTRA STATE ELECTRICITY BOARD 10 IN VIEW 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 ESS ENTIALLY A FINDING OF FACT ARRIVED AT BY TWO AUTHORITIES CONCURRENTLY. 4 .3. IN VIEW OF THE AFORE SAID OBSERVATIONS AND RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE 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, T HE GROUNDS RAISED BY THE REVENUE IN THIS REGARD ARE DISMISSED. 2.3. RESPECTFULLY FOLLOWING THE SAID DECISION, WE DISMISS THE GROUND NO. 1 RAISED BY THE REVENUE FOR BOTH THE YEARS IN APPEAL BEFORE US. 3. DISALLOWANCE OF CAPITAL EXPENDITURE WRITTEN OFF RS 15,59,789/ - GROUND NO .2 OF REVENUE APPEAL IN ASST YEAR 2004 - 05 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. AT THE OUTSET, THE LD DR POINTED OUT THAT THE CORRECT FIGURE WHICH WAS SUBJECT MATTER OF DISALLOWANCE WAS ONLY RS 15,59,789/ - AND THE SAME HAS BEEN ERRONEOUSLY MENTIONED IN THE GROUNDS OF THE REVENUE AT RS 15,59,00,789/ - . WITH THE CONSENT OF BOTH THE PARTIES, THIS TYPOGRAPHICAL ERROR IS HEREBY RECTIFIED AND WE PROCEED TO ADJUDICATE THE ISSUE AS TO WHETHER THE LD CITA WAS JUSTIFIED IN DELETING THE DISALLOWANCE MADE ON AC COUNT OF CAPITAL EXPENDITURE WRITTEN OFF IN THE SUM OF RS 15,59,789/ - IN THE FACTS AND CIRCUMSTANCES OF THE CASE FOR THE ASST YEAR 2004 - 05. 3.1. WE FIND THAT THE LD AO HAD OBSERVED FROM SERIAL NO. 17 OF TAX AUDIT REPORT THAT THE ASSESSEE COMPANY HAS SH OWN A SUM OF RS 15,59,789/ - AS INFRUCTUOUS CAPITAL EXPENDITURE WRITTEN OFF UNDER THAT COLUMN IN TAX ITA NO . 1649/MUM/2010 AND OTHER AP PEALS M AHARASHTRA STATE ELECTRICITY BOARD 11 AUDIT REPORT, AMONG OTHERS. THE ASSESSEE WAS A SKED TO EXPLAIN AS TO WHY THE SAID EXPENDITURE SHOULD NOT BE DISALLOWED IN THE ASSESSMENT. THE LD AO OBSE RVED THAT NO EXPLANATION WAS FURNISHED BY THE ASSESSEE IN THIS REGARD AND HENCE HE DISALLOWED THE SAME AS CAPITAL EXPENDITURE IN THE ASSESSMENT AS TH E SAME WAS CATEGORISED AS CAPITAL EXPENDITURE IN THE TAX AUDIT REPORT. WE FIND THAT THE ASSESSEE EXPLAINED BEFORE THE LD CITA THAT THE EXPENDITURE IS ON SURVEY WORK FOR EXTENSION OF TRANSMISSION LINES, BEING CAPITAL EXPENDITURE IN ASSESSEES ONW LINE OF A CTIVITY. THIS EXTENSION PROJECT GOT REJECTED AND WAS NEVER TAKEN UP. ACCORDINGLY, IT WAS DECIDED TO WRIT E OFF THE SAID INCURRENCE OF CAPITAL EXPENDITURE IN THE BOOKS OF ASSESSEE AND DEDUCTION CLAIMED FOR THE SAME ON ACCOUNT OF INFRUCTUOUS / ABANDONED PR OJECTS. 3.2. WE FIND THAT THE WRITE OFF CAPITAL EXPENDITURE ON INFRUCTUOUS / ABANDONED PROJECTS HAS BEEN A CCOUNTED BY THE ASSESSEE IN ITS BOOKS OF ACCOUNTS IN ACCORDANCE WITH THE ELECTRICITY (SUPPLY) (ANNUAL ACCOUNTS) RULES, 1985 WHICH IS MANDATORILY TO BE FOLLOWED BY THE ASSESSEE COMPANY. THE SAID RULES ALSO MANDATE THAT THE EXPENDITURE INCURRED ON IDENT IFICATION, SURVEY AND FEASIBILITY STUDIES BEFORE THE PROJECT IS CONSIDERED FOR SANCTION OR REJECTION AND LATER IF THE SAID PROJECT IS REJECTED, THEN THE FULL AMOUNT OF EXPENDITURE SHALL BE CHARGED TO THE REVENUE AS INFRUCTUOUS CAPITAL EXPENDITURE IN THE YE AR IN WHICH THE PROJECT IS REJECTED. HENCE IT COULD BE SAFELY CONCLUDED THAT THE ASSESSEE HAD WRITTEN OFF THE EXPENDITURE IN ACCORDANCE WITH THE MAN DATE PROVIDED BY THE AFORESAID RULES. IT IS NOT IN DISPUTE THAT THE PROJECT GOT REJECTED DURING THE YEAR UNDER CONSIDERATION. WE ALSO FIND IN PAGE 33 OF THE PAPER BOOK CONTAINING LETTER ADDRESSED BY ASSESSEE COMPANY TO THE EXECUTIVE ENGINEER 400KV L.C .DIVISION, KALWA, WHEREIN IT WAS SPECIFICALLY POINTD OUT THE CHIEF ENGINEER (TR.PLNG) MUMBAI HAD INFORMED THAT THE WORK OF 400KV TARAPUR - BOISAR LINE WITH EXTENTION UNIT 3 AND 4 (2 ITA NO . 1649/MUM/2010 AND OTHER AP PEALS M AHARASHTRA STATE ELECTRICITY BOARD 12 *500MW) SHALL BE EXECUTED BY POWER GRID CORPORATION OF INDIA LTD I.E OTHER THAN M.S.E.B (ASSESSEE HEREIN) . ACCORDINGLY, THE ASSESSEE HAD INTIMATED IN THE SAID LETTER THAT THE AMOUN TS INCURRED TOWARDS CAPITAL EXPENDITURE HAS BEEN WRITTEN OFF IN THE APPROPRIATE HEAD AMOUNTING TO RS 15.60 LAKHS. WE FURTHER FIND THAT THE LD CITA HAD GIVEN A CATEGORICAL FINDING THAT - A) CAPITAL EXPENDITURE INCURRED BY THE ASSESSEE WAS NOT DOUBTED BY TH E LD AO. B) THE SAID EXPENDITURE WAS INCURRED FOR THE PURPOSE OF EXTENSION OF PROJECT WAS NOT DOUBTED BY THE LD AO. C) THE SAID EXTENSION PROJECT HAS BEEN GIVEN UP BY THE ASSESSEE AND HENCE THE ASSET GENERATED THEREON IS NOT IN USE. THESE FACTUAL OBSERVAT IONS WERE NOT CONTROVERTED BY THE REVENUE BEFORE US. 3.3. WE ALSO FIND THAT THE CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF DCIT VS ESSAR OIL LTD REPORTED IN 47 SOT 139 (MUMBAI TRIB) FOR THE ASST YEAR 2003 - 04 HAD ADDRESSED THE SIMILAR ISSUE BY FOLL OWING THE TRIBUNAL ORDER FOR THE ASST YEAR 1996 - 97 (WHICH WAS SUBSEQUENTLY APPROVED BY HONBLE BOMBAY HIGH COURT IN ITA NO. 921 OF 2006 DATED 16.10. 2008). THE RELEVANT OPERATIVE PORTION OF THE FACTS AND DECISION RENDERED THEREON ARE AS UNDER: - 2. THE ASS ESSEE IS IN THE BUSINESS OF CONTRACT DRILLING, OFFSHORE CONSTRUCTION, EXPLORATION OF MINERAL OIL AND GASES, TRADING IN PETROLEUM PRODUCTS. IN THE COM PUTATION OF INCOME, THE ASSESSEE HAD CLAIMED A DEDUCTION OF RS. 72,26,225 BEING EXPENSES INCURRED DURING TH E YEAR WHICH HAVE BEEN INCLUDED IN MISCELLANEOUS EXPENSES. THE ASSESSEE SUBMITTED IT WAS IN THE BUSINESS OF: (A) OPERATION OF RIGS FOR EXTRACTION O F OIL. ITA NO . 1649/MUM/2010 AND OTHER AP PEALS M AHARASHTRA STATE ELECTRICITY BOARD 13 (B) UNDERTAKING OFFSHORE CONTRACTS FOR LAYING OF PIPELINES ETC. (C) SETTING UP OF REFINERY ETC . (D) MARKETING OF PETROLEUM PRODUCTS. THE ASSESSEE SUBMITTED THAT ACTIVITIES AT (A) & (B) HAD BEEN GOING SINCE INCEPTION OF THE COMPANY AND WERE TAKEN OVER AS BUSINESS IN 1993 FROM ESSAR GUJARAT LTD. THE ASSESSEE SUBMITTED THAT AS FAR AS ACTIVITY AT ( C) IS CONCERNED, DURING THE PREVIOUS YEAR, THE ASSESSEE WAS IN THE PROCESS OF SETTING UP TH E PROJECT OF REFINING, CRUDE OIL BY SETTING UP A 10.5 MILLION TON REFINERY. THE ASSESSEE SUBMITTED THAT AS PART AND PARCEL OF ACTIVITY (A) AND (B) IT HAS BEEN BIDDIN G FOR VARIOUS CONTRACTS, EXPLORATION SITES AND HAD INCURRED EXPENDITURE ON TRAVELLING BIDDI NG FOR TENDERS, EXPLORATION ACTIVITIES AT BLOCKS ETC. THE EXPENDITURE SO INCURRED WERE REVENUE EXPENDITURE IN NATURE. IN BOOKS OF ACCOUNT THESE EXPENSES HAVE BEEN SH OWN AS DEFERRED REVENUE EXPENSES. THE ASSESSEE SUBMITTED THAT SINCE THE EXPENSES WERE IN TH E NATURE OF REVENUE AND DIRECTLY RELATED WITH THE ONGOING BUSINESS, ENTIRE EXPENSES INCURRED DURING THIS FINANCIAL YEAR SHOULD BE ALLOWED. THE ASSESSING OFFICER HOWE VER WAS OF THE VIEW THAT THE EXPENSES INCURRED WERE ONLY IN THE NATURE OF PRELIMINARY EXPEN SES WHICH CAN NOT BE RELATED TO ANY BUSINESS ACTIVITY CARRIED ON BY THE ASSESSEE DURING THE YEAR. THE ASSESSING OFFICER HELD THAT THESE EXPENSES ARE TO BE CAPITALIZE D IN THE BOOKS AS PREOPERATIVE EXPENDITURE ON SUCCESSFUL COMPLETION OF THE BID AND AWARD OF CONTRACT. THE ASSESSING OFFICER HELD THAT IN ASSESSMENT YEARS 1994 - 95 & 1995 - 96, THE ASSESSEE'S CLAIM FOR SIMILAR DEDUCTION WAS DISALLOWED AND FOR THE REASONS GIVEN THEREIN, THE DEDUCTION CLAIMED WAS DISALLOWED. 3. ON APPEAL BY THE ASSESSEE, THE CIT(A) DELETED THE ADDITION MADE BY THE ASSESSING OFFICER FOLLOWING ORDER OF ITAT IN ASSESSEE'S OWN CASE IN ASSESSMENT YEARS 1996 - 97 TO 1998 - 99 IN ITA NOS. 3643 TO 3645/M/02, WHEREIN IDENTICAL ISSUE HAD BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL. AGGRIEVED BY THE ORDER OF CIT(A), THE REVENUE HAS PREFERRED GROUND NO. 1 BEFORE THE TRIBUNAL. 4. AT THE TIME OF HEARING IT WAS ACCEPTED BY THE PARTIES BEFORE US THAT THE T RIBUNALS ORDER RELIED UPON BY THE CIT(A) FOR DELETI NG THE ADDITION MADE BY THE ASSESSING OFFICER HAS ALREADY BEEN CONFIRMED BY THE HON'BLE BOMBAY HIGH COURT IN ITA NO. 921 OF 2006. THE TRIBUNAL IN ITA NOS. 3643 TO 3645/M/02 ON IDENTICAL ISSUE HELD AS FOLLO WS: '13. THE SECOND ISSUE TO BE CONSIDERED FOR THE ASSESSMENT YEAR 1996 - 97 IS REGARDING THE EXPENDITURE OF RS. 1,60,04,350 INCURRED BY THE ASSESSEE COMPANY IN THE PREVIOUS YEAR FOR EXPLORATION AND PRODUCTION OF OIL AND GASES. THE ASSESSEE COMPANY IS ENGAGE D IN THE BUSINESS OF OPERATION OF RIGS FOR EXTRACTI ON OF OIL, UNDERTAKING OFF - SHORE CONTRACTS FOR LAYING OF PIPELINES AND SETTING UP OF ITA NO . 1649/MUM/2010 AND OTHER AP PEALS M AHARASHTRA STATE ELECTRICITY BOARD 14 REFINERIES, ETC. THE ASSESSEE COMPANY DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER APPEAL HAD BEEN BID DING FOR VARIOUS CONTRACTS AS PART OF ITS BUSINESS OF EXTRACTION OF OIL. IN THIS CONNECTION, THE ASSESSEE COMPANY HAVE BEEN INCURRING EXPENDITURE TOWARDS TRAVELLING, BIDDING OF TENDERS, ETC. ETC. THE ASSESSEE COMPANY HAD INCURRED AN AMOUNT OF RS. 1,60,04,3 50 ON THAT ACCOUNT DURING THE RELEVANT PREVIOUS YEA R. THE ASSESSEE COMPANY IN ITS BOOKS OF ACCOUNT HAS TREATED THE EXPENDITURE AS DEFERRED REVENUE EXPENDITURE AND HAS WRITTEN OFF ONLY RS. 11,22,867 AS EXPENDITURE PERTAINING TO THE RELEVANT ASSESSMENT YEAR. BUT IN THE RETURN OF INCOME, THE ASSESSEE CLAIMED THE FULL AMOUNT AS REVENUE EXPENDITURE. THE ASSESSING OFFICER DID NOT ALLOW THE EXPENDITURE AS CLAIMED BY THE ASSESSEE ON THE GROUND THAT EXPENDITURE INCURRED ON BIDDING FOR EXPLORATION WAS CAPITAL IN NATU RE. THE ASSESSING OFFICER DID NOT ALLOW THE EXPENDI TURE AS CLAIMED BY THE ASSESSEE ON THE GROUND THAT EXPENDITURE INCURRED ON BIDDING FOR EXPLORATION WAS CAPITAL IN NATURE. THE CIT(A) ALSO AGREED WITH THE FINDING OF THE ASSESSING OFFICER AND CONFIRMED THE DISALLOWANCE. 14. IT IS TO BE SEEN THAT THE ACTIVIT IES CARRIED ON BY THE ASSESSEE WERE NOT IN THE NATURE OF AN INDEPENDENT BUSINESS, BUT IT WAS PART OF THE EXISTING BUSINESS CARRIED ON BY IT UNDER THE CONTROL AND SUPERVISION OF THE SAME MANAGEMENT. THE ACT IVITIES WERE INTER - CONNECTED AND THERE WAS NO INTER - LACING OF FUNDS AND RESOURCES. THE ACTIVITIES WERE CARRIED OUT AS INSEPARABLE FROM THE EXISTING LINE OF BUSINESS. THEREFORE, IN THE LIGHT OF THE DECISIONS OF THE SUPREME COURT IN THE CASES OF PRODUCE EXCH ANGE CORPORATION LTD. V. CIT 77 ITR 739 AND VEECUMS EES V. CIT 220 ITR 185 , THESE EXPENSES NEED TO BE ALLOWED AS REVENUE IN NATURE. THE VERY SAME PRINCIPLE HAS BEEN FOLLOWED IN THE DECISION OF THE TATA CHEMICALS LTD. V. DCIT BY THE BOMBAY TRIBUNAL IN 72 IT S 1. THEREFORE, IN THE FACTS AND CIRCUMSTANCES OF T HE CASE, WE DIRECT THE ASSESSING AUTHORITY TO ALLOW THE SUM OF RS. 1,60,04,350 AS DEDUCTION ON COMPUTING THE TAXABLE INCOME OF THE ASSESSEE COMPANY.' THE ABOVE REASONING OF THE ITAT WOULD EQUALLY APPLY TO THE IMPUGNED EXPENDITURE INCURRED DURING THE PREVIO US YEAR FOR SETTING UP REFINERY. WE, THEREFORE, CONFIRM THE ORDER OF THE CIT(A) AND DISMISS GROUND NO. 1 3.4. IN VIEW OF OUR AFORESAID OBSERVATIONS AND RESPECTFULLY FOLLOWING THE JUDICIAL PRECEDENT RELIED UPON HEREINABOVE, WE FIND NO INFIRMITY IN THE ORDE R OF THE LD CITA GRANTING RELIEF TO THE ASSESSEE. ACCORDINGLY , THE ITA NO . 1649/MUM/2010 AND OTHER AP PEALS M AHARASHTRA STATE ELECTRICITY BOARD 15 GROUND NO. 2 RAISED BY THE REVENUE FOR THE ASST YEAR 2004 - 05 IS DISMISSED. 4. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE ARE DISMI SSED. 5. LET US TAKE UP THE CROSS OBJECTIONS OF THE ASSESSEE. WITH THE CONSENT OF BOTH THE PARTIES, THE FACTS OF ASST YEAR 2004 - 05 ARE TAKEN UP FOR ADJUDICATION AND THE DECISION RENDERED THEREON WOULD APPLY WITH EQUAL FORCE FOR ASST YEAR 2005 - 06 ALSO EXCEP T WITH VARIANCE IN FIGURES. 6. DISALLOWANCE OF EL ECTRICITY DUTY U/S 43B OF THE ACT GROUND NOS.1.1. TO 1.3. OF CROSS OBJECTIONS OF ASSESSEE FOR ASST YEAR 2004 - 05 GROUND NOS.1.1. TO 1.3. OF CROSS OBJECTIONS OF ASSESSEE FOR ASST YEAR 2005 - 06 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AV AILABLE ON RECORD. WE FIND THAT THE LD AO ON PERUSAL OF SCHEDULE 28 OF AUDITED FINANCIAL STATEMENTS OBSERVED THAT ASSESSEE COMPANY HAD SHOWN THE LIABILITY TO THE TUNE OF RS 631,01,65,577/ - AS ON 31.3.2004 RELEVANT TO ASST YEAR 2004 - 05, EVENTHOUGH THE SAME WAS COLLECTED BUT NOT PAID TO THE GOVERNMENT. THE LD AO OBSERVED THAT IN THIS REGARD, THE ASSESSEE HAD CLARIFIED IN NOTE 4 OF THE COMPUTATION OF INCOME STATING THAT IN TERMS OF SECTION 4 OF THE BOMBAY ELEC TRICITY DUTY ACT, 1958, THE ASSESSEE IS ONLY ACTING AS LICENSEE TO COLLECT DUTY ON BEHALF OF THE STATE GOVERNMENT AND THUS IT IS NOT LIABLE FOR ANY DEFAULT FOR PAYMENT WITHOUT RECOVERY OF THE SAME FROM THE CUSTOMERS. THUS ELECTRICITY DUTY IS NEITHER AN EXP ENDITURE OF THE ASSESSEE NOR IS IT CLAIMED BY IT IN ITS REVENUE ACCOUNT AS DEDUCTION AND ACCORDINGLY, THE PROVISIONS OF SECTION 43B OF THE ACT CANNOT BE MADE APPLICABLE TO THE ASSESSEE COMPANY. WE FIND THAT THE LD AO BY APPLYING ITA NO . 1649/MUM/2010 AND OTHER AP PEALS M AHARASHTRA STATE ELECTRICITY BOARD 16 THE RATIO LAID DOWN BY TH E HONBLE APEX COURT IN THE CASE OF CHOWRINGHEE SAL ES BUREAU REPORTED IN 222 ITR 344 (SC) OBSERVED THAT RECOVERY OF ELECTRICITY DUTY FROM CUSTOMERS BECOMES TRADING RECEIPT IN THE HANDS OF THE ASSESSEE COMPANY AND THE SAME WOULD BE ELIGIBLE FOR DEDUCTION ON LY ON PAYMENT BASIS U/S 43B OF THE ACT. WITH THIS O BSERVATION, WE FIND THAT THE LD AO DISALLOWED THE SUM OF RS 631,01,65,577/ - U/S 43B OF THE ACT IN THE ASSESSMENT FOR THE ASST YEAR 2004 - 05. 6.1. WE FIND THAT THE LD CITA BY FOLLOWING THE ORDER PASSED BY HIS PREDECESSOR FOR THE ASST YEAR 2001 - 02 AND BY FO LLOWING THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF AHMEDABAD ELECTRICITY COMPANY LTD REPORTED IN 262 ITR 97 (GUJ). WE FIND THAT THE LD CITA BY ACCEPTING THE ALTERNATIVE ARGUMENT OF THE ASSE SSEE , HAD ALSO DIRECTED THE LD AO TO GRANT DEDUCTI ON FOR PAYMENT OF ELECTRICITY DUTY MADE BY THE ASSESSEE BEFORE THE DUE DATE OF FILING THE RETURN OF INCOME U/S 43B OF THE ACT. 6.2. WE FIND THAT THIS ISSUE WAS THE SUBJECT MATTER OF ADJUDICATION BY THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASST YEARS 2001 - 02 TO 2003 - 04 IN CO NOS. 11, 196 AND 197/MUM/2010 DATED 30.9.2015 WHEREIN IT WAS HELD AS UNDER: - 5.2.BEFORE US,THE AR ARGUED THAT ASSESSEE WAS NOT ACCOUNTING FOR THE DUTY COLLECTED BY IT, THAT IT HAD NOT CLAIMED SAME IN THE BOOKS OF ACCOUNT, THAT DUTY WAS PAID TO THE GOVERNMENT IN THE YEAR UNDER APPEAL OR THE SUBSEQUENT YEA R, THAT FOR APPLICABILITY OF SECTION 43B THERE SHOULD BE SOME ALLOWANCE. HE R EFERRED TO CASES OF KERALA STATE ELECTRICITY BOARD (329 ITR 91),MAHARASHTRA STATE ELECTRICITY DISTRIBUTION CO. LTD.(ITA/762/MUM /2010 - AY - 06 - 07 DATED 12.8.2015).DR SUPPORTED THE ORDER OF THE FAA . 5.3.WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATER IAL BEFORE US.WE FIND THAT ISSUE OF APPLICABILITY OF THE PROVISIONS OF SECTION 43B OF THE ACT HAS BEEN DISCUSSED AND DECIDED BY THE HON'BLE KERALA HIGH COURT IN THE CASE OF KERALA STATE ELECTRICITY BOARD (SUPRA) AS UNDER: ITA NO . 1649/MUM/2010 AND OTHER AP PEALS M AHARASHTRA STATE ELECTRICITY BOARD 17 ' SECTION 43B( A) DEALS WITH 'ANY SUM PAYABLE BY THE ASSESSEE BY WAY OF TAX, DUTY, . . . UNDER ANY LAW FOR THE TIME BEING IN FORCE'. THE WORDS, 'BY WAY OF TAX' ARE INDICATIVE OF THE NATU RE OF LIABILITY.THE LIABILITY TO PAY AND THE CORRESPONDING AUTHORITY OF THE STATE TO COLLECT THE TAX (FLOWING FROM A STATUTE) IS ESSENTIALLY IN THE REALM OF THE RIGHTS OF THE SOVEREIGN, WHEREAS THE OBLIGATION OF THE AGENT TO ACCOUNT FOR AND PAY THE AMOUNTS COLLECTED BY HIM ON BEHALF OF THE PRINCIPAL IS PURELY FIDUCIARY. THE NATURE OF THE O BLIGATION CONTINUES TO BE FIDUCIARY EVEN IN A CASE WHEREIN THE RELATIONSHIP OF PRINCIPAL AND AGENT IS CREATED BY A STATUTE. SECTION 43B(A) DEALS WITH AMOUNTS PAYABLE TO THE SOVEREIGN QUA SOVEREIGN,NOT A MOUNTS PAYABLE TO THE SOVEREIGN QUA PRINCIPAL. THEREFORE SECTION 43B CANNOT BE INVOKED IN THE CASE OF THE ELECTRICITY BOARD WITH REGARD TO ELECTRICITY DUTY COLLECTED BY IT PURSUANT TO THE OBLIGATION UNDE R SECTION 5 OF THE KERALA ELECTRICITY DUTY ACT, 1963.' IN THE MATTER OF MAHARASHTRA STATE ELECTRICITY DISTRIBUTION CO. LTD.(SUPRA)THE TRIBUNAL HAS DECIDED THE ISSUE FOLLOW : '28. GROUND NO.2,THIS GROUND DEALS WITH THE ACTION OF LD. CIT(A) IN HOLDING THAT EL ECTRICITY DUTY COLLECTED AND PAID/ADJUSTED BY THE ASSESSEE COMPANY AMOUNTING TO RS.23291.59 LAKHS IS COVERED UNDER THE PROVISIONS OF SECTION 43B OF THE INCOME TAX ACT 1961. THE LD. AO HAS DISCUSSED THIS ISSUE AT PARA NO.12.1 TO 12.2 ON PAGES 3 TO 4 OF THE ASSESSMENT ORDER WHEREAS THE LD. CIT(A) HAS DISCUSSED THIS ISSUE IN PARA NO.12 TO 12.3 ON PAGE NO.25 TO 27 OF THE ORDE R. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO NOTICED THAT THE ASSESSEE COMPA NY HAD SHOWN LIABILITY TO THE TUNE OF AFORESAID AMOUNT ACCORDINGLY, HE WAS OF THE OPINION THAT THE SAID AMOUNT OF DUTY WAS COLLECTED BUT WAS NOT PAID TO THE GOVERNMENT AND CONSEQUENTLY THE PROVISIONS OF SECTION 43B WERE ATTRACTED AND THE IMPUGNED AMOUNT WAS DISALLOWABLE AND ACCORDINGLY, THE AO MADE AN ADDITION OF THIS AMOUNT TO THE INCOME OF THE ASSESSEE. THE ASSESSEE CAR RIED THE MATTER BEFORE THE LD. CIT(A) AND SUBMITTED BEFORE LD. CIT(A) THAT THE ASSESS EE COLLECTED ELECTRICITY DUTY FROM THE CONSUMERS ON BEHALF OF THE GOVERNMENT OF MAHARASHTRA AND WAS REQUIRED TO PAY THE SAME TO THE GOVERNMENT. IT WAS FURTHER SUBMITTED TH AT SINCE THE GOM ITSELF WAS REQUIRED TO MAKE PAYMENT TO THE APPELLANT UNDER A VARIETY OF ACCOUNTS, OR TO CERTAIN POOR OR BACKWARD REGION/SECTION OF SOCIETY, AT NIL OR SUBSIDIZED CHARGES, TO BE RECOVERED FROM THE GOVERNMENT, THE GOM SETTLES ITS INTER SE ACC OUNTS WITH THE APPELLANT ON ACCOUNT OF ELECTRICITY DUTY BY SETTING OFF/ADJUSTING THE AMOUNT RECEIVABLE AGAINST THE AMOUNT PAYABLE. THE INTER SE PAYMENTS WERE THUS EFFECTED THROUGH SET OFF OF MUTUALLY RECEIVABLE/PAYABLE BALANCES, FOR WHICH NOTIFICATIONS WER E ISSUED BY THE GOM FROM TIME TO TIME. THE PROCESS OF ISSUE OF SUCH NOTIFICATION WAS COMPLEX AND TIME CONSUMING, SINCE IT INVOLVED A VARIETY OF PROCEDURE WITH VARIOUS AUTHORITIES. DURING THE APPELLATE PROCEEDINGS THE APPELLANT FURNISHED A COPY OF NOTIFICAT ION DT.31.03.2008 ISSUED BY THE GOM IN SUPPORT OF ITS CONTENTION. ITA NO . 1649/MUM/2010 AND OTHER AP PEALS M AHARASHTRA STATE ELECTRICITY BOARD 18 29. IT IS FURTHER S UBMITTED BEFORE THE LD. CIT(A) THAT THE ASSESSEE DID NOT ACCOUNT FOR THIS AMOUNT THROUGH ITS PROFIT AND LOSS ACCOUNT AND ONLY THE NET AMOUNT WAS DULY EFFECTED IN THE BALAN CE SHEET AND THUS ELECTRICITY DUTY WAS NOT EXPENDITURE OF THE ASSESSEE AND THEREFORE, IT WAS OUTSIDE THE PREVIEW OF SECTION 43B OF THE INCOME TAX ACT. IT WAS FURTHER ARGUED THAT THE RATION OF CHOURANGHEE SALES BUREAU COULD NOT BE APPLIED IN THE CASE OF APPELLANT SINCE THAT CASE WAS PERTA INING TO SALES TAX COLLECTED, WHEREAS THE APPELLANT'S CASE WAS IN RESPECT OF COLLECTION OF ELECTRICITY DUTY IN THE LIGHT OF SECTION 4 OF BOMBAY ELECTRICITY ACT 1958. 30. I T WAS FURTHER ARGUED BY THE ASSESSEE BEFORE THE LD. CIT(A) WITHOUT PREJUDICE THAT IN CASE IF THE PROVISIONS OF SECTION 43B ARE HELD TO BE APPLICABLE TO THE ELECTRICITY DUTY, THEN IN THE ALTERNATIVE APPRO PRIATE DIRECTION MUST BE GIVEN TO THE AO TO ALLOW AS DEDUCTION THE ELECTRICITY DUTY P AID UPTO THE DATE OF FILING OF THE RETURN. FOR THE PURPOSE OF PAYMENT OF ELECTRICITY DUTY THE APPELLANT ARGUED THAT SINCE THE DUTY PAYABLE TO GOM ARE SETTLED BY ADJUSTMENT OF THE AMOUNT RECEIVABLE BY IT ITA/3813 &OTHERS/MUM/09 - MSEB/01 - 02TO03 - 04 TOWARDS THE SALE OF POWER, THE ADJUSTMENT OF SUCH AMOUNT BETWEEN THE APPELLANT AND GOVT. BE CONSIDERED AS PAYMENT OF ELECTRICITY DUTY IN THIS REGARD. 31. THE LD. CIT(A) CONSIDERED TH E ARGUMENTS OF THE ASSESSEE BUT DID NOT ACCEPT ITS CLAIM BUT WITH A PARTIAL RELIEF BY GIVING A DIRECTION THAT PAYMENT BY WAY OF ADJUSTMENT MADE AND ACTUAL PAYMENT BOTH TILL DATE OF FILING OF RETURN SHOULD BE ALLOWED. THE OPERATIVE PARA OF LD. CIT(A)'S ORDE R IS REPRODUCED AS UNDER : 'I HAVE CONSIDERED THE FACTS OF THE CASE. THE APPELLANT CO MPANY CAME INTO EXISTENCE AS A RESULT OF TRIFURCATION OF MSEB. EARLIER MSEB WAS PAYING ELECTRICITY DUTY TO GOVT. AND THE ISSUE OF DISALLOWANCE U/S.43B OF UNPAID ELECTRICIT Y DUTY WAS ALSO THERE. IN THE APPELLANT PROCEEDINGS OF MSEB, IT WAS HELD THAT THE PRO VISION OF SECTION 43B WERE APPLICABLE IN RESPECT OF UNPAID ELECTRICITY DUTY. AS A RESULT, THE PROVISIONS OF SECTION 43B ARE ALSO APPLICABLE IN CASE OF APPELLANT BEING SUCCESSOR COMPANY OF MSEB. THEREFORE, IT IS HELD THAT PROVISION OF SECTION 43B ARE APPLICABLE IN RESP ECT OF APPELLANT'S UNPAID ELECTRIFY DUTY. HOWEVER, THE AO IS DIRECTED THAT THE UNPAID ELECTRICITY DUTY SETTLED BY WAY OF ADJUSTMENT WITH GOVT. OF MAHARASHTRA SHOULD BE TREATED AS PAYMENT OF ELECTRICITY DUTY.' 32. BEFORE US, LD. COUNSEL OF THE ASSESSEE ARGU ED THE MATTER AT LENGTH AND SUBMITTED THAT THE PROVISIO NS OF SECTION 43B ARE NOT APPLICABLE IN THIS CASE AND RELIANCE WAS PLACED BY HIM ON THE FOLLOWING JUDGMENTS: (I)CESC LDT. VS. CIT IN ITA NO.82/110/8 3/84 OF 2004/2005 ITA NO . 1649/MUM/2010 AND OTHER AP PEALS M AHARASHTRA STATE ELECTRICITY BOARD 19 (II) KERALA STATE ELECTRICITY BOARD V S. DCIT REPORTED IN (2010) 329 ITR 91 (III) A.W. FIGGIS & CO. LTD. VS. CIT REPORTED IN (2003) 256 ITR 268 (IV) CIT VS OVIRA LOGISTICS PVT. LTD . REPOR TED IN (2015) 58 TAXMANN.COM 206 33. IT WAS FURTHER SUBMITTED BY LD. COUNSEL THAT THE CREDIT FOR THE SIMILAR AMOUNT WAS GRANTED BY THE AO IN THE ASSESSMENT ORDER PASSED FOR A.Y. 2007 - 08 COPY OF THE ASS ESSMENT ORDER IS PLACED IN PAPER BOOK AT PAGE NO.161 TO 175 ON OUR ATTENTION HAS BEEN DRAWN ON PAGE NO.174. ON THE OTHER HAND, LD. DR RELIED UPON THE ORDERS OF AUTHORITIES BELOW AND REQUESTED FOR CONFIRMING THE ORDER OF LD. CIT(A). 33A. WE HAVE GONE THROUG H THE ARGUMENTS MADE BY BOTH THE SIDES AS WELL AS THE M ATERIAL PLACED BEFORE US.WE HAVE ALSO CONSIDERED THE CASE LAWS RELIED UPON BY THE LD. COUNSEL ON THIS ISSUE, COPIES OF WHICH HAVE ALSO BEEN PLACED BEFORE US. IT IS SEEN THAT IN THE CASE OF 'KERALA STAT E ELECTRICITY BOARD'(SU.),IT WAS HELD BY THE HON'BLE HI GH COURT THAT IN THESE CIRCUMSTANCES THE PROVISIONS OF S.43B WOULD NOT BE APPLICABLE. WE ALSO PLACED RELIANCE ON THE JUDGMENT OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF ' CIT VS. OVIRA LOGISTICS PVT. L TD .' (SU.),WHEREIN THEIR LORDSHIPS HAVE HELD THAT IN THE CASE OF SERVICE TAX PAYMENT BY THAT ASSESSEE WHERE IT WAS FOUND THAT BEFORE END OF THE YEAR,AMOUNT ON WHICH SERVICE TAX WAS PAYABLE HAVE NOT BEE N RECEIVED FROM THE PARTIES TO WHOM SERVICES WERE RENDE RED, THE CLAIM OF SERVICE TAX PAID COULD NOT BE DISALLOWED. IT WAS HELD THAT S.43B DOES NOT CONTEMPLATE LIABILITY TO PAY THE SERVICE TAX BEFORE ACTUAL RECEIPT OF FUNDS IN THE ACCOUNT OF THE ASSESSEE AN D IT WAS FURTHER HELD THAT THE LIABILITY TO PAY SERVICE INTO THE TREASURY WILL ARISE ONLY UPON THE ASSESSEE RECEIVING FUNDS AND NOT OTHERWISE,AND IT WAS ACCORDINGLY HELD THAT LIABILITY TO PAY THE SERVICE TAX IN RESPECT OF CONSIDERATION PAYABLE WILL ARISE O NLY UPON RECEIPT OF SUCH CONSIDERATION, AND NOT OTHERWI SE. IN THE CASE BEFORE US, THE ADMITTED POSITION IS THAT BECAUSE OF SOME SETTLEMENTS PENDING BETWEEN THE ASSESSEE COMPANY AND THE GOVERNMENT OF MAHARASHTRA, PAYMENTS COULD NOT BE MADE DURING THE FINANC IAL YEAR.IT IS FURTHER SEEN THAT THE ADMITTED FACTS ARE THAT THE ASSESSEE HAS NOT ROUTED THIS AMOUNT THROUGH THE P&L ACCOUNT.WE RELY WITH THE JUDGMENT OF HON'BLE CALCUTTA HIGH COURT IN THE CASE OF CESC LTD.(SU.) AND HON'BLE KERALA HIGH COURT IN THE CASE OF 'KERALA STATE ELECTRICITY BOARD' (SUPRA) TO HOLD THAT THE ELECTRICITY DUTY IS NOT BEING A SUM PAYABLE BY THE ASSESSEE AS A PRIMARY LIABILITY BY WAY OF TAX, DUTY CESS OR FEE, SECTION 43B IS NOT ATTRACTED TO THE ASSESSEE IN RESPECT OF ELECTRICITY DUTY COLLECT ED BY IT FOR BEING PASSED ON THE STATE GOVT. TWO RELEVANT PARAS FROM THE RECENT ORDER OF THE HON'BLE CALCUTTA HIGH COURT IN THE CASE OF 'CESC LTD. (SUPRA), VIDE ITS ORDER DATED 14.05.2015 ARE REPRODUCE D HEREUNDER: '19. THUS, IN OUR VIEW, THE ELECTRICITY DU TY, NOT BEING A SUM PAYABLE BY THE ASSESSEE AS A PRIMARY LIABILITY BY WAY OF TAX, DUTY, CESS OR FEE, SECTION 43B IS NOT ATTRACTED TO THE LICENCEE/AS SESSEE IN RESPECT OF ELECTRICITY DUTY COLLECTED BY IT F OR BEING ITA NO . 1649/MUM/2010 AND OTHER AP PEALS M AHARASHTRA STATE ELECTRICITY BOARD 20 PASSED ON THE STATE GOVERNMENT. ON THIS POINT WE ARE IN ITA/3813 &OTHERS/MUM/09 - MSEB/01 - 02TO03 - 04 RESPECTFUL DISAGREEMENT WITH THE DECISION OF THE GUJARAT HIGH COURT IN THE CASE OF COMMISSIONER OF INCME TAX - VS - AHMEDABAD ELECTRICITY CO. LTD . (SUPRA) AND WE ARE IN AGREEMENT WITH THE DECISION OF THE KERALA HIGH COURT IN THE CASE OF KERALA STAT E ELECTRICITY BOARD - VS - DEPUTY COMMISSIONER OF INCOME T AX (SUPRA). WE ARE OF THE OPINION THAT SECTION 43B OF THE INCOME TAX ACT IS ATTRACTED TO A CASE WHERE PAYABLE IS TO BE MADE TO THE STATE GOVERNMENT IN THE CAPACITY OF THE STATE AS A SOVEREIGN AND NOT TO A CASE WHERE PAYMENT IS TO BE MADE TO THE STATE GOVERNMENT IN ITS CAPACITY AS A PRINCIPAL BY AN AGENT. IN THE INSTANT CASE, THE RELATIONSHIP BETWEEN THE STATE AND THE LICENSEE IS OF A PRINCIPAL AND AGE NT/FIDUCIARY AND NOT THAT OF A SOVEREIGN AND A SUBJECT. 20) LOOKING AT THE ISSUE FROM ANOTHER ANGLE, THE ELECTRICITY DUTY COLLECTED BY THE LICENSEE FROM THE CONSUMERS IS SO DONE BY THE LICENSEE AS AN AGENT OF THE STATE AND, HENCE, THE SAME CANNOT BE CONSID ERED TO A TRADING RECEIPT IN THE HANDS OF THE LICENSEE. IT DOES NOT CONSTITUTE INCOME OF THE LICENSEE AND CANNOT BE INCLUDED IN THE LICENSEE'S INCOME FOR THE PURPOSE OF COMPUTATION OF INCOME TAX. IT IS NOT A BUSINESS RECEIPT OF THE LICENSEE WHICH THE LICEN SEE COLLECTS ON ITS OWN BEHALF IN CONNECTION WITH ITS B USINESS OF GENERATING AND SUPPLYING ELECTRICITY. THE LICENSEE DOES NOT COLLECT THE ELECTRICITY DUTY FOR ITS OWN CONSUMPTION OR UTILIZATION. IF THE LICENSEE COLLECTS THE DUTY BUT DOES NOT PAY THE SAME T O THE GOVERNMENT, THE STATUTE PROVIDES MECHANISM FOR TH E GOVERNMENT TO RECOVER THE SAME FROM THE LICENSEE. EVEN III A CASE WHERE THE LICENSEE IS UNABLE TO RECOVER THE DUTY BUT RECOVERS THE ENERGY CHARGES, THE STATUTES STILL PROVIDES A PROCEDURE FOR THE GOV ERNMENT TO RECOVER THE DUTY EITHER FROM THE CONSUMER OR FROM THE LICENSEE. THIS VIEW OF OURS FINDS SUPPORT FROM THE DECISION OF THE ANDHRA PRADESH HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX - VS. - DEVATHA CHANDRAIAH (SUPRA). THOUGH THE SAID CASE DEAL S WITH SALES TAX, THE PRINCIPLE LAID DOWN IN THAT CASE SUPPORTS OUR VIEW. THE MISCHIEF THAT SECTION 43B OF THE INCOME TAX ACT INTENDED TO PRESENT, I S TAKEN CARE OF BY THE PROVISIONS OF THE BENGAL ELECTRI CITY DUTY ACT ITSELF.' 34. THUS, IN OUR CONSIDERED VIEW, THE ASSESSEE DESERVES TO SUCCEED. THE DISALLOWANCE MADE BY LD. AO ON THIS GROUND FOR RS.23291.59 LAKHS IS HEREBY DELETED AND GROUND NO.2 OF THE ASSESSEE IS ALLOWED.' FOLLOWING THE ABOVE MENTIONED TWO DECISIONS, WE REVERSE THE ORDER OF THE FAA AND DECIDE GROUND NO.1 IN FAVOUR OF THE ASSESSEE . 6.3. RESPECTFULLY FOLLOWING THE SAID DECISION OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR EARLIER YEARS A S REFERRED TO SUPRA, THE CROSS OBJECTIONS ITA NO . 1649/MUM/2010 AND OTHER AP PEALS M AHARASHTRA STATE ELECTRICITY BOARD 21 RAISED BY THE ASSESSEE IN GROUND NOS. 1.1. TO 1.3. FOR BOTH THE ASST YEARS ARE ALLOWED. 7. DISALLOWANCE OF LOSS ON ACCOUNT OF OBSOLESCENCE OF FIXED ASSETS, FLOOD, CYCLONE, FIRE ETC ; DISALLOWANCE OF DEFERRED REVE NUE EXPENDITURE WRITTEN OFF AND DISALLOWANCE ON ACCOUNT OF WRITE OFF OF INTANGIBLE ASSETS GROUND NOS.2 TO 5 OF CROSS OBJECTIONS OF ASSESSEE FOR ASST YEAR 2004 - 05 GROUND NOS.2 TO 4 OF CROSS OBJECTIONS OF ASSESSEE FOR ASST YEAR 2005 - 06 WE HAVE HEARD THE R IVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT THE LD AO HAD OBSERVED FROM SERIAL NO. 17 OF TAX AUDIT REPORT THAT THE ASSESSEE COMPANY HAS SHOWN THE FOLLOWING CAPITAL EXPENDITURES WHICH WERE CLAIMED AS DEDUCTION IN THE RETURN OF INCOME : - A ) LOSS ON OBSOLESCENCE OF FIXED ASSETS - RS 4,85,01,512/ - B ) LOSS TO FIXED ASSETS DUE TO FLOOD, CYCLONE, FIRE ETC - RS 2,14,248/ - C ) DEFERRED REVENUE EXP. WRITTEN OFF - RS 63,62,526/ - D ) INTANGIBLE ASSETS WRITTEN OFF - RS 2,07,38,086/ - THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY THE SAID EXPENDITURE SHOULD NOT BE DISALLOWED IN THE ASSESSMENT. THE LD AO OBSERVED THAT NO EXPLANATION WAS FURNISHED BY THE ASSESSEE IN THIS REGARD AND HENCE HE DISALLOWED THE SAME AS CAPITAL EXPENDITURE IN THE ASSESSMENT AS THE SAME WAS CATEGORISED AS CAPITAL EXPENDITURE IN THE TAX AUDIT REPORT. WE FIND THAT THE LD CITA HE LD THAT THESE ARE RECURRING ISSUES IN THE CASE OF THE ASSESSEE COMPANY FROM YEAR ON YEAR AND BY FOLLOWING THE ORDER PASSED BY HIS PREDEC ESSOR FOR THE ASST YEAR 2001 - 02, UPHELD THE ACTION OF THE LD AO IN RESPECT OF LOSS ON OBSOLESCENCE OF FIXED ASSETS AND D ISALLOWANCE OF ITA NO . 1649/MUM/2010 AND OTHER AP PEALS M AHARASHTRA STATE ELECTRICITY BOARD 22 INTANGIBLE ASSETS WRITTEN OFF. WITH REGARD TO LOSS TO FIXED ASSETS DUE TO FLOOD, CYCLONE, FIRE ETC, WE FIND THAT THE LD CITA HAD OBSERVED THAT ASSESSEE HAD NOT FURNISHED ANY DETAILS TO PROVE THAT LOSS HAD BEEN INCURRED AND ACCORDINGLY UPHEL D THE ACTION OF THE LD AO. WITH REGARD TO DISALLOWANCE OF DEFERRED REVENUE EXPENDITURE WRITTEN OFF, WE FIND THAT THE LD CITA HAD OBSERV ED THAT ASSESSEE HAD NOT FURNISHED ANY DETAILS REGARDING THE SAME AND HENCE UPHELD THE ACTION OF THE LD AO. 7.1. WE F IND WITH REGARD TO DISALLOWANCE MADE ON ACCOUNT OF DEFERRED REVENUE EXPENSES WRITTEN OFF, WE FIND THAT THE LD AR SUBMITTED THAT ASSESSEE COMPANY HAD INCURRED EXPENDITURE OF RS 63,62,526/ - WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AS UNDER: - COST O F UPGRADING AND MODERNIZATION OF HYDRO POWER PLANT - RS 37,26,503/ - DEFERMENT OF GROUP INSURANCE - RS 20,16,671/ - OTHER EXPENDIT URE - RS 5,95,467/ - THE ENTIRE CORRESPONDENCES IN THIS REGARD CONTAINING DOCUMENTARY EVIDENCES ARE ENCLOSED IN PAGES 36 TO 45 OF THE PAPER BOOK FILED BEFORE US. ON PERUSAL OF THE SAME, WE FIND THAT THE ASSESSEE HAD RIGHTLY CLAIMED DEDUCTION ON ACCOU NT OF AFORESAID DEFERRED REVEN UE EXPENDITURE WRITTEN OFF IN THE YEARS UNDER CONSIDERATION. ACCORDINGLY, WE REVERSE THE ORDER OF THE LD CITA IN THIS REGARD. 7.2. WE FIND THAT THE AFORESAID REMAINING 3 ISSUES WERE SUBJECT MATTER OF ADJUDICATION BY THIS TR IBUNAL IN ASSESSEES OWN CASE FOR THE ASST YEARS 2001 - 02 TO 2003 - 04 IN CO NOS. 11, 196 AND 197/MUM/2010 DATED 30.9.2015 WHEREIN IT WAS HELD AS UNDER: - ITA NO . 1649/MUM/2010 AND OTHER AP PEALS M AHARASHTRA STATE ELECTRICITY BOARD 23 6.SECOND AND THIRD GROUNDS ARE ABOUT DISALLOWANCE OF LOSS OF RS.6.95 LACS AND RS.4.08 LACS RESPECTIVELY SUFFERED BY THE ASSESSEE O N ACCOUNT OF FLOOD, CYCLONE/STORM, THEFT ETC. DURING THE ASSESSMENT PROCEEDINGS THE AO FOUND THAT THE ASSESSEE HAD INCURRED LOSS OF PROPERTIES TO THE EXTENT OF RS.6.80 CRORES DUE TO STORM, THEFT, ACCIDENT. AS PER THE AO, DETAILED NATURE OF THE ASSETS WAS NOT FURNISHED BY THE ASSESSEE. HE HELD THAT THE LOSS WAS CAPITAL IN NATURE AND HENCE NOT ALLOWABLE AS DEDUCTION. 6.1.BEFORE THE FAA IT WAS CONTENDED THAT UNDER THE ELECTRICITY SUPPLY RULES LOSSES INCURRED ON ACCOUNT OF NATURAL CAL AMITIES WERE TO BE TREATED AS L OSSES FOR THE YEAR IN WHICH THEY HAD OCCURRED, THAT ASSESSEE HAD CLAIMED LOSSES OF RS.11.00 LACS ONLY. AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE ,HE HELD THAT THE DETAILS OF THE ACTUAL LOSS WAS NOT AVAILABLE, THAT NATU RE OF LOSS CLAIMED BY IT APPEARE D TO BE LOSS OF CAPITAL ASSET AND ACCORDINGLY THE AO WAS CORRECT TO DISALLOW THE DEDUCTION, THAT AO HAD WRONGLY DISALLOWED AN AMOUNT OF RS.68.00 LACS, THAT THE ASSESSEE HAD MADE ACTUAL CLAIM OF RS.11.04 LACS ONLY (RS.6.95 LA CS AND RS.4.08 LACS).THE FAA UPH ELD THE DISALLOWANCE OF LOSS OF RS.11,04,040/ - AND DELETED THE BALANCE ADDITION. 6.2.BEFORE US THE AR ARGUED THAT LOSS HAD OCCURRED DURING THE YEAR UNDER APPEAL, THAT THE AO HAD ALLOWED DEPRECIATION ON THE ASSETS, THAT THE A SSETS WERE PART OF THE BLOCK OF A SSETS, THAT DEPRE CIATION SHOULD BE ALLOWED AS PER PROVISIONS OF SECTION 43(6)(C) OF THE ACT, THAT LOSS OF RS.4.06 PERTAINED TO LOSS OF STOCK - IN - TRADE, THAT SAME WAS ALLOW ABLE. HE REFERRED TO PAGE NO.254 A ND 370 OF THE PAPER BOOK AND RELIED UPON THE CASES OF UNITEX PRODUCTS LTD. (22 SOT 429); PACKWELL PRINTERS (359 ITD 340).DEPARTMENTAL REPRESENTATIVE(DR) SUPPORTED THE ORDER OF THE FAA . 6.3.WE HAVE HEARD THE RIVAL SUBMISSI ON. AS FAR AS LOSS OF STOCK IN CONC ERNED, WE ARE OPINION THAT ITA/3813 &OTHERS/MUM/09 - MSEB/01 - 02TO03 - 04 SAME IS TO BE ALLOWED AS REVENUE EXPENDITURE. SO,THE ORDER OF THE FAA IS REVERSED TO THAT EXTENT. FOR THE BALANCE AMOUNT WE HOLD THAT THE ASSETS WERE FO RMING PART OF BLOCK OF ASSETS. THEREFO RE, DEPRECIATION SHOULD BE ALLOWED WITH REGARD TO THEM.WE FIND THAT ISSUE OF THE CLAIM OF DEPRECIATION ABOUT ASSETS OF BLOCK HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF TRIBUNAL RELIED UPON BY THE ASS ESSEE. GROUND NO.2 - 3 ARE ALLOWED IN FAV OUR OF THE ASSESSEE, IN PART. 7.LAST GROUND OF APPEAL IS ABOUT WRITE OFF OF INTANGIBLE ASSETS OF RS.1.95 CRORES. DURING THE ASSESSMENT PROCEEDINGS THE AO FOUND THAT THE ASSESSEE HAD CLAIMED THAT IT WOULD AMORTISE INTA NGIBLE ASSETS OVER THE ESTIMATED PERIOD D URING WHICH IT WAS GOING DERIVE BENEFITS THEREFROM, THAT A PROPORTIONATE AMOUNT CALCULATED WITH REFERENCE TO THE BENEFITS DURING THE YEAR SUCH AS ADDITIONAL REVENUE ARISING AS A RESULT OF THE ASSET WAS BEING CHARGED TO REVENUE ACCOUNT FOR EACH OF THE YEARS BENEFITTED. HOWEVER, THE AO DISALLOWED THE CLAIM ON THE GROUND THAT THE SAME WAS CAPITAL IN NATURE. 7.1.BEFORE THE FAA ,DURING THE APPELLATE PROCEEDINGS THE ASSESSEE SUBMITTED THAT TREATMENT GIVEN TO THE INTANGIBLE ASSETS WAS IN ACCORDANCE WITH THE ELECTRI CITY RULES. IT RELIED UPON THE CASE OF TAPADIA TOOLS LTD.(260 ITR 102).IT WAS ALSO STATED THAT SIMILAR ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE BY THE ITA NO . 1649/MUM/2010 AND OTHER AP PEALS M AHARASHTRA STATE ELECTRICITY BOARD 24 THEN FAA WHILE DECIDING THE APPEAL FOR A.Y. 97 - 98. THE FAA , AFTER CONSIDERING THE SUBMISSION OF THE ASS ESSEE AND THE ASSESSMENT ORDER, HELD THAT THE DETAILS OF THE CALCULATION OF AMOUNTS WRITTEN OFF TOWARDS INTANGIBLE ASSETS WERE NOT AVAILABLE, THAT THE ASSESSEE WAS WRITING OFF A PART OF THE COSTS OF THE FIXED ASSE TS EVERY YEAR, IT WAS NOT ALLOWABLE AS REVENU E EXPENDITURE, THAT THE SIMILAR CLAIM WAS DISALLOWED BY THE FAA IN THE AYS.99 - 00 AND 00 - 01.FOLLOWING THEM, HE UPHELD THE ORDER OF THE AO AND DISMISSED THE GROUND RAISED BY THE ASSESSEE . 7.2.BEFORE US, THE AR CO NTENDED THAT THE ASSESSEE WAS AMORTISING THE EXP ENSES ,THAT THOSE EXPENSES PERTAINED TO PURCHASE OF SOFTWARE AND PAYMENT LAWYER'S FEE ETC, THAT THE ASSESSEE HAD INCURRED EXPENSES TOWARDS FEE PAID WITH REGARD TO DABHOL PROJECT. HE REFERRED TO PAGE NO.340 OF THE PAPER BOOK. HE RELIED UPON THE CASE OF TAPADIA TOOLS(372ITR 605),RAYCHEM RPG LTD.(346 ITR138), RICHARDSON HINDUSTAN LTD.(169 ITR 516)AND BOMBAY CYCLE AND MOTOR AGENCIES LTD. (118 ITR 42).DR SUPPORTED THE ORDER OF THE FAA . 7.3.WE HAVE HEARD THE RIVAL SUBMISSIONS. WE FIND THAT THE JUDGMENT OF TAPADIA TOO LS, DELIVERED BY THE HON'BLE BOMBAY HIGH COURT(SUPRA)AND RELIED UPON BY THE FAA HAS BEEN REVERSED BY THE HON'BLE SUPREME COURT.IN THE MATTER OF RAYCHEM RPG LTD.(SUPRA),THE HON'BLE BOMBAY HIGH COURT HAS H ELD THAT OF THE SOFTWARE FACILITATED THE ASSESSEE'S TR ADING OPERATIONS OR ENABLED THE MANAGEMENT TO CONDUCT THE ASSESSEE'S BUSINESS MORE EFFICIENTLY OR MORE PROFITABLY THEN IT WAS NOT IN THE NATURE OF PROFIT - MAKING APPARATUS AND THAT THE EXPENDITURE WAS TO BE ALLOWED. WE FIND THAT LAWYER'S FEES HAS BEEN HELD T O ALLOWABLE EXPENDITURE IN THE MATTER OF BOMBAY CYCLE AND MOTOR AGENCIES LTD.(SUPRA).IN THAT MATTER FEES WAS PAID TO DRAW UP LEASE AGREEMENT. WE FIND THAT THE FAA HAS FOLLOWED THE ORDERS FOR AY.99 - 00 A ND 2000 - 01,BUT HAS NOT DISTINGUISHED THE FACTS OF THE CA SE OF AY.1997 - 98 AND THE FACTS OF THE MATTER UNDER APPEAL. ORDER PASSED WITHOUT GIVING ANY REASON FOR NOT FOLLOWING THE DECISION FAVOURING THE ASSESSEE, COMES UNDER THE CATEGORY OF NON SPEAKING ORDER. THE ORDER OF THE FAA FALLS UNDER THAT CATEGORY, HENCE CANNO T BE ENDORSED. SO, REVERSING HIS ORDER, WE DECIDE LAST GROUND IN FAVOUR OF THE ASSESSEE. 8.AS THE GROUNDS RAISED BY THE AO.S AND THE ASSESSEE IN THE APPEALS AND IN THE CO.S ARE ALMOST SIMILAR TO T HE GROUND RAISED BY THE THEM IN THE APPEAL AND CO FOR THE AY.2001 - 02,SO FOLLOWING OUR ORDER FOR THAT YEAR, WE PARTLY ALLOW THEIR APPEALS/CO.S FOR THE ABOVE MENTIONED TWO YEARS . 7.3. RESPECTFULLY FOLLOWING THE SAID DE CISION OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR EARLIER YEARS AS REFERRED TO SUPRA, WE DIRECT THE LD AO TO - (I) GRANT DEPRECIATION ON LOSS ON OBSOLESCENCE OF FIXED ASSETS (II) GRANT DEDUCTION FOR LOSS FIXED ASSETS DUE TO FLOOD, CYCLONE, FIRE ETC ITA NO . 1649/MUM/2010 AND OTHER AP PEALS M AHARASHTRA STATE ELECTRICITY BOARD 25 (III) GRANT DEDUCTION FOR INTANGIBLE ASSETS WRITTEN OFF 7.4. ACCORDINGLY, THE CROSS OBJECTIONS RAISED BY THE ASSESSEE IN GROUND NOS. 2 TO 5 FOR THE ASST YEAR 2004 - 05 ARE PARTLY ALLOWED AND GROUND NOS. 2 TO 4 FOR THE ASST YEAR 2005 - 06 ARE ALLOWED. 8. DISAL LOWANCE OF EXPENSES INCURRED TOWARDS CO ST OF RAISING FINANCE GROUND NOS. 6.1. TO 6.3. OF CROSS OBJECTIONS OF ASSESSEE FOR THE ASST YEAR 2004 - 05 GROUND NOS. 5.1. TO 5.3. OF CROSS OBJECTIONS OF ASSESSEE FOR THE ASST YEAR 2005 - 06 WE HAVE HEARD THE RIVAL SUBM ISSIONS AND PERUSED THE MATERIALS AVAIL ABLE ON RECORD. WE FIND THAT THE LD AO HAD OBSERVED FROM SCHEDULE 12 OF FINANCIAL STATEMENTS THAT ASSESSEE COMPANY HAD CLAIMED COST OF RAISING FINANCE UNDER DIFFERENT HEADS SUCH AS STAMP DUTY, LEGAL CHARGES, ADVERTISE MENT, SERVICE FEE, CREDIT FEE, COMMITME NT CHARGES, LEASE MANAGEMENT FEES PAID FOR HVDC PROJECT, LATE FEES PAID FOR HVDC PROJECT, STATE GOVERNMENT GUARANTEE FEES AND OTHER EXPENSES AGGREGATED TO RS 2,42,41,827/ - FOR THE ASST YEAR 2004 - 05. WE FIND THAT THE LD AO OBSERVED THAT THESE EXPENDITURE A RE CAPITAL IN NATURE AND ACCORDINGLY DISALLOWED THE SAME IN THE ASSESSMENT. 8.1. WE FIND THAT THE LD CITA IDENTIFIED THE BREAK UP OF THE AFORESAID EXPENDITURE AS UNDER: - STAMP DUTY - RS 46,02,345/ - SERVICE FEE - RS 88,00,795/ - COMMITMENT CHARGES - RS 57,86,787/ - OTHER EXPENSES - RS 50,51,900/ - ITA NO . 1649/MUM/2010 AND OTHER AP PEALS M AHARASHTRA STATE ELECTRICITY BOARD 26 WE FIND THAT THE LD CITA APPLIED THE PROVISO TO SECTION 36(1)(III) OF THE ACT WHICH IS APPLICABLE FROM ASST YEAR 2003 - 04 ONWARDS BY STATING THAT ALL EXPENSES ON BORROWED FUNDS COULD BE ALLOWED TO BE CAPITALI SED UNTIL THE ASSET IS PUT TO USE AND ACCORDINGLY UPHELD THE ACTION OF THE LD AO. 8.2. WE FIND THAT THIS ISSUE WAS THE SUBJEC T MATTER OF ADJUDICATION BY THIS TRIBUNAL IN ASSESSEES OWN CASE (IE HIVED OFF COMPANY) FOR THE ASST YEAR 2006 - 07 IN ITA NO. 419/ MUM/2010 DATED 22.8.2019 WHEREIN IT WAS HELD AS UNDER: - 6. WE HAVE HEARD RIVAL CONTENTIONS AND GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE NOTED THAT THE ASSESSEE HAS INCURRED THE FOLLOWING EXPENSES AND THE NARRATIONS ARE AS UNDER: - A. STA MP DUTY 30,00,000/ - . THIS COMPRISES OF SEVERAL PAYMENTS MADE TOWARDS STAMP DUTY PAID FOR AVAILING VARIOUS LOANS FROM R EC/ PFC. THE COPIES OF JV ALONGWITH OTHER RELEVANT OFFICE NOTES EVIDENCING THE SAID PAYMENT WERE ENCLOSED BY THE APPELLANT. B. SERVI CE FEES - 11,94,598/ - . THIS COMPRISES OF PAYMENTS TOWARDS SERVICE FEES FOR TRUSTEESHIP FOR MSEB BONDS TO IL&FS TRUST COMPAN Y. PHOTO COPIES OF JV ALONGWITH OTHER RELEVANT OFFICE NOTES EVIDENCING THE SAID PAYMENTS WERE ALSO ENCLOSED. 7. WE NOTED FROM THE ABOVE THAT THE ASSESSEE IS ABLE TO PROVE THAT THESE EXPENSES WERE ROUTINE EXPENSES INCURRED BY THE ASSESSEE DURING THE COURSE OF BUSINESS FOR THE REASON THAT ON ACCOUNT OF THESE LOANS NO CAPITAL ASSET HAS BEEN CREATED BY INCURRING SUCH EXPENDITURE. WE NOT ED THAT EVEN HONBLE SUPREME COURT IN THE CASE OF INDIA CEMENT LTD. VS. CIT (1966) 60 ITR 52 SC HELD THAT THE STAMP DUTY, REGI STRATION FEE, LAWYERS FEE ETC., PAID FOR OBTAINING LOAN WAS ELIGIBLE FOR BUSINESS EXPENDITURE. WE NOTED THAT THE AFORESAID AMOUNTS WERE REFLECTED IN THE SCHEDULE 12 OF THE BALANCE SHEET IN THE REVENUES ACCOUNT AS INTEREST AND FINANCE CHARGES. ALSO THE ASS ESSEE HAS SUO MOTO CAPITALIZE THE EXPENSES WHICH WERE TO BE CAPITALIZED AS IS EVIDENT FROM SCHEDULE 13 OF THE BALANCE SHEET, WHICH IS IN REVENUES ACCOUNT. WE NOTED FROM THE COPIES OF THE AGREEMENT THAT THESE EXPENSES WERE INCURRED ON STAMP DUTY, SERVICE FEE, LAWYERS FEE BEING LEGAL EXPENSES FOR FILING VARIOUS LOAN AND SERVICES FOR TRUSTEESHIP OF MSE BONDS. IN VIEW OF THE ABOVE, WE ARE OF THE VIEW THAT THE CIT(A) HAS RIGHTLY ALLOWED THE CLAIM ITA NO . 1649/MUM/2010 AND OTHER AP PEALS M AHARASHTRA STATE ELECTRICITY BOARD 27 OF THE ASSESSEE OF THESE EXPENSES AS BUSINESS EXPENDITURE UNDE R SECTION 37(1) OF THE ACT AND HENCE, WE DO NOT WANT TO INTERFERE IN THE SAME. THIS ISSUE OF REVENUES APPEAL IS DISMISSED. 8.3. RE SPECTFULLY FOLLOWING THE SAID DECISION, WE DIRECT THE LD AO TO GRANT DEDUCTION TOWARDS COST OF RAISING FUNDS FOR BOTH THE ASST YEARS IN APPEAL BEFORE US. ACCORDINGLY, THE GROUND NOS. 6.1. TO 6.3. FOR THE ASST YEAR 2004 - 05 AND GROUND NOS. 5.1. TO 5.3. FOR THE ASST YEAR 2005 - 06 RAISED BY THE ASSESSEE ARE ALLOWED. 9. DISALLOWANCE OF PENAL INTEREST IN RESPECT OF CAPITAL LIABILITIES GROUND NOS. 7.1. TO 7.3. OF CROSS OBJECTIONS OF ASSESSEE FOR THE ASST YEAR 2004 - 05 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PE RUSED THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT THE LD AO HAD OBSERVED THAT ASSESSEE COMPANY HAD PAID PENAL INTEREST OF RS 4,55,562/ - TOWARDS ITS CAPITAL LIABILITIES. HE OBSERVED THAT SINCE AMOUNT IS PENAL IN NATURE, TH E SAME IS NOT ALLOWABLE AS DE DUCTION U/S 37(1) OF THE ACT BY APPLYING THE EXPLANATION THEREON. WE FIND THAT SINCE THE LD AO HAD NOT GIVEN ANY REASONING FOR THE DISALLOWANCE OF THE AFORESAID EXPENDITURE, THE LD CITA CALLED FOR THE DETAILS OF THE EXPENDITUR E FROM THE ASSESSEE WHICH WER E DULY PROVIDED AS UNDER: - (I) PROVISION MADE TOWARDS INTEREST ON DELAYED PAYMENT OF PURCHASE OF ASSETS PAYABLE TO LASALGAON ELECTRICITY CO - OPERATIVE SOCIETY RS 23,650/ - (II) PROVISION MADE TOWARDS INTEREST ON DELAYED PAYMENT OF PURCHASE OF ASSETS PAYABL E TO AHMEDABAD CANTONMENT BOARD RS 16,060/ - (III) PENAL INTEREST ON LOAN FROM REC RS 4,15,852/ - ITA NO . 1649/MUM/2010 AND OTHER AP PEALS M AHARASHTRA STATE ELECTRICITY BOARD 28 9.1. ON PERUSAL OF THE SAME, THE LD CITA DELETED THE DISALLOWANCE MADE IN THE AFORESAID SUMS OF RS 23,650/ - AND RS 4,15,852/ - , AGAINST WHICH, THE REVENUE HAD NOT PREFERRED ANY APPEAL BEFORE US. THE LD CITA UPHELD THE DISALLOWANCE MADE IN THE SUM OF RS 16,060/ - AS ABOVE. HENCE THE ONLY DISPUTE TO BE DECIDED BEFORE US IS ALLOWABILITY OF INTEREST ON DELAYED PAYMENT OF PURCHASE OF ASSETS PAYABLE TO AHMEDABAD CANTONMENT BOARD IN THE SUM OF RS 16,060/ - . WE FIND FROM LETTER DATED 15.11.2006 FILED BEFORE THE LD AO BY THE ASSESSEE THAT THIS SUM OF RS 16,060/ - REPRESENT INTEREST ON BALANCE AMOUNT (INTEREST ON DELAYED PAYMENT) OF PURCHA SE OF ASSETS PAYABLE TO EX.LI CENSEE VIZ M/S AHMEDABAD CANTONMENT BOARD , AURANGABAD AND THAT THE SAME IS PAYABLE AS PER C.E. (COMM) LETTER NO. CE(COM)/PG/ACCTTS - 32/832 DATED 23.3.2004 BY THE ASSESSEE. HENCE THIS IS A STATUTORY PAYMENT MADE BY THE ASSESSEE WHICH IS SQUARELY COMPENSATO RY IN NATURE AND HENCE CANNOT BE CONSTRUED AS PENAL IN NATURE. ACCORDINGLY, THE PROVISIONS OF EXPLANATION TO SECTION 37(1) OF THE ACT WOULD NOT BE APPLICABLE TO THE SAME. MOREOVER, THE SAID INTEREST OF RS 16,060/ - IS SIMILAR TO THE INTEREST PAYABLE IN TH E SUM OF RS 4,15,852/ - TO REC WHICH HAS BEEN ALLOWED BY THE LD CITA. WE FIND THAT THE NATURE OF BOTH THE TRANSACTIONS ARE SIMILAR. HENCE WE FIND THAT THE LD CITA IS NOT JUSTIFIED IN UPHOLDING THE DISALLOWANCE ON ACCOUNT OF RS 16,060/ - ALONE. ACCORDING LY, THE GROUND NOS. 7.1. TO 7.3. RAISED BY THE ASSESSEE ARE ALLOWED. 10. IN THE RESULT , THE CROSS OBJECTIONS PREFERRED BY THE ASSESSEE FOR THE ASST YEAR 2004 - 05 IS PARTLY ALLOWED AND CROSS OBJECTIONS PREFERRED BY THE ASSESSE E FOR THE ASST YEAR 2005 - 06 I S ALLOWED. ITA NO . 1649/MUM/2010 AND OTHER AP PEALS M AHARASHTRA STATE ELECTRICITY BOARD 29 11. T O SUM UP ITA NO. / CO NO. ASST YEAR PARTICULARS RESULT ITA NO. 1 649/MUM/210 2004 - 05 REVENUE APPEAL DISMISSED CO NO. 198/MUM/2010 2004 - 05 CROSS OBJECTIONS OF ASSESSEE PARTLY ALLOWED ITA NO. 94 5/MUM/2010 2005 - 06 REV ENUE APPEAL DISMIS SED CO NO. 171/MUM/2010 2005 - 0 6 CROSS OBJECTIONS OF ASSESSEE ALLOWED ORDER PRONOUNCED ON 21 / 04 /202 1 BY WAY OF PROPER MENTIONING IN THE NOTICE BOARD. S D/ - ( RAVISH SOOD ) SD/ - (M.BALAGANESH) JUDIC IAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED 21 / 04 / 2 021 KARUNA , SR.PS COPY OF THE ORDER FORWARDED TO : BY ORDER, ( ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2 . THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//