The West Bengal Power Development Corporation Ltd., Kolkata V. D.C.I.T.,Circle-4(2), Kolkata

ITA 333/KOL/2020

AI Insights

The case involves multiple appeals by The West Bengal Power Development Corporation Limited against the orders of the Commissioner of Income Tax (Appeals) concerning disallowances made under the Income Tax Act, 1961 for various assessment years. The primary issues revolved around the applicability of section 43B of the Act to the contributions made to the GPF and the treatment of prior period expenses and provisions for unascertained liabilities. The Tribunal examined whether the Corporation, being a government entity, and the GPF, being established under a specific Act, were subject to the same tax treatment as private entities. The Tribunal concluded that the Corporation's GPF was a government fund and thus not subject to the restrictions of section 43B, leading to the allowance of the Corporation's appeals.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 129582 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 10 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-01-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 10-11-2022
• Assessment Year: 2007-2008
• Appeal Filed On: 18-03-2020
• Other Referred Cases: Collector, Land Acquisition Vs. Mst. Katiji, Ajay Hasia Vs Khalid Mujib Sehravadi, Ramana Dayaram Shetty Vs. International Airport Authority of India and Others, Mysore Papers Mills Ltd Vs Mysore Papers Mills Officers Association and ors, H Purushotham Vs Union of India, Kellogg India Pvt. Limited vs. ACIT, CIT vs. Modipon Limited, CIT vs. Mahanagar Gas Limited
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business expenditure; Set aside
• Section: 147; 148; 37; 15; 43B; 143(3); 115JB; 37(1); 250; 143(2); 191; 139(1); 22

Judgement Text

ITA Nos. 33, 334, 335 & 336/KOL/2020 Assessment Years: 2007-2008, 2009-10, 2012-13 & 2014-2015 The West Bengal Power Development Corporation Limited 1 IN T HE I NC O M E TA X AP PE L LA TE T RI BU NA L, ‘C’ B E NC H, K OL KA TA Bef or e Sh ri R aj es h Ku ma r, A cco u nt an t M e mb er & Sh ri S on joy Sar ma , J u dic ia l M e mb er I. T. A. N os . 33 3, 3 34, 3 35 & 3 36 /K O L/ 20 20 As ses s me nt Ye ar s: 20 07 -0 8, 0 9- 10 , 1 2 -13 & 2 01 4- 15 Th e We st Be ng al P ow er De ve lo pm ent Co rp or ati o n Lim ited .. ... .. .. ... .. ... ... .. ... .. ... .. .. ... .. ... ... ... .. ... Ap pe ll an t Plo t No .3 /C , Bl oc k -L A, Bi dy ut U nn ay an B ha wa n, Sec to r- II I, S al t La ke Ci ty , Ko lk ata -7 00 09 8 [P AN : AA BC T3 02 7 C] - Vs .- De pu ty Com m issio ne r o f In com e T ax , ... .. ... Re sp on de nt Ci rcl e- 4( 2), K ol ka t a, Aa ya ka r Bh aw an , P-7 , Ch o wri n gh ee Sq ua re , Ko lk ata -7 00 06 9 Ap pe ar an ce s by : Sh ri S. K. T ul si ya n, Adv oc at e, a pp ea red on b eh al f of th e as ses se e Sh ri Vi ja y Ku ma r, Ad dl. C IT , Sr . D. R. , a pp ea re d on be ha lf of t he Rev en ue Dat e of c on cl ud in g th e he ar in g :N ov e mb er 11 , 20 22 Dat e of p ro no un ci ng t he or de r: J an u ary 2 0, 2 02 3 O R D E R Per R aj es h Ku ma r , A cc ou nt an t M e m ber :- The assessee is in appeals in ITA No. 333, 335 & 336/KOL/2020 before the Tribunal against the orders of ld. Commissioner of Income Tax (Appeals)-2, Kolkata, all dated 27.11.2019passed under section 250 of the Income Tax Act, 1961 for A.Ys. 2007-08, 2012-13 & 2014-15 respectively.The assessee is also in appeal in ITA No. 334/KOL/2020 before the Tribunal against the order of ld. ITA Nos. 33, 334, 335 & 336/KOL/2020 Assessment Years: 2007-2008, 2009-10, 2012-13 & 2014-2015 The West Bengal Power Development Corporation Limited 2 Commissioner of Income Tax (Appeals), Kolkata-10 dated 05.12.2019 passed under section 250 of the Income Tax Act, 1961 for A.Y. 2009-10. 2. First of all, we would like to adjudicate ITA No. 333/KOL/2020, wherein the assessee has raised the following grounds:- (1) That the ld. CIT(A) erred on facts and in law in having upheld the addition of Rs.17,29,58,525/- being the difference of liability as on 31.03.2006 and 31.03.2007 amounting to Rs.6,02,50,992/- and Rs.23,32,09,517/- respectively payable to financial institution under the head “Current liabilities and provision” by holding that interest accrued was become payable and the same had not been paid by the assessee. (2) That the ld. CIT(A) erred in having upheld the addition of Rs.17,29,58,525/- being the difference in liability payable to the financial institution but not actually paid on accrual basis as not an allowable deduction u/s 43B of the Act inspite of the fact that the liability created by debiting the P/L account was duly paid before the due date of filing ROI and further TAR did not mention anything contrary to that. (3) That, as the order of ld. CIT(A) on the above issues suffer from illegality and is devoid of any merit, the same should be quashed and your appellant be given such relief(s) as prayed for. 3. At the time of hearing, it was pointed out that there is a delay of 52 days in filing the appeal. we noticed that the appeal is time barred by limitation of 52 days. The Ld. Counsel for the assessee Shri S.K. Tulsian drew our attention to the condonation petition filed by the assesse and also submitted that the delay in filing the appeal is neither intentional nor deliberate and the assesse is not in any manner benefitted from the said late filing of appeal. The ld AR submitted before the bench that the hard copy of the appellate order dated 27.11.2019 was not served upon the assessee and the order was in fact uploaded in the ITBA portal of assessee’s company however the concerned staff of the assessee company omitted to look at the ITBA portal which has resulted into late filing of appeal. The Ld. A.R therefore prayed that the delay may kindly be condoned and the appeal of the assesse may kindly be admitted for adjudication by relying on the decision of Collector ,Land Acquisition Vs. Mst. Katiji(1987)167 ITR 471(SC). The ld DR ITA Nos. 33, 334, 335 & 336/KOL/2020 Assessment Years: 2007-2008, 2009-10, 2012-13 & 2014-2015 The West Bengal Power Development Corporation Limited 3 on the other hand strongly opposed the condonation of delay in filing the appeal and prayed that the appeal of the assesse may be dismissed as being barred by limitation. After perusing the condonation petition and after hearing the rival contentions of both the parties and reasons attributable to delay in filing the appeal the delay of filing the appeal, we of the considered view that the delay is purely due to the reasons which cannot be attributed to the assesse. Therefore, we condone the delay of 52 days and admit the appeal for adjudication. 4. The first issue raised by the assessee is against the confirmation of addition of Rs.17,29,58,525/- by ld. CIT(Appeals) as made by the ld. Assessing Officer on account of difference between the liabilities as on 31.03.2006 and as on 31.03.2007 payable to the financial institution as shown under the head ‘current liabilities and provisions’ by holding that interest accrued became payable and had not been paid by the assessee. 5. The facts in brief are that the assessee is a 100% Government owned organization by the State of West Bengal and runs four Power Station Units for generation of electricity. The assessee filed return of income electronically on 29.10.2007 declaring total income at ‘NIL’ under the normal provisions and showing book profit under section 115JB of the Act of Rs.287,31,79,600/-. The assessment was completed under section 143(3)/115WE(3) of the Act vide order dated 30.11.2009 by determining total income at ‘NIL’ and adjusted book profit of Rs.287,32,29,610/-. Thereafter the case of the assessee was reopened under section 147 of the Act by issuing notice under section 148 of the Act dated 30.03.2012 and assessment was framed vide order dated 28.03.2013 passed under section 147/143(3) of the Act determining total income at Rs.27,18,35,03,233/-.Once again the case of the assessee was reopened under section 147 of the Act by issuing notice under section 148 of the act dated 17.02.2014 on the ground that Rs.17,29,58,525/- being interest accrued and payable to financial institution has not been paid and thus the income has escaped assessment to that extent. The ld. Assessing Officer observed that interest accrued but not due to financial institutions , which was shown under the head “current liabilities and provisions” ITA Nos. 33, 334, 335 & 336/KOL/2020 Assessment Years: 2007-2008, 2009-10, 2012-13 & 2014-2015 The West Bengal Power Development Corporation Limited 4 as on 31.03.2006 and as on 31.03.2007 were of Rs.6,02,50,992/- and Rs.23,32,09,517/- respectively and accordingly came to the conclusion that the difference in these two amounts represented interest accrued but not due to the financial institutions, which has remained unpaid before the due date of filing of the income tax return. The assessing officer also observed that the tax audit report did not mention the same and thus has escaped assessment and required to be added to the income of the assessee and was finally added to the income in the assessment framed by the ld. Assessing Officer u/s 143(3) r.w.s.147 of the Act dated 31.03.2015. 6. The aggrieved assessee assailed the assessment order before the ld. CIT(A) but the ld. CIT(A) simply dismissed the appeal of the assessee on the ground that interest accrued but not paid to the financial institutions shown under the head ‘current liabilities and provisions’ is interest accrued which became payable and has not been paid by the appellant before the due date of filing the return of income and, thus upheld the addition made by the ld. Assessing Officer. 7. After hearing the rival submissions and perusing the relevant material available on record, we observe that in the impugned appellate order, undisputedly the interest accrued but not paid as computed by the ld. Assessing Officer of Rs.17,29,58,525/- by subtracting the amount accrued but not due as on 31.03.2006 from the total interest accrued but not due as on 31.03.2007 is correct and it is also correct that the said interest accrued was not paid before the due date of filing the return of income u/s 139(1) of the Act. We further observe from the records as placed as before us that total loan of Rs.1711,75,80,003/- was availed from financial institution as on 31.03.2007 for construction activities on which total interest of Rs.102,88,51,215/- was charged during the year and capitalized under the head “expenditure during the construction period” further showing it under head “capital work-in-progress as is apparent from the schedule-6 annexed to balance sheet a copy of which is placed at pages 65-66 of the paper book. We further note that a loan of Rs.132,28,29,122/- was also borrowed from the financial institution and was outstanding on 31.03.2007 on which interest has been ITA Nos. 33, 334, 335 & 336/KOL/2020 Assessment Years: 2007-2008, 2009-10, 2012-13 & 2014-2015 The West Bengal Power Development Corporation Limited 5 charged to the profit & loss account. We also note that the total interest charged to the profit & loss account during the year was Rs.86,84,27,455/- details whereof is placed at page 71 of the paper book, out of which interest of Rs.3,69,19,946/- related to loan from financial institutions and the remaining of Rs.83,15,07,509/- was relating to the loan taken from the Government of West Bengal. We also note from the records before us that as on 31.03.2017, the interest accrued but not due of Rs.22,87,74,980/- related to interest capitalized under capital work-in-progress and only interest accrued but not due as on 31.03.2007 was Rs.44,34,537/- which was charged to profit & loss account. Thus on the basis of these documents we observe that the aggregate of interest shown as interest accrued but not due came to Rs.23,32,09,517/-. The assessee has also filed before us the details of payments of interest institution wise, which are reproduced as under for ready reference:- Accrued interest claimed as expenditure during the year Sl. No. Particulars Interest amount Date of payment 1. PFC Rs.5,18,748/- 13.04.2007 2. PFC-R & M Rs.30,43,202/- 12.04.2007 3. Allahabad Bank Rs.8,72,587/- 03.04.2007 It is evident from the details as given above that the amount of interest of Rs.44,34,537/- was duly paid in the month of April,2007 and the remaining amount of interest which has been capitalized under the “capital work in progress account” and was not charged to the profit and loss account at all. Considering the above facts, we are of the view that both the authorities below have failed to appreciate the facts correctly as the said amount of interest accrued which according to both the authorities below became payable was in fact capitalized to the capital work-in- progress and was never charged to the profit and loss account and, therefore, the provisions of section 43B of the Act are not applicable. We accordingly set aside the order of the ld. CIT(Appeals) and direct the ld. Assessing Officer to delete the disallowance of Rs. 17,29,58,525/-. Consequently ground no. 1 is allowed. ITA Nos. 33, 334, 335 & 336/KOL/2020 Assessment Years: 2007-2008, 2009-10, 2012-13 & 2014-2015 The West Bengal Power Development Corporation Limited 6 8. The issue raised in Ground No. 2 is also connected with the Issue No. 1, which has already been decided by us and therefore, no separate adjudication is required at this stage. 9. In the result, the appeal being ITA No. 333/KOL/2020 is allowed. IT A No . 33 4/ KO L/ 20 20 : 10. The grounds raised by the assesse are reproduced as under: 1. That the Ld. AO. erred and the Ld. CIT(A) wrongly confirmed the disallowance/addition u/s 43B of the Act of Rs. 86,03,24,802/- and Rs. 13,66,09,110/-, aggregating to Rs. 99,69,33,912/- on account of employer’s contributions to pension fund holding that the amount was not paid within the due date of filing of return u/s 139(1) in spite of the fact that the said pension fund was established under the provisions of the P.F. Act, 1925 vide Notification dated 11.01.2007 and as per the first proviso of the Fourth Schedule, this part shall not apply to any provident fund to which the P.F. Act, 1925 applies. 2. That the ld. AO further erred in adding back the amount of Rs. 99,69,33,912/- u/s 43B of the Act in spite of the fact that sum of Rs. 13,66,09,110/- in place of correct amount of Rs. 11,46,09,110/- was already added to the total income and the Ld. CIT(A) also erred in confirming the addition only with a direction to verify the mathematical figure of Rs. 11,46,09,110/- as claimed by the assessee. 3. That the Ld. AO erred and the Ld. CIT(A) wrongly confirmed the disallowance of Rs. 78,90,20,392/- u/s 36(1)(va) and addition of the same to the total income u/s 2(24)(x) of the Act ont eh alleged ground that employees’ contributions to P.F. were not at all deposited in spite of the fact that the said pension fund was established under the provision s of the P.F. Act, 1925 vide Notification dated 11.01.2007 and as per the first proviso of the Fourth Schedule, this part shall not apply to any provident fund to which the P.F. Act, 1925 applies. 4. That as the order of Ld. CIT(A) on the above issues suffer from illegality and is devoid of any merit, the same should be quashed and your appellant be given such relief(s) as prayed for. 5. That the appellant craves leave to amend, alter, modify, substitute, add to, abridge and/or rescind any or all of the above grounds. ITA Nos. 33, 334, 335 & 336/KOL/2020 Assessment Years: 2007-2008, 2009-10, 2012-13 & 2014-2015 The West Bengal Power Development Corporation Limited 7 11. The issue raised in Grounds No. 1 is against the confirmation of disallowance of Rs.86,03,24,802/- and Rs.13,66,09,110/- aggregating to Rs.99,69,33,912/- on account of employer’s contributions to pension fund by ld. CIT(Appeals), as disallowed by the ld. Assessing Officer on the ground that the amount was not paid within the due date of filing of the return of income under section 139(1) of the Act by ignoring the fact that pension fund was established under the provisions of the P.F. Act, 1925 vide Notification dated 11.01.2007 and as per the first proviso of the Fourth Schedule, this part would not apply to any provident fund to which the P.F. Act, 1925 applies. 12. The facts in brief are that the assesse filed the return of income on 11.10.2010 declaring loss of Rs. 271,00,42,810/-. The case of the assesse was selected for scrutiny and assessment was framed u/s 143(3) of the Act vide order dated 21.12.2011 accepting the returned income. Thereafter the case of the assesse was re-opened u/s 147 of the Act by issuing notice u/s 148 of the Act dated 07.03.2014 for the reason that the income of the assesse was under- assessed. The said notice was served on 11.03.2014. vide letter dated 05.08.2014 and the assesse informed the AO that return filed originally may kind be treated as filed in compliance to notice issued u/s section 148 of the Act. The assessee was issued notice u/s 143(2) of the Act which was duly served on the assesse. During the course of assessment proceedings, the ld. Assessing Officer observed that employer’s contributions to pension fund amounting to Rs.86,03,24,802/- has remained unpaid till the due date of return of income u/s 139(1) of the Act and was not allowable u/s 43B of the Act . Similarly the AO noticed that assesse has claimed a sum of Rs.13,66,09,110/- as paid during the year which was disallowed u/s 43B of the Act in the immediately preceding assessment year 2008-09 and claimed accordingly which was not allowable in terms of section 43B of the Act. According to the AO, these contributions to pension fund were not allowable to the assessee in the current financial year on the ground that these were not paid before the due date of filing of the return u/s 139(1) of the Act. Pertinent to note that the assessee maintains two types of funds namely ITA Nos. 33, 334, 335 & 336/KOL/2020 Assessment Years: 2007-2008, 2009-10, 2012-13 & 2014-2015 The West Bengal Power Development Corporation Limited 8 Contributory Provident Fund(CPF) and General Provident fund(GPF).CPF is a fund maintained by assesse company and all the contributions towards CPF are accounted for on accrual basis and remitted regularly to the CPF Trust. Same has been consistently followed in subsequent years too. Gratuity as per Gratuity Act is funded with LIC (Gratuity CPF), through creation of trust. Similarly GPF is a separate Fund maintained by the assesse company as per The West Bengal Power Development Corporation Ltd. Employees (Death Cum Retirement) Benefit Regulation, 1992 hereinafter referred to as WBPDCL Employees (Death Cum Retirement) Benefit Regulation, 1992. This fund is maintained for only those employees who opt for defined benefit plans under the WBPDCL regulation. According to the ld. Assessing Officer, the employers contribution to pension fund of Rs. 99,69,33,912/- is covered under the provisions of section 43B of the Act and no deduction would be allowed to the assesse and accordingly the same was ,inter alia, added to the income of the assesse in the assessment framed u/s 143(3) r.w.s. 147 of the Act dated 31.03.2015. 13. In the appellate proceedings, the ld. CIT(Appeals) simply affirmed the order of the ld. Assessing Officer by rejecting the contentions of the assessee that the said contribution to pension fund is covered under the GPF Act, 1925 to which the provisions of section 43B were not applicable. 14. The ld. A.R. vehemently submitted before us that provisions of section 43B of the Act were applicable only in respect of the contributions to provident fund or superannuation fund or gratuity fund or any other fund which are covered under EPF Scheme, 1952, gratuity Act, 1961, ESI Act and other pension Acts as the due dates for the payments of contributions under these Statutes are duly prescribed under the respective Acts however, the GPF created by WBPDCL is not a fund within the meaning of these Acts. The ld AR submitted that the moment, the contributions are credited to GPF account in the books of the assesse , these are treated as paid and therefore, provisions of section 43B of the would not apply to contributions under GPF. ITA Nos. 33, 334, 335 & 336/KOL/2020 Assessment Years: 2007-2008, 2009-10, 2012-13 & 2014-2015 The West Bengal Power Development Corporation Limited 9 15. The ld counsel of the assesse presented a detailed account as to how the assesse came into being. The ld AR submitted that the Govt of West Bengal has set up its department of power on 19th September,1972 until then the matters relating to power were being looked after by the Electricity Development, Directorate under the Department of Commerce and Industry. The purpose and objectives behind creation of separate departments under the concerned Minister in Charge were urgent requirement of more power for accelerating the economic growth, long term perspective/planning of power generation by executing power projects, regulating the investments in the power sector both in public and private domain, enactments of legislations and framing of rules for quick development of infrastructure in generation, transmission and distribution of electricity etc. In 1985 the Govt of West Bengal created a separate entity for thermal power generation in the state under the name of “The West Bengal Power Development Corporation Ltd. (hereinafter referred to as WBPDCL). The WBPDCL which is a wholly owned Govt body and is a generating company as defined in section 2(28) of the Electricity Act,2003.The power generated by the assesse is supplied to West Bengal State Electricity Distribution company Ltd. ( hereinafter called WBSEDCL-a distribution unit). WBSEDCL was formed by splitting West Bengal State Electricity Board (WBSEB)into two units one distribution unit WBSEDCL and second and other one was transmission unit -West Bengal State Electricity Transmission Company Ltd( WBSETCL) in 2007. The ld Counsel for the assesse submitted that after the aforesaid formations and splits, the State of west Bengal became exporter of surplus electricity to other states after meeting its own demand and surplus power was banked with other States having power deficit and same is used to be returned to the State in the critical months as is clear and apparent from the website of power department a copy of which is placed at page no. 1-2 of PB-III. 16. The ld. Counsel submitted that the these bodies as referred to above are instrumentalities of the State Govt. to carry on the activities and discharge the functionalities , which were carried on by the State itself hitherto. The ld Counsel ITA Nos. 33, 334, 335 & 336/KOL/2020 Assessment Years: 2007-2008, 2009-10, 2012-13 & 2014-2015 The West Bengal Power Development Corporation Limited 10 for the assessee stated that with the increase in the scope of work of the Government and state becoming welfare state, it was realized by the Government that the state civil services could not cope with the ever increasing developmental works and also pressure and challenges connected therewith on account the nature of activities being highly specialized and technical. So these corporations/bodies have come into being as extended arms or instrumentalities of the Govt. and the concept has gained ground and prominently in vogue for carrying out public functions which were earlier discharged by the Govt. The ld AR referred to the decision of the ld. Ajay Hasia Vs Khalid Mujib Sehravadi , AIR(1989)1SCC 712 wherein corporation came into being to overcome the inadequacy of civil services and to handle the highly technical and specialized activities .The ld. AR also referred to the decision of the Hon’ble Apex court in the case of Ramaana Dayaram Shetty Vs. International Airport Authority of India and Others(1979)3 SCR1014 wherein it has been held corporation may be created in two ways i) by establishing by statute or incorporated under a Law such as the Companies Act, 1956 or the Societies Registration Act,1860. 17. The ld AR vehemently submitted that WBPDCL is a wholly owned State Govt. undertaking set up by the Govt. of West Bengal under companies Act 1956 solely and exclusively for generating electricity in the State of Bengal for development of power in the state. Further the ld. AR contended that the Govt. Company is a State under the definition of Article 12 of the Constitution which provides that the State includes all local and other authorities within the territory of India or under the control of the Govt. of India. The ld AR argued that the State is a broader and inclusive term and the Hon’ble Apex Court has provided several conditions and tests measures to consider whether the Govt company is a state for the purpose of Article 12 of the Constitution of India. The ld AR also relied on a couple decision of Hon’ble Apex Court to defend his arguments that the assessee is an instrumentality or agency or an extended arm of the State namely Ramana Dayaram Shetty Vs. International Airport Authority of India and Others(1979)3 SCR 1014(S.C.) and also the decision of Apex court as cited in preceding para ITA Nos. 33, 334, 335 & 336/KOL/2020 Assessment Years: 2007-2008, 2009-10, 2012-13 & 2014-2015 The West Bengal Power Development Corporation Limited 11 namely Ajay Hasia Ors Vs Khalid Mujid Sehravardi and others (1981)2 SCR 79(SC). 18. The ld AR therefore vehemently argued that the assesse is a wholly owned Govt. enterprise emphasizing thereby that the assessee is an instrumentality and agency of the State Government. The ld AR submitted this is also evident from the fact that the State Government has given loan to WBPDCL to meet the expenditure incurred on various units undertaken by WBPDCL as is clear from Annual Report for 2008-09 filed at page 38 of the PB-11 meaning thereby that Govt. of West Bengal is financially assisting and supporting the assessee for meeting its expenditure on its various units. The ldAR also stated that assessee is manned and run under the control of the Board of Directors appointed by the West Bengal Govt. from time to time and also its Chairmans is apparent from second para of Annexure -11of the Directors Report para I of Annual Report filed at page no. 16 of PB. The ld AR submitted the assessee was formed for generation of power for the State which means that it is discharging the functions of the State and is a State itself. This is apparent from website of power department of Govt. of West Bengal filed at page 1 & 2 of PB-111.Besides the ld AR stated that most of the directors on the board of the assessee are Govt. nominees and are from the power department of the Govt. Lastly the ld AR submitted that the assesseefulfilled and satisfiedmost of the conditions as laid down by the Hon’ble Supreme Court for the purpose of definition of the State in the Article 12 of the Constitution.The ld AR also referred to the following decisions wherein it has been held that Government companies were held to be State under article 12 of the Constitution namely i)Mysore Papers Mills Ltd Vs Mysore Papers Mills Officers Association and ors(2002)37 SCL 742 SC/(2002) 108 COMP CASE 652(SC)and ii) H Purushotham Vs Union of India (1997)14 SCL 191 (Cal) 19. The ld AR also referred to Article 309 of the Constitution which deals with recruitment and conditions of Service of persons serving the Union or the State especially the proviso which provides that The president or such other person as he ITA Nos. 33, 334, 335 & 336/KOL/2020 Assessment Years: 2007-2008, 2009-10, 2012-13 & 2014-2015 The West Bengal Power Development Corporation Limited 12 may he may direct in the case of serves and posts in connection with affairs of Union and State. The ld AR argued that in exercise of the powers conferred by the proviso to Article 309 of Constitution of India , The Governor of West Bengal had made applicable the West Bengal Services(Death Cum Retirement Benefit) Rules 1971{WBS(DCRB) Rules, 1971} vide notification no. 5827-F dated 1.12.1971. The WBS(DCRB) Rules, 1971 are specially framed for Govt. employees of the Govt. of West Bengal and do not have any relation with Gratuity Act ,1972, Employees Provident Fund and Miscellaneous Provisions Act, 1952 or any other pension Act. The ld AR submitted that separate regulation called WBPDCL Employees (Death Cum Retirement) Benefit Regulation,1992(WBPDCL Regulation) was framed which come into force from 21.08.1990 for the employees of WBPDCL. The AR further stated that these Regulation provides that if there are any provisions for the benefits of the employees which are not made in WBPDCL Regulation, then the provisions contained in WBS(DCRB) Rules, 1971will apply. This is evident from Regulation 29(a) of the Regulation a copy of which is placed at page 42 of PB-111. The ld AR therefore submitted that there are separate death cum retirement benefits for the employees of WBPDCL for whom separate regulations are framed as discussed above. 20. The ld AR, while throwing lights on how the employees exercise their options to opt for the regulation, stated that Regulation 5A and 5B of the regulation provides for the exercise of option under the regulation. Regulation 5A(ii)provides that if the option is not exercised by an individual employee within 6 months after publication of these regulations, then it would be presumed and deemed that he has not opted for coming under the WBPDCL Employees Death cum Retirement Benefits Regulations. Similarly Regulations 5(iv) provides that option once exercised would become final. Then the ld Counsel referred to Regulation 5B which provides that any person appointed as whole time employee after publication of these regulations will be given one and final opportunity for exercising options within 6 months from the date of his/her joining either for General Provident Fund or Contributory Provident fund meaning thereby that ITA Nos. 33, 334, 335 & 336/KOL/2020 Assessment Years: 2007-2008, 2009-10, 2012-13 & 2014-2015 The West Bengal Power Development Corporation Limited 13 under regulation 5B the company maintains two types of funds namely Contributory Provident Fund(CPF) and General Provident Fund(GPS) and the employees of WBPDCL has options to opt for any of the two. The ld Counsel further clarified that CPF is a fund maintained by the CPF Trust and all contributions towards CPF are accounted for on accrual basis and remitted regularly to CPF Trust as is evident from the note no. 11(A)(i) of the Annual Report for F.Y. 2008-09 on Employee Benefits as filed at page 49 of PB II. Similarly gratuity as per Gratuity Act is funded with LIC through creation of Gratuity Trust. Second fund namely GPF is a separate fund maintained by the assessee company as per WBPDCL employees (Death cum Retirement ) Benefit Regulation 1992 and this fund is maintained only for those employees who opt for defined benefit plans under the WBPDCL regulation as is evident and clear from note no.11(A)(ii) of Annual accounts as filed at page 49of PB II as well as para 5A and 5B of the Regulation. Lastly ,ld counsel submitted that the employees who opt for CPF are not covered under WBPDCL Regulation and they are paid benefits as per Gratuity Act , 1972 and EPF Scheme, 1952 by creating separate trust for the same. Those employees who opt for WBPDCL Regulation are paid as per the regulation as separate GPF is created for the same and not as per Gratuity Act ,1972 and CPF 1952. 21. The ld AR then referred to Regulation 29(b) of WBPDCL Regulation a copy of which is filed at page 42 of the Paper Book which provides that “The employees who will exercise option for Pension cum Gratuity (including Family Pension Scheme will be guided by the GPF Rules framed separately. Thus, in accordance with the Regulation 29(b) of the Regulation, “The GPF (The West Bengal Power Development Corporation Limited Employees (Death cum Retirement) Benefit Rules. 2004 (referred to as WBPDCL GPF Rules)”were made and duly notified in Official Gazette on 11.01.2007 through Notification No WBPDCL/R-VI1/249 a copy of the Notification is enclosed at page 87-95 of the Paper Book III. The very first paragraph of the Notification at page 87 of the Paper Book III provides that GPF Rules are created in accordance with Regulation 29(b) of WBPDCL Regulation for the ITA Nos. 33, 334, 335 & 336/KOL/2020 Assessment Years: 2007-2008, 2009-10, 2012-13 & 2014-2015 The West Bengal Power Development Corporation Limited 14 employees pensionable under this Regulation. Hence, the Rules are especially made to regulate the GPF in respect of employees whose services are pensionable under the said Regulations.Further, this GPF has also been duly notified in Official Gazette on 31.08.2006 vide Notification No. 483-PO/O/IV/4E-05/2004 under PF Act, 1925. Copy of the notification is enclosed at page 86 of the Paper Book.Hence, GPF created by WBPDCL is a notified fund created by Government of West Bengal by notification in Official Gazette. 22. The ld Counsel then made detailed presentation as to applicability of the PF Act, 1925 and submitted that GPF is notified in the Official Gazette in accordance with the provisions of section 8 of the PF Act, 1925. The ld counsel for the assessee stated that as per the Notification at page 86 of the Paper Book III, the name of WBDCL is added to the Schedule of PF Act, 1925 as per provisions of section 8(3) of the PF Act, 1925 and GPF is established in accordance with the provisions of section 8(2) of the PF Act, 1925.As per section 8(2) of the Provident Fund Act 1925, Provident Fund created under PF Act, 1925 shall be treated as Government Provident Fund and all the provisions of this Act shall apply to it accordingly. Further Section 8(2) of PF Act, 1925 also provides that the authority having custody of the fund shall also be treated as Government. Hence, GPF is a Government Provident Fund by virtue of provision of section 8(2) of the PF Act, 1925.Rule 3 of WBPDCL GPF Rules at page 88 of the Paper Book III provides that the Fund shall be maintained by the Corporation (WBPDCL). Thus WBPDCL is an authority having custody of the Fund and is treated as Government by virtue of section 8(2) of the PF Act,1925. From the above, it is clear that the GPF is a Government Provident fund maintained by WBPDCL itself being a Government under PF Act, 1925 .In view of the above, it is clear that WBPDCL maintains two accounts i.e. CPF which is under the control of CPF Trust and GPF (Government Provident Fund) which is under the control of the assessee (WBPDCL). 23. Now the question arises whether the provisions of section 43B, 36(1)(va) and 40A(7) of the Act are applicable in the case of any provisions credited in GPF ITA Nos. 33, 334, 335 & 336/KOL/2020 Assessment Years: 2007-2008, 2009-10, 2012-13 & 2014-2015 The West Bengal Power Development Corporation Limited 15 Account of the Company. In this regard, firstly, reference is made to PART A of the Fourth Schedule of Income Act, 1961which contains the provisions for Recognized Provident Funds. Section 1 of the PART A of the Fourth Schedule provides that “ This Part shall not apply to any provident fund to which the PF Act, 1925 (19 of 1925), applies. In the case of WBPDCL, as already discussed, GPF was created by notification in official Gazette under PF Act, 1925 . The ld AR stated that since, the GPF is a fund under PF Act, 1925 , it is excluded from the ambit of provisions of Recognized Provident Fund by virtue of PART A of Fourth Schedule of Income Tax Act, 1961. The ld AR ,therefore, argued that provisions of Income Tax Act are not applicable in case of GPF established and operated under PF Act. 24. The ld. A.R. referred to Rule 22 of the WBPDCL GPF Rules at page 95 of the paper book which provides that that “all sums paid into the Fund under these Rules shall be credited in the Books of Corporation to an account named “The GPF” Account. The ld. A.R. argued that as per section 8(2) of the Provident Fund Act, the GPF account is maintained with the Government i.e. the assesse (WBPDCL) and hence, the GPF account is maintained with the appellant only and all contributions either by employer or by employee, are to be considered as paid in the GPF Account with the credit of these contributions forthwith. All the funds as collected are invested in the securities strictly in terms of Provident Fund Act. The ld. A.R. contended that the provisions of section 43B of the Act would not be applicable to the assessee in respect of contributions of the employer as well as employees who opted for WBPDCL Regulation and even in the worse case scenario, the provisions of section 43B of the Act were to be applied, then the contributions would be considered as paid as soon as credited in GPF account as the account was maintained by WBPDCL which is extension or instrumentality of Govt only. The ld AR finally prayed that in view of the above the order of ld. CIT(A) may be reversed and the AO may be directed to delete the disallowance of Rs. 99,69,33,912/- by allowing the ground no.1. ITA Nos. 33, 334, 335 & 336/KOL/2020 Assessment Years: 2007-2008, 2009-10, 2012-13 & 2014-2015 The West Bengal Power Development Corporation Limited 16 25. The ld. D.R., on the other hand, strongly opposed to the contentions of the ld. Counsel for the assessee that the assessee constitutes State for the purpose of Provident Fund Act ,1925 and further that provisions of section 43B of the Act were not applicable. Ld. D.R. submitted that the amount has been paid to the GPF account to which the PF Act, 1925 applies but the fact remains that this has not been paid but mere credited in the fund maintained by the assesse which is not permissible under the Act. The ld DR strongly contended that contributions to pension fund as maintained under GPF cannot be treated as payment by the assessee as the assessee is not State do these acts. The ld DR strongly opposed to the arguments as presented by the ld AR to prove his point on the assessee being a State for the purpose of Provident fund Act. The ld DR contended that only State Govt. or Central Govt. can maintain the GPF account and not the corporation as contended by the ld AR. The ld DR submitted that if this plea of the assessee is allowed, then every corporation of the State will start maintaining GPF itself which is not the spirit of the GPF Act, 1925. The ld DR therefore prayed that the order of ld. CIT(A) is very cogent and correct passed after appreciating the position of law correctly and may be affirmed by dismissing the appeal of the assesse. 26. We have heard the rival contentions and perused the relevant material placed before us including the Provident Fund Act, 1925 and various regulations and notifications issued in order to make applicable provisions of Provident Fund Act, 1925 to the assessee. The issue for adjudication before us whether the assesse can be treated as State to maintain GPF as contemplated by the Provident Fund Act 1925 and whether the employer’s contribution to pension fund under the GPF is outside the scope and ambit of provisions of Section 43B of the Act. In order to address this issue we have to first decide whether the assesse is a State and whether it can operate provident fund schemes as contemplated under Provident Fund Act ,1925. We note that the assesse(WBPDCL) is a wholly owned State Govt undertaking set up by the Govt of West Bengal under companies Act 1956 solely and exclusively for generating electricity in the State of Bengal for development of power in the state. We have also ITA Nos. 33, 334, 335 & 336/KOL/2020 Assessment Years: 2007-2008, 2009-10, 2012-13 & 2014-2015 The West Bengal Power Development Corporation Limited 17 pursued the Article 12 of the Constitution minutely which provides that the State includes all local and other authorities within the territory of India or under the control of the Govt. of India. We have also perused the several conditions and tests measures as laid down by the the Hon’ble Apex Court to determine whether the Govt company is a state for the purpose of Article 12 of the Constitution of India besides perusing a series of decisions of Hon’ble Apex Court wherein it has been held that Corporation created by the State to undertake and discharge the functionalities of the State is an instrumentality or agency of the State. In the case of Ramana Dayaram Shetty Vs. International Airport Authority of India and Others(supra.) and Ajay Hasia OrsVs Khalid Mujid Sehravardi and others (supra), the Honble Apex Court has held that corporation formed to discharge the functions of the Govt falls within the definition of Article 12 of the Constitution. We also find that the State Government of West Bengal has funded the assessee i.e. WBPDCL by way of loan to meet the expenditure incurred on various projects undertaken by WBPDCL as is mentioned in the Annual Report for 2008-09 filed at page 38 of the PB-11 meaning thereby that Govt of West Bengal has been financially assisting and supporting the assessee for meeting its expenditure on its various units. Besides ,the assessee is manned and run under the control of the Board of Directors appointed by the West Bengal Govt. from time to time and also its Chairman as mentioned in the second para of Annexure -11 of the Directors Report para I of Annual Report filed at page no. 16 of PB. We observe that the assessee has fulfilled and satisfied most of the conditions as laid down by the Hon’ble Supreme Court for the purpose of definition of the State in the Article 12 of the Constitution. The case of the assessee also find supports from the following decisions wherein it has been held that Government companies were held to be State under article 12 of the Constitution namely i)Mysore Papers Mills Ltd Vs Mysore Papers Mills Officers Association and ors(supra)and ii)H PurushothamVs Union of India (supra).So having considered the facts in the light of decisions as referred to above we have no doubt in our mind that the assessee i.e. WBPDCL is a wholly owned Govt. enterprise and is an instrumentality and agency of the State Government. ITA Nos. 33, 334, 335 & 336/KOL/2020 Assessment Years: 2007-2008, 2009-10, 2012-13 & 2014-2015 The West Bengal Power Development Corporation Limited 18 27. Further we have also perused Article 309 of the Constitution which deals with recruitment and conditions of Service of persons serving the Union or the State especially the proviso which provides that The president or such other person as he may he may direct in the case of serves and posts in connection with affairs of Union and State. We also note that in exercise of the powers conferred by the proviso to Article 309 of Constitution of India , The Governor of West Bengal had made applicable the West Bengal Services(Death Cum Retirement Benefit) Rules 1971{WBS(DCRB) Rules, 1971} vide notification no. 5827-F dated 1.12.1971. The WBS(DCRB) Rules, 1971 are specially framed for Govt employees of the Govt of West Bengal and do not have any relation with Gratuity Act ,1972, Employees Provident Fund and Miscellaneous Provisions Act, 1952 or any other pension Act. We also note that separate regulation called WBPDCL Employees (Death Cum Retirement ) Benefit Regulation ,1992(WBPDCL Regulation) was framed which come into force from 21.08.1990 for the employees of the assessee i.e. WBPDCL. We observe that these Regulation provides that if there are any provisions for the benefits of the employees which are not made in WBPDCL Regulation, then the provisions contained in WBS(DCRB) Rules, 1971 will apply. This is evident from Regulation 29(a) of the Regulation a copy of which is placed at page 42 of PB-11. Similarly there are separate death cum retirement benefits for the employees of WBPDCL for whom separate regulations are framed. The employees are given options to opt for the regulation. In other words the Regulation 5A and 5B of the regulation provides for the exercise of option under the regulation. Regulation 5A(ii)provides that if the option is not exercised by an individual employee within 6 months after publication of these regulations, then it would be presumed and deemed that he has not opted for coming under the WBPDCL Employees Death cum Retirement Benefits Regulations. Similarly Regulations 5(iv) provides that option once exercised would become final. Then the ld Counsel referred to Regulation 5B which provides that any person appointed as whole time employee after publication of these regulations will be given one and final opportunity for exercising options within 6 months from the date of his/her joining either for General Provident Fund or Contributory Provident fund ITA Nos. 33, 334, 335 & 336/KOL/2020 Assessment Years: 2007-2008, 2009-10, 2012-13 & 2014-2015 The West Bengal Power Development Corporation Limited 19 meaning thereby that under regulation 5B the company maintains two types of funds namely Contributory Provident Fund(CPF) and General Provident Fund(GPS) and the employees of WBPDCL has options to opt for any of the two. We also find that CPF is a fund maintained and all contributions towards CPF are accounted for on accrual basis and remitted regularly to CPF Trust as stated in the note no. 11(A)(i) of the Annual Report for F.Y. 2008-09 on Employee Benefits as filed at page 49 of PB II. Similarly gratuity as per Gratuity Act is funded with LIC through creation of Gratuity Trust. We also note that a second fund namely GPF is maintained by the company as per WBPDCL employees (Death cum Retirement ) Benefit Regulation 1992 and this fund is maintained only for those employees who opt for defined benefit plans under the WBPDCL regulation as is evident and clear from note no.11(A)(ii) of Annual accounts as filed at page 49of PB II as well as para 5A and 5B of the Regulation. Thus is clear from the above discussion that the employees who opt for CPF are not covered under WBPDCL Regulation and they are paid benefits as per Gratuity Act , 1972 and EPF Scheme, 1952 by creating separate trust for the same. Those employees who opt for WBPDCL Regulation are paid as per the regulation as separate GPF is created for the same and not as per Gratuity Act ,1972 and CPF 1952. 28. We have also perused Regulation 29(b) of WBPDCL Regulation a copy of which is filed at page 42 of the Paper Book which provides that the employees who will exercise option for Pension cum Gratuity (including Family Pension Scheme will be guided by the GPF Rules framed separately in accordance with the Regulation 29(b) of the Regulation, We also note that “The GPF (The West Bengal Power Development Corporation Limited Employees (Death cum Retirement) Benefit Rules. 2004 (referred to as WBPDCL GPF Rules)”were made and duly notified in Official Gazette on 11.01.2007 through Notification No WBPDCL/R-VI1/249 a copy of the Notification is enclosed at page 87-95 of the Paper Book III and the very first paragraph of the Notification at page 87 of the Paper Book III provides that GPF Rules are created in accordance with Regulation 29(b) of WBPDCL Regulation for the employees pensionable under this Regulation. Hence, the Rules are especially ITA Nos. 33, 334, 335 & 336/KOL/2020 Assessment Years: 2007-2008, 2009-10, 2012-13 & 2014-2015 The West Bengal Power Development Corporation Limited 20 made to regulate the GPF in respect of employees whose services are pensionable under the said Regulations. Further, this GPF has also been duly notified in Official Gazette on 31.08.2006 vide Notification No. 483-PO/O/IV/4E-05/2004 under PF Act, 1925 and a copy of the notification is enclosed at page 86 of the Paper Book. Therefore GPF created by the assessee i.e. WBPDCL is a notified fund created by Government of West Bengal by notification in Official Gazette. 29. We further note that GPF is notified in the Official Gazette in accordance with the provisions of section 8 of the PF Act, 1925 and as per the Notification at page 86 of the Paper Book III, the name of WBDCL is added to the Schedule of PF Act, 1925 as per provisions of section 8(3) of the PF Act, 1925 and thus GPF is established in accordance with the provision of section 8(2) of the PF Act, 1925. We find that Provident Fund created under PF Act, 1925 shall be treated as Government Provident Fund in pursuance to the provisions of section 8(2) of the Provident Fund Act 1925and all the provisions of this Act shall apply to it. A perusal of Section 8(2) of PF Act, 1925 reveals that the authority having custody of the fund shall also be treated as Government. Hence, GPF is a Government Provident Fund by virtue of provision of section 8(2) of the PF Act, 1925 and as per Rule 3 of WBPDCL GPF Rules at page 88 of the Paper Book III provides that the Fund shall be maintained by the Corporation (WBPDCL) meaning thereby that the assessee i.e. WBPDCL is an authority having custody of the Fund and is treated as Government by virtue of section 8(2) of the PF Act,1925 .From the above, it is clear that the GPF is a Government Provident fund maintained by WBPDCL itself being a Government under PF Act, 1925 .In view of the above, it is clear that WBPDCL maintains two accounts i.e. CPF which is under the control of CPF Trust and GPF (Government Provident Fund) which is under the control of Government (WBPDCL). 30. Now the question arises whether the provisions of section 43B, 36(1)(va) and 40A(7) of the Act are applicable in the case of any contributions/provisions credited in GPF Account of the assesse company. We have perused PART A of the Fourth Schedule of Income Act, 1961 which contains the provisions for Recognized ITA Nos. 33, 334, 335 & 336/KOL/2020 Assessment Years: 2007-2008, 2009-10, 2012-13 & 2014-2015 The West Bengal Power Development Corporation Limited 21 Provident Funds. Section 1 of the PART A of the Fourth Schedule provides that “ This Part shall not apply to any provident fund to which the PF Act, 1925 (19 of 1925), applies. In the case of WBPDCL, as already discussed, GPF was created by notification in official Gazette under PF Act, 1925 and since, the GPF is a fund under PF Act, 1925 , it is excluded from the ambit of provisions of Recognized Provident Fund by virtue of PART A of Fourth Schedule of Income Tax Act, 1961. So considered these provisions , we find merit in the arguments of AR that provisions of Income Tax Act are not applicable in case of GPF as established by the assessee under PF Act. 31. We have also perused Rule 22 of the WBPDCL GPF Rules a copy of which is placed at page 95 of the paper book which provides that that “all sums paid into the Fund under these Rules shall be credited in the Books of Corporation to an account named “The GPF”. Further in terms of section 8(2) of the Provident Fund Act, the GPF account is maintained with the Government i.e.(WBPDCL) and hence, the GPF account is maintained with the appellant only and all contributions either by employer or by employee, both are to be considered as paid in the GPF Account with the credit of these contributions. We also note that all the funds as collected under the GPF are invested in the securities strictly in terms of Provident Fund Act. When the ld DR confronted with the query why a corporation which is wholly owned by State Govt and after fulfilling all the conditions has maintained the GPF account under the Provident Fund Act, 1925 after bringing out the necessary notification, no cogent and convincing counter could be made. In view of these facts are of the view that the provisions of section 43B of the Act would not be applicable to the assessee and even in the worse case scenario, the provisions of section 43B of the Act were to be applied, then the contribution would be considered as paid as the account was maintained by WBPDCL which is extended arm or instrumentality of the StateGovt only. Accordingly Grounds No. 1 & 2 are allowed. 32. In Ground No. 2, the assessee has also pointed out that there is some error in calculation of amount. The correct amount is Rs.11,46,09,110/- instead of ITA Nos. 33, 334, 335 & 336/KOL/2020 Assessment Years: 2007-2008, 2009-10, 2012-13 & 2014-2015 The West Bengal Power Development Corporation Limited 22 Rs.13,66,09,110/-. We note that the issue needs to be verified by the ld. Assessing Officer and accordingly restored to the file of the AO. Accordingly the ld. Assessing Officer is directed to verify and correct the same. 33. The issue relating to Ground No. 3 is against the confirmation of disallowance of Rs.78,90,20,392/- by ld. CIT(Appeals) as disallowed by the ld. Assessing Officer under section 36(1)(va) on the ground that contribution to G.P.F. was not deposited by ignoring the fact that the pension fund was established under the provisions of PF Act, 1925 vide Notification No.11.01.2007 and therefore as per the 1st proviso to Fourth Schedule ,this part shall not apply to any PF to which PF Act, 1925 applies. 34. We have already decided the issue in principle in Ground No. 1 above (supra), wherein we have held that the provisions of section 43B are not applicable to the pension Fund as the said fund is covered under the provisions of PF Act, 1925 vide Notification dated 11.01.2007 and as per first proviso of the Fourth Schedule, this part shall not apply to any PF to which the P.F. Act, 1925 applies. Applying the same analogy to this ground as well, we allow the ground no. 3 by setting aside the order of ld. CIT(Appeals) and directing to delete all the disallowances. Accordingly ground no. 3 of the appeal of the assessee is allowed. ITA No. 335/KOL/2020:- 35. The issue raised in Ground No. 1 is against the confirmation of disallowance of Rs.12,73,29,000/- by the ld. CIT(Appeals) as made by the ld. Assessing Officer in respect of prior period expenses without considering the facts that these expenses crystalized during the year. 36. The ld. Assessing Officer during the course of assessment proceedings observed on the basis of auditor’s report in Form 3CD and Note No. 28 of the Profit & Loss Account that the assessee had debited a sum of Rs.12,73,29,000/-under the prior period expenses. Accordingly a show-cause notice was issued to the assessee, which was replied by the assessee by submitting that the prior period expenses were not in ITA Nos. 33, 334, 335 & 336/KOL/2020 Assessment Years: 2007-2008, 2009-10, 2012-13 & 2014-2015 The West Bengal Power Development Corporation Limited 23 fact occurred due to mistake and/or omission but arose for the expenses booked after cut-off date for finalization of accounts and allowable u/s 145(1) of the Income Tax Act, 1961. However, the contention of the assessee was not accepted by the ld. Assessing officer on the ground that the assesse is following mercantile system of accounting and further that as per the provisions of section 37(1), only the expenses incurred during the year are allowable as deduction and thus disallowed the same by adding them to the income of the assessee. 37. The ld. CIT(Appeals) in the appellate proceedings dismissed the appeal of the assessee on the ground that only the expenses incurred during the year were allowable and not the prior period. The ld. CIT(Appeals) further observed that nothing has been brought on record to controvert the finding of the ld. Assessing Officer that these expenses in fact were not prior period but crystallized during the year. 38. After hearing the rival contentions and perused the relevant material available on record, we find merit in the arguments of the ld. A.R. that these expenses were in fact crystallized in the year as liability on these expenses only crystallized during the year as bills were received in the current year and therefore has to be allowed. The case of the assessee finds force from the decision of Coordinate Bench of this Tribunal in the case of Kellogg India Pvt. Limited –vs.- ACIT [2012] 12 TMI 664- ITAT (Mumbai), wherein it has been held that the prior period expenses was not occurred due to mistake and or omission but arose for expenses booked after cut off date for finalization of accounts due to receipt of bills after the end of financial year and allowable under section 145(1) of the Act. Besides the case of the assessee finds force from the ITAT decision in the case of CIT –vs.- Modipon Limited reported in (2012) 18 taxmann.com 294 (Delhi), wherein the Hon’ble Delhi High Court has held as under:- “When the assessee was following the mercantile system of accounting, the explanation furnished by the assessee before the Assessing Officer and the Commissioner (Appeals), which was reiterated before the Tribunal was that the expenses were not booked due to non-receipt of details and information thereof on time, which was beyond the control of the assessee. It was also explained that the aforesaid expenses to the tune of Rs. 41.95 lakhs were marginal as compared to enormous size of the assessee-company. It was also ITA Nos. 33, 334, 335 & 336/KOL/2020 Assessment Years: 2007-2008, 2009-10, 2012-13 & 2014-2015 The West Bengal Power Development Corporation Limited 24 explained that as per the accounting policy followed by the assessee, such expenses were booked in the year in which they were settled for payment. The Tribunal went into details of each and every such expense and recorded the finding of fact that all these expenses were settled during relevant year. It was also recorded that more than 50 per cent of expenses could be claimed only on actual expenses, as they were covered under section 43B(d). ” 39. Similarly Hon’ble Gujarat High Court in the case of Saurashtra Cement and Chemical Industries Limited –vs.- CIT (1995) 213 ITR 523 (Guj.) has held as under:- “Merely because an expense relates to a transaction of an earlier year it does not become a liability payable in the earlier year unless it can be said that the liability was determined and crystallized in the year in question on the basis of maintaining accounts on the mercantile basis. In each case where the accounts are maintained on mercantile basis it has to be found in respect of any claim, whether such liability was crystallized and quantified during the previous year so as to be required to be adjusted in the books of accounts of that previous year. If any liability, though relating to the earlier year, depends upon making a demand and its acceptance by the assessee and such liability has been actually claimed and paid in the later previous years cannot be disallowed as deduction merely on the basis the accounts are maintained on mercantile basis and that it related to a transaction of the previous year. The true profit and gain of previous year are required to be computed for the purpose of determining tax liability. ” 40. Similarly Hon’ble Bombay High Court in the case of CIT –vs.- Mahanagar Gas Limited reported in [2014] 221 Taxman 80, wherein the question raised before the Hon’ble Bombay High Court is as under:- “ Whether on the facts and in the circumstances of the case and in law, the Tribunal was correct in confirming the order of CIT(A) in deleting the disallowance of Rs. 92,91,343/- made by the Assessing Officer on account of prior period expenses?” The Hon'ble High Court held as under:- "4) Regarding Question B : (a) In its return of income for assessment year 2004-05 while declaring total income of Rs. 100.76 crores the Respondent- assessee claimed an expenditure of Rs. 92.81 lacs as prior period expenses. The Assessing Officer disallowed the expenditure relating to prior period on the ground that as the respondent followed mercantile system of accounting expenditure relatable to an earlier year cannot be allowed as deduction in the assessment year under consideration. Thus an amount of Rs. 92.81 lacs was added to the income of the Respondent- assessee. ITA Nos. 33, 334, 335 & 336/KOL/2020 Assessment Years: 2007-2008, 2009-10, 2012-13 & 2014-2015 The West Bengal Power Development Corporation Limited 25 41. We, therefore, respectfully following the ratio laid down by the Hon’ble High Courts, inclined to set aside the order of ld. CIT(Appeals) on this issue and direct the ld. Assessing Officer to delete the disallowance. 42. The issue raised in Ground No. 2 is identical to one as decided by us in Ground No. 1 in ITA No. 334/KOL/2020. Accordingly our decision on Ground No. 1 in ITA 334/KOL/2020 would , mutatis mutandis, apply to this ground as well and accordingly Ground No. 2 is allowed. 43. The issue raised in Ground No. 3 is against the confirmation of disallowance of Rs.4,06,03,630/- by ld. CIT(Appeals) as made by the ld. Assessing Officer on account of provision for gratuity by ignoring the fact that the said amount was duly deposited/transferred to General Provident Fund maintained by the Company and as per first proviso of the Fourth Schedule, this part shall not apply to any contributions to which the P.F. Act, 1925 applies. The issue raised in this ground No. 3has been decided by us in Ground No. 1 in ITA No. 334/KOL/2020 in principle by holding that as per the first proviso of the Fourth Schedule, this part shall not apply to any contribution/fund to which the P.F. Act, 1925 applies. Accordingly our decision in ITA 334/KOL/2020 would, mutatis mutandis, apply to this ground as well and consequently ground no. 3 is allowed 44. The issue raised in Ground No.4 was not pressed by the ld. Counsel for the assessee at the time of hearing. Therefore, this ground raised by the assessee is dismissed as not pressed. 45. The ground raised in Ground No.5 is against the confirmation of disallowance of Rs.47,51,08,000/- by the ld. CIT(Appeals) as made by the ld. Assessing Officer for fuel and fixed cost by holding the same as unascertained liability and contingent in nature in spite of the fact that Hon’ble Commission (WBERC) passed fuel cost adjustment order and fixed cost adjustment order when fuel cost adjustment and fixed cost adjustment became final. ITA Nos. 33, 334, 335 & 336/KOL/2020 Assessment Years: 2007-2008, 2009-10, 2012-13 & 2014-2015 The West Bengal Power Development Corporation Limited 26 46. The facts in brief are that the ld. Assessing Officer during the course of assessment proceedings observed that the assessee has charged to the profit & loss account provisions for fuel and fixed cost. The ld. Assessing Officer while computing the book profit under section 115JB of the Act disallowed the same by holding that expenditure for provision against any possible shortfall in income was based on estimation against reduction in income in future and, therefore was an unascertained liability and contingent in nature, 47. In the appellate proceedings, the ld. CIT(Appeals) dismissed the appeal by observing and holding as under:- “I have considered the grounds of appeal, statement of facts and submission of the authorized representative of the appellate company as well as the order of the assessing officer framed in the light of the materials available on record before the assessing officer during the assessment proceedings. The AR of the appellate has submitted that the assessee company is under regulatory regime where tariff is determined in advance by Regulatory Commission and difference between actual and normative expense is accounted for as unbilled revenue at the end of the financial year in the form of “fuel cost adjustment" and "fixed cost adjustment” which is very common to the Companies engaged in Power Generation business. After prudent checking and public hearing Hon'ble Commission passed Fuel Cost Adjustment Order and Fixed Cost Adjustment Order when "fuel cost adjustment" and "fixed cost adjustment" become final. Till such time there is uncertainty in revenue and unbilled revenue is recognized in the Statement of Profit and Loss Account to the extent 95% i.e. (8577.26 + 86444.4-4751.08) lacs. The AO has held that as per audit report, it is found that the assessee created provision against fuel and fixed cost. The provision was credited as a measure of abundant precaution against any possible shortfall ion correction of recoverable claim on future cost adjustment. 1 find that the provision for covering in income was based on estimation against reduction in income in future. 1 agree with the view as taken by the AO in the matter that it is unascertained liability and was contingent in nature. Keeping in view of the facts as mentioned above, in the absence of any cogent material evidence, I do not find any infirmity in the order of the assessing officer and the same is hereby upheld. In view of above, this ground of appeal is dismissed”. 48. After hearing the rival submissions and perusing the material available on record, we find that the assessee is a Public Sector Undertaking and is under regulatory regime where tariff is determined in advance by Regulatory Commission and fuel and fixed cost adjustment are unbilled revenue determined as per formula set out in the WBERC (Terms and conditions of Tariff), Regulation ITA Nos. 33, 334, 335 & 336/KOL/2020 Assessment Years: 2007-2008, 2009-10, 2012-13 & 2014-2015 The West Bengal Power Development Corporation Limited 27 2011 which would be recovered after receipt of order from WBERC. We note that the assesse has included the unbilled income on account of Future Fixed cost adjustment and Future Fuel Cost Adjustment as per the said formula as set out in WBERC(Terms and Conditions Tariff) Regulation 2011. Therefore it is not in doubt that assesse has made provisions for unbilled Future Fuel and Fixed cost Adjustment under the revenue from operation and also including the same to be taxable u/s 115JB of the Act and paid taxes accordingly. We note that assesse has made provisions at 5% as expenditure that may be incurred in relation to the provisional income at Rs. 4,751.08 lacs. For the ready reference the table of provisional incomes is extracted below: Sl. No. Particulars Amount (Rs. In Lakh) Amount (Rs. In Lakhs) 1. Kolaghat Thermal Power Station (KTPS) 1758.48 26998.19 2. Bakreshwar Thermal Power Station (BKTPS) 11496.85 20825.00 3. Bandel Thermal Power Station (BTPS) (5692.70) 6992.29 4. Santaldih Thermal Power Station (STPS) 1732.70 20348.97 5. Sagardighi Thermal Power Station (SgTPS) (718.08) 11279.95 Total 8577.26 86444.40 The provisional expenses are also as under: 5% of the Future Fuel Cost Adjustment of Rs. 86,444,40 (Lakhs)= Rs. 4322.22/- 5% of the Future Fixed Cost Adjustment of Rs. 8577.26 (Lakhs)= Rs.428.86/- Total Rs. 4751.08/- In other words the assesse has paid taxes on Rs. 90,270.58 lacs ( 86,444.40 + 8,577.26-4,751.08). The said fuel cost adjustment and fixed cost adjustment are very common to the companies engaged in Power Generation business. We note ITA Nos. 33, 334, 335 & 336/KOL/2020 Assessment Years: 2007-2008, 2009-10, 2012-13 & 2014-2015 The West Bengal Power Development Corporation Limited 28 that after prudent checking and public hearing, Hon’ble Commission passed fuel cost adjustment order and fixed cost adjustment order when fuel cost adjustment and fixed cost adjustment become final. Till such time, there was uncertainty in revenue and unbilled revenue is recognized in the statement of profit & loss account to the extent of 95%. We note that these provisions were not disallowed by the ld. Assessing Officer under the normal provisions of the Act but while computing the book profit under section 115JB of the Act meaning thereby that this provision for expenses amounting to Rs.47,51,08,000/- was accepted by the ld. Assessing Officer as accrued during the year and the same was not disallowed under normal provisions of section 37 of the Act. We note that fuel and fixed cost adjustments are unbilled revenue as firmly set out by WBERC. We have perused the audited financial statements and are of the view that the assessee has unbilled income because of fuel cost adjustment and fixed cost adjustment as set out by WBERC. Therefore, the same could not be denied on the ground that the assessee has made provision for unbilled fuel cost and fixed cost adjustment under the revenue from operation and including the same to be taxable under section 115JB of the Act. Further we note that WBERC has passed the order dated 05.09.2013 directing to make adjustment for the same in financial year 2013-14, which is evident from chapter III of the Report which is filed at page no. 246 of the paper book no. 3. Considering the above facts, we are of the view that the ld. CIT(Appeals) has not appreciated the facts correctly and therefore we set aside the order of ld. CIT(Appeals) on this issue and direct the ld. Assessing Officer to delete the addition. ITA No. 336/KOL/2020 49. Ground No. 1 of ITA No. 336/KOL/2020 is covered by ground No. 3 of ITA No. 335/KOL/2020 and ground no. 2 of ITA No. 336/KOL/2020 is covered by ground no. 5 of ITA No. 335/KOL/2020 supra. Since we have decided these issues as discussed above and consequently grounds No. 1 &2 of the assessee are allowed. ITA Nos. 33, 334, 335 & 336/KOL/2020 Assessment Years: 2007-2008, 2009-10, 2012-13 & 2014-2015 The West Bengal Power Development Corporation Limited 29 50. The issue raised in Ground No. 3 is against the order of ld. CIT(Appeals) upholding the disallowance of Rs.50,54,181/- as made by the ld. Assessing Officer on account of provision for expenses not paid during the year by ignoring the fact that the same liability accrued during the previous year but was paid after the year end and hence allowable. 51. The facts in brief are that the assessee has claimed Rs.30,16,66,858/- under the head ‘other expenses and accordingly the AO called for the details of the said expenses. The ld. Assessing Officer observed from the details filed by the assessee that assessee has debited various heads of expenses transport charges of Rs.8,16,079/-, electricity charges of Rs.23,39,002/-, facility management of Rs.2,56,378/-, office upkeep of Rs.2,86,409/-, office expenses of Rs.13,56,313/- , which are unascertained and held these expenses to be inadmissible and consequently added the same to the income of the assessee. The said expenses aggregating to Rs.50,54,681/-. 52. In the appellate proceedings, the ld. CIT(Appeals) dismissed the appeal of the assessee by holding that these expenses were not actually paid and provisions were made in the last month of the year. 53. The ld. A.R. submitted before us that the assessee is following mercantile system of accounting and all the incomes and expenditures are accounted for on accrual basis and all the incomes and expenditure in books of accounts are recorded following the matching principle of accounting. The ld. A.R. submitted that matching principle referred to matching of expenses against incomes and should be taken into account without regard to the date of receipts or payment. The accounting standards issued by the ICAI requires that accounting policies must be governed by the principle of ‘prudence’. Prudence concept is a key accounting principle that makes sure that assets and income are not overstated and provisions are made for all known expenses and losses whether the amount is known for certain or just an estimation i.e. expenses and liabilities are not understated in the ITA Nos. 33, 334, 335 & 336/KOL/2020 Assessment Years: 2007-2008, 2009-10, 2012-13 & 2014-2015 The West Bengal Power Development Corporation Limited 30 books of accounting. The ld. A.R. submitted that the assessee had made provisions for expenses in the month of March, 2014 for those expenditures for which the bills were received in next year and the payment was also made in the next year. Ld. A.R. relied on the decision of the Hon’ble Supreme Court in the case of Calcutta Company Limited –vs.- CIT reported in [1959] 37 ITR 1 (SC); Bharat Earth Movers –vs.- CIT reported in [2000] 245 ITR 428 (SC); CIT –vs.- Hewlett Packard India Sales (P) Ltd. Reported in [2014] 364 ITR 499 (Karnataka). Deduction should be allowed in respect of these expenses. 54. Ld. D.R., on the other hand, relied on the order of the authorities below. 55. After hearing the rival submissions and perusing the relevant material available on record, we find that undisputedly the provisions for expenses are in respect of expenditure which were relating to the month of March, for which bills were received in the month od April. Subsequently the assessee has accounted for these expenses following the mercantile system of accounting which provides for accounting of income and expenses relating to particular period irrespective of the income is actually received or not or expenses are actually discharged or not. Accordingly we do not find any infirmity in the accounting system followed by the assessee. In our opinion, where the liability has arisen in the accounting year, the deduction has to be allowed, nonetheless the liability may have to be quantitative or discharged at a future date but what should be definite is incurring of liability. The case of the assessee finds force from the decision of Hon’ble Apex Court in the case of Bharat Earth Movers (supra), wherein it has been held as under:- “Section 37(1) of the Income Tax Act, 1961- Business expenditure- year in which deductible-assessment year 1978-79- whether if a business liability has definitely arisen in accounting year, deduction should be allowed although liability may have to be quantified and discharged at a future date but what should be definite is incurring of liability – held, yes, provision was made by assessee-company for meeting liability towards leave encashment proportionate to entitlement earned by employees of company subject to ceiling on accumulation as applicable on relevant date- whether assessee should be entitled to deduction of such provision out of gross receipts for accounting year during which provision was made for liability inasmuch as liability was not a contingent liability- Held, yes”. ITA Nos. 33, 334, 335 & 336/KOL/2020 Assessment Years: 2007-2008, 2009-10, 2012-13 & 2014-2015 The West Bengal Power Development Corporation Limited 31 56. Respectfully following the ratio laid down by the Hon’ble Apex Court, we set aside the order of ld. CIT(Appeals) and direct the ld. Assessing Officer to delete the disallowance. 57. In the result, all the appeals of the assessee are allowed. Order pronounced in the open Court on January 20, 2023. Sd/- Sd/- (Sonjoy Sarma) (Rajesh Kumar) Judicial Member Accountant Member Kolkata the 20 th day of January, 2023 Co pie s to : ( 1 ) T h e W e s t B e n g a l P o w e r D e v e l o p m e n t C o r p o r a t i o n L i m i t e d , P l o t N o . 3 / C , B l o c k - L A , B i d y u t U n n a y a n B h a w a n , S e c t o r - I I I , S a l t L a k e C i t y , K o l k a t a - 7 0 0 0 9 8 ( 2 ) D e p u t y C o m m i s s i o n e r o f I n c o m e T a x , C i r c l e - 4 ( 2 ) , K o l k a t a , A a y a k a r B h a w a n , P - 7 , C h o w r i n g h e e S q u a r e , K o l k a t a - 7 0 0 0 6 9 ( 3 ) C o m m i s s i o n e r o f I n c o m e T a x ( A p p e a l s ) - 2 , K o l k a ta ; ( 4 ) C o m m i s s i o n e r o f I n c o m e T a x - , K o l ka t a ; ( 5 ) T h e D e p a r t m e n t a l R e p r e s e n t a t i v e ; ( 6 ) G u a r d F i l e TR UE C OPY By or de r As si st an t Reg is tr ar , In co me T ax A pp ell ate T ri bu na l, K olk at a B enc he s, K ol ka ta Laha/Sr. P.S.