DCIT, Circle-3(2), Hyd, Hyderabad V. Central Power Distribution Company of Andhra Pradesh Ltd., Hyd, Hyderabad

ITA 500/HYD/2015

• Counselvise Citation: 50022514 RSA 2015
• Duration Of Justice: 6 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-11-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 27-10-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 01-05-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MOHAN SINGH SINGHANIA
• Assessee Lawyers: M CHANDRAMOULESWARA RAO
• Keywords: Depreciation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SMT P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO. 500/HYD/2015 ASSESSMENT YEAR: 2008-09 DY. COMMISSIONER OF INCOME- TAX, CIRCLE 3(2), HYDERABAD. VS. M/S CENTRAL POWER DISTRIBUTION COMPANY OF AP LTD., HYDERABAD. PAN AACCC0125D (APPELLANT) (RESPONDENT) REVENUE BY : SHRI MOHAN SINGH SINGHANIA ASSESSEE BY : SHRI M. CHANDRAMOULESWARA RAO DATE OF HEARING 27-10-2015 DATE OF PRONOUNCEMENT 04-11-2015 O R D E R PER S. RIFAUR RAHMAN, A.M.: THIS APPEAL BY REVENUE IS DIRECTED AGAINST THE ORD ER DATED 16/02/2013 OF LD. CIT(A)-I, HYDERABAD, FOR THE AY 2 008-09. 2. THE BRIEF FACTS OF THE CASE ARE THAT AO NOTICED IN THE P&L ACCOUNT OF THE ASSESSEE THAT ASSESSEE CREDITED AN A MOUNT OF RS. 14.25 CRORES AS PRIOR PERIOD INCOME AND RS. 1.45 CR ORES AS PRIOR PERIOD EXPENDITURE. THE PRIOR PERIOD EXPENDITURE WA S ADJUSTED AGAINST THE PRIOR PERIOD INCOME AND NET FIGURE OF RS. 12.80 CRORES WERE INCLUDED IN THE INCOME. 2.1 THE ASSESSEE WAS ASKED TO FURNISH THE DETAILS O F PRIOR PERIOD EXPENDITURE. AO NOTICED THAT AN AMOUNT OF RS. 10,29 ,749 WAS DEBITED AS EXPENDITURE, WHICH WAS ADMINISTRATIVE AND OTHER GENERAL EXPENDITURE PERTAINING TO EARLIER YEARS. AO WAS OF THE VIEW THAT THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTI NG AND 2 ITA NO. 500 /HYD/2015 CENTRAL POWER DISTRUBTION COMPANY OF AP LTD., HYD EXPENDITURE OF EACH YEAR ARE TO BE ACCOUNTED IN THE YEAR TO WHICH IT BELONGS TO. HENCE, THE CLAIM OF THE PRIOR PERIOD EX PENDITURE WAS DISALLOWED. SIMILARLY, PRIOR PERIOD EXPENDITURE INC LUDED INTEREST ON CONSUMPTION DEPOSIT AMOUNTS TO RS. 1,34,60,216/- PE RTAINING TO EARLIER YEARS. THE ASSESSEE WAS NOT ABLE TO FURNISH THE DETAILS AND NO PROOF WAS PRODUCED FOR PAYMENTS DURING THE YEAR FOR THE RELEVANT AY. IN THE ABSENCE OF THE PROOF, PRIOR PERIOD INTEREST WAS ALSO DISALLOWED AND ADDED TO THE INCOME DETERMINED. 3. AGGRIEVED BY THE ORDER OF AO, THE ASSESSEE PREFE RRED APPEAL BEFORE THE CIT(A). 4. THE LD. CIT(A) OBSERVED AS UNDER: 8 WITH REGARD TO 4 TH GROUND OF APPEAL THE AO DISALLOWED PRIOR PERIOD EXPENDITURE UNDER NORMAL PROVISION OF THE ACT IN REASSESSMENT FOR THE REASONS THAT THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, THEREFORE, THE EXPENSES PERTAINING TO EACH YEAR AR E TO BE ACCOUNTED FOR IN THE RESPECTIVE YEARS TO WHICH THEY PERTAIN. IN AMP LE NUMBER OF CASES THE HONBLE COURTS HAVE HELD THAT THE PRIOR PERIOD EXP ENDITURE, PERTAINING TO EARLIER YEARS, CAN BE ALLOWED IN SUBSEQUENT YEARS PROVIDED SUCH EXPENSES WERE CRYSTALLIZED IN SUBSEQUENT YEARS. SO HELD IN THE CASE OF - JODHPUR VIDYUT VITRAN NIGAM LTD., [2009] 227 CTR A AR 322 CIT VS. BEEKAY ENGG. CORPORATION [2010] 323 ITR 25 2(CHANDIGARH THEREFORE, THE AO IS DIRECTED TO VERIFY WHETHER PR IOR PERIOD EXPENSES WERE CRYSTALLIZED DURING THE PRESENT FINANCIAL YEAR AND ACCORDINGLY TAKE NECESSARY ACTION. THEREFORE THIS GROUND OF APPEAL IS TREATED AS PARTLY ALLOWED. 5. AGGRIEVED BY THE DIRECTION OF CIT(A), REVENUE IS IN APPEAL BEFORE US BY RAISING THE FOLLOWING GROUNDS OF APPEA L: 1. THE LEARNED CIT (A) ERRED IN LAW AND ON FACTS O F THE CASE. 2. THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED TH E FACT THAT THE ASSESSEE HAS FAILED TO SUBSTANTIATE ITS CLAIM THAT THE PRIO R PERIOD EXPENSES ARE ALLOWABLE IN THE CURRENT YEAR AND THE CIT(A) OUGHT TO HAVE CONSIDERED THE DECISION OF HON'BLE MADHYA PRADESH HIGH COURT IN T HE CASE OF CIT VS KRISHNA OIL EXTRACTS LTD, 232 ITR 928 WHEREIN IT W AS HELD THAT THE PRIOR PERIOD DEPRECIATION IS NOT AN ALLOWABLE DEDUCTION WHILE COMPUTING THE BOOK PROFITS. 3. THE LEARNED CIT (A) OUGHT TO HAVE APPRECIATED T HAT THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND EXPE NSES OF ANY YEAR ARE ALLOWABLE ONLY IN THE RELEVANT FINANCIAL YEAR IN W HICH THE EXPENDITURE IS INCURRED. 3 ITA NO. 500 /HYD/2015 CENTRAL POWER DISTRUBTION COMPANY OF AP LTD., HYD 6. THE LD. DR RELIED UPON THE ORDER OF THE AO AND O N THE DECISION OF THE HONBLE M.P. HIGH COURT IN THE CASE OF CIT V S. KRISHNA OIL EXTRACTS LTD., 232 ITR 928. 7. THE LD. AR BESIDES RELYING ON THE ORDER OF CIT(A ), SUBMITTED THAT THE CASE OF KRISHNA OIL EXTRACTS LTD. (SUPRA) IS NOT RELEVANT FOR THE ASSESSEES CASE. 8. WE HAVE HEARD THE ARGUMENTS OF BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD AS WELL AS THE ORDERS OF REV ENUE AUTHORITIES. WE FIND THAT REVENUE IS RELYING ON THE ORDER OF KRI SHNA OIL EXTRACTS LTD. (SUPRA). THE RATIO OF THE JUDGMENT IS PRODUCE D BELOW: 5. SHRI B.L. NEMA, LEARNED COUNSEL FOR THE ASSESSEE, HAS STRENUOUSLY URGED BEFORE US THAT ALL THE PREVIOUS YEARS EXPENDITURE AND LOSS HAS TO BE WORKED OUT FOR THE PURPOSE OF DECLARING THE BALANCE SHEET AND PROFIT AND LOSS. BUT WITH GREAT RESPECT, WE DO NOT AGREE WITH THE SUBMI SSION OF LEARNED COUNSEL BECAUSE IT WAS NOT INTENDED BY INCORPORATION FICTI ONALLY OF THE PROVISIONS OF S. 205(1), CL. (B) OF THE FIRST PROVISO OF THE COM PANIES ACT. IF THE INTENTION OF THE LEGISLATURE WAS TO GIVE THE BENEFIT OF PREVIOU S YEARS, THEN THERE WAS NOTHING WHICH PREVENTED THEM TO HAVE INVOKED S. 20 5(1), CL. (A) OF THE FIRST PROVISO OF THE COMPANIES ACT WHICH CLEARLY PROVIDE S THAT BEFORE DECLARING OR PAYING DIVIDEND FOR ANY FINANCIAL YEAR PROVIDE FOR SUCH DEPRECIATION OUT OF THE PROFITS OF THAT FINANCIAL YEAR OR OUT OF THE P ROFITS OF ANY OTHER PREVIOUS FINANCIAL YEAR OR YEARS TO BE WORKED OUT. BUT THER E IS NO SUCH INTENTION REFLECTED IN CL. (B) OF THE FIRST PROVISO TO SUB-S . (1) OF S. 205 OF THE COMPANIES ACT. IT DOES NOT SAY SO IN SO MANY WORDS THAT ALL THE PREVIOUS YEARS LOSS HAS TO BE GIVEN CREDIT. THAT APPEARS T O BE SO FOR THE SIMPLE REASON THAT IF THAT IS PERMITTED THEN NO USEFUL PU RPOSE WOULD BE SERVED BY INCORPORATING S. 115J OF THE IT ACT. THE IDEA BEHI ND S. 115J WAS ONLY TO CHECK THE TACTICS ADOPTED BY THE ASSESSEE TO WORK OUT ZERO PROFIT OF THE COMPANY; THEREFORE, THIS WAS SPECIALLY INCORPORATE D IN S. 115J OF THE IT ACT AND A PECULIAR MODE WAS ADOPTED BY WORKING OUT THE BOOK PROFIT. IN THIS VIEW OF THE MATTER, WE ARE OF THE OPINION THAT THE VIEW TAKEN BY THE TRIBUNAL DOES NOT APPEAR TO BE CORRECT. 8.1 THE HONBLE HIGH COURT ADJUDICATED THE ISSUE ON THE PRIOR PERIOD DEPRECIATION BY HOLDING THAT IT CANNOT BE P ART OF THE BOOK PROFIT AND IT DEFEATS THE SOUL OF THE SECTION 115J. WHEREA S IN THE PRESENT CASE, COMPUTATION OF INCOME WAS NOT UNDER SECTION 1 15J. THE PRIOR PERIOD EXPENDITURE WAS DISALLOWED IN THE NORMAL PRO VISIONS OF THE IT ACT. THE LD. CIT(A) HAS RELIED ON THE RATIO OF THE BELOW JUDGMENTS: 1. IN THE CASE OF JODHPUR VIDYUT VITRAN NIGAM LTD., 32 1 ITR 18, THE HONBLE HIGH COURT HELD THAT NO DOUBT THE APPLICANT DID NOT CLARIFY NOR 4 ITA NO. 500 /HYD/2015 CENTRAL POWER DISTRUBTION COMPANY OF AP LTD., HYD FURNISHED ANY DETAILS BEFORE THE ASSESSING, APPELL ATE AUTHORITIES TO ESTABLISH THAT THE INTEREST PAID BY RVPN ON FDR LO ANS AND PASSED ON TO THE APPLICANT WAS FOR THE BUSINESS PURPOSE OF THE ASSESSEE. HOWEVER, ON THE FACTS PRESENTED BY THE APPLICANT BEFORE THE AU THORITY WITH THE SUPPORTING DOCUMENTS IT IS PRIMA FACIE EVIDENT THA T THE LOANS WERE TAKEN BY THE RVPN FOR THE BUSINESS PURPOSE OF THE APPLICANT AND THAT THE APPLICANT WAS LIABLE TO BEAR THE INTEREST LIABILIT Y. THOUGH THE DEDUCTION CLAIMED DESERVES TO BE ALLOWED UNDER S. 36(1)(III) , ON THE BASIS OF THE CASE SET UP BY THE APPLICANT WITH SUPPORTING DOCUMENTS, IT IS CONSIDERED JUST AND PROPER TO LEAVE IT TO THE AO TO REDO THE ASSESSMEN T ON THIS ITEM IN THE LIGHT OF MATERIAL WHICH HAS BEEN PLACED BEFORE THIS AUTH ORITY FOR THE FIRST TIME. 2. IN THE CASE OF CIT VS. BEEKAY ENGG CORPORATION, 323 ITR 252 THE HONBLE CHANDIGARH HIGH COURT HELD THAT ASSESSEE IS ENTITLED TO DEDUCTION OF THE AMOUNT PAID BY IT TO A COMPANY IN RESPECT OF CERTAIN JOB DONE BY IT FOR THE ASSESSEE DURING THE PERIOD FROM DECEMBER, 1988 TO JUNE, 1989, IN ASST. YR. 1990-91 AS THE LIABILITY WAS NOT ASCERTA INABLE TILL THE BILLS WERE RAISED BY THAT COMPANY IN THE MONTH OF AUGUST, 198 9. 8.2 FROM THE ABOVE JUDGMENTS, IT IS CLEAR THAT THE PRIOR PERIOD EXPENDITURE CAN BE CLAIMED IN THE CURRENT YEAR PROF IT PROVIDED THE LIABILITY OF THE EXPENDITURE SHOULD BE CRYSTALLIZED AND QUANTIFIED WITH REGARD TO THE ADMINISTRATIVE AND OTHER EXPENDITURE. THE CIT(A) HAS ONLY DIRECTED THE AO TO VERIFY WHETHER PRIOR PERIOD EXPENSES WERE CRYSTALLIZED DURING THE YEAR. NO PREJUDICE IS CAUSE D TO THE REVENUE BY THIS DIRECTION OF THE CIT(A). 8.3 CONSIDERING THE ABOVE DISCUSSION, WE DO NOT FIN D ANY INFIRMITY IN THE ORDER OF LD. CIT(A) AND UPHOLD THE SAME. 9. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED. PRONOUNCED IN THE OPEN COURT ON 4 TH NOVEMBER, 2015. SD/- SD/- (P. MADHAVI DEVI) (S. RIFAUR RAH MAN) JUDICIAL MEMBER A CCOUNTANT MEMBER HYDERABAD, DATED:4 TH NOVEMBER, 2015 KV 5 ITA NO. 500 /HYD/2015 CENTRAL POWER DISTRUBTION COMPANY OF AP LTD., HYD COPY TO:- 1) DCIT, CIRCLE 3(2), 7 TH FLOOR, B BLOCK, IT TOWERS, AC GUARDS, HYDERABAD 500 004. 2) M/S CENTRAL POWER DISTRIBUTION COMPANY OF AP LTD ., MINT COMPOUND, HYDERABAD 3 CIT(A)-I, HYDERABAD 4) CIT-I, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD.