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Income Tax Appellate Tribunal, CUTTACK BENCH CUTTACK
Before: SHRI C.M. GARG, JM & SHRI L.P. SAHU, AM
Per L.P.Sahu, AM: These two appeals have been filed by assessee and Revenue against the order passed by the CIT(A)-I, Bhubaneswar, dated 01.01.2014 for the assessment year 2005-2006. 2. First we shall take up the appeal of Revenue filed in ITA
No.115/CTK/2014, wherein the Revenue has raised the following
grounds of appeal :-
On the facts and in the circumstances of the case, the Ld. CIT(A) is not justified in law as well as in facts in deleting the addition of Rs.7,89,47,465/- made by the AO on account of provision for dam maintenance since mere provision is not an allowable expenditure.
On the facts and in the circumstances of the case, the Ld. CIT(A) is not justified in law as well as in facts in allowing the claim of depreciation amounting to Rs.8,52,682/- disallowed by the AO, when the assessee did not produce the details of the assets on which depreciation has been claimed @ 25%.
On the facts and in the circumstances of the case, the Ld. CIT(A) is not justified in law as well as in facts in deleting the addition of Rs.63,78,096/- made by the AO towards provision for guarantee commission, which was not- an allowable expenditure.
The appellant craves to alter, amend or add any other ground that may be considered necessary in course of the appeal proceeding.
Brief facts of the case are that the assessee M/s. Orissa Hydro
Power Corporation Ltd. (OHPC), is a Public Sector Undertaking of the Government of Orissa, which is solely and wholly engaged in the business of generation of hydro power and for that purpose operates
and maintains hydro power stations at 6 units, i.e. (i) Hirakud Dam in Sambalpur, (ii) Rengali Dam in Dhenkanal, (iii) Koiab Dam in Koraput,
(iv) Balimela in Malkangiri, (v) Mukhigudauda & (vi) Chiplima. The assessee also operates one hydro power project as a joint venture i.e.
Machakund Hydro Power Project with the Government of Andhra
Pradesh. The Balimela and Hirakud Dams originally belonged to the Orissa State Electricity Board. By a Gazette Notification dt.01.04.1996 operation and maintenance. The assessee filed its return of income on 26.10.2005 showing NIL income. The case was taken up for scrutiny.
During the course of assessment proceedings, the assessee produced
books of accounts along with details and explanations, which were examined and considered by the AO. Accordingly, the AO completed the assessment on 28.12.2007 computing the total income at Rs.67,83,16,211/- and after setting off unabsorbed depreciation of earlier years, the assessed income was determined at NIL.
Consequently, the AO made the following additions :-
i) Provision for dam maintenance : Rs.7,89,47,465/- ii) Provision for leave encashment : Rs.1,18,36,524/- iii) Non-disclosure of the dues from DOWR as income –Rs.3.98 crores iv) Prior Period expenses : Rs.4,18,89,745/- v) Provision for Bonus : Rs.8,479/- vi) Employees’ contribution to EPF not paid within due dates : Rs.52,750/- vii) Excess claim of depreciation : Rs.1,71,835/- viii) Depreciation claimed on miscellaneous assets : Rs.8,52,682/- ix) non-disclosure of interest on advances to contractors : Rs.42,25,000/- x) Excess provision of guarantee commission : Rs.63,78,096/-
Aggrieved by the assessment order, the assessee preferred
appeal before the CIT(A) and agitated all the additions made by the AO
except the additions made on account of provision for bonus,
employees contribution to EPF not paid within due date and excess
claim of depreciation. The CIT(A) after considering the submissions of the assessee and findings of AO, deleted the addition made on account
of provision for dam maintenance, depreciation claimed on encashment, non-disclosure of the dues from DOWR as income, prior
period expenses and non-disclosure of interest on advances to contractors.
Against the additions deleted by the CIT(A), the Revenue is in appeal before the income Tax Appellate Tribunal.
Ground No.1 relates to deletion of addition made by the AO on account of provision for dam maintenance. In this regard, ld.DR relied
on the order of AO and submitted that the assessee follows mercantile
system of accounting as per which liability for expenses can be recognized and claimed only when the liability crystallizes. There is no scope to allow provision for any expenses, if the liability for the same
has not crystallized or has not become ascertainable by the end of the relevant previous year. In the case of the assessee, apart from the expenditure incurred for maintenance of the dam of UIHEP,
Mukhiguda, the provisions made for dam maintenance in respect of all other dams are contingent and unascertained liabilility, and, therefore,
the AO has rightly disallowed the same. It was further contended by ld.
DR that since the provision for dam maintenance is not an allowable
expenditure, the CIT(A) is not justified in deleting the addition made by the AO. Accordingly, ld. DR submitted that the order of the AO deserves
to be restored.
On the other hand, ld. AR relied on the order of CIT(A) regarding
deletion of addition and submitted that the provisions made by the assessee in its accounts on year to year basis. It was also submitted that when a ‘provision’ can be recognized as an expenditure to be allowed
as a deduction under the I.T.Act, 1961 for the sake of appreciation and proper adjudication. It was also contended by ld. AR that the CIT(A) has rightly considered the case of the assessee following the Tribunal’s
order in assessee’s own case in ITA No.278/CTK/2010, order dated
2011, wherein the Tribunal has allowed the provision for dam
maintenance. Accordingly, ld. AR submitted that the findings recorded
by the CIT(A) in this regard deserves to be upheld.
After considering the submissions of the assessee and perusing
the entire material available on record, we find that during the course
of assessment proceedings the assessee submitted that the provision
amounts shall be adjusted against the amount receivable from Department of Water Resources (DoWR), however, the AO did not accept the explanation of the assessee and disallowed the expenditure
stating that the provision claimed by the assessee is not an allowable
expenditure. The CIT(A) in first appeal proceedings observed that though the expenditure have been incurred by the assessee for dam the government against amounts receivable from the Government. The CIT(A) relying on the decision of this Bench of the Tribunal in assessee’s own case in ITA No.278/CTK/2010, order dated 21.10.2011
allowed the provision for dam maintenance after observing as under :-
“4.2 I have considered the submission of the appellant and facts on record. In accordance with the Govt, of Odisha notification, the hydro power projects at Upper Kolab, Rengali and Upper Indravati Projects were transferred to the appellant from the government and Hirakud Power House, Burla and Balimela projects were transferred from OSEB for generation of power. The appellant was required to maintain some projects and shared the cost of maintenance with the government with respect to their utility component. Though the expenditure have been incurred for dam maintenance, it was kept under provision account for settlement with the government against amounts receivable from the government. This practice of accounting has been followed consistently. Though the amount has been debited to the provision account, the same has actually been spent and awaiting settlement/adjustment with the government against the amounts receivable. The Hon'ble ITAT, Cuttack Bench under similar circumstance for the AY 2004-05 in the appellant's own case in ITA No.278/CTk/2010 vide order dt.21.10.2011 has allowed the provision for dam maintenance. In view of the same, the addition of Rs.7,89,47,465/- made by the AO is deleted.” Ld. DR before us could not bring any cogent material on record to controvert the above findings of the CIT(A). Accordingly, we do not see
any good reason to interfere in the above findings recorded by the CIT(A) in this regard and we uphold the same. Thus, this ground of appeal of Revenue is dismissed.
With regard to ground No.2, ld. DR relied on the order of AO and submitted that when the assessee could not produce the details of the assets on which depreciation has been claimed @25%, the CIT(A) is not justified in allowing the claim of depreciation amounting to Rs.8,52,682/-, which was rightly disallowed by the AO. Accordingly, ld.
DR submitted that the order of the AO deserves to be restored.
On the other hand, ld. AR of the assessee relied on order of CIT(A) with regard to allowing the depreciation claimed by the assessee and submitted that the assessee has duly explained before the AO since the assessee has explained the particulars of assets and their
classification under the head plant and machinery, the assessee
company is entitled for depreciation as claimed. The CIT(A) has taken
into consideration of the submissions of the assessee in right prospect
and allowed the claim of depreciation made by the assessee, therefore,
the findings recorded by the CIT(A) in this regard deserves to be upheld.
After considering the submissions of the assessee and perusing
the entire material available on record, we find that the CIT(A) while
dealing with the issue, has taken into consideration of the explanation
furnished by the assessee before the AO during the course of assessment proceedings to substantiate his claim. In the submissions
made before the AO, the assessee stated that the miscellaneous assets
as aforesaid have been considered as plant and machinery and accordingly the depreciation as provided under the I.T. Rules for the plant and machinery have been claimed by the assessee on such assets.
It was also submitted by the ld. AR that during the previous year i.e., relevant to the Asst. Year 2004-05, no disallowances as called for on these assets. Considering the above submissions of the assessee and the miscellaneous assets shown by the assessee during the year, has allowed depreciation of 25% as claimed by the assessee after having
following observations :-
“8. Ground No.6 relates to disallowance of claim of depreciation amounting to Rs.8,52,682/- in respect of miscellaneous assets. The assessee did not furnish the break-up of details of miscellaneous assets for the amount of Rs.14,30,009/- for which the AO disallowed the claim of depreciation @25% on such assets. In the written submission made, the appellant has stated as under:
"Depreciation on miscellaneous assets
The assessee in schedule -5 of its Profit & Loss Account and Balance Sheet under the head fixed assets and depreciation, claims depreciation on various heads under the Companies Act, 1956. However, while computing the total income basing on the tax audit report as annexed at Annexure -3, schedule of depreciation as per Rule -5 of the I.T. Rules, 1962 claims depreciation. In the particulars of assets subject to depreciation the items claim of the Annexure -3 of the depreciation schedule as per I.T. Rules provides claim of depreciation on miscellaneous assets. During the year, against the opening balance of Misc. assets at Rs. 1,66,29,402/-, a sum of Rs. 1430,009/- was added during the year and depreciation of Rs. 8,52,682/- was claimed on such assets calculating the depreciation at 25% of the gross block. Particulars of assets as included under the aforesaid head i.e., miscellaneous assets are as under: -
Books Rs. 55,512.00 Tarpuline Rs. 8,154.00 Water Filter Rs. 2,767.00 Tools Rs. 26,948.00 AMF mike speaker Rs. 49,628.00 Rs. 143,009.00
In course of hearing to the queries of the Ld, A.O., the assessee company appearing before the Ld. A.O. vide its written submission explained that the miscellaneous assets as aforesaid have been considered as plant and machinery and accordingly the depreciation as provided under the I.T. Rules for the plant and machinery have been claimed by the assessee on such assets. However, the Ld. A.O. without appreciation the explanation and observing that in absence of the break up of details of such assets not being furnished has disallowed the claim of depreciation of Rs. 8,52,682/- on such assets. In this connection, it is pertinent to state here that during the previous year i.e., relevant to the Asst. Year 2004-05, no disallowances as called for on these assets. Since presently the assessee has explained the particulars of assets and their classification under the head plant and machinery, the assessee company is entitled for depreciation as claimed. Under the circumstances the disallowance on this account are not sustainable on fact and law."
In view of the above submission of the appellant, the depreciation is allowable @25% as claimed. Accordingly, the disallowance made by the AO is deleted.” On perusal of the above observations of the CIT(A), we do not see any interference is called for by us in the findings recorded by the CIT(A) in this regard, to which the ld. DR could not controvert the same by bringing any cogent material on record. Accordingly, we uphold the same and dismiss this ground of appeal of the Revenue.
Now, coming to the third ground which relates to deletion of addition made by the AO towards provision for guarantee commission,
ld. DR before us relied on the order of AO and submitted that the assessee could not explain the excess claim of guarantee commission
during the course of assessment proceedings, therefore, the AO has rightly disallowed the same. However, the CIT(A) without considering
the auditor’s report. Accordingly, ld. DR submitted the order of the AO
deserves to be restored.
On the other hand, ld.AR relied on the order of CIT(A) and submitted that while undertaking the capital expenditure and acquisition of capital assets, the different units of the assessee company Government of Orissa Guarantee. The guarantee provided by the State
Government are subject to guarantee commission to be paid by the assessee company. It was also contended by the ld. AR that the State
Government vide letter No.SG-21/073810/F dated 29.01.08, in Finance
Department on the subject of outstanding dues towards the Government of Orissa Guarantee in the case of the assessee, has stated
that in absence of prescribed procedure and since the guarantee has not been reduced in the relevant year, the question of payment of guarantee commission on the guarantee amount in those years does
not arise. The CIT(A) has also taken into consideration the above letter
and deleted the addition made on this count. Therefore, ld. AR
submitted that the order of the CIT(A) in this regard deserves to upheld.
After hearing both the sides and perusing the entire material
available on record, we find that though the AO found that the guaranteed commission has been paid by the assessee on the original
guarantee amount whereas the same should have been paid on the reduced guarantee amount, however, the CIT(A) as per the letter
No.SG-21/07/3810/F dt.29.01.2008 issued by the Additional Secretary,
Government of Odisha to the Dy. Accounting General (Commercial),
found that the guarantee commission could not be reduced since the reduced. Accordingly, the CIT(A) held that the claim of guarantee
commission is in accordance with the business requirement and as such allowable. The relevant observations of the CIT(A) in this regard
are as under :-
“10.2 I have considered the matter. I find much force in the submission of the appellant. As per letter No.SG-21/07/3810/F dt.29.1.2008 relating to the Dy. Accounting General (Commercial) from the Addl. Secretary to the Govt, of Odisha, the guarantee commission could not be reduced since the guarantee amount given by the Government of Odisha has not been reduced. The appellant is required to pay the guarantee commission on the maximum amount of guarantee irrespective of the loan outstanding as long as the guarantee amount itself has not been reduced. In view of the same, the claim of guarantee commission is in accordance with the business requirement and as such allowable. The addition made by the AO in this regard is deleted.”
The above observations of the CIT(A), in our opinion, are in accordance
with the material evidence available before him, to which the ld. DR
could not controvert the same by bringing any material before us.
Accordingly, we uphold the findings recorded by the CIT(A) in this regard and dismiss this ground of appeal raised by the Revenue.
Thus, appeal of the revenue i.e. ITA No.115/CTK/2014 is dismissed.
Now, we shall take up the appeal of assessee in ITA
No.122/CTK/2014, wherein the assessee has raised the following
grounds :-
For that the order of assessment as well as the order of the 1st Appellate Authority has neither been based on the facts and circumstances of the case nor on points of law.
For that disallowance of Rs.1,18,36,524/- under the head provision for leave Encashment and adding the same to the income returned is not sustainable on fact and law and therefore liable to be deleted.
For that addition of Rs. 3,98,00,000/- i.e., the dues from DOWR on the basis of the Auditors report 85 adding the same to the income is not sustainable on fact and law and therefore liable to be deleted.
For that disallowance and addition of prior period expenses of Rs. 4,18,89,745/- under the head prior period expenses are not sustainable on fact and law in view of the fact that the expenditure included hereinabove did really crystallized only during the previous year following the mercantile system of accounting and therefore the disallowance/ addition made under the head are liable to be deleted.
For that addition of Rs. 42,25,000/- under the head non- disclosure of interest on advance to contractor is erroneous on fact & law. In view of the fact that it has been decided by various High Courts/Apex Court that the advance given to the contractor during the period of executing capital works should be treated as a capital receipt and interest accrued on such advances will be capitalized at the time of capitalizing the assets to the books of accounts of the assessee. Therefore, the addition on this account are liable to be deleted.
For that the assessee crave leaves to add, alter or amend any of the grounds of appeal either before or at the time of hearing of the appeal.
For these grounds and other grounds if any that will be adduced at the time of hearing. It is prayed that the order the order of assessment be quashed and the demand be annulled in the interest of justice and equity.
Out of the above seven grounds there are four substantial
grounds have been raised and argued by the ld. AR of the assessee,
which are as under :-
i) Provision for leave encashment ii) Non-disclosure of dues from DOWR iii) Prior period expenses iv) Non-disclosure of interest on advance to contractor.
Ground No.1 : Provision for Leave Encashment : Rs.1,18,36,524/-
Ld. AR before us, at the outset, relied on the decision of ITAT P. Ltd. [2014] 32 ITR (Trib) 639 (Kolkata-Trib) and submitted that while deciding the very similar issue the Tribunal has restored the matter to the file of AO for fresh adjudication. Therefore, ld. AR
submitted that this issue may kindly be restored to the file of AO fresh
consideration after affording reasonable opportunity of hearing to the assessee.
On the other hand, ld. DR relied on the orders of authorities
below.
After considering the submissions of both the sides and perusing
the entire material available on record, we find that the coordinate
bench of the Tribunal has already restored this very same issue to the file of AO for fresh adjudication. It is also a fact that the Hon’ble India, [2007] 292 ITR 470, the Hon’ble Calcutta High Court has struck down the provisions of Section 43B(f) of the Act as being arbitrary and unconscionable. Thereafter the Hon’ble Apex Court in case of Exide
Industries Ltd. in SLP (Civil) 22889 of 2008 has stayed the operation of the judgment of Hon’ble Calcutta High Court. Considering the above
position, the Tribunal on the similar issue in case of Ernst and Young P.
Ltd.(supra) has restored the matter to the file of AO for fresh
adjudication after having observations as under :-
At the outset, learned counsel for the assessee Shri R. N. Bajoria, senior advocate stated that the assessee-company has added a sum of Rs.1,54,71,071 on account of provision for leave encashment. According to him, this amount was added back in the computation of income filed with original return of income in pursuance to section 43B(f) of the Act. He further stated that the hon'ble Calcutta High Court in the case of Exide Industries Ltd. v. Union of India [2007] 292 ITR 470/164 Taxman 9 stuck down the provisions of section 43B(f) of the Act as being arbitrary and ultra vires. Learned counsel for the assessee stated that the hon'ble Supreme Court has stayed the judgment of the hon'ble Calcutta High Court in the case of Exide Industries Ltd. (supra) and, therefore, he requested the Bench to set aside this issue to the file of the Assessing Officer with a direction that he will adjudicate the same as per the final judgment of the hon'ble Supreme Court in the case of Exide Industries Ltd. On this, the learned Commissioner of Income-tax- Departmental representative fairly agreed that the issue can be restored back to the file of the Assessing Officer.
We, after hearing both side find that the hon'ble apex court in the case of CIT v. Exide Industries Ltd. [SLP (Civil) 22889 of 2008] has stayed the operation of the judgment of the hon'ble Calcutta High Court. Once this is the position, we restore back this issue to the file of the Assessing Officer to adjudicate the same afresh in terms of the decision of the hon'ble apex court in the case of Exide Industries Ltd. (supra) Accordingly, this issue of the assessee's appeal is allowed for statistical purposes.
Similar issue has also been decided by the coordinate bench of the Tribunal in case of NALCO Ltd. ITA No.106/CTK/2018, order dated
2019, wherein the Tribunal has restored the issue to the file of AO after observing as under :- “9. During the course of assessment proceedings, the AO observed that the provision for leave encashment has not been added back to the income as per the provisions of Section 43B. Therefore, the AO relying on the decision of Hon’ble Kolkata High Court in the case of Exide Industries Ltd. 292 ITR 470 added the unpaid liabilities to the total income of the assessee. In appeal, the CIT(A) upheld the same.
Before us, ld. AR submitted that the issue is squarely covered by the decision of the Tribunal in assessee’s own case in ITA No.211/CTK/2017, order dated 29.06.2018, and drew our attention to para 28 of the aforesaid order, wherein the Tribunal has restored the issue to the file of AO to examine and allow the claim of the assessee. The relevant observations of the Tribunal read as under :- “28. We have heard rival submissions and perused the material available on record. We find that the Tribunal in assessee’s own case for the assessment year 2010-2011 in ITA No.352/CTK/2016 along with other appeals, order dated 27.04.2018 relying on its earlier order has restored the disputed issue to the file of AO. The observations of the Tribunal in this regard are as under :- “31. We have heard rival submissions and perused the material on record. We found that the similar issue has been decided by the Tribunal in assessee’s own case for the assessment years 2007-08 & 2008-2009 in ITA No.343 & 392/CTK/2015, order dated 23.04.2018, wherein the Tribunal has observed as under :- “28. We have heard rival submissions and perused the material on record. The assessee has made the provision for leave encashment and the provision was not added back in the computation of income. As the ld. AR submitted that the above issue is covered by the order of the coordinate bench of the Tribunal in the case of Baitarani Gramya Bank in ITA Nos.318 & 319/CTK/2013 for assessment years 2008-09 & 2009-10, wherein the Tribunal held as under :- “19.1The DR also agreed with the submission of ld. AR of the assessee. In the circumstances of the case, we set aside the order of the CIT(A) and remit the matter to the file of the Assessing officer to re-adjudicate the issue in the light of the Hon’ble Supreme Court decision. Hence, this ground is allowed for statistical purposes.
In the result, appeal for the assessment year 2008-09 is partly allowed for statistical purposes.”
We considering the ratio of the decision and the facts to the present case, remit this issue to the file of the AO to examine and allow the claim and this ground of appeal is allowed for statistical purposes.” appeal of the assessee for statistical purposes.” We follow the reasoning of the Tribunal and accept the judicial precedence and remit the disputed issue to the file of AO to examine and allow the claim of the assessee. Accordingly, this ground of appeal is allowed for statistical purposes.”
Respectfully following the above observations of the Tribunal, we remit the issue to the file of AO to examine and allow the claim of the assessee. Ground No.3 is allowed for statistical purposes.”
Respectfully following the above observations of the coordinate bench
of the Tribunal in the above cases cited supra, we also remit this issue
to the file of AO for fresh adjudication after providing reasonable
opportunity of hearing to the assessee. Thus, ground No.1 is allowed
for statistical purposes.
Ground No.2:Non-disclosure of dues from DOWR : Rs.39,800,000/-
With regard to the above ground, on perusal of the order of the CIT(A), we find that the assessee has already conceded to the addition
made by the AO for which the CIT(A) has upheld the action of AO.
Accordingly, we do not see any good reason to interfere with the findings recorded by the CIT(A) in this regard and we uphold the same.
Thus, ground No.2 is dismissed.
Ground No.3 : Prior Period Expenses : Rs.41,889,745/-
Ld. AR before us submitted that the assessee has disclosed the net income/expenses after setting off of prior period income with that of prior period expenses. It was also submitted that certain expenses
relating to the earlier years could not be crystallized in absence of any previous years. It was also contended by ld. AR that these expenses
were never claimed earlier in absence of ascertainment of correct
liability, therefore, the same may kindly be allowed.
On the other hand, ld. DR relied on the orders of authorities
below.
After hearing both the sides and perusing the entire material
available on record, we find that we have already decided this very
similar issue in case of OMC Ltd. in ITA No.177/CTK/2013, order dated
2017, wherein the Tribunal has decided the issue in the following manner :-
“8. On the second disputed issue of prior period expenditure the ld. AR submitted that assessee has complete information on the claim and prayed for an opportunity to submit. On the query from the bench to the ld. AR to explain with reasons for non- filing details before the AO, the AR’s explanations are not convincing. We find the prior period expenditure claim was dealt by the coordinate bench of this Tribunal in assessee’s own case in ITA No.551/CTK/2012, order dated 18.12.2012 at para 9.1 page 9 where the Tribunal has dealt on the each issue of prior period expenses which reads as under :-
On the second issue being prior period expenses, we find the contention of the learned Counsel of the assessee justified that it is nobody's case that the accounting of prior period expenses have to be otherwise. A practical method of accounting is considered mercantile when the concept of deriving real income in the hands of the assessee in year to year basis is a mundane requirement insofar as income tax is levied for the impugned Assessment Year only. The very intention on the basis to claim it as prior period expenses indicates that these expenses were not known to them but pertain to that year and they could not have been accounted in the year when they may have accrued which deficiency was required to be fulfilled by the learned CIT(A) when the substantial amount was deleted by him as computed by the Assessing Officer as prior period expenses. The sustenance of part addition on account of prior period expenses have been dealt item- wise by him in his order, which we are inclined to reproduce as follows, has to be considered otherwise.
(i) Pay & allowances - Rs.968,561/- : This was stated to be arrear salary paid to Shri Barinder Singh. It is seen that the order of reinstatement was passed on 16.11.2006 in case of this officer and his leave for the preceding period was sanctioned on 16.03.2007 along with sanction of increments for the preceding years on that day. On the basis of these orders passed by the OMC, the liability had crystallized in financial year 2006-07 and in 2007-08;
(ii) Arrear salary - Rs.3,11,927/- :- Arrear salary of Rs.3,11,927/- consisted of leave salaries only. A copy of the order from AG, Odisha was filed in respect of Dr. Umakanta Mishra amounting to Rs.1,34,610/-. Since this order is dated 10.08.2007, the amount is allowable as the liability crystallized during financial year 2007-08. In respect of the balance amount no details or evidences were furnished; (iii) Miscellaneous expenses;- Miscellaneous expenses relate to supply of explosives during financial year 2004-05 and, hence, provision should have been made in that year. In any case, no evidence was furnished that the same accrued during the year; (iv)Repair to the building - Rs.4,35,364/-: This amount relates to purchase of GGI sheets on 30.12.2005 and repairs in pursuance to agreement entered in financial year 2004-05. Accordingly, the provision should have been made during that year. In any case, no evidence was furnished that the same accrued during the year; (v)Raising expenses- Rs.12,02,510/-: These expenses mostly consist of raising of mineral ore at Dubna mines for 1998- 99, 1999-2000, 200001 and 2001-02, also includes over burden cutting in 2001 and in respect of agreements/activities done in , 2001-02. Accordingly, provisions should have been made in 'Those years in respect of these expenses. In any case, no / evidence was furnished that the same accrued during the year. vi) Rent, rates & taxes — Rs.4,58,432/-: In fact, these are rent paid for private plots taken on lease by OMC. As per details filed, the rent was finalized by the Managing Director of the assessee on 16.12.2006. Thus, the provision should have been made in the financial year 2006-07. In any case, no evidence was furnished that the same accrued during the year. (vii) R&M to machinery — Rs.23,02,201/-: The work by M/s. Mcnall Bharat is in response to work order of the assessee dated 31.10.2002 and the bills were raised by this concern on the assessee on 09.12.2004, 24.10.2006, 05.09.2000 and 05.09.2003. Accordingly, provision should have been made in the relevant financial years. In any case, no evidence was furnished that the same accrued during the year." A mere glance of the above would suggest that the expenses are of a nature which may not have crystallized even after a gap of one year was explained by the assessee appellant before him. He required the evidence of their accrual in the impugned Assessment Year when it was the assessee's claim that they have crystallized in the impugned Assessment Year insofar as they all are revenue in nature and cannot be considered for disallowance even if they were incurred or accrued in the year they pertain to. In other words, we find the contention of the learned Counsel of the assessee appropriate that there is no method to foresee as to what revenue expenditure would have to be provided for after end of the Assessment Year if the accounts are to be balanced for approval by the share holders within six months of the close of the financial year. Therefore, a concept of claiming them as prior period expenses on the basis they having been actually incurred in the impugned Assessment Year has been declared as prior period expenses in accordance with the concept of mercantile system of accounting. In this view of the matter, we are of the considered view that the prior period expenses are bound to be allowed in the impugned Assessment Year having crystallized in the impugned Assessment Year. Therefore, the part confirmation of the addition made by the learned Assessing Officer on this count is therefore directed to be deleted. Whereas the assessee in the assessment proceedings could not substantiate the claim with proper explanations and evidence, therefore, in the interest of substantial justice, we provide one more opportunity as prayed by the ld. AR to represent its case before the AO with the evidences/documents of prior period expenses and the AO shall examine the genuineness and crystallisation of the expenses in the financial year and assessee should be provided adequate opportunity of hearing and shall cooperate in submitting the information. Accordingly, we restore the disputed issue to the file of AO and allow the grounds of appeal of the assessee for statistical purposes.” Respectfully we follow the order of the Tribunal and we restore the matter to the file of AO who shall examine the genuineness and crystallisation of the expenses in the financial year and the assessee should be provided adequate opportunity of hearing and shall cooperate in submitting the information. Accordingly, This ground of appeal for i.e. A.Y.2010-2011 & 2011-2012 is allowed for statistical purposes. consideration. Needless to say the assessee shall be given reasonable
opportunity of hearing. Ground No.3 is allowed for statistical purposes.
Ground No.4 : Non-disclosure of interest on advance to contractor : Rs.4,225,000/-
On perusal of the assessment order, we found that the AO during
the course of assessment proceeding noted that the interest of Rs.42,25,000/- was accrued on the advance of Rs.2.27 crores given to the contractors. Ld. AR of the assessee during the course of hearing
submitted that since the advance was given to contractor for capital
construction by the assessee, therefore, the same deserves to be allowed. In view of the above, we restore the issue to the file of AO and direct the AO to examine the nature of advance as to whether it was given during the period of construction before commencement of commercial production of the assessee. If it is found that it was given
during the construction period for the capital asset construction, the assessee’s contention may be accepted. Accordingly, this ground of appeal of assessee is allowed for statistical purposes.
Thus, appeal of assessee is allowed partly for statistical purposes.
In the result, appeal of Revenue i.e. ITA No.115/CTK/2014 is dismissed and appeal of assessee i.e. ITA No.122/CTK/2014 is partly
allowed for statistical purposes.
Order pronounced in the open court on 25/02/2020. (C.M.GARG) (L.P.SAHU) न्यानयक सदस्य / JUDICIAL MEMBER ऱेखा सदस्य / ACCOUNTANT MEMBER कटक Cuttack; ददनांक Dated 25/02/2020 Prakash Kumar Mishra, Sr.P.S. आदेश की प्रनिलऱपप अग्रेपषि/Copy of the Order forwarded to : अऩीऱाथी / The Appellant- 1. प्रत्यथी / The Respondent- 2. आयकर आयुक्त(अऩीऱ) / The CIT(A), 3. आयकर आयुक्त / CIT 4. ववभागीय प्रनतननधध, आयकर अऩीऱीय अधधकरण, कटक / DR, ITAT,
Cuttack गार्ा पाईऱ / Guard file. 6. सत्यावऩत प्रनत ////
आदेशािुसार/ BY ORDER,
(Senior Private Secretary) ITAT Cuttack Bench, Cuttack