GUJARAT STATE ELECTRICITY CORPORATION LTD.,VADODARA vs. THE DY.CIT.,CIRCLE-1(1),, VADODARA

The brief facts of the case are that the assessee had filed its return of income for A.Y. 2004-05 on 29.10.2004 declaring income of Rs.12,47,80,000/- u/s. 115JB of the Act. The original assessment was completed u/s. 143(3) of the Act on 29.12.2006 at total income of Rs. Nil

Aggrieved with the order of the AO, the assessee had filed an appeal before the first appellate authority, which was decided by the learned CIT(A) vide the impugned order and the appeal of the assessee was dismissed. Th

Now the assessee is in second appeal before us. The following grounds have been taken in this appeal:

Ground No. 1 pertaining to reopening of the assessment was not pressed by the Ld. AR in the course of hearing. Hence this ground is dismissed.

Ground No. 2 pertains to addition of Rs. 50,21,000/- on account of insurance premium. The AO had noticed that the assessee had disallowed debit of extraordinary items amounting to Rs. 1370.26 lakhs. This net amount of extraordinary item was arrived after adjusting the “insurance premium written back” of Rs. 50.21 lakhs. In essence, the

We have heard the Ld. AR and the Ld. CIT-DR on this issue. The fact that the amount debited to account pertaining to extraordinary items was Rs. 1420.47 lakhs has not been denied by the assessee. The Ld. AR submitted that an addition of Rs.1370.26 lakhs in respect of extraordinary items was already made in the original assessment, against which assessee had filed an appeal. According to the Ld. AR, if this addition was already deleted in the appeal, then the balance addition of Rs. 50.21 lakhs made in the reassessment should also be deleted. We have considered the request of the assessee. The actual status of the original addition of Rs. 1370.26 lakhs made in the original assessment has not been brought on record. In case this addition was deleted in the course of appellate proceeding, the assessee has to be allowed relief in respect of the balance addition of Rs. 50.21 lakhs made in the course of reassessment proceeding, as well. However, if the original addition stands confirmed, then the present addition of Rs. 50.21 lakhs also stands confirmed. The AO is, therefore, directed to verify the status of the original addition of Rs.1370.26 lakhs in respect of extraordinary items and thereafter give the consequent effect to the balance addition of Rs. 50.21 lakhs. Accordingly, this issue is remitted back and set aside to the file of the JAO with a direction to verify the status of the original addition and thereafter give the consequent effect to the addition made in the reassessment proceeding. The ground taken by the assessee is deemed to be allowed for statistical purpose.

Ground number 3 and 4 pertains to addition of foreign exchange liability of Rs. 1.22 lakhs by treating the same as notional liability. The AO had disallowed the foreign exchange liability by treating the same as an unascertained liability. According to the assessee, this was not a notional liability. The Ld. AR has contended that the foreign exchange liability on balance sheet date is a crystallized liability and allowable as deduction for which he relied upon the decision of Hon’ble Supreme Court in the case of Woodward Governor India (P) Ltd. [179 taxmann 326(SC)]. He further submitted that the AO was also not correct in adding this foreign exchange liability to the book profit u/s. 115JB of the Act. On the other hand, the Ld. CIT-DR supported the order of the lower authorities on this issue.

We have considered the rival submissions. As per the finding given by the AO and the Ld. CIT(A), it is found that the loss of Rs. 1.22 lakhs had arisen due to payment at a higher dollar rate of Rs. 48.30 in the subsequent year as against prevailing dollar rate of Rs.44.22 as on 31.03.2004. Thus, the loss of Rs. 1.22 lakhs was not due to foreign exchange liability on the balance sheet date but this liability was created by payment at a higher rate on a date subsequent to balance sheet date. The Ld. CIT(A) had rightly held that the loss had arisen in the subsequent year due to actual payment made at higher foreign exchange rate, which could not have been claimed as deduction in A.Y. 2004-05. As rightly held by him, the decision of Hon’ble Supreme Court in the case of Woodward Governor India (P) Ltd (Supra), was not applicable to the facts of the present case. As per the Accounting standards (AS-11) also, this loss was not allowable to the assessee as this loss had not crystallized as on 31.03.2004. Therefore, the decision of the Ld. CIT(A) on this issue is upheld and the ground taken by the assessee is dismissed. The finding of

Ground No. 5 pertains to disallowance of Rs. 96,89,000/- on account of prior period adjustment. The assessee had claimed net prior period expense of Rs. 96.89 lakhs which pertained to interest, consultancy charges and spare charges. According to the AO, the prior period expense was not allowable in the current year as the assessee was following mercantile system of accounting. According to the Ld. AR, the prior period expense had crystallized during the year and payment thereof was also made in the current year itself. Therefore, the assessee had rightly claimed the deduction. He further submitted that the assessee company was assessed at a uniform rate of tax and there was no loss to revenue. He also relied upon the decision of Hon’ble Gujarat High Court in the case of Adani Enterprises Limited in Tax Appeal No. 573 of 2016 in this regard. Per contra, the Ld. CIT-DR, supported the order of the lower authorities.

We have considered the rival submissions. It is found that out of prior period expense of Rs. 96.89 lakhs, a sum of Rs. 94.75 lakhs was in respect of interest charges paid to financial institutions. As per provision of Section 43B of the Act, the assessee is eligible for claiming deduction of interest to the financial institutions, in the year of payment only. Thus, the interest payment of Rs. 94.75 lakhs made to financial institutions, which was part of prior period expense, was otherwise also eligible for deduction in the current year only, under the provision of Section 43B of the Act. Regarding the balance prior period expense of Rs. 2.31 lakhs pertaining to spare charges and the consultancy charges, according to the

In the result, the appeal of the assessee is partly allowed.