KAVERI GAS POWER LTD.,CHENNAI vs. ACIT CORPORATE CIRCLE 4(2), CHENNAI

Both the appeals filed by the assessee are directed against different orders of the ld. Commissioner of Income Tax (Appeals) 8, Chennai dated 07.04.2018 relating to quantum addition and order dated 10.04.2018 of confirmation of levy of penalty under section 271(1)(c) of the Income Tax Act, 1961 [“Act” in short] relevant to the assessment year 2013-14.

Brief facts leading the ground raised by the assessee are that as per the profit and loss account furnished by the assessee company at Note No. 19, the Assessing Officer has observed that three amounts i.e., ₹.3,65,73,361/-, ₹.7,20,000/- and ₹.31,00,000/- debited as expenses towards replacement of crank shaft, connected service and provision for civil work respectively. These expenses were claimed under the head “Repairs & Maintenance – Site”. As per the explanation offered by the AR of the assessee during the course of assessment proceedings and also as per the facts of the case, these expenses were not incurred during the year, but, where only provisions made by the assessee-company. On being questioned why the entire expenditure of ₹.4,03,93,361/- should not be disallowed, as the expenditure was only a provision made but not an expenditure that was incurred by the assessee, the assessee vide its reply dated 18.02.2016 stated before the Assessing Officer that the provision was made on estimate basis and was recognized in the books of account during the year and the actual expenditure was incurred after two years. By reply of the assessee and also basing on the facts, as the expenditure of ₹.4,03,93,361/- was only a provision made and not an expenditure that was actually incurred during the year, the Assessing Officer disallowed the entire expenditure of ₹.4,03,93,361/- and brought to tax. On appeal, the ld. CIT(A) directed the Assessing Officer to allow the deduction claimed after due and complete examination.

On being aggrieved, the assessee is in appeal before the Tribunal. The ld. Counsel for the assessee has submitted that in order to repair of certain machinery, the expenditure claimed by the assessee is an ascertained liability and in support of the same, the assessee has furnished copy of offer for supply of spare parts, inspection & observation report, etc. and prayed that the claim of the assessee be allowed as ascertained liability.

On the other hand, the ld. DR has submitted that the entire expenditure claimed by the assessee is not incurred since the cost is estimated from the supplier of spare parts M/s. Rolls –Royce and the same has been claimed in its report and thus, the claim of the assessee is contingent liability and supported the order passed by the ld. CIT(A).

We have heard both the sides, perused the materials available on record and gone through the orders of authorities below. The assessee has made a provision of expenditure of ₹.4,03,93,361/- towards replacement of crank shaft, connected service and provision for civil work respectively under the head “Repairs & Maintenance – Site”. The ld. CIT(A) as well as the Assessing Officer have opined that the claim of expenditure was neither ascertained nor clearly ascertainable.

So far as levy of penalty under section 271(1)(c) of the Act is concerned, since have deleted the quantum addition, the penalty levied under section 271(1)(c) of the Act cannot survive and accordingly the penalty is deleted.

In the result, both the appeals filed by the assessee are allowed. Order pronounced on 09th March, 2022 at Chennai.