आदेश / O R D E R

PER AMIT SHUKLA (J.M):

The aforesaid appeal has been filed by the Revenue against the impugned order dated 22.07.2025 passed by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, arising out of the assessment order passed under section 143(3) read with section 92CA(4) of the Income Tax Act, 1961 for Assessment Year 2013-14.

2. The Revenue is principally aggrieved by the action of the learned CIT(A) in deleting the disallowance of prior period expenditure amounting to Rs.96,23,13,622/-. According to the Revenue, the assessee had failed to establish that the liabilities corresponding to such expenditure had crystallised during the year under consideration and therefore the expenditure relating to earlier periods could not be allowed as deduction in the present assessment year. The Revenue has further contended that the learned CIT(A) erred in granting relief by following the order of the Tribunal rendered in assessee’s own case for Assessment Year 2012-13 without independently appreciating the facts and evidences pertaining to the year under consideration.

3. Briefly stated, the facts borne out from the record are that the assessee company, Maharashtra State Electricity Distribution Company Limited (MSEDCL), is a Government of Maharashtra undertaking engaged in the business of distribution, supply, purchase, sale and transmission of electricity throughout the State of Maharashtra. The assessee is one of the largest electricity distribution utilities in the country and caters to a consumer base running into several crores through an extensive operational and administrative network spread across the State.

4. The assessee filed its return of income declaring a loss of Rs.2,298,13,82,887/-. Subsequently, a revised return was filed declaring loss of Rs.2,653,39,51,974/-. The case was selected for scrutiny assessment and notices under sections 143(2) and 142(1) were issued. Since the assessee had entered into international transactions with its Associated Enterprises, a reference under section 92CA(1) was made to the Transfer Pricing Officer. The learned TPO, after examining the international transactions, accepted the same to be at Arm’s Length Price and accordingly no transfer pricing adjustment was proposed.

5. During the course of assessment proceedings, the Assessing Officer noticed that the assessee had debited a sum of Rs.132,66,06,000/- under the head “Prior Period Expenses”. The assessee was accordingly called upon to furnish the details of such expenditure and explain its allowability. In response, the assessee submitted that though the expenditure related to transactions originating in earlier periods, the corresponding liabilities had crystallised during the relevant previous year and therefore the expenditure was allowable in the year under consideration. It was further explained that out of the aforesaid amount, a sum of Rs.36,42,92,378/- representing depreciation short provision and certain other items had already been voluntarily disallowed in the computation of income. Thus, the effective claim under dispute was restricted to Rs.96,23,13,622/-.

6. The Assessing Officer, however, was not convinced with the explanation furnished by the assessee. According to him, under the mercantile system of accounting, expenditure has to be claimed in the year to which it pertains and cannot be shifted to a subsequent year merely because the same has been accounted for in such year. He observed that prior period expenditure, by its very nomenclature, represented expenditure relating to earlier years and therefore could not be allowed in the year under consideration. The Assessing Officer further observed that Accounting Standard-5 contemplates separate disclosure of prior period items and that the assessee had failed to demonstrate that the liabilities had genuinely accrued during the relevant previous year. Proceeding on this reasoning, he disallowed the balance amount of Rs.9