Dy.Commissioner of Income Tax-6, Kanpur V. M/s U.P State Handloom Corporation Ltd., Kanpur

ITA 190/LKW/2014

• Counselvise Citation: 19023714 RSA 2014
• Duration Of Justice: 8 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-11-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 18-11-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 24-03-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIVEK MISHRA
• Assessee Lawyers: PRADEEP SETH

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH B, LUCKNOW BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI. A. K. GARODIA, ACCOUNTANT MEMBER ITA NOS.190 & 191/LKW/2014 ASSESSMENT YEARS:2006-07 & 2008-09 DY. CIT-6 KANPUR V. M/S U.P. STATE HANDLOOM CORPORATION LTD. KABIR BHAWAN G.T. ROAD, KANPUR PAN/PAN:AAACU2445C (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI. VIVEK MISHRA, CIT(DR) RESPONDENT BY: SHRI. PRADEEP SETH, FCA DATE OF HEARING: 18 11 2014 DATE OF PRONOUNCEMENT: 28 11 2014 O R D E R PER SUNIL KUMAR YADAV: THESE APPEALS ARE PREFERRED BY THE REVENUE AGAINST THE RESPECTIVE ORDER OF THE LD. CIT(A) ON COMMON GROUNDS. 2. SINCE THESE APPEALS WERE HEARD TOGETHER, THESE ARE BEING DISPOSED OF THROUGH THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. WE, HOWEVER, PREFER TO ADJUDICATE THEM ONE AFTER THE OTHER. I.T.A. NO.190/LKW/2014: 3. THROUGH THIS APPEAL, THE REVENUE HAS ASSAILED THE ORDER OF THE LD. CIT(A) ON A SOLITARY GROUND THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DIRECTING THE ASSESSING OFFICER TO VERIFY THE ISSUE IN RESPECT OF ALLOWABILITY OF PRIOR PERIOD EXPENSES OF RS.3,62,98,289/- AND RECOMPUTE THE LOSS FOR ASSESSMENT YEAR 2006-07, AS THESE WERE NOT ALLOWABLE. :- 2 -: 4. HAVING GIVEN A THOUGHTFUL CONSIDERATION TO THE RIVAL SUBMISSIONS AND FROM A CAREFUL PERUSAL OF THE ORDERS OF THE AUTHORITIES BELOW, WE FIND THAT FROM THE TAX AUDIT REPORT THE ASSESSING OFFICER OBSERVED THAT IN COLUMN NO. 22(B), THE ASSESSEE HAS DECLARED PRIOR PERIOD EXPENDITURE AMOUNTING TO RS.3,62,98,289/- WHICH HAS BEEN DEBITED AGAINST THE INCOME OF THE CURRENT YEAR BY THE ASSESSEE. SINCE THE EXPENSES PERTAINED TO PRIOR PERIOD, THE SAME CANNOT BE ADJUSTED AGAINST THE INCOME FOR THE CURRENT YEAR AND THE SAME WAS DISALLOWED BY THE ASSESSING OFFICER AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 5. BEFORE THE LD. CIT(A), THE LD. COUNSEL FOR THE ASSESSEE HAS CONTENDED THAT AS PER TAX AUDIT REPORT, PRIOR PERIOD EXPENDITURES DEBITED IS RS.3,62,98,288.98 AND THE AMOUNT OF PRIOR PERIOD INCOME CREDITED TO THE PROFIT AND LOSS ACCOUNT IS RS.1,30,97,092.20 AND THE NET AMOUNT OF DEBIT OF RS.2,32,01,197/- HAS BEEN SHOWN AFTER THE AMOUNT OF LOSS FOR THE YEAR SHOWN AS RS.13,77,10,019/- IN THE PROFIT AND LOSS ACCOUNT. IT WAS FURTHER CONTENDED THAT THE AMOUNT OF LOSS COMPUTED BY THE ASSESSEE DOES NOT INCLUDE THE PRIOR PERIOD EXPENSES OF RS.3,62,98,289/-, THEREFORE, DISALLOWANCE THEREOF IS WHOLLY UNWARRANTED AND BASED ON MISUNDERSTANDING OF THE ENTRY IN THE PROFIT AND LOSS ACCOUNT. 6. THE LD. CIT(A) EXAMINED THESE FACTS AND HAS HELD THAT PRIOR PERIOD EXPENSES OF RS.2,32,01,197/- ARE BELOW THE LINE ADJUSTMENT AND ARE CARRIED TO BALANCE SHEET BUT NOT CLAIMED FOR INCOME-TAX PURPOSE. HE ACCORDINGLY DIRECTED THE ASSESSING OFFICER TO VERIFY THE SAME AND RECOMPUTE THE LOSS. THOUGH THE REVENUE HAS CHALLENGED THE ORDER OF THE LD. CIT(A), BUT COULD NOT POINT OUT ANY INFIRMITY THEREIN, AS THE ASSESSEE HAS NOT INCLUDED THE PRIOR PERIOD EXPENSES IN THE COMPUTATION OF INCOME. THEREFORE, THERE IS NO QUESTION OF DISALLOWANCE. HE, HOWEVER, REFERRED THE MATTER TO THE A.O. FOR RE-COMPUTATION OF LOSS AFTER VERIFICATION. THEREFORE, WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A) AND WE ACCORDINGLY CONFIRM THE SAME. :- 3 -: I.T.A. NO.191/LKW/2014: 7. IN THIS CASE, THE FACTS ARE ALMOST SIMILAR AND BEFORE THE LD. CIT(A), IT WAS POINTED OUT THAT IN THE TAX AUDIT REPORT IN COLUMN NO. 22(B) THE PARTICULARS OF THE PRIOR PERIOD EXPENSES HAVE BEEN REPORTED AND IN THE SAME COLUMN A SUM OF RS.20,21,868/- HAS BEEN CREDITED IN THE PROFIT AND LOSS ACCOUNT ON ACCOUNT OF INCOME RELATING TO PRIOR PERIOD. ACCORDINGLY IT WAS CONTENDED BEFORE THE LD. CIT(A) THAT NETTING OF PRIOR PERIOD EXPENSES AND PRIOR PERIOD INCOME IS POSSIBLE AND ONLY DISALLOWANCE OF NET PRIOR PERIOD EXPENSES CAN BE MADE AND NOT THE ENTIRE PRIOR PERIOD EXPENSES. THE LD. CIT(A) HAS RE-EXAMINED THE CASE IN THE LIGHT OF THE JUDGMENT IN THE CASES OF CIT VS. EXXON MOBIL LUBRICANTS PVT. LTD., 328 ITR 17 AND MODIPAN VS. CIT, 327 ITR 102 AND HAS HELD THAT AS PER AUDIT REPORT, THESE EXPENSES HAVE BEEN CRYSTALLIZED IN THE YEAR TO WHICH THEY PERTAIN. THEREFORE, NETTING OF PRIOR PERIOD EXPENSES AGAINST PRIOR PERIOD INCOME IS ALLOWABLE. 8. AGGRIEVED, THE REVENUE HAS PREFERRED AN APPEAL BEFORE THE TRIBUNAL WITH THE SUBMISSION THAT NETTING BETWEEN PRIOR PERIOD EXPENSES AND PRIOR PERIOD INCOME MAY BE PERMISSIBLE, BUT THE NET PRIOR PERIOD EXPENSES CANNOT BE ALLOWED AGAINST CURRENT INCOME OF THE IMPUGNED FINANCIAL YEAR. THEREFORE, DISALLOWANCE BE RESTRICTED TO THE NET PRIOR PERIOD EXPENSES DEBITED TO THE PROFIT AND LOSS ACCOUNT. TO THIS EFFECT, THE LD. COUNSEL FOR THE ASSESSEE HAS NO OBJECTION. THE LD. COUNSEL FOR THE ASSESSEE HAS FURTHER SUBMITTED THAT THE ENTIRE PRIOR PERIOD EXPENSES CANNOT BE DISALLOWED, AS IT CAN BE SET OFF AGAINST THE PRIOR PERIOD INCOME. IF ANY DISALLOWANCE IS REQUIRED TO BE MADE, IT CAN ONLY BE RESTRICTED TO NET PRIOR PERIOD EXPENSES DEBITED TO THE PROFIT AND LOSS ACCOUNT OF THE CURRENT YEAR UNLESS AND UNTIL IT IS CRYSTALISED IN THE CURRENT YEAR. IN THIS REGARD, NO DIRECTION WAS MADE BY THE LD. CIT(A) AND THE ASSESSING OFFICER HAS ALSO NOT LOOKED INTO THIS ASPECT OF THE MATTER. WE ACCORDINGLY MODIFY THE ORDER OF THE LD. CIT(A) AND RESTORE THE MATTER TO THE ASSESSING OFFICER WITH A DIRECTION TO MAKE :- 4 -: NECESSARY VERIFICATION AND IF ANY DISALLOWANCE IS REQUIRED TO BE MADE, IT CAN ONLY BE MADE WITH RESPECT TO THE NET PRIOR PERIOD EXPENSES DEBITED TO THE PROFIT AND LOSS ACCOUNT OF THE CURRENT YEAR, IF IT IS NOT CRYSTALISED DURING THE IMPUGNED FINANCIAL YEAR. 9. IN THE RESULT, APPEAL OF THE REVENUE IN I.T.A. NO. 190/LKW/2014 IS DISMISSED AND I.T.A. NO. 191/LKW/2014 IS ALLOWED FOR STATISTICAL PURPOSES. ORDER WAS PRONOUNCED IN THE OPEN COURT ON THE DATE MENTIONED ON THE CAPTION PAGE. SD/- SD/- [A. K. GARODIA] [SUNIL KUMAR YADAV] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 28 TH NOVEMBER, 2014 JJ:1811 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR ASSISTANT REGISTRAR