Roverco Apparel Company Pvt. Ltd., CHENNAI V. ACIT, CHENNAI

ITA 2050/CHNY/2015

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 9027 (ITAT-CHENNAI)
• Duration Of Justice: 8 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-06-2016
• Appeal Filed By: Assessee
• Bench Allotted: C
• Next Hearing Date: 29-03-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 13-10-2015
• Court: TRIBUNAL
• Department Lawyers: PATHLAVATH PEERYA
• Assessee Lawyers: B RAMAKRISHNAN
• Keywords: Business expenditure; Revenue expenditure; Capital expenditure

Judgement Text

, , IN THE INCOME - TAX APPELLATE TRIBUNAL C BENCH, CHENNAI , . , BEFORE SHRI CHANDRA POOJARI , ACCOUNTANT MEMBER & SHRI DUVVURU RL REDDY , JUDICIAL MEMBER I.T.A.NO. 20 50 /MDS/2015 ASSESSMENT YEAR : 20 1 0 - 1 1 M/S. ROVERCO APPAREL CO. PVT. LTD., NO. 37, TTK ROAD, ALWARPET, CHENNAI 600 0 1 8 . [PAN: A A C C R4890A ] VS. THE ASSISTANT COMMISSIONER OF INCOME TAX , COMPANY CIRCLE V(4) , CHENNAI 600 0 34 . ( / APPELLANT ) ( / RESPONDENT ) ./ I.T.A.NO. 2212 /MDS/2015 / ASSESSMENT YEAR :2010 - 11 THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE V(4), CHENNAI 600 034. VS. M/S. ROVERCO APPAREL CO. PVT. LTD., NO. 37, TTK ROAD, ALWARPET, CHENNAI 600 018 . ( / APPELLANT ) ( / RESPONDENT ) ASSESSEE BY : SHRI B. RAMAKRISHNAN, C.A. DEPARTMENT BY : SHRI PATHLAVATH PEERYA, CIT / DATE OF HEARING : 29 . 03 .201 6 / DA TE OF P RONOUNCEMENT : 28 .06 .201 6 / O R D E R PER DUVVURU RL REDDY , JUDICIAL MEMBER : TH E CROSS APPEAL S FILED BY THE ASSESSEE AS WELL AS REVENUE ARE DIRECTED AGAINST THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX I.T.A. NO S . 2050 & 2212 /M/ 15 2 (APPEALS) VI , CHENNAI , DATED 16 . 0 9 .20 1 5 RELEVANT TO THE ASSESSMENT YEAR 20 1 0 - 1 1 . 2. THE FIRST GROUND RAISED IN BOTH THE APPEALS OF THE ASSESSEE AS WELL AS REVENUE IS WITH REGARD TO THE DISALLOWANCE MADE UNDER SECTION 40(A)(IA) OF THE INCOME TAX ACT, 1961 [ ACT IN SHORT]. 2.1 ON THE CLAIM OF THE ASSESSEE OF .3,21,31,431/ - , THE ASSESSING OFFICER HAS NOTED THAT AN AMOUNT OF .86,98,773/ - ATTRACTS TDS, WHICH WAS NOT EFFECTUATED. OUT OF THE ABOVE AMOUNT, .16,65,882/ - PERTAINS TO CUSTOMS DUTY PAYMENT AND .70,32,891/ - PERTAINS TO EXPENDITURE TOWARDS LABOUR, PROC ESSING FEE, TESTING FEE, AUDIT FEE ETC. WHICH ACCORDING TO THE ASSESSEE DID NOT REMAIN AS AN OUTSTANDING AS PAYABLE AT THE CLOSE OF THE FINANCIAL YEAR. IN OTHER WORDS, THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT WERE NOT APPLICABLE TO CASES WHERE ACTUAL PAYMENT HAS BEEN MADE AND WOULD APPLY TO SUCH EXPENDITURE WHICH IS PAYABLE AS ON 31 ST MARCH OF THE RELEVANT YEAR AND NOT TO SUCH EXPENDITURE WHICH HAS ALREADY BEEN PAID AND RELIED ON VARIOUS DECISIONS INCLUDING THE SPECIAL BENCH DECISION OF THE TRIBUNAL I N THE CASE OF MERILYN SHIPPING & TRANSPORT 16 ITR (TRIB.) 1 AND VECTOR SHIPPING P. LTD. 357 ITR 642 (ALLAHABAD). I.T.A. NO S . 2050 & 2212 /M/ 15 3 2.2 ON APPEAL, WITH REGARD TO CUSTOMS DUTY PAYMENT, THE LD. CIT(A) HAS OBSERVED THAT THERE IS NO DISPUTE ON IT AND NOT BEING EXIGIBLE TO TDS. FURTHER, BY FOLLOWING THE RATIO LAID DOWN BY HON BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF P.M.S. DIESELS V. CIT 374 ITR 562, THE LD. CIT(A) DIRECTED THE ASSESSING OFFICER TO RESTRICT THE DISALLOWANCE TO .70,32,891/ - . 2.3 ON BEING AGGRIEVED, BOTH THE PARTIES ARE IN APPEAL. THE ASSESSEE RAISED THE GROUND OF DISALLOWANCE OF .70,32,891/ - UNDER SECTION 40(A)(IA) OF THE ACT AND THE REVENUE S GROUND IS THAT THE ASSESSEE HAS NOT PRODUCED ANY EVIDENCE FOR THE C USTOMS DUTY PAYMENT OF .16,65,882/ - . 2.4 THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT SINCE PAYMENTS HAVE BEEN MADE BY THE END OF 31 ST MARCH OF THE RELEVANT FINANCIAL YEAR AND NOTHING IS OUTSTANDING, THE DISALLOWANCE MADE BY THE ASSESSING OFFICER TOWARDS NON - DEDUCTION OF TDS CANNOT BE SUSTAINED IN VIEW OF THE DECISIONS IN THE CASES OF MERILYN SHIPPING & TRANSPORT 16 ITR (TRIB.) 1 AND VECTOR SHIPPING P. LTD. 357 ITR 642 (ALLAHABAD). I.T.A. NO S . 2050 & 2212 /M/ 15 4 2. 5 ON THE OTHER HAND, THE LD. DR HAS TAKEN A PLEA THAT THE ASSES SEE COULD NOT PRODUCE ANY EVIDENCE TOWARDS CUSTOMS DUTY PAYMENTS OF .16,65,882/ - EITHER BEFORE THE ASSESSING OFFICER OR BEFORE THE LD. CIT(A). THEREFORE, HE STRONGLY CONTENDED THAT THE LD. CIT(A) SHOULD HAVE CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER IN THE ABSENCE OF ANY EVIDENCE HAVING MADE PAYMENTS TOWARD S CUSTOMS DUTY. 2.6 WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIALS ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. THE ASSESSING OFFICER, BY INVOKING SECTION 40(A)(IA) OF THE ACT, DISALLOWED .70,32,891/ - , WHICH RELATES TO EXPENDITURE TOWARD S LABOUR, PROCESSING FEE, TESTING FEE, AUDIT FEE ETC. SINCE THE ASSESSEE FAILED TO DEDUCT TDS. IT IS A SETTLED LAW THAT ONCE ALREADY AMOUNTS ARE PAID, THE SPECIAL BENCH DECISION OF THE TRIBUNAL IN THE CASE OF MERILYN SHIPPING AND TRANSPORTS V. ADDL.CIT (SU PRA) SQUARELY APPLIES TO THE CASE OF THE ASSESSEE. A GAINST THE DECISION OF THE HON BLE ALLAHABAD HIGH COURT IN THE CASE OF CIT V. VECTOR SHIPPING SERVICES P. LTD. 357 ITR 642(ALL) , WHEREIN , THE DECISION IN THE CASE OF M ERILYN SHIPPING AND TRANSPORTS V. ADD L.CIT (SUPRA) HAS BEEN CONSIDERED AND DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE , THE DEPARTMENT HAS PREFERRED SLP BEFORE THE HON BLE SUPREME COURT AND THE HON BLE SUPREME COURT HAS DISMISSED THE I.T.A. NO S . 2050 & 2212 /M/ 15 5 SLP IN CC NO. 8068/2014 VIDE ORDER DATED 02.07.2014. IN VIE W OF THE DISMISSAL OF THE SLP FILED BY THE DEPARTMENT, THE ORDER PASSED BY THE HON BLE ALLAHABAD HIGH COURT HAS BECOME FINAL. THEREFORE, IT CAN BE SAFELY CONCLUDED THAT THE ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE. 2.7 HOWEVER, IN VIEW OF THE DECISIO N IN THE CASE OF M ERILYN SHIPPING AND TRANSPORTS V. ADDL.CIT (SUPRA) , THE SECTION 40(A)(IA) IS NOT APPLICABLE WHEN THERE IS NO OUTSTANDING BALANCE AT THE END OF THE CLOSE OF THE YEAR RELEVANT TO THE ASSESSMENT YEAR IN RESPECT OF THESE PAYMENTS. SINCE , THE ASSESSEE HAS NOT BROUGHT ON RECORD, THE DETAILS OF OUTSTANDING EXPENSES OR SCHEDULE OF SUNDRY CREDITORS SHOWING WHETHER THE IMPUGNED AMOUNT IS OUTSTANDING AT THE END OF THE CLOSE OF THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR EITHER IN THE NAME OF TH E PARTY OR OUTSTANDING EXPENSES. HENCE, IN THE INTEREST OF JUSTICE, WE REMIT T HE ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER WITH DIRECTION TO VERIFY THE CLAIM OF THE ASSESSEE AND THE ASSESSEE SHALL PLACE NECESSARY EVIDENCE IN SUPPORT OF HIS CLAIM. ACC ORDINGLY, THE GROUND RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 2.8 THE DISALLOWANCE OF PAYMENT OF CUSTOMS DUTY IS NOT SUBJECT MATTER IN ASSESSEE S APPEAL AND SINCE THE REVENUE HAS RAISED THE ISSUE OF CONFIRMATION OF DISALLOWANCE IN ITS A PPEAL, THE SAME IS DEALT WITH IN REVENUE S APPEAL. I.T.A. NO S . 2050 & 2212 /M/ 15 6 3. THE LAST GROUND RAISED IN THE APPEAL OF THE ASSESSEE IS WITH REGARD TO CONFIRMATION OF DISALLOWANCE OF PAYMENT OF CLUB MEMBERSHIP OF .6,76,800/ - . THE ASSESSEE HAS CLAIMED DEDUCTION OF CLUB MEMBERSHI P PAID BY IT AS REVENUE EXPENDITURE. HOWEVER, THE ASSESSING OFFICER TREATED THE SAME AS CAPITAL EXPENDITURE. ON APPEAL, BY FOLLOWING THE RATIO LAID DOWN IN THE DECISION OF THE HON BLE KERALA HIGH COURT IN THE CASE OF FRAMATONE CONNECTOR OEN LTD. V. DCIT 29 4 ITR 559, THE LD. CIT(A) HAS HELD THAT THE PAYMENT OF CLUB MEMBERSHIP IS CAPITAL EXPENDITURE. THE LD. COUNSEL FOR THE ASSESSEE COULD NOT SUBSTANTIATE BY RELYING ON ANY HIGHER COURTS DECISION TO TREAT THE EXPENDITURE TOWARDS CLUB MEMBERSHIP AS REVENUE EXPE NDITURE. IN THE CASE OF FRAMATONE CONNECTOR OEN LTD. V. DCIT (SUPRA), THE HON BLE KERALA HIGH COURT HAS OBSERVED AND HELD AS UNDER: THE ASSESSEE WAS ENGAGED IN THE MANUFACTURE OF MULTIPIN CONNECTORS. THE ASSESSEE CLAIMED DEDUCTION OF AN AMOUNT OF RS. 45,0 00 TO COCHIN YACHT CLUB PAID TOWARDS INSTITUTIONAL MEMBERSHIP FEE. THE ASSESSING OFFICER DISALLOWED THE CLAIM AND THIS WAS UPHELD BY THE TRIBUNAL. ON APPEAL TO THE HIGH COURT: HELD, DISMISSING THE APPEAL, THAT THE EXPENDITURE EFFECTED BY THE ASSESSEE WAS CAPITAL IN NATURE. ONCE THE ASSESSEE PAID THE AMOUNT TO A CLUB FOR MEMBERSHIP, IT WAS A PAYMENT ONCE AND FOR ALL, RESULTING IN AN ENDURING BENEFIT TO THE INSTITUTION. THE MERE FACT THAT THE ASSESSEE'S REPRESENTATIVE, LIKE THE MANAGING DIRECTOR'S PARTICIPA TION IN THE CLUB PROMOTED THE ASSESSEE'S BUSINESS DID NOT CHANGE THE CHARACTER OF THE PAYMENT WHICH WAS MADE ONCE AND FOR ALL . 4. IN VIEW OF THE RATIO LAID DOWN BY THE HON BLE KERALA HIGH COURT, WE CONFIRM THE ORDER OF THE LD. CIT(A) ON THIS ISSUE AND D ISMISS THE GROUND RAISED BY THE ASSESSEE. I.T.A. NO S . 2050 & 2212 /M/ 15 7 5. THE FIRST GROUND RAISED IN THE APPEAL OF THE REVENUE IS WITH REGARD TO PAYMENT OF CUSTOMS DUTY OF .16,65,882/ - . IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER HAS NOTED THAT WITH REGARD TO PAYMENT OF CUSTOMS DUTY, THE ASSESSEE COULD NOT PRODUCE ANY PROOF OR ANY EXPLANATION REGARDING THE EXPENSES AMOUNTING TO .16,65,882/ - . FURTHER, HE OBSERVED THAT VIDE ORDER SHEET ENTRY DATED 27.03.2013, THE ASSESSEE AGREED THAT HE IS NOT ABLE PRODUCE ANY DETAILS OR PROOF WH ATSOEVER REGARDING PAYMENT OF CUSTOMS DUTY. WHEN , T HE PAYMENT OF CUSTOMS DUTY BY THE ASSESSEE IS THE POINT AT ISSUE AND DISALLOWANCE WAS MADE BY THE ASSESSING OFFICER IN THE ABSENCE OF ANY EVIDENCE HAVING PAID CUSTOMS DUTY , THE OBSERVATION OF THE LD. CIT(A ) AT PARAGRAPH 4.2.1. THAT AS REGARDS ITEM NO.(I) RELATING TO CUSTOMS DUTY THERE IS NO DISPUTE ON IT NOT BEING EXIGIBLE TO TDS , WHICH IS NOT THE ONLY ISSUE TO BE CONSIDERED BY HIM, BUT HE SHOULD HAVE CONSIDERED WHETHER THE ASSESSEE HAS ACTUALLY PAID THE CUSTOMS DUTY AND PRODUCED ANY EVIDENCE OR EXPLANATION OVER IT. THEREFORE, THE LD. CIT(A) HAS NOT PROPERLY APPRECIATED THE FACTS. IN THIS CASE, THE ASSESSEE HAS NOT PRODUCED ANY EVIDENCE EITHER BEFORE THE ASSESSING OFFICER OR EVEN BEFORE THE LD. CIT(A) WITH REGARD TO THE PAYMENT OF CUSTOMS DUTY. THE ASSESSEE ITSELF, VIDE ORDER SHEET ENTRY DATED 27.03.2013, ADMITTED THAT THE ASSESSEE AGREED THAT HE IS NOT ABLE PRODUCE ANY DETAILS OR PROOF WHATSOEVER REGARDING PAYMENT OF CUSTOMS DUTY . IT IS TRUE THAT THE PA YMENT OF CUSTOMS DUTY IS NOT EXIGIBLE TO TDS. BUT, WHEN THE I.T.A. NO S . 2050 & 2212 /M/ 15 8 ASSESSEE COULD NOT PRODUCE ANY EVIDENCE HAVING PAID CUSTOMS DUTY BEFORE THE AUTHORITIES BELOW, THE LD. CIT(A) WENT IN WRONG TO DELETE THE DISALLOWANCE MADE BY ASSESSING OFFICER. ACCORDINGLY, THE G ROUND RAISED BY THE REVENUE IS ALLOWED. 6. THE NEXT GROUND RAISED IN THE APPEAL OF THE REVENUE IS WITH REGARD TO DELETION OF ELECTRICITY CHARGES PAID BY THE ASSESSEE WHOLLY AND EXCLUSIVELY FOR THE BUSINESS PURPOSE OF THE ASSESSEE. THE ASSESSEE IS STATED TO HAVE INCURRED ELECTRICITY EXPENSES OF .2,60,594/ - TOWARDS GUEST HOUSE OWNED BY THE ASSESSEE. THE ASSESSEE HAS CONTENDED THAT THESE ELECTRICITY CHARGES WERE PAID FOR THE GUEST HOUSE OF THE COMPANY, WHICH IS ALSO A RESIDENCE OF ONE OF ITS DIRECTORS, WA S NOT ACCEPT ED BY THE ASSESSING OFFICER SINCE THE ASSESSEE FAILED TO SUBSTANTIATE ITS CLAIM WITH VALID DOCUMENTARY EVIDENCE WITH AGREEMENT FOR THE HOUSE, THE ASSESSEE NEITHER PRODUCED THE ELECTRICITY BILLS, NOR THE AGREEMENT FOR THE G UEST HOUSE WITH ITS D IRE CTOR. SINCE THE ASSESSEE CLAIMED TO HAVE INCURRED THE ELECTRICITY EXPENSES WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE, THE LD. CIT(A) DELETED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. PERSONAL USE OF ELECTRICITY BY ONE OF THE DIRECTORS OF THE ASSESSEE COMPANY, WHO USED THE GUEST HOUSE AS RESIDENCE, CANNOT BE OVERRULED. IF THE ELECTRICITY CHARGES USED FOR THE BONAFIDE COMPANY ACTIVITIES, THAT ALONE CAN BE ALLOWED. TO MEET THE ENDS OF JUSTICE, WE DIRECT THE ASSESSEE TO PRODUCE PAYMENT OF ELECTRICITY I.T.A. NO S . 2050 & 2212 /M/ 15 9 BILLS FOR THE GUEST HOUSE ALONE BEFORE THE ASSESSING OFFICER FOR VERIFICATION AND TO GET ALLOWANCE. IF THE ASSESSEE FAILS TO PRODUCE THE ELECTRICITY BILLS, THE DISALLOWANCE MADE BY THE ASSESSING OFFICER STANDS SUSTAINED. WITH THE ABO VE FINDINGS, WE SET ASIDE THE ORDER OF THE LD. CIT(A) ON THIS ISSUE AND THE ISSUE RAISED BY THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. 7. THE NEXT GROUND RAISED IN THE APPEAL OF THE REVENUE IS THAT THE LD. CIT(A) HAS ERRED IN NOT CONSIDERING THE F ACT THE LIABILITY TO INCUR THE EXPENDITURE OF .3,65,01,708/ - , WHICH CRYSTALLISED IN THE ASSESSMENT YEAR 2009 - 10 AND NOT IN THE ASSESSMENT YEAR 2010 - 11. IN ADDITION TO THE ABOVE, NO TDS WAS DEDUCTED ON THE PAYMENTS MADE BY THE ASSESSEE. 7 .1 FACTS OF THE CASE ARE THAT THE ASSESSEE HAS CLAIMED AN EXP ENDITURE OF .3,65,01,708/ - BEING A GENUINE BUSINESS EXPENDITURE. THE ASSESSING OFFICER HAS OBSERVED THAT THE BILLS OF EXPENSES WERE ENTERED IN ASSESSEE S BOOKS OF ACCOUNT IN THE FINANCIAL YEAR 2008 - 09, WHEREAS THE SAME IS INCORPORATED AS EXPENDITURE FOR T HE RELEVANT ACCOUNTING YEAR 2009 - 10. AFTER VERIFICATION OF BILLS/VOUCHERS, THE ASSESSING OFFICER HAS GIVEN DETAILED ABSTRACT OVER THE DETAILS OF BILLS OF PAYMENT AND FOUND THAT THE ASSESSEE HAS INCURRED THE ABOVE EXPENDITURE DURING THE FINANCIAL YEAR 2008 - 09 RELEVANT TO THE ASSESSMENT YEAR 2009 - 10. AS SUCH, THE RELEVANT ASSESSMENT YEAR UNDER CONSIDERATION IS 2010 - 11 AND THEREFORE, THE ASSESSING OFFICER HAS HELD THAT THE ASSESSEE CANNOT CLAIM SUCH EXPENDITURE WHICH WAS INCURRED IN THE I.T.A. NO S . 2050 & 2212 /M/ 15 10 ASSESSMENT YEAR 2009 - 10 . ACCORDINGLY, HE DISALLOWED THE CLAIM OF THE ASSESSEE AND BROUGHT TO TAX. 7 .2 ON APPEAL, AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE LD. CIT(A) DIRECTED THE ASSESSING OFFICER TO DELETE THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. THUS, THE REVENUE IS IN APPEAL BEFORE US. 7 .3 WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIALS ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER HAS NOT DISPUTED THE GENUINENESS OF THE EXPENDITURE INCURRED B Y THE ASSESSEE. HOWEVER, HE HAS OBSERVED THAT THOSE EXPENSES WERE INCURRED IN THE FINANCIAL YEAR 2008 - 09 RELEVANT TO THE ASSESSMENT YEAR 2009 - 10 , BUT CLAIMED THE EXPENDITURES IN THE FINANCIAL YEAR 2009 - 10 RELEVANT TO THE ASSESSMENT YEAR 2010 - 11 . WITH REGA RD TO THE ABOVE EXPENSES, THE ASSESSING OFFICER HAS GIVEN DETAILED BILL - WISE SUMMARY WITH NATURE OF EXPENSES INCURRED BY THE ASSESSEE FROM (I) TO (XXII) IN PARA 16 IN ADDITION TO BILL - WISE DETAILS OF 818 ITEMS IN THE FORM OF TABLE . THE BILL - WISE SUMMARY OF NATURE EXPENSES ARE REPRODUCED HEREUNDER: I. SL. NO. 1 & 2, AS DETAILED ABOVE, HAVE BEEN INCURRED IN RELATION TO THE ANNUAL MAINTENANCE CONTRACT PAYMENTS. AS PER THE DETAILS FROM THE BILLS THE PAYMENT WAS MADE FOR ANNUAL MAINTENANCE WHICH IS DONE DURING THE F.Y. 2008 - 09. ASSESSEE'S CLAIMS EXPENDITURE FOR THE ABOVE ANNUAL MAINTENANCE CHARGE DURING THIS F.Y 2009 - HLSUBJECT TO A.Y 2010 - 11 WHICH CLEARLY STATES THAT THE PURPOSE OF THE EXPENSES WERE NOT UTILIZED OR NOT RELATED TO OR NOT PERTAINING TO THE F.Y 20 09 - 10. IN ADDITION TO THIS IT WAS FOUND THAT THE ASSESSEE HAS NOT DEDUCTED TDS ON THE SAME. I.T.A. NO S . 2050 & 2212 /M/ 15 11 II. FROM SL. NO. 3 TO 19, PAYMENTS BILLS WERE RAISED FOR AIR FREIGHT, AS PER THE PAYMENT OF BILLS, IT WAS FOUND THAT THESE PAYMENTS WERE MADE FOR AIR FREIGHT PER TAINING TO F.Y 2008 - 09. THE NATURE OF THE EXPENDITURE IS FOR AIR FREIGHT, THAT IS GOODS WERE TRANSPORTED FROM ONE PLACE TO OTHER PLACE, AND SERVICES WERE UTILIZED FOR THE PURPOSE OF TRANSPORTING THE GOODS DURING F.Y 2008 - 09 ITSELF. FROM THIS IT IS OBSERVED THAT THE SERVICES UTILIZED IN THE P.Y 2008 - 09 AND EXPENSES WERE CLAIMED DURING THE F.Y 2009 - 10 IS NOT RELEVANT TO OR NOT RELATED TO OR NOT PERTAINING TO THE SUBJECT YEAR 2009 - 10. IN ADDITION TO THIS IT WAS FOUND THAT THE ASSESSEE HAS NOT DEDUCTED TDS ON THE SAME. III. FROM SI. NO. 20 - 57, PAYMENTS BILLS WERE RAISED FOR TRANSPORT CHARGES, AS PER THE PAYMENT OF BILLS, IT WAS FOUND THAT THESE PAYMENTS WERE MADE FOR TRANSPORT CHARGES PERTAINING TO F.Y 2008 - 09. THE NATURE OF THE EXPENDITURE IS FOR TRANSPORT CHARGES, THAT IS GOODS WERE TRANSPORTED FROM ONE PLACE TO OTHER PLACE, AND SERVICES WERE UTILIZED FOR THE PURPOSE OF TRANSPORTING THE GOODS DURING F.Y 2008 - 09 ITSELF. FROM THIS IT IS OBSERVED THAT THE SERVICES UTILIZED IN THE P.Y 2008 - 09 AND EXPENSES WERE CLAIMED DURING THE F.Y 2009 - 10 IS NOT RELEVANT TO OR NOT RELATED TO OR NOT PERTAINING TO THE SUBJECT YEAR 2009 - 10. IN ADDITION TO THIS IT WAS FOUND THAT THE ASSESSEE HAS NOT DEDUCTED TDS ON THE SAME. IV. FROM SL. NO. 58 - 103, PAYMENTS BILLS WERE RAISED FOR VAN/BUS HIRE CHARGES. AS PER THE PAYMENT OF BILLS, IT WAS FOUND THAT THESE PAYMENTS WERE MADE FOR BUS/VAN HIRE CHARGES PERTAINING TO F.Y 2008 - 09. THE NATURE OF THE EXPENDITURE IS FOR HIRING OF VAN AND BUSES, ON WHICH SERVICES WERE UTILIZED DURING F.Y 2 008 - 09 ITSELF. FROM THIS IT IS OBSERVED THAT THE SERVICES UTILIZED IN THE P.Y 2008 - 09 AND EXPENSES WERE CLAIMED DURING THE F.Y 2009 - 10 IS NOT RELEVANT TO OR NOT RELATED TO OR NOT PERTAINING TO THE SUBJECT YEAR 2009 - 10. IN ADDITION TO THIS IT WAS FOUND THAT THE ASSESSEE HAS NOT DEDUCTED TDS ON THE SAME. V. SL. NO. 104 - 105, PAYMENTS BILLS WERE RAISED FOR CAR PETROL/DIESEL. AS PER THE PAYMENT OF BILLS, IT WAS FOUND THAT THESE PAYMENTS WERE MADE PETROL AND DIESEL FOR WHICH WERE CONSUMED DURING THE F.Y 2008 - 0 9 ITSELF. FROM THIS IT IS OBSERVED THAT THE ABOVE SAID ITEMS WERE CONSUMED IN THE P.Y 2008 - 09 AND EXPENSES WERE CLAIMED DURING THE F.Y 2009 - 10 IS NOT RELEVANT TO OR NOT RELATED TO OR NOT PERTAINING TO THE SUBJECT YEAR 2009 - 10. I.T.A. NO S . 2050 & 2212 /M/ 15 12 VI. SL. NO. 106 - 142, PAYMEN TS BILLS WERE RAISED FOR COURIER CHARGES, AS PER THE PAYMENT OF BILLS, IT WAS FOUND THAT THESE PAYMENTS WERE MADE FOR COURIER CHARGES PERTAINING TO F.Y 2008 - 09. THE NATURE OF THE EXPENDITURE IS FOR COURIER CHARGES, THAT IS GOODS WERE COURIERED FROM ONE PLA CE TO OTHER PLACE, AND SERVICES WERE UTILIZED FOR THE PURPOSE OF COURIER DURING F.Y 2008 - 09 ITSELF. FROM THIS IT IS OBSERVED THAT THE SERVICES UTILIZED IN THE P.Y 2008 - 09 AND EXPENSES WERE CLAIMED DURING THE F.Y 2009 - 10 IS NOT RELEVANT TO OR NOT RELATED T O OR NOT PERTAINING TO THE SUBJECT YEAR 2009 - 10. IN ADDITION TO THIS IT WAS FOUND THAT THE ASSESSEE HAS NOT DEDUCTED TDS ON THE SAME. VII. SL. NO. 143 - 197, PAYMENTS BILLS WERE RAISED FOR HIRE CHARGES FOR MACHINERY. AS PER THE PAYMENT OF BILLS, IT WAS FO UND THAT THESE PAYMENTS WERE MADE FOR HIRING MACHINERY WHICH IS PERTAINING TO F.Y 2008 - 09. THE NATURE OF THE EXPENDITURE IS FOR HIRING MACHINERY, THAT MACHINERY WAS UTILIZED, AND SERVICES WERE RENDERED BY THE MACHINERY IN F.Y 2008 - 09 ITSELF. FROM THIS IT I S OBSERVED THAT THE SERVICES UTILIZED IN THE P.Y 2008 - 09 AND EXPENSES WERE CLAIMED DURING THE F.Y 2009 - 10 IS NOT RELEVANT TO OR NOT RELATED TO OR NOT PERTAINING TO THE SUBJECT YEAR 2009 - 10. IN ADDITION TO THIS IT WAS FOUND THAT THE ASSESSEE HAS NOT BEEN DE DUCTED TDS ON THE SAME. VIII. SL. NO. 198 - 392, PAYMENTS BILLS WERE RAISED FOR PURCHASE OF SMALL SPARES OF MACHINERIES. AS PER THE PAYMENT OF BILLS, IT WAS FOUND THAT THESE PAYMENTS WERE MADE FOR PURCHASE OF SMALL SPARES OF MACHINERIES WHICH IS PERTAININ G TO F.Y 2008 - 09. THE NATURE OF THE EXPENDITURE IS SUCH THAT THESE MACHINERY SPARES WERE UTILIZED, AND SERVICES WERE RENDERED BY THE MACHINERY IN F.Y 2008 - 09 ITSELF. FROM THIS IT IS OBSERVED THAT THE SERVICES UTILIZED IN THE P.Y 2008 - 09 AND EXPENSES WERE C LAIMED DURING THE F.Y 2009 - 10 IS NOT RELEVANT TO OR NOT RELATED TO OR NOT PERTAINING TO THE SUBJECT YEAR 2009 - 10. IX. SI. NO. 393 - 395, PAYMENTS BILLS WERE RAISED FOR PROFESSIONAL CHARGES. AS PER THE PAYMENT OF BILLS, IT WAS FOUND THAT THESE PAYMENTS WER E MADE FOR PROFESSIONAL CHARGES WHICH IS PERTAINING TO F.Y 2008 - 09. THE NATURE OF THE EXPENDITURE IS FOR PROFESSIONAL CHARGES FOR THE SERVICES THAT WERE UTILIZED, AND SERVICES WERE RENDERED BY THOSE PROFESSIONALS IN F.Y 2008 - 09 ITSELF. FROM THIS IT IS OBSE RVED THAT THE SERVICES UTILIZED IN THE PY 2008 - 09 AND EXPENSES WERE CLAIMED DURING THE F.Y 2009 - 10 IS NOT RELEVANT TO OR NOT RELATED T6 OR NOT PERTAINING TO THE SUBJECT YEAR 2009 - 10. IN ADDITION TO THIS IT WAS FOUND THAT THE ASSESSEE HAS NOT DEDUCTED TDS O N THE SAME. I.T.A. NO S . 2050 & 2212 /M/ 15 13 X. SL. NO. 396 - 410, PAYMENTS BILLS WERE RAISED FOR REPAIR AND MAINTENANCE. AS PER THE PAYMENT OF BILLS, IT WAS FOUND THAT THESE PAYMENTS WERE MADE FOR REPAIRS AND MAINTENANCE WHICH IS PERTAINING TO F.Y 2008 - 09. THE NATURE OF THE EXPENDITURE IS FOR REPAIR AND MAINTENANCE, AND THE BENEFITS OF THOSE REPAIR AND MAINTENANCE WERE UTILIZED, AND SERVICES WERE RENDERED IN FY 2008 - 09 ITSELF. FROM THIS IT IS OBSERVED THAT THE SERVICES UTILIZED IN THE P.Y 2008 - 09 AND EXPENSES WERE CLAIMED DURING THE F.Y 2009 - 10 IS NOT RELEVANT TO OR NOT RELATED TO OR NOT PERTAINING TO THE SUBJECT YEAR 2009 - 10. XI. SL. NO. 411 - 422, PAYMENTS BILLS WERE RAISED FOR SECURITY CHARGES. AS PER THE PAYMENT OF BILLS, IT WAS FOUND THAT THESE PAYMENTS WERE MADE FOR SECURITY CHARGE S WHICH IS PERTAINING TO F.Y 2008 - 09. THE NATURE OF THE EXPENDITURE IS FOR SECURITY CHARGES, AND THE BENEFITS OF THOSE SECURITY CHARGES WERE UTILIZED, AND SERVICES WERE RENDERED IN FY 2008 - 09 ITSELF. FROM THIS IT IS OBSERVED THAT THE SERVICES UTILIZED IN T HE P.Y 2008 - 09 AND EXPENSES WERE CLAIMED DURING THE F.Y 2009 - 10 IS NOT RELEVANT TO OR NOT RELATED TO OR NOT PERTAINING TO THE SUBJECT YEAR 2009 - 10. XII. SL. NO. 423 - 472, PAYMENTS BILLS WERE RAISED FOR LABOUR CHARGES. AS PER THE PAYMENT OF BILLS, IT WAS FOUND THAT THESE PAYMENTS WERE MADE FOR LABOUR CHARGES WHICH IS PERTAINING TO F.Y 2008 - 09. THE NATURE OF THE EXPENDITURE IS FOR LABOUR CHARGES FOR THE SERVICES THAT WERE UTILIZED, AND SERVICES WERE RENDERED BY THOSE PERSONS IN F.Y 2008 - 09 ITSELF. FROM THI S IT IS OBSERVED THAT THE SERVICES UTILIZED IN THE P.Y 2008 - 09 AND EXPENSES WERE CLAIMED DURING THE FY 2009 - 10 IS NOT RELEVANT TO OR NOT RELATED TO OR NOT PERTAINING TO THE SUBJECT YEAR 2009 - 10. IN ADDITION TO THIS IT WAS FOUND THAT THE ASSESSEE HAS NOT DE DUCTED TDS ON THE SAME. XIII. SL. NO. 473 - 510, PAYMENTS BILLS WERE RAISED FOR ACID AND CHEMICALS. AS PER THE PAYMENT OF BILLS, IT WAS FOUND THAT THESE PAYMENTS WERE MADE FOR ACID AND CHEMICALS WHICH IS PERTAINING TO F.Y 2008 - 09. THE NATURE OF THE EXPEND ITURE IS FOR PURCHASE OF ACID AND CHEMICALS AND SERVICES AND BENEFITS WERE UTILIZED IN F.Y 2008 - 09 ITSELF. FROM THIS IT IS OBSERVED THAT THE SERVICES UTILIZED IN THE P.Y 2008 - 09 AND EXPENSES WERE CLAIMED DURING THE F.Y 2009 - 10 IS NOT RELEVANT TO OR NOT REL ATED TO OR NOT PERTAINING TO THE SUBJECT YEAR 2009 - 10. XIV. SL. NO. 511 - 522, PAYMENTS BILLS WERE RAISED FOR CONSUMABLES. AS PER THE PAYMENT OF BILLS, IT WAS FOUND THAT THESE PAYMENTS WERE MADE FOR CONSUMABLES WHICH IS PERTAINING TO FY 2008 - 09. THE NATUR E OF THE I.T.A. NO S . 2050 & 2212 /M/ 15 14 EXPENDITURE IS FOR CONSUMABLES SERVICES AND BENEFITS WERE UTILIZED IN F.Y 2008 - 09 ITSELF. FROM THIS IT IS OBSERVED THAT THE SERVICES UTILIZED IN THE PY 2008 - 09 AND EXPENSES WERE CLAIMED DURING THE F.Y 2009 - 10 IS NOT RELEVANT TO OR NOT RELATED TO O R NOT PERTAINING TO THE SUBJECT YEAR 2009 - 10. XV. SL. NO. 523 - 529, PAYMENTS BILLS WERE RAISED FOR DESIGN AND DEVELOPMENT CHARGES. AS PER THE PAYMENT OF BILLS, IT WAS FOUND THAT THESE PAYMENTS WERE MADE FOR DESIGN AND DEVELOPMENT CHARGES WHICH IS PERTAI NING TO F.Y 2008 - 09. THE NATURE OF THE EXPENDITURE IS FOR DESIGN AND DEVELOPMENT CHARGES AND THE SERVICES AND BENEFITS OF THE SAME WERE UTILIZED IN F.Y 2008 - 09 ITSELF. FROM THIS IT IS OBSERVED THAT THE SERVICES UTILIZED IN THE PY 2008 - 09 AND EXPENSES WERE CLAIMED DURING THE FY 2009 - 10 IS NOT RELEVANT TO OR NOT RELATED TO OR NOT PERTAINING TO THE SUBJECT YEAR 2009 - 10. XVI. SL. NO. 530 - 553, PAYMENTS BILLS WERE RAISED FOR DYING AND FINISHING CHARGES. AS PER THE PAYMENT OF BILLS, IT WAS FOUND THAT THESE PAYM ENTS WERE MADE FOR DYING AND FINISHING AND WHICH IS PERTAINING TO F Y 2008 - 09. THE NATURE OF THE EXPENDITURE IS FOR DYING AND FINISHING CHARGES AND THE SERVICES AND BENEFITS OF THE SAME WERE UTILIZED IN F.Y 2008 - 09 ITSELF. FROM THIS IT IS OBSERVED THAT THE SERVICES UTILIZED IN THE P.Y 2008 - 09 AND EXPENSES WERE CLAIMED DURING THE F. Y 2009 - 10 IS NOT RELEVANT TO OR NOT RELATED TO OR NOT PERTAINING TO THE SUBJECT YEAR 2009 - 10. XVII. SL. NO. 554 - 568, PAYMENTS BILLS WERE RAISED FOR ELECTRICITY BILLS. AS PER T HE PAYMENT OF BILLS, IT WAS FOUND THAT THESE PAYMENTS WERE MADE FOR ELECTRICITY BILLS AND THE SAME IS PERTAINING TO F.Y 2008 - 09. THE NATURE OF THE EXPENDITURE IS FOR ELECTRICITY CHARGES AND THE SERVICES AND BENEFITS OF THE SAME WERE UTILIZED IN F.Y 2008 - 09 ITSELF. FROM THIS IT IS OBSERVED THAT THE SERVICES UTILIZED IN THE PY 2008 - 09 AND EXPENSES WERE CLAIMED DURING THE F.Y 2009 - 10 IS NOT RELEVANT TO OR NOT RELATED TO OR NOT PERTAINING TO THE SUBJECT YEAR 2009 - 10. XVIII. SL. NO. 569 - 581, PAYMENTS BILLS WE RE RAISED FOR EMBROIDERY CHARGES. AS PER THE PAYMENT OF BILLS, IT WAS FOUND THAT THESE PAYMENTS WERE MADE FOR EMBROIDERY CHARGES AND THE SAME IS PERTAINING TO F.Y 2008 - 09. THE NATURE OF THE 'EXPENDITURE IS FOR EMBROIDERY CHARGES AND THE SERVICES AND BENEFI TS OF THE SAME WERE UTILIZED IN F.Y 2008 - 09 ITSELF. FROM THIS IT IS OBSERVED THAT THE SERVICES UTILIZED IN THE P.Y 2008 - 09 AND EXPENSES WERE CLAIMED DURING THE F.Y 2009 - 10 IS NOT RELEVANT TO OR NOT RELATED TO OR NOT PERTAINING TO THE SUBJECT YEAR 2009 - 10. I.T.A. NO S . 2050 & 2212 /M/ 15 15 XIX. SI. NO. 582 - 586, PAYMENTS BILLS WERE RAISED FOR ENGINEERING AND FUELS CHARGES. AS PER THE PAYMENT OF BILLS, IT WAS FOUND THAT THESE PAYMENTS WERE MADE FOR ENGINEERING AND FUELS CHARGES AND THE SAME IS PERTAINING TO F.Y 2008 - 09. THE NATURE OF THE EX PENDITURE IS FOR EMBROIDERY ENGINEERING AND FUEL CHARGES AND THE SERVICES AND BENEFITS OF THE SAME WERE UTILIZED IN F.Y 2008 - 09 ITSELF. FROM THIS IT IS OBSERVED THAT THE SERVICES UTILIZED IN THE P.Y 2008 - 09 AND EXPENSES WERE CLAIMED DURING THE F.Y 2009 - 10 IS NOT RELEVANT TO OR NOT RELATED TO OR NOT PERTAINING TO THE SUBJECT YEAR 2009 - 10. XX. SL. NO. 587 - 607, PAYMENTS BILLS WERE RAISED FOR PROCESSING CHARGES. AS PER THE PAYMENT OF BILLS, IT WAS FOUND THAT THESE PAYMENTS WERE MADE FOR PROCESSING CHARGES AN D THE SAME IS PERTAINING TO F.Y 2008 - 09. THE NATURE OF THE EXPENDITURE IS FOR PROCESSING CHARGES AND THE SERVICES AND BENEFITS OF THE SAME WERE UTILIZED IN F.Y 2008 - 09 ITSELF. FROM THIS IT IS OBSERVED THAT THE SERVICES UTILIZED IN THE P.Y 2008 - 09 AND EXPEN SES WERE CLAIMED DURING THE F.Y 2009 - 10 IS NOT RELEVANT TO OR NOT RELATED TO OR NOT PERTAINING TO THE SUBJECT YEAR 2009 - 10. IT IS FURTHER OBSERVED THAT THE TDS ON THE SAME HAS ALSO NOT BEEN DEDUCTED. XXI. SL. NO. 608 - 815, PAYMENTS BILLS WERE RAISED FOR TESTING CHARGES. AS PER THE PAYMENT OF BILLS, IT WAS FOUND THAT THESE PAYMENTS WERE MADE FOR TESTING CHARGES AND THE SAME IS PERTAINING TO F.Y 2008 - 09. THE NATURE OF THE EXPENDITURE IS FOR TESTING CHARGES AND THE SERVICES AND BENEFITS OF THE SAME WERE UTIL IZED IN F.Y 2008 - 09 ITSELF. FROM THIS IT IS OBSERVED THAT THE SERVICES UTILIZED IN THE P.Y 2008 - 09 AND EXPENSES WERE CLAIMED DURING THE F.Y 2009 - 10 IS NOT RELEVANT TO OR NOT RELATED TO OR NOT PERTAINING TO THE SUBJECT YEAR 2009 - 10. ALSO, THE ASSESSEE HAS F AILED TO DEDUCT TDS ON THE PAYMENTS MADE FOR THE ABOVE EXPENDITURE. XXII. SL. NO. 816 - 818, .PAYMENTS BILLS WERE RAISED FOR WATER EXPENSES. AS PER THE PAYMENT OF BILLS, IT WAS FOUND THAT THESE PAYMENTS WERE MADE FOR WATER EXPENSES AND THE SAME IS PERTAIN ING TO F.Y 2008 - 09. THE NATURE OF THE EXPENDITURE IS FOR WATER EXPENSES AND THE SERVICES AND BENEFITS OF THE SAME WERE UTILIZED IN F.Y 2008 - 09 ITSELF. FROM THIS IT IS OBSERVED THAT THE SERVICES UTILIZED IN THE P.Y 2008 - 09 AND EXPENSES WERE CLAIMED DURING T HE F.Y 2009 - 10 IS NOT RELEVANT TO OR NOT RELATED TO OR NOT PERTAINING TO THE SUBJECT YEAR 2009 - 10. 7 .4 ON PERUSAL OF THE ABOVE DETAILS, IT IS VERY CLEAR THAT NONE OF THE EXPENDITURE WAS INCURRED IN THE FINANCIAL YEAR 2009 - 10 RELEVANT TO THE I.T.A. NO S . 2050 & 2212 /M/ 15 16 ASSESSMENT YE AR 2010 - 11. UNDISPUTEDLY THE BILLS OF EXPENSES WERE ENTERED IN ASSESSEE S BOOKS OF ACCOUNTS FOR THE FINANCIAL YEAR 2008 - 09, WHEREAS THE SAME IS INCORPORATED AS EXPENDITURE FOR THE RELEVANT ACCOUNTING YEAR 2009 - 10. T HE ACCOUNTS OF THE ASSESSEE WERE MANDATOR ILY AUDITED BOTH UNDER THE PROVISIONS OF COMPANIES ACT, 1956 AS WELL AS INCOME TAX ACT . THEREFORE , THE OBJECTION OF THE ASSESSING OFFICER WAS THAT THE ASSESSEE SHOULD HAVE MADE PROVISIONS IN THE RELEVANT ACCOUNTING PERIOD I.E., FINANCIAL YEAR 2008 - 09 FOR T HE EXPENSES BASED UPON THE BILLS/VOUCHERS RECEIVED SUBSEQUENTLY. OTHERWISE, THE ASSESSEE SHOULD HAVE RECORDED THE ABOVE NATURE OF SERVICES AS UN - SERVED OR ITEMS UNCONSUMED IN THE BOOKS OF ACCOUNTS WHICH MAY BE FORMS PART OF THE CLOSING STOCK OR THE ASSESSE E MIGHT HAVE RAISED ANY DEBIT NOTE OR ANY CREDIT NOTE FOR LATER PAYMENT OR AGREEMENT FOR FINAL SETTLEMENT. THE ASSESSING OFFICER HAS OBSERVED THAT THE ASSESSEE HAS NOT RECORDED ANY OF THE ABOVE FOR THE SUBSEQUENT CLAIM DURING THE FINANCIAL YEAR 2009 - 10. 7 . 5 FURTHER, IT IS AN ADMITTED FACT THAT THE NATURE OF SERVICES FOR THE ABOVE EXPENDITURES HAS BEEN UTILIZED IN THE FINANCIAL YEAR 2008 - 09 ITSELF AND CRYSTALLISED IN THE FINANCIAL YEAR 2009 - 10. FURTHER, THE ASSESSING OFFICER HAS NOT QUESTIONED ABOUT THE GE NUINENESS OF THE EXPENDITURE INCURRED BY THE ASSESSEE. MERELY BECAUSE AN EXPENSE RELATES TO A TRANSACTION OF AN EARLIER YEAR IT DOES NOT BECOME A LIABILITY PAYABLE IN THE EARLIER YEAR UNLESS IT CAN BE SAID THAT THE LIABILITY WAS DETERMINED AND CRYSTALLIZED IN THE YEAR IN QUESTION I.T.A. NO S . 2050 & 2212 /M/ 15 17 ON THE BASIS OF MAINTAINING ACCOUNTS ON THE MERCANTILE BASIS. IN EACH CASE WHERE THE ACCOUNTS ARE MAINTAINED ON THE MERCANTILE BASIS IT HAS TO BE FOUND IN RESPECT OF ANY CLAIM, WHETHER SUCH LIABILITY WAS CRYSTALLIZED AND QUANTIFIED DURING THE PREVIOUS YEAR SO AS TO BE REQUIRED TO BE ADJUSTED IN THE BOOKS OF ACCOUNT OF THAT PREVIOUS YEAR. IF ANY LIABILITY, THOUGH RELATING TO THE EARLIER YEAR, DEPENDS UPON MAKING A DEMAND AND ITS ACCEPTANCE BY THE ASSESSEE AND SUCH LIABILITY HAS BEEN ACTUALLY CLAIMED AND PAID IN THE LATER PREVIOUS YEARS IT CANNOT BE DISALLOWED AS DEDUCTION MERELY ON THE BASIS OF THE ACCOUNTS ARE MAINTAINED ON MERCANTILE BASIS AND THAT IT RELATED TO A TRANSACTION OF THE PREVIOUS YEAR. THE TRUE PROFITS AND GAIN OF A PREV IOUS YEAR ARE REQUIRED TO BE COMPUTED FOR THE PURPOSE OF DETERMINING TAX LIABILITY. THE BASIS OF TAXING INCOME IS ACCRUAL OF INCOME AS WELL AS ACTUAL RECEIPT. IF FOR WANT OF NECESSARY MATERIAL CRYSTALLIZING THE EXPENDITURE IS NOT IN EXISTENCE IN RESPECT OF WHICH SUCH INCOME OR EXPENSES RELATE, THE MERCANTILE SYSTEM DOES NOT CALL FOR ADJUSTMENT IN THE BOOKS OF ACCOUNT ON ESTIMATE BASIS. THEREFORE, THE ASSESSEE COULD NOT CREATE THE PROVISION. IT IS ACTUALLY KNOWN INCOME OR EXPENSES, THE RIGHT TO RECEIVE OR TH E LIABILITY TO PAY WHICH HAS COME TO BE CRY STALLIZED, WHICH IS TO BE TAKEN INTO ACCOUNT UNDER THE MERCANTILE SYSTEM OF MAINTAINING BOOKS OF ACCOUNT. AN ESTIMATED INCOME OR LIABILITY, WHICH IS YET TO BE CRYSTALLIZED, CAN ONLY BE ADJUSTED AS A CONTINGENCY IT EM BUT NOT AS AN ACCRUED INCOME OR LIABILITY OF THAT YEAR. I.T.A. NO S . 2050 & 2212 /M/ 15 18 7 .6 THE ACCOUNTING STANDARDS ARE RECOMMENDED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA. ACCOUNTING STANDARD (AS - 5) STIPULATES THAT PRIOR PERIOD ITEMS ARE INCOME OR EXPENSES WHICH ARISE ' IN THE CURRENT PERIOD' AS A RESULT OF ERRORS OR OMISSIONS IN THE PREPARATION OF THE FINANCIAL STATEMENTS OF ONE OR MORE PRIOR PERIODS. THEREFORE, THE INCOME OR EXPENSES RELATABLE TO PRIOR PERIOD ITEMS ARE THOSE WHICH ARISE IN THE CURRENT PERIOD, I.E., THE PERIOD RELEVANT FOR THE PURPOSES OF COMPUTING THE NET PROFIT OR LOSS. PRIOR PERIOD ITEMS ARE TO BE INCLUDED IN THE DETERMINATION OF NET PROFIT OR LOSS. IF A PRIOR PERIOD ITEM IS AN EXPENSE, IT WOULD GO TOWARDS REDUCING THE NET PROFIT OR INCREASING THE LOSS , AS THE CASE MAY BE. ON THE OTHER HAND, IF THE PRIOR PERIOD ITEM IS AN INCOME, IT WOULD GO TOWARDS INCREASING THE NET PROFIT OR REDUCING THE LOSS, AS THE CASE MAY BE. THE SAME IS THE POSITION WITH EXTRAORDINARY ITEMS WHICH MAY BE INCOME OR EXPENSES. PRIOR PERIOD ITEMS AND EXTRAORDINARY ITEMS FORM PART OF THE NET PROFIT OR LOSS. PARAGRAPH 7 OF AS - 5 STIPULATES THAT THE NET PROFIT OR LOSS, INTER ALIA, COMPRISES EXTRAORDINARY ITEMS AND SHOULD BE DISCLOSED ON THE FACE OF THE STATEMENT OF PROFIT AND LOSS. PARAGR APH 15 OF AS - 5 STIPULATES THAT THE NATURE AND AMOUNT OF PRIOR PERIOD ITEMS SHOULD BE SEPARATELY DISCLOSED IN THE STATEMENT OF PROFIT AND LOSS IN A MANNER THAT THEIR IMPACT ON THE 'CURRENT' PROFIT OR LOSS CAN BE PERCEIVED. TWO APPROACHES HAVE BEEN INDICATED IN PARAGRAPH 19 OF THE SAID ACCOUNTING STANDARD (AS - 5). THE NORMAL APPROACH IS TO INCLUDE THE PRIOR PERIOD ITEMS IN THE DETERMINATION OF NET PROFIT OR LOSS FOR THE CURRENT PERIOD. I.T.A. NO S . 2050 & 2212 /M/ 15 19 THE ALTERNATIVE APPROACH IS TO SHOW SUCH ITEMS IN THE STATEMENT OF PROFIT A ND LOSS AFTER DETERMINATION OF THE CURRENT NET PROFIT OR LOSS. THE OBJECT IS TO INDICATE THE EFFECT OF SUCH ITEMS ON THE CURRENT PROFIT OR LOSS. 7.7 IN THIS CASE, THERE IS NO DISPUTE THAT THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF BOOK KEEPING AND WHE NEVER, THE ASSESSEE IS MAINTAINING MERCANTILE SYSTEM OF BOOK KEEPING, IT IS THE DUTY OF THE ASSESSEE TO PROVIDE ALL ACCRUED EXPENSES IN THE RELEVANT ASSESSMENT YEAR. THE ASSESSEE CANNOT CLAIM THE EXPENDITURE RELATING TO ONE ASSESSMENT YEAR IN ANOTHER ASSES SMENT YEAR. HOWEVER, IN VIEW OF THE PROVISO TO SECTION 40(A)(IA) OF THE ACT, THE EXPENDITURE WHICH IS SUBJECTED TO TDS IN ANOTHER ASSESSMENT YEAR AND IT SHOULD BE ALLOWED ON THE BASIS OF D EDUCTION OF TDS ON PAYMENT BASIS. SIMILAR ISSUE CAME UP FOR CONSIDERATION BEFORE THE TRIBUNAL IN THE CASE OF ACIT V. ENNORE COKE LTD. IN I.T.A. NO. 1921/MDS/2015 FOR THE ASSESSMENT YEAR 2010 - 11 VIDE ORDER DATED 22.01.2016, WHEREIN, THE COORDINATE BENCH OF THE TRIBUNAL HAS HELD AS UNDER: 4. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THE SUBMISSION OF THE LD. DR IS THAT SEC.40(A)(IA) OF THE ACT DOES NOT PERMIT TO ALLOW PRIOR PERIOD EXPENSES. ON THE OTHER HAND, THE LD. AR SUBMITTED THAT WHEN THE EXPENDITURE ACTUALLY PAID IN THE ASSESSMENT YEAR UNDER CONSIDERATION, IT IS ALLOWABLE ON ACTUAL PAYMENT BASIS IN VIEW OF THE SECOND LIMB OF PROVISO TO SEC.40(A)(IA) OF THE ACT. NO EXPENDITURE MENTIONED IN SECTIONS 30 TO 38 OF THE ACT ARE ALLOWABL E UNLESS THE NECESSARY TDS IS DEDUCTED AND REMITTED INTO THE GOVERNMENT ACCOUNT BEFORE FILING OF RETURN U/S.139(1) OF THE ACT. THE PROVISIONS OF SEC.40(A)(IA) STIPULATE THAT THE EXPENSES ARE ALLOWABLE ONLY IN THE YEAR I.T.A. NO S . 2050 & 2212 /M/ 15 20 IN WHICH THE NECESSARY TDS IS DEDUCTED AND REMITTED INTO THE GOVERNMENT ACCOUNT. IN THE PRESENT CASE, THOUGH THE EXPENDITURE RELATING TO EARLIER PERIOD, ACTUALLY TDS MADE IN THE ASSESSMENT YEAR UNDER CONSIDERATION AND IT IS ALLOWABLE IN THE ASSESSMENT YEAR UNDER CONSIDERATION IN VIEW OF THE SE COND LIMB OF SEC.40(A)(IA), WHICH READS AS UNDER: ANY INTEREST, COMMISSION OR BROKERAGE, [RENT, ROYALTY,] FEES FOR PROFESSIONAL SERVICES OR FEES FOR TECHNICAL SERVICES PAYABLE TO A RESIDENT, OR AMOUNTS PAYABLE TO A CONTRACTOR OR SUB - CONTRACTOR, BEING RES IDENT, FOR CARRYING OUT ANY WORK (INCLUDING SUPPLY OF LABOUR FOR CARRYING OUT ANY WORK), ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVII - B AND SUCH TAX HAS NOT BEEN DEDUCTED OR, AFTER DEDUCTION, [HAS NOT BEEN PAID ON OR BEFORE THE DUE DATE SPECIFIE D IN SUB - SECTION (1) OF SECTION 139:] PROVIDED THAT WHERE IN RESPECT OF ANY SUCH SUM, TAX HAS BEEN DEDUCTED IN ANY SUBSEQUENT YEAR, OR HAS BEEN DEDUCTED DURING THE PREVIOUS YEAR BUT PAID AFTER THE DUE DATE SPECIFIED IN SUB - SECTION (1) OF SECTION 139, [ TH IRTY PER CENT OF ] SUCH SUM SHALL BE ALLOWED AS A DEDUCTION IN COMPUTING THE INCOME OF THE PREVIOUS YEAR IN WHICH SUCH TAX HAS BEEN PAID :] [ PROVIDED FURTHER THAT WHERE AN ASSESSEE FAILS TO DEDUCT THE WHOLE OR ANY PART OF THE TAX IN ACCORDANCE WITH THE PRO VISIONS OF CHAPTER XVII - B ON ANY SUCH SUM BUT IS NOT DEEMED TO BE AN ASSESSEE IN DEFAULT UNDER THE FIRST PROVISO TO SUB - SECTION (1) OF SECTION 201, THEN, FOR THE PURPOSE OF THIS SUB - CLAUSE, IT SHALL BE DEEMED THAT THE ASSESSEE HAS DEDUCTED AND PAID THE TAX ON SUCH SUM ON THE DATE OF FURNISHING OF RETURN OF INCOME BY THE RESIDENT PAYEE REFERRED TO IN THE SAID PROVISO.] IN VIEW OF THE ABOVE, IT IS AN ALLOWABLE EXPENDITURE. THE SAME VIEW HAS BEEN TAKEN BY THE COCHIN BENCH IN ITA NO.410/COCH/2014 DATED 12.12.2 014 THE CASE OF M/S. TERMO PENPOL LTD. V. ACIT, WHEREIN IT WAS OBSERVED AS UNDER : 6. NOW COMING TO THE ALTERNATIVE CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE THAT IT HAS TO BE ALLOWED IN THE YEAR IN WHICH THE TAX WAS PAID, THIS TRIBUNAL IS OF THE C ONSIDERED OPINION THAT IN VIEW OF PROVISOS TO SECTION 40(A)(IA) AND 40(A)(I) THE DEDUCTION CLAIMED BY THE ASSESSEE HAS TO BE ALLOWED IN THE YEAR IN WHICH THE TAX WAS ACTUALLY PAID BY THE ASSESSEE. THE LD. I.T.A. NO S . 2050 & 2212 /M/ 15 21 DR ALSO HAS NO OBJECTION TO ALLOW THE CLAIM OF THE ASSESSEE IN THE YEAR IN WHICH THE TAX WAS ACTUALLY PAID BY THE ASSESSEE. IN VIEW OF THE ABOVE, THE ASSESSING OFFICER SHALL VERIFY THE ACTUAL PAYMENT OF TAX BY THE ASSESSEE ON THE EXPENDITURE CLAIMED AND THEREAFTER ALLOW THE CLAIM IN THE YEAR IN WHICH THE T AX WAS ACTUALLY PAID. RESPECTFULLY FOLLOWING THE AFORESAID DECISION OF THE TRIBUNAL AS WELL AS THE PROVISIONS OF THE ACT, WE ARE INCLINED TO DISMISS THIS GROUND OF APPEAL OF THE REVENUE. 8 . IN VIEW OF THE RATIO LAID DOWN BY THE COORDINATE BENCH OF THE TRIBUNAL, WE REMIT T HE ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER WITH DIRECTION TO VERIFY THE CLAIM OF THE ASSESSEE AND TO ONLY ALLOW THE EXPENDITURE ON WHICH TDS HAS DEDUCTED IN THIS ASSESSMENT YEAR AND REMITTED INTO THE GOVERNMENT ACCOUNT AND THE ASSESSEE SHALL PLACE NECESSARY EVIDENCE IN SUPPORT OF HIS CLAIM. THUS, THE GROUND RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 9 . IN THE RESULT, THE APPEALS FILED BY THE ASSESSEE AS WELL AS REVENUE ARE PARTLY ALLOWED FOR STATISTICAL PURPOS ES. ORDER PRONOUNCED ON THE 28 TH JUNE , 201 6 AT CHENNAI. SD/ - SD/ - ( CHANDRA POOJARI ) ACCOUNTANT MEMBER ( DUVVURU RL REDDY ) JUDICIAL MEMBER CHENNAI, DATED, THE 28. 0 6 .201 6 VM/ - I.T.A. NO S . 2050 & 2212 /M/ 15 22 / COPY TO: 1. / APPELLANT , 2. / RESPONDENT , 3. ( ) / CIT(A) , 4. / CIT , 5. / DR & 6. / GF.