Adani Exports Ltd, Ahmedabad V. The Dy.CIT., Circle-1, Ahmedabad

ITA 3268/AHD/2010

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 67844 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 10 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-10-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 14-10-2013
• Assessment Year: 2005-2006
• Appeal Filed On: 10-12-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: O P BATHEJA
• Assessee Lawyers: V R CHOKSI
• Keywords: Revenue expenditure

Judgement Text

ITA NO 3268/ AHD/2010 . A.Y. 2005- 06 1 IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD (BEFORE SHRI N.S. SAINI, A.M & SHRI KUL BHARAT, J.M.) I.T. A. NO. 3268 /AHD/2010 (ASSESSMENT Y EAR: 2005-06) ADANI EXPORTS LTD., AHMEDABAD (APPELLANT) VS. THE DCIT CIRCLE-(1), AHMEDABAD ( RESPONDENT) PAN: AABCA 2804 L APPELLANT BY : SHRI V.R. CHOKSI A.R. RESPONDENT BY : SHRI O.P. BATHEJA, SR. D.R. ( )/ ORDER DATE OF HEARING : 14-10-2013 DATE OF PRONOUNCEMENT : 25-10 -2013 PER SHRI N.S. SAINI, A.M. 1. THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE OR DER OF CIT(A)-VI, AHMEDABAD DATED 09.09.2010. 2. THE SOLE ISSUE INVOLVED IN THIS APPEAL IS THAT THE LD. CIT(A) ERRED IN UPHOLDING THE DISALLOWANCE OF PRIOR PERIOD EXPENSES OF RS. 35,80,404/-. WITHOUT PREJUDICE TO THE SAME, THE CIT(A) OUGHT TO HAVE RESTRICTED THE DISALLOWANCE OF PRIOR PERIOD EXPENSES AT RS. 12,44, 744/-. ITA NO 3268/ AHD/2010 . A.Y. 2005- 06 2 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSING OFFICER OBSERVED FROM NOTE NO. 7 ATTACHED TO THE RETURN OF INCOME THAT TH E ASSESSEE HAS CLAIMED PRIOR PERIOD EXPENSES OF RS. 35,80,404/- AND HAS AL SO SHOWN PRIOR PERIOD INCOME OF RS. 23,35,660/-. ACCORDING TO THE ASSESSI NG OFFICER, THE ASSESSEE COMPANY COULD NOT FURNISH ANY DETAILS TO S HOW THAT EXPENDITURE OF RS. 35,80,404/- HAD CRYSTALLIZED IN THE YEAR AND HENCE HE DISALLOWED THE SAME BY OBSERVING THAT SIMILAR DISALLOWANCE OF PRIOR PERIOD EXPENDITURE HAS BEEN MADE IN THE ASSESSMENT YEAR 20 04-05. 4. ON APPEAL BEFORE THE CIT(A), THE ASSESSEE SUBMITTED THAT FROM THE DETAILS OF PRIOR PERIOD EXPENDITURE ENCLOSES, IT CA N BE SEEN THAT MAJORITY EXPENDITURE ARE FOR TELEPHONE, TRAVELLING, PROFESSI ON FEE ETC. FOR WHICH BILLS WERE NOT RECEIVED AT THE TIME OF FINALIZATION OF ACCOUNTS FOR THE ASSESSMENT YEAR 2004-05 BUT SAME HAS BEEN RECEIVED ONLY IN THE CURRENT YEAR. IN VIEW OF SUCH FACTS, IT WAS STATED THAT SUC H EXPENSE ARE ALLOWABLE AS REVENUE EXPENDITURE BECAUSE SUCH EXPENDITURE HAS BEEN CRYSTALLIZED DURING THE YEAR ONLY AND LIABILITY TO PAY SUCH EXPE NDITURE HAS ARISEN ONLY IN CURRENT YEAR. FOR THIS RELIANCE WAS PLACED ON T HE DECISION OF THE HON. GUJARAT HIGH COURT IN THE CASE OF SAURASHTRA CEMENT AND CHEMICAL INDUSTRIES LTD. VS. CIT (1995) 213 ITR 523 WHERE IT WAS HELD THAT WITH REGARD TO THE SUM OF RS. 39,823/- CERTAIN EXPENSES RELATED TO THE FEES PAID TO THE EXPERTS, OUT-OF-POCKET EXPENSES INCURRED BY CONSULTATION FIRM AND DISCHARGE OF LIABILITY ON ACCOUNT OF DEMURRAGE CLAI MED BY THE PORT AUTHORITIES. SUCH ITEMS WITHOUT INVESTIGATION INTO THE FACTS ABOUT THE CRYSTALLIZATION OF SUCH DUES COULD NOT BE DISALLOWE D MERELY ON THE GROUND THAT THEY RELATED TO TRANSACTIONS PERTAINING TO AN EARLIER ACCOUNTING YEAR. IT WAS SUBMITTED THAT A PERUSAL OF THE ORDER OF A.O. W ILL SHOW THAT THE A.O. ITA NO 3268/ AHD/2010 . A.Y. 2005- 06 3 BOOKED UP THE DEBIT AGGREGATING TO RS. 35,80,404/- IN RESPECT OF EXPENSES AND DISALLOWED FOR THE SAME ON THE GROUND THAT THEY PERTAINED TO THE PRIOR PERIOD TO THE PRESENT ASSESSMENT YEAR. SIGNIFICANTL Y HE HAS MADE THIS DISALLOWANCE EVEN AS HE HAS SUBJECTED TO TAX INCOME OF RS. 23,35,660/- WHICH WAS CREDITED TO THE PROFIT AND LOSS ACCOUNT O F THE PRESENT ASSESSMENT YEAR EVEN AS IT WAS PERTAINING TO EARLIE R YEARS. 5. THE LD. CIT(A) CONFIRMED THE DISALLOWANCE ON THE GR OUND THAT ASSESSEE HAD NOT GIVEN DETAILS OF PRIOR PERIOD EXPENSES TO T HE A.O. TO SHOW THAT THESE EXPENSES WERE CRYSTALLIZED DURING THE YEAR. N O SUCH DETAILS WERE FILED IN THE APPEAL HEARING ALSO. IN ABSENCE OF THE SAME, NO CONCLUSION CAN BE REACHED ABOUT THE EXPENSES BEING CRYSTALLIZE D DURING THE YEAR. HE FURTHER OBSERVED THAT THE DECISION RELIED UPON BY T HE ASSESSEE CLEARLY INDICATES THAT ONLY THOSE EXPENSES WHICH ARE CRYSTA LLIZED DURING THE YEAR ARE TO BE ALLOWED AND THERE WAS NO DISPUTE OVER THI S. 6. THE LD. A.R. OF THE ASSESSEE VEHEMENTLY ARGUED AND SUBMITTED THAT THE DETAILS OF PRIOR PERIOD EXPENSES AND INCOME WERE FI LED BEFORE THE A.O. AS WELL AS BEFORE THE CIT(A). HE POINTED OUT THAT THE DETAILS OF EXPENSES AND INCOME OF PRIOR PERIOD WERE GIVEN AS AN ANNEXURE TO FORM NO. 35 FILED BEFORE THE CIT(A). HE THEREFORE SUBMITTED THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE DISALLOWANCE MADE BY TH E A.O. ON THE GROUND THAT NO DETAILS OF PRIOR PERIOD EXPENDITURE AND INC OME WERE FILED BEFORE HIM. HE ALSO SUBMITTED THAT THE ASSESSING OFFICER HAS BROUGHT TO TAX, THE PRIOR PERIOD INCOME OF RS. 23,35,660/- WHERE AS HE HAS ALLOWED DEDUCTION FOR THE PRIOR PERIOD EXPENDITURE OF RS. 3 5,80,404/-. HE FURTHER SUBMITTED THAT THE NATURE OF EXPENDITURE WAS TELEPH ONE, TRAVELLING, ITA NO 3268/ AHD/2010 . A.Y. 2005- 06 4 PROFESSION FEES ETC. FOR WHICH BILLS WERE NOT RECEI VED AT THE TIME OF FINALIZATION OF ACCOUNT OF ASSESSMENT YEAR 2004-05 BUT WERE RECEIVED ONLY IN THE CURRENT YEAR AND THEREFORE, THE EXPENDI TURE CRYSTALLIZED DURING THE YEAR UNDER CONSIDERATION. HE FURTHER SUBMITTED THAT THIS WAS THE CONSISTENT METHOD OF ACCOUNTING FOLLOWED BY THE ASS ESSEE YEAR AFTER YEAR IN COMPUTING ITS INCOME. THEREFORE HE SUBMITTED TH AT THE DISALLOWANCE MADE SHOULD BE DELETED. 7. ON THE OTHER HAND, THE LD. D.R. SUPPORT THE ORDERS OF THE LOWER AUTHORITIES. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF LOWER AUTHORITIES AND MATERIALS AVAILABLE ON RECORD. IN T HE INSTANT CASE, THE A.O. OBSERVED THAT THE ASSESSEE HAS DEBITED RS. 35,80,40 4/- AS PRIOR PERIOD EXPENSES AND HAS SHOWN PRIOR PERIOD INCOME OF RS. 2 3,35,660/-. ACCORDING TO THE A.O., THE ASSESSEE COULD NOT PRODU CE ANY EVIDENCE TO SHOW THAT ANY EXPENDITURE OUT OF THE SAID RS. 35,80 ,404/- WAS CRYSTALLIZED DURING THE YEAR UNDER CONSIDERATION. FURTHER THE AL TERNATIVE SUBMISSIONS OF THE ASSESSEE IS THAT AFTER SETTING OFF OF PRIOR PERIOD INCOME OF RS. 23,35,660/- ONLY RS. 12,44,744/- COULD BE DISALLOWE D ON ACCOUNT OF PRIOR PERIOD EXPENSES. THE A.O. OBSERVED THAT THE ASSESSE E HAS BROUGHT NO MATERIAL TO SHOW THAT PRIOR PERIOD INCOME OF RS. 23 ,35,660/- WAS NOT CRYSTALLIZED DURING THE YEAR UNDER CONSIDERATION. HE THEREFORE KEEPING IN VIEW THE FACT THAT SYSTEM OF ACCOUNTING FOLLOWED BY THE ASSESSEE WAS MERCANTILE DISALLOWED ENTIRE PRIOR PERIOD EXPENSE O F RS. 35,80,404/-. ON APPEAL THE LD. CIT(A) CONFIRMED THE ACTION OF THE A .O. ON THE GROUND OF NON FURNISHING OF EVIDENCE OF CRYSTALLIZATION OF TH E RELEVANT EXPENSES ITA NO 3268/ AHD/2010 . A.Y. 2005- 06 5 DURING THE YEAR UNDER CONSIDERATION. IT IS OBSERVE D THAT THE LD. CIT(A) IN RESPECT OF THE ALTERNATE SUBMISSION OF THE ASSESSEE THAT NET EXPENDITURE SHOULD BE DISALLOWED HAS REJECTED THE SAME WITHOUT STATING ANY REASON. WE FIND THAT THE CONTENTION OF THE ASSESSEE IS THAT THE INCOME AND EXPENSES IN QUESTION WERE RECEIVED AFTER THE FINALI ZATION OF ACCOUNTS OF THE PRECEDING YEAR AS THE REASON FOR DEBITING EXPEN SES RELATING TO PRIOR PERIOD DURING THE YEAR UNDER CONSIDERATION. IN OUR CONSIDERED OPINION, THE ABOVE ARGUMENT OF THE ASSESSEE DOES NOT SHOW THAT T HE EXPENDITURE WERE ACTUALLY CRYSTALLIZED DURING THE YEAR UNDER CONSIDE RATION. IT IS NOT IN DISPUTE THAT THE ASSESSEE MAINTAINS ITS ACCOUNTS ON THE BASIS OF MERCANTILE SYSTEM OF ACCOUNTING AND, THEREFORE, THE INCOME AND EXPENDITURE OF THE YEAR UNDER CONSIDERATION CAN ONL Y BE TAKEN INTO CONSIDERATION FOR COMPUTING THE TOTAL INCOME OF THE ASSESSEE. WE FIND THAT IT IS NOT IN DISPUTE THAT AS PER THE AUDITED A CCOUNTS OF THE ASSESSEE, THE ASSESSEE HAS CREDITED RS. 23,35,660/- AS PRIOR PERIOD INCOME IN ITS ACCOUNTS. NO MATERIAL WAS BROUGHT ON RECORD BY THE A.O. TO SHOW THAT THE ABOVE INCOME WAS NOT PRIOR PERIOD INCOME. FOR THE SAME REASON FOR WHICH PRIOR PERIOD EXPENSES COULD NOT BE ALLOWED AS DEDUCTION TO THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION, PRIOR PERIOD INCOME ALSO CANNOT BE INCLUDED IN THE TOTAL INCOME OF THE ASSES SEE OF THE YEAR UNDER CONSIDERATION. WE THEREFORE FIND FORCE IN THE ALTE RNATIVE SUBMISSION OF THE ASSESSEE THAT ONLY RS. 129,44,744/- AFTER SETTI NG OFF OF PRIOR PERIOD INCOME WAS CLAIMED AS DEDUCTION RELATING TO PRIOR P ERIOD EXPENSES THE DISALLOWANCE FOR PRIOR PERIOD EXPENSES COULD NOT BE MORE THAN RS. 12,44,744/-. WE THEREFORE MODIFY THE ORDERS OF THE LOWER AUTHORITIES AND RESTRICT THE DISALLOWANCE TO RS. 12,44,744/- ON ACC OUNT OF PRIOR PERIOD ITA NO 3268/ AHD/2010 . A.Y. 2005- 06 6 EXPENSES IN PLACE OF RS. 35,80,404/- THUS THIS GROU ND OF APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE COURT ON FRIDAY OF 25 TH OCTOBER, 2013 AT AHMEDABAD SD/- SD/- (KUL BHARAT) (N.S. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD. TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHM EDABAD