D.C.I.T ,Akola Circle, Akola V. Maharashtra State Seeds corportion Ltd, Akola

ITA 330/NAG/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 93397 (ITAT-NAGPUR)
• Duration Of Justice: 1 year(s) 9 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-05-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2006-2007
• Appeal Filed On: 13-08-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A R NINAWE
• Assessee Lawyers: PUSHKAR V DESH
• Keywords: Depreciation; Business expenditure; Bad and doubtful debts; Revised return
• Section: 37

Judgement Text

1 ITA NO. 330/NAG/2013 IN THE INCOME TAX APPELLATE TRIBUNAL, NAGPUR BENCH, NAGPUR. BEFORE SHRI MUKUL K. SHRAWAT, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER. I.T.A. NO.330/NAG/2013 ASSESSMENT YEAR : 2006-07. DY. COMMISSIONER OF INCOME-TAX, MAHARASHTRA STATE SEEDS AKOLA CIRCLE, AKOLA. V/S. CORPORATION LTD., MAHABEEJ BHAWAN , N.H.NO.6, KRUSHI NAGAR, A KOLA. PAN AABCM1868L APPELLANT. RESPONDEN T. APPELLANT BY :SHRI A.R. NINAWE. RESPONDENT BY : SHRI PUSHKAR V. DESHPANDE. DATE OF HEARING - 19-05-2015 DATE OF PRONOUNCEMENT : 27-05-2015. O R D E R PER SHRI SHAMIM YAHYA, A.M. THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF LEARNED CIT(APPEALS)-16, MUMBAI,(CAMP NAGPUR) DATED 12-04-1 914. THE GROUNDS OF APPEAL READ AS UNDER : 2 ITA NO. 330/NAG/2013 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN DELETING THE ADDITION OF ` .17,72,688/- MADE TOWARDS PRIOR PERIOD ADJUSTMENT AS THE EXPENSES NEITHER RELATE TO THE YE AR UNDER CONSIDERATION NOR HAVE CRYSTALLIZED DURING THE YEAR. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN DELETING THE ADDITION MADE WITHOUT APPRECIATING THE FACT THAT SINCE THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNT ING, PRIOR PERIOD EXPENSES CANNOT BE ALLOWED FOR THE YEAR UNDER CONS IDERATION. 2. IN THIS CASE THE ASSESSING OFFICER NOTED THAT TH E ASSESSEE HAS CLAIMED AS DEDUCTION OF EXPENSES IN THE COMPUTATION OF TOTAL I NCOME UNDER THE HEAD PRIOR PERIOD ADJUSTMENT OF ` .17,72,688/-. THE DETAILS OF WHICH WERE CALLED FOR FROM THE ASSESSEE AND THE DETAILS SUBMITTED BY THE ASSES SEE ON 10-12-2008 ON ACCOUNT OF PRIOR PERIOD ADJUSTMENT WHICH REPRODUCED AS UNDER : PARTICULARS INCOME SALE OTHER INCOME DEBIT 394440 563088 CREDIT 821360 21827 BALANCE -426920 541191 REMARK. SALES OF SEEDS INTEREST/PENALTY TOTAL 957528 843257 114271 DR EXPENDITURE PURCHASE 1381112 0 1281112 PURCHASE OF SEEDS PROCESSING EXPENSES. 40672 4314 36358 TRANSPORTATION/R&M SALARY TO STAFF 8750 0 8750 MEDICAL REIM TO STAFF SELLING & DISTRIBUTION EXPN. 194136 0 194136 TRANSPORTATION (MKTG.) ADMINISTRATION EXPN. 72080 32401 39679 R&M TO OTHERS/ADVERTISEMENT/POST & TEL. ETC. FINANCIAL EXPENSES 600 0 600 BANK CHARGES. DEPRECIATION 0 2218 -2218 EXCESS PRO VIDED TOTAL 1697350 38933 1658417 DR. NET 2654878 882190 1772688 DR. 3 ITA NO. 330/NAG/2013 THE ASSESSEE WAS ASKED TO EXPLAIN, WHY THE DIFFERE NCE OF ` .17,72,688/- DEBIT BALANCE SHOULD NOT BE DISALLOWED AND ADDED TO THE N ET PROFIT AS PER PROFIT & LOSS ACCOUNT, AS THE DIFFERENCE IF RELATING TO THE REVEN UE / INCOME AND AS FAR AS THE MERCANTILE SYSTEM FOR ACCOUNTING THE INCOME AND EXP ENDITURE, NO PRIOR PERIOD REVENUE EXPENSES SHOULD BE ALLOWABLE UNLESS SHOWN AS INCOME AND CLAIMED AS IRRECOVERABLE AS BAD DEBTS. IN REPLY THE ASSESSEE STATED THAT THE COMPANY IS F OLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND IT BECOMES VERY DIFFICULT TO PROVIDE THE EXPENSES AS WELL AS INCOME IN THAT PARTICULAR YEAR SINCE THE ITEMS W ERE MINOR IN NATURE. AS PER THE COMPANIES ACT, 1956 SUCH ITEMS PERTAINS TO PRIOR YE ARS ACCOUNT SO AS TO SHOW CORRECT POSITION OF ACCOUNT IN THAT YEAR. TAKING IN TO ACCOUNT THE LARGE BUSINESS OF ` .350 CRORES TO 400 CRORES ANNUALLY CARRIED OUT BY T HE COMPANY, SUCH TYPE OF EXPENSES/ADJUSTMENTS ARE BOUND TO BE THERE IN EARLIE R YEARS THESE EXPENSES WERE ALLOWED BY THE ASSESSING OFFICER REGULARLY. THE EXP ENDITURE HAS BEEN INCURRED IN CONNECTION WITH THE BUSINESS AND PAID DURING THE C URRENT YEAR, HENCE IT IS ALLOWABLE U/S 37 AS BUSINESS EXPENDITURE. THE ASSE SSEE CERTIFIES THAT THESE EXPENSES HAVE NOT BEEN PAID OR CLAIMED IN EARLIER P ERIOD. THE ASSESSING OFFICER HELD THAT SINCE THE ASSESSEE IS FOLLOWING MERCANTIL E SYSTEM OF ACCOUNTING INCOME AND EXPENDITURE IS REQUIRED TO BE CREDITED AND DEBI TED RESPECTIVELY IN THE YEAR IN WHICH TRANSACTIONS ARE MADE AND IF EXPENSES ARE NOT PAID IN THAT YEAR THE SAME ARE TO BE DECLARED TO BE PAYABLE IN THE AUDITED PRO FIT & LOSS ACCOUNT AND BALANCE SHEET. THUS PRIOR YEARS EXPENSES ARE NOT ALLOWABLE IN THIS YEAR. THE ASSESSEE HAD OPTION TO FILE REVISED RETURN IN RESPECT OF THE ASS ESSMENT YEAR TO WHICH THE TRANSACTIONS ARE PERTAINED, BUT DID NOT DO SO. RELI ANCE WAS PLACED ON HONBLE 4 ITA NO. 330/NAG/2013 SUPREME COURT DECISION IN THE CASE OF GOETZE (INDIA ) LTD. V/S. CIT DATED 23/03/2006 FOR ASSESSMENT YEAR 1995-96. IT HAS HELD THAT THE ASSESSING OFFICER CANNOT ENTERTAIN CLAIM FOR DEDUCTION OTHERWISE THAN BY FILING A REVISED RETURN. THE ASSESSEES CLAIM WAS THEREFORE REJECTED AND THE EXPE NSES OF ` .17,72,688/- HAS BEEN DISALLOWED. 3. UPON ASSESSEES APPEAL, LEARNED CIT(APPEALS) CON SIDERED THE ISSUE AND DECIDED THE SAME IN FAVOUR OF THE ASSESSEE BY HOLDI NG AS UNDER : THE AO'S ORDER, THE CONTENTIONS OF THE APPELLANT , AND MATERIALS ON RECORD HAVE BEEN CONSIDERED. ON SIMILAR SET OF FAC TS, IN THE CASE OF JAGATJIT INDUSTRIES LTD. (SUPRA) THE DELHI HIGH COURT HAS H ELD THAT, ON A SCRUTINY OF THE FACTS THAT HAVE BEEN BROUGHT ON RECORD, IT IS DISCERNIBLE THAT THE ASSESSEE HAS BEEN CLAIMING PRIOR PERIOD EXPENSES O N THE GROUND THAT THE VOUCHER OF SUCH EXPENSES FROM THE EMPLOYEES/BRANCH EMPLOYEES WERE RECEIVED AFTER 31 ST MARCH OF THE FINANCIAL YEAR. IT HAS ALSO COME AS A MATTER OF FACT THAT THE ASSESSEE HAS BRANCH OFFICES THROU GHOUT THE COUNTRY. THE ASSESSEE HAS BEEN DEBITING THE EXPENDITURE SPILL OVER TO THE SUBSEQUENT YEARS AND THE ASSESSING OFFICER HAD BEEN ALLOWING THE SAME. THE SAID ACCOUNTING PRACTICE HAS BEEN CONSISTENTLY FOLLOWED BY THE ASSESSEE AND ACCEPTED BY THE DEPARTMENT. IF A PARTICULAR ACCOUN TING SYSTEM HAS BEEN FOLLOWED AND ACCEPTED AND THERE IS NO ACCEPTABLE R EASON TO DIFFER WITH THE SAME, THE DOCTRINE OF CONSISTENCY WOULD COME INTO PLAY. THE SAID ACCOUNTING SYSTEM HAS BEEN FOLLOWED FOR A NUMBER O F YEARS AND THERE IS NO PROOF THAT THERE HAS BEEN ANY IMMATERIAL CHANGE IN THE ACTIVITIES OF THE ASSESSEE AS COMPARED TO THE EARLIER YEARS. NOTHING HAS BEEN BROUGHT ON RECORD TO SHOW THAT THERE HAS BEEN DISTORTION OF P ROFIT OR THE BOOKS OF ACCOUNT DID NOT REFLECT THE CORRECT PICTURE IN THE ABSENCE OF ANY REASON WHATSOEVER, THERE WAS NO WARRANT OR JUSTIFICATION T O DEPART FROM THE PREVIOUS ACCOUNTING SYSTEM WHICH WAS ACCEPTED BY T HE DEPARTMENT IN RESPECT OF THE PREVIOUS YEAR. IN VIEW OF OUR PRECEDING ANALYSIS, WE DO NOT PERC EIVE ANY MERIT IN THIS APPEAL AND ACCORDINGLY, THE SAME STANDS DISMISSED WITHOUT ANY ORDER AS TO COST. 5 ITA NO. 330/NAG/2013 IN THE PRESENT APPEAL, NO ADDITION ON ACCOUNT OF A DJUSTMENT OF PRIOR PERIOD EXPENSES HAS BEEN MADE IN THE PRECEDING A.Y. 2005- 06 NOR IN THE SUCCEEDING A.Y. 2008-09, THUS THE APPELLANTS MODE OF MAINTAINING ACCOUNTS HAS BEEN ACCEPTED BY THE DEPARTMENT. NOTH ING HAS BEEN BROUGHT ON RECORD THAT THERE IS ANY DISTORTION OF PROFITS OR THAT THE BOOKS OF ACCOUNT DO NOT REFLECT THE TRUE PICTURE, THUS EVEN IN THE PRESENT CASE, THERE IS NO JUSTIFICATION FOR DEPARTING FROM THE PREVIOUS ACCOU NTING SYSTEM WHICH HAS BEEN ACCEPTED BY THE DEPARTMENT. THUS FOLLOWING TH E RULING IN JAGATJIT INDUSTRIES (SUPRA), THE DEDUCTION MADE BY THE AO IS DELETED. 4. AGAINST THE ABOVE ORDER, THE REVENUE IS IN APPEA L BEFORE US. 5. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE R ECORD. THE LEARNED D.R. SUBMITTED THAT SINCE THE ASSESSEE IS FOLLOWING MERC ANTILE SYSTEM OF ACCOUNTING, PRIOR PERIOD EXPENSES CANNOT BE ALLOWED. HE CLAIMED THAT THE ASSESSEE SHOULD HAVE MADE PROVISION IN THE ACCOUNT FOR THE NECESSAR Y EXPENSES TO BE INCURRED. THE LEARNED D.R. FURTHER SUBMITTED THAT SUCH EXPENS ES WERE ALLOWED IN EARLIER YEARS OR SUBSEQUENT YEARS CANNOT HELP THE ASSESSEE AS RESJUDICATA DOES NOT APPLY IN INCOME-TAX PROCEEDINGS. 6. LEARNED COUNSEL OF THE ASSESSEE, ON THE OTHER HA ND, SUBMITTED THAT THE ASSESSEE HAS BEEN FOLLOWING THE SYSTEM IN EARLIER P ERIODS AND SUBSEQUENT PERIODS ALSO. THE SAME HAS BEEN ACCEPTED BY THE AO. HE CLAI MED THAT THE ASSESSEE IS A GOVERNMENT UNDERTAKING. THE ASSESSEE HAS LARGE NUM BER OF BRANCHES AND EMPLOYEES. LEARNED COUNSEL FURTHER SUBMITTED THAT T HE ASSESSEE DEALS IN SEEDS AND IT HAS TO AWAIT FOR STATE GOVT. DIRECTIVE ON T HE PRICES AND PROCUREMENT POLICIES WHICH THOUGH RELATING TO THE CONCERNED FIN ANCIAL YEAR ARE DECLARED BY THE GOVT. AFTER THE CLOSE OF THE FINANCIAL YEAR. IN THE SE CIRCUMSTANCES THE LEARNED COUNSEL PLEADED THAT THE LEARNED CIT(APPEALS) ORDE R WHICH IS BASED UPON A DELHI HIGH COURT JUDGMENT SHOULD BE UPHELD. 6 ITA NO. 330/NAG/2013 7. UPON CAREFUL CONSIDERATION WE FIND THAT THE ASSE SSING OFFICERS REFERENCE OF HONBLE APEX COURT DECISION IN THE CASE OF GOETIZE (INDIA) LTD. V/S. CIT IS NOT AT ALL APPLICABLE. IT IS UNDISPUTED THAT THE ASSESSEE IS A GOVT. COMPANY. OVER THE PERIOD OF YEARS DUE TO LARGE NUMBER OF BRANCHES AND NOMINA L AMOUNTS INVOLVED, THE ASSESSEE HAS BEEN ACCOUNTING FOR EXPENSES WHICH CRY STALLIZED DURING THE CURRENT YEAR UNDER THE HEAD PRIOR PERIOD EXPENSES. IT IS ALSO TO BE NOTED THAT IT IS NOT ONLY THE EXPENSES BUT INCOME ALSO WHICH HAS BEEN SO ACCOUNTED AND ROUTED THROUGH PRIOR PERIOD ADJUSTMENT. THE REVENUE HAS ITS ELF ACCEPTED THE SYSTEM OF ACCOUNTING IN EARLIER AS WELL AS SUBSEQUENT YEARS. THE LAW IS SETTLED FROM THE HONBLE APEX COURT THAT A SYSTEM OF ACCOUNTING BEI NG CONSISTENTLY FOLLOWED AND ACCEPTED BY THE ASSESSEE AND REVENUE SHOULD NOT BE DISTURBED UNLESS THERE ARE CHANGES IN THE FACTS AND LAW. THIS PROPOSITION HAS DULY BEEN REITERATED BY THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT V/S. JA GATJIT INDUSTRIES (SUPRA) IN ANALOGICAL FACTS. IN THIS VIEW OF THE MATTER, IN TH E BACKGROUND OF AFORESAID DISCUSSION AND PRECEDENT, IN OUR CONSIDERED OPINION , THERE IS NO INFIRMITY IN THE ORDER OF LEARNED CIT(APPEALS). ACCORDINGLY WE UPHOL D THE SAME. 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH MAY, 2015. SD/- SD/- (MUKUL K. SHRAWAT) (SHAMIM YAHYA) JUDICIAL MEMBER. ACCOUNTANT MEMBER NAGPUR, DATED: 27 TH MAY, 2015. 7 ITA NO. 330/NAG/2013 COPY OF ORDER FORWARDED TO : 1. THE ASSESSEE. 2. REVENUE. 3. THE CIT(A) 4. THE CIT, NAGPUR. 5. THE D.R., ITAT, NAGPUR. 6. GUARD FILE. T RUE COPY. BY ORDER ASSISTANT REGISTRAR, ITAT, NAGPUR WAKODE