DCIT CIR 3(3), MUMBAI V. SBI FUNDS MANAGEMENT P.LTD, MUMBAI

ITA 452/MUM/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 93317 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 6 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-07-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 27-07-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 20-01-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S S RANA
• Assessee Lawyers: NITESH JOSHI
• Keywords: Reopening of assessment; Business expenditure; Tangible material; Difference of opinion; Reason to believe; Change of opinion; Revenue expenditure; Reassessment proceedings; Capital expenditure
• Section: 147; 148; 143(3)

Judgement Text

, INCOME TAX APPELLATE TRIBUNAL,MUMBAI E BENCH . . , , , BEFO RE S/SH. A.D. JAIN ,JUDICIAL MEMBER & RAJENDRA,ACCOUNTANT MEMBER /. ITA NO. 452 , 453 & 4 54 /MUM/201 2 , / ASSESSMENT YEAR S - 200 5 - 06 ,06 - 07,08 - 09. DCIT - CIRCLE - 3(3) ROOM NO. 609 , 6 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD MUMBAI - 400 020. VS M/S. S BI FUNDS MANAGEMENT PVT. LTD.191, MAKER TOWER E, 19 TH FLOOR , CUFFE PARADE, COLABA MUMBAI - 400 0 05 . PAN: AAAC S 7339 D ( / APPELLANT ) ( / RESPONDENT ) /ASSESSEE BY : SHRI NITESH JOSHI - AR / REVENUE BY : SHRI S.S. RANA DR / DATE OF HEARING : 27 - 0 7 - 2015 / DATE OF PRONOUNCEMENT : 2 7 - 0 7 - 2015 , 1961 254 ( 1 ) ORDER U/S.254(1)OF THE INCOME - TAX ACT,1961(ACT) PER RAJENDRA, AM - CHALLENGING THE ORDER DATED 13.9.2011 OF THE CIT(A) - 7 , MUMBAI ,THE ASSESSING OFFICER(AO) HAS RAISED FOLLOWING GROUNDS OF APPEAL: ITA NO.452/M/2012(05 - 06) & ITA NO.453/M/2012(06 - 07): 1. 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE RE - OPENING OF ASSESSMENT DONE BY THE AO IS NOT C ORRECT IN VIEW OF SECTION 147 READ WITH EXPLANATION 1 AND EXPLANATION 2(C) (I), (III) & (IV) OF THE LT. ACT, WHEN THE RE - OPENING HAS BEEN DONE BEFORE THE EXPIRY OF 4 YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR?' 2. 'WHETHER ON THE FACTS A ND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) WAS RIGHT IN HOLDING THAT THE RE - OPENING OF ASSESSMENT W ITHIN FOUR YE ARS WAS DUE TO MERE CHANGE IN OPINION AND THEREFORE BAD IN LAW, WITHOUT APPRECIATING THE FACT THAT THE ASSESSMENT W AS RE - OPENED IN VIEW OF CLEAR POSITION OF LAW REGARDING THE TAXABILITY OF EXPENSES INCURRED ON ACCOUNT OF LEASEHOLD IMPROVEMENT BY TREATING IT AS CAPITAL EXPENDITURE?' 3. 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) WAS RIGHT IN ALLOWING THE ASSESSEE'S APPEAL BY PLACING RELIANCE ON THE HON'BLE APEX COURT'S DECISION IN THE CASE OF KELVINATOR OF INDIA LTD. (325 ITR 561) WITHOUT APPRECIATING THE FACT THAT THERE WAS NO CHANGE OF OPINION IN THIS CAS E AND LOOKING TO THE NATURE OF EXPENDITURE INCURRED THERE IS ONLY ONE OPINION POSSIBLE ON AVAILABLE FACTS, THAT IS, THE EXPENDITURE CLAIMED IS NOTHING BUT CAPITAL IN NATURE AND IT CANNOT BE ALLOWED AS REVENUE EXPENDITURE?' 4. 'WHETHER ON THE FAC TS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE REVENUE IS BOUND TO ACCEPT THE CASES IN WHICH CLEAR - CUT VIOLATION OF PROVISIONS OF THE ACT IS ESTABLISHED, ONLY ON THE GROUND THAT A REGULAR ASSESSMENT WAS COMPLETED EARLIER?' 5. 'THE APPEL LANT PRAYS THAT THE ORDER OF THE CIT(A) ON THE ABOVE GROUND BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED'. 6. 'THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR ADD A NEW GROUND WHICH MA Y BE NECESSARY'. ITA/ 452/453 & 454/12 , SBI FUNDS MPL 2 ITA NO.454/M/2012(2008 - 09): 1. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN ALLOWING PRIOR PERIOD EXPENSES CLAIMED OF RS.23,42,270/- WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND THE EXPENSES CLAIMED WERE INCURRED AND PERTAINING TO F.Y. 2006 - 07 AS SUCH NOT ALLOWABLE AS DEDUCTION FOR THE ASSESSMENT YEAR UNDER CONSIDERATION.' 2. 'THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A) ON THE ABOVE GROUND BE SET ASIDE AND THAT OF TH E ASSESSING OFFICER BE RESTORED'. 3. 'THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY'. ITA/452/MUM/2012 : 2 . ASSESSEE, AN ASSET MANAGEMENT COMPANY,FILED ITS RETURN OF INCOME ON 30.10.2005 DECLARIN G TOTAL INCOME OF RS.3.17 CRORES.THE AO COMPLETED THE ASSESSMENT ON 16.11.2007.U/S.143(3)OF THE ACT, DETERMINING THE INCOME OF THE ASSESSEE AT RS.13.21 CRORES.SUBSEQUENTELY,THE AO RE - OPENED THE ASSESSMENT ,AS PER THE PROVISIONS OF SECTION 147 OF THE ACT,AF TER RECORDING FOLLOWING REASONS : THE COMPANY IS ASSET MANAGEMENT AND IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. THE ASSESSEE COMPANY HAD DEBITED RS.64,71,413/ - BEING PRIOR PERIOD ADJUSTMENT WHICH HAS BEEN ALLOWED BY THE ASSESSING OFFICER ON SCRUTINY ASSESSMENT. FROM THE DETAILS OF PRIOR PERIOD ADJUSTMENT IT WAS SEEN THAT EXPENDITURE LIKE SALARY, ADVERTISEMENT, OFFICE RENT, PRINTING AND STATIONERY ETC., PERTAINING TO PRIOR PERIOD IS CLAIMED AS EXPENDITURE DURING THE PERIOD UNDER CONSIDERATION. AS THE A SSESSEE COMPANY IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING ALLOWABLE OF EARLIER PERIOD EXPENDITURE IS NOT IN ORDER. OMISSION HAS RESULTED IN UNDER ASSESSMENT OF RS.64,17,413/ - LEADING TO SHORT LEVY OF TAX OF RS.23,68,052/ - INCLUDING SURCHARGE AND EDUCATI ON CESS. THE AO OBSERVED THAT THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING,THAT IT HAD MADE A CLAIM OF RS.64.17 LAKHS UNDER THE HEAD P RIOR P ERIOD E XPENSES (PPE) ,THAT SUCH EXPENSES COULD NOT BE ALLOWED AS DEDUCTION IN THE YEAR UNDER APPEAL .FI NALLY,HE MADE AN ADDITION OF RS.64.17 LAKHS TO THE INCOME OF THE ASSESSEE . 3. AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSEE PREFERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY(FAA). BEFORE HIM,IT WAS CONTENDED THAT A LL THE PARTICULARS ABOUT THE NATURE OF EXPENDITURE, WITH FULL DOCUMENTARY EVIDENCES H AD BEEN SUBMITTED IN THE COURSE OF ASSESSMENT PROCEEDINGS COMPLETED UNDER SECTION 143(3) OF THE ACT ,THAT THE ASSESSEE HAD OBJECTED TO THE VALIDITY OF THE INITIATION OF ASSESSMENT PROCEEDINGS ON THE GROUN D THAT AFTER THE ISSUE OF NOTICE IT HAD FILED THE OBJECTIONS FOR SUCH REOPENING OF THE ASSESSMENT UNDER SECTION 148 OF THE ACT ,THAT THE AO BRUSHED ASIDE THE OBJECTIONS RAISED BY IT AND PROCEEDED TO COMPLETE THE RE - ASSESSMENT UNDER 143 (3) R.W.S.148 OF T HE ACT, THAT IT HAD MADE FULL DISCLOSURE NECESSARY FOR CLAIMING THE EXPENDITURE AND SAME WAS ALLOWED BY THE THEN AO AFTER APPLYING HIS MIND TO THE RELEVANT RECORDS ,THAT H IS SUCCESSOR AGAIN AFTER THE PERUSAL OF THE SAME SET OF FACTS PROPOSED TO REOPEN THE ASSESSMENT BECAUSE ACCORDING TO HIM SUCH ADJUSTMENT WAS WRONGLY ALLOWED ,THAT BETWEEN THE DATE OF ORDER OF ASSESSMENT SOUGHT TO BE REOPENED AND THE DATE OF FORMING OPINION NO NEW FACTS HA D EMERGED ,THAT IT WAS MERELY A CHANGE OF OPINION ,THAT THE POWER CON FERRED UNDER SECTION 147 OF THE ACT FOR RE - OPENING THE CONCLUDED COULD NOT BE EXERCISED MECHANICALLY OR ARBITRARILY ,THAT IN THE ABSENCE OF ANY FURTHER MATERIAL COMING TO THE POSSESSION OF THE AO, INDICATING THE FALLACY IN IT 'S CLAIM, HE COULD NOT HAVE ASSU MED JURISDICTION UNDER SECTION 148 TO RE - EXAMINE THE DEDUCTION ITA/ 452/453 & 454/12 , SBI FUNDS MPL 3 ALREADY ALLOWED IN THE ORIGINAL ASSESSMENT. THE ASSESSEE RELIED UPON THE CASES OF A STE ROIDS T RADING AND I NVESTMENTS P.L TD. ( 308 ITR 190 ) AND ASIAN PAINTS LTD. ( 308 ITR 195. ) AFTER CONSIDERING TH E SUBMISSIONS OF THE ASSESSEE AND THE ASSESSMENT ORDER THE FAA HELD THAT THE AO WAS NOT JUSTIFIED IN RE - OPENING THE ASSESSMENT,THAT ALL THE DETAILS AND FACTS WERE AVAILABLE ON RECORD OF THE AO AT THE TIME OF COMPLETION OF ORIGINAL ASSESSMENT,THAT THE REOP ENING WAS BASED ON THE DETAILS AVAILABLE ON RECORD,IT WAS A CASE OF CHANGE OF OPINION.REFERRING TO THE JUDGMENT OF KELVINATOR INDIA LTD.(325ITR561)OF THE HON BLE APEX COURT, THE FAA HELD THE REASSESSMENT PROCEEDINGS INVALID. 4. DURING THE COURSE OF HEARING B EFORE US, DEPARTMENTAL REPRESENTATIVE(DR) SUPPORTED THE ORDER OF THE AO AND STATED PPE WERE NOT ALLOWABLE.AUTHORISED REPRESENTATIVE (AR)CONTENDED THAT IT WAS A CASE OF CHANGE OF OPINION,THAT ALL THE DETAILS WERE AVAILABLE TO THE AO DURING THE ORIGINAL ASSESS MENT PROCEEDINGS. HE REFERRED TO PAGE NO.19 AND 64 OF THE PAPER BOOK AND STATED THAT IN SCHEDULE 14 (PG - 19) THE ASSESSEE HAS FURNISHED DETAILS ABOUT PRIOR PERIOD ADJUSTMENT, THAT THE AO, VIDE HIS LETTER DT.2.7.07 HAD DIRECTED THE ASSESSEE TO FIL E PREVIOUS Y EAR EXPENSES (PG - 64 ) ,THAT THE ASSESSEE HAD FILED THE DETAILS IN THAT REGARD . 5. WE HAVE PERUSED THE MATERIAL BEFORE US.WE FIND THAT THE AO HAD ISSUED NOTICE U/S.148 OF THE ACT,AS HE WAS OF THE OPINION THAT THE PPE WERE NOT ALLOWABLE DURING THE YEAR UNDER AP PEAL, THAT THE DETAILS ABOUT THE PPE WERE AVAILABLE ON RECORD. THE AO HAS NOT MENTIONED ABOUT THE NEW FACTS THAT HAD COME IN TO HIS POSSESSION AFTER PASSING THE ORIGINAL ASSESSMENT. IN ABSENCE OF ANY NEW FACT OR NEW PIECE OF INFORMATION OR CHANGE IN LAW THE PROVISIONS OF SECTION 147 CANNOT BE AND SHOULD BE INVOKED.DISTRUBING A COMPLETED ASSESSMENT IN NOT A NORMAL THING.THEREFORE,PECULIAR FACTS OR CIRCUMSTANCES MUST EXIST FOR REOPENING THE ASSESS M - ENTS FINALISED U/S.143(3)OF THE ACT.IN OTHER WORDS, T HE PRIMARY REQUIREMENT TO REOPEN ANY ASSESSMENT IS A REASON TO BELIEVE THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT AND T HE REASON SHOULD BE BASED ON TANGIBLE MATERIAL. PHRASE T ANGIBLE MATERIAL HAS BEEN INTERPRETED AS FACTUAL MATERIAL AND NOT INFERENCE OR O PINION ON MATERIAL ALREADY IN EXISTENCE AND CONSIDERED DURING THE ASSESSMENT PROCEEDINGS. HERE,WE WOULD LIKE TO REFER TO THE CASE OF ARONI COMMERCIALS LTD.(367ITR405) OF THE HONBLE BOMBAY HIGH COURT.THE HONBLE COURT HAS LAID DOWN SOME OF THE PRINCIPLES AS UNDER: .THAT THE CHALLENGE OF THE ASSESSEE WAS BASED ON LACK OF JURISDICTION IN ISSUING THE NOTICE BY THE ASSESSING OFFICER ON THE GROUND THAT THE PRE - CONDITION FOR ISSUING NOTICE UNDER SECTION147WAS NOT SATISFIED, I.E., NOTICE SHOU LD NOT BE ON ACCOUN T OF THE CHANGE OF OPINION. IT IS ONLY WHEN JURISDICTIONAL FACTS ARE SATISFIED WILL THE ASSESSING OFFICER ACQUIRES THE AUTHORITY TO DEAL WITH THE MATTER ON ADJUDICATORY FACTS. (IV) THAT THE CHALLENGE TO THE REOPENING OF ASSESSMENT PROCEEDINGS CAN BE RESIST ED ONLY ON THE BASIS OF THE REASONS RECORDED AT THE TIME OF ISSUING THE NOTICE AND NO FURTHER REASONS CAN BE ADDED OR SUPPLEMENTED TO SUPPORT REASONS RECORDED WHILE ISSUING THE NOTICE. (V) THAT ONCE A QUERY HAD BEEN RAISED WITH REGARD TO A PARTICULAR ISSU E, IT MUST FOLLOW THAT THE ASSESSING OFFICER HAD DULY APPLIED HIS MIND TO THE QUERIES RAISED AND TAKEN A VIEW ON THE MATTER. THEREFORE, IT COULD NOT BE ACCEPTED THAT THIS WAS NOT A CASE OF CHANGE OF OPINION ON THE PART OF THE ASSESSING OFFICER IN ISSUING T HE NOTICE. IN THE CASE UNDER CONSIDERATION NO TANGIBLE MATERIAL IS BEEN BROUGHT ON RECORD TO JUSTIFY THE REOPENING AND IT IS A PURE AND SIMPLE CASE OF CHANGE OF OPINION.THEREFORE,CONFIRMING THE ORDER OF THE FAA,WE DECIDE THE EFFECTIVE GROUND OF APPEAL AGAI NST THE AO. ITA/ 452/453 & 454/12 , SBI FUNDS MPL 4 ITA NO.453/M/2012 - AY . 06 - 07: 6. AS THE FACTS AND CIRCUMSTANCES OF THE CASE FOR THE YEAR UNDER APPEAL ARE IDENTICAL TO THE FACTS OF EARLIER YEAR, SO,FOLLOWING THE ORDER FOR THAT YEAR,EFFECTIVE GROUND OF APPEAL IS DECIDED AGAINST THE AO. ITA NO.4 54/M/2012 - AY.08 - 0 9 : 7. EFFECTIVE GROUND OF APPEAL DEALS WITH DELETION OF ADDITION MADE BY THE AO UNDER THE HEAD PPE,AMOUNTING TO RS.23.42 LAKHS.DURING THE ASSESSMENT PROCEEDINGS,THE AO FOUND THAT THE ASSESSEE HAD DEBI TED PPE TO THE P & L ACCOUNT,THAT THE EX PENSES WERE CLAIMED UNDER THE HEADS SALARIES AND ALLOWANCES, PHONE AND TELEX,OFFICE RENT,POSTAGE AND TELEGRAM,BUSINESS PROMOTION, MISCELLANEOUS EXP ENSES , PROFESSIONAL FEES,REPAIRS AND MAINTENACNE.THE AO DIRECTED THE ASSESSEE TO FILE JUSTIFICA TI ON ABOUT PPE.V IDE ITS LETTER, DATED 07.01.2009 , THE ASSESSEE SUBMITTED THAT IT WAS FOLLOWING THE PRACTICE OF IDENTIFYING ALL THE EXPENSES AND INCOME U PTO THE BALANCE SHEET DATE AND ACCOUNT THE SAME IN THE BOOKS ,THAT IT HAD BEEN FOLLOWING THE PRACTICE SINCE INCEPTION AND THE SAME HA D BEEN ALLOWED IN THE ASSESSMENTS AS AN ALLOWABLE BUSINESS EXPENDITURE SINCE ALL THE EXPENSES HA D BEEN INCURRED FOR THE PURPOSE OF THE BUSINESS OF THE COMPANY. THE AO HELD THAT THE EXPENDITURE CLAIMED BY THE ASSESSEE UNDER 'PRIOR PERIOD EXPEN SES' D ID NOT PERTAIN TO THE CURRENT YEAR UNDER CONSIDERATION ,THAT THE SAID EXPENDITURE WAS ON ACCOUNT OF SALARY, RENT, ADVERTISEMENT,PRINTING AND STATIONERY, MI SCELLANEOUS EXPENDITURES ETC., WHICH PERTAINED TO THE EARLIER AY.,THAT THE ASSESSEE WAS FOLLOWING M ERCANTILE SYSTEM OF ACCOUNTING FINALLY,HE DISALLOWED THE PPE TO THE EXTENT OF RS.23.42 LAKHS . 8. BEFORE THE FAA THE ASSESSEE CONTENDED THAT D URING THE COURSE OF ASSESSMENT PROCEEDINGS U /S. 143(2) OF THE ACT, IT HAD MADE FULL DISCLOSURE AS WAS NECESSARY JUS TIFYING THE CLAIM OF PPE,THAT THE SAID EXPENSES THOUGH PERTAIN ED TO THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 2008 - 09 WERE CRYSTALLIZED AND PAID DURING THE PREVIOUS YEAR RELEVANT TO THE AY.UNDER APPEAL , THAT IT HAD OFFERED RS. 72,69,260/ - AS EXCES S PROVISION IN RESPECT OF EARLIER YEARS WRITTEN BACK RELEVANT TO THE ASSESSMENT YEAR 2008 - 09 AND WAS OFFERED FOR TAX ALSO. THE ASSESSEE REFERRED TO THE PROVISIONS OF SECTION 145(3)OF THE ACT AND THE AS - 11.IT RELIED UPON THE CASES OF INDAG RUBBER LTD ( 280 ITR - A. T194 ) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND THE ASSESSMENT ORDER THE FAA HELD THAT ALL THE EXPENSES CLAIMED AND CLASSIFIED AS PPE HAD CRYSTALLIZED IN THE YEAR UNDER APPEAL,THAT THE ASSESSEE CAME TO KNOW ABOUT THE BILLS DURING THE Y EAR ONLY,THAT SOME OF THE EXPENSES WERE INCURRED IN EARLIER YEAR BUT THE FINAL BILLS WERE RECEIVED DURING THE YEAR UNDER CONSIDERATION,THAT THE EXPENSES WERE GENUINE AND WERE INCURRED IN RUNNING OF THE REGULAR BUSINESS,THAT SAME WERE ALLOWABLE AS LEGITIMAT E BUSINESS EXPENDITURE. 9. DURING THE COURSE OF HEARING BEFORE US,THE DR STATED THAT THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND THAT THERE WAS NO JUSTIFICATION FOR CLAIMING DEDUCTION ON THE EXPENDITURE OF EARLIER YEARS. THE AR STATED THA T THE LIABILITY TO PAY THE DUES HAD CRYSTALLIZED DURING THE YEAR UNDER CONSIDERATION. HE REFERRED TO PAGE NO.10 ,50,58 OF THE PAPER BOOK AND CONTENDED THAT THE ASSESSEE WAS FOLLOWING PRACTICE OF IDENTIFYING ALL EXPENSES AND INCOME UPTO THE BALANCE SHEET, THA T IF CERTAIN EXPENSES INCURRED AND NOTIFIED AFTER THE ACCOUNTS HAD BEEN FINALIZED THE EXPENSES WERE CATEGORIZED AS PRIOR PERIOD ITEMS AND HAD BEEN ACCOUNTED SEPARATELY IN THE BOOKS, THAT THE ASSESSEE WAS FOLLOWING THE SAID PRACTICE SINCE INCEPTION AND SAME WAS ACCEPTED BY THE DEPARTMENT. ITA/ 452/453 & 454/12 , SBI FUNDS MPL 5 10. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD.IT IS FOUND THAT THE AO HAD DISALLOWED THE PPE BECAUSE THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING,THAT THE FAA HAD ALLOWED THE APPE AL AND HELD THAT THE LIABILITIES WERE CRYSTALLISED DURING THE YEAR UNDER APPEAL THOUGH THE EXPENDITURE WAS INCURRED IN EARLIER YEAR. IN OUR OPINION,I T IS NOT AN UNCOMMON PRACTICE THAT EXPENSES ARE NOT BOOKED IN THE YEAR OF INCURRING OF EXPENDITURE DUE TO N ON - RECEIPT OF DETAILS AND SUCH EXPENSES A RE BOOKED IN THE YEAR IN WHICH THEY A RE FINALLY SETTLED FOR PAYMENT. IF THE DETA ILS FILED BY THE ASSESSEE ARE ANALYSED, IT BECOMES CLEAR THAT ALL THESE EXPENSES WERE SETTLED DURING TH E YEAR UNDER CONSIDERATION . ONE OF THE BASIC PRINCIPLE OF TAXATION JURISPRUDENCE STIPULATE THAT E ARLIER YEARS' EXPENSES CAN BE ALLOWED AND IN THE MERCANTILE METHOD OF ACCOUNTING IN THE YEAR IN WHICH THE LIABILITY IS ACCEPTED AND PAID. HONBLE DELHI HIGH COURT HAS IN THE MATTER OF KHAITAN CHEMICALS AND FERTILIZERS L TD. (307 ITR 150)HAS DELIBERATED UPON THE ISSUE OF PPE AND THE ACCOUNTING STANDARDS.THE COURT HAS OBSERVED AS UNDER: 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 T HE 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. PARAGRAPH 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 C URRENT 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. THE ALTERNATIVE APPROACH IS TO SHOW SUCH ITEMS IN THE STATEMENT OF PROFIT AND 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. FROM THE ABOVE IT IS CLEAR THAT PPE CAN BE ALLOWED AS ALLOWABLE EXPENSES IN A PARTICULAR YEAR IF SAME ARE CRYSTALLISED IN THAT YEAR.THE FAA HAS GIVEN A FINDING OF FACT ABOUT FINALISATION OF EXPENSES IN QUESTION DURING THE YEAR UNDER APPEAL.THEREFORE,IN OUR OPINION,HIS ORDER DOES NOT SUFFER FROM ANY LEGAL OR FACTUAL INFIRMITY.CONFIRMING HIS ORDER,WE DECIDE THE EFFECTIVE GROUND OF APPEAL AGAINST THE AO. AS A RESULT,APPEAL S FILED BY THE AO FOR ALL THE THREE AY.S . STAND DISMISSED. . . . ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH , JU LY ,2015. 27 , 201 5 SD/ - SD/ - ( . . / A D JAIN ) ( / RAJENDRA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER ITA/ 452/453 & 454/12 , SBI FUNDS MPL 6 / MUMBAI, /DATE: 27 .07. 2015 . . . JV. SR.PS . / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR A BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , / ITAT, MUMBAI.