Eco Cane Sugar Energy Ltd., Belgaum V. DeputyCommissioner of Income-tax,

ITA 468/PUN/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 2810 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 10 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-01-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 30-11-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 10-03-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DHEERAJ KUMAR JAIN
• Assessee Lawyers: PRASANN A L JOSHI
• Keywords: Business expenditure; Retrospective amendment; Question of law

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, PUN E , , !'!! # , $ % BEFORE SHRI R.K. PANDA, AM AND SHRI VIKAS AWASTHY, JM / ITA NO. 468/PN/2014 $& ' !(' / ASSESSMENT YEAR : 2010-11 ECO CANE SUGAR ENERGY LTD., DODDANAVAR CORPORATE HOUSE, 738/1, KHANAPUR ROAD, NEAR 3 RD RAILWAY GATE, BELGAUM PAN : AABCN7682D ....... / APPELLANT )& / V/S. DCIT, CIRCLE 1, KOLHAPUR / RESPONDENT ASSESSEE BY : SHRI PRASANNA L. JOSHI REVENUE BY : SHRI DHEERAJ KUMAR JAIN / DATE OF HEARING : 10-12-2015 / DATE OF PRONOUNCEMENT : 29-01-2016 * / ORDER PER VIKAS AWASTHY, JM : THE APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE OR DER OF COMMISSIONER OF INCOME TAX (APPEALS)-KOLHAPUR DATED 16-12 -2013 FOR THE ASSESSMENT YEAR 2010-11. 2. THE ASSESSEE HAS IMPUGNED THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) ON THE FOLLOWING GROUNDS: 2 ITA NO. 468/PN/2014, A.Y. 2010-11 1. THE LD. CIT(A) ERRED IN DISALLOWING RS 2,41,58,633 PAID FOR SUGARCANE PURCHASES IN SEASON 2008-09 IGNORING THE FACTS, CIR CUMSTANCES AND COMPULSIONS REQUIRING THE APPELLANT TO PAY FARMERS A COMPETITIVE SUGARCANE PRICE OF RS 1400/MT. 2. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN HOLDING THAT ADDITIONAL PRICE PAID FOR CANE PURCHASES OF SE ASON 2008-09 WAS PRIOR PERIOD EXPENDITURE IN FINANCIAL YEAR 2009-10 AND THE LIABILITY TO PAY ADDITIONAL DID NOT CRYSTALLISE IN THE FINANCIAL YEA R 2009-2010. 3. IN THE FACTS AND CIRCUMSTANCE OF THE CASE, THE LD. CIT(A) ERRED IN HELP THAT THE EXPENDITURE IS IN EXCESS OF PRICE DECIDED EARLIER WHICH IS IN NATURE OF APPROPRIATION OF PROFITS AS THE AMOUNT WA S DECIDED AFTER CLOSE OF THE FINANCIAL YEAR. 4. IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE DISA LLOWANCE OF RS.2,41,58,633 CONFIRMED BY THE LD. CIT(A) BE DELET ED AND THE ASSESSING OFFICER BE DIRECTED TO ALLOW THE PAYMENT MADE TO CAN E SUPPLIERS AS A BUSINESS EXPENDITURE INCURRED WHOLLY AND EXCLUSIVEL Y FOR THE PURPOSE OF BUSINESS OF THE APPELLANT. 3. THE BRIEF FACTS OF THE CASE AS EMANATING FROM THE RE CORDS ARE: THE ASSESSEE IS A PUBLIC LIMITED COMPANY AND IS ENGAGED IN THE BUSINESS OF PRODUCTION OF SUGAR FROM SUGARCANE. THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE IMPUGNED ASSESSMENT YEAR IN SEPTEMBER, 2 010 DECLARING NEGATIVE INCOME OF `(-) 41,38,497/-. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY AND ACCORDINGLY FIRST NOTICE U/S . 143(2) WAS ISSUED TO THE ASSESSEE ON 16-09-2011. DURING THE COUR SE OF SCRUTINY ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER FOUND THAT T HE ASSESSEE HAS CLAIMED PRIOR PERIOD EXPENSES TO THE TUNE OF ` 2,48,99,860/-. THESE EXPENSES INCLUDE : I. CANE PRICE DIFFERENCE ` 2,33,30,414/-. II. BANK INTEREST ` 6,44,714/-. III. REPAIRS AND MAINTENANCE ` 2,15,617/-. IV. SERVICE TAX ` 52,095/-. 3 ITA NO. 468/PN/2014, A.Y. 2010-11 V. CONSULTANCY FEES ` 29,120/-. VI. REGISTRATION AND RENEWAL FEES ` 44,388/-. VII. TRAVELLING EXPENSES ` 56,395/-. THE ASSESSING OFFICER AFTER VERIFYING THE AFORESAID EXPENSE S ALLOWED THE PAYMENT IN RESPECT OF BANK INTEREST, SERVICE TAX, REGISTRATION AND RENEWAL FEES AND DISALLOWED PRIOR PERIOD E XPENSES IN RESPECT OF REMAINING FOUR ITEMS. ACCORDINGLY, ADDITION OF ` 2,41,58,633/- WAS MADE BY THE ASSESSING OFFICER ON ACCOUNT OF PRIOR PERIOD EXPENSES. AGGRIEVED BY THE ASSESSMENT ORDER DATED 25-03-2013, T HE ASSESSEE PREFERRED AN APPEAL BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS). THE COMMISSIONER OF INCOME TAX (APPEALS) CONFIRMED THE FINDINGS OF THE ASSESSING OFFICER IN RESPECT OF PRIOR PERIOD EX PENSES CLAIMED BY THE ASSESSEE. NOW, THE ASSESSEE IS IN SECOND APPEAL BEFORE THE TRIBUNAL AGAINST THE FINDINGS OF COMMISSIONER OF INCOME T AX (APPEALS). 4. SHRI PRASANNA L. JOSHI APPEARING ON BEHALF OF THE ASSES SEE SUBMITTED THAT DURING THE PERIOD RELEVANT TO THE ASSES SMENT YEAR 2010- 11 THE ASSESSEE HAD PAID ADDITIONAL PRICE FOR THE SUGARCA NE PURCHASED DURING THE PERIOD RELEVANT TO THE ASSESSMENT YEAR 2009 -10. SINCE, THE PAYMENTS WERE RELATED TO EARLIER YEAR THE AUDITORS OF TH E COMPANY HAD MENTIONED ADDITIONAL PRICE PAID FOR SUGARCANE IN THEIR AUDIT REPORT IN CLAUSE 22(B) UNDER THE HEAD PRIOR PERIOD EXPENDITURE. THE ASSESSEE HAD PAID SUGARCANE PRICE @ ` 1200/- PER MT FOR THE SUGARCANE PURCHASED UP TO 10-01-2009 AND ` 1300/- FOR SUGARCANE PURCHASED FROM 11-01-2009 TO MARCH 2009. THIS PRICE PAID BY THE A SSESSEE FOR PROCURING SUGARCANE WAS BELOW THE SUGARCANE PRICE PAID BY SUGAR 4 ITA NO. 468/PN/2014, A.Y. 2010-11 FACTORIES IN SURROUNDING AREA. THERE WAS RESENTMENT AMO NGST THE FARMERS AND THEY STARTED DEMANDING MORE PRICES FOR THE SUGARCANE SUPPLIED BY THEM DURING THE PERIOD RELEVANT TO THE ASSE SSMENT YEAR 2009-10. THERE WAS AGITATION BY THE FARMERS AND THEY T HREATENED NOT TO SUPPLY SUGARCANE DURING THE FINANCIAL YEAR 2009-10 UN LESS THE DIFFERENCE IN CANE RATE FOR THE EARLIER YEAR IS SETTLED. TO PROTECT THE INTEREST OF THE COMPANY, THE MANAGEMENT DECIDED TO COMP ENSATE THE FARMERS FOR THE SUGARCANE SUPPLIED IN THE EARLIER YEAR BY FIXING THE RATE AT PAR WITH THE PRICE PAID BY THE OTHER SUGAR FACTORIES IN THE SURROUNDING AREA. ACCORDINGLY, THE RATE WAS FIXED AT ` 1400/- PER MT FOR THE PURCHASE OF SUGARCANE IN FINANCIAL YEAR 2009-10. A BOARD RESOLUTION TO THIS EFFECT WAS PASSED ON 24-08-2009. A CO PY OF THE BOARD RESOLUTION IS PLACED AT PAGE 79 OF THE PAPER BOOK. THUS, THE PAYMENT OF ADDITIONAL PRICE ACCRUED ON THE DATE OF DECISION TAKEN BY THE MANAGEMENT AND IS ACCORDINGLY ACCOUNTED IN THE YEA R OF ACCRUAL. THE LIABILITY TO PAY ADDITIONAL PRICE OF SUGARCANE CRYSTALLIZED ONLY WHEN IT WAS DECIDED BY THE MANAGEMENT TO GIVE THE PRICE AND NOT IN THE YEAR TO WHICH IT PERTAINS. THE QUANTUM OF ADDITIONAL PAYMENT FO R SUGARCANE COULD NOT BE ASCERTAINED IN THE ASSESSMENT YEAR 2009-1 0 AS THE ASSESSEE COULD NOT FORESEE THE PROTEST BY THE FARMERS DEMANDING ADDITIONAL/HIGHER PAYMENT FOR THE SUGARCANE SUPPLIED. THE DISPUTED CONTRACTUAL LIABILITY CRYSTALLIZED ONLY WHEN THE DISPUTE IS FINA LLY SETTLED. THE ADDITIONAL CANE PRICE FOR THE SUGARCANE SUPPLIED FOR SE ASON 2008-09 WAS PAID BY THE ASSESSEE TO THE FARMERS IN INST ALLMENT IN FINANCIAL YEAR 2009-10. THE ASSESSEE HAD NOT MADE ANY P ROVISIONS IN THE BOOKS OF ACCOUNT IN ASSESSMENT YEAR 2009-10. THE EXPENDITURE HAS BEEN INCURRED OUT OF BUSINESS EXPEDIENCY. THE LD. AR IN SUPPORT OF HIS SUBMISSIONS PLACED RELIANCE ON THE FOLLOWING DECISIONS: I. R.C. GUPTA VS. COMMISSIONER OF INCOME TAX, 298 ITR 161 (DEL); 5 ITA NO. 468/PN/2014, A.Y. 2010-11 II. COMMISSIONER OF INCOME TAX VS. EXXON MOBIL LUBRICANTS (P) LT D., 328 ITR 17 (DEL); III. SIR SHADILAL SUGAR & GENERAL MILLS LTD. VS. COMMISSIONER OF INCOME TAX, 64 TAXMAN 597 (ALL). 5. ON THE OTHER HAND SHRI DHEERAJ KUMAR JAIN REPRESEN TING THE DEPARTMENT VEHEMENTLY SUPPORTED THE FINDINGS OF THE AUT HORITIES BELOW AND PRAYED FOR DISMISSING THE APPEAL OF THE ASSESSEE. THE LD. DR SUBMITTED THAT THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. IN THE IMPUGNED ASSESSMENT YEAR THE ASSES SEE HAS CLAIMED PRIOR PERIOD EXPENSES WHICH HAVE BEEN RIGHTLY DISA LLOWED BY THE AUTHORITIES BELOW. IN CLAIMING PRIOR PERIOD EXPENSES TH E ASSESSEE HAS SHIFTED FROM MERCANTILE SYSTEM TO MIXED SYSTEM OF ACC OUNTING. THE LD. DR IN SUPPORT OF HIS SUBMISSIONS PLACED RELIANCE ON THE D ECISION OF HON'BLE MADRAS HIGH COURT IN THE CASE OF MADRAS FERTILIZERS LIMITED VS . COMMISSIONER OF INCOME TAX REPORTED AS 209 ITR 174 (MAD ) AND THE DECISION OF MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF DEP UTY COMMISSIONER OF INCOME TAX VS. REDIFF.COM INDIA (P.) LTD. REPOR TED AS 46 SOT 99 (MUMBAI)(URO). 6. CONTROVERTING THE SUBMISSIONS MADE ON BEHALF OF THE DEPARTMENT, THE LD. AR SUBMITTED THAT THE ASSESSEE IS NO T FOLLOWING MIXED SYSTEM OF ACCOUNTING. THE AMOUNT HAS BEEN PAID T O THE FARMERS IN RESPECT OF SUGARCANE SUPPLIED BY THEM IN THE PERIOD RE LEVANT TO THE ASSESSMENT YEAR 2009-10. THE PAYMENTS HAVE BEEN MAD E OUT OF BUSINESS EXPEDIENCY. THE LD. AR FURTHER SUBMITTED THAT TH E COMMISSIONER OF INCOME TAX (APPEALS) IN THE IMPUGNED ORDER HAS GIVEN WRONG FINDING OF FACT THAT THE EXPENDITURE HAS BEEN MADE IN EXCESS OF PRICE DECIDED EARLIER AND IT IS IN THE NATURE OF APPROPRIATION OUT OF PROFIT 6 ITA NO. 468/PN/2014, A.Y. 2010-11 THAT THE PAYMENTS HAVE BEEN MADE AFTER THE CLOSE OF TH E FINANCIAL YEAR AND CLOSING OF BOOKS OF ACCOUNT ON 31-03-2009. 7. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESEN TATIVES OF RIVAL SIDES AND HAVE PERUSED THE ORDERS OF THE AUTHORITIE S BELOW. WE HAVE ALSO CONSIDERED THE DECISIONS ON WHICH BOTH THE SIDE S HAVE PLACED RELIANCE. THE ASSESSEE IN APPEAL HAS ASSAILED THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) IN DISALLOWING ` 2,41,58,633/- PAID TOWARDS SUGARCANE PURCHASE IN THE SEASON 2008-09 . HOWEVER, WE FIND THAT THE ADDITIONAL AMOUNT PAID BY THE ASSESSEE FOR P URCHASE OF SUGARCANE IS ` 2,33,30,414/-. THE DEPARTMENT HAS NOT RAISED ANY DOUBT OVER THE PAYMENT OF SUCH AMOUNT. IT IS AN UNDISPUTED FACT THAT THE ASSESSEE HAS PAID ADD ITIONAL PRICE TO THE FARMERS FOR PURCHASE OF SUGARCANE FOR THE SEASON 2008-09. IT HAS BEEN STATED THAT THE ASSESSEE HAD INITIALLY FIXED THE SUGARCANE PRICE @ ` 1200/- PER MT WHICH WAS REVISED TO ` 1300/- PER MT ON 11- 01-2009. SINCE, THE SUGAR FACTORIES IN THE ADJOINING AREA WERE PURCHASING SUGARCANE FROM THE FARMERS @ ` 1400/- PER MT, THERE WAS AGITATION BY THE FARMERS AGAINST THE ASSESSEE FOR FIXING LO WER RATE. THE FARMERS THREATENED THE ASSESSEE NOT TO SUPPLY SUGARC ANE DURING FINANCIAL YEAR 2009-10. THE THREAT OF CLOSURE OF SUGAR MILLS WAS LOOMING LARGE OVER THE ASSESSEE IN THE ABSENCE OF SUPPLY OF SUGARCANE. THE ASSESSEE HAD NO OTHER OPTION BUT TO ACCEPT THE D EMAND OF THE FARMERS. SINCE, THE ASSESSEE HAD PAID THE PRICE OF SUGARC ANE BELOW THE PRICE WHICH WAS PAID BY THE ADJOINING SUGAR MILLS, THE ASSE SSEE AGREED TO COMPENSATE THE FARMERS BY PAYING THE PRICE AT PAR W ITH THE PRICE PAID BY THE SUGAR MILLS IN THE ADJOINING AREA. IT IS AN ADM ITTED CASE OF THE ASSESSEE THAT NO PROVISION WAS CREATED BY THE ASS ESSEE IN ITS BOOKS OF ACCOUNT FOR THE PERIOD RELEVANT TO THE ASSESSMENT YE AR 2009-10, AS 7 ITA NO. 468/PN/2014, A.Y. 2010-11 THE ASSESSEE HAD NOT ANTICIPATED AGITATION FROM THE FARME RS DEMANDING HIGHER AMOUNT FOR SUPPLY OF SUGARCANE. THE BOARD OF DIR ECTORS OF THE ASSESSEE TOOK THE DECISION IN THE MEETING HELD ON 24-08 -2009 TO PAY THE ADDITIONAL PRICE OF ` 200/- PER MT FOR THE CANE SUPPLIED @ ` 1200/- PER MT AND ` 100/- PER MT FOR THE CANE SUPPLIED @ ` 1300/- PER MT TO BRING IT AT PAR WITH THE PRICE PAID BY THE OTHER SUGAR M ILLS. THE SAID PAYMENTS WERE MADE BY THE ASSESSEE OUT OF BUSINESS EX PEDIENCY. THUS, THE LIABILITY TO PAY ADDITIONAL PRICE FOR THE SUGARCANE CRYSTALLIZED WHEN THE BOARD OF DIRECTORS DECIDED IN THEIR BOARD MEETIN G TO COMPENSATE THE FARMERS WITH THE ADDITIONAL COST FOR THE SUGARCANE SUPPLIED IN THE SEASON 2008-09. 8. THE REVENUE IN SUPPORT OF HIS SUBMISSIONS HAS PLACED RELIANCE ON THE DECISION OF MUMBAI BENCH OF THE TRIBUNAL IN THE CAS E OF DEPUTY COMMISSIONER OF INCOME TAX VS. REDIFF. COM INDIA (P.) LTD. (SUPR A). WE FIND THAT THE FACTS OF THE SAID CASE ARE DISTINGUISHABLE. TH EREIN THE ASSESSEE HAD FAILED TO JUSTIFY THE ALLOWABILITY OF CLAIM OF PRIOR PERIOD EXPENSES PAID DURING THE YEAR BEFORE THE ASSESSING OFFICER AS WELL AS COMMISSIONER OF INCOME TAX (APPEALS). THE ASSESSEE FAILED T O SHOW THAT THE EXPENDITURE HAD CRYSTALLIZED DURING THE YEAR. E VEN BEFORE THE TRIBUNAL THE ASSESSEE COULD NOT SUBSTANTIATE THAT THE E XPENSES WERE CRYSTALLIZED DURING THE YEAR UNDER CONSIDERATION. THE LD. DR HAS ALSO PLACED RELIANCE ON THE JUDGMENT OF HO N'BLE MADRAS HIGH COURT IN THE CASE OF MADRAS FERTILIZERS LIMITE D VS. COMMISSIONER OF INCOME TAX (SUPRA). IN THE SAID CASE THE ASSESSEE HAD CLAIMED EXPENDITURE TOWARDS PUBLICITY AND PROMOTIONAL EXPE NSES INCURRED DURING THE PREVIOUS YEARS UP TO MARCH 31, 197 0 WHILE COMPUTING THE INCOME FOR THE ASSESSMENT YEAR 1972-73. THE ASSESSING OFFICER DISALLOWED THE SAME, AS THE EXPENDITURE WERE INCURRE D PRIOR TO 8 ITA NO. 468/PN/2014, A.Y. 2010-11 APRIL 1, 1970. THE COMMISSIONER OF INCOME TAX (APPEALS) CON FIRMED THE FINDINGS OF THE ASSESSING OFFICER. HOWEVER, THE TRIBUNAL A CCEPTED THE APPEAL OF THE ASSESSEE AND ALLOWED THE EXPENDITURE. THE MATTER TRAVELLED TO THE HON'BLE HIGH COURT. THE HON'BLE COURT H ELD THAT WHERE THE ACCOUNTS ARE KEPT ON MERCANTILE BASIS, ALLOWANCE MUST BE GRANTED IN THE YEAR IN WHICH THE LIABILITY IS INCURRED, IRRESPECTIVE OF T HE QUESTION WHETHER THE DISBURSEMENT HAS BEEN MADE OR NOT. WE FIN D THAT THE ISSUE RAISED IN THE SAID JUDGMENT HAS NO RELEVANCE IN THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE. THERE IS NO QUARREL OVER THE WELL SETTLED LAW THAT WHERE THE BOOKS ARE MAINTAINED ON MERC ANTILE SYSTEM OF ACCOUNTING, THE EXPENDITURE IS ALLOWED ONLY IN THE YEAR IN WHICH THE LIABILITY IS INCURRED, IRRESPECTIVE OF THE DATE OF DISBURSEMENT OF PAYMENT. THE PAYMENTS ARE TO BE MADE ON ACCRUAL BASIS . HOWEVER, IN THE PRESENT CASE THE ISSUE IS, AS TO WHEN THE EXPENDITU RE CLAIMED BY THE ASSESSEE CRYSTALLIZED. AS IS EVIDENT FROM THE RECORD S THAT ALTHOUGH THE PAYMENT IS MADE IN RESPECT OF SUGARCANE SUPPLIED IN T HE FINANCIAL YEAR 2008-09, THE ADDITIONAL AMOUNT CLAIMED BY THE FARMERS WAS ACCEPTED AND PAID DURING THE PERIOD RELEVANT TO THE ASS ESSMENT YEAR 2010-11. THE ASSESSEE HAS BEEN ABLE TO SHOW THE COM PELLING CIRCUMSTANCES UNDER WHICH THE ADDITIONAL AMOUNT WAS DISBU RSED BY THE ASSESSEE TO THE FARMERS. 9. THE HON'BLE DELHI HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. EXXON MOBIL LUBRICANTS (P) LTD. (SUPRA) WHILE DEALING WITH A SIMILAR CONTROVERSY WHEREIN PRIOR PERIOD EXPENSES W ERE DISALLOWED BY THE REVENUE. THE HON'BLE HIGH COURT AFFIRMED THE FINDINGS OF THE TRIBUNAL IN ALLOWING THE SAME. IN THE SAID CA SE THE ASSESSEE HAD ENTERED INTO AN AGREEMENT IN AUGUST, 2002 , WITH RETROSPECTIVE EFFECT I.E. FROM 1 ST JANUARY, 2002 AND CLAIMED THE 9 ITA NO. 468/PN/2014, A.Y. 2010-11 DEDUCTION OF EXPENSES FOR THE PERIOD FROM 1 ST JANUARY, 2002 TO 31 ST MARCH, 2002 DURING ASSESSMENT YEAR 2003-04 AS THE LIAB ILITY HAS CRYSTALLIZED DURING THE RELEVANT PREVIOUS YEAR. THE ASSES SING OFFICER DISALLOWED THE DEDUCTION ON THE GROUND THAT THE LIABILITY PE RTAINED TO PRIOR PERIOD. IN THE FIRST APPEAL THE COMMISSIONER OF INCOM E TAX (APPEALS) DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. THE REVENUE FILED APPEAL AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (A PPEALS) BEFORE THE TRIBUNAL. THE TRIBUNAL DISMISSED THE APPEAL OF T HE REVENUE HOLDING THAT THE ASSESSEE ITSELF COULD NOT HAVE KNOWN ABO UT THE LIABILITY IN THE EARLIER ASSESSMENT YEAR. THE LIABILITY OF THE ASSESSE E UNDER THE AGREEMENT HAD ARISEN AND ACCRUED IN AUGUST, 2002, WHEN THE AGREEMENT WAS EXECUTED. IT WAS UNDER THE SAID AGREEM ENT THAT THE LIABILITY TO PAY FOR PERIOD JANUARY, 2002 TO MARCH, 2002 ARO SE. THUS, ASSESSEE COULD ONLY CLAIM THE LIABILITY AS EXPENDITURE IN ASS ESSMENT YEAR 2003-04. THE MATTER TRAVELLED TO THE HON'BLE HIGH COURT. THE HON'BLE HIGH COURT DECIDED THE ISSUE IN FACVOUR OF THE ASS ESSEE BY OBSERVING AS UNDER: 14. HENCE, WE ARE OF THE VIEW THAT LIABILITY OF TH E ASSESSEE UNDER THE AGREEMENT HAD ARISEN AND ACCRUED IN AUGUST, 2002, W HEN THE AGREEMENT WAS EXECUTED AND, THEREFORE, THE LIABILITY OF THE A SSESSEE TO PAY FOR PERIOD JANUARY, 2002 TO MARCH, 2002 AROSE AND CRYST ALLIZED IN AUGUST 2002. IT IS PERTINENT TO MENTION THAT CIT(A) HAD OB SERVED THAT THE ASSESSEE HAD SHOWN PRIOR PERIOD EXPENSE OF RS. 1,34 ,34,500 AGAINST WHICH THE PRIOR PERIOD INCOME WAS SHOWN AS RS. 83,2 1,000 AND THE NET AMOUNT OF RS. 51,13,000 HAD BEEN SHOWN AS EXPENDITU RE IN THE P&L A/C. CIT(A) HELD THAT IF THE ASSESSEE HAS SHOWN PRIOR PE RIOD INCOME AND THE AO HAS NOT EXCLUDED IT WHILE WORKING OUT THE CURREN T YEAR'S TAXABLE INCOME THEN THERE WAS NO REASON ON THE PART OF AO T O DISALLOW ONLY ONE PART OF THE PRIOR PERIOD ADJUSTMENTS I.E., THE PRIO R PERIOD EXPENDITURE. 15. CONSEQUENTLY, THE ADDITION MADE BY THE AO CANNO T BE SUSTAINED. IN ANY EVENT, IN VIEW OF THE SETTLED LEGAL POSITION , NO SUBSTANTIAL QUESTION OF LAW ARISES IN THE PRESENT PROCEEDINGS. HENCE, TH E PRESENT APPEAL, BEING BEREFT OF MERIT, IS DISMISSED BUT WITH NO ORD ER AS TO COSTS. 10 ITA NO. 468/PN/2014, A.Y. 2010-11 10. THUS, IN VIEW OF THE FACTS OF THE CASE AND DECISION OF T HE HON'BLE DELHI HIGH COURT DISCUSSED ABOVE, WE ARE OF THE CONSIDERED VIEW THAT THE AMOUNT OF ` 2,33,30,414/- PAID BY THE ASSESSEE TOWARDS THE ADDITIONAL COST FOR PROCUREMENT OF SUGARCANE IN SEASON 20 08-09 CRYSTALLIZED WHEN THE BOARD OF DIRECTORS DECIDED TO PAY T HE ADDITIONAL COST TO THE FARMERS. THE MANAGEMENT OF THE ASSESSEE COMPANY COULD NOT HAVE ASCERTAINED THIS EXPENDITURE IN ASSESSMENT YEA R 2009-10. ACCORDINGLY, WE FIND MERIT IN THE APPEAL OF THE ASSESSEE. THE APPEAL OF THE ASSESSEE IS ACCEPTED TO THE EXTENT OF ` 2,33,30,414/- PAID TOWARDS THE ADDITIONAL COST FOR PROCUREMENT OF SUGARCANE. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED ON FRIDAY, THE 29 TH DAY OF JANUARY, 2016. SD/- SD/- ( . . / R.K. PANDA) ( ! ' / VIKAS AWASTHY) #' / ACCOUNTANT MEMBER $ % #' / JUDICIAL MEMBER / PUNE; &# / DATED : 29 TH JANUARY, 2016 RK *+,$-.'/'(- / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. ' () / THE CIT(A), KOLHAPUR 4. ' / THE CIT-II, KOLHAPUR 5. !*+ %%,- , ,- , . /01 , / DR, ITAT, A BENCH, PUNE. 6. + 2 34 / GUARD FILE. // ! % // TRUE COPY// #5 / BY ORDER, %6 ,1 / PRIVATE SECRETARY, ,- , / ITAT, PUNE