DCIT, New Delhi V. Hotline Glass Ltd., New Delhi

ITA 5520/DEL/2013

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 7522 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 2 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-12-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 11-11-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 09-10-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SATPAL SINGH
• Keywords: Depreciation
• Section: 43B; 143(3); 263

Judgement Text

ITA NO.5520/DEL/2013 ASSTT.YEAR: 2006-07 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES C NEW DELHI BEFORE SHRI N.K. SAINI, ACCOUNTANT MEMBER AND SHRI CHANDRAMOHAN GARG, JUDICIAL MEMBER ITA NO. 5520/DEL/2013 ASSTT.YEAR: 2006-07 DCIT, CIRCLE 12(1), VS HOTLINE GLASS LTD., 52-A, NEW DELHI. OKHLA IN DUSTRIAL ESTATE, PHASE-III, NEW DELHI. (PAN: AAACH0561L) (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI SATPAL SINGH, SR. DR RESPONDENT BY: NONE O R D E R PER CHANDRAMOHAN GARG, J.M. THIS APPEAL HAS BEEN PREFERRED BY THE REVENUE AGAI NST THE ORDER OF THE CIT(A)-XV, NEW DELHI DATED 15.7.2013 IN APPEAL NO. 168/11-12 FOR AY 2006-07. 2. WHEN THE CASE WAS CALLED FOR HEARING, NEITHER TH E ASSESSEE NOR HIS REPRESENTATIVE APPEARED BEFORE US NOR ANY APPLICATI ON FOR ADJOURNMENT HAS BEEN FILED ON BEHALF OF THE ASSESSEE. ON CAREFUL PERUSA L OF THE RELEVANT RECORD OF THE APPEAL, WE ARE OF THE CONSIDERED VIEW THAT THE APPE AL CAN BE DISPOSED OF AFTER HEARING THE LD. DR AND WE PROCEED TO DECIDE THE APP EAL ON MERITS. ITA NO.5520/DEL/2013 ASSTT.YEAR: 2006-07 2 3. THE REVENUE HAS RAISED FOLLOWING GROUNDS IN THIS APPEAL:- 1. WHETHER LD. CIT (A) WAS CORRECT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW IN DELETING TH E ADDITION AMOUNTING RS.20,65,154/- MADE BY THE AO ON ACCOUNT OF DISALLOWANCE OF PRIOR PERIOD EXPENDITURE? 2. WHETHER LD. CIT (A) WAS CORRECT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW IN ALLOWING TH E PRIOR PERIOD EXPENDITURE TO THE ASSESSEE BY ADMITTING ADD ITIONAL EVIDENCES AND WITHOUT GIVING AN OPPORTUNITY TO THE AO TO EXAMINE THE SAME? 4. BRIEF FACTS OF THE CASE ARE THAT RETURN OF INCOM E WAS FILED ON 29.11.2006 IN WHICH BROUGHT FORWARD DEPRECIATION OF RS.56,95,5 95 WAS SET OFF. LATER, IN THE ORDER UNDER SECTION 143(3), ASSESSMENT WAS COMPLETE D AT AN INCOME OF 61,68,545, WHICH WAS AGAIN SET OFF AGAINST BROUGHT FORWARD DEPRECIATION. LATER, NOTICE UNDER SECTION 263 WAS ISSUED WHEREBY THE ASS ESSMENT WAS SET ASIDE TO EXAMINE THE ISSUE OF PRIOR PERIOD EXPENSES. DURING THE ASSESSMENT PROCEEDINGS, THE LD. AO NOTED THAT IN THE 3CD REPORT (COL.22) AN D NOTES OF ACCOUNTS (ITEM NO.17), THE APPELLANT HAD DEBITED RS.20,65,154 ON A CCOUNT OF PRIOR PERIOD EXPENSES. ON OBSERVING NO REPLY FROM THE APPELLANT, THE LD. AO HELD THAT SINCE THE APPELLANT IS FOLLOWING MERCANTILE SYSTEM OF ACC OUNTING, EARLIER YEAR'S EXPENSES WERE NOT ALLOWABLE AND ACCORDINGLY, AN ADD ITION OF RS.20,65,154 WAS MADE. 5. THE AGGRIEVED ASSESSEE PREFERRED AN APPEAL AGAIN ST THE ASSESSMENT ORDER WHICH WAS ALLOWED AND HENCE THE REVENUE HAS PREFERR ED THIS APPEAL WITH THE GROUNDS AS REPRODUCED HEREINABOVE. ITA NO.5520/DEL/2013 ASSTT.YEAR: 2006-07 3 6. APROPOS BOTH GROUNDS, WE HAVE HEARD THE ARGUMENT S OF LD. DR AND PERUSED THE RELEVANT MATERIAL PLACED ON RECORD. LD . DR SUBMITTED THAT THE AO RIGHTLY OBSERVED THAT THE AMOUNT OF RS.20,65,154 CL AIMED AS PRIOR PERIOD EXPENDITURE WAS NOT ALLOWABLE AS THE ASSESSEE WAS F OLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND THE ANNUAL PROFITS HAS TO BE WORK ED OUT ON DUE OR ACCRUAL BASIS AFTER PROVIDING ALL EXPENSES FOR WHICH A LEGA L LIABILITY HAS ARISEN AND AFTER TAKING CREDIT FOR ALL RECEIPTS THAT HAVE BECOME DUE REGARDLESS OF THEIR ACTUAL RECEIPT OR PAYMENT. THE DR FURTHER CONTENDED THAT THE AO RIGHTLY NOTED THAT ONLY SUCH EXPENSES ARE ALLOWABLE AS DEDUCTION FROM PREVIOUS YEARS INCOME WHICH ARE RELEVANT TO THAT YEAR. THE DR SUPPORTING THE ASSESSMENT ORDER SUBMITTED THAT THE INCOME TAX ACT, 1961 PROVIDES TH AT THE INCOME UNDER THE HEAD OF PROFITS AND GAINS OF BUSINESS AND PROFESSIO N IS COMPUTED IN ACCORDANCE WITH THE METHOD OF ACCOUNTING REGULARLY FOLLOWED BY THE ASSESSEE. THE DR VEHEMENTLY CONTENDED THAT THE CIT(A) WRONGLY HELD T HAT THE ADDITION MADE BY THE AO ON ACCOUNT OF DISALLOWANCE OF INTEREST EXPEN SES ACCOUNTED ON CASH BASIS BY HOLDING THE SAME AS PRIOR PERIOD EXPENSES IS NOT SUSTAINABLE. THE DR FINALLY SUBMITTED THAT THE IMPUGNED ORDER MAY BE SET ASIDE BY RESTORING THAT OF THE AO. ON CAREFUL PERUSAL OF THE IMPUGNED ORDER, WE OBSERV E THAT THE CIT(A) GRANTED RELIEF FOR THE ASSESSEE WITH FOLLOWING OBSERVATIONS AND FINDINGS:- ITA NO.5520/DEL/2013 ASSTT.YEAR: 2006-07 4 6.2 ALSO, I FIND THAT THE LD. AD DID NOT TAKE NOTI CE THAT IF THE APPELLANT WAS REQUIRED TO STRICTLY FOLLOW MERCANTIL E SYSTEM OF. ACCOUNTING, AS WAS HELD BY THE AD, AND MADE TO DEPA RT FROM CONSISTENTLY FOLLOWED ACCOUNTING PRACTICE, HE OUGHT TO HAVE ALLOWED THE CLAIM OF INTEREST ON ACCRUAL BASIS WHIC H WAS MUCH HIGHER AT RS.53.81LAKHS DURING THE YEAR, WHEREAS TH E DISALLOWANCE OF INTEREST EXPENSES MADE BY THE AD BY HOLDING THE SAME AS PRIOR PERIOD EXPENSES WAS OF AN AMOUNT OF RS.20.65 LAKHS ONLY. THE AO IS REQUIRED TO CORRECTL Y ASSESS THE INCOME BY MAKING APPROPRIATE ALLOWANCE AND DISALLOW ANCE. HENCE, IF IN AD'S VIEW, INTEREST EXPENSES WERE TO B E ALLOWED ON ACCRUAL BASIS, HE SHOULD HAVE COMPUTED THE SAME ACC ORDINGLY. I HAVE ALSO EXAMINED THE DETAILS OF THE INTEREST LI ABILITY INCURRED BY THE APPELLANT OVER LAST 3 YEARS. ON PERUSAL OF T HE SAME, I FIND THAT IF THE APPELLANT HAD TO FOLLOW THE MERCANTILE SYSTEM OF ACCOUNTING, AS WAS HELD BY THE LD. AO, HE WOULD HAV E BEEN ELIGIBLE TO CLAIM INTEREST EXPENSES OF RS.12,94,28 ,307 OVER A THREE YEARS PERIOD WHEREAS THE APPELLANT HAD CLAIME D ONLY AN AMOUNT OF RS.11,14,37,391 OVER THIS PERIOD I.E. A.Y .2003-04 TO A.Y.2005-06 AND THEREBY IN THE LIGHT OF AO'S OWN FI NDING, THE APPELLANT HAD RATHER MADE A SHORT CLAIM OF RS.1,79, 90,916 IN ALL THESE YEARS. THUS, IT IS EVIDENT THAT THE CLAIM OF THE INTEREST EXPENSES WAS NOT ERRONEOUS AND THE ADMISSION OF THE SAME BY THE AO IN THE ORIGINAL ASSESSMENT ORDER UNDER SECTI ON 143(3) WAS NOT PREJUDICIAL TO THE REVENUE. ON THE OTHER HA ND, IF THE CONSISTENTLY FOLLOWED METHOD OF ACCOUNTING OF INTER EST EXPENSES WAS CHANGED FROM CASH BASIS TO MERCANTILE SYSTEM, T HE CLAIM OF INTEREST EXPENSES WOULD HAVE BEEN MUCH HIGHER, AND THAT WOULD HAVE BEEN PREJUDICIAL TO REVENUE. 6.3 MOREOVER, I FIND THAT THE APPELLANT HAD BEEN C ONSISTENTLY FOLLOWING THE ABOVE ACCOUNTING PRACTICE WHICH IS IN SYNC WITH THE PROVISIONS OF SECTION 43B OF THE ACT. ACCORDING LY, THE ADDITION MADE BY THE LD. AO ON ACCOUNT OF DISALLOWA NCE OF INTEREST EXPENSES ACCOUNTED ON CASH BASIS BY HOLDIN G THE SAME AS PRIOR PERIOD EXPENSES, IS NOT SUSTAINABLE. ACCOR DINGLY, THE SAME IS DELETED. 7. THE RELEVANT PART OF THE IMPUGNED ORDER REVEALS THAT THE CIT(A) HAS CONSIDERED ACCOUNTING OF STATEMENT OF EARLIER THREE YEARS AND FOUND THAT THE CLAIM OF INTEREST EXPENSES WAS NOT ERRONEOUS AND IF THE CONSISTENTLY FOLLOWED ITA NO.5520/DEL/2013 ASSTT.YEAR: 2006-07 5 METHOD OF ACCOUNTING OF INTEREST EXPENSES WAS CHANG ED FROM CASH BASIS TO MERCANTILE BASIS, THEN THE CLAIM OF INTEREST EXPENS ES WOULD HAVE BEEN MUCH HIGHER. THE CIT(A) WAS ALSO RIGHT IN CONCLUDING TH AT THE ASSESSEE COMPANY HAS BEEN CONSISTENTLY FOLLOWING THE ACCOUNTING PRACTICE WHICH IS IN CONSONANCE WITH THE PROVISIONS OF SECTION 43B OF THE ACT. HENCE, W E ARE IN AGREEMENT WITH THE FINAL CONCLUSION OF THE CIT(A) THAT THE ADDITION MA DE BY THE AO ON ACCOUNT OF DISALLOWANCE OF INTEREST EXPENSES ACCOUNTED ON CASH BASIS BY HOLDING THE SAME AS PRIOR PERIOD EXPENSES IS NOT SUSTAINABLE. ACCOR DINGLY, IMPUGNED ORDER IS HEREBY UPHELD AND GROUND NO. 1 AND 2 BEING DEVOID O F MERITS ARE DISMISSED. 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 11.12.2014. SD/- SD/- (N.K. SAINI) (CHANDRAMOHA N GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER DT. 11 TH DECEMBER, 2014 GS COPY FORWARDED TO:- 1. APPELLANT 2. RESPONDENT 3. C.I.T.(A) 4. C.I.T. 5. DR BY ORDER AS STT. REGISTRAR