2010 (9) TMI 58 - DELHI HIGH COURT

Addition - Rules of consistency - The assessing officer noticed that the assessee was maintaining mercantile system of accounting and had claimed expenses amounting to Rs.14,55,720/- under the head "prior period expenses" pertaining to earlier years. The auditor, in column 22(b) of the Tax Audit Report, stated that prior period expenses amounting to Rs.14,55,720/- had been debited to the Profit & Loss Account. - As per AO, the nature of the expenses was such that they had occurred and crystallized during the earlier years. It was further held that as the same had been crystallized during the relevant year, the same could not be allowed in the later years. - Held that: 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 accounting system has been followed and accepted and there is no acceptable reason to differ with the same, the doctrine of consistency would come into play. The said accounting system has been followed for a number of years and there is no proof that there has been any material 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 profit or the books of account did not reflect the correct picture in the absence of any reason whatsoever, there was no warrant or justification to depart from the previous accounting system which was accepted by the department in respect of the previous years. - Decided in favor of assessee