2013 (1) TMI 823 - AT - Income Tax

Summary

Issues involved: Appeal against CIT(A) order, Allowability of prior period expenses, Order u/s 263, Dismissal of appeal by ITAT, Modification of ITAT order, Rectification order u/s 154, Rejection of contention by Dy. Commissioner, Challenge before CIT(A), Appeal before ITAT.

Allowability of prior period expenses: The appeal was filed by the assessee company against the order of the CIT(A) V, Hyderabad, which directed the Assessing Officer to recompute the income by disallowing prior period expenses claimed during the year and allowing them in the year in which they actually accrued. The ITAT upheld the order u/s 263 as the Assessing Officer failed to examine the issue in the original assessment. The ITAT later modified the order, stating that if the prior period expenses are crystallised during the year itself, they can be allowed in that year, otherwise, they have to be allowed as per the original direction of the CIT(A) u/s 263.

Rectification order u/s 154: The assessee approached the Assessing Officer under S.154 to examine the issue of prior period expenses as the amount was neither allowed in the year under consideration nor in any other year. However, the Dy. Commissioner of Income-tax rejected the contention without examining the issue, citing the dismissal of the appeal by ITAT. The CIT(A) also did not find any merit in the contention, leading the assessee to file an appeal before the ITAT.

ITAT's decision and directions: The ITAT found that the Assessing Officer had not fully implemented the order of the CIT(A) u/s 263 regarding the prior period expenses. The ITAT directed the Assessing Officer to verify the claim of prior period expenses, determine the year of accrual, and allow the expenditure either in the current year or in any other year as per the directions given. The Assessing Officer was instructed to give a reasonable opportunity of being heard to the assessee. The ITAT allowed the appeal for statistical purposes, setting aside the order of the Assessing Officer and restoring the issue for implementation.