2010 (12) TMI 871 - AT - Income Tax

Claim of Expense - If assessee follows merchantile system expenditure should be claimed in the same year in which it is incurred except deferred expenditure if they are covered under provisions of Section 35D (CIT Vs Bharat Aluminium Co. Ltd. 2009 -TMI - 96479 - DELHI HIGH COURT ).

Summary

Issues:
Allowability of deferred revenue expenditure for assessment year 2006-07.

Analysis:
The appeal before the Appellate Tribunal ITAT, Chandigarh pertains to the order of the Commissioner of Income-tax (A) - II, Ludhiana for assessment year 2006-07 under section 143(3) of the Income-tax Act. The Revenue challenged the deletion of an addition of Rs.6,23,077 made by the Assessing Officer on account of disallowance of deferred revenue expenditure. The case involved the interpretation of whether the deferred expenditure on foreign traveling and other expenses related to export, incurred in assessment years 2004-05 and 2005-06, could be claimed as a deduction in the year under consideration.

The assessee claimed that the expenditure of Rs.6,23,077 was part of the deferred revenue expenditure incurred in previous assessment years and was treated as such for tax purposes. The Assessing Officer disallowed the claim, stating that since the expenditure did not pertain to the current year, it was not allowable as a deduction. However, the Commissioner of Income-tax (A) allowed the claim, citing the principle of consistency as similar claims were allowed in previous assessment years.

The Tribunal considered the arguments presented by both parties and reviewed the facts of the case. It noted that the total expenditure incurred in assessment years 2004-05 and 2005-06 was significantly higher than the claimed amount for the current year. The Commissioner's decision to allow the deduction was based on the acceptance of similar claims in previous assessments and the principle of consistency. The Tribunal upheld the Commissioner's order, dismissing the Revenue's appeal.

The decision was influenced by the interpretation of the mercantile system of accounting and the specific circumstances of the case. The Tribunal emphasized the relevance of previous decisions by higher courts, including the Hon'ble Delhi High Court's ruling in a similar case. Ultimately, the Tribunal found in favor of the assessee, highlighting the importance of consistent application of tax laws and principles in determining the allowability of deferred revenue expenditure.

In conclusion, the Tribunal upheld the order of the Commissioner of Income-tax (A) and dismissed the Revenue's appeal, emphasizing the importance of considering specific facts and circumstances along with legal precedents in tax assessments.