2014 (11) TMI 436 - AT - Income Tax

Deletion of Prior paid expenses Held that - As decided in assessee s own case for the earlier assessment year, it has been held that the appeal was decided wherein the re-opening was upheld and on merits the addition on account of demurrage charges and purchase of unconnected wagons the action of the CIT(A) was upheld - The challenge of the Revenue regarding the deletion of the addition on account of prior period expenses was disposed saying that the re-opening of assessment has not been upheld in respect of prior period expenses - these expenses have been booked based on crystallization of liability on receipt of material (claim/bill) by the Corporation during the year and cannot be related to the previous periods - Based on the crystallization of expense as per material/information/claim raised during the year, accounting entries have been passed - the assessee has been following the same method of accounting consistently keeping in view the nature of activities and the nature of transactions undertaken by it, the liability cannot be taken into consideration till it is crystallized - accordingly in the absence of any argument addressing factual inaccuracy the settled legal position or the issue is respectfully followed and the departmental ground is dismissed Decided against revenue.

Summary

Issues Involved:
1. Deletion of addition on account of prior period expenses for assessment years 2007-08 and 2008-09.

Detailed Analysis:

1. Deletion of Addition on Account of Prior Period Expenses:
The Department challenged the deletion of additions amounting to Rs. 2,22,24,010/- for the assessment year 2007-08 and Rs. 36,13,000/- for the assessment year 2008-09, which were made on account of prior period expenses. The assessee's counsel argued that a similar issue had been resolved in favor of the assessee in a previous case for the assessment year 2004-05, where the Tribunal upheld the CIT(A)'s order, dismissing the Department's appeal.

The Department's representative conceded that the issue was covered in favor of the assessee by the Tribunal's earlier decision. The Tribunal reviewed both sides' arguments, the material on record, and the precedent cited. It was noted that in the earlier case, the Tribunal had considered the Hon'ble Delhi High Court's decision and upheld the CIT(A)'s order.

The Tribunal reproduced the order from the previous case, which detailed the assessment and the subsequent appeal process. The CIT(A) had deleted the disallowance of Rs. 593.09 lacs on the grounds that the assessee, following the mercantile system of accounting, had shown both income and expenses under the head "Adjustments relating to Previous Years." The CIT(A) and the Tribunal had previously accepted that the expenses crystallized in the year they were claimed, considering the nature of the assessee's operations and the consistent accounting method.

The Tribunal noted that the assessee had consistently followed the same accounting method, and the liability could not be considered until it was crystallized. The Tribunal found no merit in the Department's argument for remanding the issue for verification, as the facts and records were consistent with the CIT(A)'s findings. The Tribunal dismissed the Department's appeals, upholding the CIT(A)'s order.

In conclusion, the Tribunal dismissed both appeals of the Department, affirming the deletion of the additions on account of prior period expenses for the assessment years 2007-08 and 2008-09. The Tribunal's decision was pronounced in the open court on 24th March 2014.