2017 (9) TMI 1902 - AT - Income Tax

Disallowance of periphery development expenses - expenditure incurred is not related to the business of the assessee is incorrect and bad in law - HELD THAT - Peripheral expenses is incurred by the assessee as per the notification and the sanctions of the Government to maintain the relationship with people working at mines and adjoining areas. Peripheral expenses consists of various claims submitted by the ld. AR, which according to us are to be verified and test checked, further on perusal of the assessment order there is no proper findings on the disputed issue, the ld. AR filed written submissions and supported his arguments with the paper book containing details and annexures supporting the claims and judicial decisions. Accordingly, in the interest of substantial justice since the above information was filed and the same was not available with the AO. AO to examine and check the genuineness of claim and pass the order on merits after providing adequate opportunity of hearing to the assessee and remit the disputed issue to the file of AO and allow the grounds of appeal of the assessee for statistical purposes. Prior period expenditure - Amount was crystallized during the year, adding back the expenditure on the ground of not having been accounted on mercantile system is bad in law - HELD THAT - Assessee in the assessment proceedings could not substantiate the claim with proper explanations and evidence, therefore, in the interest of substantial justice, we provide one more opportunity as prayed by the ld. AR to represent its case before the AO with the evidences/documents of prior period expenses and the AO shall examine the genuineness and crystallisation of the expenses in the financial year and assessee should be provided adequate opportunity of hearing and shall cooperate in submitting the information. Accordingly, we restore the disputed issue to the file of AO and allow the grounds of appeal of the assessee for statistical purposes.

Summary

Issues Involved:
1. Disallowance of peripheral development expenses.
2. Prior period expenditure.
3. Valuation of closing stock.
4. Deletion of prior period expenses addition.

Detailed Analysis:

1. Disallowance of Peripheral Development Expenses:
The assessee contested the disallowance of ?39,53,240/- incurred under peripheral development expenses, arguing it was related to business activities. The Assessing Officer (AO) disallowed the claim, stating the expenses were not related to business activities and lacked satisfactory explanations. The CIT(A) partly allowed the appeal, recognizing ?10,46,800/- for special cabins at Capital Hospital and ?25 lakhs to Bhubaneswar Municipal Corporation as allowable business expenses under Section 37(1), while disallowing other expenses as they were charitable donations without concrete business benefits. The Tribunal directed the AO to re-examine the peripheral expenses' genuineness and pass a new order after providing the assessee an opportunity to present evidence.

2. Prior Period Expenditure:
The AO disallowed ?20,52,394/- claimed as prior period expenses, stating the mercantile system of accounting does not permit such adjustments. The CIT(A) allowed ?2,35,878/- related to an old pay-loader tax crystallized during the financial year but sustained the disallowance of ?18,16,516/- due to lack of evidence. The Tribunal provided the assessee another opportunity to present evidence supporting the crystallization of prior period expenses during the financial year, directing the AO to verify the claims and pass a new order.

3. Valuation of Closing Stock:
The revenue challenged the CIT(A)'s deletion of ?1150,35,26,077/- addition on closing stock valuation, arguing the CIT(A) ignored mandatory Accounting Standards and the specific applicability of AS-9 and AS-2 (revised). The Tribunal upheld the CIT(A)'s decision, following the precedent set by the coordinate bench of the Tribunal in the assessee's own case, which had decided in favor of the assessee regarding the valuation method consistently followed by it and similar entities.

4. Deletion of Prior Period Expenses Addition:
The revenue appealed against the CIT(A)'s deletion of ?2,35,878/- from the prior period expenses addition, arguing the expenses were not substantiated during the assessment proceedings. The Tribunal, considering the assessee's appeal against the sustained disallowance, remitted the issue to the AO to verify the crystallization of expenses and pass a new order after examining the evidence.

Conclusion:
The Tribunal allowed the assessee's appeal for statistical purposes, remitting the issues of peripheral development expenses and prior period expenditure to the AO for re-examination and verification. The revenue's appeal was partly allowed for statistical purposes, with the Tribunal upholding the CIT(A)'s decisions on the valuation of closing stock and partial relief on peripheral development expenses, while remitting the issue of prior period expenses to the AO for further verification. The order was pronounced on 20/09/2017.