2016 (3) TMI 1465 - AT - Income Tax

Addition of prior period expenses - In the absence of any supporting evidence/documents, the expenses AO made the addition - CIT(A) deleted the addition - HELD THAT - The assessee is a public sector undertaking and it has got a vast organization. In its system of account when expenditures are not reported or identified upto the close of the year are subsequently accounted for under prior period expenses. This system of accounting has been regularly followed and the Department has not disputed about this in the past. We also agree with the contention that the AO has clearly erred in drawing adverse inference that these expenditures were not covered by actuarial valuation. AO's plea that supporting evidences have not been produced is also not cogent as rightly contended by the ld. counsel for the assessee, the particulars supporting against expenditures are duly attached with the concerned vouchers. It is not the case of the Assessing Officer that any voucher of the assessee company has been found to be lacking credibility. We also note that ITAT, Ranchi Bench, in assessee s own case 2013 (5) TMI 858 - ITAT RANCHI had upheld the assessee s claim of prior period expenditure for assessment year 2007-08. Decided in favour of assessee.

Summary

Issues:
Appeal by Revenue against deletion of addition made by Assessing Officer under various heads and allowing claim of deduction by CIT(A) without considering justification.

Analysis:
1. The appeal and cross-objection arose from the order of CIT(A) for the assessment year 2008-09. The Revenue challenged the deletion of additions totaling Rs. 1,04,23,877 under different heads like salary, interest, medical expenses, etc. The Assessing Officer disallowed these expenses as prior period expenses due to lack of supporting evidence.

2. The CIT(A) deleted the addition by considering the assessee's submission that due to the vast organization and multiple offices, it was not possible to account for all expenses incurred by various branches by the end of the financial year. The CIT(A) noted that the assessee maintains books as per the mercantile system of accounting and had a valid reason for the expenses spilling over to subsequent years.

3. The Revenue contended that the expenses were not covered under actuarial valuation and supporting vouchers were not submitted. However, the assessee argued that its accounting system of booking prior period expenses was regularly accepted by the Department, and necessary details were submitted. The ITAT noted that the Assessing Officer erred in drawing adverse inferences and that the vouchers contained supporting evidence.

4. The ITAT upheld the CIT(A)'s decision based on the assessee's cogent submissions and the regular practice of booking prior period expenses due to the nature of its operations. The ITAT also highlighted a previous decision in the assessee's favor for the assessment year 2007-08, supporting the consistent treatment of such expenses.

5. Consequently, the ITAT found no infirmity in the CIT(A)'s order and upheld the deletion of the additions. The Cross Objection by the assessee supporting the CIT(A)'s decision was also dismissed since the main issue was resolved in favor of the assessee.

This detailed analysis of the judgment provides a comprehensive understanding of the issues involved, the arguments presented by both parties, and the rationale behind the decision rendered by the ITAT.