2023 (7) TMI 275 - AT - Income Tax

Disallowance of Customs Duty paid as prior period expenses - assessee could not perform the obligation of export and accordingly, claimed the sum so paid as prior period items - AO disallowed the same on the ground that the expenditure was not related to previous year - HELD THAT - The expenditure has been crystallized only during this year. The incentive received in earlier year as been considered as income in earlier years. In this year, the assessee could not perform export obligation and accordingly, held liable to pay the said amount. Therefore, the deduction of the same is allowable to the assessee. The corresponding grounds stands allowed. Disallowance of Deferred Revenue Expenditure - Due to severe technical issues, the expenditure incurred on raw material, power and consumable etc. during the intervening period between the date the project was ready to commence commercial production and the date on which commercial production actually began was treated as deferred revenue expenditure in the books of account and same was written-off over a period of 5 years - HELD THAT - From the computation of income of subsequent years as placed on record, it could be seen that the expenditure in those years has been reversed in the computation of income and the deduction of the same has not been claimed by the assessee. The action of the assessee is in accordance with the decision of Taparia Tools Ltd. 2015 (3) TMI 853 - SUPREME COURT which held that when a particular course of action was permissible in law to the assessee as it was in consonance with the provisions of the Act which permits the assessee to claim the expenditure in the year in which it was incurred, merely because a different treatment was given in the books of account cannot be a factor which would deprive the assessee from claiming the entire expenditure as a deduction. The entries in the books of account are not determinative or conclusive and the matter is to be examined on the touchstone of provisions contained in the Act. Deduction of the expenditure, in full, could have been claimed by the assessee in the first year itself. Since the assessee has not furnished complete details of the expenditure, we restore the matter back to the file of AO with a direction to the assessee to furnish the details of the expenditure. If the same is found to be revenue in nature, the deduction of the same would be available in full. The corresponding ground stand allowed for statistical purposes.

Summary

Issues involved:
The issues in this case are (i) disallowance of customs duty for Rs. 9.53 Lacs, and (ii) disallowance of deferred revenue expenditure.

Customs Duty Disallowance:
The assessee imported raw material without paying customs duty, intending to export the finished goods. However, due to failure to export, the assessee had to pay customs duty of Rs. 9.53 Lacs. The dispute arose as the AO disallowed this amount, claiming it was not related to the previous year. The ITAT held that since the liability crystallized in the current year, the deduction was allowable, overturning the lower authorities' decision.

Deferred Revenue Expenditure Disallowance:
The assessee incurred expenditure of Rs. 547.30 Lacs on raw material, power, etc., before commencing commercial production. This expenditure was treated as deferred revenue expenditure in the books and written off over 5 years. The AO disallowed a portion of this expenditure, questioning its nature. The ITAT found that the expenditure was revenue in nature and could have been claimed in full in the first year itself. However, due to incomplete details provided by the assessee, the matter was remanded back to the AO for further examination.

Conclusion:
The ITAT partially allowed the appeal for statistical purposes, ruling in favor of the assessee on both the disallowance of customs duty and deferred revenue expenditure issues. The case was pronounced on 27th June, 2023.