2012 (7) TMI 299 - HC - Income Tax

Prior period expenditure payment/ deposit under the Over Your Telephone (OYT) scheme for securing a telephonic connection - assessee did not claim the OYT deposit as an expenditure in the year of payment and had treated it as a deferred revenue expenditure which was debited in the profit and loss account in the next three years Held that - Quantum of expenditure, rent payable etc. the assessee had followed the accounting practice - revenue had accepted the said proportionate set off/ expenditure in the earlier and the subsequent years - Making or adopting a change in one year will lead to anomalies and incongruities In favor of assessee

Summary

Issues:
- Appeal under Section 260A of the Income Tax Act, 1961 against the order of the Income Tax Appellate Tribunal for assessment year 1998-99.
- Allowability of Over Your Telephone (OYT) scheme payment as expenditure.
- Treatment of OYT deposit as deferred revenue expenditure.
- Consistency in accounting practice and revenue acceptance.

Analysis:
The High Court heard an appeal under Section 260A of the Income Tax Act, 1961, regarding the order passed by the Income Tax Appellate Tribunal for the assessment year 1998-99. The main contention revolved around the allowability of payment made under the Over Your Telephone (OYT) scheme as an expenditure. The appellant argued that the payment under the OYT scheme should be allowed as an expenditure in the year of payment or proportionately for the years for which the advance payment of rent was made. However, the court examined this contention and found no merit in it. The respondent-assessee, engaged in providing various services, had deposited amounts in different financial years but did not claim the OYT deposit as an expenditure in the year of payment. Instead, it treated it as deferred revenue expenditure, writing it off in the profit and loss account over the next three years.

The Assessing Officer acknowledged the assessee's accounting policy of writing off the telephone deposits under the OYT scheme over three years due to the nature of the deposit and business operations. The Tribunal referred to a circular allowing set off of the amount paid towards rent in relevant years. The court highlighted the case law establishing that writing off expenses over the years is an accepted accounting practice, especially considering the nature of the business involving extensive telephone line usage. The court noted the revenue's past acceptance of the assessee's accounting practice and the potential anomalies if a change was made in one year. Consequently, the court dismissed the appeal, stating that no substantial question of law arose in this case, given the consistent application of accounting practices and revenue acceptance of the expenditure treatment over the years.