2015 (6) TMI 719 - AT - Income Tax

Addition of prior period expenses - CIT(A) deleted the addition - Held that -In the facts of the present case there is no reference to any evidence having been considered by the CIT(A) to hold that the expenses stated to be incurred in June 2014 to August 2005 actually pertained to setting up some new business, reference there to is completely missing in the pleadings and the finding. Similarly what is the evidence to show that the specific venture was abandoned is also found missing. Nothing is brought out in the impugned order nor relied upon before us in support of the finding. Accordingly being of the view that the decisions while apply to facts which are yet to be settled, reference to the legal principles laid down therein would be of no relevance. Accordingly in view of the above detailed reasoning the impugned order is set aside and the issue is restored back to the file of the AO with the directions to decide the same afresh in accordance with law after giving the assessee a reasonable opportunity of being heard. - Decided in favour of revenue for statistical purposes. Additional liability due to foreign exchange fluctuations towards the capital cost of metallizer - CIT(A) upholding the illegal addition - Held that - On a consideration thereof in the face of the arguments of the assessee that on facts, the CIT(A) has not appreciated the issue as it was never the case of the assessee that it is a revenue expenditure. The case of the assessee has always been that this is a loss on account of a capital asset and should be adjusted against the capital account. In the above mentioned factual background, we are of the view that in these peculiar facts and circumstances, it would be appropriate to set aside the impugned order and restore the issue back to the file of the AO to address the issues on facts afresh. The AO is hereby directed to pass a speaking order in accordance with law after giving the assessee a reasonable opportunity of being heard. The arguments of the Ld. AR that issue should be decided on the principle that irrespective of the year the tax rate is the same cannot be accepted as relevant facts need to be addressed. - Decided in favour of assessee for statistical purposes.

Summary

Issues Involved:
1. Deletion of addition on account of prior period expenses.
2. Addition of liability due to foreign exchange fluctuations towards the capital cost of metallizer.

Issue 1: Deletion of Addition on Account of Prior Period Expenses

The assessee and the Revenue filed cross appeals against the order dated 20.11.2012 of CIT(A)-XIII, New Delhi for the 2009-10 assessment year. The Revenue contended that the CIT(A) erred in deleting the addition of Rs. 76,34,951/- made on account of prior period expenses. The assessee had claimed these expenses, incurred from June 2004 to August 2005, in the 2009-10 assessment year, arguing that they were for exploring business opportunities abroad which did not materialize. The AO disallowed the claim, stating that the expenses should have been claimed in the 2005-06 assessment year as per the mercantile system of accounting. The CIT(A) allowed the claim, considering the expenses as revenue expenditure under Section 37 of the IT Act, as the project was abandoned in the year under consideration.

The Tribunal noted that the CIT(A) did not refer to any evidence supporting the assessee's claim that the expenses were incurred for setting up a new line of business or that the project was abandoned. The Tribunal set aside the CIT(A)'s order and restored the issue to the AO for a fresh decision, directing the AO to consider the relevant facts and evidence.

Issue 2: Addition of Liability Due to Foreign Exchange Fluctuations Towards the Capital Cost of Metallizer

The assessee contended that the CIT(A) erred in upholding the addition of Rs. 11,83,407/- due to foreign exchange fluctuations towards the capital cost of a metallizer, treating it as income liable to tax. The AO had disallowed the claim, stating that the fluctuation loss pertained to the purchase of a fixed asset and should be adjusted against the capital account. The CIT(A) concurred with the AO, holding that the exchange fluctuation loss was on account of capital transactions and could not be claimed as revenue expenditure.

The Tribunal observed that the assessee's contention was that the loss should be adjusted against the fixed assets as per Section 43A of the Act, and not claimed as revenue expenditure. The Tribunal set aside the CIT(A)'s order and restored the issue to the AO for a fresh decision, directing the AO to pass a speaking order in accordance with law after giving the assessee a reasonable opportunity of being heard.

Conclusion:

The appeals of both the assessee and the Revenue were allowed for statistical purposes, with the Tribunal setting aside the impugned orders and directing the AO to reconsider both issues afresh, taking into account the relevant facts and evidence. The order was pronounced in the open court on 16th June 2015.