2018 (1) TMI 601 - AT - Income Tax

Prior period expenses allowability - Held that - Prior period expenses are to be allowed as deduction in the year under consideration and accordingly, we dismiss the appeal of the revenue. See Hindustan Shipyard Ltd., Visakhapatnam and others Versus Addl. CIT Range-3, Visakhapatnam and others 2011 (2) TMI 1536 - ITAT VISAKHAPATNAM .

Summary

Issues:
- Disallowance of prior period expenses claimed by the assessee
- Whether prior period expenses can be set off against prior period income
- Allowability of prior period expenses as deduction in the year incurred or accrued

Analysis:
1. The appeal pertains to the disallowance of prior period expenses claimed by the assessee for the assessment year 2008-09. The assessing officer (AO) disallowed the expenses amounting to ?382.76 lakhs, adding it back to the assessee's loss. The Commissioner of Income-Tax (Appeals) [CIT(A)] deleted this addition, stating that the company had considered both prior period income and expenses in the year under consideration, resulting in a net credit of ?351.37 lakhs. The CIT(A) directed the AO to delete the addition based on this reasoning.

2. The revenue, aggrieved by the CIT(A)'s order, filed an appeal before the Tribunal. The Departmental Representative (DR) argued that prior period expenses should be assessed independently each year and claimed only in the year they were incurred or accrued. The DR contended that since the assessee had claimed prior year expenses, they were not allowable in the current year. The DR also emphasized that the expenses were not crystallized in the year under consideration, supporting the AO's decision.

3. Conversely, the Authorized Representative (AR) for the assessee cited a previous decision by the ITAT, Vizag Bench in the assessee's favor for the assessment year 2007-08, which was pending before the High Court. The AR argued that the current case was similar and covered by the ITAT's previous ruling.

4. The Tribunal examined the arguments of both parties and reviewed the material on record. It noted that the CIT(A) had based its decision on a previous order related to M/s Hindustan Shipyard Ltd., Visakhapatnam. The Tribunal agreed with the CIT(A)'s reasoning and upheld the deletion of the addition, considering that the assessee had already accounted for the net credit of ?351.37 lakhs, including the prior period expenses. The Tribunal dismissed the appeal of the revenue, following the precedent set by the ITAT in the assessee's earlier case for the assessment year 2007-08.

5. In conclusion, the Tribunal affirmed the CIT(A)'s decision to delete the addition of ?382.76 lakhs related to prior period expenses. The Tribunal held that the prior period expenses should be allowed as a deduction in the year they were incurred or accrued, based on the assessee's treatment of such expenses and income. The revenue's appeal was dismissed, and the Tribunal's decision was pronounced on 10th Jan 2018.