2019 (2) TMI 285 - AT - Income Tax

Prior period expenditure disallowance - expenditure crystallized during the year as per the business practice followed by the assessee regularly - Held that - No dispute that the income of each year is independent and required to be determined on year to year basis separately and the earlier years income and expenditure cannot be assessed in subsequent assessment years. We do not appreciate the procedure laid down by the assessee which delays the process in ascertaining the expenditure. The assessee has to make necessary arrangements to claim the expenditure correctly in the relevant previous year. However, if the expenditure is spilled over for the subsequent assessment year due to the circumstances beyond the control of the assessee and crystallized in the subsequent year due to the regular practice or method of accounting followed by the assessee, the same cannot be denied. From the details filed by the assessee before us in the paper book, it is observed that in certain expenses, bills were submitted during the relevant year itself but claimed in the impugned assessment year. In case of certain expenses, the bills were submitted in subsequent years. CIT(A) confirmed the addition stating that the assessee has not furnished the evidence supporting it s claim that the expenditure was crystallized during the year under consideration. Therefore, we deem it fit to remit the case back to the file of the CIT(A) with a direction to allow the expenditure, crystallized during the year as per the business practice followed by the assessee regularly. Accordingly, the order of the CIT(A) is set aside and the appeal of the assessee is remitted back to the file of the CIT(A) to reconsider the issue afresh on merits and to allow the expenditure as and when it is crystalized as per the business practice regularly followed by the assessee. Appeal of assessee is allowed for statistical purpose.

Summary

Issues:
1. Disallowance of prior period expenditure.
2. Disallowance of demurrages amount.

Analysis:

Issue 1: Disallowance of Prior Period Expenditure
The appeal was filed against the order of the Commissioner of Income Tax (Appeals) regarding the disallowance of prior period expenditure of &8377; 3,45,98,000. The Assessing Officer disallowed this amount as it did not relate to the assessment year under consideration. The assessee argued that the expenses were genuine and related to earlier years, but could not be claimed due to procedural delays. The AO held the prior period adjustments as disallowable, supported by various decisions. The CIT(A) confirmed the AO's decision due to lack of evidence. The Tribunal considered the procedural delays faced by the assessee due to the company's size and laid down procedures. Citing relevant case laws, the Tribunal held that if the expenditure crystallized in the subsequent year due to regular practice, it cannot be denied. The Tribunal remitted the case back to the CIT(A) to allow the expenditure as per the business practice regularly followed by the assessee.

Issue 2: Disallowance of Demurrages
The demurrages amounting to &8377; 12,59,277 was also disallowed. During the appeal hearing, the assessee did not press this ground, leading to the dismissal of Ground No.3. The Tribunal partly allowed the appeal for statistical purposes.

In conclusion, the Tribunal allowed the appeal regarding the disallowance of prior period expenditure, emphasizing the importance of following regular business practices. The demurrages disallowance was dismissed as not pressed. The order was pronounced on 1st February, 2019.