2019 (3) TMI 680 - AT - Income Tax

Disallowing the prior period expense - Reopening of assessment - assessee submitted that the prior period expenditure relates to the customers billing of earlier years rectified during the year, arrears of rent, depreciation and other items - HELD THAT - Claim of the assessee stated to have been though related to the earlier years but crystallized and determined during the year and therefore same is allowable as expenditure for this year. With respect to the lease rent assessee submitted a copy of the letter dated 5/5/2003, issued by the under Sec to the government of India, Ministry of civil aviation regarding the award of arbitrator dated 2/5/2003, in which the appellant was directed to pay the lease rents at the increased rates. According to that the assessee has provided the enhanced claim of lease rent. As the award of arbitrator was received on 2/5/2003 same has not accrued during the year but in FY 2003-04 related to AY 2004-05. Such increased rent for earlier years. Therefore, same does not pertain to assessment year 2002 03. Even otherwise, it is not coming out of the record that when the arbitration award was received on 2/5/2003, how assessee could have made provision for the year ended on 31/03/2002 of above sum. No infirmity in the order of the learned CIT A, in confirming the above disallowance as it did not crystallized during the year. Further sum on account of debit to customers billing of earlier years rectified during the year. Undisputedly the income from the original bill has already been offered to the income tax in earlier years. Therefore the above sum becomes a writing of the debts which was offered as income in earlier years. Therefore, this Claim cannot be disallowed as prior period expenditure. To this extent, we reverse the order of the learned CIT-A in Confirming the disallowance of the above sum. The further sum was claimed as an depreciation of the earlier years, which is as such not allowable, Therefore, the order of the learned CIT A does not have any infirmity in confirming the above disallowance. Disallowance pertaining to the earlier years, the assessee could submit before us that the above sum includes a sum with respect to the items like travelling allowance or daily allowance claim of the employees of the Indian oil Corp such as fuel bills of earlier years at the attachment/bases like Northeast Lakshadweep island, Andaman and Nicobar Islands and Port Blair etc. which crystallized during the year. The assessee has shown the copy of the email and submitted that that these are the claims of the employees which was received during the year, though pertaining to the earlier year but admitted and provided in the books of account in this year. We are of the view that the above expenditure cannot be classified as prior period expenditure and should be allowed as and when admitted and approved by the authority. With respect to the other expenditure out of the total expenditure appellant could not produce any details and evidence regarding the nature and the precise period to which the same pertains, before the lower authorities and therefore the disallowance was confirmed. Even before us no details have been furnished with respect to the above sum. We direct the learned AO to allow the sum as expenditure incurred during the year out of total sum. The balance sum has been correctly disallowed by the lower authorities. Accordingly, we allow the claim of assessee and confirm the disallowance. No infirmity in the order of the learned CIT A to the extent mentioned above, in confirming the above disallowance - Appeal of the assessee is partly allowed.

Summary

Issues Involved:
Appeal against disallowance of prior period expense in the assessment for the year 2002-03.

Analysis:
1. The appellant, engaged in aviation business, filed an appeal against the order of the ld CIT (A) for the Assessment Year 2002-03, challenging the disallowance of prior period expense of INR 1,29,05,278.
2. The original assessment was passed on 29/12/2004, revised on 14/3/2005, and reassessed on 31/12/2007. The AO disallowed a provision made by the appellant under maintenance cost and an amount credited in the profit and loss account under prior period investment, netted off by prior period expenditure.
3. The AO reopened the assessment under section 147, stating that certain amounts had escaped assessment. The appellant contended that the prior period expenditure related to rectification of errors in customer billing, arrears of rent, and other items from previous years.
4. The AR requested an adjournment, citing the need for additional details. However, multiple adjournments had already been granted, leading to a rejection of the application. The AR argued that excess billing errors from previous years were rectified during the year, making them allowable as current year expenses.
5. The DR contended that the expenditure related to previous years should not be allowed in the current year. The Tribunal considered the arguments and orders of lower authorities, concluding that the expenditure, though related to previous years, crystallized and determined during the current year, making it allowable.
6. The Tribunal analyzed specific amounts claimed by the appellant, such as lease rent and depreciation of earlier years. It found that certain claims, like debit to customers' billing rectified during the year, were allowable as they were already offered as income in previous years.
7. The Tribunal allowed certain claims, like INR 7,94,439, and disallowed others, like INR 16,70,798, based on the evidence and nature of the expenditures provided by the appellant. The appeal was partly allowed, confirming some disallowances and allowing others as valid expenses incurred during the year.