2020 (12) TMI 676 - HC - Income Tax

Disallowance of Bid loss claimed in the computation of total income in addition to Bid Loss claimed in P L Account - the amount of Bid Loss claimed is incorrect as per provisions of section 145(1) of the Income Tax Act and is not in consonance with the Board's Notification No.69(E) dated 25.01.2016 and Accounting Standard As 22 of ICAI - Tribunal deleted the addition - HELD THAT - Substantial question of law is no longer res integra and the same has been answered by the decision of the Supreme Court in TAPARIA TOOLS 2015 (3) TMI 853 - SUPREME COURT wherein held Assessee did not want spread over of this expenditure over a period of five years as in the return filed by it, it had claimed the entire interest paid upfront as deductible expenditure in the same year. In such a situation, when this course of action was permissible in law to the Assessee as it was in consonance with the provisions of the Act which permit the Assessee to claim the expenditure in the year in which it was incurred, merely because a different treatment was given in the books of accounts cannot be a factor which would deprive the Assessee from claiming the entire expenditure as a deduction. It has been held repeatedly by this Court that entries in the books of accounts are not determinative or conclusive and the matter is to be examined on the touchstone of provisions contained in the Act - As it is evident that the substantial question of law involved in this appeal is no longer res integra and the same is already answered against the revenue.

Summary

Issues:
1. Disallowance of bid loss claimed in the computation of total income.
2. Violation of Section 145(1) of the Income Tax Act.
3. Compliance with Board's Notification No.69(E) dated 25.01.2016 and Accounting Standard AS 22 of ICAI.

Analysis:

Issue 1: Disallowance of bid loss claimed in the computation of total income
The appeal pertained to the Assessment Year 2014-15, where the revenue challenged the Tribunal's decision to delete the disallowance of bid loss claimed by the assessee. The revenue argued that the bid loss claimed was incorrect as per the provisions of section 145(1) of the Income Tax Act and was not in line with the Board's Notification and Accounting Standard AS 22 of ICAI. The Assessing Authority disallowed the claim, stating that the method of accounting and bid loss claimed as an expenditure was not in accordance with the system of accounting.

Issue 2: Violation of Section 145(1) of the Income Tax Act
The revenue contended that the bid loss claimed by the assessee in two ways, one debited in the profit and loss account under 'other expenses' and the other reduced in the computation of income, was not permissible. They argued that the claim violated Section 145(1) of the Act and the notification issued by the Central Board of Direct Taxes. The revenue further highlighted that the accounting standard AS 22 of ICAI did not allow the bid loss pertaining to a different period than the one for which income computation was made.

Issue 3: Compliance with Board's Notification and Accounting Standard
The revenue emphasized that the claim of bid loss by the assessee did not comply with the Board's Notification and Accounting Standard AS 22 of ICAI. They argued that the activities of the assessee did not fall under the extraordinary item mentioned in the circular, and the accounting standard required uniformity in statements of different entities to apply the principle of 'matching concept' for a true picture of revenue. The revenue asserted that the assessee failed to meet these requirements.

The High Court, after considering the submissions and referring to a Supreme Court decision in TAPARIA TOOLS, concluded that the substantial question of law was already settled against the revenue. The Court held that the entries in the books of accounts were not conclusive, and the matter should be examined based on the provisions of the Act. Consequently, the appeal was dismissed, ruling in favor of the assessee.