2021 (1) TMI 771 - AT - Income Tax

Revision u/s 263 - Addition of prior period expenses - AR made a claim of expenses relating to the previous assessment year to be allowed in this assessment year without producing an iota of evidence to show that the impugned expenses is relating to the assessment year under consideration - HELD THAT - From the statement of income filed along with revised return the business income was taken at 1, 86, 65, 990/-. However in the computation statement the gross income was taken at 2, 79, 26, 864/- even after claiming expenses of 45, 14, 322/- and village development expenses of 16, 40, 706/- which were not added again in the order passed u/s. 143(3) r.w.s. 263 of the I.T. Act. The assessee has filed audit report u/s. 44AB of the I.T. Act along with the revised return wherein indirect expenses was claimed as expenses relating to prior period. It is seen that the assessee has not come up with any strong evidence in support of his arguments against the order u/s. 143(3) r.w.s. 263 of the I.T Act. It is also seen that there is no proper explanation as to why these expenses were to be allowed when mercantile system of accounting was being followed - genuineness of the claim along with the returns and statements of income itself was not proved in view of various contradictions and discrepancies mentioned above. In the facts and circumstances of the case the contention of the assessee stands on a weak footing and is without merits. Thus the addition made by the Assessing Officer is sustained. Claim of the assessee is not supported by any evidence to show that the said expenses are relating to the assessment year under consideration. Being so we have no hesitation to confirm the addition made by the AO. Accordingly this ground of appeal of the assessee is dismissed.

Summary

Issues:
Appeal against addition of prior period expenses.

Analysis:
The appeal was filed against the addition of ?45,14,322 in respect of alleged prior period expenses for the assessment year 2007-08. The assessee, a PWD contractor and mine owner, initially declared a total income of ?2,87,68,920, which was revised to ?1,86,65,990. The case underwent scrutiny, leading to an assessment of ?2,05,13,490. Subsequently, the CIT directed a review of prior period expenses and village development expenses. The Assessing Officer disallowed the prior period expenses of ?45,14,322, resulting in a total income assessment of ?2,50,27,812. The assessee contended that certain sales were mistakenly booked twice, resulting in a clerical error without actual sales effect. Additionally, discrepancies in screening charges and service tax were explained as adjustments made after disputes and clarifications. The expenses wrongly capitalized to building were justified based on consistent accounting methods and past practices.

The Revenue argued that expenses of a previous assessment year cannot be allowed in the present assessment year under the mercantile system of accounting. The Tribunal noted that the audit report confirmed the mercantile system and emphasized that only expenses related to the current assessment year should be claimed. Discrepancies in the assessee's income declarations and computations were highlighted, indicating inconsistencies. The Tribunal found the assessee's claims lacking strong evidence supporting the allowance of prior period expenses. The genuineness of the claims was questioned due to contradictions and discrepancies in the financial statements. Ultimately, the Tribunal upheld the addition of ?45,14,322 as the assessee failed to provide sufficient evidence linking the expenses to the current assessment year.

In conclusion, the Tribunal dismissed the appeal, affirming the addition of ?45,14,322 as prior period expenses. The decision was based on the lack of substantial evidence supporting the assessee's claim and the failure to demonstrate a clear connection between the expenses and the current assessment year.