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2023 (4) TMI 581 - HC - Income TaxAddition of prior period expenses - assessee is following mercantile systems of accounting and as such the prior period expenses cannot be allowed during the assessment year in question - Tribunal allowed it as an allowable expense in the instant assessment year - HELD THAT - A s consistent view is required to be adopted in the absence of any material placed by the revenue before the required tribunal to show that there was any distinguishing feature in the assessment year under consideration to make a departure from the earlier view. As submitted that merely because the assessee was state undertaking, it cannot be stated that it cannot do any wrong and the learned tribunal did not examine the facts of the case. We do not agree with the said submission as we have found that both the CIT(A) as well as the tribunal has examined the facts. In fact, the examination of facts by the CIT(A) is more elaborate and more importantly as noted by the tribunal, the revenue was not able to place any material to disprove that the assessee explanation furnished before the authorities in support of its claim that the liability to pay the expenses charged under the head prior period crystallized during the financial year 2011-2012. Thus, we find that no substantial question of law arises for consideration under the head prior period expenses. Provision for diminution in the value of investments - AO held that by no such imagination can provisions be treated as allowable expenditure and the claim of the assessee is absurd and accordingly disallowed the same - tribunal allowed the claim - HELD THAT - Since transferee was a subsidiary promoted for furtherance of the assessee s freight container business and in furtherance of such business the loan were advanced from which interest income was earned and such interest income was assessed under the head business . Further under compelling circumstances as by the direction of the RBI such loans were converted into preference shares which consequently eroded in value because of the law sustained by the subsidiary. Therefore, the tribunal held that merely because loss was debited under the nomenclature provision did not alter the basic character of the transaction and the loss incurred due to non recoverability of the amount advanced in the ordinary course of business could not have been disallowed by the assessing officer. With regard to the objection raised by the revenue to the relief granted by the CIT(A) while computation of book profit under Section 115JB, the tribunal rejected such objection raised by the revenue by rightly placing reliance on the decision of Torrent Private Limited 2019 (6) TMI 709 - GUJARAT HIGH COURT as held the amount though bearing the nomenclature of provision for diminution of value of investment, having been actually written off, cannot be added to the book profit under section 115JB(2)(i) - no substantial question of law arises for consideration on the said issue.
Issues Involved:
1. Allowability of prior period expenses. 2. Provision for diminution in the value of investment. Summary: 1. Allowability of Prior Period Expenses: The revenue contested that the Learned Tribunal erred in allowing prior period expenses of Rs. 4,08,23,000/- for the assessment year 2012-2013, arguing that under the mercantile system of accounting, such expenses should not be allowed. The Assessing Officer disallowed these expenses, stating that the assessee did not follow the mercantile system properly. However, the assessee argued that these expenses crystallized during the relevant year and were necessary for business operations. The CIT(A) and the tribunal noted that similar expenses had been allowed in previous years and that the liability to pay had crystallized during the relevant year. The tribunal also found that the revenue did not provide any material to disprove the assessee's explanation. Consequently, the tribunal upheld the CIT(A)'s decision to allow the prior period expenses, emphasizing consistency in the absence of distinguishing features for the current assessment year. 2. Provision for Diminution in the Value of Investment: The revenue also challenged the tribunal's decision to allow Rs. 11.82 crores as a provision for diminution in the value of investment, arguing it was an unascertained liability. The assessee explained that this provision was due to the erosion of the net worth of its subsidiary, Transafe Services Limited, and was compelled by the RBI's corporate debt restructuring cell. The CIT(A) and the tribunal found that the provision was justified as it was based on a reliable estimate of the loss incurred. The tribunal referenced the Supreme Court's decision in Rotork Controls India Private Limited and other relevant cases to support its conclusion that the provision was allowable. The tribunal also noted that the provision was for an ascertained loss and was disclosed in the audited accounts, thus affirming the CIT(A)'s decision. In conclusion, the High Court dismissed the revenue's appeal, stating that no substantial question of law arose for consideration on both issues.
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