2023 (6) TMI 767 - AT - Income Tax

Allowability of Prior period expenses when Mercantile method of accounting was being followed by the assessee - AR submitted that the quantum of amount payable to workers on account of wages/ salaries / PF etc. and sums payable to other authorities was not a liability of the assessee till it was determined by Hon ble Supreme Court - HELD THAT - The Bench is of considered opinion that when the amounts otherwise denied by an assessee have become payable under the orders of Court, though they may relate to any previous year or past activity, they have to be considered to have accrued in compliance of the orders of the Court. Ld. CIT(A) has duly taken note of same in para no. 5.2.23, the same require no interference. Ground no 1 has no substance. Loan amount sanctioned by the Government for the purpose of business - As observed that in an attempt to revitalized the Super Bazar which was run by the assessee, the funds were introduced on various occasions by the Central Government in the form of unsecured loans. The matter on record show that the official liquidator has taken into consideration the same as made apparent by documents available and at the end of relevant year what stood as balance was written off at the instance of Government as being waived off. CIT(A) has taken notice judgment of Hon ble Bombay High Court in Mahindra and Mahindra 2003 (1) TMI 71 - BOMBAY HIGH COURT which has been later on confirmed by Hon ble Supreme Court 2018 (5) TMI 358 - SUPREME COURT and given relief to the assessee. The same requires no interference. The ground raised by the department has no substance. Consequently the appeal of Revenue is dismissed.

Summary

Issues Involved:

1. Prior period expenses claimed by the assessee.
2. Addition of written-off Government loans to the assessee's income.

Summary:

Issue 1: Prior Period Expenses

The assessee, a Co-operative Store Limited, claimed prior period expenses amounting to Rs 573,802,128/-. The Ld. AO disallowed these expenses, asserting that the liability arose in the years they pertained to, not when they were paid, following the mercantile method of accounting. The Ld. CIT(A) upheld the assessee's claim, noting that the expenses crystallized during the year under consideration as per the Supreme Court's order dated 13.08.2010. The Tribunal agreed with the Ld. CIT(A), stating that when amounts become payable under court orders, they should be considered accrued in compliance with those orders, regardless of the period they pertain to.

Issue 2: Written-off Government Loans

The Ld. AO added the written-off Government loan of Rs 68.51 crore and interest of Rs 83.20 crore to the assessee's income, treating it as a revenue receipt under section 28(iv) of the Act. The Ld. CIT(A) referred to various judgments, including the Supreme Court's decision in Commissioner vs. Mahindra and Mahindra Ltd. (2018), which held that the waiver of a loan cannot be taxed as perquisites under section 28(iv) or as remission of liability under section 41(1). The Tribunal upheld the Ld. CIT(A)'s decision, agreeing that the waiver of loans for capital purposes is not taxable as income.

Conclusion:

The Tribunal dismissed the appeal of the Revenue, affirming the decisions of the Ld. CIT(A) on both issues. The prior period expenses were allowed as deductions, and the written-off Government loans were not added to the assessee's income.