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TMI Blog2010 (9) TMI 58X X X X Extracts X X X X X X X X Extracts X X X X ..... ad claimed expenses amounting to Rs.14,55,720/- under the head „prior period expenses‟ pertaining to earlier years. The auditor, in column 22(b) of the Tax Audit Report, stated that prior period expenses amounting to Rs.14,55,720/- had been debited to the Profit & Loss Account. The assessee in pursuance of notice under Section 143(2) appeared before the Assessing Officer and was required to explain the nature of the expenses covered under the said head. He was asked to further explain why the said amount should not be disallowed. The assessee by letter dated 11.12.2006 submitted the details of the expenses clubbed in prior period expenses in the Tax Audit Report. The Assessing Officer noticed that a loss on the sale of fixed assets amounting to Rs.23,813/- had already been added back by the assessee while computing his total income. He also filed a copy of the notice from the Chief Administrative Officer, New Okhla Industrial Development Authority, wherein the lease rent of industrial plot 35-C, Sector-57, Noida had been increased with retrospective effect. The total demand raised was for Rs.1,02,982/- out of which an amount of Rs.17,373.78/- pertained to the financial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l years could not be debited. It was also held that regard being had to the business practice of the assessee and keeping in view the accounting system, the addition of Rs.13,46,299/- deserved to be deleted and, accordingly, it was so directed. 5. Grieved by the aforesaid order, the revenue preferred an appeal before the tribunal. The tribunal has held thus: "From the facts sated above it is clear that the assessee has been claiming prior period expenses on the ground that the vouchers of such expenses from employees/branch offices were received after 31st March. The assessee had its branch offices throughout the country. As per past business practice, the expenditure spilled over to next year had been debited in the subsequent year and the same were claimed and allowed by the Assessing Officer. This accounting practice has been consistently followed by the assessee and accepted by the department. Therefore, the rule of consistency has to be followed. In our considered view, Ld.CIT(A) has rightly deleted the addition following the business practice adopted by assessee and accepted by the department for past so many years. Accordingly, we do not find any infirmity in the order pas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atiocination of the factual matrix which is the heart and soul of the order. It is contended by him that consistency has to be maintained and when a particular method of accountancy, a recognized one, has been accepted by the tribunal, the same cannot be given a go-by as that would tantamount to paving the path of deviancy without any seemly justification. 10. In this context, we may refer to the decision in Director of Income Tax (Exemption) and another v. Apparel Exports Promotion Council (No.1), [2000] 244 ITR 734 (Delhi) wherein it has been held that when there was no material change in the activities of the assessee as compared to the earlier years, the question of exemption under Section 11 of the Act which had been examined in earlier years cannot be raised again though the doctrine of res judicata would not strictly apply to income tax proceedings, yet in order to maintain consistency, the revenue could not be permitted to take up stale issues merely because the scope of appeal is wider than a reference. 11. A Division Bench of the Gauhati High Court in CIT V. Doom Dooma India Ltd. [1993] 200 ITR 496 (Gauhati) while dealing the concept of Section 145 of the Act has held a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the method employed by the assessee by maintaining its accounts on "complete work" basis and by the method of dividing the net profit yearwise in proportion to the yearly gross receipts. The question whether the method employed by the assessee by maintaining its accounts on a particular basis will be sufficient for determination of profits is essentially one of fact. Whether the income, profits and gains could or could not be properly deduced from the method of accounting regularly adopted by the assessee is a question of fact. (see Chhabildas Tribhuvandas Shah v. CIT [1966] 59 ITR 733 (SC). Therefore, in our opinion, no question of law arises out of the order of the Tribunal. . . ." [Emphasis supplied] 13. In Saurashtra Cement & Chemical Industries Ltd. V. Commissioner of Income Tax, [1995] 213 ITR 523(Gujarat), the Division Bench has expressed thus:- "Merely because an expense relates to a transaction of an earlier year it does not become a liability payable in the earlier year unless it can be said that the liability was determined and crystallized in the year in question on the basis of maintaining accounts on the mercantile basis. In each case where the accounts are mai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... completion method which were the issues in the said case. After so stating, the Apex Court expressed the view as follows:- "19. In the judgment of the Bombay High Court in Taparia Tools Ltd., [2003] 260 ITR 102 it has been held that in every case of substitution of one method by another method, the burden is on the Department to prove that the method in vogue is not correct and it distorts the profits of a particular year. Under the mercantile system of accounting based on the concept of accrual, the method of accounting followed by the assessees is relevant. In the present case, there is no finding recorded by the Assessing Officer that the completed contract method distorts the profits of a particular year. Moreover, as held in various judgments, the chit scheme is one integrated scheme spread over a period of time, sometimes exceeding 12 months. We have examined computation of tax effect in these cases and we find that the entire exercise is revenue neutral, particularly when the scheme is read as one integrated scheme spread over a period of time. 20. As stated above, we are concerned with assessment years 1991-92 to 1997-98. In the past, the Department had accepted the compl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quired to be continued for the assessment years 1980-81 and 1981-82,..." 16. The present factual matrix has to be tested on the touchstone and anvil of the aforesaid enunciation of law. On a scrutiny of the facts that have been brought on record, it is discernible that the assessee has been claiming prior period of expenses on the ground that the voucher of such expenses from the employees/branch employees were received after 31st March of the financial year. It has also come as a matter of fact that the assessee has branch offices throughout the country. The assessee has been debiting the expenditure spill over to the subsequent years and the assessing officer had been allowing the same. The said accounting practice has been consistently followed by the assessee and accepted by the department. If a particular accounting system has been followed and accepted and there is no acceptable reason to differ with the same, the doctrine of consistency would come into play. The said accounting system has been followed for a number of years and there is no proof that there has been any material change in the activities of the assessee as compared to the earlier years. Nothing has been broug ..... X X X X Extracts X X X X X X X X Extracts X X X X
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