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TMI Blog2013 (6) TMI 427X X X X Extracts X X X X X X X X Extracts X X X X ..... ccretion to Vethapalisa account would automatically become income of the assessee - restore the issue to the file of AO with the direction to examine the issue afresh. Disallowance made u/s 40(a)(ia) - delayed remittance of the tax deducted at source - Held that:- Though the CIT(A) did not adjudicate this issue, yet this issue requires fresh examination at the end of the AO in view of the subsequent amendments brought in sec. 40(a)(ia). Levy of interest u/s 234A - as per assessee return of income was filled on 28.11.2006 & as per AO it is 31.12.2006 - Held that:- Since the fact relating to the date of filing of return requires verification at the end of the AO,this issue is also remitted to file of AO for reconsideration. - I.T.A. No. 131/Coch/2009, I.T.A. Nos.43/Coch/2009 and 01 & 02/Coch/2012 - - - Dated:- 7-6-2013 - Shri N. R. S. Ganesan, JM And B. R. Baskaran, AM,JJ. For the Petitioner : Smt. Susan George Varghese, Sr. DR For the Respondent : Shri Jose Pottokkaran, FCA ORDER Per B. R. Baskaran, Accountant Member:- All these appeals are directed against the orders passed by Ld CIT(A)-V, Kochi and they relate to the assessment years 2005-06 to 2007-08. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the Government of Kerala in the case of CIT Vs. M/s Travancore Titanium Products Ltd in ITA No.262 of 2009 and the Hon'ble Court, vide its order dated 09-09-2009, has held that the payments made to the Government as per its orders has to be considered as a business expenditure. For the sake of convenience, we extract below the relevant observations made by the Hon'ble Kerala High Court:- "The only question to be considered is whether service charges paid by the respondent company to the State Government is eligible for deduction u/s. 37(1) of the Act as held by the first appellate authority in the appeal filed against revised assessment which is confirmed by the Tribunal. As pointed out by the Division Bench in the earlier judgment, we have to consider the exact nature and scope of services, sacrifices and incentive provided by the Government justifying the payment of service charges by the respondent company to the State Government. However, before proceeding to consider the issue in detail, we are constrained to take a little different view from the one taken by the earlier Division Bench of this Court while remanding the case. The court has forgotten the fact that respondent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate bench of the tribunal in the assessee's own case, we do not find any reason to interfere with the decision rendered by Ld CIT(A) on this issue. 5. We shall now take up the appeal filed by the assessee for the assessment year 2005-06. Following issues are agitated in this appeal. (a) Disallowance of prior period expenses. (b) Assessment of part of "undistributed Vethapalisa" as income. (c) Disallowance made u/s 40(a)(ia) of the Act. 6. The first issue relates to the disallowance of prior period expenses. The assessing officer noticed that the assessee had claimed an amount of Rs.1,20,96,967/- as expenditure relating to prior years. The Assessing officer, by following the decision of Hon'ble Supreme Court in the case of Madras Industrial Investment Corporation Vs. CIT (1997)(225 ITR 802 803), took the view that the concept of deferred revenue expenditure can be adopted only in rare occasions. Accordingly, he disallowed the entire claim of Rs.1,20,96,967/- on the reasoning that they do not belong to the year under consideration . Before Ld CIT(A), the assessee furnished the details of prior period expenses and claimed that the liability to pay these expenses has got cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relevant year. In case of such kind of accounting errors, in our view, it cannot be said that they got crystallized during the year in which the accounting error was corrected. It is not a case where there was dispute about the payment of salary and the dispute got resolved in the instant year, in which case it can be said that the liability got crystallized in the instant year. Correction of accounting errors would mean only that the relevant expenditure got crystallized in any of the earlier years, but omitted to be claimed as expense in that year. The Ld CIT(A) has given clear finding in respect of certain expenditure about the year of accrual. For example, in respect of the expenditure claimed under the head "interest on new chitty loan", the Ld CIT(A) has given a clear finding that it relates to the assessment year 2004-05. Thus, it is seen that the Ld CIT(A) has examined the claim of the assessee in respect of each of the item of expenditure included under the head "Prior period expenditure" and accordingly taken a decision. Before us, though the Ld A.R claimed that the expenses disallowed by Ld CIT(A) got crystallized during the year under consideration, yet no material was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he concerned chit subscriber. In this regard, the assessee placed reliance on the decision of Hon'ble Supreme Court in the case of KSFE Vs. Jacob Alexander 1976 AIR 1552. However, the AO rejected the claim of the assessee by placing reliance on the decisions referred supra and accordingly held that the undistributed vethapalisa on the terminated chitties has to be assessed as income in the hands of the assessee. Since the amount shown as liability under the Vethapalisa account was accumulated over the years, the AO estimated the income at Rs.10.00 crores for the assessment year 2005-06. For the assessment years 2006-07, the AO assessed the annual accretion made to this account. In effect, the AO assessed following amounts as the income of the assessee in all the three years:- Assessment year 2005-06 - Rs.10.00 crores Assessment year 2006-07 - Rs. 5.20 crores Assessment year 2007-08 - Rs. 1.85 crores 9. In the appellate proceedings, the Ld CIT(A) accepted the contention of the assessee that the Vethapalisa is a liability in the hands of the assessee. However, the Ld CIT(A) noticed that the assessee did not make any payment out of the said liability except in the case of Jaco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the concerned subscriber. Since the Vethapalisa is usually adjusted against the payment due from the subscribers, its non-distribution would normally signify that there is some amount due from the concerned subscriber (defaulting subscriber), i.e., the assessee would be withholding the vethapalisa amount only when some amount is due from a subscriber. 11. Each chit group scheme floated by the assessee shall have fixed monthly span, say 20 months, 40 months etc., meaning thereby, the chit fund scheme shall automatically come to an end after completion of the concerned time period. Thus, after the completion of the time period, the assessee would be in a position to determine the undistributed Vethapalisa account and also the amount due from the defaulting subscriber. The accounting system followed by the assessee in this regard was not brought on record. We shall take an example to understand the position of Vethapalisa after the termination of a Chit fund scheme. Let us say that in a Chit fund scheme, Mr. X has defaulted in making payment of Rs.10,000/-. The assessee would also normally withhold the Vethapalisa amount payable to him and let us assume that the amount so withhe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he terms and conditions and the relevant accounting treatment followed by the assessee. Accordingly, we set aside the order of Ld CIT(A) on this issue in all the three years and restore the same to the file of the assessing officer with the direction to examine the issue afresh and take appropriate decision in accordance with the law. The assessee is also directed to co- operate with the AO and furnish all the information and explanation that may be called for by the assessing officer. 14. The next issue contested by the assessee in the appeal relating to the assessment year 2005-06 relates to the disallowance made u/s 40(a)(ia) of the Act for delayed remittance of the tax deducted at source. Though the Ld CIT(A) did not adjudicate this issue, yet in our view, this issue requires fresh examination at the end of the AO in view of the subsequent amendments brought in sec. 40(a)(ia) of the Act. Accordingly, we set aside this matter also to the file of the assessing officer with the direction to examine this issue afresh. 15. In assessment year 2006-07, the assessee is contesting about the levy of interest u/s 234A of the Act. According to the assessee, it has filed its return of i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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