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TMI Blog2014 (11) TMI 436X X X X Extracts X X X X X X X X Extracts X X X X ..... allized - accordingly in the absence of any argument addressing factual inaccuracy the settled legal position or the issue is respectfully followed and the departmental ground is dismissed – Decided against revenue. - I.T.A. No.4731 & 4732/Del/2012 - - - Dated:- 24-3-2014 - Shri U. B. S. BEDI And Shri J. S. REDDY, JJ. For The Assessee : Shri Sameer Sharma, Sr. DR For The Department : Shri Harish Kapoor, CA ORDER PER U B S BEDI, JUDICIAL MEMBER: These two appeals of the department are directed against separate orders passed by Ld. CIT(A) XIII, New Delhi both dated15.06.2012 relevant to assessment year 2007-08 2008-09 respectively whereby the Department has challenged the deletion of addition of ₹ 2,22,24,010/- and ₹ 36,13,000/- made on account of prior period expenses. 2. At the very outset, Ld. counsel for the assessee submitted that similar issue arose before the B Bench of the Tribunal in assessee s own case for the assessment year 2004-05 in I.T.A. No. 5226/Del/2010 (Department s appeal) and C.O. No.88/Del/2011 (Assessees cross objection) and this bench vide order dated 19.07.2013 has concluded to uphold the order of Ld. CIT(A) while d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2.03.2012 in ITA No.-462/2012 and 463/2012 remanded the issue qua the prior period expenses back to the Tribunal holding that once the re-opening had been upheld on two grounds, the AO was not pre-cluded from examining the prior period expenses. Reliance was placed on V.Jagmohan Rao and others vs. Commissioner of Income Tax and Excess Profits Tax, Andhra Pradesh, (1970) 75 ITR 373. Accordingly, the parties were heard in terms of the directions of the Hon ble High Court. 3. The Ld. CIT DR, Ms. Sudha Kumari invited attention to the assessment order u/s 143(3) read with section 147 dated 22.12.2009 to un-numbered pages 2 3 in the context of the following ground of the Revenue:- 3. On the facts and in the circumstances of the case and in law, the CIT(A) has erred in deleting the disallowance of ₹ 593.09 lacs. on account of prior period expenses. 3.1. Referring to the relevant observation in the assessment order it was submitted that no evidence has been given by the assessee to show when the expenditure crystallized as such the issue should be remanded for verification and placing of necessary evidences. For ready-reference, we reflect the relevant portion from the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation. There has never been a profit or loss in the Profit Loss Account of the Corporation as the net deficit is met by the Govt. of India in the form of subsidy. The basic purpose of following a system of accounting is to determine the actual profit or loss of a previous year. Keeping in view the nature of organization where the deficit is met by the Govt. of India by way of subsidy and no profit/loss is shown in the Profit Loss Account, the booking of an expenses, if any, related to the previous accounting years will have no impact on its ultimate profit/loss. Annual Accounts are maintained based on the accounting entries passed at the District level on day to day basis. It is true that the assessee is following the Mercantile System of Accounting, however, the said system also provides the true profit/gain of the previous year are required to be computed for the purposes of determining the tax liability. If the necessary material, crystallizing the expenses/income is not in existence in a particular year, mercantile system of accounting does not call fro an adjustment in the books of accounts on estimate basis. It is infact, all known liabilities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Further system/practice followed by the Corporation is same as in the preceding years and in a year under assessment. Based on the decision of the Hon ble ITAT on the subject, no addition is called for under the head Prior Period Adjustments . We are enclosing herewith the details of the expenses booked under the head Adjustments relating to Previous Years and your honour will observe that these expenses have been booked based on crystallization of liability on receipt of material (claim/bill) by the Corporation during the year under assessment and cannot be related to the previous periods. Based on the crystallization of expense as per material/information/claim raised during the year, accounting entries have been passed. 4.2. The following facts argued before the CIT(A) and considered by him brought out in the impugned order were also addressed:- The Corporation undertakes procurement, movement, storage and distribution of food grains. The organization of the Corporation consists of the following:- Head Office at New Delhi Five (50 Zonal Offices Twenty Two (22) Regional Offices One Hundred Sixty Six (166) District Offices, and Numerous God ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hese facts and legal proposition, the CIT(A) gave a detailed finding on which heavy reliance is being placed. For ready-reference, same is reproduced hereunder :- 6.1. Finding on Ground of Appeal No.-4:- I have considered the submissions made by the AR on the issue vis- -vis of the facts of the case. An addition of ₹ 593.09 Lacs has been made by the Assessing Officer picking up the debits in various sub-head under the head Adjustment relating to Previous Years . On going through the details, it reveals that the appellant booked ₹ 583.38 Lacs (Net) as Income towards Adjustments relating to Previous Years . The nature and method of accounting followed by the Appellant is uniform for both income and expense . The Assessing Officer has apparently, instead of considering both income and expense booked under the said head, made addition relating to expense booked under the said head. If the Appellant is following the mercantile system of accounting, it is for both income and expense. In any case, the appellant has shown income (net) under the head Adjustments relating to Previous Years . Moreover in a preceding year i.e Assessment Year 2002-03 the Assessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome needs to be reduced from income. In view of the above, and also examination of the details of the expenses booked under the head prior expenses and relying on the principles laid down by Hon ble Courts on the issue (judgement cited by the appellant) the addition made by the Assessing Officer for an amount of ₹ 5,93,09,000/- towards Expenses related to Previous Year is deleted. In the result the appeal is partly allowed. 6. Attention was also invited to the orders of the Tribunal on the very same issue and very same methodology followed by the assessee which has been approved of by the Hon ble High Court. The Tribunal in the immediately preceding assessment years namely 2003-04 and 2002-03 vide orders dated 13.04.2011 and 21.09.2007 has allowed the appeals of the assessee. The detailed findings it was submitted are placed at pages 19 to 25 of the paper book filed which contains the copy of 2002-03 assessment year. In the immediately subsequent assessment year, since the relief given by the ITAT was challenged by the Revenue before the Hon ble High Court the view of the Tribunal was affirmed and the departmental appeal was dismissed. Copy of the said judgement and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the assessee in the original assessment and further clarified. These facts it was submitted are evident for pages 79, 83 and 86 of the paper book. 6.2. In reply the Ld. CIT DR though placed reliance upon the assessment order however no argument canvassing a contrary view then the one taken by the ITAT in the earlier years and subsequent year which had been upheld by the Hon ble High Court was referred to for our consideration. 7. Accordingly in the light of the arguments advanced before the Bench and considering the facts and material available on record. We are of the view that in the peculiar facts and circumstances of the case wherein the assessee admittedly and undisputedly has been following the same method of accounting consistently keeping in view the nature of activities and the nature of transactions undertaken by it, the liability cannot be taken into consideration till it is crystallized. We see no merit in the arguments of the Ld. CIT DR for restoring the issue for verification as we have gone through the paper book and the relevant records therein and find ourselves in harmony with the detailed findings of the CIT(A). Accordingly in the absence of any argument ..... X X X X Extracts X X X X X X X X Extracts X X X X
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