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TMI Blog2012 (4) TMI 567X X X X Extracts X X X X X X X X Extracts X X X X ..... red in law and on the facts of the case in deleting the disallowance of ₹ 1,34,119/-, being prior period income. 4. The Ld. CIT(A) has erred in law and on the facts of the case in deleting the disallowance of depreciation of ₹ 70,635/- 5, The Ld. CIT(A) has erred in law and on facts of the case in directing the Assessing Officer not to tax the subsidy of ₹ 7,06,350/-, when the same had been offered by the assessee in its return of income. The direction of the Ld. CIT(A) is in contravention to the decision of the Hon ble Supreme Court in the case of Goetze (India) Ltd. Vs. CIT (2006) 284 ITR 323 (SC). 6. The Ld. CIT(A) has erred in law and on facts of the case in directing the Assessing Officer to reduce the income by the amount of ₹ 33,90,270/-, being excess depreciation provided in the books of accounts. The direction of the Ld. CIT(A) is also in contravention to the decision of the Hon ble Supreme Court in the case of Goetze (India) Ltd. Vs. CIT (2006) 284 ITR 323 (SC). Grounds No.7 and 8 are general in nature and therefore, do not survive for adjudication. 2. Briefly stated, the facts of the case are that the assessee Corp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herefore, there was no accrual of incremental rental income and the addition on account of the same may be deleted. 2.2 The learned CIT(A) considering the facts of the case and the submission of the assessee deleted the addition by observing as under in Para 3.2 of his order: 3.2 I have considered the submissions of the learned AR carefully. It is seen that the appellant did not receive the increase in storage rent ultimately and the godowns were vacated by the Post Master General subsequently on 30-10- 2005. It was an increase made unilaterally by the assessee which was not accepted by the tenant. The increase in rent became disputed, so it cannot be held that the rent has accord to the appellant. In view of the facts of the case as the disputed income has not been received by the appellant and the same has been written off in the F 2005-06, there is no question of accrual of additional rental income of ₹ 3,16,584/-, therefore, the addition of the said amount is deleted. 2.3 Aggrieved, the revenue is in second appeal before us. 3. At the beginning of the hearing Ld. AR submitted that the issue is covered by the order of the Tribunal for the assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... noticed that the assessee had debited a sum of ₹ 4,40,119/- related to prior period expenses. On being questioned the assessee filed the details of these expenses along with vouchers and supporting evidences and submitted that the assessee has suo motu disallowed an amount of ₹ 1,42,520/- in the statement of total income filed along with the return of income on 18-10-2005 and in view of this fact, allowability of the expenses amounting to ₹ 2,97,599/- was examined. On examining the details the Ld.AO bifurcated the expenses as follows: a) U/s. 43B of the Act on payment basis. b) Of original bills not receivable by Head Office. c) Expenses paid relates to current year. d) Expenses remain to be provided and e) Expenses received Managing Director s approval. 5.2 The Ld.AO did not accept the claim of the assessee for the following reasons: a) The claim of the assessee u/s 43(B) of the Act is not appearing in payment in previous years. However, even, if it would have been paid, the income of the assessee being exempt in the earlier years, the claim would not have been allowable. b) The claim of the assessee that the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the I.T. Act, 1961. It was further submitted that the above explanation of the assessee was not accepted by the learned AO stating that sanction by the head of the organization i.e. Managing Director is not relevant. The assessee pleaded that since all the necessary details along with supporting vouchers were filed during the assessment proceedings prior period expenses may be allowed as business expenditure of the assessee for current year. 6.1 The learned CIT(A) considering the submission of the assessee to be convincing allowed the prior period expenses of ₹ 2,17,489/- by observing as under in Para 5.1 of his order: 5.1 I have considered the submissions of the A. R. carefully. I find the explanation of the A. R. convincing. The prior period expenses of ₹ 2,17,489/- have been accounted after obtaining sanction from the Managing Director of the appellant. Thus the liability of the above expenses has crystalised during the year under consideration and therefore the same is directed to be allowed in this year. 6.2 Aggrieved, the revenue carried the matter in second appeal before us. 7. The learned DR supported the order of the learned AO a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to the view of the Ld.CIT on this issue. 9.2. Thus with respect to this ground of the Revenue on deleting the disallowance of ₹ 2,17,489/- being prior period expenses, we hereby set aside the order of Ld.CIT(A) and remit it back to the file of Ld.CIT(A) in order to pass appropriate order in the light of our observations above. 10. Ground No.3: deletion of disallowance of ₹ 1,34,119/- being bad debts related to the prior period of exempt income : The learned AO noted on verification of Schedule P filed with the return of income that the assessee had debited an amount of ₹ 13,70,693/- towards prior period income(debit). The assessee was asked as to why the same should not be added to the income. In response thereto, the assessee filed the statement showing detailed break-up of period income (debit) containing date, name of the party, details of voucher number and amount etc. The learned AO on verification of the accounts and vouchers found that the details regarding a total sum of ₹ 1,34,119/ - were not submitted by the assessee. The assessee was again specifically asked to submit the details. The assessee in response thereto submitted that the w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11. We have heard the rival submissions and perused the orders of the authorities below. The findings of the Ld.CIT(A) on this issue is quite reasonable. The appellant has brought in this amount as its income during the earlier year on mercantile basis though the income of the assesse was not taxable by virtue of section 10(29) of the I.T Act and now this debts has gone bad. Bad debts are allowable as per the provisions of Section 36(vii) of the Act. Hence we are inclined to accept the order of the Ld.CIT(A) on this issue. 12. Ground No.4: deletion of disallowance of depreciation of ₹ 70,635/- and Ground No.5 : direction to AO not to tax subsidy of ₹ 7,06,350/-: The learned AO on verification of the balance sheet filed along with the return of the assessee observed that the assessee has written off subsidy of ₹ 68,69,397 received from the Government and on further verification of the auditors report it was seen that the assessee has deducted a sum of ₹ 61,83,047/- from building and warehousing . In view of this, the assessee was asked to show cause why the amount of ₹ 7,06,350/- was not deducted from building account towards subsidy. The assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e appellant. The subsidy was not received during the year it was received in the earlier years. Therefore in the earlier years the cost of respective godowns was to be reduced. Now the godowns have been sold, so in the current year no disallowance of depreciation can be made. Accordingly the disallowance of depreciation is deleted. The said amount of subsidy cannot be taxed as revenue receipt as it has not been granted to meet revenue expenses. Accordingly the A. O. is directed not to tax the said receipt. 12.3 Being aggrieved, the revenue is in appeal before us. 12.4 The learned DR relied on the order of the learned AO. On the other hand the learned AR supported the order of the learned CIT(A). 13. We have heard the rival submissions and carefully perused the materials on record. During the previous year the net amount of subsidy of ₹ 7,06,350/- remained in the books of accounts as they were not written off from the value of the assets (godown). These assets (godown) did not form part of the asset of the assessee for the previous year since they were sold. The Ld. AO opined that this amount of ₹ 7,06,350/- requires to be deleted from the block of assets ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that the excess provision of depreciation written back as provided in the books of account in the earlier years is not taxable. The AO had not accepted the submission of the assessee because the assessee has not considered this issue in its revised return and that effect of reduction out of the depreciable assets has a continuous effect in the future assessments of the assessee. 14.1 Before the learned CIT(A) it was submitted by the assessee as under: The assessee has not made any fresh claim. The A.O. has verified the taxability or otherwise of the prior year income and when he found that prior year income is not liable to tax. At that time he has raised the objection that such claim has not been made in the revised return of income. The assessment of the income is to be made as per the provisions of the Income Tax Act and on the basis of return of income filled. While making assessment the A.O. has to examine the allowability of the expenses as well as taxability of the income. Further, he has to follow the directions issued by the Central Board of Direct Taxes by way of circulars. In this regard we draw your Honor's kind attention to circular no. 14(2 T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions of the A.R. carefully. The excess depreciation which was provided in the books of the appellant in the earlier years has been withdrawn This can not be income as in assessments of earlier years depreciation has been allowed as per IT. Act in the earlier years. As the amount representing excess depreciation written back can not be income, the A.O. is directed to reduce the income by the said amount. 14.3 Being aggrieved, the revenue is in appeal before us. 14.4 The learned DR supported the order of the AO. On the other hand the learned AR supported the order of the learned CIT(A). 15. We have heard the rival submission and carefully perused the orders of the authorities below. It is very obvious that the excess depreciation claimed during the preceding years as a result of reduction in value of the Godown for it being credited with the Government subsidy received cannot be construed to be profit of the current year and taxed. Government subsidy received by the corporation for construction of Godown is a capital receipt and do not fall in the revenue field. Therefore we are inclined to follow the order of the Ld. CIT(A). It is ordered accordingly. Thus ground No ..... X X X X Extracts X X X X X X X X Extracts X X X X
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