9911796707
TMI Blog2011 (4) TMI 1384X X X X Extracts X X X X X X X X Extracts X X X X ..... dings made by the AO u/s 148 of the Income Tax Act, 1961. 2. That the assessee craves to add, alter and/or delete any grounds of appeal at later stage, if necessary." 3. The assessee is a Government of India undertaking. As per computation of income its return of income was filed at Nil on 28.11.03 and subsequently the said return was revised on 17.3.05 showing loss of ₹ 96,06,000/-. Original assessment order came to be passed on 16.1.06 at a nil income, wherein two additions were made to the returned loss namely a sum of ₹ 2,93,000/- and 23,53,00,000/- on account of prior period expenses and penal interest respectively. Thereby assessing the income of the assessee at a sum of ₹ 22,60,87,000/- by reducing the aforementioned loss of ₹ 96,06,000/-. The said income was adjusted against the brought forward unabsorbed depreciation to that extent and income was assessed at nil. 4. Notice u/s 148 was issued on 11.10.07. In response to notice vide letter dated 16.11.07 the assessee submitted that return originally filed should be taken as return filed in response to notice u/s 148. The sole reason for initiation of reassessment proceeding was regarding the cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted merely on the basis of change of opinion. For the sake of convenience the relevant portion of the reply of the assessee filed on25.9.08 (copy of which is placed at pages 132 to 134 of the paper book) are reproduced below: - 03. "During the course of assessment proceedings, initiated vide notice u/s 143(2) dated 24.10.03, the details as asked for by the then AO were filed during the course of assessment proceedings. In fact, during the proceedings a questionnaire along with notice u/s 142(1) dated 7th December, 2005 was issued to the assessee and as per Point 16 of the said questionnaire [issued along with notice u/s 142(1)] the assessee was asked to give details regarding Prior Period Expenses, if any claimed during the year. The said query was duly replied vide letter dated 4th January, 2006 and Page 10 of Paper Book filed during the course of assessment proceedings give details thereof. After considering the above reply and also the details furnished by the assessee, the then AO has specifically disallowed an amount of ₹ 2.93 lakhs booked under the head "Prior period Expenses" relating to missing and unconnected wagons and reply of the assessee on the other points ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ck 7.31 Freight 9.64 (Cr.) Recovery from contractors Towards demurrages/handling Charges 0.28 Rent 190.28 (Cr.) Adjustment in respect of linking Of missing & unconnected Wagons 1.51 Taxes 108.74 (Cr.) Income from claims 501.03 Repair & Maintenance 10.77 Miscellaneous Income 96.07 Handling charges 101.30 Interest on Sugar Operations 1078.15 Salary, Wages & Allowances 76.10 (Cr.) Purchase 36.35 (Dr.) Electricity charges 0.40 Railway siding charges 53.10 Adjustment in respect Of linking of missing & unconnected wagons 2.93 Demurrages 3.76 (Cr.) Miscellaneous Expenses 7.24 Port Clearance charges 41.42 Sale (Margin on Sugar) 3.01 Interest on Food Operations 1078.15 2274.18 928.05 NET INCOME 1346.13 9. Thus, on merits it was pleaded that income relating to previous years amounting to 2272.18 lakh was credited and expenses relating to previous years amounting to ₹ 928.08 lakh was debited and net income in respect of previous years was shown at ₹ 1,346.13 lakhs. It was submitted that assessee has been following this practice from year to year as at the point of time when either income or expenditure is crystallized with regard to i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e account head 'Expenses and Income relating to previous year'. The nature and method of accounting followed by the Appellant is uniform for both 'income' and 'expense'. The AO has unilaterally, 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 the preceding year i.e. A.Y. 2002-03 the AO disallowed an expense claimed under a sub-head "Adjustment relating to Missing and Unconnected Wagons" booked under the head "Prior Period Adjustments" as the AO was of the view that as the expense did not crystallized or accrued during the year. The Appellant went in appeal before the Hon'ble Tribunal and the Hon'ble Tribunal keeping in view the nature of transactions being undertaken by the corporation deleted the said addition by making the following observations: - "The gain/loss is booked under the head "adjustment related to previous period expenditure/income". This is accounted for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts. 12. After narrating the facts, relying upon the reassessment order passed by the AO, it was submitted by ld. DR that even according to mercantile system of accounting, prior period expenses could not be allowed to the assessee and, therefore, ld. CIT(A) has wrongly granted the relief to the assessee. It was submitted that ld. CIT(A) has committed a wrong in holding that prior period expenses were required to be allowed even according to mercantile system of accounting on the basis of regular method adopted by the assessee. Thus, it was submitted that he should not have deleted the addition on merits and, therefore, the department appeal is required to be allowed. 13. On the other hand, addressing the ground of cross objection, it was submitted by ld. AR that ld. CIT(A) has wrongly held that initiation of reassessment proceedings was valid. He submitted that for holding so ld. CIT(A) has mainly relied upon the decision in the case of Consolidated Photo & Finvest Ltd. Vs. ACIT (supra). He submitted that the said decision was considered by Hon'ble Delhi High Court in the case of CIT Vs. Eicher Ltd. 294 ITR 310. Reference in that decision was made to the subsequent decision of De ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e V of the audited annual accounts and it was shown that these income or expenditure were credited and debited in the accounts on the basis of their crystallization. He referred to the details earlier mentioned in the order and contended that after analyzing those details ld. CIT(A) has rightly concluded that no addition was called for. 15. In the rejoinder it was submitted by ld. DR that in the original assessment order the issue which was touched by the AO was only with respect to a sum of ₹ 2,93,000/- which was added to the income of the assessee. However, the AO did not look into the other prior period expenses, hence the addition made in the reassessment order was not on the basis of "change of opinion" as has been argued by ld. AR. Thus, he submitted that assessee has no case either for invalidity of initiation of reassessment proceeding or on the merits of the addition. Thus, he submitted that departmental appeal should be accepted and cross objection of the assessee should be dismissed. 16. We have carefully considered the rival submissions in the light of material placed before us. It has already been pointed out in this order that during the course of original ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase of the AO that the contention of the assessee that these were crystallized during the year was not correct. In absence of any such material to controvert such contention of the assessee, it cannot be said that the addition can be simply made for the reason that according to mercantile system of accounting, as the expenses does not relate to the year under consideration, they cannot be allowed. If the same view is adopted then probably the income relating to earlier years also cannot be considered as income of the current financial year which, in the present case for the year under consideration, is much more than the prior period expenses. Therefore, no case has been made out by the revenue to contest the deletion made by the CIT(A). The order of CIT(A) deleting the addition is upheld. Now coming to the cross objection of the assessee, it is already explained that the AO had required the assessee to explain the allowability of the expenses relating to earlier years and assessee had submitted the reply. The requisite details were placed at record. Thus, the case of the assessee clearly falls under the four corners of the decision of Hon'ble Delhi High Court in the case of CIT Vs ..... X X X X Extracts X X X X X X X X Extracts X X X X
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