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TMI Blog2017 (4) TMI 1004X X X X Extracts X X X X X X X X Extracts X X X X ..... ent year as it is incurred wholly and exclusively for the purposes of the business. In view of this we reverse the finding of the CIT (A) disallowing a sum on account of interest paid by the appellant to the government of India on unspent subsidy received by it - Decided in favour of assessee. Addition on account of loans pending reconsideration of excess or additional interest - Held that:- It is not the case of the revenue that excess interest shown by the assessee has not been shown as an income in subsequent years when it has become due. In view of this we are of the opinion that the amount of excess interest received by the assessee which has become due in the subsequent year and in the subsequent year that assessee has recorded it as its income there is no reason that why this income should be chargeable to tax in this year when it has not become due. Further it is not been denied by the revenue that this method of accounting is followed by the assessee from year to year and revenue has accepted this method in the past years and not disturbed the returned income of the assessee on this account. In view of this we reverse the finding of the Ld. CIT appeal confirming the add ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee on disallowance at serial number (a) and (b) above and partially confirmed the disallowance in serial number (c). Therefore, assessee is in appeal before us. 4. The assessee has raised the following grounds of appeal:- 1. The Ld. CIT (A) has erred in fact and in law by not deleting the addition made by Ld. Assessing Officer an amount of ₹ 7.14 Crores on account of Prior Period Expenditure as interest paid to Govt. 2. the Ld, CIT (A) has erred in fact and in law by not deleting the addition made by Ld. Assessing Officer an amount of ₹ 1.20 Crores being amount of deduction from Loan pending reconciliation of excess/additional interest. 3. The Ld. CIT (A) has erred in fact and in law by not deleting the addition made by Ld. Assessing Officer an amount of ₹ 15.68 Crores on account of Financial Charges written off. 5. Ground No. 1 of the appeal is against the order of the Ld. CIT appeal in confirming the addition made by the Ld. assessing officer an amount of ₹ 7.14 the interest paid to government of India on unspent subsidy is prior parade expenditure. The brief facts of this ground is that during the year the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tstanding subsidy was lying in the books of accounts of the assessee for several past years and the claim of the government was also placed several years, before the year in which it is accounted for. Therefore, his submission was that merely because the year the liability has been admitted it does not become pertaining to this year and allowable. He therefore supported the order of the lower authorities. He therefore referred to the decision of the Hon ble Supreme Court of India in Non-such Tea Estate Ltd versus Commissioner of income tax 98 ITR 189 (SC). He further supported the orders of the lower authority. 8. We have carefully considered the rival contentions. The appellant has received subsidy from government of India under Nehru Rojgar Yojna for shelter upgradation and training component. It started from the year 1989-90 wherein Central subsidy was to be dispersed through the appellant along with soft loan. The first time Ministry asked for the interest on unspent Central subsidy vide its letter dated 6th of June 1997. The matter was thereafter further reviewed and unspent subsidy has already been refunded to the Ministry by the appellant, therefore according to the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses related to the earlier accounting years how each of these expenses could be quantified in the year of consideration. The Tribunal affirmed the disallowance by observing that there is no dispute that the assessee-company maintained its books of account on mercantile basis. It was observed that if that is so there was no justification in claiming these expenses for the assessment year under appeal. Having considered the material on record, we do not find any justification for the disallowance of the claim of the assessee on such an abstract proposition. 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 maintained on the mercantile basis it has to be found in respect of any claim, whether such liability was crystallized and quantified during the previous year so as to be required to be adjusted in the books of account of that previous year. If any liability, though relating to the earlier year, depends upon maki ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , however, no express bar in law, nor one by necessary implication, restricting the power of the Income-tax Officer to exclude the expenditure laid out or expended under section 10(2)(xv) of the Act. We are, therefore, unable to accede to the submission of learned counsel for the Department. Section 10(2)(xv), shorn of other details for our purpose, provides for making allowances of any expenditure 'laid out' or 'expended'. The words 'laid out' are with reference to the mercantile system while the word 'expended' is with regard to the cash system. Once there was the sales tax demand in this case, which was an enforceable liability and as such a real expenditure, for which the assessee laid out the amount by debiting his account in the accounting year which was also the year of demand of the Department, deduction can be legitimately claimed under section 10(2)(xv). Here is a case where there is no doubt about the genuineness of the expenditure. There is also the compulsiveness in the sales tax demand which can be ignored only at the peril of the assessee. This expenditure had never been taken note of in the earlier years for one reason or the oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pra), which is relied up on by both the parties , however, according to us the facts of that case was with respect to the approval of the government of India with respect to payment made to managing agent according to the companies act 1956. The Hon ble Supreme Court held that when appointment of managing agent is prohibited by the companies act, it comes into operation only when the approval of the Central government is received and not earlier. Therefore such remuneration payable to the managing agent accrues only at the time of approval granted by the government of India. However in the present case the issue is not of any approval to be obtained from government authorities but it is a commercial transaction between government of India and the assessee about the payment of interest to the government of India. The moment the liability is admitted in the present case it accrues as an expenditure and therefore in the year of accrual the liability is required to be recorded for in the books of accounts and is liable in the year in which it is recorded therefore according to us it is not a prior period expenditure but expenditure pertaining to the current year as it crystallized duri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of excess so received is adjusted against the next dues as per the terms of agreement. The income is accounted for on mercantile system of accounting and the amount of excess interest received is shown as liability till the time it is adjusted against the subsequent date when it becomes due. In view of this he submitted that this sum is not the income of the appellant he further stated that this system is consistently followed by the assessee and accepted by the revenue in the past years. In view of this he submitted that the disallowance made by the Ld. assessing officer and confirmed by the Ld. CIT appeal is erroneous. 11. The Ld. departmental representative relied upon the order of the Ld. assessing officer and Ld. CIT appeal and stated that when the amount of interest which is actually received by the assessee may not be due during the current year but it should be treated as an income because it is not required to be repaid by the assessee to the borrowers. 12. We have carefully considered the rival contentions. According to the method of accounting followed by the assessee the interest becomes due according to the terms of the agreement entered into by the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apital expenditure. Before the assessing officer it was submitted that these expenditure has never been claimed by the assessee is an expenditure but it is claimed as a expenditure in the year in which it is incurred and deferred revenue expenditure written off in the books of accounts has been disallowed. It was submitted that according to the computation of total income and according to the method of the claiming of the deduction of the assessee it is shown in the miscellaneous expenditure to that amount that additional financial charges paid on bonds during the year is required to be added and same is claimed as deduction in the competition of taxable income whereas the financial charges written off are added back in the computation of taxable income. He referred to the page No. 67 of the paper book wherein the claim of the assessee is demonstrated. On appeal before the learned CIT appeal he sustained the disallowance of ₹ 92398164 relying on the order of the Ld. CIT appeal for assessment year 2004 -2005. 14. Before us the Ld. authorized representative submitted that the identical issue has been decided by the coordinate bench vide para No. 8 of the decision dated 0 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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