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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 ..... cer holding that original assessment u/s 143(3) of the Act was erroneous and prejudicial to the interest of the revenue. Assessee did not contest the order under section 263 of the act. Consequently the Ld. assessing officer passed order under section 143 (3) read with section 263 of the income tax act on 17/11/2009 making three disallowances/additions as under: a. disallowance of Rs. 7.14 crores on account of prior period expenses b. addition of Rs. 1.20 crores on account of loans pending reconsideration of excess or additional interest c. disallowance of Rs. 1 5678 6815/-on account of financial charges paid for issue of bonds etc held as capital expenditure 3. Against this order of the Ld. assessing officer the assessee preferred appeal before the Ld. CIT appeal who dismissed appeal of 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of interest expenditure is not a prior period expenditure as it has been accepted for the payment during the year by virtue of the board resolution. He submitted that the liability has crystallized during the year. He referred to the background of the claim of the assessee and various notes thereon. He submitted that the liability according to the Mercantile system of accounting has been admitted by the appellant during the year and therefore it is accrued during the year and hence it is allowable during the year only. He relied upon the decision of the Hon'ble Supreme Court of India in case of Non such Tea Estate P Ltd versus Commissioner of Income Tax 98 ITR 189 (SC). 7. Ld. Departmental representative submitted that interest payable by the assessee is pertaining to the earlier years and not of this year as this outstanding 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a liability was admitted and quantified by the appellant during the year, though interest is pertaining to period from 01/06/1997 till the subsidy was paid. Consequently on 19/11/2003 the interest on the subsidy was debited by the appellant of Rs. 71473600/-and claimed the same as expenditure. Ld. Assessing officer was of the view that it is a prior period expenditure and therefore it is disallowable. Hon'ble Gujarat High Court in case of Saurashtra cement's versus CIT in 213 ITR 527 has held as under:- "From the statement of the case and the order of the Tribunal it appears that the contention of the assessee was that the expenditure in dispute was incurred in the year under consideration because they were quantified in the previous year concerned and the Commissioner of Income-tax (Appeals) rest contented by saying that when the expenses 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns pertaining to an earlier accounting year. In this connection, it is useful to refer to a decision of the Gauhati High Court in the case of CIT v. Nathmal Tolaram [1973] 88 ITR 234 which was a case arising under the Indian Income-tax Act, 1922, as to the interpretation of section 10(2)(xv) which is corresponding to section 37(1) of the 1961 Act. The question related to the claim of deduction on account of the sales tax liability paid during the year 1957-58, whereas the liability related to the accounting year 1949-50. The Division Bench in that case observed as under (at page 238) : " Under section 4 of the Income-tax Act, the income that accrues or arises during any previous year alone is to be taken note of. There is, therefore, a bar to include any income that accrues or arises outside the previous year subject to the deeming provisions in the Act. There is, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vernment of India which was initially resisted by the appellant but subsequently agreed upon in the current year for payment of interest. Therefore the deduction of interest liability is not pertaining to earlier years but is part of the current year and it is allowable as deduction to the appellant in the current year. In the present case the liability is admitted and crystallized during the year when appellant has admitted this liability. Undisputedly the liability is admitted by the assessee vide its board meetings dated 17/11/2003 which is falling into assessment year 2004- 2005. Therefore the liability according to accrual system of accounting which is mandatory for the appellant to be followed the liability accrued during the year. We have also perused the decision of the Hon'ble Supreme Court of India in case of Non such Tea Estate P Ltd versus Commissioner of income tax (supra), 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adjusted against the subsequent dues. The Ld. assessing officer did not accept the contention of the assessee and disallowed this sum. On appeal before the Ld. CIT appeal he concurred with the views of the assessing officer. Therefore the appellant has contested this disallowance in ground No. 2. 10. The Ld. authorized representative submitted before us that various agencies have taken loan from the company , they deposit the amount of interest and installment as per the terms of agreement on or before the due dates. However interest is being charged on the basis of the actual amount due as per the loan disbursed and repayment received from those agencies on a particular date. In view of this the amount of interest remitted by the party sometimes becomes more than the amount actually due because of the early remittance of funds by the agencies and therefore the amount 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 addition of Rs. 1.20 crores as income on account of excess interest received reduced from the debtors subject to reconciliation. 13. The 3rd ground of appeal of the assessee is against disallowance of Rs. 15678 6815 on account of financial charges for differing expenditure on issue of bonds, PDS and term loan holding the same to be capital 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 accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X
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