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TMI Blog2015 (3) TMI 1393X X X X Extracts X X X X X X X X Extracts X X X X ..... achinery belonging to the assessee. Therefore the miscellaneous income arising out of scrap sale from such activity should be reduced from the pre-production capital expenditure incurred by the assessee. Thus this ground raised by the assessee is allowed in its favour. Disallowance of prior period expenses - HELD THAT:- In mercantile system of accounting, only the expenditure that has crystallized during the relevant assessment year is to be treated as allowable deduction. In this case, it is apparent that the payment made by the assessee had crystallized as expenditure during the relevant assessment year. Therefore, the assessee has rightly claimed the same as allowable deduction. In these circumstances, we hereby direct the AO to all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . No. 1610/2014 1. The Ld. CIT(A) had erred in confirming the disallowance of prior period expenses amounting to ₹ 12,38,489/-. 2. The Ld. CIT(A) had erred in disallowing the expenditure amounting to ₹ 4,08,22,374/- incurred towards pre-payment premium and interest compensate. 3. The brief facts of the case are that the assessee-company is engaged in the business of manufacturing and trading in sugar. For both the assessment years, the case was taken up for scrutiny and order U/s. 143(3) of the Act was passed for the assessment year 2007-08 on 24.11.2009 and for the assessment year 2003-04, order U/s. 143(3) r.w.s 147 was passed on 26.11.2008 by the Ld. Assessing Officer. ITA-1609/2014 A.Y 2003-04 :- 4.1. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore, such income has to be reduced from the expenditure incurred for erecting the machinery. The Ld. D.R on the other hand relied on the orders of the Revenue and pleaded that the same may be sustained. 4.5. We have heard both the parties and carefully perused the materials available on record. On examining the facts of the case, we do not find the decision of the Hon ble Apex Court cited supra applicable to the case of the assessee since facts are not the same as pointed out by Ld.AR. In that case, the interest income earned on the excess borrowed fund was assessed as income of the assessee. However in this case before us, the assessee has generated scrap while relocating and erecting its machinery. Obviously the revenue derived ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he above said amount of ₹ 12,38,489/- as allowable expenditure for the relevant assessment year. On appeal, the Ld. CIT (A) endorsed the view of the Ld. Assessing Officer and confirmed Ld. A.O. s order. 5.2 Before us, the Ld. A.R. submitted that the assessee had paid ₹ 10 lakhs to Indian Institute of Technology (IIT) to conduct R D activity in order to benefit the assessee s revenue; however during the relevant assessment year it was confirmed that the entire project was a failure and therefore, the amount has to be written off. Similarly, shed hire charges and tank calibration charges were claimed by the parties during the relevant assessment year. Further an amount of ₹ 93,282/- which was treated as income of the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the assessee had borrowed funds as compensation for the sacrifices made by the financial institution under restructuring package. Precisely recompense fee is nothing but bank charges in order to compensate the banks for the loss of earnings on account of interest. From these facts, the Ld. Assessing Officer opined that the assessee is deriving benefit on a continuous basis year after year by paying lesser interest to financial institutions. Thus the benefit derived by the assessee is of enduring nature in the form of lessened financial burden. For this reason the Ld. Assessing Officer held that the expenditure of ₹ 4,08,22,374/- is in the nature of capital expenditure and not revenue expenditure and therefore disallowed the same as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said amount to be revenue in nature applying the decision of the Supreme Court in the case of Madras Industrial Investment Corporation Ltd., when amount has been spread over a period of six years, no error is committed by both authorities. Once expenditure is held to be revenue in nature incurred wholly and exclusively for purpose of business, it can be allowed in its entirety in year in which it is incurred. When spreading is done for over a period for six years and as assessee has no objection to such revenue expenditure being spread out, though it could have insisted for this amount allowed in year under consideration, with no such objection having been raised, expenditure is held to be revenue in nature. (ii) CIT Vs. Gujarat Guardian ..... X X X X Extracts X X X X X X X X Extracts X X X X
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