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TMI Blog2022 (6) TMI 735X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 - SUPREME COURT] also supports the proposition that the liability arose only when the MOU was signed. In that case, Hon'ble Supreme Court has held that the liability to pay remuneration arose only when government conveyed its approval and not prior to that date. Same proposition is emanating from the decision of CIT vs Exxon Mobil Supra [ 2010 (9) TMI 36 - DELHI HIGH COURT] which Ld. CIT(A) has himself referred. In this view of the matter when Ld. CIT(A) is himself accepting and giving case laws for the proposition that the liability arose only when the MOU was signed, there is no justification for the same to be accounted for in the current assessment year. The mere submission that there was the opinion from a C.A. for this claim has no legal sustainability dehors any cogent reasoning. Once it is clear that the expenditure was not to be accounted for this year, the order of the Ld. CIT(A) is not at all sustainable. As regards other aspects wherein Ld. CIT(A) is accepting the assessee's submission that five of the parties have replied directly to the Assessing Officer, which the AO has not so acknowledged. We find that nothing stopped the Ld. CIT(A) from examinin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en established. 4. That on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law and on the facts in deleting the disallowance of Rs. 3,07,60,733/- claimed on account of LC Discounting Charges in the Revised Return filed for the AY 2011-12 without examining the genuineness of expenses and without examining whether the ten parties(suppliers) has claimed the above expenses in their returns of income or not. 5. That on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law and on facts in deleting the disallowance of Rs. 3,07,60,733/- without appreciating the fact that as per AS-5 the term 'prior period items' refers only to income and expenses which arise in the current period as a result of errors or omissions in the preparation of the financial statements of one or more prior periods and prior period items but does not include other adjustments necessitated by circumstances, which though related to prior periods, are determined in the current period. 6. That on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law and on facts in deleting the disallowance of Rs. 3,07,60,733/- without ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Accountants of India before revising the return (Copy enclosed). Further your honour is requested to refer Accounting Standard-5, which says prior period items are income or expenses which arise in the current period as a result of errors or omissions in the preparation of financial statements of one or more prior periods. Prior period items are normally included in the determination of net profit or loss for the current period. An alternative approach is to show such items in the statement of profit and loss after determination of current net profit or loss. In either case the objective is to indicate the effect of such items on the current profit or loss. The LC charges which crystallized in February 2012 constitute prior period items. As per AS-5, the impact of the same is to be shown in the current year either as part of the profit and loss account or separately as an item below the line in the profit and loss account of the previous year. In view of the above, your honour is requested to assess the income as per the revised return. 7. The reply of the assessee has been considered and found to be unacceptable. In its reply, the assessee has not substantia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ised return of income on 24.03.2012. These discounting charges were pertaining to the ten parties who had supplied goods to the appellant on the condition of upfront payment or in advance. The suppliers had discounted the LC from their bank and credited the account of the appellant by the net amount received after deduction of discounting charges. On the other hand, the appellant had debited the account of ten parties with the LC amount with the presumption that the cost of discounting charges of LC would be borne by the suppliers. In view of the above, none of the parties had claimed the LC discounting charges in their books of accounts. There had been an ongoing dialogue with the supplier on the issue but the supplier did not agree to shoulder the responsibility of LC charges due to their nominal margin on sale of goods to the appellant. The appellant finally agreed with the supplier on 21st February, 2012 to bear the discounting charges of LC and signed a Memorandum of Understanding with the ten suppliers. Copy of the MOU is enclosed at page 14-33 of the paper book filed by the appellant vide paper book dated 01.09.2015. The appellant company accordingly revised its return of in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceived in the case of five parties directly and in the remaining five parties through Ld. AR of the assessee. Ld. CIT(A) accepted the assessee's explanation and he found it very intriguing that replies of five parties did not reach the Assessing Officer. He noted that assessee has not been able to furnish any response from one supplier and that in view of which the identity of the same has not been established. The Ld. CIT(A) accepted the assessee's plea that liability has crystallized and the same is liable to be accounted for the assessment year itself. In this regard, Ld. CIT(A) referred to assessee's reliance upon Hon'ble Supreme Court decision as under:- In support of its contention, the appellant has relied upon the judgment of Hon'ble Supreme Court in the case of Nonsuch Tea Estate Ltd. Vs. CIT 98 ITR 159 (SC). In this case, the question arose regarding the point of time of accrual of remuneration payable to managing agents. The appointment of managing agent was governed by provisions of Section 326 of the Companies Act and prior approval of the Central Government was required. In this case the Central Government conveyed its approval vide letter dat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n which deductible - Assessment year 2003-04 - In course of its assessment, Assessing Officer found that, although assessee had entered into an agreement in August, 2002 with 'E' Ltd. with retrospective effect, i.e., from 1-1-2002, yet it had incurred expenses during period January to March, 2002 and, thus, liability thereunder had crystallized during earlier previous year - Accordingly, Assessing Officer disallowed assessee's claim in respect of said expenses -Tribunal, however, allowed assessee's claim - On revenue's appeal, it was noticed that liability of assessee under agreement had accrued in August, 2002, when agreement was executed and, therefore, its liability to pay for period January, 2002 to March, 2002 arose and crystallized in August, 2002 - Whether, on facts, assessee could have claimed expenditure in question only in assessment year in question - Held, yes - Whether, therefore, Tribunal was justified in allowing assessee's claim - Held, yes FACTS The assessee filed a return declaring a loss of Rs. 3.81 crores. The case was selected for scrutiny wherein the Assessing Officer recorded a finding that the assessee had entered into an ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties. Hence, the claim of the LC discounting charges pertaining to nine parties is fully allowable. 9. Thereafter ld. CIT(A) referred to certain other case laws and concluded as under:- The facts of the above cited judicial pronouncements are identical to the facts of the appellant's case, therefore, the ratio of the said judgments is squarely applicable in the case of appellant's case and looking to the facts of these judicial pronouncements the claim of the appellant of LC discounting charges in respect of nine parties is fully justified and same is allowed. In the result, this ground of the appellant is partly allowed. 10. Against the above order of the Ld. CIT(A), Revenue is in appeal before us. 11. We have heard ld. DR. None is appearing on behalf of the assessee for considerable time. Hence, we proceed to adjudicate the issue by hearing the Ld. Departmental Representative and pursuing the records. 12. First of all, we note that the issue is when the liability arose. The assessee has not provided the L.C. discounting charges in the books of accounts or in the final accounts. It has also not claimed the same in the original return. In the revised re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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