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TMI Blog2024 (7) TMI 1018X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in favour of assessee. - Shri V. Durga Rao, Judicial Member And Shri K.M. Roy, Accountant, Member For the Assessee : Shri Abhay Agrawal For the Revenue : Shri Abhay Y. Marathe ORDER PER V. DURGA RAO, J.M. The present appeal has been filed by the Revenue challenging the impugned order dated 29/04/2019, passed by the learned Commissioner of Income Tax (Appeals) 3, Nagpur, [ learned CIT(A) ], for the assessment year 2013 14. 2. In its appeal, the Revenue has raised following grounds: 1. On the facts and circumstances of the case, the Ld. CIT(Appeals) has erred in holding that the disallowance amounting to Rs. 17,65,162, of prior period expenses cannot be subject matter of rectification order u/s 154 of the Act without appreciating the fact that the Auditor himself in the Tax Audit Report has reported the amount prior period expenses as per clause 22.b, Annexure E of Form 3CD of his report hence the fact is apparent from records. 2. On the facts and circumstances of the case, the Ld.CIT(Appeals) ha erred in directing the AO to delete the addition of Rs. 17,65,162/- without appreciating the fact that otherwise also the prior period expenses are not an allowable expenditure unless a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that it had filed submission in the case of SOS on 8th March 2016 providing its explanation as to why the prior period expenses were deductible in F.Y. 2012-13 and the AO did not make any additions for prior period expenses in case of SOS. The appellant further submitted that, it had produced relevant details relating to prior period expenses and no additions were made in the case of appellant considering the submission made in the case of SOS. Thus the AO was satisfied with appellant's submission and did not make any disallowance during the assessment proceedings. 5.3 On merits, the appellant submitted that it has an arguable case that prior period expenses were quantified and crystallized during A.Y. 2013-14 and hence, are deductible in A.Y. 2013-14 (i.e. year under consideration). The appellant has clarified that, certain files containing the bills and vouchers of general nature, i.e., local purchases, transport expenses, consultancy fees, octroi, plant repairs and maintenance pertaining to financial year 2011-12 were misplaced in stores Department and did not reach the accounts department before the close of financial year 2011-12. It was only when the vendor parties made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Book). Therefore, the appellant's contention cannot be simply brushed aside and thus, if a particular expense been verified during the course of assessment proceedings, provisions of section 154 cannot be invoked for making disallowance of same expense which will amounts to change of opinion or review which is not permissible under the Act. 5.6 The powers of AO while invoking section 154 are restricted to make only those rectifications which are apparent on record. Even on merits, the issue at best can be said to be debatable in nature requiring further analysis and reasoning. I also find force in appellants alternative submission that, merely because the expenses related to the previous year, that by itself cannot be a basis to hold that the prior period expenses debited in the profit and loss account are prima facie not allowable unless and until an enquiry has been made to verify and ascertain as to when these expenses have actually been crystallized and ascertained. Therefore, I find that, disallowance of prior period expenses under the garb of rectification is beyond the ambit of section 154 since, only apparent mistakes can be rectified and not debatable issues which requ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ow: 9. We have considered the rival submissions and perused the material available on record. In the present case, the proceedings resulting in the present appeal is pursuant to the order passed by the Assessing Officer under section 154 of the Act. After passing the assessment order under section 143(3) r/w section 147 of the Act, the Assessing Officer found that the assessee has debited prior period expenses of Rs. 17,72,713, to the Profit Loss Account and Rs. 60,243, on account of loss on sale of RMC, which according to the Assessing Officer are not allowable. We find that the Co ordinate Bench of the Tribunal, on similar issue in ACIT v/s Indian Farmer Fertilizer Co operative Ltd., ITA no.1154 1605/Del./2011, vide order dated 22/07/2011, observed as under: 12. We have heard the learned counsel for the assessee. No one was present for the department. However, an adjournment application from the department was placed on record but looking to the issue involved in this appeal, we find it proper to dispose of this appeal as well established proposition of law was involved herein. 13. It is not in dispute that prior period expenses and depreciation 60% on the computer items has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d only after a due process of reasoning given by any authority. In this view of the matter, the allowability of prior period expenses or otherwise, cannot be a subject matter of a mistake apparent from the record, which is rectifiable u/s 154 of the Act. 15. The question is as to whether the assessee is entitled for deduction on account of prior period expenses debited in the Profit Loss Account or not, is a matter to be decided on the merits after examining and verifying the nature of expenses and after ascertaining when the expenses were actually crystallized or when the liability to pay these expenses was crystallized and it thus, cannot be said to be an error apparent on record so as to rectify the same under see. 154 of the Act. 16. It is well settled that 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 that year on the basis of maintaining accounts on the mercantile method. 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 crys ..... X X X X Extracts X X X X X X X X Extracts X X X X
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