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Income Tax Appellate Tribunal, HYDERABAD BENCHES “A” : HYDERABAD
Before: SHRI S.S.GODARA & SHRI LAXMI PRASAD SAHU
O R D E R PER S.S.GODARA, J.M. :
This assessee’s appeal for AY.2014-15 arises from the CIT(A)-4, Hyderabad’s order dated 18-06-2018 passed in case No.0394 / 2016-17 / ITO,Wd-16(1) / CIT(A)-4 / Hyd / 18-19, involving proceedings u/s.143(3) of the Income Tax Act, 1961 [in short, ‘the Act’]. Heard both the parties. Case file perused.
The assessee’s first and foremost substantive ground seeks to reverse both the lower authorities’ action disallowing its prior period expenditure of Rs.47,50,000/- on the ground that the same does not pertain to the impugned assessment year. The CIT(A)’s detailed discussion to this effect reads as under:
“7. The Ground Nos.7 and 8 are with regard to disallowing the expenditure of Rs.48,50,000/- as they are prior period items. 7.1 During the course of assessment proceedings, with regard to above grounds, the AO observed from the P&L account that the assessee debited an amount of Rs. 47,50,000/ - towards “Prior Period Expenditure”. As this expenditure relates to earlier year and was not incurred during the relevant previous year i.e., F.Y. 2013-14, the amount of Rs. 47,50,000/- was disallowed. 7.2 During the course of appeal proceedings, with regard to above grounds, the appellant company submitted as under: "During the year under consideration, the appellant company has debited an amount of Rs. 47,50,000/- towards prior period expenses which was incurred by the appellant during the course of its business. However, the Assessing Officer has disallowed the said expenses stating the same to be not allowable as the same 'were incurred in previous years and not in the current year. In this regard it is submitted that, the appellant has incurred an expenditure of Rs. 47,50,000/- which was crystallised in the present assessment year and hence the appellant has accordingly claimed deduction u/s. 37(1) of the Act. Further, it is submitted that the said expenditure is incurred by the appellant 'wholly and exclusively for the purpose of business. The said expenditure of Rs. 47,50,000/- was incurred for functioning of its operations and accordingly claimed by the assessee as deduction u/s 37(1) of the Act. In support of above, extract of section 37 of the Act is produced below: 37. (1) Any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head “Profits and gains of business or profession”. Explanation 1. - For the removal of doubts, it is hereby declared that any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure.
Explanation 2. - For the removal of doubts, it is hereby declared that for the purpose of sub-section (1), any expenditure incurred by an assessee on the activities relating to corporate social responsibility referred to in section 135 of the Companies Act, 2013 (18 of 2013) shall not be deemed to be an expenditure incurred by the assessee for the purposes of the business or profession. From the above it is reiterated that, any expenditure not being capital in nature and not being expenditure u/s 30 to 36 of the Act which is laid out wholly and exclusively for the purpose of business shall be claimed as deduction u/s. 37 of the Act. In the present case, the appellant company has incurred an expenditure of Rs. 47,50,000/- which was crystallized in the year under consideration and was incurred wholly and exclusively for the purpose of business. As the said expenditure of Rs. 47,50,000/- was laid out wholly and exclusively for the purpose of business, the same is eligible to be claimed as deduction u/s 37(1) of the Act and accordingly claimed by the assessee. In view of the facts and circumstances submitted above, it is requested before the Han. Commissioner of Income Tax (Appeals) to kindly delete the disallowance of Rs. 47,50,000/- made by the Assessing Officer for the year under consideration”. 7.3 I have carefully considered the assessment order and submissions of the appellant. On verification of the details filed by the appellant it was observed at, since the expenses are preliminary expenses and they are to be capitalized. Therefore, the addition made by the AO is hereby confirmed”.
Learned departmental representative’s vehement contention during the course of hearing is that both the lower authorities have rightly disallowed the assessee’s impugned prior period expenditure claim for the precise reason that the same ought to have been claimed in the relevant previous year in which the same was incurred. The assessee’s case on the other hand is that it claimed the instant head of expenditure only in the year of crystalisation i.e. AY.2014-15 than the earlier corresponding assessment year(s). It is an admitted fact that the Assessing Officer’s as well as the CIT(A)’s detailed discussions have been fair enough in not disputing this clinching crystalisation aspect. Coupled with this, the assessee has been assessed at the same rate all along. The hon’ble Gujarat high court’s decision in PCIT Vs. Adani Enterprises Ltd., (Tax Appeal No.566 of 2016) holds that the impugned prior period expenditure disallowance in such a case ought not to be made as it is a revenue neutral instance only. We adopt the same reasoning herein as well and direct the Assessing Officer to delete the impugned disallowance. The assessee’s former substantive ground is accepted therefore.
Next comes Section 36(1)(va) employees’ provident fund disallowance of Rs.6,22,182/- made in both the lower proceedings. The assessee’s only case as per its computation in pg.2 of the paper book is that it had suo motu disallowed the very expenditure in the corresponding computation which renders it as an instance of double addition of the claim. We direct the Assessing Officer to delete the same therefore. No other ground has been pressed before us.
This assessee’s appeal is allowed in above terms.
Order pronounced in the open court on 11th May, 2021