THE COTTON CORPORATION OF INDIA LTD,NAVI MUMBAI vs. DCIT 15 (3)(1), MUMBI

This appeal filed by the assessee is directed against the order dated 29.07.2019 passed by Ld. CIT(A), Mumbai for Assessment Year (“AY”) 2016-17.

The sole ground raised by the assessee is reproduced as under:-

Briefly stated facts are that the assessee filed its return of income on 17.10.2016declaring total income of Rs.9,37,10,820/- which was subsequently, revised on 28.09.2017, though the total declared income remained the same. The return of income was selected for scrutiny and statutory notice issued u/s 143(2)/142(1)of the Income Tax Act, 1961 (“the Act”) complied with. The Assessing Officer (“AO”) noted that the assessee company was engaged in the business of cotton trading. In the final statement, the AO noted that an amount of Rs.1,04,30,265/- was debited to the Profit & Loss Account as prior period expenses. The AO asked the assessee to justify the claim of prior period expenses. It was submitted by the assessee that those expenses were regular business expenditure, though related to earlier year, but materialized in the current year and therefore, has been claimed as per the Accounting Standard (“AS”) 4. However, in absence of any documentary evidences that prior period expenses materialized in the year under consideration, the AO rejected the contention of the assessee. Before Ld.CIT(A) also, the assessee could not substantiate that the prior period expenses were crystallized in the year under consideration. The Ld.CIT(A) following the decision in the case of ACIT vs Adani Wilmar Ltd. 2014, upheld the disallowance made by the AO.

Aggrieved the assessee is in appeal before the Tribunal raising ground before us. The assessee has filed a Paper Book containing details of prior period expenses alongwith bills in respect of these expenses.

The assessee has filed a list of prior period expenses which is reproduced as under:-

Before the AO, the assessee contended that those expenses though related to earlier year, same were materialize in the current year under consideration. During the course of hearing before us, the assessee was asked to substantiate its claim of materialization of those expenses in the year under consideration. Ld. Counsel for the assessee however, submitted that the assessee is having many branches and bills were received in the branches and subsequently forwarded to the head office and therefore, it took time in the auditing. The Ld. Counsel for the assessee further submitted that bills from certain periods were received in the previous year relevant to the AY under consideration.

On the contrary, Ld.Sr.DR relied upon the order of the lower authorities and submitted that due to the failure on the part of the assessee in substantiating that those expenses materialize during the year under consideration, the order of Ld.CIT(A) may be upheld.

We have heard the rival contentions on the issue in dispute and perused the material available on record. Admittedly, the expenses of Rs.1,04,30,265/- characterized by the Auditor as prior period expenses relates to the earlier period. The assessee has not disputed this fact. However, the contention of the assessee is that those expenses have materialized in the year under consideration only. But we find that before us, Ld. Counsel for the assessee could not substantiate as to how the same were materialised in the year under consideration. No documentary evidences have been submitted before us as to why the bills in respect of the expenses pertaining to the earlier years, have been issued in year under consideration. In the facts of the present case, we feel appropriate to restore the matter back to the AO with a direction to assessee to produce all evidences in support of its contention that prior period expenses of Rs.1,04,30,265/- materialized in the current year under consideration. The AO after verification may decide the issue in accordance with law.