MADHURAI TUTICORIN EXPRESSWAYS LIMITED,HYDERABAD vs. INCOME TAX OFFICER, WARD-16(2), HYDERABAD

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ITA 2332/HYD/2018Status: DisposedITAT Hyderabad11 January 2021AY 2014-153 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The tribunal found no merit in the revenue's contentions, noting that the department had not allowed the expenses in the year they accrued or were paid. Following the Gujarat High Court's decision in PCIT vs. Adani Enterprises Ltd., the tribunal held that such disallowances are revenue-neutral.

What were the facts?

The assessee challenged a disallowance of prior period/pre-operative expenditure amounting to Rs. 12,91,765/-. The lower authorities disallowed the expenditure as it did not pertain to the relevant previous year, despite the assessee following the mercantile system of accounting.

What were the issues?

Whether prior period/pre-operative expenditure disallowed in the relevant year can be disallowed in the year of payment, and if such disallowance is revenue-neutral.

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, HYDERABAD BENCHES “B” : HYDERABAD

Before: SHRI S.S.GODARA & SHRI L.P. SAHU

O R D E R PER BENCH : This assessee’s appeal for AY.2014-15 arises from the order of Commissioner of Income Tax (Appeals)-4 [CIT(A) for short] Hyderabad dated 16.08.2018.

2.

Heard both the parties. Case file perused.

3.

The assessee’s sole substantive grievance pleaded in the instant appeal challenges prior period/pre-operative expenditure

Madhurai Tuticorin Expressways Ltd. Hyd. AY 2014-15 disallowance amounting to Rs.12,91,765/- made in both the lower authorities respective orders. Mr.Mujumdar, learned Departmental Representative vehemently contended during the course of hearing, that both the lower authorities have rightly made the impugned disallowance of prior period expenses since it does not pertain to relevant Previous Year before us. More so when the assessee also follows the Mercantile system of accounting. We find no merit in Revenue’s contentions. The fact remains that the department itself has not allowed the impugned expenses in the year it accrued and also follows the same course of action in the year of crystallisation followed by payment as well.

3.1. Hon’ble Gujarat high court’s decision in PCIT vs. Adani Enterprises Ltd. in Income Tax Appeal no.566/2016 holds that such a disallowance is a revenue neutral instance since the assessee is being assessed at maximum marginal rate in both the year of accrual and crystallisation of the prior period expenses is issue. The factual position is no different in this case as well. We follow the very same reasoning herein as well and direct the Assessing Officer to delete the impugned disallowance.

4.

This assessee’s appeal is allowed. Pronounced on 11th January, 2021.

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