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Income Tax Appellate Tribunal, “B’’ BENCH: BANGALORE
Before: SHRI CHANDRA POOJARI
PER CHANDRA POOJARI, ACCOUNTANT MEMBER:
This appeal by assessee is directed against order of NFAC for the assessment year 2014-15 passed u/s 250 of the Act dated 10.7.2023. The first constructive ground in this appeal is as follows: “5. PREVIOUS YEARS EXPENDITURE: The learned CIT APPEALS ought to have considered the circumstances under which the previous year's Overtime payment, and by not paying the business would have come to a standstill of business, as all employees got together and made a claim, that the overtime done by them on festival days be compensated monetarily and not by compensation of leave for other working days, as proposed. The business is ongoing and continuous, the accounting could be made by drawing a line for the known and anticipated figures and not for the unanticipated expenditure, the following decisions cited are brushed away and not even discussed in the order.”
Facts of the issue are that the ld. AO has disallowed a sum of Rs.6,44,702/- debited in the P&L account being prior period Prathibha Jewellery House, Bangalore Page 2 of 6 expenses. The ld. AO has observed this fact from the Form 3CD report filed by the assessee for this assessment year. The assessee was asked to furnish the details of said expenses and justify the allowability of the said expenses. The assessee vide letter dated 26.9.2016 has submitted that these expenses constitute payment made to staff members, who has worked whole time and expenditure was not undisputed in the related previous year to make provision. It is also submitted that this expenditure was directly relates to the business of the assessee. Same to be allowable. However, the ld. AO has observed that this expenditure not relates to the assessment year under consideration and hence disallowed the same. On appeal to the NFAC, the NFAC has observed that the prior period expenses were claimed to be paid is actual payment made for holidays to assessee’s employees. It is also stated that the compensatory holidays are available to the workers on other working days for over time work done by them, but the workers did not avail the compensatory holidays within the financial year, which accordingly lapsed. However, they encashed the compensatory holidays in subsequent assessment year for which the assessee has made payments. The same expenditure has been claimed as deduction by the assessee. Since the assessee has not furnished any bills or payable provisions before the NFAC, the claim of assessee was rejected. Against this assessee is in appeal before us by way of above grounds. 2.1 Before us, the assessee has filed the written submissions reiterating the submissions made on this issue before NFAC.
The ld. D.R. relied on the order of NFAC. 4. We have heard the rival submissions and perused the materials available on record. The assessee is following mercantile system of accounting as envisaged in section 145 of the I.T. Act., 2015. The relevant statutory provisions regarding method of accounting under the Act, have to be first seen. Sec. 145 of the Act Prathibha Jewellery House, Bangalore Page 3 of 6 (prior to its amendment by the Finance Act, 2014 w.e.f. 1.4.2015 applicable in the present case) deals with Method of accounting and it reads thus:
"Sec.145: Method of Accounting: (1) Income chargeable under the head "Profits and gains of business or profession" or "Income from other sources" shall, subject to the provisions of sub-section (2), be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee.
(2) The Central Government may notify in the Official Gazette from time to time Accounting standards to be followed by any class of assessees or in respect of any class of income.
(3) Where the Assessing Officer is not satisfied about the correctness or completeness of the accounts of the assessee, or where the method of accounting provided in sub-section (1) or Accounting Standards as notified under sub-section (2) have not been regularly followed by the Assessee, the Assessing Officer may make an assessment in the manner provided in section 144.
4.1 There is no dispute that under mercantile system of accounting, assessee has to account all the accrued expenditure relating to the assessment year under consideration and also recognise the income on accrual basis. Once the assessee has followed the mercantile system of accounting, the assessee has to provide for the expenditure to be incurred in relation to that assessment year. Admittedly, in this case, for the assessment year under consideration for the earlier assessment year 2013-14, assessee has not made any provisions for the impugned expenditure. The assessee’s main plea is that assessee’s workers worked extra time in assessment year 2013-14 for which they are entitled for compensatory leave in subsequent assessment year. However, instead of availing compensatory leave, they encashed the leave, which forced the assessee to incurring that impugned amount. However, the assessee has not placed iota of evidence in support of this claim by furnishing the details of name of workers, number of days they worked in earlier assessment year and amount payable to Prathibha Jewellery House, Bangalore Page 4 of 6 each of such workers. On the other hand, made only oral arguments not based on corroborative materials. In other words, without furnishing any details of whatsoever on this issue, the assessee has claimed this expenditure on theoretical basis by placing reliance on the following judgements: a) Decision of Mumbai Bench of Tribunal in the case of Kellogg India Pvt. Ltd. Vs. ACIT (2012) (12) TMI 664 b) Decision of Jaipur Bench of Tribunal in the case of Goetze (India) Ltd. Vs. DCIT dated 13.7.2007 c) Decision of Delhi Bench of Tribunal in the case of Parkash Industries Ltd., Hisar Vs. DCIT dated 12.4.2010 d) Decision of Delhi Bench of Tribunal in the case of The Singareni Colleries Vs. DCIT dated 22.9.1987 e) Decision of Hyderabad Bench of Tribunal in the case of Essel Mining & Industries Ltd. Vs. DCIT dated 2.3.2016 f) Decision of Mumbai Bench of Tribunal in the case of M/s. Trident Minerals (100% Eou) Vs. DCIT dated 2.12.2013. 4.2 Above judgements are delivered on the fact that where the assessee has filed details of expenditure in subsequent assessment year which was rightly allowed. In the present case, assessee is not bringing the correct facts on record and claiming the expenditure purely based on the theoretical arguments which cannot be appreciated. Hence, we do not find any merit in the arguments of assessee’s counsel. This ground of appeal of the assessee is dismissed.
5. The second ground of appeal of the assessee is as follows: “6. CASH PAYMENT OF RS.30500, The learned CIT APPEALS ought to have allowed the Cash payment to Bank towards PPF Deposit. The payment is not made to the party and it was directly paid to the Bank. The learned CIT APPEALS ought to have considered the circumstances under which the payment is made i.e. at the fag end of the accounting year PPF had to be paid for the daughter of the partner. As there was no time for the cheque clearing before the year-end, a cash payment to the Bank of Rs.30000 was made and the proof of payment made on 28/03/14 is also filed and as it is made to the Bank, the addition made was deleted.”