THE COMMISSIONER OF INCOME TAX, vs. THE FERTILIZERS AND CHEMICALS TRAVANCORE
What did the High Court hold?
The High Court addressed the issues raised in the appeals. Regarding the prior period expenses and deductions claimed for periods prior to the relevant previous year, the Court found itself unable to discern the exact nature of the expenditure and the timing of its disbursement. Consequently, the Court held that the Assessing Officer would have to consider these matters on facts, guided by the Supreme Court's decision in *Commissioner of Income Tax v. Swadeshi Cotton & Flour Mills Private Ltd.*. For ITA No. 147 of 2010, the appeal was allowed for the limited purpose of remand. On the issue of Section 14A, the Court held that the matter was covered against the Revenue by the Supreme Court's decision in *Commissioner of Income Tax v. Essar Teleholding*. Similarly, on the question of whether deduction under Section 80HHC can be granted under MAT, the Court held it was covered in favour of the assessee and against the Revenue by the Supreme Court's decision in *Commissioner of Income Tax v. Bhari Information Tech. Sys. (P) Ltd.*. Concerning the disallowance of provision for obsolescence of stocks, the Tribunal relied on the assessee's own case from an earlier year. The High Court refused to answer this question, noting it was not raised by the Department in the assessee's previous assessment year, and thus rejected ITA No. 121 of 2010.
What were the facts?
The appeals before the High Court of Kerala concerned the assessment year 2002-2003. The Income Tax Appellate Tribunal (ITAT) had allowed the assessee's appeal and rejected the Department's appeal. The Department, as the appellant, filed two appeals before the High Court under Section 260A of the Income Tax Act, 1961. The core issues involved the allowance of prior period expenses amounting to Rs. 60.75 lakhs and deductions claimed for periods prior to the relevant previous year, which were claimed in the assessment year 2002-2003. The ITAT had also remanded the matter of foreseeable loss of contract for reconsideration by the Assessing Officer. The High Court noted that the Tribunal's order was for the year 2002-2003, and both the assessee and the Department had filed appeals before the Tribunal.
What were the issues?
1. Whether the allowance of prior period expenses amounting to Rs. 60.75 lakhs is legally sustainable, and if the claim for deductions for periods prior to the relevant previous year, made in the assessment year 2002-2003, is valid? (Mixed question of law and fact, concerning the timing of expenditure and deduction under relevant provisions of the Income Tax Act). Assessee's Contentions: The judgment does not explicitly record the assessee's specific arguments on the prior period expenses and deductions, other than noting that the Tribunal allowed the assessee's appeal. However, the reliance on the Supreme Court decision in *Commissioner of Income Tax v. Swadeshi Cotton & Flour Mills Private Ltd.* suggests the assessee argued for the allowance of expenditure based on when the liability was settled. Revenue's Contentions: The Revenue contended that the prior period expenses and deductions claimed in the assessment year 2002-2003 were not allowable. The Revenue relied on *Commissioner of Income Tax v. Swadeshi Cotton & Flour Mills Private Ltd.* [1964 (LIII) ITR 134] to argue against the allowance of expenses. The Revenue also raised issues concerning Section 14A and the applicability of Section 80HHC under Minimum Alternative Tax (MAT). 2. Whether the disallowance of provision for obsolescence of stocks amounting to Rs. 86,35,000/- could be deleted? (Question of law, concerning the allowability of such provisions). Assessee's Contentions: The assessee relied on its own case from an earlier assessment year (1992-1993) where the issue had become final, implying the provision was allowable. Revenue's Contentions: The judgment does not explicitly record the Revenue's contentions on this specific issue, other than the fact that the disallowance was made.
Which sections of the Income-tax Act were involved?
Section 260A,Section 10(2)(x),Section 14A,Section 80HHC,Section 115JB
AI-generated summary — verify with the full judgment below
Cause title — parties, addresses and appearances
JUDGMENT K. Vinod Chandran, J. Both the appeals are from the order of the Tribunal for the year 2002-2003. Both the assessee and Department filed appeals before the Tribunal.
The appeal of the Department was rejected and that of the assessee was allowed. Hence the Department filed two appeals before us under Section 260A of the Income Tax Act, 1961 [for brevity, the Act]. The questions raised are with respect to allowance of prior period expenses amounting to Rs.60.75 lakhs and the claim of deductions for periods prior to the previous year relevant to the assessment year 2002- 2003, which claim was made in the assessment year 2002-2003. On the question of foreseeable loss of contract, the Tribunal remanded the matter for consideration by the Assessing Officer.
The learned Standing Counsel Government of India [Taxes] would rely on Commissioner of Income Tax v. Swadeshi Cotton & Flour Mills Private Ltd. [1964 (LIII) ITR 134]. The issue raised in the appeals were with respect to the claim made by the assessee Company under Section 10(2)(x) of the Indian Income Tax Act, 1922 in the year 1949 of the bonus payable to the employees in the year 1947. The payment of bonus coming to Rs.1,08,325/- for the calender year 1947 was in terms of an award made in 03.01.1949. The Department raised two contentions before the Hon'ble Supreme Court, one of them was that, since the assessee is following the mercantile system of accounting, the year to which the liability is properly attributable is the calender year 1947, and not 1949. In the alternative, the Department also had a contention that the accounts of the year 1947 could be re-opened as per the prevalent practice that is obtained in England. The Hon'ble Supreme Court specifically rejected the contention of the Department that there could be a re-opening of the accounts prior to the previous year. On the question of expenditure, the contention of the assessee was allowed in the following manner: “On the facts of this case, it is clear that it was only in 1949 that the claim to profit bonus was settled by an award of the Industrial tribunal. Therefore, the only year the liability can be properly attributed to is 1949, and hence we are of the opinion that the High Court was right in answering the question in favour of the assessee.”
We are unable to discern as to what was the expenditure, which was claimed by the assessee and the time when actually the amounts were disbursed, whether it be in the previous year or not.
In such circumstances, we are of the opinion that the Assessing Officer would have to consider the same on facts, based on the decision in Swadeshi [supra]. I.T.A. No.147 of 2010 is allowed for the limited purpose of the remand.
I.T.A. No.121 of 2010 is against the rejection of the Department appeal. On the question of Section 14A of the Act, the issue is covered against the Revenue in Commissioner of Income Tax v. Essar Teleholding [2018 (401) ITR 445 (SC)]. The other question is on whether the deduction under Section 80 HHC can be granted even under 115JB Minimum Alternative Tax [MAT]. The said issue is also covered in favour of the assessee and against the Revenue by a decision of the Hon'ble Supreme Court in Commissioner of Income Tax v. Bhari Information Tech. Sys. (P) Ltd. [(2012) 340 ITR 593 (SC)], which upheld the decision of a Special Bench of the Tribunal in the case of Deputy CIT v. Syncome Formulations (I) Ltd. [(2007) 292 ITR AT 144 (Mum) (SB)].
The further question raised is as to whether the disallowance of provision of obsolescence of stocks amounting to Rs.86,35,000/- could be deleted or not. The Tribunal relied on the assessees' own case of the earlier assessment year 1992-1993 in ITR 203/Coch/1996. The assessee submits that the issue has become final. In such circumstances, we refuse to answer the question, which was never raised in the case of the assessee in the previous assessment year also, by the Department. We hence reject I.T.A. No.121 of 2010. Parties to suffer their respective costs. K.VINOD CHANDRAN JUDGE ASHOK MENON sp/03/10/18 JUDGE
Appendix — schedule of exhibits
More judgments on Section 14A
- Blacksoil Capital Private Limited (As… vs DCIT, Circle-1(1), HyderabadITA 2217/HYD/2026[2017-18]Status: Disposed9 Oct 2026AY 2017-18
- Hiral Construction, Mumbai vs ITO Ward 42(1)(2), MumbaiITA 8431/MUM/2025[2017-18]Status: Disposed8 Oct 2026AY 2017-18
- The Dy DIT (It) 1(2), Mumbai vs M/S Citi Bank N.A, MumbaiITA 4981/MUM/2007[2002-2003]Status: Disposed8 Oct 2026AY 2002-2003
- M/S. Citi Bank N.A., Mumbai vs The Addl DIT (It) RG-1, MumbaiITA 4970/MUM/2007[2002-2003]Status: Disposed8 Oct 2026AY 2002-2003
- M/S American Express Bank Ltd., Mumbai vs The Jt DIT (It)1(1), MumbaiITA 9414/MUM/2004[2000-2001]Status: Disposed8 Oct 2026AY 2000-2001
Recent GST High Court judgments
Search GST case law →- M/S. V J Petro Products vs. The Deputy Assistant Commissioner (St) - IiiAndhra Pradesh · 27 Oct 2026
- M/S Asian Aura vs. Government Of Nct Of Delhi And Ors.Delhi · 27 Oct 2026
- Shining Steel Through Its Proprietor Kartik Gupta vs. Union Of INDIA & Ors.Delhi · 27 Oct 2026
- M/S Redamancy World Through Its Proprietor Sanjay Kumar Goel vs. Central Board Of Indirect Taxes And Customs & Ors.Delhi · 27 Oct 2026
- M/S Arj Exim INDIA vs. Additional Commissioner Of CGST, Appeals-Ii, New Delhi And OrsDelhi · 27 Oct 2026
