CIT vs. MODIPON LTD

IN THE HIGH COURT OF DELHI AT NEW DELHI . 07.12.2010 . Present: Mr. N.P. Sahini, Adv. for the appellant. Mr. S.K. Aggarwal, Adv. for the respondent. . +ITA No.1924/2010 . This appeal concerns the assessment year 2004-05. In the return filed by the assessee, it had claimed certain expenses allowable as business expenditure. The Assessing Officer (AO) was of the view that out of those expenses to the tune of `41,95,719 related to the prior period and did not pertain to financial year 2003-04 relevant to assessment year 2004-05, as the assessee company was following mercantile system of accounting and therefore, the said expenses should have been claimed in the previous year as they. The CIT(A) confirmed this view of the AO. However, in further appeal preferred by the assessee before the Income Tax Appellate Tribunal (?the Tribunal? in short), the Tribunal has reversed the order of the AO as well as CIT (A) and allowed those expenses. We may point out at this stage that even when the assessee is following the mercantile system of accounting, the explanation furnished by the assessee before the AO and CIT(A), which was reiterated before the Tribunal was that the expenses were not booked due to non-receipt of details, information thereof on time, which was beyond the control of the assessee. It was also explained that the aforesaid expenses to the tune of `41.95 lacs were marginal as compared to enormous size of the assessee company. It was also explained that as per the accounting policy followed by the assessee, such expenses are booked in the year in which they are settled for payment. The Tribunal went into details of each and every such expense and recorded the finding of fact that all these expenses were settled during this year. It was also recorded that more than 50% of expenses could be claimed only on actual expenses, as they were covered under Section 43B(d) of the Act. Detailed discussion in this behalf is contained in Para 8 of the order of the Tribunal, which reads as under: ?We have heard the rival contentions and perused the facts of the case. The learned counsel for the assessee Shri S.K. Aggarwal has submitted a chart at Pages 1 to 4 along with various evidence at Page 6 and onwards of the paper book with regard to the explanation that the said prior period expenses have been settled during the year relevant to the assessment year. In the Fibers Division interest paid to M/s Kapila Colours Pvt. Ltd. the payment was settled on 11.06.2003 for which relevant evidence are available on paper book pages 5 to 10 which were available before both the authorities below, repair of turbocharger, the bills were settled on 16.08.2003 and the relevant evidence are available at PB Pages 11 to 14, interest paid to M/s Poddar Pigments Ltd., Bombay, the account has been settled on 3.11.2003 and evidences are available at PB Pages 15 to 18. Similarly foreign tour expense of Managing Director of Rs.7,856/- have been settled during the year. As regards interest paid to LIC on debenture amounting to Rs.20,98,130 and Rs.40,342/- the relevant evidences for payment during the year are available at PB Pages 19 to 26. Moreover, the said payments are allowable deduction under section 43B(d) of the Act and on payment basis and the same cannot be disallowed under any circumstances. As regards Excise Duty adjustable account of Rs.5 lacs the relevant evidences are available at PB Pages 27 to 30 and it was explained that the company availed the MODVAT credit on High Speed Diesel consumed up to 26.04.1998 which was disallowed by the Excise . . Department and the same was paid and the amount was paid against the said demand on 10.05.1999. . The amount was wrongly debited to the Excise Duty adjustable account instead of power and fuel account and it was rectified during the year. The learned counsel for the assessee further argued that the expenses settled during the year in Chemical Division amounting to Rs.10,97,676/- also pertain to the preceding year but settled during the year. Moreover, the assessee company had adopted the consistent system of accounting for such expenses consistently incurred in the preceding years. Attention was invited to PB pages 59 and onwards where for the assessment year 1987-88 and onwards the department had been allowing such claim. During the assessment year 2002-03, the department disallowed the claim of the assessee even being consistently followed by the assessee. The learned counsel for the assessee invited our attention to the decision of ITAT Delhi Bench ?C? in the case of Goetze (India) Ltd. vs. DCIT (2008) 115 ITD 119 where in Para 22 on the identical issue the claim of the assessee in that case had been allowed by the Tribunal. The learned counsel for the assessee distinguished the decisions relied upon by the learned CIT(A) since the expenses and it quantum was not known in the present case as in the cases relied upon by the CIT(A). The facts in the present case are quite different and distinguishable to the facts in the case relied upon by the learned CIT(A). The learned DR Shri G.S. Sahota on the other hand, relied upon the order of the authorities below.? . That apart, specific query was put to the learned counsel for the appellant that whether the return filed in the earlier assessment year showed profit or loss insofar as the assessee company is concerned. Learned counsel for the appellant was not in a position to answer to this. Learned counsel for the respondent informed that even in earlier year, the assessee had shown positive income and paid tax thereon. If that is the situation, in any case, there is no loss of the revenue. Had this expense been allowed in the previous year, the assessee would have paid lesser tax. On this ground also, we do not find it to be a fit case to interfere with the order of the Tribunal. This appeal is accordingly dismissed. . A.K. SIKRI, J. . INDERMEET KAUR, J. DECEMBER 07, 2010 pmc . . . .