WINTEX MILLS PVT.LTD.,,SURAT vs. THE INCOME TAX OFFICER, WARD-4(4),, SURAT

The grounds raised by the assessee read as under : “(I) Disallowance of Municipal tax of Rs.16,47,289: On the facts and circumstances of the case and as per law, the learned Commissioner of Income-tax (Appeals) erred in confirming the disallowance of the above amount when such expenditure was allowable.

Brief facts of the case are that the assessee has debited a sum of Rs.24,16,131/- on account of rent, rates and taxes under the head administrative other expenses, further it was noticed that out of these payments Municipal Tax of Rs.16,47,289/- was not related to the assessment year under consideration. It was noticed that the assessee has carried these expenses through J/V Entry as on 01.04.2009 at Rs.16,47,289/- out of this amount the payment of Rs.3 lakhs was relate to A.Y. 1997-98 and payment of Rs.13,47,289/-. Therefore, the AO had disallowed the same as expenditure claimed was pertains to earlier years.

Being aggrieved, the assessee filed this appeal before the ld.CIT(A). The ld.CIT(A) observed that the perusal of the details show that the assessee is following Mercantile System of Accounting and the payments towards Municipal Taxes have been made in earlier years. Since liability to Municipal Taxes pertains

Being aggrieved, the assessee filed this appeal before Tribunal. The ld.Counsel for the assessee submitted that though the expenditure pertains to earlier year and paid in earlier years also however there was dispute between the Municipal Corporation with the assessee regarding rate, hence, the matter was to carried the High Court as well as Supreme Court. Therefore, Shri Jayvadan Jariwala has advised the assessee vide letter dated 05.02.2010 placed at PB, Page 7 that the assessee has already made payment of Rs.16,47,289/- against the demand raised and this issue is not likely to resolve soon. Therefore, it was advised that not to expect any refund from SMC and the amount paid by you may be written off, accordingly the assessee company has resolved on 30.03.2010 to write-off an amount of Rs.16,47,289/- in the books of accounts, hence the assessee’s claim is allowable as deduction.

We have considered the facts and perused the material on record and find that the payment has been made in earlier years and liability has also been crystalised in earlier years, further the assessee follows Mercantile System of Accounting, therefore the payment pertaining to earlier years cannot be allowed on the basis of resolution only. Hence, the AO and CIT(A) were justified in

Ground No.2 relates to confirmation of disallowance at Rs.10,00,000/- payment to Pandesara Green Environment & Water Welfare Co-op. Society Ltd.,

Brief facts of the case this ground are that the assessee has claimed Rs.14,39,500/- under the head administrative and other expenses on account of payment of Pandesara Green Environment & Water Welfare Co-op. Society Ltd., On verification, the AO noticed that out of this amount the payment of Rs.2,75,000/- were related to F.Y. 1997-98 and payment of Rs.2,75,000/- were related for the period 12.02.2007 to 25.12.2007. Therefore, the assessee was asked show cause as to why the payments pertained to prior period expenditure should not be disallowed. The assessee filed its reply vide letter dated 21.02.2013. However, after examining of the same the AO noticed that the amount of Rs.10,00,000/- out of Rs.14,39,500/- were paid in earlier years which are being prior period expenditure. Therefore, the same was disallowed. Further the payment of Rs.4,39,500/- was made during the year however no documentary evidence was furnished in this regard. Moreover, the payment is also not covered u/s.43B of the Act, therefore this amount was disallowed.

Being aggrieved, the assessee has filed appeal before this Tribunal. The ld.Counsel for the assessee repeated the same argument which has taken before the Lower Authorities. It was submitted that by Circular dated 08.02.2005 and 07.02.2009 Pandesara Green Environment & Water Welfare Co-op. Society Ltd., had instructed to make the payment towards contribution to Common Effluent Treatment Plant(CETP). The assessee has made payment of Rs.4,39,500/- during the year and Rs.10,00,000/- was

Per contra, the ld.Sr.DR supported the orders of ld.CIT(A).

We find that the assessee follows the Mercantile System of Accounting, therefore amount of Rs.4,39,500/- paid during the year has been duly allowed as deduction by the CIT(A) whereas the amount of Rs.10,00,000/- pertaining to earlier years was disallowed on the ground that it has been paid in earlier year. Therefore, the liability was crystalised in earlier years and paid in earlier years, hence same cannot be allowed by merely passing a J/V Entry on the basis of resolution. Therefore, we do not find any infirmity in the order of the ld.CIT(A), accordingly same is upheld. Consequently, Ground No.2 of the assessee is dismissed.

Ground No.3 relates to charging of interest u/s.234A, 234B, 1234C and 234D which consequential in nature, however, charging