PARADEEP PHOSPHATES LIMITED,BHUBANESWAR vs. ACIT, CORPORATE CIRCLE-1(2), BHUBANESWAR, BHUBANESWAR

आयकर अपीऱीय अधिकरण, कटक न्यायपीठ,कटक IN THE INCOME TAX APPELLATE TRIBUNAL CUTTACK BENCH CUTTACK BEFORE SHRI N.S.SAINI, AM & SHRI PAVAN KUMAR GADALE, JM आयकर अऩीऱ सं./ITA No.515/CTK/2014 (नििाारण वषा / Assessment Year :2006-2007) ACIT, Corporate Circle-1(2), Vs. Paradeep Phosphates Bhubaneswar Limited, Bayan Bhawan, Pt.J.N.Marg, Bhubaneswar- 751001 स्थायी लेखा सं./ जीआइआर सं./ PAN/GIR No. : AABCP 3276 D (अऩीऱाथी /Appellant) (प्रत्यथी / Respondent) .. AND आयकर अऩीऱ सं./ITA No.23/CTK/2015 (नििाारण वषा / Assessment Year :2006-2007) Paradeep Phosphates Vs. ACIT, Corporate Circle-1(2), Limited, Bayan Bhawan, Bhubaneswar Pt.J.N.Marg, Bhubaneswar- 751001 स्थायी लेखा सं./ जीआइआर सं./ PAN/GIR No. : AABCP 3276 D (अऩीऱाथी /Appellant) (प्रत्यथी / Respondent) .. राजस्व की ओर से /Revenue by : Shri A.K.Mohapatra, CITDR ननधााररती की ओर से /Assessee by : Shri B.K.Mahapatra, AR सुनवाई की तारीख / Date of Hearing : 11/04/2018 घोषणा की तारीख/Date of Pronouncement 26/04/2018 आदेश / O R D E R Per Shri Pavan Kumar Gadale, JM: These are the cross appeals filed by the Revenue and assessee against the order of the CIT(A)-I, Bhubaneswar, passed in IT Appeal No.0498/11-12, dated 01.10.2014 for the assessment year 2006-2007. 2. Since issues in both the appeals are common, they were heard together and disposed of by this common order. First we shall take up assessee’s appeal in ITA No.23/CTK/2015, wherein the assessee has raised the following grounds of appeal :-

2 ITA Nos.515/CTK/2014 & ITA No.23/CTK/2015 1. That the order dated 01.10.2014 passed by the learned Commissioner of Income Tax (Appeals) -1, Bhubaneswar (“CIT (Appeals)”) in so far as sustaining the additions and disallowance made by the Learned Assessing Officer, is based on irrelevant considerations, against natural justice, contrary to facts, arbitrary, erroneous and bad in law. 2. Sustenance of Disallowance booked under Prior Period Expenses‟ Rs.11.37.17.602/- a. That on the facts and in the circumstances the case, the sustaining of disallowance of Rs.11,37,17,602/- under „Prior Period Expenses‟ by the learned Commissioner of come Tax (Appeals) is erroneous and bad both on facts and in law. b. Disallowance of Expenses relating to settlement of unsecured creditors as per MOU, booked under „Prior Period Expenses‟ - Rs. 8,74,09,033/- i) That on the facts and in the circumstances of the case, the order of the learned CIT (Appeals) in sustaining the disallowance of Rs.8,74,09,033/- under „Prior Period Expenses‟ is based on irrelevant considerations, presumptions, conjectures and surmises, contrary to facts, arbitrary, unjustified, erroneous and bad in law. ii) That the aforesaid amount of Rs 8,74,09,033/- incurred by the assessee is towards „Expenses related to settlement of unsecured creditors based on MOU‟, booked under Prior Period Expenses, spent wholly and exclusively for the purpose of its business. Therefore the upholding of disallowance of the said amount of Rs.8,74,09,033/- is contrary to facts, arbitrary, erroneous and bad in law. iii) That out of the aforesaid amount of Rs 8,74,09,033/-, an amount of Rs.4,80,74,968/- being paid to the unsecured creditor as part of settlement agreement and balance amount of Rs 3,93,34,065/- being written back in the books and offered to tax in AY 2008-09, the upholding of disallowance of the said Rs 8,74,09,033/- is contrary to facts, arbitrary, erroneous and bad in law. iv) That the learned CIT (Appeals) has erred in holding that the Rs 8,74,09,033/- crystalized during A.Y.2005-06 instead of A.Y.2006- 07. v) That without prejudice to (a ) & (b) above, assuming but not admitting that amount of Rs.8,74,09,033/- crystalized during A.Y.2005-06, as the same is otherwise allowable under the Act, the said Rs. 8,74,09,033/- ought to be allowed.

3 ITA Nos.515/CTK/2014 & ITA No.23/CTK/2015 c. Disallowance of Expenses related to import of raw materials booked under „Prior Period Expenses‟ of Rs. 31,81,936/-: i) That on the facts and in the circumstances of the case, the order of the learned CIT (Appeals) in sustaining the disallowance of Rs 31,81,936/- under „Prior Period Expenses‟ is based on irrelevant considerations, presumptions, conjectures and surmises, contrary to facts, arbitrary, unjustified, erroneous, bad in law and legally untenable. ii) That the aforesaid amount of Rs 31,81,936/- incurred by the assessee towards „Expenses related to import of raw materials‟ booked under „Prior Period Expenses‟ is wholly and exclusively for the purpose of its business and being booked in the accounts based on the receipt of debit notes in the relevant assessment year and the same having crystalized during A.Y.2006-07 is being allowable expenses, the upholding of disallowance of the said amount of Rs 31,81,936/- is contrary to facts, arbitrary, erroneous and bad in law. d. Disallowance of Expenses related to warehousing rent booked under „Prior Period Expenses‟ of Rs. 36,44,994/-: i) That on the facts and in the circumstances of the case, the order of the learned CIT (Appeals) in sustaining the disallowance of Rs 36,44,994/- under „Prior Period Expenses‟ is based on irrelevant considerations, presumptions, conjectures and surmises, contrary to facts, arbitrary, unjustified, erroneous, bad in law and legally untenable. ii) That the aforesaid amount of Rs 36,44,994/- incurred by the assessee towards „Expenses related to warehousing rent‟ and booked under „Prior Period Expenses‟ is wholly and exclusively for the purpose of its business. The amount was booked in the accounts based on the receipt of warehousing bills / reconciliation statements in the relevant assessment year and accordingly crystalized in the said Assessment Year. Therefore the upholding of disallowance of the said amount of Rs 36,44,994/- is contrary to facts, arbitrary, erroneous and bad in law. Disallowance of Travelling Expenses related to OCP officials booked under Prior Period Expenses‟ of Rs.1,61,86, 788/- : i) That on the facts and in the circumstances of the case, the order of the learned CIT (Appeals) in sustaining the disallowance of Rs. 1,61,86, 788/- for Travelling Expenses related to OCP officials booked under „Prior Period Expenses‟ is contrary to facts, arbitrary, unjustified, erroneous, bad in law and legally untenable. ii) That the aforesaid amount of Rs. 1,61,86,788/- incurred by the assessee being wholly and exclusively for the purpose of its business and the same having crystalized during A.Y.2006-07 is

4 ITA Nos.515/CTK/2014 & ITA No.23/CTK/2015 being fully allowable, the upholding of disallowance of the said amount of Rs.1,61,86,788/- is contrary to facts, arbitrary, erroneous and bad in law. f. Disallowance of other Expenses booked under „Prior Period Expenses‟ of Rs. 32,94,851/- i) That on the facts and in the circumstances of the case, the order of the learned CIT (Appeals) in sustaining of disallowance of Rs. 32,94,851/- comprising of the following: overage insurance premium of Rs.11,14,907/-  settlement of moisture rebate of Rs. 1,44,913/-  interest on port charges of Rs.12,45,175/-  interest on land compensation of Rs. 7,40,343/-   differential price paid for Urea purchase for Rs. 49,513/- disallowance of Rs.32,94,851/- under „Prior Period Expenses‟ is contrary to facts, arbitrary, unjustified, erroneous, bad in law and legally untenable. ii) That the aforesaid amount of Rs. 32,94,851/- having incurred by the assessee towards the aforesaid expenses, is wholly and exclusively for the purpose of its business and the same having crystalised during A.Y.2006-07 is being fully allowable, the upholding of disallowance of the said amount of Rs.32,94,851/- is contrary to facts, arbitrary, erroneous and bad in law. iii) That the learned CIT (Appeals) has erroneously stated the aforesaid amount of Rs.32,94,851/- as Rs.13,94,851/- in his order dated 01.10.2014. g. That without prejudice to Grounds [“2(a)” to “2(g)”] above, assuming but not admitting that the same/- are expenses of past years, the rates of Income tax for the assessment under consideration being either equal to or lower than the rates in the past assessment years and the assessee having losses in the past years, as the expenses debited under the said "Prior Period Adjustments" are otherwise allowable in the said past years, the aforesaid, even though debited to the P/L account of the current year, ought not be disallowed.” 3. Facts in brief are that the assessee is a company, engaged in the business of manufacturing and sale of fertilisers and filed the return of income for the assessment year 2006-07 on 28.11.2006 declaring total income at Rs.Nil. Subsequently assessment was revised by the order of CIT on 21.03.2011 where the ld. CIT cancelled the assessment made

5 ITA Nos.515/CTK/2014 & ITA No.23/CTK/2015 u/s.143(3) of the Act and remitted back to the file of AO for denovo assessment. Thereafter the AO issued notice u/s.142(1) of the Act to the assessee. In response to the same, the AR of the assessee appeared from time to time and filed the details on the disputed issue of prior period expenses. The AO found that the assessee has debited Rs.15,08,68,186/- in its profit and loss account. The assessee was asked to explain the same, however, the AO was not convinced with the explanations of the assessee. As per the AO’s observation the total prior period expenditure has to be taken into account and not just the net debit. The AO found the claim of Rs.15,08,68,186/- but the assessee has only debited Rs.9,42,23,176/- after setting off prior period income of Rs.5,66,45,010/- and therefore the AO made addition of Rs.15,08,68,186/- to the total income of the assessee and passed the order u/s.143(3)/263 of the Act, dated 28.12.2011. 4. Aggrieved by the order of AO, the assessee has filed an appeal before the CIT(A). In the appellate proceedings the AR of the assessee argued the grounds and reiterated the submissions made before the AO. Ld. CIT(A) dealt on the prior period expenses on different heads totalling to Rs.15,08,68,186/-, the details of which is as under :- Sl.No. Particulars Amount(Rs.) 1. Liability written back 3,16,19,821 2. Expenses related to OCP & MP 8,74,09,033 3. Amount paid on import of raw material 31,81,936 4. Holding tax 30,00,000 5. Water charges 25,30,763 6. Travelling expenses of OCP officials 1,61,86,788 7. Storage rent of various material 36,44,994 8. Others 32,94,851 Total 15,08,68,186

6 ITA Nos.515/CTK/2014 & ITA No.23/CTK/2015

7 ITA Nos.515/CTK/2014 & ITA No.23/CTK/2015

"Additional submission in respect to allowability of Prior Period Expenses of Rs 3.16.19.821/- It may be mentioned here that, a paper book was already filed by us in the course of this appeal proceeding, wherein we have narrated the reason, why the aforesaid expenditure ought to be allowed. However, in addition to the submission filed in earlier occasion, we would like to bring the following facts for your kind consideration and record: 1) During the relevant FY 2005-06 (AY 2006-07), unsecured loans from OCP (overseas supplier) has been restructured based on a Memorandum of Understanding (MOU). 4s per the MOU, raw material supplies made till 28th February, 2002 were considered and accordingly net payable amount was freezed. It may be mentioned here that as per the aforesaid MOU, an amount of USD 708805.67 was accounted towards demurrage expenses incurred in past. The said demurrage expenses had been accounted for during the FY 2005-06 at the dosing exchange rate of Rs 44.61/USD and accordingly an amount of Rs 3,16,19,821/- was booked towards demurrage expenses. Since the demurrage was incurred in past, statutory auditors insisted to book the same under 'Prior period Expenses'. 2) It may be mentioned here that, although the amount was booked under 'Prior Period Expenses', the corresponding credit to the expenses was charged to an income head. As per the documents filed in the paper book, it can be evidenced that, the corresponding 'credit' to the aforesaid expenses has been offered to tax and all the supporting documents was filed in the paper book. Therefore, if the expense is disallowed solely on the basis of 'Prior Period', it will lead to double taxation of a single amount. 3) Without prejudice to the above submissions, it is respectfully submitted that, due to negative net worth, PPL was referred to BIFR. As per the Sanctioned Scheme of BIFR, an one time settlement was made with the aforesaid overseas supplier @ 55% of the total payable amount (as determined in the MOU) and the remaining 45% was written back in the Books of the company. Both the payment and written back was effected in the FY 2008-09 and the write back amount was charged to income tax. Therefore disallowance of the aforesaid amount (i.e. Rs 3,16,19,821/-) solely on the ground of 'Prior period' is a perpetual loss to the company reason being 55% of Rs 3,16,19,821/- was paid in tune with the sanctioned scheme and 45% of Rs 3,16,19,821/- was already offered to tax. In view of above submission, the amount of Rs 3,16,19,821/- is ought to be allowed as disallowance of the aforesaid amount just on the ground of 'Prior Period' is highly improper and unjustified."

8 ITA Nos.515/CTK/2014 & ITA No.23/CTK/2015

3.1 I have considered the matter. The submissions of the appellant in this regard as well as additional submissions have merit. As per journal voucher, the prior period expenses of Rs.3,16,19,821/- is one of the debit items against credit item of Rs.5,95,45,597/- with the description 'provision others written back'. The said amount of Rs.5,95,45,597/- is part of Rs.11,49,36,645/- which has been taken as income under schedule-13 as 'unclaimed creditors and liabilities written back'. In view of the same, the claim of prior period expenses of Rs.3,16,19,821/- is an adjustment entry. Accordingly, the amount of Rs.3,16,19,821/- is allowable expenditure. The appellant has explained the claim of Rs.8,74,09,033/- on account of expenses related to OCP & MP, vide written submission dt. 12.2.2014 as under: "Item No. 2 - Prior Period Expenses of Rs 8,74,09,033/- In this regard, it may be mentioned here that, PPL is engaged in the manufacture of fertilizer and for this purpose raw materials like Phosphuric Acid, Rock Phosphate, Sulphur, Ammonia, MOP etc are imported from overseas countries. As per the contractual term, PPL was liable for payment of interest if the amount could not be paid within due date. As far as principal raw materials like Phosphuric Acid and Rock Phosphate is concerned, the same has been purchased from Maroc Phosphore and OCP. Due to continuous loss and poor financial position, a substantial amount was outstanding on account of the above suppliers. It may further be mentioned here that, due to poor financial position, interest as per the contract could not be provided in the books. Due to continuous loss, Govt, of India disinvested 74% stake in Paradeep Phosphates Ltd on 28th February, 2002 as per dis- investment policy in favour of Zuari Maroc Phosphates Ltd, a joint venture of Zuari Industries Ltd (ZIL) and Maroc Phosphore, Morocco, a wholly owned subsidiary of OCP. Due to huge outstanding, MP/OCP wanted to be part of management for revival of the company. Accordingly a Memorandum of Understanding (MOU) was signed between OCP and ZIL on 7th May, 2004 for the revival and financial restructuring of PPL. As per the aforesaid MOU, the entire payable amount on account of MP/OCP has been freezed at USD 58260760.69. Apart from above, interest would be payable on the aforesaid amount at six monthly USD Libor till 31st March, 2004. Both the management negotiated further for reduction of interest on the outstanding amount but the same could not be materialized.

9 ITA Nos.515/CTK/2014 & ITA No.23/CTK/2015 Accordingly the interest amounting to USD 1959403.77 (equivalent INR 8,74,09,033/-) was provided in the Books towards raw material procurement in the immediate succeeding financial year i.e. 2005- 06, to the year of signing of MOU. Since as per the MOU the interest was computed till 31st March, 2004, the Statutory Auditors insisted to book the same under 'Prior Period Expenses'. In order to substantiate the aforesaid facts, statement of JV, copies of JVs, detail calculation of amount payable as per MOU including interest payable as per MOU, RBI reference rate for conversion of interest from USD to INR and copy of MOU are enclosed for your kind reference. In view of aforesaid facts and submissions, the aforesaid amount of Rs 8,74,09,033/- booked under 'Prior Period Expenses' ought to be allowed as the same has been crystallized during the relevant FY 2005-06. Item No.2 - Prior Period Expenses of Rs 8,74,09,033/- (Additional Submission) Without prejudice to the above submission, it may further be mentioned here that, as per the MOU, the entire payable amount on account of MP/OCP has been freezed at USD 60220164.46 i.e. USD 58260760.69 on account of Principal and USD 1959403.77 (equivalent INR 8,74,09,033/-) towards interest. In this regard, it is extremely relevant to mention here that, PPL started incurring cash losses from the date of commencement of commercial production (1986) except 2/3 years and ultimately in the financial year ended on 30th September, 2002; the Net worth of PPL was fully eroded. Consequently, PPL was referred to the BIFR in compliance with the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA) and was registered as Case No. 238 / 2003 in June, 2003. In the first hearing held by the Hon'ble BIFR on 20.7.2005, PPL was declared as a sick Industrial Company by BIFR within the meaning of Section 3(1) (o) of SICA. Accordingly State Bank of India (SBI) was appointed as the Operating Agency (OA) under Section 17(3) of SICA. The OA submitted Draft Rehabilitation Scheme to the BIFR on 20.02.2008. After hearing the concerned parties BIFR finally sanctioned the Scheme based on its final hearing held on 02.09.2008 and issued the same vide its letter dated 03.10.2008. As per the Sanctioned Scheme, various unsecured creditors foregone a substantial amount of their outstanding amount for the early revival of the company. In line with the aforesaid SS, MP/OCP has also foregone 45% of their outstanding amount as per BIFR's direction and accordingly an amount of USD 33000000, being 55% of the total outstanding amount of USD was settled in the FY 2008- 09 and the balance amount of USD was written back in the Books

10 ITA Nos.515/CTK/2014 & ITA No.23/CTK/2015 in the FY 2008-09. It may be mentioned here that the aforesaid waiver amount was taxed in the FY 2008- 09. Disallowance of the same merely on the basis of the nomenclature of 'Prior Period Expenses' is highly unreasonable and unjustified since 55% of the aforesaid interest of Rs 8,74,09,033/- has been actually paid during FY 2008- 09 and remaining 45% was taxed in the same FY 2008-09 and therefore disallowance of the same will lead to double taxation of a single amount. In order to substantiate the aforesaid facts, copies of settlement agreement with OCP/MP in pursuant to BIFR Order, Bank settlement regarding payment of USD 33000000 and relevant page of the assessment Order for the FY 2008-09 are enclosed for your kind reference." 4.1 I have considered the matter. The amount of Rs.8,74,09,033/- has crystallized during the financial year 2004-05, hence relate to earlier assessment year. It is submitted by the appellant that 45% of the same has been offered to tax in the AY 2008-09 in accordance with the BIFR order. It is seen that the entire amount of Rs.8,74,09,033/- payable to OCP/MP on account of settlement was reduced as a result of which 45% of such liability was written back and offered as income in the AY 2008-09. During the AY 2008-09, the BIFR waived liabilities for which the appellant claimed the reduced amount of Rs.118,05,18,545/- as not taxable but the same was not allowed by the AO and added to the total income assessed. It is submitted that the said Rs.118,05,18,545/- includes 45% of Rs.8,74,09,033/- and because of the fact that 45% has been assessed to tax in the AY 2008-09, the amount to the said extent may not be disallowed. However, the submissions of the appellant lack merit. The determination of income for the AY 2006- 07 is not dependent on the determination of total income for the AY 2008-09. The events in future would not affect the present assessment, accordingly, the events occurring in the AY 2008-09 would not influence the impugned AY 2006-07. As already discussed, the expenditure of Rs.8,74,09,033/- has crystallized in the year relevant to the AY 2005-06. Accordingly, the same is not allowable for the AY 2006-07. 5. The appellant has explained the claim of Rs.31,81,936/- on account of amount paid on import of aw material, vide written submission dt.12.2.2014 as under: Item No. 3 - Prior Period Expenses of Rs 31,81,936/- During the relevant FY 2005-06 (AY 2006-07), an amount of Rs.31,81,936/- was booked under Prior Period Expenses towards the price adjustment of raw material. It may be mentioned here that PPL is engaged in manufacture of fertilizer and for this purpose it imports raw materials from various overseas suppliers. As far as purchase of Rock Phosphate (raw material) for manufacture of Phosphuric Acid, which is in tern used

11 ITA Nos.515/CTK/2014 & ITA No.23/CTK/2015 in manufacture of fertilizer, is concerned the same is as per the long term contract entered with the overseas supplier OCP. In the instant case, PPL apart from using the Rock Phosphate imported through the following two vessels during the FY 2004-05 for own manufacture purpose, sold certain quantities to M/s Tata Chemicals Ltd, for which the overseas supplier raised a debit note in the FY 2005-06. Detail of import, corresponding sale and debit note details are given here under for your kind reference: Table-I SI. Vessel BL Date Quantity Debit Note for Debit Debit Note No Name traded trading quantity Note Amount Quantity (MT) Date (USD) imported (MT) (net of moisture) Helen 09/01/05 57900.59 7908.960 18/05/05 66277.08 N OCP 1 6349 D02 22/02/05 55684.09 1999.600 13/06/05 16756.65 N OCP Flag 2 Tom 0784 D02 It may be mentioned here that, out of the aforesaid trading quantities, certain quantity has been sold in the year of import i.e. in FY 2004-05 and certain has been sold in the immediate following financial year i.e. in 2005-06. Since the overseas supplier raised the debit note in the FY 2005-06 relating to import made in the FY 2004-05, the same has been booked under 'Prior Period Expenses' account, to the extent rock phosphate sold in the FY 2004- 05, reason being crystallized during the FY 2005-06. It may be mentioned here that, by the time the overseas supplier raised the debit note for the FY 2004-05, the accounts for the FY 2004-05 has been signed and therefore there is no other alternatives available with the company apart from booking the same under 'Prior Period Expenses' account. Details of year wise sale of aforesaid quantities vis-a-vis Prior Period Adjustment made in accounts is given here under for your kind reference: Table - II Particulars Total Vessel Flag Vessel Tom Helen 7908.960 808.390 8717.350 MT Quantities Traded in FY 2004-05 (MT) 1191.210 1191.210 MT Quantities Traded in FY 2005-06 0 (MT) Total Tradinq quantity (MT) 7908.960 1999.600 Debit Note Amount (USD) 66277.08 16756.65 Prior Period Adjustment (USD) 66277.08 6774.30* USD 73051.39 Rs 31,81,936/- INR Equivalent of Prior Period Expense In order to substantiate the aforesaid facts, copies of Journal Voucher, relevant page of annual report evidencing the aforesaid

12 ITA Nos.515/CTK/2014 & ITA No.23/CTK/2015 sate quantity, debit note raised by the overseas supplier are enclosed for your kind reference. In view of aforesaid facts and submissions, the aforesaid amount of Rs 31,81,936/- booked under 'Prior Period Expenses' ought to be allowed as the same has been crystallized during the relevant FY 2005-06, reason being debit note issued in the FY 2005-06 for the imports made in the FY 2004-05." 5.1 I have considered the matter. The appellant's submission regarding prior period expenses of Rs.31,81,936/- lacks merit. It is submitted that the expenses have been booked in the FY 2005-06 since debit notes have been raised in the said year. However, the materials have been supplied during the FY 2004-05 and expenditure was required to be booked as per the bills and not debit notes which have been issued much later. Accordingly, the amount of Rs.31,81,936/- is not allowable for the AY 2006-07. 6. The appellant has explained the claim of Rs.30,00,000/- on account of holding tax, vide written submission dt.12.2.2014 as under: "Item No. 4 - Prior Period Expenses of Rs 30.00.000/- During the relevant FY 2005-06 (AY 2006-07), an amount of Rs 30,00,000/- was booked under Prior Period Expenses towards Holding Tax for the period 2001-02, 2002-03 and 2003-04. N.A.C., Paradeep raised a demand on PPL for payment of Rs. 17,13,729.00 for the year 2001-02. The aforesaid demand was challenged by PPL before the Collector, Jagatsinghpur being the Appellate Authority under the Orissa Municipal Act. During the pendency of the appeal, the Executive Officer, Paradeep Municipality raised further demands for the like amount for the years 2002- 03, 2003-04. The said demands were also challenged before the appellate authority. The appeals were heard analogously and after protracted hearing, the Collector vide Order dtd 14th July, 2005 has directed the Executive Officer, Paradeep Municipality to reassess the Holding Tax after giving opportunity of hearing to PPL and has further directed PPL to deposit a sum of Rs. 10,00,000/- per year. In compliance to the aforesaid order of the Collector, Jagatsinghpur, PPL had deposited a sum of Rs. 30,00,000/- towards municipal tax with the Executive Officer, Paradeep Municipality for the year 2001- 02, 2002-03 and 2003-04 in August, 2005. In order to substantiate the aforesaid facts, copies of Journal Voucher, Bank payment voucher, Order passed by the Appellate

13 ITA Nos.515/CTK/2014 & ITA No.23/CTK/2015 Authority, photocopy of cheque notes for approvals etc are enclosed for your kind reference. In view of aforesaid facts and submissions, the aforesaid amount of Rs 30,00,000/- booked under 'Prior Period Expenses' ought to be allowed as the same has been crystallized during the relevant FY 2005-06, reason being the Appellate Order was passed in the FY 2005-06 and deposit of Rs 30,00,000/- was also made in the relevant FY 2005-06 in compliance to the Appellate Order." 6.1 I have considered the matter. The submission of the appellant has merit. The demand has emanated from the order of the Collector which has been passed on dt.14.7.2005, hence the expenses of Rs.30 lacs has crystallized in the FY 2005-06 relevant to the impugned assessment year, hence allowable. 7. The appellant has explained the claim of Rs.25,30,763/- on account of water charges, vide written submission dt.12.2.2014 as under: "Item No. 5 - Prior Period Expenses of Rs 25,30.763/- During the relevant FY 2005-06 (AY 2006-07), an amount of Rs 25,30,763/- was booked under Prior Period Expenses towards water charges for the period 2000-01, 2001-02, 2002-03, 2003-04 and 2004-05. It may be mentioned here that PPL uses water from Taladanda Canal both for it's industrial and domestic use and paid the charges as applicable for industrial and domestic purpose. However the Department did not agree to the modus operendi followed by PPL and demanded water charge for the entire quantity at industrial rate. Being aggrieved with the aforesaid Order of the assessing authority, PPL filed an appeal before the Appellate Authority being the Court of Collector and District Magistrate, Jagatsignpur. The Hon'ble Court of Collector and District Magistrate, Jagatsignpur vide it's Order dtd 24.10.2005 confirmed that industrial rate would be applicable for the entire water consumption by PPL. In compliance to the aforesaid order of the Court of Collector and District Magistrate, Jagatsignpur, PPL had deposited a sum of Rs. 29,77,215/- towards water charges with the Executive Engineer, Mahanadi South Division, Cuttack-7 for the FY 2000-01 to 2005-06 in November, 2005. Out of the aforesaid amount of Rs 29,77,215/-, an amount of Rs 25,30,763/- was attributable to the FY 2000-01 to 2004-05 and accordingly booked under 'Prior Period Expenses'. In order to substantiate the aforesaid facts, copy of Journal Voucher, Bank statement, Order passed by the Appellate Authority, notes for approvals etc are enclosed for your kind reference.

14 ITA Nos.515/CTK/2014 & ITA No.23/CTK/2015 In view of aforesaid facts and submissions, the aforesaid amount of Rs 25,30,763/- booked under 'Prior Period Expenses' ought to be allowed as the same has been crystallized during the relevant FY 2005-06, reason being the Appellate Order was passed in the FY 2005-06 and deposit was also made in the relevant FY 2005-06 in compliance to the Appellate Order.' 7.1 I have considered the matter. The submission of the appellant has merit. The demand has emanated from the order of the Collector and District Magistrate, Jagatsinghpur which has been passed on dt.20.10.2005, hence the expenses of Rs.25,30,763/- has crystallized in the FY 2005-06 relevant to the impugned assessment year for which the same is required to be allowed. 8. The appellant has explained the claims of Rs.1,61,86,788/- on account of travelling expenses of OCP officials, Rs.36,44,994/- on account of storage rent of various materials and Rs.32,94,851/- on account of others, vide written submission dt.6.3.2014 as under: "Item No. 6 - Prior Period Expenses of Rs 1,61,86.788/- During the relevant FY 2005-06 (AY 2006-07), an amount of Rs 1,61,86,788/- was booked under Prior Period Expenses towards various expenses of OCP officials for the period till 31.03.2005. It may be mentioned here that the Central Govt, as per it's disinvestment policy disinvested 74% stake in PPL in February, 2002 in favour of M/s ZMPL. ZMPL is a joint venture of ZIL and OCP, Morocco. Since PPL was incurring huge losses, officials of OCP visited plant and streamlined production process. However the day to day expenses like traveling, seminar and conference, vehicle, garden maintenance, air travel expenses etc were reimbursed by PPL. The said amount could not be provided in the Books due to non submission of bills by OCP officials. During the relevant period i.e. FY 2005-06 (AY 2006-07), the following expenses were booked under 'Prior Period expenses' on account of settlement of advances/bills: JV No. Nature of Expenses Amount (Rs) 3261030316 Various Miscellaneous expenses 52,15,000/- 3261030219 Various Miscellaneous expenses 40,02,742/- 3261030220 Various Miscellaneous expenses 48,31,780/- 3261030222 Various Miscellaneous expenses 21.37,266/- Total 1,61,86,788/- In order to substantiate the aforesaid facts, copy of Journal Voucher and corresponding statements are enclosed and marked as Annexure-A for your kind reference. In view of aforesaid facts and submissions, the aforesaid amount of Rs 1,61,86,788/- booked under 'Prior Period Expenses' ought to be

15 ITA Nos.515/CTK/2014 & ITA No.23/CTK/2015 allowed as the same has been crystallized during the relevant FY 2005-06.

It may be mentioned here that although all these expenses has been incurred by the assessee in the respective years, the same was never claimed in any past ROI. Item No. 7 - Prior Period Expenses of Rs 36,44,994/- During the relevant FY 2005-06 (AY 2006-07), an amount of Rs 36,44,994/- was booked under Prior Period Expenses towards, warehousing charges for the earlier periods, whose bills/invoices were settled in FY 2005-06. It may be mentioned here that, PPL manufactures fertiliser and the has been dispatched to different states and warehoused in Godowns. However bills in relation to warehouse rent were settled on receipt of the same after due verification and reconciliation. It may further be mentioned here that lot of warehouses were at remote places and therefore it took longer time to receive the bills and corresponding reconciliations. During the relevant period i.e. FY 2005-06 (AY 2006-07), the following expenses were booked under 'Prior Period expenses' on account of warehousing rents, due to settlement of old bills: JV No. Nature of Expenses Amount (Rs) 3271030113 Warehousing Expenses 889,178/- 3273030046 Warehousing Expenses 331,041/- 3278030095 Warehousing Expenses 894,818/- 3279030076 Warehousing Expenses 580,600/- 3271030110 Warehousing Expenses 511,959/- 3261030231 Warehousing Expenses 437,398/- Total 36,44,994/- In order to substantiate the aforesaid facts, copy of Journal Voucher and corresponding statements are enclosed and marked as Annexure-B for your kind reference. In view of aforesaid facts and submissions, the aforesaid amount of Rs 36,44,994/- booked under 'Prior Period Expenses' ought to be allowed as the same has been crystallized during the relevant FY 2005-06. It may be mentioned here that although all these expenses has been incurred by the assessee in the respective years, the same was never claimed in any past ROI. Item No. 8 - Prior Period Expenses of Rs 32.94,851/-

16 ITA Nos.515/CTK/2014 & ITA No.23/CTK/2015 During the relevant FY 2005-06 (AY 2006-07), an amount of Rs 32,94,851/- was booked under Prior Period Expenses towards Overage Insurance Premium, settlement of moisture rebate, interest on port fixed charges and interest on enhanced land compensation for earlier periods due to settlement in FY 2005-06. The details of the aforesaid expenses are given hereunder for your kind reference : Particulars Amount Amount Towards non settlement of Overage 783,207/- Insurance premium 331,700/- 11,14,907/- Towards non settlement of Moisture rebate 144,913/- Towards interest on port fixed charges 12,45,175/- Towards interest on land compensation 301,938/- 438,405/- 740,343/- Towards miscellaneous expenses 49,513/- Total 32,94,851/- 32,94,851/- Submission in relation to each issue is as follows :- Rs 11,14,907/-: It may be mentioned here that, Overage Insurance premium is payable when the materials are shipped in a vessel of more than 25 years old. As per normal practice, the OIP is initially paid by PPL and the same is reimbursed by the overseas supplier as vessel selection was made by the overseas supplier. In the instant case, PPL incurred OIP of Rs 11,14,907/- and accordingly raised debit note on the overseas supplier. However during the relevant AY 2006-07, the overseas supplier expressed it's inability to reimburse the same and accordingly the same was charged off to accounts. Since the transactions were held in past periods, the statutory auditors insisted to book the same under 'Prior Period Expenses'. Rs 144,913/-: It may be mentioned here that, the overseas supplier allows a certain percentage of moisture rebate in the invoices based on the technical laboratory analysis. However, if the moisture is more than, what has been allowed by the supplier in invoice, the same has been claimed by PPL through debit note and the same is reimbursed by the overseas supplier. In the instant case, as per independent laboratory analysis report, PPL was eligible for additional moisture rebate of Rs 144,913/- and accordingly raised debit note on the overseas supplier. However during the relevant AY 2006-07, the overseas supplier expressed it's inability to reimburse the same and accordingly the same was charged off to accounts. Since the transactions were held in past periods, the statutory auditors insisted to book the same under 'Prior Period Expenses'.

17 ITA Nos.515/CTK/2014 & ITA No.23/CTK/2015 Rs 12,45,175/-: It may be mentioned here that, during the relevant FY 2005- 06 (AY 2006-07), an amount of Rs 12,45,175/- was booked under 'Prior Period Expenses' towards interest on Port charges. It may be mentioned here that, the tariff rate for port charges was under dispute with Paradeep Port Trust (PPT) and the matter was subjudice. However PPT raised invoices at the revised tariff rate with retrospective effect on PPL which was disputed by PPL in the appellate forums. Due to non payment of port charges at the enhanced tariff rate, PPT raised further invoice including interest of Rs 12,45,175/-. Since PPT raised invoice for interest, the same was provided in the Books as per conservative principle. Since the same was pertaining to earlier periods, the auditors insisted to book the same under 'Prior Period Expenses'. Rs 740,343/-: It may be mentioned here that, during the relevant FY 2005-06 (AY 2006-07), an amount of Rs 740,343/- was booked under 'Prior Period Expenses' towards interest on land compensation. It may be mentioned here that, the dispute for valuation of land acquired during compulsory land acquisition was subjudice and the same was make good by PPL when ever there is a Order of appellate forums. In the instant case, the appellate forums revised the compensation rate and Ordered PPL to pay the same alongwith interest. Accordingly PPL computed the payable amount alongwith interest of Rs 740,343/- and handover the cheque to the Collector for onward distribution of the same. Since the interest was pertaining to the earlier periods, the auditors insisted to book the same under 'Prior Period Expenses'. Rs 49,513/-: This expense is comprised of differential price paid for Urea purchased in earlier period. Since the differential payment was settled in the current FY 2005-06 (AY 2006-07), the same was booked under 'Prior Period expenses'. In order to substantiate the all the aforesaid facts, copy of Journal Voucher and corresponding statements are enclosed and marked as Annexure-C for your kind reference. It may be mentioned here that although all these expenses has been incurred by the assessee in the respective years, the same was never claimed in any past ROI." 8.1 I have considered the matter. The prior period expenses of Rs.1,61,86,788/-, Rs.36,44,994/- and Rs.13,94,851/- relate to normal expenses including travelling expenses, rent and

18 ITA Nos.515/CTK/2014 & ITA No.23/CTK/2015 miscellaneous which should have been booked in the relevant year. The submission of the appellant lacks merit. Creating liabilities by debit notes is not equivalent as crystallization of expenses in a particular year. The creation of debit notes is for the accounting purpose and the same is not the proof for the claim that the particular expense got crystallized when the debit note was raised. In view of the same, the prior period expenses of Rs.1,61,86,788/-, Rs.36,44,994/- and Rs.13,94,851/- are not allowable. 9. In view of the discussions made in paras 3.1, 6.1 & 7.1, the AO is directed to allow the expenses of Rs.3,16,19,821/-, Rs.30,00,000/- and Rs.25,30,763/- totaling to Rs.3,71,50,584/- under the head prior period expenses i.e. the appellant gets relief of Rs.3,71,50,584/- out of the addition made under prior period expenses. 10. The appellant is aggrieved that the actual bad debt written off amounting to Rs.1,42,75,429/- has not been allowed by the AO who has allowed a lesser amount of Rs. 1,33,74,198/-. However, the appellant has failed to substantiate the grounds of appeal raised in this regard with facts and figures. It is seen that the appellant has claimed bad debt of Rs.1,33,74,198/- in the return of income which was allowed by the AO. In the submission made, it has been stated that the bad debt written off is actually Rs.1,49,34,550/-. The appellant's submission is contradictory and confusing. The claim that the bad debt should have been allowed for the amount of Rs.1,42,75,429/- or Rs.1,49,34,550/- is not supported with materials and documents. In view of the same, the ground of appeal relating to the claim of bad debt is dismissed. 11. In the result, the appeal is partly allowed.” 6. Against the sustenance of additions in appeal, the assessee has further preferred appeal before the Tribunal. 7. Ld. AR before us argued the grounds and reiterated the submissions made before the CIT(A) and submitted that the CIT(A) has erred in sustaining the expenses claimed on account of expenses related to OCP & MP, amount paid on import of raw materials, travelling expenses of OCP officials, storage rent of various materials and other expenses. The AR of the assessee submitted that expenses relating to OCP & MP has been crystallized during the relevant financial year 2005-

19 ITA Nos.515/CTK/2014 & ITA No.23/CTK/2015 06, therefore the same ought to be deleted. Ld. AR’s submission in respect of amount paid on import of raw material that the aforesaid amount of Rs.31,81,936/- booked under 'Prior Period Expenses' ought to be allowed as the same has been crystallized during the relevant FY 2005-06, reason being debit note issued in the FY 2005-06 for the imports made in the FY 2004-05. In regard to travelling expenses of OCP officials the AR of the assessee submitted that since PPL was incurring huge losses, officials of OCP visited plant and streamlined production process. However the day to day expenses like traveling, seminar and conference, vehicle, garden maintenance, air travel expenses etc were reimbursed by PPL. The said amount could not be provided in the Books due to non submission of bills by OCP officials. To substantiate the claim of expenses, the assessee has filed copy of journal voucher and corresponding statements before the authorities below. Therefore, ld. AR prayed that the disallowance made on account of travelling expenses of OCP officials ought to be deleted. So far as expenses towards storage rent of various materials is concerned, the AR of the assessee submitted that PPL manufactures fertilizer and the same has been dispatched to different states and warehoused in Godowns. However bills in relation to warehouse rent were settled on receipt of the same after due verification and reconciliation. During the relevant period i.e. FY 2005-06, details of expenses of Rs.1,36,44,994/- was filed before the Revenue authorities and are claimed under 'Prior Period expenses' and also expenses of warehousing rent. But due to settlement of old bills the same has been

20 ITA Nos.515/CTK/2014 & ITA No.23/CTK/2015 crystallized during the relevant assessment year. Lastly, the ld. AR submitted that during the relevant FY 2005-06 (AY 2006-07), an amount of Rs 32,94,851/- was booked under Prior Period Expenses towards Overage Insurance Premium, settlement of moisture rebate, interest on port fixed charges and interest on enhanced land compensation of earlier periods due to final settlement in FY 2005-06. The Ld. AR further emphasized that although all these expenses have been incurred by the assessee in the respective years, the same was not claimed in previous year return of income and prayed for allowing the claim of expenses. 8. Contra, ld. DR opposed to the submissions of AR of the assessee and submitted that the expenditures claimed by the assessee were required to be booked as per the bills and not debit notes and the explanations of the assessee before both the authorities below was not satisfactory and, the appeal of the assessee has no merit, and deserves to be dismissed. 9. We, having heard the counsel for both the parties and materials available on record, we find that the CIT(A) while considering the disputed issue has observed that the entire amount of Rs.8,74,09,033/- payable to OCP/MP is crystallized in F.Y.2004-05 and the amount was on account of settlement was reduced as a result of which 45% of such liability was written back and offered as income in the AY 2008-09. During the AY 2008-09, the BIFR waived liabilities for which the assessee claimed the reduced amount of Rs.118,05,18,545/- as not taxable and was not allowed by the AO. The ld. AR submitted that the said amount of

21 ITA Nos.515/CTK/2014 & ITA No.23/CTK/2015 Rs.118,05,18,545/- includes 45% of Rs.8,74,09,033/- and because of the fact that 45% has been assessed to tax in the AY 2008-09, the amount to the said extent should not be disallowed. We find that the determination of income for the AY 2006-07 is not dependent on the determination of total income for the AY 2008-09, whereas the events of future would not affect or influence the present assessment and also found that the assessee could not explain the facts before both the authorities and CIT(A) has rightly dealt on the issue. We do not find any error to interfere with the finding of the CIT(A) on this disputed issue and accordingly we uphold the same and dismiss this ground of appeal of assessee. 10. With respect to disallowance of expenses related to import of raw materials of Rs.31,81,936/- we find from the appellate order that the assessee has filed details of import and corresponding sale and debit note and also details of year wise sale of quantities vis-à-vis prior period adjustment made in the accounts as the overseas supplier raised the debit note in the FY 2005-06 relating to import of FY 2004-05 and the assessee booked the same under prior period expenses account in respect of rock phosphate sold in the F.Y.2004-05 as they are crystalised during the financial year 2005-06. However, the CIT(A) observed that the materials have been supplied during the FY 2004-05 and expenditure was required to be booked as per the bills and not debit notes. The assessee has produced copies of journal voucher, referred to relevant page of annual report evidencing the sale quantity, debit note raised by the overseas supplier before the CIT(A). The ld. AR of the assessee referred

22 ITA Nos.515/CTK/2014 & ITA No.23/CTK/2015 to paper book page no.13 & 14 where the assessee has accounted for the purchase price of imported material (Rock Phosphates) in the year of import (accounting year 2004-05) based on the Long Term contract with the foreign supplier(Office Cherifien des Phosphates, Casblanca, Morocco) and their invoices, but the foreign supplier has issued debit notes for "Price adjustment" (differential price) in the accounting year 2005-06 only [vide Debit Notes dated 16.05.2005 & 13.06.2005 and referred to page nos. 9 &10 of the paper book. Ld. AR drew our attention to the paper book page No.8, wherein the particulars (Name of the Vessel, bill of lading, quantity etc.) and details for the amount of Rs.31,81,936/- in respect of Debit Notes in US$ is given as per of workings, at page No.8 of the CIT(A) Order. Since the amount of Supplier's debit note could not be envisaged in the year of import and as the liability has crystalized only in the accounting year 2005-06(AY 2006- 07) and the annual accounts of assessee of the accounting year 2004-05 has been audited and closed, rightly accounted for in the financial year 2005-06 and shown under nomenclature "Prior Period Expenses/Adjustments". 11. As the imports pertained to accounting year 2004-05 and it has been given under "Prior period " in compliance with Accounting disclosure norms as per Company Act, 1956. We are of the substantive opinion that the matter should be examined by the AO and the aforesaid facts and circumstances and the submissions of the assessee, we deem it fit to restore this issue to the file of AO with an opportunity to the assessee to

23 ITA Nos.515/CTK/2014 & ITA No.23/CTK/2015 represent its case evidencing its claim and the AO shall verify and examine the documents after providing adequate opportunity of hearing to the assessee. Accordingly, this ground of appeal of the assessee is allowed for statistical purposes. 12. So far as disallowance of expenses related to warehousing rent, we find that the assessee has disclosed the expenses claimed on account of warehousing rents due to settlement of old bills and also produced the journal vouchers and corresponding statements, however, the CIT(A) confirmed the disallowance made by the AO on the basis of lacks of merit in the submissions. Ld. AR before us submitted that the assessee has produced all the documents as and when required by the authorities and referred to the paper book. Considering the facts and circumstances of the case, to meet the end of justice, we provide one more opportunity to the assessee to explain its claim before the AO. Accordingly, we remit the matter back to the file of AO, who shall examine and pass the order after providing adequate opportunity of hearing to the assessee. Thus, this ground of assessee is allowed for statistical purposes. 13. Now, coming to the fourth ground relating to disallowance of travelling expenses related to OCP officials, we find that the assessee could not produce the details of the claim, nor the assessee can submit with a proper explanations, we find both the lower authorities could not find any merit in the submission of the assessee. In the hearing proceedings, the AR of the assessee could not controvert the findings of

24 ITA Nos.515/CTK/2014 & ITA No.23/CTK/2015 both the authorities. Accordingly, we uphold the findings of the CIT(A) on this issue and dismiss the ground of appeal of assessee. 14. The last ground of appeal raised by the assessee is with respect to disallowance of other expenses. We find that the “other expenses” claimed by the assessee consists of i) non-settlement of overage insurance premium, ii) non-settlement of moisture rebate, iii) interest on port fixed charges and interest on land compensation and iv) miscellaneous expenses which the CIT(A) has confirmed the disallowance. The AR of the assessee submitted that the expenses under dispute have been incurred by the assessee in the respective years and the same was never claimed in the return of income. We find that Revenue has not doubted the expenses incurred by the assessee. But the only dispute is with respect to the date on which the liability has crystallized. In our opinion, merely because an expense relates to transaction of an earlier year it does not become a liability payable in the earlier year unless the liability was determined and crystallized in the year in question on the basis of maintenance of accounts on the mercantile system of account. Accordingly, we remit this issue to the file of AO for verification and examination of the assessee’s claim and the AO shall provide adequate opportunity of hearing to the assessee. This ground of appeal of the assessee is allowed for statistical purposes. Thus, appeal of the assessee is partly allowed for statistical purposes.

25 ITA Nos.515/CTK/2014 & ITA No.23/CTK/2015 15. Now we shall take up the appeal filed by the Revenue in ITA No.515/CTK/2014, wherein the Revenue has taken the following grounds:- 1. On the facts and in the circumstances of the case, the Ld. CIT(A) is not justified in deleting the addition of Rs.3,16,19,821/- , Rs.30,00,000/- and Rs.25,30,763/- made by the AO disallowing the same as per prior period expenses which did not pertain to F/Y 2005-06 relevant to the A/Y 2006-07. 16. Facts relating to the above ground are that the AO stated that the assessee is following mercantile system of accounting and is entitled to claim the expenditure which arises and accrues during the year and disallowed Rs.3,16,19,821/-, Rs.30,00,000/- and Rs.25,30,763/-. 17. In appeal before the CIT(A), the assessee argued the grounds and reiterated the submissions made before him. The CIT(A) after considering the submissions vis-à-vis explanation of the assessee and the findings of AO, deleted the above disallowances made by the AO and observed as under :- “3. The appellant has explained the claim of Rs.3,16,19,821/- on account of liability written back, vide written submission dt.12.2.2014 as under: "Item No. 1 - Prior Period Expenses of Rs 3.16.19,821/- During the relevant FY 2005-06 (AY 2006-07), unsecured loans from OCP (overseas supplier) has been restructured based on a Memorandum of Understanding (MOU). As per the MOU, an amount of Rs 5,95,45,597/- was written back in the Books of Accounts of M/s Paradeep Phosphates Ltd, out of which one of the component amounting to Rs 3,16,19,821/- was booked under 'Prior Period Expenses' account. Since the entire written back amount has been offered to tax in the relevant financial year, disallowance of the aforesaid amount just on the ground of 'Prior Period' is highly improper and unjustified. In order to substantiate the aforesaid facts, copies of Journal Voucher, details of provision written back, relevant schedules of annual report for the FY 2005- 06, copy of computation of total

26 ITA Nos.515/CTK/2014 & ITA No.23/CTK/2015 income along with relevant page of annual Income Tax Return are enclosed for your kind reference. In view of aforesaid facts and submissions, the aforesaid amount of Rs 3,16,19,821/- booked under 'Prior Period Expenses' ought to be allowed, as the same has already been offered to tax.". The appellant has made additional submissions in respect of prior period expenses of Rs.3,16,19,821/- vide written submission dt.12.6.2014 as under: "Additional submission in respect to allowability of Prior Period Expenses of Rs 3.16.19.821/- It may be mentioned here that, a paper book was already filed by us in the course of this appeal proceeding, wherein we have narrated the reason, why the aforesaid expenditure ought to be allowed. However, in addition to the submission filed in earlier occasion, we would like to bring the following facts for your kind consideration and record: 1) During the relevant FY 2005-06 (AY 2006-07), unsecured loans from OCP (overseas supplier) has been restructured based on a Memorandum of Understanding (MOU). 4s per the MOU, raw material supplies made till 28th February, 2002 were considered and accordingly net payable amount was freezed. It may be mentioned here that as per the aforesaid MOU, an amount of USD 708805.67 was accounted towards demurrage expenses incurred in past. The said demurrage expenses had been accounted for during the FY 2005-06 at the dosing exchange rate of Rs 44.61/USD and accordingly an amount of Rs 3,16,19,821/- was booked towards demurrage expenses. Since the demurrage was incurred in past, statutory auditors insisted to book the same under 'Prior period Expenses'. 2) It may be mentioned here that, although the amount was booked under 'Prior Period Expenses', the corresponding credit to the expenses was charged to an income head. As per the documents filed in the paper book, it can be evidenced that, the corresponding 'credit' to the aforesaid expenses has been offered to tax and all the supporting documents was filed in the paper book. Therefore, if the expense is disallowed solely on the basis of 'Prior Period', it will lead to double taxation of a single amount. 3) Without prejudice to the above submissions, it is respectfully submitted that, due to negative net worth, PPL was referred to BIFR. As per the Sanctioned Scheme of BIFR, an one time settlement was made with the aforesaid overseas supplier @ 55% of the total payable amount (as determined in the MOU) and the remaining 45% was written back in the Books of the company. Both the payment and written back was effected in the FY 2008-09 and

27 ITA Nos.515/CTK/2014 & ITA No.23/CTK/2015 the write back amount was charged to income tax. Therefore disallowance of the aforesaid amount (i.e. Rs 3,16,19,821/-) solely on the ground of 'Prior period' is a perpetual loss to the company reason being 55% of Rs 3,16,19,821/- was paid in tine with the sanctioned scheme and 45% of Rs 3,16,19,821/- was already offered to tax. In view of above submission, the amount of Rs 3,16,19,821/- is ought to be allowed as disallowance of the aforesaid amount just on the ground of 'Prior Period' is highly improper and unjustified." 3.1 I have considered the matter. The submissions of the appellant in this regard as well as additional submissions have merit. As per journal voucher, the prior period expenses of Rs.3,16,19,821/- is one of the debit items against credit item of Rs.5,95,45,597/- with the description 'provision others written back'. The said amount of Rs.5,95,45,597/- is part of Rs.11,49,36,645/- which has been taken as income under schedule-13 as 'unclaimed creditors and liabilities written back'. In view of the same, the claim of prior period expenses of Rs.3,16,19,821/- is an adjustment entry. Accordingly, the amount of Rs.3,16,19,821/- is allowable expenditure. 6. The appellant has explained the claim of Rs.30,00,000/- on account of holding tax, vide written submission dt.12.2.2014 as under: "Item No. 4 - Prior Period Expenses of Rs 30.00.000/- During the relevant FY 2005-06 (AY 2006-07), an amount of Rs 30,00,000/- was booked under Prior Period Expenses towards Holding Tax for the period 2001-02, 2002-03 and 2003-04. N.A.C., Paradeep raised a demand on PPL for payment of Rs. 17,13,729.00 for the year 2001-02. The aforesaid demand was challenged by PPL before the Collector, Jagatsinghpur being the Appellate Authority under the Orissa Municipal Act. During the pendency of the appeal, the Executive Officer, Paradeep Municipality raised further demands for the like amount for the years 2002- 03, 2003-04. The said demands were also challenged before the appellate authority. The appeals were heard analogously and after protracted hearing, the Collector vide Order dtd 14th July, 2005 has directed the Executive Officer, Paradeep Municipality to reassess the Holding Tax after giving opportunity of hearing to PPL and has further directed PPL to deposit a sum of Rs. 10,00,000/- per year. In compliance to the aforesaid order of the Collector, Jagatsinghpur, PPL had deposited a sum of Rs. 30,00,000/- towards municipal tax

28 ITA Nos.515/CTK/2014 & ITA No.23/CTK/2015 with the Executive Officer, Paradeep Municipality for the year 2001- 02, 2002-03 and 2003-04 in August, 2005. In order to substantiate the aforesaid facts, copies of Journal Voucher, Bank payment voucher, Order passed by the Appellate Authority, photocopy of cheque notes for approvals etc are enclosed for your kind reference. In view of aforesaid facts and submissions, the aforesaid amount of Rs 30,00,000/- booked under 'Prior Period Expenses' ought to be allowed as the same has been crystallized during the relevant FY 2005-06, reason being the Appellate Order was passed in the FY 2005-06 and deposit of Rs 30,00,000/- was also made in the relevant FY 2005-06 in compliance to the Appellate Order." 6.1 I have considered the matter. The submission of the appellant has merit. The demand has emanated from the order of the Collector which has been passed on dt.14.7.2005, hence the expenses of Rs.30 lacs has crystallized in the FY 2005-06 relevant to the impugned assessment year, hence allowable. 7. The appellant has explained the claim of Rs.25,30,763/- on account of water charges, vide written submission dt.12.2.2014 as under: "Item No. 5 - Prior Period Expenses of Rs 25,30.763/- During the relevant FY 2005-06 (AY 2006-07), an amount of Rs 25,30,763/- was booked under Prior Period Expenses towards water charges for the period 2000-01, 2001-02, 2002-03, 2003-04 and 2004-05. It may be mentioned here that PPL uses water from Taladanda Canal both for it's industrial and domestic use and paid the charges as applicable for industrial and domestic purpose. However the Department did not agree to the modus operendi followed by PPL and demanded water charge for the entire quantity at industrial rate. Being aggrieved with the aforesaid Order of the assessing authority, PPL filed an appeal before the Appellate Authority being the Court of Collector and District Magistrate, Jagatsignpur. The Hon'ble Court of Collector and District Magistrate, Jagatsignpur vide it's Order dtd 24.10.2005 confirmed that industrial rate would be applicable for the entire water consumption by PPL. In compliance to the aforesaid order of the Court of Collector and District Magistrate, Jagatsignpur, PPL had deposited a sum of Rs. 29,77,215/- towards water charges with the Executive Engineer, Mahanadi South Division, Cuttack-7 for the FY 2000-01 to 2005-06 in November, 2005. Out of the aforesaid amount of Rs 29,77,215/-, an amount of Rs 25,30,763/- was attributable to the FY 2000-01 to 2004-05 and accordingly booked under 'Prior Period Expenses'.

29 ITA Nos.515/CTK/2014 & ITA No.23/CTK/2015

In order to substantiate the aforesaid facts, copy of Journal Voucher, Bank statement, Order passed by the Appellate Authority, notes for approvals etc are enclosed for your kind reference. In view of aforesaid facts and submissions, the aforesaid amount of Rs 25,30,763/- booked under 'Prior Period Expenses' ought to be allowed as the same has been crystallized during the relevant FY 2005-06, reason being the Appellate Order was passed in the FY 2005-06 and deposit was also made in the relevant FY 2005-06 in compliance to the Appellate Order.' 7.1 I have considered the matter. The submission of the appellant has merit. The demand has emanated from the order of the Collector and District Magistrate, Jagatsinghpur which has been passed on dt.20.10.2005, hence the expenses of Rs.25,30,763/- has crystallized in the FY 2005-06 relevant to the impugned assessment year for which the same is required to be allowed.” 18. The DR before us relied on the order of AO and submitted that the claim of the assessee does not pertain to Financial Year 2005-06 relevant to A.Y.2006-07, therefore, the claim of the assessee is not accetpable. Hence, he prayed for allowing the appeal of Revenue. 19. Contra, ld. AR of the assessee supported the order of CIT(A). 20. We have heard rival submissions and perused the material on record. Prima facie, we find that the assessee in support of his claim has produced journal voucher for the prior period expenses of Rs.3,16,19,821/- which is one of the debit items against Rs.5,95,45,597/- with the description of provision others written back. The CIT(A) held that the amount of Rs.5,95,45,597/- is part of Rs.11,49,36,645/- which has been disclosed as income under schedule-13 as unclaimed creditors and liabilities written back and hence, allowed the claim of the assessee Rs.3,16,19,821/- under the head prior period expenses. The ld. DR could not get any material to controvert the findings of the CIT(A). Acccordingly,

30 ITA Nos.515/CTK/2014 & ITA No.23/CTK/2015 we are not inclined to interfere with the finding of the CIT(A) and we uphold the same and dismiss this ground of Revenue. 21. In respect of the grievance of the Revenue on disallowance of Rs.30,00,000/- on account of holding tax, where the AO has disallowed the claim of the assessee as it does not pertain to the relevant assessment year. On appeal the CIT(A) held that this demand has emanated from the order of the Collector which was passed on 14.07.005 and the expenses of Rs.30 lakhs has been crystallized in the F.Y.2005-06 relevant to the impugned assessment year and deleted the addition. Considering the finding of CIT(A), we do not see any reason to interfere with the observation of the CIT(A) and we uphold the same and dismiss this ground of Revenue. 22. With respect to grievance of the Revenue regarding disallowance of Rs.25,30,763/-, the AO stated that the claim of the assessee has not crystallized during the relevant assessment year. In appeal, the CIT(A) allowed the claim of assessee as the demand has emanated from the order of the Collector and District Magistrate, Jagatsinghpur which has been passed on 20.10.2005, hence, the expenses of Rs.25,30,763/- has crystallized in the FY 2005-06. We have considered the findings of the CIT(A) and find that amount of Rs.25,30,763/- has been claimed under Prior Period Expenses as the same has been crystallized during the relevant financial year 2005-06, in accordance with the Collector order. Therefore, considering the facts and circumstances, we are in agreement

31 ITA Nos.515/CTK/2014 & ITA No.23/CTK/2015 with the findings of the CIT(A) on this issue and we uphold the same and dismiss this ground of Revenue. 23. Thus, appeal of the Revenue is dismissed. 24. In the result, appeal of the assessee i.e. ITA No.23/CTK/2015 is partly allowed for statistical purposes and appeal of Revenue i.e. ITA No.515/CTK/2014 is dismissed. Order pronounced in the open court on this 26/04/2018. Sd/- Sd/- (N. S. SAINI) (PAVAN KUMAR GADALE) ऱेखा सदस्य / ACCOUNTANT MEMBER न्यानयक सदस्य / JUDICIAL MEMBER कटक Cuttack; ददनांक Dated 26/04/2018 प्र.कु.मि/PKM, Senior Private Secretary आदेश की प्रनिलऱपप अग्रेपषि/Copy of the Order forwarded to : 1. Appellant- 2. Respondent 3. आयकर आयुक्त(अपील) / The CIT(A), आयकर आयुक्त / CIT 4. विभागीय प्रविविवि, आयकर अपीलीय अविकरण, कटक / DR, ITAT, Cuttack 5. गार्ा पाईऱ / Guard file. 6. सत्यापऩत प्रनत //True Copy// आदेशािुसार/ BY ORDER, (Senior Private Secretary) आयकर अपीऱीय अधिकरण, कटक / ITAT, Cuttack