M/S. JHAVERI SECURITIES LTD.,BARODA vs. THE DY.CIT, CIRCLE-1(2), BARODA

Grievance of the assessee is that, on the facts and in the circumstances of the case, the learned CIT(A) has erred in confirming the disallowance of Rs.20,05,318/- holding the same to be prior period expenses.

Briefly stated, the relevant martial facts are like this. During the course of assessment proceedings, the Assessing Officer noticed that the assessee has claimed deduction of Rs.12,41,53,955/-, on account of business procurement expenses, out of which Rs.14,05,351/- pertained to the prior period. The assessee’s explanation that these expenses pertain to sub-brokerage which is settled on receipt was rejected on the ground that there is nothing to justify “non accounting of claim”. Similarly, the

We have heard the rival submissions, perused the material on record and duly considered facts of the case in the light of the applicable legal position.

We find that the issue in appeal is now covered by judgement of Hon’ble Bombay High Court, in the case of CIT vs. Mahanagar Gas limited [(2014) 42 taxmann 40 (Bom)], and by Hon’ble jurisdictional High Court in the case of PCIT vs. Adani Enterprise Limited (ITA No.566 of 2016; judgment dated 20.07.2016) wherein it is held that even when assessee is following mercantile method of accounting, the prior period expenses can indeed be allowed as deduction when liability crystallises in the relevant previous year. In any event, the issue is revenue neutral since the rate of tax is the same, and it is nobody’s case that the same expenses have been claimed deduction in more than one year. We have also noted that the revenue authorities have not even disputed that liability to pay the prior period expenses crystallised during the relevant previous year. In view of the discussions, as also bearing in mind entirety of the case, we delete the impugned disallowance of Rs.20,05,318/-. The assessee succeeds accordingly.