WEST BENGAL AGRO INDUSTRIES CORPORATION LTD.,KOLKATA vs. PRINCIPAL CIT - 6, KOLKATA, KOLKATA

We advert to the basic relevant facts. This assessee is a company trading in fertilizers, seeds & pesticides, agriculture machineries implements, spare parts etc. to farmer base individuals and govt. schemes. It filed its return on 29.09.2013 stating nil Assessment Year 2013-14 W.B.Agro Inds. Corpn.. Ltd. Vs PCIT-6, Kol. Page 2 income alongwith loss of ₹997,21,463/-. The Assessing Officer framed regular assessment in issue in its case dated 18.03.2016 disallowing provisions of leave salary and gratuity involving sums of ₹47.65 lakhs and ₹50.42 lakhs; respectively totaling to ₹98.07 lakhs.

Case file suggests that the PCIT thereafter issued show cause dated 08.03.2018 for the reason that the assessment records revealed an amount of prior period expenses of ₹629 lakhs debited / shown in the “Other expenses” for the financial year 2012-13. He was of the view that such prior period expense is not an allowable “head” which resulted in understatement of corresponding taxable income resulting in error causing prejudice to the interest of the Revenue. The assessee filed its reply contesting the said revision proposal on the ground that its prior period expenses are very much allowable as the same was made by way of an accounting adjustment made by the CAG, Government of West Bengal after verification of Accountant General Bengal. The PCIT has declined the same in his revisions direction under challenge reading as follows;- “4. I have carefully considered and perused the material on record. It is observed that the assessee company has failed to furnish the relevant details, evidences and explanation in regard to “Prior period expenses” shown in the “Other Expenses” which was debited to the Profit & Loss A/c of the financial year under consideration amounting to Rs.6.29 lakhs. Since relevant and tangible material was not placed before the AO by the assessee during the course of the assessment proceedings under section 143(3) of the Act, the opinion formed by the AO could not have been proper in the absence of relevant material on record as the AO could not have made p0ropper verifications. This has certainly rendered the assessment order as erroneous as well as prejudicial to the interest of Revenue and thus amenable to interference by Pr. CIT by invocation of revisionary powers u/s/. 263 of the Act despite being absence of relevant and tangible material on record before the AO. The view which was adopted by the AO based on material available on record could not have been adopted by the AO as material was not sufficient to come to such conclusion as no proper enquiry/ verifications were conducted y the AO thereby making the assessment order erroneous so far as prejudicial to the interest of Revenue amenable to exercise of revisionary powers by Pr. CIT u/s. 263 of the Act. Therefore I am of the considered view that in the instant case circumstances do exist for invocation of revisionary powers by the Pr. CIT u/s. 263 of the Act. Moreover, Explanation 2 to section 263 is in place now with the Assessment Year 2013-14 W.B.Agro Inds. Corpn.. Ltd. Vs PCIT-6, Kol. Page 3 amendment brought in the Statute by Finance Act, 2015 with effect from -01- 06-2015.

After having considered the position of law and facts and circumstances of the instant case, the assessment order passed by the AO is found to be erroneous and prejudicial to the interest of revenue in accordance with the Explanation 2 below section 263(1) of the Act. As a result, the assessment order passed by the AO is set aside in respect of only the point stated in Para-2 above. The Assessing Officer is directed to initiate fresh assessment proceedings & carry out necessary verification & take action accordingly after verification of the correctness of the claim of the assessee company. The Assessing Officer must also provide reasonable opportunity to the assessee company to produce documents & evidences which it may chose to rely upon for substantiating its own claim. Thereafter a fresh assessment order may be passed in accordance with the relevant provisions of law.”

We have given our thought consideration to rival pleadings against and in support of the PCIT’s exercise of his revision jurisdiction vested u/s 263 of the Act. We make it clear that he proposed to revise the above regular assessment on the ground that prior period expenses are not an allowable expenditure whereas in his findings under challenge, the PCIT has treated the above regular assessment in issue as erroneous causing prejudice to the interest of Revenue as per u/s263(1) Explanation(2) in view of the Assessing Officer’s failure in carrying out necessary enquiries. We proceed in these backdrop of facts that various judicial precedents (1958) 33 ITR 681 (Bom) Commissioner of Income Tax vs. Nagri Mills, (2014) 221 TAXMANN 80 (Bom) Commissioner of Income Tax vs. Mahangar Gas Ltd. and hon'ble Gujarat high court’s Tax Appeal No.685 of 2019 dated 16.09.2019 PCIT vs. Adani Enterprises inter alia hold that when an assessee is assessed at a uniform rate of tax year of raising an expenditure claim is of no consequence, prior period expenditure crystallized in the relevant accounting period is allowable as a business expenditure in subsequent year and such an issue is a revenue neutral case; respectively. Learned CIT-DR is fair enough in not disputing the clinching status of the assessee-company to have been assessed at the same rate of tax in all these assessment years. There is no further quarrel between the parties about genuineness of the assessee’s prior period expenses claimed as evident from the PCIT’s order under challenge. We therefore hold that the impugned assessment not disallowing the assessee’s prior period expenses is neither erroneous nor does it cause prejudice to interest of the Revenue as Assessment Year 2013-14 W.B.Agro Inds. Corpn.. Ltd. Vs PCIT-6, Kol. Page 4 per hon'ble apex court’s landmark judgment in Malabar Industrial Co. Ltd. vs. Commissioner of Income Tax (2000) 243 ITR 83 (SC) that the same have to be satisfied simultaneously before an assessment is sought to be revised u/s. 263 of the Act. We accordingly reverse PCIT’s order under challenge.