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Income Tax Appellate Tribunal, “SMC-A” BENCH : BANGALORE
Before: SHRI JASON P BOAZ
Per Jason P Boaz, Accountant Member
This appeal by the assessee is directed against the order of CIT(A, Mysore dated 28.06.2018 for Assessment Year 2013-14.
Briefly stated, the facts of the case relevant for disposal of this appeal, are as under:
2.1 The assessee, a company engaged in the business of trading and processing of coffee, filed its return of income for Assessment Year 2013-14 on 29.09.2013 declaring total income of Rs.19,36,200/-. The case was selected for scrutiny and the Page 2 of 6 assessment was completed u/s 143(3) of the Income Tax Act, 1961 (in short ‘the Act’) vide order dated 22.03.2016; wherein the assessee’s income was determined at Rs.43,32,810/- in view of, inter alia, a disallowance of Rs.22,35,864/- in respect of a claim for allowing deduction of Sales Tax pertaining to earlier years and also paid in earlier years but claimed in the year under consideration. On appeal on this issue, the CIT(A), Mysore dismissed the assessee’s appeal vide order dated 28.06.2018.
3. Aggrieved by the order of CIT(A), Mysore dated 28.06.2018 for Assessment Year 2013-14, the assessee has filed this appeal before the Tribunal wherein it has raised the following grounds:
1. The orders of the authorities below in so far as they are against the appellant, are opposed to law, equity, weight of evidence, probabilities, facts and circumstances of the case.
2. The learned CIT[A] is not justified in upholding the disallowance of Rs, 22,35,864/- being the Sales-tax liability relating to the earlier years that was paid in the earlier year under the facts and in the circumstances of the appellant's case. The learned CIT[A] ought to have appreciated that the sales- tax paid was an allowable expenditure and the decision to claim the same as deferred revenue expenditure for the year under appeal was maintainable under the facts and in the circumstances of the appellant's case.
Without prejudice to the right to seek waiver with the Hon'ble CCIT/DG, the appellant denies itself liable to be charged to interest u/s. 234-B of the Act, which under the facts and in the circumstances of the appellant's case and the levy deserves to be cancelled.
4. For the above and other grounds that may be urged at the time of hearing of the appeal, your appellant humbly prays that the appeal may be allowed and Justice rendered and the appellant may be awarded costs in prosecuting the appeal and also order for the refund of the institution fees as part of the costs.
Ground Nos. 1 and 4 (supra), being general in nature and not urged before me, no adjudication is called for thereon and they are consequently dismissed as infructuous.
Ground No. 3 – Charge of interest u/s 234B of the Act 5.1 In this ground (supra), the assessee denies itself liable to be charged interest u/s 234B of the Act. The charging of interest is consequential and mandatory and the assessee has no discretion in the matter. This proposition has been upheld by the Hon’ble Apex Court in the case of Anjum H. Ghaswala in 252 ITR 1 (SC) and I therefore uphold the action of the AO in charging the assessee the said interest. The AO is, however, directed to re-compute the interest chargeable u/s 234B of the Act while giving effect to this order.
Ground No. 2 : Disallowance of Sales Tax pertaining to and paid in earlier years 6.1 In this ground (supra), the assessee contends that the CIT(A) is not justified in upholding the disallowance of Rs.22,35,864/- pertaining to Sales Tax of earlier years and paid in earlier years, without appreciating that the same was allowable as deferred revenue expenditure in the Assessment Year under consideration. The learned AR was heard in support of this ground and reiterated the submissions put forth in writing before the CIT(A).
6.2 Per contra, the learned DR for Revenue placed strong reliance on the decisions of the authorities below in disallowing the claim for deduction of Sales Tax pertaining to and also paid in earlier years, in the year under consideration as deferred revenue expenditure. The learned DR submitted that the assessee has failed to controvert the findings of the authorities below and to establish as to under which provision of the Act its claim is allowable.
6.3.1 I have heard the rival contentions and perused and carefully considered the material on record. The facts of the matter as emerge from the record is that in the course of assessment proceedings, the assessing officer (‘AO’) noticed that the assessee had claimed deduction in this year of an amount of Rs.22,35,864/- towards Sales Tax pertaining to and paid in earlier years. The AO disallowed the assessee’s claim, observing that the same is not allowable as the Sales Tax pertains to earlier years and has also been paid in earlier years and therefore cannot be allowed in the year under consideration.
6.3.2 On appeal, the CIT(A) has considered the assessee’s submissions and rejected the assessee’s claims holding as under at para 3 of the impugned order: “In the 2nd ground of appeal, it was submitted that the Assessing Officer erred in disallowing a portion of the Sales-tax paid in an earlier year which was later written off in the A.Y.2013-14 and claimed by the appellant as an allowable expenditure. In this regard, at paragraph 3 of the written submission, dt.07/06/2018, the appellant submitted as follows: "The management of the Company decided to write of (sic.) Rs.67,07,594/- of disputed purchase tax paid in three equal instalments of Rs.22,35,864/- commencing from financial year 2010-11, by treating revenue expenditure as a deferred revenue expenditure. The decision to write off in three equal instalments was taken to avoid the financial statements showing an unusual loss in one year and profits in the two years. The treatment of the said Rs.22,35,864/- deferred revenue expenditure is same in the Income Tax returns and the Financial Statements as per the Companies Act." The aforesaid submission was duly considered. Under the Income Tax Act, 1961, there is no concept of deferred revenue expenditure. The Ad recognizes only two types of expenditure, i.e. capital expenditure or revenue expenditure. Capital expenditure is capitalized and carried forward whereas the revenue expenditure is written off as a tax deduction in the year to which it relates. However, under section 35D of the Income tax Act, 1961 amortization of preliminary expenses is provided for, which is a statutory recognition of deferment of expenses over a period of time. The Hon. Supreme Court has allowed deduction for discount on issue of debentures (which was in the nature of upfront interest payment) by overruling a judgment of the Hon. Bombay High Court on this issue. Thus, in the case of discount on debentures, the Hon. Supreme Court recognized deferred revenue expenditure as an exception. On the admitted facts, it is found that the deferred revenue expenditure claimed by the appellant was neither in the nature of amortization of preliminary expenses nor in the nature of discount on issue of debentures and therefore, the claim of the appellant does not qualify for deduction under the Act. Accordingly, the 2nd ground of appeal is dismissed. The 3rd ground of appeal was preferred to deny the chargeability of interest u/s. 234B and Page 5 of 6 234C of the Act. In this regard, as the grounds taken on the disputed addition have been dismissed, there shall be no consequent variation in the assessed income warranting the claim made by the appellant vide the 3rd ground of appeal. Therefore, the 3rd ground of appeal is dismissed.”
6.3.3 Before me, the assessee has not been able to controvert the finding of the authorities below or to establish its claim being allowed as deferred revenue expenditure. In this regard, even the judicial precedents are against the assessee’s claim. In the case of Taparia Tools Ltd., Vs. JCIT (2015) 372 ITR 605 (SC), the Hon’ble Apex Court has held that there is no concept of deferred revenue expenditure in the Act except under specified sections i.e., such as in section 35D of the Act. Normally, the ordinary rule to be applied is that revenue expenditure incurred in a particular year is to be allowed in that year and if so claimed, Revenue cannot be denied. However, in a case where the assessee himself wants to spend the expenditure over a period of ensuring years, it can be allowed only if the principle of “matching concept” is satisfied; which upto now has been restricted to cases of debentures. No such case has been made out by the assessee in the case on hand for Sales Tax admittedly pertaining to earlier years and paid in earlier years to be allowed as expenditure in the year under consideration. In these factual/legal circumstances of the case on hand as discussed above, I find no merit in the averments made by the assessee in this ground No. 2 (supra) and accordingly dismiss the same.
In the result, the assessee’s appeal for Assessment Year 2013-14 is dismissed. 7.
Pronounced in the open court on this 14th day of November, 2018.