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Income Tax Appellate Tribunal, KOLKATA BENCH “A” KOLKATA
Before: Shri J.Sudhakar Reddy & Shri S.S.Godara
Shri Pratyush Jhunjhunwala, Advocate अपीलाथ� क� ओर से/By Appellant Shri Shankar Halder, JCIT-SR-DR ��यथ� क� ओर से/By Respondent 20-02-2019 सुनवाई क� तार�ख/Date of Hearing 30-04-2019 घोषणा क� तार�ख/Date of Pronouncement आदेश /O R D E R PER S.S.Godara, Judicial Member:- This assessee’s appeal for assessment year 2012-13 arises against the Commissioner of Income Tax (Appeals)-1, Kolkata’s order dated 23.03.2018 passed in case No.ITBA.1008131694(1)/CIT(A)-1/APPEAL_1/2017-18, involving proceedings 143(3) of the Income Tax Act, 1961; in short ‘the Act’. Heard both the parties. Case file(s) perused.
The assessee’s former substantive ground challenges correctness of both the lower authorities’ action disallowing its prior period expenditure amounting to ₹13,38,016/-. The CIT(A)’s detailed discussion to this effect reads as under:-
WBEIDC. Ltd.. Vs DCIT, Cir-2(2) Kol. Page 2 “Ground No.2: This ground pertains to the Assessing Officer erred in making an addition of Rs.13,38,016/- on account of disallowance of prior period expenses. The appellant’s AR has contested the disallowance of prior period expenses and made submissions as under. ‘During the year under consideration, the company has paid net amount of Rs.13,38,016/- on account of staff welfare, miscellaneous expenses, etc. The liability for the same having been crystallized in respect to current year, the company accounted for the expenditure during the previous year relevant to the assessment year. Your kindself is well aware that company is entitled for deduction for those items crystallized during the year even though the same relates to earlier years. It is seen from the accounts furnished by the assessee that the assessee is found to have maintained its account on mercantile basis. Therefore, any prior period adjustment is no allowable as per Act. Hence the claim of the assessee under the head ‘Prior period adjustment” to the tune of Rs.113,38,016/- is not allowed, therefore, rejected.’ I have carefully considered the observations of the Assessing Officer in the assessment order, and submissions of the appellant. The Assessing Officer has added back an amount of Rs.5,93,000/- in the assessment order on the ground that the appellant’s accounts were maintained on mercantile basis. The appellant had stated that it has also offered various income amounting to Rs.7,33,397/- that has crystallized during the year under consideration, but which relates to earlier years. It was also averred that in the assessment order the AO ha added the difference of the prior period expenditure & income to the computation of total income. Reliance was placed on the ratio of decisions of the Hon'ble Gujarat High Court in Saurashtra Cement & Chemical Industries Ltd. vs. CIT (1995) 213 ITR 523 (Guj); Toy Engg. India Ltd. vs. JCIT (2006) 5 SOT 616 (TMun), ITO vs. Intrafax Engg Co [38 TTJ 551 (Del), etc. On careful consideration, it is observed that the AO held that the assessee was unable to establish whether the amount has been crystallized during the financial year or not. The onus of proving the genuineness of its claim lies squarely upon the assessee, which he has failed to discharge either during the assessment or appellate proceedings. Hence, the said liability in regard to the staff welfare and miscellaneous expenses still remains a contingent liability which has not crystallized during the year and the appellant has merely made a provision for the same in its books of accounts. Therefore, it is found that the provision for expenses of Rs.13,38,016/- are a mere contingent liability and it cannot be allowed as expenditure. Hence, as the facts of the appellant’s case are found to be distinct from those cited in the decisions by the app, the ratio of the judicial decisions relied upon by the A/R are found to be not applicable to the facts of the instant case accordingly, I am of the view that there is no infirmity in the finding of the Assessing Officer addition of impugned amount of Rs.13,38,016/-, which is confirmed. This ground is not allowed.”
WBEIDC. Ltd.. Vs DCIT, Cir-2(2) Kol. Page 3 3. The assessee vehemently contends during the course of hearing that the CIT(A) has erred in law and on facts in confirming Assessing Officer’s impugned action. It reiterates that the impugned expenditure items comprising of various head(s) namely, consumption, profession / legal charges, rates & taxes, repairs and maintenance, salary & wages and bonus, misc. items less than ₹30,000/- and other credits as well as reversals had taken place during the relevant previous year. Our attention is invited to a detailed compilation of all the said head(s) in the paper book comprising of the Annexure-1 onwards in the nature of relevant ledgers, bills etc. The Revenue’s case on the other hand is that both the lower authorities have rightly invoked the impugned disallowance as there is no supporting evidence of the said items to have been crystallized during the relevant previous year.
We have given our thoughtful consideration to rival contentions regarding instant issue of prior period expenditure disallowance. The hon'ble Gujarat high court’s decision in PCIT vs. Adani Enterprises in Tax Appeal No. 566/2016 holds that an assessee’s claim of prior period expenditure cannot be declined in case it is assessed at the same rate in the two assessment years in issue. Coupled with this, the fact also remains that assessee’s voluminous evidence comprised in the paper book makes it clear that the items comprising of varying sums in issue have been crystallized only in relevant previous year. Takes for instance that assessee’s prior period adjustment of ₹42,47,480- regarding repair &maintenance charges relating to M/s Kolkata Metropolitan Water & Sanitation Authority. The factual position is no different in case of other remaining head(s) as well. We therefore go by the above legal and factual position to delete the impugned prior period expenditure disallowance. The assessee succeeds in its former substantive ground.
Next comes the assessee’s latter substantive ground seeking to delete Sec. 14A r.w.s. 8D (2)(iii) administrative expenditure disallowance amounting to ₹4,11,284/- in respect of its exempt income amounting to ₹16,07,896/-. There is hardly any dispute that the impugned disallowance provision regarding the instant third head of administrative expenditure applies with effect from assessment year 2008-09 onwards. The assessee’s only case during the course of hearing is that both the lower authorities have computed the impugned disallowance without following this tribunal’s decision