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Income Tax Appellate Tribunal, ‘ C’ BENCH : CHENNAI
Before: SHRI CHANDRA POOJARI & Shri Duvvuru RL Reddy
आदेश / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER
This appeal of the Revenue is directed against the order of the Commissioner of Income-tax (Appeals)-1, Chennai dated 12.01.2017 pertaining to assessment year 2012-13.
The Revenue has raised the following grounds for our adjudication.
ITA No.674/17 :- 2 -:
The order of the learned CIT(A) is contrary to law, facts and circumstances of the case. 2.1 The learned CIT(A) erred in deleting the addition made under the head “Prior Period Expenses” without appreciating the fact that the expenses so claimed does not belong to the relevant accounting year of the Assessment year 2012-13, but relates to the previous financial years. 2.2 The learned CIT(A) erred in holding that the Prior Period Expenses are deductible expenses for the relevant accounting year of the Assessment Year (2012-13) without appreciating the fact that the assessee is following mercantile system of accounting and the prior period expenses if any ought to have been claimed in the relevant financial years by way of making provisions. 2.3 The Learned CIT(A) erred in law by holding it contrary, in as much as the settled principle that deduction can be allowed in respect of only those expenditure which are incurred in the relevant accounting year for the purpose of computing the profits and gains of a particular financial year.
We have heard both the sides and perused the material on record. The similar issue came for consideration before this Tribunal in assessee's own case in ITA No.2295/Mds./2016 for assessment year 2011-12 dated 08.09.2017 wherein the Tribunal held as follows:-
“5. We have considered the rival submissions. At the outset, it is noticed that the AY involved is 2011-12. The Revenue has filed an appeal in the assessee’s own case in respect of the immediately preceding AY being AY 2010-11 in ITA No.865/Mds/2017. It is noticed that the Co- ordinate Bench of this Tribunal in the assessee’s own case for the immediately preceding AY in vide its order dated 05.09.2017 held as follows:
ITA No.674/17 :- 3 -:
From the above, it is clear that the assessee had been following this accounting practices consistently. In the light of the ratio settled by the Delhi High Court in the case of CIT vs. Jagatjit Industries in the issue no. (i), supra, is in favour of the assessee. Now, let us examine whether the nature and genuineness of the expenditure has been examined or not. In this regard, the relevant portion of the assessment order is extracted as under:
“4. The assessee filed a reply dated 12.10.2015, in this regard which is reproduced as follows:
The disallowances mentioned in your order relates to prior period expenditure (expenditure pertaining to previous assessment year claimed during ay 2010-11). The assessee runs chain of ophthalmology hospitals and has over 25 branches across India. On account of the volume of transactions, certain bills could be accounted only after the year end. Though the assessee is a company and require to maintain books of accounts on accrual basis, provision for expenditure cannot be made based on estimates since estimate cannot be accurate.
In such high volume low value transaction, the liability in respect of certain bills would not have crystallized as at the year-end on account of various factors.
We have already filed an appeal before Commissioner of Income Tax (Appeals)-1 for ay 2012-13 on similar grounds.
In CIT vs. Vishnu Industrial Gases (In the High Court of Delhi, ITR No. 229/1988, Decided on: 6th May, 2008) where the department had not disputed that the expenditure was deductible in principle but was only disputing the year in which the deduction could be allowed HELD.”
5. The submission of the assessee has been considered and is not accepted as the said amount is not an allowable expenditure under the provisions of the Act. The assessee is following mercantile system of accounting and the deductions can be allowed in respect of only those expenses which are incurred in the relevant accounting year for the purpose of computing the profits and gains. Hence the said amount is disallowed and added to the total income of the assessee.“
From the above, it is clear that the AO has not examined the nature and genuineness of the impugned expenditure. He has simply disallowed for the reason that the assessee is following mercantile system of accounting and the deduction can be allowed in respect of only those expenses which are incurred in the relevant accounting year of computing the profits and gains. Thus, he had not examined the nature and genuineness of the expenditure at all. In the view of that we are of the considered opinion that the AO has to examine the nature and genuineness of the expenditure and decide the issue in accordance with law following the ratio of the Delhi High Court (supra). To that extent, the revenue’s appeal is treated as allowed.
In the result, the revenue’s appeal is treated as partly allowed for statistical purposes.
6. As it is noticed that the issues for the relevant AY are also identical to this issues in respect of the Revenue’s appeal in referred to supra, respectfully following the decision of the Co-ordinate
ITA No.674/17 :- 4 -:
Bench of this Tribunal in for the AY 2010-11 on identical directions given by the Co-ordinate Bench of this Tribunal in the assessee’s own case in ITA No.865/Mds/2017, the issues are restored to the file of the AO for re-adjudication. We also make it clear that there can be in no case double allowance of an expenditure, as, for example, through increased opening stock for the current year (on account of the goods being received during the preceding year) and also by recording the purchase in Accounts on the receipt of the corresponding invoices during the current year. In these circumstances, the appeal filed by the Revenue stands partly allowed for statistical purposes.”
In view of the above Order of Tribunal, we remit the issue to the file of ld. Assessing Officer for re-adjudication on similar line.
In the result, the appeal filed by the Revenue is allowed for statistical purposes.
Order pronounced on 27th September, 2017, at Chennai.