ACNIELSEN RESEARCH SERVICES P. LTD,MUMBAI vs. ADDL CIT RG 5(1), MUMBAI

In this appeal, the solitary grievance of the assessee is against the action of CIT(A) in sustaining the disallowance of Rs.24,84,082/- on the ground that it was a prior period expenditure.

In brief, the relevant facts are that the appellant is a company incorporated under the provisions of the Companies Act, 1956 and is, inter-alia, engaged in the business of marketing research, serving clients within India as well as outside India. The appellant is a subsidiary of its foreign company based in USA. In the course of assessment proceedings, the Assessing Officer noted that the Tax Auditor’s report revealed prior period expenses of Rs.24,84,082/- which were in the nature of Compensation, Staff Welfare, Travel, Conveyance, etc. The Assessing Officer noted that such prior period expenses could not be allowed as a deduction against the current year receipts credited to the Profit & Loss Account since assessee was following the mercantile system of accounting. Therefore, the said sum was disallowed and added back to the assessee’s total income. The CIT(A) has also affirmed the stand of the Assessing Officer, against which the assessee is in further appeal before us.

Explaining the background of the dispute, the learned representative for the assessee has referred to the relevant discussion in the assessment order wherein in para 4.2, the Assessing Officer has inter-alia, reproduced the written submissions of the assessee. In terms of the said submissions, it is quite clear that assessee canvassed that in terms of the consistent practice followed in the past, assessee closed its accounts each year on 30th April itself, i.e. within one month from the end of the relevant accounting year 31st March. Assessee has several offices in India from which the Statement of Expenses are received by the Head Office after such cut-off date of 30th April and such expenses

The learned representative further explained that initially in Assessment Year 1996-97, such a dispute was raised by the Assessing Officer for the first time, which had been decided by the CIT(A) in favour of the assessee and in this context he has filed the order of CIT(A) dated 23.3.2000. The learned representative pointed out that the said decision of the CIT(A) has become final and that upto the instant assessment year there has been no disallowance on this score. The learned representative pointed out that assessee, however, was not in a position to substantiate the aforesaid because copies of the relevant assessment orders starting from Assessment Years 1997-98 to 2007-08 were not readily available on account of change in management and change in Tax Consultants over the years. However, the assessee had made efforts to obtain such material by approaching the Assessing Officer on more than one occasion. In this regard, he filed copies of the communications addressed to the Assessing Officer dated 18.12.2015, 25.4.2016, 25.5.2016 and 4.10.2016. Even otherwise, on 4 ACNielson Research Services Pvt. Ltd.

On the other hand, the ld. DR has reiterated the reasoning of the Assessing Officer to the effect that since the assessee was following mercantile system of accounting, the impugned prior period expenses could not be allowed as a deduction in the instant year.

We have carefully considered the rival submissions. Factually speaking, the assessee has been consistently explaining before the lower authorities the reasons for which such expenses have been debited in the Profit & Loss Account for the year under consideration. It has been explained that it’s accounts for the year ending 31.3.2007 are closed on 30.4.2007, to be in line with the practice followed by its holding company in USA and, therefore, the bills/details of expenditure of certain expenses, which pertain to 31.3.2007 ending, were received from its Branches after 30.4.2007 and, thus debited in the Profit & Loss Account for the year under consideration, i.e. ending on 31.3.2008. Such expenditure has been treated as a prior period expenditure and disallowed. The learned representative made a statement at Bar that the aforesaid methodology adopted by the assessee has been consistently followed since more than 15 years and that after the initial disallowance in the Assessment Year 1996-97, there has been no disallowance till now. Be that as it may, one point which clearly emerges is that there is no dispute insofar as the nature of the 5 ACNielson Research Services Pvt. Ltd.

Before parting, we may also refer to the judgments of the Hon'ble Bombay High Court in the case of Taparia Tools Ltd., 260 ITR 102 (Bom) and Madras Industrial Investment Corporation Ltd., 225 ITR 802 (Bom), which have been referred to by the CIT(A). In our considered opinion, the ratio of the aforesaid decisions have no relevance so far as the instant controversy is concerned which is required to be adjudicated on the principles of consistency as well as on the basis of the year of crystallization of liability, which clearly takes place in the year in which such expenses are booked by the assessee. Thus, we set-aside the order of CIT(A) and direct the Assessing Officer to delete the disallowance of Rs.24,84,082/-.

In the result, the appeal filed by the assessee is allowed as pronounced in the open court in the presence of both the parties at the conclusion of hearing on 29th May, 2017.