ITO 3(1)1), MUMBAI vs. ADVANCE REFRACTORY WARD TECHNOLOGY P.LTD, MUMBAI

Order u/s.254(1)of the Income-tax Act,1961(Act) Per Rajendra, A.M.लेखा सद�य राजे�� के अनुसारः Challenging the orders dated 31.5.2012 of the CIT(A)-5, Mumbai, the Assessing Officer(AO) has filed the present appeal. Assessee-firm,engaged in the business of trading of refractory materials.Original assessment was completed on 24.12.2007,u/s.143(3) of the Act,assessing the income of the assessee at Rs.7.13 crores,wherein an addition on account of unexplained liability was made amounting to Rs.5.50 crores.The AO further made an addition of Rs.1.53 crores,estimating the gross profit. The matter travelled up to the Tribunal,who set aside both the issues to the file of the AO to consider the additional evidences and decide the issue afresh.The AO while completing the assessment u/s.143(3) r.w.s.254 of the Act,on 27.11.2011 determined its income at Rs.1.44 crores. 2.The effective ground of appeal is about deleting the addition of Rs.1.34 crores on account of prior period expenses.During the set aside proceedings,the AO found that the assessee had claimed the amount of Rs.1,34,88,851/-on account of debit by M/s. Ispat Industries Ltd.(IIL),that the same was not credited in the books of accounts for the AY 2004-05, that the expenses in question pertained to earlier year,that it had debited the said sum in the books of account for the year under appeal.He called for an explanation from the assessee in that regard.After considering the submissions of the assessee ,dt.27.9.2011,the AO held that the expenses pertained to AY 2004-05 and not to the year under appeal, that there was a dispute between the assessee and IIL,that the claim made by the assessee was an after - thought,that the assessee had not produced any documentary evidence in support of his claim,that the claim made by the assessee was not acceptable.Finally, he added back a sum of Rs.1.34 crores to the income of the assessee. 3.Aggrieved by the order of the AO,the assessee preferred an appeal before the First Appellate Authority (FAA).Before him,it made elaborate submissions and filed a tabular chart displaying the details of disallowance made in the assessment order and same reads as under :- Sr. Particulars Amount(Rs.)

No 1. Exchange rate Fluctuation 64,14,263 2. Exchange rate fluctuation 7,02,967 71,17,230 3. Custom duty 2,93,534 4. Custom duty 1,87,814 ------------ 4,81,348 5. Compensation for material 12,27,804 shortage/damages 6. Material Reject 98,528 7. Material Reject 1,19,365 8. Material Reject 42,999 ------------ 2,60,892 9. Material shortage and 5,25,494 discounts 10. Material shortage and 76,082 discounts -------------- (A) Expenses claimed in 96,88,851 impugned year 11. Account adjustment with (B) 38,00,000 Delta Steel & Iron (Not an expense & not debited in audited P&L account) --------------- Total(A+B) 1,34,88,851 It was argued before him that the assessee had claimed the revenue expenses of Rs.96.88 lacs,that the balance amount of Rs.38.00 lacs represented the adjustment, journal book entry passed in assessee’s books of account for settling the accounts of three parties.After considering the submission of the assessee the FAA held that assessee had debited the account of M/s. Orissa Industries Ltd. and had credited the Account of IIL, that from the confirmation of IIL it was clear that it had passed similar journal entry, that the assessee had not claimed expenditure of Rs.38.00 lacs in its P&L account, that the AO had not brought any evidence to prove that Rs.38 lacs was claimed as an expenditure during the year under appeal.Accordingly, the FAA deleted the disallowance of Rs.38.00 lacs.With regard to the balance disallowance of Rs.96.88 lacs, the FAA held that the said expenditure comprised of foreign exchange fluctuation loss(Rs.71.17 lacs), custom duty (Rs.4.81 lacs), compensation (Rs.12.27 lacs) and material rejections etc.(Rs.8.61 lacs), that the perusal of record filed by the assessee, proved that the expenses were incurred in the course of business, that the AO had disallowed the expenses for the reason that such expenses were related to the earlier year, that the expenditure in question was allowable during the year under consideration as expenses had been ascertained and crystallized during the year only, the AO was not justified in brushing aside various documents filed by the assessee during the assessment proceedings,that the copies of Civil Suit,petition of Interim Injunction dt.11.5.2004, Civil Courts stay order, consent terms and Courts notice dt.24.1.2005 proved that there existed serious dispute between the parties, that during the year under appeal the dispute was settled and the expenses were crystallized, that the correspondence between the assessee and IIL proved that the dispute was not settled in the earlier AY.He referred to the 2