The Calcutta High Court ruled that In the year that the liability crystallises, prior period expenditure may be claimed.
Facts
The appeal filed by the revenue under Section 260A of the Income Tax Act, 1961 is directed against the order passed by the Income Tax Appellate Tribunal for the assessment year 2012- 2013.
The revenue has raised the substantial questions of law for consideration;
1) Whether the Tribunal erred in law in holding that the prior period expenses of Rs. 4,08,23,000/- as an allowable expense in the instant assessment year which is patently wrong in as much as the assessee is following mercantile systems of accounting and as such the prior period expenses cannot be allowed during the assessment year in question; and,
2) Whether the Tribunal erred in law in allowing Rs. 11.82 crores as provision for diminution in the value of investment which is an unascertained liability ignoring Remand Report of Assessing Officer as such the order of the Tribunal is perverse and absurd?
Submissions
Vipul Kundalia, senior standing counsel, for the Petitioners, submitted that merely because the assessee was state undertaking, it cannot be stated that it cannot do any wrong and the tribunal did not examine the facts of the case.
Decision
The division bench of The Acting Chief Justice T.S. Sivagnanam And Justice Hiranmay Bhattacharyya observed that the examination of facts by the CIT(A) is more elaborate and more importantly as noted by the tribunal, the revenue was not able to place any material to disprove that the assessee explanation furnished before the authorities in support of its claim that the liability to pay the expenses charged under the head “prior period” crystallized during the financial year 2011-2012.
The bench found that no substantial question of law arises for consideration under the head prior period expenses.
The court noted that since transferee was a subsidiary promoted for furtherance of the assessee’s freight container business and in furtherance of such business the loan were advanced from which interest income was earned and such interest income was assessed under the head “business”.
It was further noted by the court that under compelling circumstances as by the direction of the RBI such loans were converted into preference shares which consequently eroded in value because of the law sustained by the subsidiary. Therefore, the tribunal held that merely because loss was debited under the nomenclature “provision” did not alter the basic character of the transaction and the loss incurred due to non recoverability of the amount advanced in the ordinary course of business could not have been disallowed by the assessing officer.
“The tribunal rightly took note of the decision of the Gujarat High Court and after re-appreciating the factual position, affirmed the orders passed by the CIT(A) and therefore we are of the view that no substantial question of law arises for consideration on the said issue” the court said.
Case title: Principal Commissioner Of Income Tax V/S Balmer Lawrie And Company Limited
Citation: ITAT/259/2022
