Unsustainable deduction of net prior-period expenses deducted under the heading “prior-period expenses”
Fact and issue of the case
This appeal has been filed by the assessee, challenging the order of the learned Commissioner of Income Tax (Appeals)-22, Mumbai (‘ld.CIT(A) for short) passed u/s. 250 of the Income Tax Act, 1961 (‘the Act’), pertaining to the Assessment Year (‘A.Y.’ for short) 2012-13.
The solitary ground of appeal raised by the assessee in this is challenging the disallowance of net prior period expenses made by the Assessing Officer (‘A.O.’ for short) and confirmed by the ld. CIT(A) on the ground that the assessee has not proved that the same was crystallized during the year under consideration.
The brief facts are that the assessee company was engaged in the business of distribution of electricity in the State of Maharashtra. The assessee had filed its return of income dated 28.09.2012, declaring loss of Rs.1179,96,17,308/- and had filed a revised return of income dated 01.11.2013 declaring total loss of Rs.2909,14,51,735/-. The assessee’s case was selected for scrutiny and notice u/s. 143(2) and 142(1) of the Act were issued and served upon the assessee. The ld. A.O. then passed the assessment order dated 29.03.2015 determining the total income at Rs.323,64,17,918/- by making various additions/disallowances.
Aggrieved, the assessee was in appeal before the ld. CIT(A) who had partly allowed the appeal filed by the assessee.
The assessee is in appeal before us challenging the order of the ld. CIT(A) in upholding the disallowance of net prior period expenditure debited under the head ‘prior period expenses’ made by the ld. A.O. on the ground that the assessee has failed to furnish the evidences to substantiate that the prior period expenses claimed by the assessee has crystallized during the impugned year.
The learned Authorised Representative (‘ld. AR’ for short) for the assessee contended that the issue of prior period expenses has been allowed in assessee’s case by the co-ordinate bench in A.Ys. 2001-02 to 2006-07 and 2010-11. The ld. AR relied on the order of the Tribunal in earlier years.
The learned Departmental Representative (‘ld.DR’ for short), on the other hand, controverted the said facts and stated that the assessee has failed to furnish any documentary evidences to substantiate the fact that the prior period expenses claimed by the assessee has crystallized during the year under consideration. The ld. DR further stated that the assessee has failed to show how the earlier year’s expenditure was quantified in this year. The ld. DR relied on the order of the lower authorities.
Observation of the court
It is also observed that the Tribunal in ITA No. 1649/Mum/2010 for A.Ys. 200405 and 2005-06 vide order dated 21.04.2021, ITA No. 1650/Mum/2010 for A.Y. 2006-07 vide order dated 20.05.2021 and ITA No. 2782/Mum/2015 for A.Y. 2010-11 has consistently followed the above said decision. The tribunal in earlier years has accepted the method adopted by the assessee where the liability of the work/services rendered in earlier year was allowed when the same was crystallized on receipt of the bill in the current assessment year. The Tribunal has also held that the Revenue has to adopt consistent approach and allow the expenditure which was crystallized during the year under consideration.
By respectfully following the above said decision, we direct the ld. A.O. to allow the claim of the assessee as per the findings of the Tribunal mentioned hereinabove in ITA No. 3813/Mum/2009. The ground no. 1 raised by the assessee is allowed. Ground no. 2 being general ground requires no adjudication.
In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open court on 10.10.2023.
Read the full order from hereMaharashtra-State-Electricity-Distribution-Company-Ltd-Vs-ACIT-ITAT-Mumbai-2