Tribunal allows appeals, directs fresh assessment on prior period expenses & foreign exchange liability

The Tribunal allowed the appeals of both the assessee and the Revenue for statistical purposes, setting aside the orders and directing the Assessing Officer to reconsider the issues afresh with regard to deletion of addition on account of prior period expenses and addition of liability due to foreign exchange fluctuations towards the capital cost of metallizer. The Tribunal emphasized the need for the AO to consider the relevant facts and evidence in making a fresh decision.

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Issues Involved:
1. Deletion of addition on account of prior period expenses.
2. Addition of liability due to foreign exchange fluctuations towards the capital cost of metallizer.

Issue 1: Deletion of Addition on Account of Prior Period Expenses

The assessee and the Revenue filed cross appeals against the order dated 20.11.2012 of CIT(A)-XIII, New Delhi for the 2009-10 assessment year. The Revenue contended that the CIT(A) erred in deleting the addition of Rs. 76,34,951/- made on account of prior period expenses. The assessee had claimed these expenses, incurred from June 2004 to August 2005, in the 2009-10 assessment year, arguing that they were for exploring business opportunities abroad which did not materialize. The AO disallowed the claim, stating that the expenses should have been claimed in the 2005-06 assessment year as per the mercantile system of accounting. The CIT(A) allowed the claim, considering the expenses as revenue expenditure under Section 37 of the IT Act, as the project was abandoned in the year under consideration.

The Tribunal noted that the CIT(A) did not refer to any evidence supporting the assessee's claim that the expenses were incurred for setting up a new line of business or that the project was abandoned. The Tribunal set aside the CIT(A)'s order and restored the issue to the AO for a fresh decision, directing the AO to consider the relevant facts and evidence.

Issue 2: Addition of Liability Due to Foreign Exchange Fluctuations Towards the Capital Cost of Metallizer

The assessee contended that the CIT(A) erred in upholding the addition of Rs. 11,83,407/- due to foreign exchange fluctuations towards the capital cost of a metallizer, treating it as income liable to tax. The AO had disallowed the claim, stating that the fluctuation loss pertained to the purchase of a fixed asset and should be adjusted against the capital account. The CIT(A) concurred with the AO, holding that the exchange fluctuation loss was on account of capital transactions and could not be claimed as revenue expenditure.

The Tribunal observed that the assessee's contention was that the loss should be adjusted against the fixed assets as per Section 43A of the Act, and not claimed as revenue expenditure. The Tribunal set aside the CIT(A)'s order and restored the issue to the AO for a fresh decision, directing the AO to pass a speaking order in accordance with law after giving the assessee a reasonable opportunity of being heard.

Conclusion:

The appeals of both the assessee and the Revenue were allowed for statistical purposes, with the Tribunal setting aside the impugned orders and directing the AO to reconsider both issues afresh, taking into account the relevant facts and evidence. The order was pronounced in the open court on 16th June 2015.

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