Commercial expediency and crystallised liabilities led to deletion of prior period expense and interest disallowances.

Prior period expenses were allowed where supporting party-wise records showed settlement, billing and payment during the year, and the revenue did not rebut the claim; the liabilities were treated as crystallised in the relevant year, so disallowance was deleted. Interest attributable to investment in shares of an associate concern was also disallowed only on the facts, but the Tribunal treated the investment as commercially expedient because it was linked to the business project and sales-tax benefit scheme; the interest disallowance was therefore deleted. The disputed additions were thus removed in full, and the assessee succeeded.

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Issues: (i) Whether the disallowance of prior period expenses was sustainable when the liabilities were claimed to have crystallised during the relevant year; (ii) Whether interest attributable to investment in shares of an associate concern was disallowable in the facts of the case.

Issue (i): Whether the disallowance of prior period expenses was sustainable when the liabilities were claimed to have crystallised during the relevant year.

Analysis: The expenses were supported by party-wise details and supporting material showing settlement, billing, and payment during the year. The revenue did not controvert the factual assertions or produce material to dislodge the claim. On the record, the liabilities were treated as having crystallised in the relevant year, and the earlier disallowance was not sustained on the facts.

Conclusion: The disallowance of prior period expenses was not justified and the issue was decided in favour of the assessee.

Issue (ii): Whether interest attributable to investment in shares of an associate concern was disallowable in the facts of the case.

Analysis: The investment was made to secure benefits under the sales-tax exemption/deferred scheme linked to the project, and the Tribunal treated the transaction as commercially expedient. The issue had also been considered earlier in the assessee's favour, and the reasoning was supported by the principle that borrowing used for a business purpose does not warrant interest disallowance merely because the investment incidentally relates to an associate concern.

Conclusion: The interest disallowance was deleted and the issue was decided in favour of the assessee.

Final Conclusion: The appeal succeeded in full and the additions disputed by the assessee were deleted.

Ratio Decidendi: Where an expenditure or borrowing-related claim is supported by contemporaneous material showing crystallisation in the relevant year or by commercial expediency connected with the business purpose, disallowance cannot be sustained merely on a contrary assessment by the revenue.

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