Tribunal Upholds Public Sector Undertaking's Claim for Prior Period Expenses

Haryana Warehousing Corporation Versus The DCIT, Panchkula Circle And The ITO, Ward-3, Panchkula

Haryana Warehousing Corporation Versus The DCIT, Panchkula Circle And The ITO, Ward-3, Panchkula - TMI Issues Involved:
1. Disallowance of prior period expenses by the CIT(A).
2. Consistency in the accounting practice followed by the assessee.
3. Applicability of the doctrine of consistency.
4. Relevance of case laws cited by the assessee.

Detailed Analysis:

1. Disallowance of Prior Period Expenses by the CIT(A):
The primary issue in the appeals was the disallowance of prior period expenses by the CIT(A). The assessee, a public sector undertaking, had claimed prior period expenses amounting to Rs. 40,589,627/- in the P&L account for the assessment year 2010-11. The Assessing Officer (AO) disallowed these expenses on the grounds that they did not pertain to the relevant previous year, as the assessee follows the mercantile system of accounting. Additionally, the AO disallowed prior period expenses claimed under the procurement accounts for Wheat, Paddy, and Bajra, totaling Rs. 57,015,244/-, due to a lack of supporting evidence that the liability to pay arose in the relevant year.

Upon appeal, the CIT(A) partially upheld the AO's decision, granting relief of Rs. 8,581,955/- due to incorrect figures taken for prior period expenses but maintaining the disallowance of Rs. 1,178,531/- on the basis that the assessee failed to substantiate its claim with evidence that liabilities arose during the year under consideration.

2. Consistency in the Accounting Practice Followed by the Assessee:
The assessee argued that it consistently followed an accounting practice where expenses not reported or identified by the end of the year were subsequently booked as prior period expenses. This practice had been accepted by the Department in previous years. The assessee submitted that all expenses were supported by proper vouchers and evidence, and no discrepancies were noted by the AO in the vouchers.

3. Applicability of the Doctrine of Consistency:
The assessee contended that the doctrine of consistency should apply, as there was no change in the facts and circumstances of the case compared to previous years. The assessee cited several case laws to support this argument, including:
- CIT Vs. Jagatjit Industries Limited (Delhi High Court)
- Saurashtra Cement & Chemical Industries Ltd v CIT (Gujarat High Court)
- M/s Heavy Engineering Corpn Ltd, Ranchi v DCIT (ITAT Ranchi Bench)
- DCIT Vs. Mecon Ltd, Ranchi (ITAT Ranchi Bench)

The Department, represented by the Ld. DR, argued that the doctrine of consistency was not applicable in this case because the assessee was previously assessed as a charitable trust and later as an AOP. The Ld. DR also emphasized that the assessee's accounts were not governed by the Companies Act, and the case laws cited by the assessee pertained to companies, not state government undertakings.

4. Relevance of Case Laws Cited by the Assessee:
The Tribunal examined the case laws cited by the assessee and found them relevant. The Hon'ble Delhi High Court in CIT Vs. Jagatjit Industries Limited emphasized that if a particular accounting system has been consistently followed and accepted by the Department, there should be no departure from it without a valid reason. Similarly, the ITAT Ranchi Bench in DCIT Vs. Heavy Engineering Corporation Ltd upheld the consistent accounting practice of booking prior period expenses when not reported or identified by the end of the year.

Conclusion:
The Tribunal concluded that the Revenue had no cogent reason to disallow the prior period expenses consistently claimed and allowed by the Department in earlier years. The Tribunal rejected the submissions of the Ld. DR, emphasizing that the doctrine of consistency applies and that the assessee's accounting practice was valid and supported by proper vouchers and evidence. Consequently, the Tribunal set aside the orders of the authorities below and allowed the appeals filed by the assessee.