2005 (12) TMI 226 - AT - Income Tax

Tribunal affirms disallowance of deferred expenses, stresses revenue recognition principles

M Plast (India) Limited. Versus Deputy Commissioner Of Income-Tax.

The Tribunal upheld the disallowance of expenses claimed by the assessee for deferred expenses, emphasizing the need for consistency and clarity in ... Business Expenditure Issues:1. Disallowance of expenses claimed by the assessee for deferred expenses.2. Recognition of revenue expenditure incurred by the appellant over multiple years.3. Application of legal principles regarding spreading expenditure over multiple years.4. Consistency in recognizing the nature of accounts maintained by the assessee.Analysis:1. The issue in this case revolves around the disallowance of expenses claimed by the assessee for deferred expenses. The appellant had incurred expenses on advertisement, foreign tours, and exhibition expenses in previous financial years but claimed a portion of these expenses as deductible in the year under consideration. The assessing authority and the CIT(A) disallowed the deduction, citing the principle that if an expenditure is not claimed in the right year, the right to claim the expenses is lost forever. The disallowance was based on a Supreme Court decision and was upheld by the CIT(A).2. The appellant argued that the expenses were incurred for the purpose of its business and the benefit of such expenses continued over a period of three years. The appellant maintained that the expenditure was revenue in nature and should have been allowed as a deduction in the year under consideration. The appellant relied on legal precedents, including a judgment by the Karnataka High Court, to support its claim that the expenditure should be recognized as deductible in the year in which it was incurred.3. The Tribunal analyzed the legal principles regarding spreading expenditure over multiple years. Referring to a Supreme Court judgment and a Calcutta High Court judgment, the Tribunal emphasized that while revenue expenditure should generally be allowed in its entirety in the year it is incurred, there are instances where an assessee can spread and claim it over a period of ensuing years. The Tribunal highlighted the importance of considering the continuing benefit of the expenditure to the business over a number of years.4. The issue of consistency in recognizing the nature of accounts maintained by the assessee was also addressed. The Tribunal noted that the appellant had not claimed the entire amount of expenditure in the earlier years and failed to show that the benefit of the expenditure was available in the year under consideration. The Tribunal concluded that there was no material to interfere with the decision reached by the CIT(A) and dismissed the appeal, stating that the grounds raised by the assessee were rejected.In conclusion, the Tribunal upheld the disallowance of the expenses claimed by the assessee for deferred expenses, emphasizing the need for consistency and clarity in recognizing revenue expenditure incurred over multiple years.