TaxTMI 
TaxTMI 
2014 (11) TMI 436
X X X X Extracts X X X X
X X X X Extracts X X X X
....borate order in which earlier decision has been considered and the Hon'ble High Court's decision in the case of the assessee was also discussed and relied upon to confirm the order of Ld. CIT(A). By filing copy of the said order of the Tribunal, it was pleaded for confirmation of the impugned order of Ld. CIT(A) for both the years. 3. Ld. D.R. very fairly submitted that the issue is squarely covered in favour of the assessee by earlier decision of the Tribunal in assessee's own case for the assessment year 2004-05, therefore, it was pleaded for deciding the appeals of the department in accordance with law and precedent relied upon by the Ld. A.R. 4. We have head both the sides, considered the material on record as well as precedent relied upon by the Ld. A.R. of the assessee. In I.T.A. No. 5226/Del/2010 (Department's Appeal) and C.O. No.88/Del/2011 (C.O. of the assessee), the entire issue has been discussed in detail and decided in favour of the assessee while considering Hon'ble Delhi High Court decision in assessee's own case also. Since the issue is squarely covered in favour of the assessee, therefore, we would like to reproduce the entire order from page 1-9 dated 19.07.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....4 entrusted with onerous responsibility of execution of the Food Policies of the Govt. of India and has been undertaking procurement, storage, movement and distribution of foodgrains. It is also engaged in distribution of sugar in some states. The Govt. of India fixes the procurement and issue prices of foodgrains, difference between the economic accost and sales realization is reimbursed by the Govt. of India as food subsidy. The Govt. also reimburse carrying cast of buffer stocks maintained by the Corporation. There has never been a profit of loss in the profit & loss account of the corporation as the net deficit is met by the Govt. of India in the form of subsidy. The basic purpose of following a system of accounting is to determine the actual profit or loss of a previous year. Keeping in view the nature of organization where the deficit is met by the Govt. of India by way of subsidy and no profit/loss is shown in the profit & Loss account, the booking of an expenses, if any, related to the previous accounting years will have not impact on its ultimate profit/loss. The assessee has debited prior period expenses of Rs. 593.09 lacs. The assessee is following mercantile system o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....which cannot be crystallized based on the material available as on date of closing of accounts cannot be adjusted in the accounts and the same has been taken care in the year when such material is available with the assessee. A liability actually claimed and paid in the later/previous year cannot be disallowed as deduction merely on the basis that the accounts are maintained on mercantile basis. IF the claim of an expense relating to earlier years is raised during the current year the same has been recorded in the current year books however, in order to depict the correct current year position, a separate head in the books of account is operated "Income/Expense relating to the Previous Year'. We would like to submit that the total expenses incurred during the year by the Corporation is to the extent of Rs. 65630.82 Crores, and the Corporation has debited Rs. 5.35 Crores to 'Adjustment relating to Previous Year' which does not come even 0.01% of the total expenses incurred by the Corporation. Further, we submit that in fact the Corporation has booked Rs. 5.83 Crores as income under the head 'Adjustment relation to Previous Year'. We pray the similar treatment should be given to bo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t is impossible and impractical to have control on the material which may result in crystallization of liability as at the close of the year. As and when these materials are available at the Offices of the Corporation, the same is accounted for in the accounts." 4.3. Reliance was placed on the observation of the Hon'ble High Court in CIT vs Shri Ram Pistons & Rings Ltd. (2008) 174 Taxman 147 (Delhi) as under :- "In the reference that is before us there is no doubt that the assessee had incurred an expenditure. The only dispute is regarding the date on which the liability had crystallized. It appears that there was no change in the rate of tax for the assessment yeah which we are concerned. The question, therefore, is only with regard to the year of deduction and it is a pity that all of us have to expend so much time and energy only to determine the year of taxability of the amount." 4.4. Similar arguments it was submitted was expenses by the Hon'ble Bombay High Court in CIT vs Nagri Mills Co. Ltd (1958) 33 ITR 681 (Bombay) as under:- "We have often wondered why the income-tax authorities, in a matter such as this where the deduction is obviously a permissible deduction under t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e Assessing Officer was of the view that as the expense did no crystallized or accrued during the year. The Appellant went in appeal before the Hon'ble Tribunal and the Hon'ble Tribunal keeping in view thee nature of transactions being undertaken by the Corporation deleted the said addition by making the following observations:- "The gain/loss is booked under the head "adjustment related to previous period expenditure/income". This is accounted for on crystallization of this expenses/income. The difference between the quantity dispatched vis-à-vis, quantity received is shown as "adjustment relating to previous period"- as the transaction was initiated in the previous period, however concluded in the year under consideration. That the reconciliation is a on going process and cannot be done at the year end keeping in view the volume of transaction, spread of the centers and involvement of a third party i.e. railways. The Corporation has followed the same practice in all the earlier years and there was no disallowance. The accounting entries are possible only on reconciliation and all entries booked under this head relates to the reconciliation carried/linkage established out ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....njeev Sabharwal, sr. standing counsel. Versus FOOD CORPORATION OF INDIA........Respondent Through CORAM: HON'BLE MR. JUSTICE SANJIV KHANNA HON'BLE MR. JUSTICE R.V.EASWAR ORDER 22.03.2012 The respondent-assessee Food Corporation of India in the return of income for the assessment year 2006-07 had made adjustments relating to the previous year and an amount of Rs. 4.68 crores was debited. The aforesaid amount was disallowed by the Assessing Officer on the ground that the respondent-assessee is following the mercantile system of accounting and, therefore, prior period expenses cannot be booked in the said year. 2. The CIT(Appeals) deleted the said addition after referring to the fact that the respondent-assessee had booked Rs. 6.72 crores as income under the head "Adjustments relating to previous year". By the same logic and reasoning, the income should have been also excluded. The CIT(Appeals) referred to the explanation given by the assessee and it was observed that the assessee though following the mercantile system of accounting. But could have booked expenses only after ascertaining the same. Reference was made to Accounting Standard-V issued by the Institute of Charter....