TaxTMI 
TaxTMI 
2018 (4) TMI 447
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....l during the course of hearing proceedings of this case." Md. Usman, Ld. Departmental Representative appeared on behalf of Revenue and Shri Ravi Tulsiyan, Ld. Authorized Representative appeared on behalf of assessee. 2. Sole issue raised by Revenue in this appeal is that Ld. CIT(A) erred in deleting the addition of Rs. 15,74,43,000/- on account of prior period expenses in respect of closing stock of raw materials and work-in-progress. 3. The brief facts of the case appealed before us are that the assessee is a public sector undertaking and engaged in the business of Erection/Fabrication of railway bridges. The assessee has debited its profit & loss account on account of adjustments in the closing stock and work in progress for Rs. 345.77 lacs and Rs. 1228.66 lacs respectively. During the examination of the Audited Financial Statement AO found that the adjustment in Closing Stock & work in progress pertains to the earlier years. Therefore he was of the view that the same cannot be allowed in the year under consideration being prior period items. On confrontation, the assessee submitted that on the basis of Chartered Accountant firm's report, it was revealed that stock of ra....
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....able to disclose such incorrect and untrue value and add to the value of inventory and thereby leading to double taxation. However, the ld. CIT(A) after due consideration of submission placed by the assessee and remand report has deleted the addition made by the AO by observing as under:- "6.1.1 In view of the above submissions, the matter had been remanded to the Assessing Officer in his remand report dt. 25-1-2007 submitted as under:- 'If there was overvaluation of stock and work-in-progress, the assessee could have filed revised return by making appropriate adjustment because of such over-valuation in the AY 2003-04. But that has not been done. Apart from not filing of revised return, the assessee could have raised the issue/made the claim towards adjustment of overvaluation of work-in-progress and stock even in the assessment order stage. But this has not also been done. If the assessee makes any mistake in the matter of computation of total income, this mistake may be regularized by filing a revised return or by making a submission before the Assessing Officer during the course of scrutiny assessment order proceeding. But the assessee is not allowed ....
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....he time when the financial statements are prepared; * A change in an accounting estimate that has a material effect in previous year shall be disclosed and quantified. Any change in an accounting estimate which is reasonably expected to have a material effect in year subsequent to previous year shall also be disclosed. * "Prior period items" means material charges or credits which arise in the previous year as a result of errors or omissions in the preparation of the financial statements of one or more previous years: Provided that the charge or credit arising on the outcome of a contingency, which at the time of occurrence could not be estimated accurately shall not constitute the correction of an error but a change in estimate and such an item shall not be treated as a prior period item. The value of inventory at the year-end needs to be estimated to arrive at the correct profit for the year. Using the above definitions of Accounting Estimate and prior period items it is clear that the value of inventory is an accounting estimate and the value of which cannot be precisely determined rather it can only be reasonably estimated. A change in the va....
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....he above claim, the Appellant submitted copies of Auditor's report, extract of Meeting of Board of Directors on 12-3-2004 and copy of Report submitted by Chartered Accountant on the stock of steel and work-in-progress. 6.2 The submissions of the Appellant and the rejoinder to the remand report have been considered. It is seen that the issue is regarding disallowance of Rs. 345.08 lakhs and Rs. 1228.66 lakhs on the grounds that these amounts were prior period expenses and hence not allowable. In this regard, the copy of the Auditor's report of FY ending 31-3-2003 has been considered and it is seen that in the same in notes on accounts, Note No.14 refers as under:- 'in order to ascertain true and fair value of inventories (Sch.6), Debtors (Sch.7), other current assets (Sch.9) and Deposit/Advances (Sch.10), the committee comprising three senior officials was constituted and it gave a report indicating substantial variation between fair value and value appearing in books of account on these items. On a preliminary review, the committee was of view that errors were committed over past several year in proper accounting of inventories, debtors, etc which shows over-repor....
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....as under:- 'The Commissioner (Appeals) had confirmed an amount under 'other manufacturing expenses'. The assessee had issued 18.675 kg. of nitric acid for consumption during the FY 1992-93. However by mistake, the issue voucher was prepared at 1867.5 kg. said difference was found out during the inventory verification in the FYs. 1993-94 and the amount short charged during the FYr 1992-93 was debited to the profit and loss account during the FYr 1993-94 as prior period expenses. This was the only way in which the assessee could rectify that mistake by debiting the prior period expenses. Accordingly, the Assessing Officer was directed to delete the above addition.' In view of the same, it is held that the AO was not justified in considering these items as disallowable and all the grounds on which the disallowances had been made have been account for a above. The appellant has claimed that the AO was not justified in disallowing the claim despite the fact it was based on the CS Report and the accounts were audited by Statutory Auditors as well as Comptroller & Auditor General of India. It is further claimed that the AO has ignored the facts disclosed in para-14 of th....
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.... short reporting of loss busy like amount in current year and over-reporting of Current Assets by equivalent amounts." Ld. AR for the assessee relied on the order of ld. CIT(A). 6. We have heard the rival contentions and perused the materials available on record. The assessee during the year has debited its profit and loss account on account of over valuation of closing stock and work-inprogress. As per the assessee the amount of excessive closing stock and work-in-progress was crystallized during the year. Therefore, it was written off in the profit and loss account of the current year. However, the AO disregarded the contention of the assessee and made the addition for the amount charged in the profit and loss account of the assessee on the ground that it is prior period items. Subsequently, the view taken by the AO was reversed by the Ld CIT(A) by observing that it was crystallized during the year. The undisputed facts are that the over valuation of stock and WIP was revealed on the basis of physical verification carried out by the firm of chartered accountants. The amount of over valuation of stock & WIP was duly debited in the profit and loss account of the assessee. As ....