2016 (1) TMI 1391

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..... CIT(A) erred in help that the expenditure is in excess of price decided earlier which is in nature of appropriation of profits as the amount was decided after close of the financial year. 4. In the facts and circumstances of the case the disallowance of Rs. 2,41,58,633 confirmed by the Ld. CIT(A) be deleted and the Assessing officer be directed to allow the payment made to cane suppliers as a business expenditure incurred wholly and exclusively for the purpose of business of the appellant. 3. The brief facts of the case as emanating from the records are: The assessee is a public limited company and is engaged in the business of production of sugar from sugarcane. The assessee filed its return of income for the impugned assessment year in September, 2010 declaring negative income of Rs.(-)41,38,497/-. The case of the assessee was selected for scrutiny and accordingly first notice u/s. 143(2) was issued to the assessee on 16-09-2011. During the course of scrutiny assessment proceedings the Assessing Officer found that the assessee has claimed prior period expenses to the tune of Rs. 2,48,99,860/-. These expenses include : i. Cane price difference Rs. 2,33,30,414/-. ii. Bank ....

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....e purchase of sugarcane in financial year 2009-10. A Board Resolution to this effect was passed on 24-08-2009. A copy of the Board resolution is placed at page 79 of the paper book. Thus, the payment of additional price accrued on the date of decision taken by the management and is accordingly accounted in the year of accrual. The liability to pay additional price of sugarcane crystallized only when it was decided by the management to give the price and not in the year to which it pertains. The quantum of additional payment for sugarcane could not be ascertained in the assessment year 2009-10 as the assessee could not foresee the protest by the farmers demanding additional/higher payment for the sugarcane supplied. The disputed contractual liability crystallized only when the dispute is finally settled. The additional cane price for the sugarcane supplied for season 2008-09 was paid by the assessee to the farmers in installment in financial year 2009-10. The assessee had not made any provisions in the books of account in assessment year 2009-10. The expenditure has been incurred out of business expediency. The ld. AR in support of his submissions placed reliance on the following de....

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.... not raised any doubt over the payment of such amount. It is an undisputed fact that the assessee has paid additional price to the farmers for purchase of sugarcane for the season 2008-09. It has been stated that the assessee had initially fixed the sugarcane price @ Rs. 1200/- per MT which was revised to Rs. 1300/- per MT on 11- 01-2009. Since, the sugar factories in the adjoining area were purchasing sugarcane from the farmers @ Rs. 1400/- per MT, there was agitation by the farmers against the assessee for fixing lower rate. The farmers threatened the assessee not to supply sugarcane during financial year 2009-10. The threat of closure of sugar mills was looming large over the assessee in the absence of supply of sugarcane. The assessee had no other option but to accept the demand of the farmers. Since, the assessee had paid the price of sugarcane below the price which was paid by the adjoining sugar mills, the assessee agreed to compensate the farmers by paying the price at par with the price paid by the sugar mills in the adjoining area. It is an admitted case of the assessee that no provision was created by the assessee in its books of account for the period relevant to the a....

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.... the said judgment has no relevance in the facts and circumstances of the present case. There is no quarrel over the well settled law that where the books are maintained on mercantile system of accounting, the expenditure is allowed only in the year in which the liability is incurred, irrespective of the date of disbursement of payment. The payments are to be made on accrual basis. However, in the present case the issue is, as to when the expenditure claimed by the assessee crystallized. As is evident from the records that although the payment is made in respect of sugarcane supplied in the financial year 2008-09, the additional amount claimed by the farmers was accepted and paid during the period relevant to the assessment year 2010-11. The assessee has been able to show the compelling circumstances under which the additional amount was disbursed by the assessee to the farmers. 9. The Hon'ble Delhi High Court in the case of Commissioner of Income Tax Vs. Exxon Mobil Lubricants (P) Ltd. (supra) while dealing with a similar controversy wherein prior period expenses were disallowed by the Revenue. The Hon'ble High Court affirmed the findings of the Tribunal in allowing the s....