TaxTMI 
TaxTMI 
2019 (2) TMI 285
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....d No.1 and 4 are general in nature which does not require specific adjudication. 3. Ground No.2(a) and 2(b) are related to the prior period expenditure of Rs. 3,45,98,000/- disallowed by the Assessing Officer (AO). During the assessment proceedings, the AO found that the assessee debited a sum of Rs. 3,45,98,000/- as prior period adjustment to the Profit and Loss account and the breakup of the said prior period adjustment is as under : A. Income (Rs. in lakhs) Materials 0.00 Demurrages 0.29 Miscellaneous 0.29 B. Expenditure SC Direct Expenses 239.43 SC Direct expenses 8.20 RF Direct Expenses 1.73 Pay revision arrears 0.00 Materials & Freight 45.56 Pay and benefits &....
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....) (124 CTR 213) and Addl.CIT Vs. Jay Engineering Works Ltd. (1979) (113 ITR 389). The AO considered the submissions of the assessee and observed that the assessee is following mercantile system of accounting and as per the system of accounting followed by the assessee, the assessee has to claim the expenditure as well as the income on accrual basis. The AO further observed that the income has to be computed each year independently and every year is an independent unit and expenditure relatable to the earlier years cannot be debited in the subsequent years. Therefore, following the decision of M.S. Raju Vs. DCIT 298 ITR 373 (Andhra Pradesh) and Cairn Energy India Ltd. Vs. JCIT 297 ITR 59 (Mad), the AO held that the prior period adjustments c....
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....d in the earlier years. The AR further submitted that though the expenditure was related to the earlier years, the expenditure was crystallized and paid in the year under consideration, thus, argued that the expenditure claimed by the assessee under the head prior period adjustment is nothing but the expenditure crystallized during the year under consideration, hence required to be allowed. The Ld.AR further submitted that the expenditure incurred by the assessee is genuine expenditure. Due to overlapping mistakes or non-submission of the bills by the service providers, the expenditure could not be ascertained and the assessee made the provisions in the relevant assessment years representing the expenditure. As the provisions are disallowab....
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....regulations are followed and the expenditure is finalised the same cannot be said to be crystallized. In the instant case, the assessee submitted that the company is a giant company, laid down the procedures involving many rules and regulations which causes delay in clearing and processing bills due to which the expenditure could not be claimed in the relevant assessment years. This is common for all the assessment years involved in the assessee's case. Though expenditure is related to the earlier year it may spill over to subsequent years due to the procedures followed by the company and the same is not an isolate transaction and it is said to be regular practice. We do not dispute that the income of each year is independent and required t....
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....that the assessee has branch offices throughout the country. The assessee has been debiting the expenditure spilled over to the subsequent years and the AO had been allowing the same. The said accounting practice has been consistently followed by the assessee and accepted by the Department. If a particular accounting system has been followed and accepted and there is no acceptable reason to differ with the same, the doctrine of consistency would come into play. The said accounting system has been followed in a number of years and there is no proof that there has been any material change in the activities of the assessee as compared to the earlier years. Nothing has been brought on record to show that there has been distortion of profit or t....