TaxTMI 
TaxTMI 
2023 (3) TMI 282
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.... and in law, the learned CIT(A) has grievously erred in confirming the disallowance of Rs. 3,16,834/- considering the same as prior period expenses. 4. The learned CIT(A) has grievously erred in law and on facts in confirming the disallowance Rs. 38, 15, 681/-. 5. That on facts and in law, the learned CIT(A) has grievously erred in confirming disallowance to the extent of 5% out of travelling expenses of Rs.14,94,784/- 6. That on facts and in law, the learned CIT(A) has grievously erred ion confirming the disallowance of Rs.50,000/- made out of vehicle and maintenance expense. 7. The appellant craves leave to add, alter, amend any ground of appeal." Assessment year 2006-07 "1. That on Facts and in law, the learned CIT(A) has grievously erred in confirming the disallowance of interest expense of 3,91,90,224/- on the erroneous premises that the same pertains to capital work-in-progess 2. The appellant craves leave to add, alter, Send any grain of appeal." 3. Since common issues are involved in both the appeals and the consideration, our observations for assessment year 2005-06 shall also apply to assessment year 2006-07. 4. We shall first take up the assessee's appeal ....
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....6(l)(iii) interest on capital borrowed for the purpose of capital assets is to be capitalized till the asset is put to use. Admittedly the CWIP closing balance of Rs. 11.98 crores have not been put to use during the year and as such, claim of interest on borrowed funds relating to such CWIP is not allowable and the same has to be capitalized. The appellant submitted that no amounts were borrowed during this year and only Rs. 39.85 lacs were added to the CWIP during the year and as such there was no major addition in the current year in the value of CWIP. These arguments are not correct and relevant to the issue. As far as claim of interest is concerned, the same is not for only capital borrowed during the year but also on outstanding balance during the year. Similarly, the increase or no increase in CWIP during the year is not relevant as far as capitalization of interest on outstanding borrowing are concerned. In is not in dispute that the appellant has borrowed huge funds to the extent of more than Rs. 55 crores which is invested in fixed assets as well as current assets. The appellant's funds are fixed and from and from the common funds investment are made in CWIP as well as....
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....on made by Ld. CIT(Appeals). Before us, the counsel for the assessee submitted that primarily, Ld. CIT(Appeals) has relied upon the order of his predecessor for assessment year 2004-05. However, the ITAT deleted the addition in the assessee's own case for assessment year 2004-05 in ITA number 278/Ahd/2009 vide order dated 29-01-2019 on this issue. Besides the above, the counsel for the assessee submitted that during the year, addition to CWIP was to the tune of Rs. 34,00,524/- only, whereas interest free funds available with the assessee were to the tune of Rs. 29,72,49,635/-. In response, DR primarily relied upon the observations made by Ld. CIT(Appeals) in the appellate order. 9. We have heard the rival contentions and perused the material on record. We observe that the ITAT on similar issue in the assessee's own case for assessment year 2004-05 has allowed the appeal of the assessee on the ground that once the assessee establishes that the interest free funds available with the assessee are far in excess of investments in CWIP, the presumption has to be that the investments are made out of interest free funds. The ITAT observed as below, while allowing the appeal of the assesse....
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....ow the appeal of the assessee with respect to ground number 2. 10. In the result, ground number 2 of the assessee's appeal is allowed. Ground number 3: CIT(Appeals) erred in confirming disallowance of Rs. 3,16,834/- considering the same as prior period expenses 11. The brief facts in relation to this ground of appeal are that the AO during the course of assessment added a sum of 3,16,834/- to the income of the assessee on the ground that the assessee had incorrectly claimed prior period expenses in the profit and loss account. The assessee filed appeal before CIT(Appeals) against the aforesaid additions made by the AO. The assessee submitted that though these expenses are pertaining to the previous periods, but the same were not claimed by the assessee as deduction in any of the earlier years and further it is evident from the nature of expenses that the same were incurred for the business of the assessee as the expenses related to freight, insurance, foreign exchange fluctuation loss and adjustment of difference of audit fees. Further, the assessee submitted that the assessee had, during the year under consideration, offered a sum of Rs. 4,75,896/- as prior period income and al....
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.... computed for the purpose of determining tax liability. The basis of taxing income is accrual of income as well as actual receipt. If for want of necessary material crystallizing the expenditure is not in existence in respect of which such income or expenses relates, the mercantile system does not call for an adjustment in the books of account on estimate basis. It is actually known income or expenses, right to receive or liability to pay which has come to be crystallized is to be taken into account under mercantile system of maintaining books of account. An estimated income or liability,, which is yet to be crystallized, can only be adjusted as contingency item but not as an accrued income or liability of that year." Thus, as per this decision, the appellant has to show that these particular expenditures had crystallized during this year, which it has failed to do. 8.3 Hence the AO's action is upheld and this ground of appeal is dismissed." 12. The assessee is in appeal before us against the aforesaid additions made by Ld. CIT(Appeals). Before us, the counsel for the assessee reiterated the submissions made before CIT Appeals and submitted that the assessee is a limited c....
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....terfere. Firstly, the expenditure of Rs.67.88 lacs is a fraction of the total income of the assessee company declared at Rs.105.88 crores. Further, even the Revenue does not dispute that the company would be taxed at the same rate in the present assessment year or during earlier year. It is also not disputed that prior period income was declared by the assessee during the current year which is also accepted by the Revenue. No question of law therefore, arises." 13.1 Again the Gujarat High Court in the case of Dishman Pharmaceuticals & Chemicals Ltd. [2019] 112 taxmann.com 91 (Gujarat) held that once prior period income was held to be taxable, prior period expenditure should also be allowed to be set off and assessee was not obliged in law to indicate any direct or indirect nexus between prior period income and prior period expenditure. 13.2 The Delhi High Court in the case of Exxon Mobil Lubricants (P.) Ltd. [2010] 8 taxmann.com 249 (Delhi) held as under while allowing the appeal of the assessee: The assessee's liability under the agreement had arisen and accrued in August, 2002, when the agreement was executed and, therefore, its liability to pay for period January, 2002 t....
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....during the course of assessment proceedings. Nothing has been submitted during the appellate proceedings to show the reason for such failure. Under such circumstances, the submissions made by the appellant during the appellate proceedings are not admissible. Hence the action of the AO is upheld and this ground of appeal is dismissed." 16. The assessee is in appeal before us against the aforesaid order passed by CIT on this issue. Before us the counsel for the assessee submitted that the aforesaid plant and machineries were purchased during 1994 to 2005 and were put to use in the current year. Besides the installation certificate by the general manager of the company, the assessee also filed an additional evidence before Ld. CIT(Appeals) in the form of installation certificate of 3rd independent party certifying that the machinery were put to use during this year. These certificates were also filed by the assessee before the AO in subsequent years assessments and were also accepted by the Department. However, Ld. CIT(Appeals) did not admit the additional evidence and confirmed the addition. Ld. CIT(Appeals) did not give any specific reason as to why the additional evidence in the f....
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....to furnish any concrete evidence in the form of bills, vouchers etc. he disallowed Rs. 149,478/- being 10% of these expenses and added the same to the total income of the assessee. 20. In appeal, Ld. CIT(Appeals) observed that AO is correct in holding that these expenses were mostly incurred in cash and were supported by selfmade vouchers and hence most of the expenses are not verifiable. However, to meet the ends of justice, Ld. CIT(Appeals) restricted the disallowance to 5% of such expenses. 21. The assessee is in appeal before us against the aforesaid additions on account of travelling expenses confirmed by Ld. CIT(Appeals) to the extent of 5% of such expenses. In the case of Indian Metals and Ferro Alloys Ltd.[2022] 142 taxmann.com 541 (SC), the Hon'ble Supreme Court dismissed SLP of the assessee filed against High Court order that where assessee-company claimed expenditure towards foreign travel of its directors, since assessee had not furnished any details that such foreign travel expenses were incurred wholly and exclusively for business purposes, Assessing Officer was justified in disallowing 20 per cent of such expenditure claimed by assessee. In the case of Vardhman....