AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2016 (7) TMI 1687
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....king. During the course of assessment, the Assessing officer made the disallowance of expenses booked under prior period expenses by holding as under:- "5 (i) During the year, the assessee has claimed prior period expenses amounting to Rs. 40589627/- in the P&L account, The assessee was asked as to why the same should not be disallowed as the expenses do not pertain to the relevant previous year. In response, it has been submitted by the assessee that these expenses have arisen during the year. The contentions of the assessee are not accepted as the assessee is following mercantile system of accounting. In view of the forgoing, prior period expenses which do not pertain to the year under consideration are disallowed and addition of Rs. 40589627/- is made to the income of the assessee on this account. (ii) In addition to the above referred prior period expenses debited directly in the P&L account during the year, the assessee has also made the claim of prior period expenditures in the Procurement of Wheat, Paddy and Bajra accounts from which net surplus or deficit has been taken to the P&L account, The details of Prior Period Expenses so claimed are as under ....
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....ppeal is partly allowed." 6. Against the above order, the assessee is in appeal before us. 7. We have heard both the counsel and perused the records. Ld. Counsel for the assessee submitted that assessee has submitted all the details pertaining to the expenses claimed under the head 'prior period expenses'. No case has been made out that any voucher is missing or that expense is not genuine. The Ld. Counsel submitted that assessee has branches spread over a vast area. The assessee is debiting the expenses split over to the subsequent years and the Assessing officer had been allowing the same. The said accounting practice has been consistently followed by the assessee and accepted by the Department. He submitted that since the assessee is a vast organization, the expenses when not reported or identified up to the close of the year are subsequently booked as prior period expenses. Since there is no change in the facts and circumstances, Ld. Counsel submitted that the consistent system of accounting followed by the assessee cannot be departed from. In support of this proposition, Ld. counsel placed reliance upon the following case laws:- i) Hon....
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.... in the quoted cases and which the bench proposed to rely for judging the case before hand is not applicable to the facts and circumstances of the current case. The Ld. DR further submitted that earlier the assessee was entitled to exemption as a Trust but after the denial of exemption, assessee has been denied prior period expenses. The Ld. DR submitted that the case laws cited by the Ld. Counsel for the assessee were related to the Companies which are governed by Companies Act. However, this is a Haryana State Government Undertaking and the accounts of such State Government Undertaking are maintained on whims and fancies. The Ld. Counsel submitted that these case laws and the doctrine of consistency cannot be allowed in this case. 10. We have considered the rival submissions. We find that Assessing officer has made disallowance by observing that for the prior period expenses cannot be allowed as assessee is following mercantile system of accounting and that the assessee has not submitted any basis for determination as to when they crystallized. In this regard, we find that it is the contention of the assessee that assessee is a public sector undertaking and is a vast ....
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....rd we may gainfully refer to the Hon'ble Delhi High Court decision in the case of CIT Vs. Jagjit Industries Limited (supra). In this case after examining various case laws on the subject, the Hon'ble Delhi High Court concluded as under:- "16. The present factual matrix has to be tested on the touchstone and anvil of the aforesaid enunciation of law. On a scrutiny of the facts that have been brought on record, it is discernible that the assessee has been claiming prior period of expenses on the ground that the voucher of such expenses from the employees/branch employees were received after 3151 March of the financial year. It has also come as a matter of fact that the assessee has branch offices throughout the country. The assessee has been debiting the expenditure spill over to the subsequent years and the assessing officer 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 ....