Numaligarh Refinery Ltd. Vs. DCIT (ITAT Guwahati)
The issue under consideration is whether prior period items were to be included in the determination of the net profit or loss under Mercantile system of accounting?
In the present case, the AO held that under scheme of the Act, tax is levied on income of the previous year. In mercantile system of accounting, only the income that has accrued during the previous year and the expenses incurred during the said period can only be considered in computing the taxable income of a particular previous year, each year being a separate self contained unit of assessment. Hence, the ld. AO disallowed prior period expenses.
ITAT states that, in mercantile system of accounting, an assessee had not earlier debited his account with the expenditure which accrued in law in an earlier year, would not, in the absence of a barring provisions under the law, disentitle to debit his account later when an enforceable demand is made by the appropriate authority. There is no express bar in law which disallows expenditure relating to a period other than the previous year.If any liability though relating to the earlier year, depends upon making a demand and its acceptance by the assessee and such liability has been actually claimed and paid in the later previous years, cannot be disallowed as deduction merely on the basis that the accounts are maintained on mercantile basis and that it related to a transaction of the previous year. Accounting Standard (AS-5) stipulates that prior period items are income or expenses which arise ‘in the current period’ as a result of errors or omissions in the preparation of the financial statements of one or more prior periods. Therefore, incomes or expenses relatable to prior period items are those which arise in the current period i.e. the period relevant for the purposes of computing the net profit or loss. Prior period items are to be included in the determination of the net profit or loss.
Accordingly, the appeal filed by the assessee is allowed.
FULL TEXT OF THE ITAT JUDGEMENT
The caption seven appeals filed by the assessee, and five Appeals filed by the Revenue are directed against the separate orders dated 08-10-2013, 06-07-2016, 08-07-2016, 13-12-2016, 30-11-2017 and 31-07-2018 passed by the commissioner of income Tax (Appeals/Appeals-2), Guwahati in Appeal No. (i) Guwa-98/2009-10, (ii) Guwa-95/2010-11, (iii) Guwa-211/2011-12, (iv) Guwa- 105/2012-13, Guwa-255/2015-16, Guwa-259/2015-16, Guwa-18/2016-17 for the assessment years 2007-08, ’08-09, ’09-10, ’10-11, ’11-12, ’12-13, ’13- 14, ’14-15 and ’15-16, which in turn arise out of separate assessment orders dated 29.12.2009, 23.12.2010, 23.12.2011 and 30.11.2012, 30.01.2014, 31.03.2015, 29.01.2016, 30.12.2016 and 30.12.2017 passed by the assessing officers.
2. Although, these appeals filed by the Assessee and Revenue for different Assessment Years, contain multiple ground of appeals. However, at the time of hearing we have carefully perused all the grounds raised by the Revenue as well as Assessee. Most of the grounds raised by the Revenue as well as Assessee, are either academic in nature or contentious in nature. However, to meet the end of justice, we confine ourselves to the core of the controversy and main grievances of Revenue and the Assessee as well. With this background, we summarize and concise the grounds raised by the Revenue as well as Assessee as follows:
3. The Common Grounds raised by assessee in Assessment Years, 2007-08 to 2013-14, are as follows: –
(i) Disallowance of claim of deduction under section 80-IB(9) of the Income Tax Act, 1961 for the Motor Spirit New Industrial undertaking of the Assessee Company, commissioned on 25-07-2006.
Ground and Assessment Year: Amount
Ground No. 4. A.Y. 2007-08 Rs. 38,65,11,189/-
Ground No. 3 A.Y. 2008-09 Rs. 172,37,79,956/-
Ground No. 3 A.Y. 2009-10 Rs. 127,81,23,636/-
Ground No. 6 A.Y. 2010-11 Rs. 156,85,51,986/-
Ground No. 4 A.Y. 2011-12 Rs. 156,46,99,775/-
Ground No. 1 A.Y. 2012-13 Rs. 150,01,80,829/-
Ground No. 1 A.Y. 2013-14 Rs. 132,81,10,853/-
(2) Disallowance of claim of deduction under section 80-1C of the Income Tax Act, 1961.
Ground and Assessment Year Amount
Ground No.(4) for the Assessment Year 2008-09; Rs. 351,28,35,732/-
Ground No.(4) for the Assessment Year 2009-10; Rs.221,27,40,983/-
Ground No.(7) for the Assessment Year 2010-11 Rs.170,67,11,811/-
(3). Disallowance of claim of expenses under the head ‘Prior Period Exp.’
Ground and Assessment Year Amount
Ground No.(1) for the Assessment Year 2007- 08; Rs.2,36,95,427/-
Ground No.(1) for the Assessment Year 2008- 09; Rs.2,87,62,938/-
Ground No.(5) for the Assessment Year 2012- 13 Rs. 1,24,06,614/-
(4) Disallowance of claim of expenses under the head ‘Retirement Benefit of Employees’.
Ground and Assessment Year Amount
Ground No.(3) for the Assessment Year 2007- 08; Rs. 1,00,22,722/-
Ground No.(2) for the Assessment Year 2008- 09; Rs. 1,02,74,000/-
Ground No.(1) for the Assessment Year 2009- 10; Rs. 96,67,000/-
Ground No.(2) for the Assessment Year 2010-11; Rs. 8,37,000/-
(5) Rejection of Additional Ground raised before the CIT(A) relating to claim of deduction of expenditure on account of corporate social responsibility.
Ground and Assessment Year Amount
Ground No.(5) for the Assessment Year 2007- 08; Rs.309,08,755/-
Ground No.(5) for the Assessment Year 2008- 09; Rs.350,25,274/-
Ground No.(6) for the Assessment Year 2009- 10; Rs.402,89,573/-
(6) Disallowance of claim of deduction of expenditure for ‘Corporate Social Responsibility’ made following Guidelines issued by the Government.
