16. Principal
CIT vs. Dishman Pharmaceuticals and Chemicals Ltd.; [2019]
417 ITR 373 (Guj.) Date
of order: 24th June, 2019 A.Y.:
2006-07
Business expenditure – Section 37 of ITA, 1961 – Prior
period expenses – Assessment of income of prior period – Prior period expenses
deductible – No need to demonstrate that expenses relate to income
For the
A.Y. 2006-07, the AO found that the assessee had credited Rs. 3,39,534 as net
prior period income, i.e., prior period income of Rs. 46,50,648 minus prior
period expenses of Rs. 43,11,114. The AO took the view that ‘prior period
income’ was taxable, but the ‘prior period expenses’ were not allowable. Thus,
he made an addition of Rs. 46,50,648 as prior period income and denied the
set-off of the prior period expenses on the basis that a different set of rules
applied to such income and expenses.
The
Commissioner (Appeals) confirmed the addition and held that prior period expenses
cannot be adjusted against the prior period income in the absence of any
correlation or nexus. The Tribunal allowed the assessee’s claim and held that
once the assessee offers the prior period income, then the expenditure incurred
under the different heads should be given set-off against that income and only
the net income should be added.
On appeal
by the Revenue, the Gujarat High Court upheld the decision of the Tribunal and
held as under:
‘(i) The only requirement u/s 37 of the
Income-tax Act, 1961 is that the expenses should be incurred for the purposes
of the business or profession. There is no need to demonstrate that a certain
expense relates to a particular income in order to claim such expense.
(ii) Once prior period income is held to be
taxable, prior period expenditure also should be allowed to be set off and the
assessee is not obliged in law to indicate any direct or indirect nexus between
the prior period income and prior period expenditure.’
