December 2010
Business expenditure : S. 37(1) r/w S. 145 of Income-tax Act, 1961 : Year in which deductible : Assessee following mercantile system of accounting claimed prior period expenses and was allowed every year : Doctrine of consistency would come into play : Tr
By K. B. Bhujle | Advocate
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Reported :
22. Business expenditure :
S. 37(1) r/w S. 145 of Income-tax Act, 1961 : Year in which deductible :
Assessee following mercantile system of accounting claimed prior period expenses
and was allowed every year : Doctrine of consistency would come into play :
Tribunal justified in allowing prior period expenses claimed by assessee.
[CIT v. Jagatjit
Industries Ltd., 194 Taxman 158 (Del.)]
The assessee-company was
following mercantile system of accounting. During the relevant assessment year,
it had claimed prior period expenses pertaining to earlier years on ground that
vouchers of such expenses from employees/branch employees were received after
31st March of the financial year. The Assessing Officer disallowed the said
expenses, holding that the nature of the expenses was such that they had
occurred and crystallised during the earlier years. The Tribunal allowed the
assessee’s claim.
On appeal by the Revenue,
the Delhi High Court upheld the decision of the Tribunal and held as under :
“(i) On a scrutiny of the
facts, that had been brought on record, it was discernible that the assessee
had been claiming prior period expenses, on the ground that the vouchers of
such expenses from the employees/branch employees were received after 31st
March of the financial year. The said accounting practice had been
consistently followed by the assessee and accepted by the Department.
(ii) 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. In the instant case, the said accounting system had been followed for a
number of years and there was no proof that there had been any material change
in the activities of the assessee as compared to the earlier years. Nothing
had been brought on record to show that there had been distortion of profit or
the books of account did not reflect the correct picture.
(iii) In the absence of
any reason whatsoever, there was no warrant or justification to depart from
the previous accounting system which was accepted by the Department in respect
of the previous years.
(iv) Therefore, there was
no merit in the instant appeal and the same was to be dismissed.”
