TMI Blog2024 (4) TMI 52X X X X Extracts X X X X X X X X Extracts X X X X ..... T:- As decided in assessee's own case [ 2013 (3) TMI 876 - ITAT NAGPUR] wherein as held Prior period expenses are not a new phenomenon in the filed of accounting or taxation laws. Courts are of the view that if the expenditure incurred in particular year are crystalised in a subsequent year because of certain reasons, same cannot be dis-allowed only on the ground that assessee is following Mercantile system of Accounting. If assessee is following a particular system of accounting and it is not distorting income, treatment of prior period expenses loses its importance. In the case under consideration, assessee was following the same system for the last so many years and the AO was allowing the prior period expenses for the relevant years ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive(ld.AR) of the assessee explained that the ld.CIT(A) has decided the assessee s appeal regarding issue of prior period expenses following the decision of ITAT in assessee s own case in ITA No.42/PUN/2012 order dated 13.03.2013. The ld.AR filed copy of the said order. The ld.AR pleaded that there is no merits in the case of the Revenue. Submission of ld.DR: 3. The ld. Departmental Representative(ld.DR) for the Revenue relied o the order of the Assessing Officer(AO). Findings Analysis : 4. We have heard both the parties and perused the records. The ld.CIT(A) in para 7.2 has discussed the issue and allowed the assessee s ground following ITAT Nagpur Decision in assessee s own case for A.Y. 2008-09 in ITA No.42/NAG/2012. 4.1 Before us, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the mercantile system of accounting was considered by the Hon ble Jurisdictional High Court in the case of Taparia Tools Ltd., (260 ITR 102), that the claim for expenses of particular year should be made against the income of the same period, that the assessee by accounting prior period expenses pertaining to an earlier year had not adhered to the principles of mercantile system of accounting, that claim of this nature resulted in distorting the profit of the year. Finally, following the principles laid down by the Hon ble Bombay High Court in the case of Taparia Tools Ltd., (supra), FAA dismissed the appeal filed by the assessee. 10. Before us, AR submitted that prior period adjustments were made in special circumstances only, that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r period expenses for the relevant years. AO/FAA has not challenged the claim made by the assessee that it was following this practice consistently. They have also not held that because of prior period expenses, the taxable income of the assessee remained un-taxed. The issue can be seen from another angle expenditure incurred by the assessee is not in doubt. It is not the case of the Revenue Authorities that expenditure was never incurred. The allowability of such expenditure in a particular year has to be decided in pragmatic manner. We have perused the orders of the Hon ble High Courts of Delhi, Gujarat and order of the Mumbai Tribunal in the cases of Jagatjit Industries Ltd., (supra), Saurashtra Cement Chemical Industries Ltd., and Toyo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ired to be computed for the purpose of determining tax a 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 relate, the mercantile system does not call for adjustment in the books of account on estimate basis. It is actually known income or expenses, the right to receive or the liability to pay which has come to be crystallized, which is to be taken into account under the mercantile system of maintaining books of account. An estimated income or liability, which is yet to be crystallized, can only be adjusted as a contingency item but not as an accrued income or liability of that y ..... X X X X Extracts X X X X X X X X Extracts X X X X
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