2017 (1) TMI 857 - HC - Income Tax

Disallowance being the preliminary expenditure under Section 35 D - Held that - It is not in dispute that in the preceding assessment year, very expenditure stand accepted. The issue is squarely covered against the revenue in light of the decision of the Hon ble Supreme Court in the case of Shasun Chemicals & Drugs Ltd vs. Commissioner of Income TaxII, Chennai reported in (2016 (9) TMI 1199 - SUPREME COURT OF INDIA) wherein the issue was with respect to claim under Section 35 D and it was found that expenses claimed by the assessee for first two assessments years were allowed by the Assessing Officer, the Assessing Officer in the subsequent assessment year could not have disallowed the same. Under the circumstances, no error has been committed by the learned Tribunal in deleting the disallowance - Decided in favour of assessee Set off prior period expenditure - Held that - No error has been committed by the learned Tribunal in accepting the alternative plea and directing the AO to set off prior period of expenditure of ₹ 15,25,746/. The learned Tribunal has directed the Assessing Officer to set off assessee s prior period of expenditure and income as per the law. Therefore, necessary consequence shall follow. Under the circumstances, we see no reason to interfere with the impugned judgment and order passed by the learned Tribunal. Question B is also held against the revenue and in favour of assessee

Summary

Issues:
1. Deletion of disallowance of preliminary expenditure under Section 35 D of the Act.
2. Direction to set off prior period expenditure against prior period income.

Analysis:
1. Deletion of disallowance of preliminary expenditure under Section 35 D of the Act:
The issue arose from the deletion of disallowance of ?10,28,028 as preliminary expenditure under Section 35 D of the Income Tax Act. The Tribunal based its decision on the fact that the expenditure had been accepted in the preceding assessment year, making it impermissible for the department to disallow it in the subsequent year. This decision was supported by the precedent set by the Hon'ble Supreme Court in a similar case. The Court concurred with the Tribunal's decision, holding that no error was committed in deleting the disallowance, as the issue was already settled in the preceding year.

2. Direction to set off prior period expenditure against prior period income:
Regarding the direction to set off prior period expenditure of ?15,25,746 against prior period income, the Tribunal accepted the assessee's alternative submission. The Tribunal emphasized that there was no evidence of the crystallization of the impugned expenditure, leading to a lack of merit in the crystallization plea. The Tribunal cited a case from the Hon'ble Delhi High Court to support the assessee's entitlement to set off prior period income against the prior period expenditure. The Court upheld the Tribunal's decision, citing previous judgments from both the Division Bench of the Court and the Delhi High Court. Consequently, the Court found no reason to interfere with the Tribunal's judgment and dismissed the appeal, holding in favor of the assessee on this issue as well.

In conclusion, the High Court upheld the Tribunal's decisions on both issues, ruling in favor of the assessee and dismissing the appeal. The judgments were supported by legal precedents and interpretations of relevant provisions of the Income Tax Act, ensuring a fair and just resolution in the matter.