Can tribunal allow deduction of an expenditure which is neither claimed by the assessee in the return nor part of original assessment proceedings?

In a recent case (Reported in 2008 -TMI - 3591 - HIGH COURT OF DELHI ) honorable High Court of Delhi has upheld the decision of the ITAT in which tribunal has allowed the deduction the amount (revenue expenditure) which the assessee did not claimed in the return and the same was not part of original assessment proceedings.

Brief Facts of the Case:

The Assessee has incurred Rs.19,48,125/- as expenditure on account of customer introduction charges which were debited as 'Deferred Revenue Expenses'  in the balance sheet. The expenditure was written off over a period of five years starting from the assessment year 1990-91 and accordingly, the assessee claimed reduction of Rs. 3,89,625/- in the return. The claim was allowed by the assessing Officer. But the AO has made certain other additions against which assessee went upto ITAT. Originally ITAT has remanded the matter to the AO.

Thereafter, the Assessing Officer took up the issue pursuant to the directions of the Tribunal and passed an order under section 254 read with section 143(3) of the Act on 31.01.03 and he disallowed the claim of Rs.  15,58,5000/- (i.e. Rs.19,48,125/- minus Rs. 3,89,625) with the following observations:

'Since the claim for the deferred revenue expenditure of Rs. 15,58,500/- was not claimed by the assessee in its return of income for the assessment year 1990-91, the same is not allowed.' CIT (A) and Tribunal has accepted the claim of the assessee and allowed the deduction. Aggrieved by the order of the Tribunal, the Revenue filed the present appeal before the Delhi HC.

Delhi High Court has observed that: (Some relevant Extracts)

As clear from the facts, there is no dispute that customer introduction charges did not represent revenue expenditure. The principal ground taken by the Revenue in this appeal is that if no claim for deduction of the amount was made in the return of income then deduction would not be allowed.

Section 254 of the Act says that the Appellate Tribunal may, after giving both the parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit.

Revenue expenditure which is incurred wholly and exclusively for the purpose of business must be allowed in its entirety in the year in which it is incurred. It cannot be spread over a number of years even if the assessee has written it off in his books over a period of years.

There is no prohibition on the powers of the Tribunal to entertain an additional ground which according to the Tribunal arises in the matter and for the just decision of the case. Therefore, there is no infirmity in the order of the Tribunal.

Deduction allowed, appeal of the revenue dismissed. 

(For full text of judgment visit - 2008 -TMI - 3591 - HIGH COURT OF DELHI)