TMI Blog2003 (7) TMI 274X X X X Extracts X X X X X X X X Extracts X X X X ..... he case, the learned CIT(A) is justified in holding that the claim of the assessee to the tune of Rs. 25 lakhs out of the total claim of Rs. 26,49,646 representing prior period expenses would be allowed as deduction from computation of profit as per P L a/c? 2. Whether, on the facts and in the circumstances of the case, the learned CIT(A) is justified in accepting the additional ground taken by the assessee that 'in the financial year 1983-84 relevant to the asst. yr. 1984-85, Rs. 25 lakhs were twice credited by bank, i.e., one entry was passed like debiting the TT in transit account and crediting the sales account and in the financial year 1984-85 relevant to the asst. yr. 1985-86, to square up the TT in transit account, another reverse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d not allow Rs. 26,49,643 claimed by the assessee as prior period expenses as the assessee was following mercantile system of accounting and could not establish that the liability was either created or crystallised during the year. Reliance was placed by the assessee on CIT vs. Nathmal Tolaram (1973) 88 ITR 234 (Gau). The facts were also narrated by the CIT(A) which clearly indicate that these were not prior period expenses but prior period adjustments. The learned CIT(A) proceeded to delete these additions on the basis of his understanding that the prior period expenses as allowed by him on the basis of his understanding of nature of expenses for the asst. yr. 1984-85 could also be relied on for deleting the additions for the asst. yr. 198 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... circumstances. The expenditure should be allowed for computing taxable profit." Therefore, he summed up that to be entitled to a particular deduction the assessee has to prove that the expenses were incurred and it will not depend on the right or existence or absence of entries in the books of account be decisive or conclusive in the matter. He relied on the order of Calcutta High Court in the case of CIT vs. Padmavati Raje Cotton Mills Ltd. (1994) 118 CTR (Cal) 507 : (1993) 203 ITR 375 (Cal). He also relied on the decision of Calcutta High Court in the case of Kanoria Chemicals Industries Ltd. vs. CIT (1994) 78 Taxman 455 (Cal), holding that the assessee must be able to establish that either the expenditure was incurred in that partic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eny that Rs. 25 lakhs were twice credited by the bank as TT in transit account. This resulted in higher inclusion of the amount in that year irrespective of any other contention which would lead to further error. Support was relied on the accounting standard as accepted by the Institute of Chartered Accountants of India relating to such items in accounting standard AS-5. He, therefore, fully supported the deletion of Rs. 25,00,000 on the basis of facts and circumstances as understood within the frame work of accounting standards and the taxation thereof. 4. We have heard the rival parties and considered the material available on record. We have also perused various citations as relied on by the respective parties hereto. The main issue o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the year under consideration. The statutory auditors did not comment on this amount because it did not meet requirement as per the accounting standards relied on by the assessee, viz., AS-5 pertaining to prior period adjustment. We are, therefore, not inclined to agree with the finding of the learned CIT(A) who also held that the statutory auditors did not comment on the nature of adjustment because it was not to be a consistent policy of the assessee to disclose prior period expenses in the normally accepted accounting system followed by it and, therefore, on the basis of factual position as brought out by the Revenue, we are inclined to reverse the order of the CIT(A) on this issue and allow the appeal filed by the Revenue. In the resu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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