TMI Blog2006 (4) TMI 355X X X X Extracts X X X X X X X X Extracts X X X X ..... r relevant to the assessment year under consideration. In the computation of income attached with the said return, the assessee, however, first added back the aforesaid amount to the profit as per Profit Loss Account and thereafter claimed deduction for the entire amount of Rs. 1,57,90,736. On being asked to explain as to why the entire amount should not be considered as capital expenditure, the assessee explained before the Assessing Officer that catalyst and heat transfer medium were consumables and not capital assets and hence the expenditure incurred thereon were in the nature of revenue expenditure. It was further explained before the Assessing Officer that catalysts and heat transfer medium were written off in the books over two years and four years respectively. These facts are quite categorically stated at page 2 of the assessment order. The Assessing Officer, however, held the impugned expenditure to be in the nature of capital expenditure and hence disallowed the same in its entirety but allowed the depreciation thereon under section 32 of the Income-tax Act. The reasons given by the Assessing Officer in this behalf are contained in para 6.2 (page 3) of the assessment o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aforesaid position and hence has written off and allocated the expenditure proportionately over the entire period of life of the catalysts and heat transfer medium. The assessee has followed a quite scientific method of accounting in allocating the impugned expenditure to each year during which they are capable of being used and generating revenue. In making the entries in the books of account allocating and thereby writing off a part of the impugned expenditure in the assessment year under appeal and thereby deferring/staggering the remaining expenditure to the years corresponding to their income years, the assessee has simply sought to match the expenditure with the revenue for the assessment year under consideration as also for other years. The accounting treatment given by the assessee to the impugned expenditure is in consonance with the fundamental principles of accounting, which require the matching of revenue with costs for a given period. Neither the receipt nor the expenditure allocable to other years can be taken into account in computing the income of the current year. 8. The assessee is a public limited company registered under the Companies Act. It is required to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, there has to be corresponding deferment of allocation of the expenditure also otherwise the accounts will present a distorted picture. In short, both the income as also the corresponding expenditure must be allocable to the same period. Admittedly, it is not the case of the assessee that the concept of matching of cost with the revenue is not applicable to its case. The matching concept required and the assessee, acting upon that concept, has deferred the expenses over certain years or, in other words, recognized the expenses in question in those very years in which it has recognized the corresponding income. Thus the accounting treatment given by the assessee to the impugned expenditure is well in conformity with the sound principles of accounting. By doing so, the assessee has avoided distortions in its profits. The statutory auditors, being well conversant with the matters of accounting, have thus rightly certified the accounts of the assessee to be correct. 10. The matching concept has been noticed, recognized and approved in several judicial authorities. The Hon ble jurisdictional High Court in Taparia Tools Ltd. v. Jt. CIT [2003] 260 ITR 102 (Bom.) has elaborately ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to secure a benefit over a number of years. There is a continuing benefit to the business of the company over the entire period. The liability should, therefore, be spread over the period of the debentures." 12. Therefore, the matching concept, which we have referred to is well recognised by various judicial authorities including the judgments of the Supreme Court referred to by the Hon ble Bombay High Court in Taparia Tools Ltd. s case ( supra ). In Taparia Tools Ltd. s case ( supra ), the Hon ble High Court, while applying the matching concept, also considered the consequences that would follow if the entire expenditure sought to be claimed by the assessee was allowed in one year instead of deferring its allowance over a number of years during which the benefit was to follow. It held that allowing the entire expenditure in one year might give a very distorted picture of the profits of a particular year when the expenditure was intended to secure a benefit over a number of years. In the case before us, we are also concerned with the computation of correct profits and, therefore, the method of accounting followed by the assessee is relevant because accrual of income is to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this reason, which led the assessee itself to stagger the expenditure as it secured the benefit over a number of years. Such a principle has also been judicially approved in several cases. In Hindustan Aluminium Corpn. v. CIT [1983] 144 ITR 474 , the Calcutta High Court upheld the claim of the assessee to spread out a lump-sum payment to secure technical assistance and training over a number of years and allowed a proportionate deduction in the accounting year in question. 14. Another factor which compels us to lean in favour of the accounting treatment given by the assessee to the impugned expenses is that there is no evidence on record to establish that all the catalysts and heat transfer medium procured this year were put to use this year. The expenses, which were incurred this year, would thus be in the nature of pre-paid expenses having been incurred in advance. If the assessee was keen to claim the entire expenditure, the burden was on the assessee to show that all the catalysts and heat transfer medium were procured and also put to use and thereby establish that the impugned expenses were not in the nature of pre-paid expenses. The failure of the assessee to discharg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of account cannot himself plead that the entries made by him in his books are incorrect or do not reflect the true state of affairs. Should he however so assert, the burden will squarely be on him to prove the incorrect nature of the entries made in the books. Book entries made by an assessee, especially when they go against the averments of the assessee, are an extremely important piece of evidence though they are not conclusive and hence it is for him to show that the entries made in his books of account are incorrect. It is equally open to him to show that he is entitled to certain benefits, allowances or claims conferred on him by income-tax law notwithstanding the entries made in his books of account. Thus, the entries made in the books of account are not decisive only when the assessee proves that they are factually incorrect or are inconsistent with the provisions of law or judicial decisions in the matter. If the entries made in the books of account go hand-in-hand with the sound principles of accounting for determination of correct profits and are also consistent with the provisons of the Income-tax Act, they cannot be discarded merely by saying that the entries made in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acts, which have led to the impugned addition, are given in para 7 of the assessment order. The assessee has debited Rs. 33,20,178 to the Profit Loss Account as expenses towards lease rentals. In the computation sheet attached with the return of income, the assessee has added back the aforesaid sum but claimed deduction of Rs. 93,04,171 on the ground that lease rental was payable at the rate of Rs. 7,75,348 per month as per lease agreement with ICICI. According to the Assessing Officer, the assessee has been writing off the lease rental in the books over the life of the asset and hence it is not justified in claiming the entire lease rentals as per the agreement. Referring to the decision in CIT v. UCO Bank [1993] 200 ITR 68 (Cal.), he has held that the assessee cannot show one system of accounting in the books of account and adopt another system of accounting for the computation of income. 22. On appeal, the learned CIT(A) has allowed the deduction for entire lease rental, as claimed by the assessee on the ground that the entries in the books of account were not decisive. 23. We have heard the parties and considered their submissions. Whether entries made in the book ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
