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Hindustan Shipyard Ltd., Visakhapatnam and others Versus Addl. CIT Range-3, Visakhapatnam and others

2015 (7) TMI 993 - ITAT VISAKHAPATNAM

Disallowance of Prior Period Expenses - CIT(A) deleted the addition made on account of demurrage charges - Held that:- These charges are in the nature of late payments/detention charges paid to freight forwarders and clearing agents for keeping the goods beyond prescribed time in the respective ports. None of these are penalties for violation of law of land. From the details of demurrage charges payments it is seen that none of these payments is made to any government agency and hence the same i .....

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nd only the net figure was taken into consideration in the books of account; if the prior period expenditure is disallowed on the ground that it does not pertain to this year, the assessing officer cannot blow hot and cold and accept the prior period income as pertaining to this year. In short his contention is that even prior period income should be excluded if it is not crystalised in this year. Similar issue was considered by us in the appeal for the assessment year 2007-08. For the reasons g .....

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ross appeals are directed against the orders passed by CIT(A), Visakhapatnam and they pertain to the assessment years 2007-08 and 2008- 09. Issues involved in both the years being common, we proceed to dispose of these appeals by a combined order for the sake of convenience. In the appeal filed by the assessee for the assessment year 2007-08, following ground was urged before us: Appellant submits that the Commissioner of Income Tax (Appeals) is not justified in confirming the action of assessin .....

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Sector Undertaking engaged in the business of construction and repairs of ocean going vessels. For the year under consideration, it filed its return of income declaring a loss of ₹ 115 crores. During the course of scrutiny assessment proceedings, the assessing officer noticed that the assessee claimed expenditure pertaining to earlier years in the year under consideration. It appears that this procedure was followed consistently over the years. The case of the assessee was that it categor .....

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lar procedure is followed from year to year. It was also submitted that Government of India had approved a capital restructuring package, which envisages write off of Government of India loans and interest thereon. As per the Government of India letter, the HSL had brought the effect of capital restructuring in its books in the year 2006-07 as a prior period adjustment. Similar explanation is given with regard to the interest of GOI loans, government guarantee fees, etc. It may be noticed that t .....

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t only net prior period expenditure was offered to tax because the total expenditure minus the prior period income offered to tax was shown as expenditure. He also observed that waiver of GOI loans, interest and guarantee fees are items related to Government restructuring plan. This proposal was moved in the year 2004-05. Government of India has not yet accepted the proposal for write off. No provision is made towards these expenses in the accounts in the respective years, pending approval of th .....

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the annual report every year. Therefore this expenditure can neither be said to pertaining to this year nor crystalised during the year under consideration. He thus confirmed the action of the assessing officer. Similarly, with regard to the arbitration award, it is not an expenditure pertaining to this year since the award was received during the financial year 2004-05 and even if the matter is contested, it cannot be said to have crystalised in this year. In fact the assessee itself treated it .....

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t i.e. a one time settlement. This proposal is pending with the A.P. Government. Assessee did not debit this liability in the books in the earlier years. When it was pointed out in the Government audit, the same was provided in the books. The case of the assessee is sales tax liability is covered by the provisions of section 43B of the Act and therefore disallowance of ₹ 4.32 crores was made while computing the income as per the I.T. Act in which event further disallowance would result in .....

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ior period was taken into consideration in this year and when the expenditure has to be disallowed the income also should not have been taken into consideration since it pertains to the prior year. In this regard, he relied upon the order of the ITAT Visakhapatnam in the assessee s own case for the assessment year 2002-03, where the bench observed as under: The assessing officer has accepted the prior period income in this year but disallowed the prior period expenditure. This action of the asse .....

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ior period income, it amounts to adopting a pick and choose method of accepting the prior period income while disallowing prior period expenditure. We therefore direct the assessing officer to reconsider the claim of the assessee with regard to the prior period income; needless to observe that if the amounts shown as prior period income are not crystalised during this year or it specifically pertains to the earlier years, it cannot be brought to tax. A.O. is directed accordingly. With these obse .....

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ges are in the nature of late payments/detention charges paid to freight forwarders and clearing agents for keeping the goods beyond prescribed time in the respective ports. None of these are penalties for violation of law of land. From the details of demurrage charges payments it is seen that none of these payments is made to any government agency and hence the same is in the nature of non fulfillment of contractual obligations to which the explanation to 37(1) does not apply. In view of the ab .....

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a prior period expenditure which cannot be claimed as deduction in the year under consideration. The case of the assessee, on the other hand, was that the liabilities created were based on estimated expenditure in the respective years as the bills submitted by various agencies are not certified by various departments in the assessee company, due to delay in verification of various work orders, quality check, etc. Assessee s contention is that it got crystalised only during the previous year rel .....

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iod income of ₹ 1.21 crores on account of ship repair. Considering all these aspects it is held that the said expenditure having been crystalised during the year under consideration is an allowable expenditure in the assessment year 2007-08. Assessing Officer is thus directed to delete the addition made of ₹ 216.66 lakhs. 8. Ld. D.R. did not bring any material to contradict the findings of the Ld. CIT(A). We therefore do not find any infirmity in the order passed by the Ld. CIT(A) an .....

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g the appellate proceedings and no details as to why these expenses were claimed in this year was placed on record. He therefore affirmed the view taken by the assessing officer and held that prior period expenditure cannot be allowed as deduction in this year. Even before us the Ld. Counsel could not place any material to submit that the prior period expenditure is allowable in the year under consideration. However, he made an alternative submission that both prior period income and prior perio .....

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the assessment year 2007-08. For the reasons given therein, we uphold the order of the CIT(A) with regard to prior period expenses but direct the assessing officer to consider the plea of the assessee with regard to the prior period income. In the result, the appeal filed by the assessee is treated as partly allowed. 10. In the appeal filed by the revenue the following are the effective grounds. (Ground nos. 1 & 4 are general in nature): 2. Further, the order of Ld. CIT(A) directing the Ass .....

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