TMI Blog2023 (1) TMI 263X X X X Extracts X X X X X X X X Extracts X X X X ..... eding previous years, and are determined in the previous year subsequently. Moreover, any such adjustments to P L circumstanced by contingencies are carved out of the expression of prior period items by a proviso appended thereto. This by necessary means, any material charges or credits to P L arising on the outcome of contingency falls out of the ambit of prior period item, consequently such material charges shall not be the subject matter of the disallowance within the purview of section 37(1) of the Act. Returning to the extant appeal, it s worthy to note first that, the balance of customs duty drawback written-off to P L was never an item of expenditure but was a receivable asset held as recoverable from the revenue authorities which was denied by the customs authorities in the respective year when the refund claim was made. The contingency over recovery of refund had not became conclusive on the aforesaid denial, but in the evince of written communication from its sister concern EID-Perry and pursuant to business decision arrived in the best judgement having exhausted all remedial boulevards available to it. Thus when all procedural vis- -vis legal recourse availabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are; 1. The Learned Commissioner of Income-tax (Appeals) - 3, Pune (hereinafter referred to as the Hon'ble CIT(A) ), seriously erred in not appreciating the facts of the case and the records available, before concluding that, the Appellant is not entitled for a deduction of Rs.88,18,815 (Eighty Eight Lakhs, Eighteen Thousand, Eight Hundred and Fifteen) as per the provisions of the Income-tax Act, 1961 (hereinafter referred to as the IT Act ) including but not limited to the provisions of Section 37 of the IT Act. Failure to appreciate the facts of the case and the legal provisions has vitiated the impugned Order, which deserves to be quashed and set aside on this ground alone. 2. The Hon'ble CIT(A) seriously erred in not appreciating the provisions of the Customs Act, 1962, the Customs Tariff Act, 1975, the Customs, Central Excise Duties and Service Tax Drawback Rules, 1995 and all other related rules and regulations (hereinafter referred to the Customs Regulations ) before concluding that, the expenditure of Rs.88,18,815 (Eighty Eight Lakhs, Eighteen Thousand, Eight Hundred and Fifteen) claimed as deduction by the Appellant, ought to be considered as prior per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l precedents has vitiated the impugned Order, which deserves to be quashed and set aside on this ground alone. The Appellant further prays that all consequential and incidental relief may kindly be allowed. The Appellant craves leave to add, alter or amend all or any of the submissions mentioned hereinabove and to lead such oral and documentary evidence as may be considered necessary. 4. Before coming to facts, its apt to voice that, the grounds raised in the present appeal are inconsonance with rule 8 of Income Tax Appellate Tribunal Rules, 1963 [for short ITAT Rules ], however for the purpose of adjudication, it shall suffice to articulate that, the sole substantive ground is directed against the disallowance of customs duty drawback written-off relating to preceding assessment years as prior period item . 5. The facts borne out of the case records tersely stated are; 5.1 The appellant is a private limited company engaged in the business of extraction of Lycopene from tomato paste thereafter converting it into powder/granule/oil form etc., and selling them either in the domestic market or exporting through its sister concern E.I.D. Perry India Ltd [for s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dt International Ltd. , reported in 314 ITR 11 submitted that, the decision as regards its irrecoverability was crystallised in the impugned year after it was communicated by the exporter sister concern EID Perry and pursuant to business decision the said amount is charged to P L when all the legal recourse in en-cashing it has been exhausted by the appellant, for the reason claim is bonafied as well as justified with respect to year of its claim. Au contraire, the Ld. DR vehemently opposing the appellant s contention submitted that, the assesse being a corporate entity is subjected to follow mercantile system of accounting in terms of section 145(1) of the Act, and so much is obligated to account for expense on a periodic basis, since the unabsorbed customs duty drawback of preceding three assessment years is written-off claimed as expenditure in the impugned assessment year amounts to prior period expenditure, is not eligible to deduction as it falls out of expenditure incurred during the previous year relevant to assessment year under consideration, and placing reliance of order the Ld. TAB prayed for dismissal. 7. After hearing to rival contentions of both the parties; and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to the said communication the impugned amount was written-off to P L on its being crystallised in the impugned assessment. 9.3 The Ld. TAB without disputing the charge to P L and its entitlement as bonafied claim disallowed the same as prior period expense holding that the loss was crystallised in the year of denial by the customs authorities upon the expiry of statutory period within which claim could be made and entertained. 10. Since the matter revolving around prior period item , before we ride the bi-cycle of adjudication to decide the allowability or otherwise upheld the disallowance, it is apropos to quote first as to what constitutes a prior period item from CBDT NOTIFICATION NO.9949 [F.NO.132/7/95-TPL]/SO 69(E), DATED 25-1-1996 issued in context of Section 145 Of The Income-Tax Act, 1961 and applicable for the impugned assessment year read as; In exercise of the powers conferred by sub-section (2) of section 145 of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby notifies the following accounting standards to be followed by all assessee following the mercantile system of accounting, namely; A. Accounting Standard I relating to disc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... coverable from the revenue authorities which was denied by the customs authorities in the respective year when the refund claim was made. The contingency over recovery of refund had not became conclusive on the aforesaid denial, but in the evince of written communication from its sister concern EID-Perry and pursuant to business decision arrived in the best judgement having exhausted all remedial boulevards available to it. Thus when all procedural vis- -vis legal recourse available to the appellant came to an end in the best judgement or estimation, in the evince of communication received from its sister concern EID-Perry, the claim for allowance in the P L was made by creating a charge in terms of section 37(1) of the Act in the impugned year being the year of crystalized of loss of refund. 13. It is germane to note that, the denial of claim of refund of customs duty drawback by the customs authorities was the first instance of contingency in recovery which was finally culminated in the impugned year in evince of written communication from sister concern EID-Perry, hence such being the right year of crystallisation of loss of refund, is eligible for claim of allowance in terms ..... X X X X Extracts X X X X X X X X Extracts X X X X
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