COMMISSIONER OF INCOME TAX Vs. JAGATJIT INDUSTRIES LTD.

JUDGEMENT

(1.) THE present appeal preferred under s. 260A of the IT Act, 1961 (for brevity 'the Act') was admitted on the following substantial question of law :

(2.) THE facts that have been depicted are that the respondent -assessee is engaged in the business of manufacturing and sale of Indian made foreign liquor, country liquor, malted milk food, SMP, Ghee, glass and plastic containers, etc. It also manufactures malted milk food products for M/s SmithKline Beechem Consumer Health Care Ltd. and Ghee for M/s Milk Food Ltd. In the course of assessment proceedings, the AO noticed that the assessee was maintaining mercantile system of accounting and had claimed expenses amounting to Rs. 14,55,720 under the head 'prior period expenses' pertaining to earlier years. The auditor, in column 22(b) of the tax audit report, stated that prior period expenses amounting to Rs. 14,55,720 had been debited to the P&L a/c. The assessee in pursuance of notice under s. 143(2) appeared before the AO and was required to explain the nature of the expenses covered under the said head. He was asked to further explain expenses clubbed in prior period expenses in the tax audit report. The AO noticed that a loss on the sale of fixed assets amounting to Rs. 23,813 had already been added back by the assessee while computing his total income. He also filed a copy of the notice from the Chief Administrative Officer, New Okhla Industrial Development Authority, wherein the lease rent of industrial plot 35 -C, Sector -57, Noida had been increased with retrospective effect. The total demand raised was for Rs. 1,02,982 out of which an amount of Rs. 17,373.78 pertained to the financial year 2003 -04 and the rest, that is, Rs. 85,608 related to the prior period. As the assessee had received notice for the said payment pertaining to the earlier year during the current year, the same was allowed as an expenditure crystallized during that year. The AO scrutinized payments to staff members, managerial remuneration, legal and professional expenses, sales promotion expenses, miscellaneous expenses and repair and maintenance expenses under the head 'Prior period expenses'. The nature of expenditure as was observed by the AO could easily be classified as provisions made for the said expenditure in the year in which the expenditure was incurred.

(3.) CONSIDERING the submissions of the assessee, the AO held that the nature of the expenses was such that they had occurred and crystallized during the earlier years. It was further held that as the same had been crystallized during the relevant year, the same could not be allowed in the later years. Being of this view, the AO came to hold that the assessee had claimed Rs. 13,46,299 as expenditure of prior period allowable in the current year and, accordingly, disallowed the same. After disallowing the same, he initiated a proceeding under s. 271(1)(c) of the Act on the ground that the assessee had furnished inaccurate particulars of income.