Bharat Insulation Company (I) Ltd, ... vs Assessee

Bharat Insulation Company (I) Ltd. Vs.` Asst. Commissioner of B-32, Wagle Industrial Estate, Income Tax, Central Circle Road No. 18, 31, Thane (W) 400 064. Room No. 409, Aaykar Bhavan, Maharshi Karve Road, Mumbai -400020. PAN/GIR No. AAACJ3727E Appellant Respondent

Assessee By Shri Yogesh Kamat Revenue By Shri M. Subramaniam

Date of hearing 20.05.2015 Date of pronouncement 29.05.2015 ORDER

Per G.S. Pannu, AM

The captioned appeal preferred by the assessee is directed against the order of the Commissioner of Income Tax (Appeals) [hereinafter referred to as 'the CIT(A)']dated 16.01.2013 which in-turn has arisen from an order passed by the Assessing Officer u/s 143(3) of the Income Tax Act, 1961( hereinafter referred to as the Act) dated 07.08.2012 pertaining to Assessment Year 2010-11.

2. In this appeal, although assessee has raised multiple Grounds of appeal but the solitary grievance is with regard to a disallowance of Rs. 38,98,474/-, which represented interest expenditure paid to M/s. Hindalco Industries Ltd. The 2 ITA NO 1401/Mum/2013 Assessment Year 2010-11

appellant is a company, engaged in the business of production of Winding Wire and Enamelled Wire. Assessee purchases its principal raw material, namely, copper from M/s Hindalco Industries Ltd. The aforesaid amount reflected interest charged by Hindalco Industries Ltd, on account of delayed payment of dues by assessee. The Assessing Officer noted that the interest expenditure related to the period ending on 31.03.2009, which corresponded to immediately preceding assessment year of 2009-10 and, therefore, the said expenditure related to an earlier assessment year. Since the assessee was following the mercantile system of accounting, the Assessing Officer held that such expenditure was not allowable while computing the income in the year under consideration. He, therefore, disallowed the said expense as a prior period expenditure. The CIT(A) has also upheld the action of the Assessing Officer and accordingly assessee is in appeal before us.

3. Before us, the Ld. Representative for the assessee pointed out though the expenditure in question pertained to earlier year, so however, the liability for the same has crystallized during the previous year relevant to assessment year under consideration. In support, a reference has been made to pages 8 to 15 of the Paper Book, wherein are placed copies of the debit notes issued by Hindalco Industries Ltd., in terms of which the interest of Rs. 38,98,474/- has been charged from assessee on delayed payment. It has been submitted that the said debit notes are issued on the dates falling within the previous year relevant to the assessment year under consideration and on this basis, the expenditure is deemed to have crystallized during the year under consideration and thus is an allowable expenditure while computing the income of the assessee for the instant assessment year.

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4. On the other hand, the Ld. DR appearing for the Revenue has submitted that the expenditure clearly was relatable to the purchases effected from Hindalco Industries Ltd. in the preceding year and, therefore, it was a prior period expenditure, thus the lower authorities have rightly disallowed the impugned expenditure.

5. We have carefully considered the rival submissions. Factually speaking, there is considerable strength in the plea set-up by the assessee that liability in respect of the impugned expenditure of Rs. 38,98,474/- has crystallized only on the receipt of debit notes from Hindalco Industries Ltd, in the current assessment year. No doubt, interest has been charged by Hindalco Industries Ltd, in respect of purchases effected by the assessee in the earlier year, but the liability to pay interest has indeed crystallized only when the debit notes for the same were raised by Hindalco Industries Ltd, and such dates fall in the current assessment year. Therefore, in so far as the crystallization of liability of the impugned expenditure is concerned, we are in agreement with the appellant that the same has occurred in the current assessment year. The Ld. Representative had also asserted in the course of hearing, that the assessee has accounted for the impugned expenditure in this year in the same manner as in the past years. This aspect has not been contraverted by the Revenue before us.

6. In the aforesaid factual background, we find that the plea of the assessee for deduction of impugned expenditure in the current assessment year is wholly justified and is in line with the ratio of Judgment of Hon'ble Bombay High Court in the case of CIT Vs. Mahanagar Gas Ltd. [2014] 42 taxmann.com 40 (Bombay).

7. We find that the CIT(A) has disagreed with the assessee on the basis of the Judgment of Hon'ble Delhi High Court in the case of CIT Vs. Exxon Mobil Page 3 of 5 4 ITA NO 1401/Mum/2013 Assessment Year 2010-11

Lubricants P. Ltd. [2010] 328 ITR 17 (Delhi). We have carefully perused the Judgment of Hon'ble Delhi High Court, wherein, the assessment year involved was assessment year 2003-04. The assessee had claimed deduction for expenditure incurred during the period January 2002 to March 2002, which was disallowed by the Assessing Officer on the ground that the same was a prior period expenditure and not relatable to the previous year relevant to the assessment year under consideration before him i.e. assessment year 2003-04. So however, the plea of the assessee was that the expenditure was incurred in terms of an agreement entered in August 2002, but the same was retrospectively effective from January 1, 2002. On the strength of the said agreement, it was canvassed that though the impugned expenses were incurred during the period January 2002, to March 2002 but the liability therein had crystallized only on execution of the agreement in August 2002 and, therefore, such expense was an allowable deduction in the assessment year 2003-04. The said position was affirmed by the Hon'ble Delhi High Court in the case of CIT Vs. Exxon Mobil Lubricants P. Ltd. (supra). The aforesaid discussion would reveal that decision of the Hon'ble Delhi High Court does not support the case of the Revenue before us, and, rather it supports the proposition canvassed by the assessee to the effect that the liability is to be allowed as deduction in the year in which it has crystallized. Factually speaking, the liability in question has crystallized during the year under consideration, as noted by us in the earlier paras and, therefore, in our view, the lower authorities have erred in disallowing the impugned expense. As a consequence, we set aside the order of CIT(A) and direct the Assessing Officer to delete the addition of Rs. 38,98,474/-

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8. In the result appeal, of the assessee is allowed.

Order pronounced in the open court on this 29th day of May 2015.

Sd/- Sd/-

(Sanjay Garg) (G.S. Pannu) (Judicial Member) (Accountant Member)

Mumbai dated 29-05-2015 SKS Sr. P.S,

Copy to: 1. The Appellant 2. The Respondent 3. The concerned CIT(A) 4. The concerned CIT 5. The DR, "B" Bench, ITAT, Mumbai By Order

Assistant Registrar Income Tax Appellate Tribunal, Mumbai Benches, MUMBAI

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