Back
2025 Supreme(Online)(ITAT) 1684
INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH)
SHRI RIFAUR RAHMAN, ACJ, SHRI SUDHIR KUMAR, J
PRASANDI INFOTECH PARK P.LTD GAUTAM BUDH NAGAR – Appellant
Versus
ACIT CENTRAL CIRCLE-1 NEW DELHI – Respondent
ITA 2585/DEL/2022
Dr. Rakesh Gupta, Advocate; Shri Deepesh Garg, Advocate
Expenses must be recognized in the year they crystallize; prior period expenses are not deductible in the current year.
Headnote:(A) Income-tax Act, 1961 - Sections 4, 36(1)(iv), 143(2), and 142(1) - Appeal against disallowance of prior period expenses - Assessee claimed interest of Rs.33,65,13,449/- as an exceptional item for AY 2017-18, which was disallowed by the Assessing Officer and upheld by the CIT(A) - The court found that the liability for interest crystallized only when the lender rejected the waiver request on 13.06.2016, thus allowing the claim for the current assessment year. (Paras 3, 4, 8, and 9)
(B) Accounting Principles - The court emphasized that expenses should be recognized in the year they crystallize, and prior period expenses are not allowable as deductions for the current year. (Paras 22, 23, and 24)
(C) Revenue Impact - The court noted that allowing the claim would not cause any loss to the revenue, as the lenders had already accounted for the interest as income. (Paras 12.1 and 12.2)
Facts of the case:
The assessee filed a return declaring a loss of Rs.57,13,75,718/- for AY 2017-18, with a claim for interest expenses related to prior years, which was disallowed by the Assessing Officer.
Findings of Court:
The court allowed the appeal, stating that the interest liability crystallized in the current year, and thus the expenses were deductible.
Issues: The main issues were whether the interest expense could be claimed in the current assessment year and the nature of the prior period expenses.
Ratio Decidendi: The court ruled that the interest liability crystallized when the lender rejected the waiver request, allowing the deduction for the current year.
Result: Appeal allowed.
ORDER
PER S.RIFAUR RAHMAN,AM:
1. This appeal has been filed by the assessee against the order of ld. Commissioner of Income-tax (Appeals)-23, New Delhi (hereinafter referred to as ‘ld. CIT (A)’) dated 31.08.2022 for the Assessment Year 2017-18.
2. Brief facts of the case are, assessee field its return of income on 31.10.2017 declaring loss of Rs.57,13,75,718/-. The case was selected for scrutiny. Accordingly, notices under section 143(2) and 142(1) of the Income-tax Act, 1961 (for short ‘the Act’) were issued and served on the assessee through ITBA Portal along with questionnaire. In response, ld. AR of the assessee submitted the relevant information through ITBA Portal. After considering the submissions of the assessee, a show-cause notice dated 27.11.2019 was issued to explain why the disallowance of prior period expenses to the tune of Rs.33,65,13,449/- should not be made. In response, assessee submitted as under :-
"The Amount of Rs.336513449 shown as exceptional item in the Profit and loss accounts is interest payable by the assessee on the loan taken from SERI Infrastructure Finance Limited in earlier Years. Assessee company acquired ERA Infrastructure Pvt Ltd during the year 2014. The interest pertaining to FY 2014-15 and 2015-16 was not provided as the assessee was under negotiation to seek waiver of interest payable, which did not materialise. During the financial year under assessment the assessee claim the entire interest as an exceptional item due to failure of negotiation. In case your good self is not inclined to subscribe to the above views, the assessee. It is settled position that the expenditure is allowable in the year in which the liability to pay such an expenditure has crystallized. The assessee request you to kindly allow the expenditure in the AY 2017-18 as expenditure crystallised in this year. If your good self do not subscribe to this view, alternatively the assessee request your good self to allow such expenditure in the relevant assessment year to which it pertains i.e. AY 2015-16 and 2016-17."
3. After considering the submissions, the Assessing Officer rejected the same and observed that Profit & Loss account in which assessee has claimed the abovesaid interest as an exceptional item. He observed that assessee has claimed the interest expenditure pertained to AYs 2015-16 & 2016-17 in the present assessment year and made a submission that the relevant interest was crystallized only this year. However, to substantiate his claim, the assessee has not furnished any evidence on the basis of which it can be proved that the liability as regards to such interest expenses is being crystallized in the concerned assessment year. Even the assessee itself is in a dilemma of facts which can easily be deducted from its admission wherein it was stated that if the expenses would not be allowed in the concerned assessment year then it was requested to provide the relief of such expenses in the relevant assessment years i.e. 2015-16 & 2016-17. From the above facts, the allowability of the expenditure is restricted to the assessment year for which the Assessing Officer has the jurisdiction and he rejected the submissions of the assessee that negotiated interest was only crystallized during the year and since the assessee is following the mercantile system, assessee should have claimed the relevant expenditure in the relevant assessment year. With the above observation, the claim of the extra-ordinary expenditure is disallowed and accordingly the loss declared by the assessee was reduced and assessed the same at Rs.23,48,62,269/-.
4. Aggrieved assessee preferred an appeal before the ld. CIT (A). Assessee has filed detailed submissions and the relevant notes to accounts and relevant auditor statements were submitted before him to justify the claim of the assessee. After considering the same, ld. CIT (A) dismissed the appeal filed by the assessee with the following observations :-
“20. It is case wherein the liability was dete
