Dhirubhai Naranbhai Patel, J. - (1.) THIS appeal has been preferred by the appellant (appellant of Tax Appeal No. 37 of 2013) against the judgment and order dated 7th May, 2013, delivered by the Income Tax Appellate Tribunal, Circuit Bench, Ranchi (Hereinafter to be referred to as 'ITAT, Ranchi') in the Income Tax Appeal No. 05 -Ran/2013 for the Assessment Year 2007 -08, whereby the appeal preferred by the appellant -assessee being Tax Appeal No. 05 -Ran/2013 has been allowed partly. Submissions made on behalf of the appellant -assessee:
(2.) COUNSEL for the appellant submitted that this appeal is decided against this appellant -assessee to the following extent: ITDS certificates which are receivable from different clients have not been received by this appellant and therefore, this appellant has claimed consideration of a sum of Rs. 12,19,000/ - pertaining to ITDS not received as 'bad debt written off' in computation of total income for the Accounting Year 2006 -07. The submissions made by the assessee regarding ITDS certificates before the CIT (Appeals) (Annexure 2 to the Tax Appeal No. 37 of 2013) is quoted hereunder: '2.1 Disallowance of Rs. 12,19,000/ - for "ITDS Certificate Receivable written off" ..................Several Income Tax TDS Certificates (ITDS Certificates) were lying due from various clients for a long period and the appellant could not collect those certificates from clients owing to various reasons. Hence, the decision to write off this claim of receivable was taken by the management during the financial year 2006 -07. The details of "ITDS Certificate Receivable written off" is enclosed as per annexure -2. However, the appellant had inadvertently shown it under the head "Adjustment relating to the earlier years". In the case of appellant there were no errors or omissions in the past. The management decision of adjustment/write off Rs. 12,19,000/ - during the current period is necessitated by circumstances only. Hence, as per Accounting Staiidard -5 this expenditure should not be treated as Prior Period items. In view of the above, this expenditure should not be disavowed by the IA. AO on the mere ground of 'Prior Period Expenditure" even though it is recorded in the books of accounts inadvertently under the head "Adjustment relating to the earlier years".......... It is submitted by the counsel for the appellant that the ITDS certificates, which were receivable, have not been received from several clients, who are referred to in Annexure 2 to the memo of the appeal and therefore, this amount should be treated as revenue expenditure or loss in business in ordinary course and it has been inadvertently recorded in the books of accounts under the head "Adjustment relating to the earlier years. The Assessing Officer wrongly disallowed the same for the Assessment Year 2007 -08 as Prior Period Expenditure not allowable during the relevant financial year for the reason that these expenditures are related to earlier Financial years. This aspect of the matter has not been properly appreciated by the ITAT, Ranchi and it has confirmed the order of Commissioner of Income Tax (Appeals)(Hereinafter to be referred to as the 'CIT(Appeals)') passed in Appeal No. 151/Ran/Co/2009 -10 filed by the assessee against the Assessment order for the Assessment Year 2007 -08. Submission made on behalf of the respondent -Department Counsel appearing for the respondent -Department submitted that there is a sustained finding of fact by the Assessing Officer, thereafter by the CIT (Appeals) as well as by the ITAT, Ranchi and therefore, this court may not interfere with the said findings regarding ITDS in this Tax appeal preferred by the appellant -assessee. It is further submitted by the counsel for the respondents that there is no evidence either before the Assessing Officer or before the CIT (Appeals) or before the ITAT, Ranchi that this ITDS certificates, which were receivable, have not been received. Moreover, non -receipt of ITDS certificates can neither be treated as Revenue Expenditure nor it is a loss in ordinary course of business and therefore, rightly it has been held by the Assessing Officer, CIT (Appeals) as well as ITAT, Circuit Bench, Ranchi that this amount of Rs. 12.19 Lacs is rightly disallowed for the Assessment Year 2007 -08. as Prior Period Expenditure not allowable during the relevant financial year for the reason that these expenditures are related to earlier Financial years, and therefore, this appeal may not be entertained by this court.
(3.) HAVING heard counsel for both sides and looking to the facts and circumstances of the case, it appears that this appellant -assessee has claimed that Rs. 12.19 lac, which is the total amount of ITDS certificate not received (as referred to in Annexure 2 of this appeal) should be treated as Revenue Expenditure or loss in ordinary course of business. We are not inclined to accept this proposition propounded by the counsel for the appellant mainly for the following reasons: REASONS: (a) This appellant has mentioned the details of TDS certificates receivable from the following clients From the aforesaid table, it is clear that several amounts are relating to year 2001 -02 and some are of earlier years even and it is purely an averment and allegation that the TDS certificates have not been received by the Company. There was neither any proof before the Assessing Officer nor before the CIT (Appeals) nor before ITAT. Ranchi that in fact this appellant has not received these TDS certificates for several financial years as stated in the aforesaid table. In absence of evidence the claim as made by the appellant -assessee can not be allowed. The amount of TDS certificate, which is not received by the appellant -assessee cannot be treated as a "bad debt written off' in computation of the total income for the relevant assessment year and should be treated as 'Prior Period Expenditure' because the ITDS certificates (not received) not only pertains to the year 2001 -02, but, even prior to that. (b) Even if such TDS certificates have been received, then also it cannot be labeled either as Revenue Expenditure or as a loss in ordinary course of business. Both these terms, i.e. 'Revenue Expenditure' and 'Loss in ordinary course of business' are absolutely different from the event of non receipt of TDS certificates. (c) Paragraph 8 (page 72) of order dated 7th May, 2013 passed by the ITAT, Ranchi reads as under: "8. We heard the rival submissions and carefully considered the same. It is not denied that this amount relates to the prior period. As per the accounting standard No. 1 as notified under section 145(2), it is mandatory for the assessee to be followed. The accrual has been denied under clause 6(b) to the assumption that revenues and costs are accrued that is, recognized as they are earned or incurred and are recorded in the financial statement of the period to which they relate. Clause 5 of the said accounting standard clearly states that fundamental accounting assumption relating to the going concern, consistency and accrued are to be followed. It is not denied that the assessee was following the mercantile system of accounting. In view of the mercantile accounting as well as definition of the accrual given under clause 6, we are of the view that since the TDS certificate written off did not relate to the period, i.e. accounting year 2006 -07, therefore, we do not find any Illegality or infirmity in the order of the CIT(A) in sustaining the disallowance. Thus, the ground Nos. 1 and 2 stand dismissed." (Emphasis supplied) Thus, in the circumstances, that it has not been denied that this amount relates to the prior period and the assessee was following the mercantile system of accounting and as per definition of the accrual given under Clause 6, it is rightly held by the ITAT, Circuit Bench, Ranchi that TDS certificate written off, did not relate to Accounting year 2006 -07.;