ORDER
P.N. Parashar, J.M.
1. This appeal has been filed by the assessee against the order of the learned GIT(A)-XV, New Delhi dt. 9th Nov., 2004 for asst. yr. 1997-98. The assessee has taken as many as three grounds in this appeal. These grounds are as under:
1. That the order passed by the CIT(A)-XV dt. 9th Nov., 2004 is bad in law and be cancelled.
2. That the learned CIT(A) has erred in law and on the facts of the case in treating reopening by AO under Section 148 after four years from the end of the relevant assessment year as valid even though all details as sought by the AO were submitted and scrutinized by him at the time of assessment under Section 143(3).
On the facts and circumstances of the case the learned AO may kindly be directed that proceeding initiated under Section 148 and the assessment so passed under Section 147/143(3) being bad in law and absolutely illegal be quashed in toto.
3. That the learned C1T(A) has erred in law and on the facts of the case in upholding the disallowance of Rs. 75,96,534 on account of previous year expenses even though the details/explanations along with copy of vouchers were filed at the time of regular assessment under Section 143(3)/147 and before the CIT(A) against the assessment order passed under Section 147/143(3).
On the facts and circumstances of the case the learned AO may kindly be directed to allow Rs. 75,96,534 in respect of previous year expenses as the liability was crystallized during the year.
2. Shri Pradeep Dinodia, chartered accountant appeared for the assessee whereas Shri L.M. Pandey, senior Departmental Representative represented the Revenue.
3. In this case, the assessment was completed under Section 143(3) vide order dt. 29th Feb., 2000 at an income of Rs. 13,69,75,960. Thereafter the AO issued notice under Section 148 on 7th Feb., 2003. In response to that notice the assessee filed letter dt. 28th Feb., 2003 submitting that the return originally filed may be treated as return filed in response to notice dt. 7th Feb., 2003. During the reassessment’ proceedings, the AO found that prior period expenses of Rs. 88,54,926 which were debited to the P&L a/c were not allowable for computing the total income in the year under consideration. The version of the assessee in this regard was that these expenses could not be accounted for in the relevant year in the books of accounts because the same were received after the close of the books of account. Break-up of the expenses as given by the assessee is as under:
Head office Rs. 23.67 lakhs Patiala Rs. 11.27 lakhs Bangalore Rs. 22.45 lakhs Leather Garment Division Rs. 0.77 lakhs Vegetable Oil Division Rs. 17.91 lakhs
It was also submitted that in the case of head office, as a result of bank’s policy the demand note for an amount of Rs. 12,58,392 was received by the assessee only after the close of the assessment year as a result of which the assessee could not anticipate such amount before the close of the accounts. In support of this contention the assessee filed a copy of demand note from ICICI Bank. After considering this document it was observed by the AO that the assessee could file satisfactory reply regarding the amount of Rs. 12.58 lakhs only. Thus out of total amount of Rs. 88,54,926 the AO allowed an amount of Rs. 12,58,392 and balance amount of Rs. 75,96,534 was disallowed by him.
4. The assessee filed appeal against the disallowance made by the AO. It was argued before the learned first appellate authority that reopening of the case under Section 148 was invalid because more than four years had elapsed after the close of the assessment year and the assessment could be validly reopened after 4 years from the end of the assessment year only if there was nondisclosure on the part of the assessee. It was submitted on behalf of the assessee that he had disclosed the prior period expenses before the AO and after considering the issue in the course of original assessment proceedings, the AO made no addition. It was thus submitted that the reopening is based on change of opinion and therefore is not legally justified.
5. It was also submitted that the expenses in question had crystallized only in the year under consideration. Therefore, these were claimed accordingly. In support of this version the assessee filed copies of bills showing date of bills in the year under consideration. It was argued that during the last 10 years the AO did not make any disallowance on account of prior period expenses and whenever it was made, the same was struck down by the CIT(A)/Tribunal.
6. The learned CIT(A) considered these pleas of the assessee. So far as ground relating to validity of reassessment proceedings is concerned, the learned CIT(A) made reference to the note dt. 6th Sept., 1999 filed by the assessee before the AO which is as under:
Note on previous year expenses
Some of the expenses were received after the closure of the books of the relevant accounting year and could not be accounted in that year. They were therefore accounted for in the subsequent year. We confirm that these expenses have not been claimed by us/allowed to us in any earlier year.
After reproducing the above note, the learned CIT(A) proceeded to observe that from this note it is not clear as to whether the assessee had fully disclosed that the expenses had crystallized in the earlier year or not and therefore, it is difficult to accept the contention of the assessee. He was of the view that since there was no full and true disclosure of material particulars by the assessee before the AO, the reopening was fully justified. According to him, merely by stating that the prior period expenses had crystallized only in the year under consideration, the assessee could not be said to have made a true and full disclosure. He opined that true and full disclosure would reveal the total income to be returned and total income is to be seen through the eyes of taxation statute and not through the eyes of the assessee. In support of this conclusion, the learned CIT(A) placed reliance on the decision in the case of T.S.PLP. Chidambaram Chettiar v. CIT (Mad) and the decision of Hon ‘ble Supreme Court reported in CIT v. T.S.PL.P. Chidambaram Chettiar . He also placed reliance on the ratio of the decision of the Hon’ble Supreme Court in the case of Calcutta Discount Co. Ltd. v. TTO .
7. On merits also, the learned CIT(A) upheld the action of the AO.
8. Before us, the learned Counsel for the assessee Shri Dinodia submitted that the notice under Section 148 was issued on 7th Feb., 2003 and the reassessment was made on 27th Feb., 2004 and therefore, it remains undisputed that the proviso to Section 147 of the IT Act applies to the facts of this case. He pointed out that as per this proviso until and unless there is failure on the part of the assessee to disclose fully and truly all material facts, the assessment cannot be reopened by issuing notice under Section 148 after the expiry of period of four years from the end of the relevant assessment year. The learned Counsel for the assessee thereafter made reference to the copy of balance sheet and P&L a/c filed along with the return. In particular he made reference to p. 22 item No. 9 which is as under:
1997 1996
(Rs. Lakhs) (Rs. Lakhs)
9. Expenses pertaining to previous year :
Material, manufacturing and operating 25.09 31.34
Personnel 3.38 1.96
Sales and administration 47.48 34.70
Interest 0.12
On the basis of above details, it was submitted by him that the expenses pertaining to the previous year were fully disclosed to the AO. He also made reference to the tax audit report available at p, 35 of the paper book which was filed before the AO. As per this document the following details have been given :
B. Particulars of expenditure/income of any earlier year debited/credited to P&L a/c of the relevant previous year.
Expenses :
a. Personnel expenses 338,180
b. Sales and administration 4,748,916
c. Operating expenses 2,509,438
d. Interest 1,258,392
e. Depreciation 2,298,991
Note : Provisions no longer required written back and unclaimed balances written back not considered for the purpose of this clause.
Then he invited our attention to p. 47 of the paper book which contains list of documents/statements attached which were filed and attached with the return.
9. The learned Counsel further submitted that during the assessment proceedings the AO made queries from the assessee on this issue and in reply to the query the assessee had made the following submissions :
Some of the expenses were received after the closure of books of the relevant accounting year and could not be accounted in that year. They were therefore accounted for in the subsequent year. We confirm that these expenses have not been claimed by us/allowed to us in any earlier year. Similar expenses have been allowed to us in the preceding asst. yr. 1996-97.
The learned Counsel also made reference to p. 55 of the paper book which is statement of expenses related to previous year and to pp. 69-72 which are vouchers and other details submitted by the assessee. Again he made reference to p. 99 which is reply of the assessee dt. 31st Jan., 2000 and as per which the submissions of the assessee about prior period expense were made before the AO. The learned Authorised Representative also pointed out that in asst. yr. 1988-89 the Tribunal Delhi Bench has decided the issue in favour of the assessee. In this regard he made reference to paras 5, 5.1 and 5,2 of the order of CIT(A)-XV, New Delhi dt. 30th Nov., 2006 for asst. yr. 2001-02 which read as under:
5. In ground No. 5, the appellant disputes disallowance of Rs. 12,89,584 in respect of previous year’s expenses, on the ground that the said liability crystallised during the relevant assessment year. It has been stated that the prior period expenses included material manufacturing and operating expenses pertaining to different contractors and also expenses over its employees’ welfare, where bills and claims have been received during the relevant assessment year. That in all cases the bills were received and approved by the appellant subsequent to the finalization of the preceding year’s accounts. Out of a sum of Rs. 12,88,784 under prior period expenses, it has been stated that an amount of Rs. 12,21,715 were in terms of bills of Kashyap & Sons and such bills have been raised during the relevant year itself. It has been stated that similar disallowance in respect of the appellant’s sister concern M/s Escorts Ltd. for asst. yr. 1986-87 to asst. yr. 1988-89 has-been allowed by the Tribunal.
5.11 have considered the appellant’s submission in the light of the evidences of prior period expenses brought forth in the appellate proceedings. It is apparent that out of the claim of such expenses, Rs. 12,21,715 pertained to bills of M/s Kashyap & Sons which were raised by the said contractor/vendor during the relevant assessment year itself. The expense therefore related to the current year in appeal and otherwise allowable. With regard to personnel expenses in the nature of welfare expenses incurred towards purchase of material for workers’ canteen, the bills are dt. 31st Jan., 2000 to 21st March, 2000 and the said bills were received by the appellant in the month of April, 2000. Since the bills were received subsequent to the finalization of the appellant’s preceding year’s accounts, the said expenses have been booked under prior period expenses.
5.2 The appellant has relied on the decisions in the case of CIT v. Neo Polypack (Delhi), Western India-Oil Distributing Co. Ltd. v. Asstt. CIT (2001) 73 ‘ TTJ (Mumbai) 631 : (2001) 77 ITD 548 (Mumbai) and its own case for asst. yr. 2000-01, where a similar issue was examined by the CIT under Section 263 of the Act and upon such examination it was held that prior period expenses are allowable. In view of the decisions mentioned above and submissions of the appellant, there is no justification for disallowing the claim of prior period expenses. The ground is allowed.
10. It was also pointed out by him that in asst. yr. 1985-86 also the issue was decided by the Tribunal in favour- of the assessee. For supporting this submission, he made reference to pp. 262 to 264 of the paper book. It was thus submitted by him that time and again the issue has been decided in favour of the assessee. Therefore, there was no justification for the reopening of the assessment in this year. In support of his arguments, the learned Counsel placed reliance on the following authorities :
(1) CIT v. Kalvinator of India Ltd. (2002) 174 CTR (Del)(FB) 617 : (2002) 256 ITR 1 (Del)(FB);
(2) CIT v. Foramer Fiance ;
(3) Jindal Photo Films Ltd. v. Dy. CIT ;
(4) CWT v. CM. Ghosh Trust .
He also made reference to the latest decision of Punjab & Haryana High Court in the case of Winsome Textiles Industries Ltd. v. Union of India . The main contention of the learned Counsel for the assessee, therefore, was that even from the point of consistency, a different stand cannot be taken by the Department in this assessment year. It was also contended by him that the assessee was maintaining the same system of accounting and the Department had no justification to change the same.
11. The learned Departmental Representative Shri Pandey, on the other hand, supported the order of the learned CIT(A) and placed reliance on the decision in the case of Consolidated Photo & Finvest Ltd. v. Asstt. CIT (2006) 200 CTR (Del) 433 : (2006) 281 IFR 394 (Del). He also pointed out that the method adopted by the assessee cannot be treated as regular or recognized method of accounting. He contended that why the wages which were ascertainable, were not paid by the assessee in the current year. Thus according to him, there is no consistency in the method of accounting adopted by the assessee.
12. In rejoinder the learned Counsel for the assessee pointed out that there is no inconsistency in the method adopted by the assessee. He also pointed out that the bills were received after the close of the year i.e. after the close of the accounting year and therefore, they were accounted for in the subsequent year only. The learned Counsel also pointed out that there is no finding recorded by the AO that there is failure on the part of the assessee in disclosing material facts and in absence of such a finding the order made after the expiry of four years from the end of the relevant assessment year cannot be justified.
13. Regarding hybrid system of accounting, the learned Counsel placed reliance on the decision of Hon’ ble Calcutta High Court in the case of Juggilal Kamlapat Udyog Ltd. v. CIT (2005) 199 CTR (Cal) 134 : (2005) 278 TTR 52 (Cal).
14. We have heard the rival submissions and considered the entire relevant material placed on record by the parties.
14.1. The assessment in this case was completed on 29th Feb., 2000. Notice under Section 148 was issued on 7th Feb., 2003. The assessment pertains to the asst. yr. 1997-98. Notice issued on 7th Feb., 2003 was therefore, after the expiry of four years from the end of the assessment year as the fourth year expired on 31st March, 2002. Proviso to Section 147 runs as under:
Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under sub-s. (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year.
In view of the above proviso to Section 147 of the IT Act, no action can be taken for reassessment after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under sub-s. (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year.
14.2 In the instant case as pointed out by the learned Counsel for the assessee, the assessee has disclosed all the facts during the original assessment. In this regard, we have already made reference to p. 22 of the paper book and to the tax audit report available at p. 35. We have also made reference to the details furnished by the assessee in the tax audit report, statement of expenses available at pp. 69 to 72 of the paper book and other material on record. Thus there is sufficient force in the contention raised on behalf of the assessee that material facts were fully and truly disclosed by the assessee. In the assessment order available at pp. 149 to 151 of the paper book the AO has made mention of audit report. Since he also raised query during the assessment proceedings on the issue relating to prior period expenses, it cannot be said that the assessee failed to disclose material facts. In the case of Site World Travels (India) Ltd. v. CIT the Hon’ble Delhi High Court has observed as under:
Held, allowing the petition, that from the original assessment orders as well as the order made by the appellate authority, it was clear that the AO was well aware of the primary facts, namely, the claim made by the -assessee, the circumstances under which the claim was made and the provisions of law which could be applied while granting the benefits. A decision may be right or wrong but that was none of the concern of the subsequent officer. If the primary facts were not available or there was concealment or there was no application of mind at all, then a case of reopening the assessment could be made out. But when all the facts were placed before the AO and the AO consciously considered the facts and arrived at a decision, then it could not be reopened merely because subsequently he changes his mind or some other officer takes a different view. Hence, this was a case of wrongful assumption of jurisdiction and as such the notices, the speaking orders and the assessment orders made in pursuance of the notices were quashed.
14.3 The ratio of the decision is fully applicable to the facts of the present case and therefore, on the facts and circumstances of this case, it cannot be said that there was any failure on the part of the assessee in disclosing material facts. On the other hand, as pointed out above, the assessee had disclosed all material facts relating to prior period expenses and after making complete and detailed inquiry, the AO in the original assessment proceedings, preferred not to make any addition on account of prior period expenses.
14.4 The Hon’ble Supreme Court of India in a very recent decision in the case of Asstt. CIT v. Rajesh Jhaveri Stock Brokers (P) Ltd. has considered about the scope and effect of Section 147 as substituted w.e.f. 1st April, 1989. The Hon’ble Court has observed as under: “The scope and effect of Section 147 as substituted w.e.f. 1st April, 1989, as also Sections 148 to 152 are substantially different from the provisions as they stood prior to such substitution. Under the old provisions of Section 147, separate els. (a) and (b) laid down the circumstances under which income escaping assessment for the past assessment years could be assessed or reassessed. To confer jurisdiction under Section 147(a) two conditions were required to be satisfied : firstly the AO must have reason to believe that income, profits or gains chargeable to income-tax have escaped assessment, and secondly he must also have reason to believe that such escapement has occurred by reason of either omission or failure on the part of the assessee to disclose fully or truly all material facts necessary for his assessment of that year. Both these conditions were conditions precedent to be satisfied before the AO could have jurisdiction to issue notice under Section 148 r/w Section 147(a).- But under the substituted Section 147 existence of only the first condition suffices. In other words if the AO for whatever reason has reason to believe that income has escaped assessment it confers jurisdiction to reopen the assessment. It is, however, to be noted that both the conditions must be fulfilled if the case falls within the ambit of the proviso to Section 147. The case at hand is covered by the main provision and not the proviso.”
14.5 It may be pointed out that since the instant case is covered by the proviso both the conditions are required to be satisfied. As the assessee had disclosed the material facts in the instant case, the second condition is not satisfied.
15. Further, on examination of the entire material on record it is fully established that in this case the application of the mind on the part of the AO relating to issue of prior period expenses is fully revealed. The reply of the assessee dt. 6th Sept., 1999 available at p. 51 indicates that in pursuance of the hearing dt. 12th Aug., 1999 in respect of the assessment proceedings certain information/details “as desired by your Honour, are being filed”. The AO was still not satisfied and thereafter the assessee again vide letter dt. 21st Jan., 2000 available at p. 53 of the paper book, submitted reply regarding prior period expenses and gave details in the shape of vouchers, bills etc. Since the AO was still not satisfied, the assessee vide letter dt. 31st Jan., 2000 again submitted a detailed reply. From this reply also it is clear that the details were furnished by the assessee in the context of hearing, which took place on 24th Jan., 2000 in respect of the assessment proceedings. Hence, information/details regarding the previous year’s expenses were again furnished by the assessee before the AO on the demand of the AO. It is clear that the assessee filed details along with vouchers which fact also establishes that it was only after examination of these details and after application of mind, the AO did not make further queries. Had he not applied the mind, then he would not have called for further details. On the direction of the AO, the assessee filed plant-wise and year-wise details. Details of prior year’s expenses are available at pp. 103 to 111 of the paper book. It was only after these details the AO felt fully satisfied and did not make any query nor made any disallowance in the assessment order.
16. Under the above-narrated circumstances, firstly the application of the mind by the AO is fully proved and secondly, it is also proved that the assessee had furnished full details and entire relevant material. Thus it cannot be said that the assessee did not furnish details or did not disclose full and true facts relating to the issue on the basis of which the opening was made or that the AO did not apply the mind to such particulars. On the other hand, it is fully established that there was no failure on the part of the assessee in supplying material facts.
17. The learned Departmental Representative has placed reliance on the decision of Hon’ble Delhi High Court in the case of Consolidated Photo & Finvest Ltd. v. Asstt. CIT (supra). In that case the Hon’ble Delhi High Court has observed that mere production of books of accounts or other evidence from which the AO could have, with due diligence, discovered the material evidence, does not necessarily amount to a disclosure within the meaning of the proviso to Section 147 of the IT Act. In that case it was also held that there may be presumption that the assessment proceedings have been regularly conducted, but there could be no presumption that even when the order of assessment was silent, all possible angles and aspects of a controversy had been examined and determined by the AO. However, so far as the present case is concerned, the facts are totally different. As pointed out by us there is ample evidence to show that the AO applied mind and took a conscious decision in not making the addition on account of previous year’s expenses because he was fully satisfied on the basis of material produced before him. Thus the decision of Hon’ble Delhi High Court in the case of Consolidated Photo & Finvest Ltd. (supra) is not applicable to the facts of the present case and is distinguishable.
18. It may further be pointed out that in the same case the Hon’ble Delhi High Court also observed as under:
The principle that a mere change of opinion cannot be a basis for reopening completed assessments would be applicable only to situations where the AO has applied his mind and taken a conscious decision on a “particular matter in issue.
If the above principle is applied to the facts of the present case, it would be clear that in the instant case the AO has applied his mind and had taken a conscious decision on the matter relating to previous year’s expenses or prior period expenses and therefore, the reopening was based on nothing but only on the basis of change of opinion. Thus if this observation of the Hon’ble Delhi High Court is taken into account, then it will be found that the reassessment in this case is based purely on change of opinion. To the same effect is the decision of Hon’ble Delhi High Court in the case of Kalvinatoi of India Ltd. (supra) and the decision of Hon’ble Supreme Court in the case of CIT v. Foramer France (supra).
19. On the controversies relating to failure on the part of the assessee to make disclosure of facts, application of mind by the AO and non-expression of opinion on the relevant point by the AO as well as on the issue relating to change of opinion, we may make reference to a latest decision of Hon’ble Delhi High Court dt. 22th May., 2007 rendered in IT Appeal No. 309 of 2006 in the case of err v. Eicher Ltd. In that case the assessment was completed under Section 143(3) on 7th Dec., 1995 and subsequently the AO reopened the assessment by issuing the notice dt. 30th March, 2000 under Section 148. The reason for reopening the assessment was to tax the waiver of interest allegedly not offered to tax by the assessee. On receipt of the notice, it was contended by the assessee that the reopening was based on the change of opinion and not because that the assessee had not fully and truly disclosed the material facts. In support of this contention, reference was made to letter dt. 8th Nov., 1995 wherein it was pointed out that the assessee had approached the banks and financial institutions for finance to pay interest arrears and principals upon which the banks agreed to the same and the principal and the interest thereupon was rescheduled and the interest arrears were treated as fresh interest bearing loans. It was submited that as such the entire arrears of interest upto the relevant year was treated as having been paid to the banks and financial institutions. According to the assessee all these facts were before the AO who chose not to give a finding on them but accepted the contention of the assessee and did not treat the interest amount that have been waived as income of the assessee.
20. The AO rejected the contention but on appeal, the CIT(A) held that the reassessment was based on change of opinion. This view was upheld by the Tribunal who dismissed the appeal of the Revenue. The Hon’ble Delhi Court dismissed the appeal of the Revenue and upheld the order of the Tribunal by observing as under:
17. Insofar as the present appeal is concerned, we find that the assessee had placed all the material before the AO and where there was a doubt, even that was clarified by the assessee in its letter dt. 8th Nov., 1995. If the AO, while passing the original assessment order, chose not to give any finding in this regard, that cannot give him or his successor in office a reason to reopen the assessment of the assessee or to contend that because the facts were not considered in the assessment order, a full and true disclosure was not made. Since the facts were before the AO at the time of framing the original assessment, and later a different view was taken by him or his successor on the same facts, it clearly amounts to a change of opinion. This cannot form the basis for permitting the AO or his successor to reopen the assessment of the assessee.
It may be pointed out that in the abovementioned case, the Hon’ble Delhi High Court has considered the decision in the case of Consolidated Photo & Finvest Ltd. (supra) on which reliance was placed by the Revenue. The Hon’ble Court has also considered the decision of its Full Bench In the case of Kalvinator of India Ltd. (supra) as also the decision in the case of KLM Royal Dutch Airlines v. Asstt. Director of IT (2007) 208 CTR (Del) 33 and also the decision in the case of Han Iron Trading Co. v. CIT .
21. After considering all these decisions, the Hon’ble Court did not follow the decision in the case of Consolidated Photo & Finvest Ltd. (supra) but has followed the decision of the Full Bench of the Delhi High Court in the case of Kalvinatoi of India Ltd. (supra) and the principles which were applied while deciding the case. The relevant observation of the Hon’ble Court in this regard is as under :
16. Applying the principles laid down by the Full Bench of this Court as well as the observations of the Punjab & Haryana High Court, we find that if the entire material had been placed by the assessee before the AO at the time when the original assessment was made and the AO applied his mind to that material and accepted the view canvassed by the assessee, then merely because he did not express this in the assessment order, that by itself would not give him a ground to conclude that income has escaped assessment and, therefore, the assessment needed to be reopened. On the other hand, if the AO did not apply his mind and committed a lapse, there is no reason why the assessee should be made to suffer the consequences of that lapse.
In view of the above latest authority the issue stands fully covered in favour of the assessee and following the said decision, we hold that in this case also the assessment has been made only on the basis of change of opinion.
22. In view of the above legal position the reassessment made in this case after the expiry of four years from the end of the relevant assessment year cannot be justified in law because the Department has not been able to bring out any material to show that there was any failure on the part of the assessee to disclose material facts truly and fully to the AO during the assessment proceedings. Thus in view of the proviso to Section 147 the reopening of the assessment cannot be justified and consequently the notice issued under Section 148 is held to be invalid. The entire reassessment proceedings are therefore, found to be null and void and on this basis the assessment order is liable to be quashed. We, therefore, cancel the assessment on this ground and allow ground Nos. 1 and 2 in favour of the assessee.
23. Although we have cancelled the reassessment by allowing ground Nos. 1 and 2 in favour of the assessee and by holding that the reassessment made in the case of the present assessee was null and void, however, we proceed to decide the issue relating to the sustenance of disallowance of Rs. 75,96,534 on merits also. We have already set out relevant details and submissions of the parties in this regard in earlier part of this order. We have pointed out that in asst. yr. 1988-89 a similar issue relating to disallowance of Rs. 12,79,584 in respect of previous year’s expenses was allowed in favour of the assessee by the Tribunal. The relevant observations of the Tribunal have also been reproduced by us in para 9 of their order. In that case the Tribunal had examined the method of accounting followed by the assessee and held that since the bills were received subsequent to the finalization of the appellant’s preceding year’s accounts, the said expenses have been booked under prior period expenses and that there was no justification for disallowing the claim of prior period expenses. In asst. yr. 1985-86 also the issue was decided in favour of the assessee. In the year under consideration also the assessee has clarified the position by pointing out that the bills were received after the close of the year i.e. after the close of the accounting year and therefore, they were accounted for in the subsequent year. This explanation of the assessee therefore, is fully acceptable. On going through the details furnished by the assessee in the tax audit report, statement of expenses and by following past orders in the case of the assessee, there is no justification for disallowing the previous year’s expenses. Hence, even on merits, we hold that the disallowance was not justified and consequently we delete the disallowance on merits also.
24. In the result, the appeal is allowed.