Disallowance For prepaid insurance expenses set aside on the principle of consistency where incurrence of expenditure for the purposes of business was not disputed
ABCAUS Case Law Citation:
ABCAUS 2580 (2018) (10) ITAT
Important Case Laws Cited/relied upon by the parties:
ACIT vs. Shri Satish Sehrawa
CIT Vs. Southern Roadways Ltd.,282 ITR 379(Mad)
The assessee had filed an appeal against the order of CIT(A) upholding the disallowance of expense of insurance policy made by Assessing Officer (AO).
During the course of assessment proceedings, the AO observed that the assessee has paid an amount towards insurance premium and a significant part of these payments pertained to the next financial year. Accordingly, he disallowed the pre paid insurance amount not pertaining to year under consideration.
CIT(A) confirmed the disallowance so made by the Assessing Officer.
Before the Tribunal, the assessee submitted that the assessee was claiming complete insurance premium as deduction in the year of payment irrespective of the period of insurance in the earlier years and following the principle of consistency, expenses so claimed should be allowed.
It was submitted that where the approach so adopted by the Assessing Officer is accepted, it will distort the treatment of the expenditure in the past and in the subsequent years.
The Tribunal opined that where the factum of insurance premium being actually paid and the incurrence of expenditure for the purposes of business had not been disputed by the Revenue and the assessee had been consistently claiming the same in the year of incurrence and/or had been allowed by the Revenue in the past, and given by the nature of expenditure of insurance premium in the overall context of the business of the assessee, which undisputedly was not going to distort the determination of true profit/loss, such consistent claim of expenditure should not be disturbed.
However, the Tribunal clarified that where the claim of such expenditure is made in the first year then, the principle of consistency will not apply and infact, the stand taken for the year will set the precedent for the subsequent years.
Accordingly, the Tribunal set aside the matter to the file of the Assessing Officer for the limited purpose of verifying as to whether the assessee had been claiming similar expenditure towards insurance premium in the past in the year of incurrence and where the same is found to be correct, the AO was directed to allow the same following the principle of consistency and in light of the decision of the Co-ordinate Bench.
