M/s Karnataka Vidyuth Kharkane Ltd., V. DCIT,

ITA 1581/BANG/2013

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 4837 (ITAT-BANGALORE)
• Duration Of Justice: 4 year(s) 4 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-04-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 20-11-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: B R RAMESH
• Keywords: Capital asset converted into stock in trade; Capital asset; Business expenditure; Retrospective amendment; Commercial expediency
• Section: 37(1); 145; 37; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI ARUN KUMAR GARODIA, ACCOUNTANT MEMBER ITA NO. 1581 / BANG/201 3 ASSESSMENT YEAR : 20 10 - 11 M/S. KARNATAKA VIDYUTH KHARKANE LTD., POST BOX NO. 2610, MYSORE ROAD, BANGALORE 560 026. PAN: AAACK6760C VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 11 (5), BANGALORE. APPELLANT RESPONDENT APPELLANT BY : SMT. SHEETAL BORKAR, ADVOCATE RESPONDENT BY : SHRI B.R. RAMESH, JCIT (DR) DATE OF HEARING : 0 3 . 0 4 .2018 DATE OF PRONOUNCEMENT : 11 . 0 4 .201 8 O R D E R PER SHRI A.K. GARODIA, ACCOUNTANT MEMBER THIS APPEAL IS FILED BY THE ASSESSEE WHICH IS DIREC TED AGAINST THE ORDER OF LD. CIT(A)-1, BANGALORE DATED 23.09.2013 FOR ASSESSMENT YEAR 2010-11. 2. THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER. 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN UPHOL DING THE DISALLOWANCE OF THE PROVISION FOR LOSS ON ACCOUNT O F NEGATIVE PRICE VARIATION TO THE TUNE OF RS.2,22,26,884/-. 2. ON THE FACTS THE LEARNED COMMISSIONER (A) ERRED IN HOLDING THAT THE LOSS AS CLAIMED BY MAKING PROVISION WAS A NOTIONAL, CONTINGENT AND UNASCERTAINED ONE AND CONSEQUENTLY NOT LIABLE FOR A LLOWANCE. 3. ON THE FACTS THE LEARNED COMMISSIONER (A) OUGHT TO HAVE APPRECIATED THAT THE APPELLANT HAVING FOLLOWED THE MERCANTILE SYSTEM OF ACCOUNTING, THE LOSS QUANTIFIED ON ACCOUNT OF TH E AGREEMENT BETWEEN THE PARTIES TOWARDS PRICE VARIATION AND ACC ORDINGLY IT WAS AN ASCERTAINED LIABILITY AND A REAL LOSS ON THE LAST D ATE OF THE ACCOUNTING ITA NO.1581/BANG/2013 PAGE 2 OF 17 YEAR FOR THE RELEVANT ASSESSMENT YEAR AND THUS LIAB LE TO BE ALLOWED AS DEDUCTION AS CLAIMED BY THE APPELLANT IN FULL. 4. THE JUDICIAL PRECEDENCE CITED BY THE LEARNED COM MISSIONER (A) WERE DISTINGUISHABLE WHEREAS THE DECISIONS CITED BY THE APPELLANT WERE FULLY SUPPORT THE CLAIM OF THE APPELLANT AND T HUS THE LEARNED COMMISSIONER (A) OUGHT TO HAVE ALLOWED THE CLAIM OF THE APPELLANT IN FULL. 5. THE LEARNED COMMISSIONER (A) OUGHT TO HAVE APPRE CIATED THAT THE LOSS HAD BEEN QUANTIFIED STRICTLY IN ACCORDANCE WIT H THE AGREEMENT AS AGREED TO BETWEEN THE PARTIES AND ACCORDINGLY THE R ESULTANT LOSS WAS REAL AND ACCRUED IN THE RELEVANT YEAR AND THUS LIAB LE TO BE ALLOWED IN FULL. 6. WITHOUT PREJUDICE, THE DISALLOWANCE IS EXCESSIVE , ARBITRARY AND UNREASONABLE AND OUGHT TO BE REDUCED SUBSTANTIALLY. 7. THE LEARNED COMMISSIONER (A) ERRED IN CONFIRMING THE INTEREST LEVIED U/S.234B AND 234C OF THE ACT. 8. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING OF THE APPEAL THE APPELLANT PRAYS THAT THE APPEAL MAY BE ALLOWED. 3. BRIEF FACTS ARE THAT IT IS NOTED BY THE AO IN PA RA 6.1 OF ASSESSMENT ORDER THAT AS PER P&L ACCOUNT FOR THE PRESENT YEAR, THE ASSESSEE HAS DEBITED AN AMOUNT OF RS. 2,22,26,884/- ON ACCOUNT OF PROVISION FOR NEGAT IVE PRICE VARIATION AND THEREAFTER, THE AO HAS REPRODUCED SUBMISSIONS MADE BY THE ASSESSEE BEFORE HIM IN THIS REGARD AND IN PARAS 6.2 AND 6.3 OF THE ASSESSMENT ORDER, THIS FINDING IS GIVEN BY THE AO THAT THIS AMOUNT DEBITED BY THE ASSESSEE IN THE P&L ACCOUNT IS UNREALIZED LOSS BECAUSE AS PER THE AO, THIS IS C OMPUTED ON NOTIONAL BASIS AND THE ACTUAL LOSS OR GAIN CAN BE ASCERTAINED / DE TERMINED AFTER THE FINALISATION OF PURCHASE ORDERS OR AFTER PASSING FINAL ENTRIES. THE AO HAS FOLLOWED JUDGEMENT OF HONBLE APEX COURT RENDERED IN THE CAS E OF M/S. SANJEEV WOOLEN MILLS VS. CIT AS REPORTED IN 279 ITR 434 AND ALSO A NOTHER JUDGEMENT OF HONBLE ALLAHABAD HIGH COURT RENDERED IN THE CASE OF CIT VS . ORIENTAL MOTORS CAR CO. P. LTD. AS REPORTED IN 124 ITR 74. THE AO HAS ALSO REFERRED TO A CBDT INSTRUCTION NO. 17/2008 DATED 26.11.2008 AS PER WHI CH IT HAS BEEN STATED BY CBDT THAT SECTION 37 OF IT ACT ENVISAGES THAT AN AM OUNT DEBITED IN P&L ACCOUNT IN RESPECT OF AN ACCRUED OR ASCERTAINED LIA BILITY ONLY IS AN ADMISSIBLE ITA NO.1581/BANG/2013 PAGE 3 OF 17 DEDUCTION, WHILE ANY PROVISION IN RESPECT OF ANY UN ASCERTAINED LIABILITY OR A LIABILITY WHICH HAS NOT ACCRUED, DO NOT QUALIFY FOR DEDUCTION. IN THIS MANNER, THE AO MADE DISALLOWANCE OF THIS AMOUNT. BEING AGGRIEV ED, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT (A) BUT WITHOUT SUCCESS. NOW THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 4. THE LD. AR OF ASSESSEE BEFORE US PLACED RELIANCE ON JUDGMENT OF HONBLE APEX COURT RENDERED IN THE CASE OF BHARAT EARTH MOVERS V S. CIT AS REPORTED IN 245 ITR 0428. SHE ALSO SUBMITTED THAT VARIOUS OTHER JU DGMENTS WERE ALSO RELIED UPON BEFORE CIT (A) AS NOTED BY HIM IN PARA 4 OF TH E ORDER OF CIT (A) AND THE SAME SHOULD ALSO BE CONSIDERED FOR THE PURPOSE OF D ECIDING THIS APPEAL. THE LD. DR OF REVENUE SUPPORTED THE ORDERS OF AUTHORITI ES BELOW. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FI ND THAT THIS ISSUE IN DISPUTE WAS DECIDED BY CIT (A) AS PER PARAS 7 TO 11 OF HIS ORDER AND THESE PARAS FROM THE ORDER OF CIT (A) ARE REPRODUCED HEREINBELOW FOR THE SAKE OF READY REFERENCE. 7.0 I HAVE EXAMINED THE FACTS OF THE CASE AND ALSO PERUSED THE DETAILS FURNISHED AT THE TIME OF APPEAL HEARING. DURING TH E PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR UNDER CONSIDERATION TOT AL SALE DISCLOSED OF RS.71,20,13,755/- AND OTHER RECEIPTS RS.3,76,20,349 /-. AGAINST THESE RECEIPTS, TOTAL EXPENDITURE CLAIMED OF RS.72,76,74, 404/- WHICH INCLUDE `PROVISION FOR NEGATIVE PRICE VARIATION' RS.2,22,26 ,884/-. THE APPELLANT ALSO FURNISHED STATEMENT SHOWING PROVISIO N FOR NEGATIVE PRICE VARIATION CLAIMED FOR THE YEAR 2009-10. SL.NO. CONSUMER NAME AMOUNT (IN RS.) I BESCOM, BANGLAORE 1,14,11,575 II HESCOM, HUBLI 27,80,386 III GESCOM, GULBARGA 33,18,943 IV CESCOM, MYSORE 22,58,942 V MESCOM, MANGALORE 1,90,154 VI TOTAL 1,99,60,000 7.1 OUT OF THE ABOVE PROVISION AMOUNT CLAIMED TO HA VE BEEN ALLOWED TO GESCOM, GULBARGA, BASED ON NOTIFICATION AS UNDER :- ITA NO.1581/BANG/2013 PAGE 4 OF 17 A SEE(P) EEE(MM)/AEE-2/11-12 14613-24-DATED 15/07/2011 6,58,698 B SEE(P)EEE(MM)AEE-2/11-12 14588-99 DATED 15/07/2011 6,68,590 C SEE(P)EEE(MM)/AEE-2/11-12 14625-36 DATED 15/07/2011 6,21,359 D SEE(P)EEE(MM)/AEE-2/11-12 14849-60 DATED 15/07/2011 13,316 TOTAL 19,61,963 7.2 THE APPELLANT HAS FURNISHED LEDGER EXTRACT OF T HE AFORESAID CONSUMERS SAME IS SUMMARISED AS UNDER:- S1. NO. CONSUMER NAME TOTAL SALE (IN RS.) AMT. RECEIVED (IN RS.) BALANCE (IN RS.) REMARKS 1 BESCOM- BANGALORE 49,64,06,055 50,26,97,467 7,44,53,648 OPENING DEBIT BALANCE RS.8,07,45,060 2 HESCOM- HUBLI 12,93,09,849 8,08,88,384 6,09,51,561 OPENING DEBIT BALANCE RS.1,25,30,096 3 GESCOM- GULBARGA 14,25,50,935 20,78,08,173 1,37,70,334 OPENING DEBIT BALANCE RS.7,90,27,575 CREDITED ON AMOUNT OF RS.48,25,288 4 CESCOM- MYSORE 9,24,99,841 8,23,54,265 92,68,290 OPENING CREDIT BALANCE CREDIT RS.8,77,285/ - NOT RS.1,00,286/ - 5 MESCOM- MANGALORE 51,33,199 50,45,778 52,21,267 OPENING DEBIT BALANCE RS.51,33,846 7.3 A CLOSE SCRUTINY OF MATERIALS AVAILABLE ON REC ORD, FACTS EMERGED AS UNDER :- (I)GOODS SUPPLIED TO THE CONSUMER ON PREVAILING MAR KET RATE NOT AS PER THE PRICE DETERMINED/NOTIFIED BY IEEMA. DURING THE PREVIOUS YEAR ITA NO.1581/BANG/2013 PAGE 5 OF 17 RELEVANT TO YEAR UNDER CONSIDERATION NO CREDIT ENTR IES WERE MADE IN THE LEDGER ACCOUNT OF RESPECTIVE CONSUMER NOR REFUN DED ANY AMOUNT COLLECTED IN EXCESS OF PRICE INDEX NOTIFIED BY IEEM A. (II) CREDIT ENTRY MADE IN THE LEDGER ACCOUNT OF GES COM-GULBARGA FOR RS. 48 25 288/- BASED ON THE CREDIT ISSUED BY T HE APPELLANT DATED 22/07/2010 AFTER THE LAPSE OF THE RELEVANT PREVIOUS YEAR. (III) IN VIEW OF THIS MATTER NO ACTUAL LIABILITY EX ISTED DURING THE PERIOD AND MERELY PUTTING ASIDE OF MONEY WHICH MAY BECOME EXPENDITURE IN FUTURE IS NOT EXPEDITIOUSLY FOR INCOME TAX PURPOSES . (IV) THE APPELLANT PLACED RELIANCE ON THE CASE LAWS IN SUPPORT OF ITS CLAIM AS BELOW :- (A) M/S BHARAT EARTH MOVERS VS CIT (2000) 245 ITR 428 ( SC) (B) OIL & NATURAL GAS CORPN. LTD. VS. CIT (2010) 322 IT R 180(SC) (C) CIT VS DINESH KUMAR GOEL (2011) 331 ITR 10 (DELHI) (D) CIT VS TRIVENI ENGG. & INDUSTRIES LTD (2011) 336 IT R 374 (DELHI) (E) CIT VS. ANSAL PROPERTIES & INDUSTRIES LTD.(2013 352 ITR 637 (DELHI) (F) PRAKASH LEASING LTD VS. DY. CIT (2012) CONTENTS OF THE DECISIONS ARE DISCUSSED IN SUCCEEDI NG PARA. 8.0 THE FACTS NARRATED ABOVE IT IS IMPLICITLY CLEAR THAT, NO AMOUNT WAS CREDITED IN THE LEDGER ACCOUNTS OF THE CONSUMERS TO WARDS NEGATIVE PRICE VARIATION EXCEPT RS.48,25,288/- AND THAT ALSO ON THE BASIS OF NOTIFICATION ISSUED ON 15/07/2011. THUS LIABILITY WAS NOT CRYSTALLISED DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 2010-11. THEREFORE BASED ON THE NOTIONAL LOSS IS NOT ALLOWAB LE AS DEDUCTION AGAINST THE INCOME FOR THE YEAR. 9.0 IN THIS CONTEXT, I PLACED RELIANCE ON THE CASE LAWS AS FOLLOWS:- I BHARAT STORES LTD. VS. CIT (1968) 70 ITR 651(A11 ) IN THE SALE DEEDS WHICH THE ASSESSEE HAD EXECUTED I N FAVOUR OF THE VARIOUS PURCHASERS WHO PURCHASED PLOTS FROM THE ASS ESSEE NO UNDERTAKING HAD BEEN GIVEN THAT ROADS WOULD BE CONS TRUCTED, ALL THAT WAS DONE IN THE INSTANT CASE WAS THAT THE SUM WAS S HOWN TO HAVE BEEN RESERVED FOR THE PURPOSE OF CONSTRUCTION OF THE ROA DS. IT WAS NOT A CASE WHERE A DEFINITE LIABILITY HAD BEEN INCURRED. IT WA S A CASE WHERE THE AMOUNT HAD BEEN PROVISIONALLY KEPT IN RESERVE FOR T HE PURPOSE OF CONSTRUCTION OR ROADS. THE ASSESSEE WAS FREE NOT TO SPEND THAT AMOUNT OR AT ANY RATE TO POSTPONE THE EXPENDITURE OVER CON STRUCTION OF ROADS TO A LONG PERIOD. IN THE MERCANTILE SYSTEM OF ACCOUNTS IT WAS NOT NEC ESSARY THAT THE ITA NO.1581/BANG/2013 PAGE 6 OF 17 EXPENDITURE SHOULD REALLY HAVE BEEN INCURRED IN THE YEAR OF ASSESSMENT BUT THE LIABILITY MUST HAVE BEEN ASCERTA INED AND MUST BE ONE WHICH COULD BE ENFORCED IN A COURT OF LAW. IT I S WELL SETTLED THAT THE EXPENDITURE WHICH IS DEDUCTIBLE FOR INCOME-TAX PURPOSES IS ONE WHICH IS TOWARDS A LIABILITY ACTUALLY EXISTING AT T HE TIME AND MERELY PUTTING ASIDE OF MONEY WHICH MAY BECOME EXPENDITURE IN FUTURE IS NOT EXPENDITURE. THUS, THE ASSESSEE HAD NOT INCURRED ANY ENFORCEABLE LIABILITY IN RESPECT OF THE SAID SUM. II CIT VS RAJKUMAR MILLS LTD. (1971) 80 ITR 244 (BOM) THE ASSESSEE COMPANY, FOLLOWING MERCANTILE SYSTEM O F ACCOUNTING, MADE A DEBIT ENTRY IN RESPECT OF THE LEAVE WAGES IN THE BOOKS OF ACCOUNTS FOR THE ACCOUNTING YEAR 1949, PAYABLE IN T HE NEXT ENSUING YEAR TO ITS EMPLOYEES UNDER SECTION 79 AND 80 OF TH E FACTORIES ACT, 1948. THE CLAIM FOR DEDUCTION OF THIS AMOUNT WAS HE LD NOT SUSTAINABLE BY THE TRIBUNAL IN THE RELEVANT ASSESSMENT YEAR. ON REFERENCE: FOLLOWING THE DECISION IN THE CASE OF CHHAGANLAL TE XTILE MILLS (P.) LTD. V. CIT [1966] 62 ITR 274 (MP), IT COULD BE SAID TH AT THE ASSESSEE HAD NOT INCURRED THE LIABILITY TO PAY LEAVE WAGES IN TH E ACCOUNTING YEAR UNDER REFERENCE AND THE CLAIM FOR DEDUCTION WAS RIG HTLY REJECTED BY THE TRIBUNAL. III CALCUTTA STATE TRANSPORT CORPORATION VS. CIT (1 977) 108 ITR 922 (CAL) IT HAS BEEN FOUND AS A FACT THAT THE FUNDS WERE NOT CONSTITUTED BY ANY IRREVOCABLE TRUST BUT SOME MONEY WAS SET APART BY I NVESTING THE SAME IN GOVERNMENT SECURITIES. THE TRIBUNAL CONCLUDED TH AT ONLY BY REASON OF THE FACT THE MONEY WAS SO INVESTED IT COULD NOT BE SAID THAT THE ASSESSEE LOST ALL PROPRIETARY RIGHTS UPON THE FUNDS . IN THAT VIEW IT CANNOT BE SAID THAT THERE WAS ANY IRREVOCABLE EXPEN DITURE WITHIN THE MEANING OF SECTION 10(2)(XV) OF THE ACT. NO OTHER G ROUND WAS CANVASSED NOR ANY OTHER QUESTION WAS RAISED BEFORE THE TRIBUNAL. ON SUCH FACTS AS FOUND, THIS QUESTION MUST BE ANSWERED IN FAVOUR OF THE REVENUE. IV CIT VS J.K. BANKERS (1979) 120 ITR 924 (ALL) THE FACT THAT AN AGREEMENT TOOK PLACE ON 30.09.1958 , AND WAS RETROSPECTIVE IT IS OPERATION, WAS NOT IN DOUBT. TH E GENUINENESS OF THIS AGREEMENT COULD NOT ALSO BE ASSAILED AS THE AAC, RE LYING ON THIS DEED, ALLOWED RELIEF IN RESPECT OF THE SECOND AMOUNT IN T HE ASSESSMENT YEAR IN QUESTION. THE ASSESSEE WAS ACTING AS THE COLLECT ING AGENT FOR BILLS FOR THE COMPANY AND CHARGING A COMMISSION OF 1 PER CENT UNDER AN AGREEMENT EXECUTED EARLIER. THE ASSESSEE 'S CASE IN RESPECT OF THE ITA NO.1581/BANG/2013 PAGE 7 OF 17 SUBSEQUENT AGREEMENT WAS THAT IT AGREED TO A REDUCT ION OF ITS RATE OF COMMISSION WITH RETROSPECTIVE EFFECT IN ORDER TO CO NTINUE THE BUSINESS RELATIONSHIP WITH THE COMPANY. THE AGREEMENT AS SUC H, WAS ENTERED INTO BY THE ASSESSEE ON GROUNDS OF BUSINESS EXPEDIE NCY. AS THE ASSESSEE-FIRM CREDITED THE FIRST AMOUNT TO THE COMP ANY IN KEEPING WITH THE TERM OF THE AGREEMENT, THE ADJUSTMENT MADE WAS CLEARLY DICTATED BY REASONS OF COMMERCIAL EXPEDIENCY, AS THE ASSESSE E WAS BOUND UNDER THE TERM OF THE AGREEMENT TO MAKE THE ADJUSTM ENT, AS IT HAD AGREED TO CHARGE LESSER RATE OF INTEREST FOR THE EA RLIER YEAR. NO DOUBT THE AGREEMENT WAS ENTERED INTO ON 30.09.1958, AND W AS RETROSPECTIVE IN ITS OPERATION, BUT THE OCCASION FOR MAKING THE A DJUSTMENT AROSE ONLY WHEN THE ASSESSEE-FIRM RECEIVED THE DEBIT NOTES FRO M THE COMPANY. IT WAS ONLY WHEN THIS CLAIM FOR THE SPECIFIC AMOUNT IN QUESTION WAS MADE BY THE COMPANY THAT LIABILITY TO MAKE THE ADJU STMENT AROSE. THUS, IT DID NOT ARISE IN THE ACCOUNTING PERIOD REL EVANT FOR THE ASSESSMENT YEAR 1958-59. THEREFORE, THE TRIBUNAL WAS RIGHT IN ALLOWING DEDUC TION OF COMMISSION PERTAINING TO THE ASSESSMENT YEAR 1958-5 9 UNDER SECTION 10(2)(XV) OF 1922 ACT IN ARRIVING AT THE TOTAL INCO ME FOR THE ASSESSMENT YEAR 1959-60. V CIT VS LACHHAMAN DAS MATHURA DAS (1980) 124 ITR 4 1(A11) BEFORE ALLOWING A CLAIM FOR DAMAGES EVEN IN CASES W HERE THE ASSESSEE FOLLOWED THE MERCANTILE SYSTEM, THE LIABILITY MUST BE ON ACTUAL LIABILITY AND NOT ONE WHICH AROSE IN FUTURE. CONTINGENT LIABI LITY, WHICH MAY OR MAY NOT ARISE, COULD NOT BE ALLOWED AS A DEDUCTION. THERE WAS NO MERIT IN THE ASSESSEE 'S CONTENTION TH AT THE AGREEMENT CREATED ON ASCERTAINED LIABILITY. BEFORE A DEDUCTIO N COULD BE MADE BY THE BOARD, THE LATTER HAD TO FIND OUT THE CONTRACT VALUE OF THAT PORTION OF THE PLANT WHICH AS A RESULT OF THE DELAY COULD N OT BE COMMERCIALLY AND EFFICIENTLY USED DURING EACH WEEK BETWEEN THE A PPOINTED TIME AND THE ACTUAL TIME OF ACCEPTANCE. FURTHER, HALF PER CE NT DEDUCTION TO BE MADE UNDER THE AGREEMENT HAD TO BE SCALED DOWN IF I T EXCEEDED 10 PER CENT OF THE CONTRACT VALUE OF SUCH PORTION OF THE P LANT. THUS, THE SAID AGREEMENT DID NOT STRAIGHTAWAY CREATE ANY ACTUAL LI ABILITY. THE LIABILITY WAS CREATED ONLY AFTER THE PERIOD FOR WHI CH THE BOARD COULD NOT WORK THE PLANT COMMERCIALLY AND EFFICIENTLY. TH ERE WOULD BE A TIME LAG BEFORE SUCH ASCERTAINMENT WAS POSSIBLE. FU RTHER, THE LIABILITY UNDER THE AGREEMENT AROSE ONLY IN CASE OF NON-WORKI NG OF THE PLANT EFFICIENTLY AND COMMERCIALLY AND NOT OTHERWISE. THU S, MERE BREACH OF CONTRACT DID NOT IN ALL CASES CREATE A LIABILITY. T HAT APART, AS THE ASSESSEE HAD PRESSED FOR WAIVER OF RS. 69,383 WHICH WAS ULTIMATELY ALLOWED, THE LIABILITY UNDER THE AGREEMENT COULD NO T BE SAID TO HAVE CRYSTALLIZED TILL THE WAIVER ISSUE WAS DISPOSED OF BY THE BOARD. THE TRIBUNAL WAS, THEREFORE, WRONG IN HOLDING THAT THE LIABILITY OF RS. 69,383 HAD CRYSTALLIZED AND THAT IT WAS AN ALLOWABL E DEDUCTION IN THE ACCOUNTING YEAR RELEVANT TO THE ASSESSMENT YEAR 197 4-75. ITA NO.1581/BANG/2013 PAGE 8 OF 17 VI SHREE SAJJAN MILLS LTD VS CIT(1985) 156 ITR 585 (SC) SECTION 40A IS WITH THE MARGINAL NOTE UNDER THE HEA DING `EXPENSES OR PAYMENTS NOT DEDUCTIBLE IN CERTAIN CIRCUMSTANCES'. IF THE MARGINAL NOTE OR HEADING IS ANY INDICATION, AND IT CERTAINLY IS A RELEVANT FACTOR TO BE TAKEN INTO CONSIDERATION IN CONSTRUING THE AM BIT OF THE SECTION, THEN THOSE PAYMENTS MENTIONED THEREIN ARE NOT DEDUC TIBLE ACCORDING TO THE STATUE IN CERTAIN CIRCUMSTANCES. THEREFORE, THE HEADING OF THIS SECTION IS A CLEAR INDICATION THAT CERTAIN PAYMENTS AND EXPENSES WHICH WOULD BE OTHERWISE DEDUCTIBLE WOULD NOT BE DEDUCTIB LE EXCEPT IN CERTAIN CIRCUMSTANCES INDICATED IN THE SECTION. THI S IS ABUNDANTLY MADE CLEAR BY THE NON OBSTANTE EXPRESSION USED IN S UB-SECTION (1) OF SECTION 40A. THE PROVISIONS OF SECTION 40 A SHALL H AVE EFFECT NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN ANY OTHER PROVISIONS OF THE ACT. PAYMENTS FOR DEDUCTIONS OR P ROVISION FOR DEDUCTION COULD HAVE BEEN ELIGIBLE FOR DEDUCTION OR COULD HAVE BEEN DEDUCTED EITHER UNDER SECTION 28 OR UNDER SECTION 3 7. BUT THE USE OF THE NON OBSTANTE EXPRESSION MAKES IT CLEAR THAT IF THERE IS ANY LEGISLATIVE BASE DEALING WITH THE PROVISION FOR GRA TUITY THEN THE SAME WOULD BE APPLICABLE IN SPITE OF AND NOTWITHSTANDING ANY OTHER PROVISION OF THE ACT. READ WITH THE MARGINAL NOTES OF SECTION 40A, THE NON OBSTANTE CLAUSE OF SECTION 40.4(1) HAS AN OVERR IDING EFFECT OVER THE PROVISIONS OF ANY OTHER SECTION BY PROVIDING TH AT THE PROVISIONS OF THE SECTION WILL HAVE EFFECT NOTWITHSTANDING ANYTHI NG TO THE CONTRARY CONTAINED IN ANY OTHER PROVISIONS RELATING TO THE C OMPUTATION OF INCOME UNDER THE HEAD 'PROFIT AND GAINS OF BUSINESS OR PROFESSION. EXPENDITURE OR ALLOWANCES WHICH ARE DEDUCTIBLE UNDE R ANY OTHER PROVISIONS RELATING TO THE HEAD `PROFITS AND GAINS OF BUSINESS OR PROFESSION' WILL BE DISALLOWED IN CASES TO WHICH TH ESE PROVISIONS OF THE SECTION APPLY. THEREFORE, IF THE SUBMISSION OF THE ASSESSEE IN THE INSTANT CASE THAT IF NO PROVISION WAS MADE BY THE A SSESSEE FOR GRATUITY, STILL THE SAME WOULD BE DEDUCTIBLE AND SECTION 40A( 7) WOULD HAVE NO APPLICATION, WAS ACCEPTED, THE SAME WOULD DEFEAT TH E VERY PURPOSE AND OBJECT OF SECTION 40A(7) AND RENDER IT NUGATORY . THE INTERPRETATION AS SUGGESTED BY THE ASSESSEE WOULD A LLOW THE ASSESSEE WHO MADE NO PROVISION TO CLAIM DEDUCTION WHEREAS AN ASSESSEE WHO MADE A PROVISION WOULD NOT GET DEDUCTION UNLESS THE REQUIREMENTS LAID DOWN IN THE SUB-SECTION ARE FULFILLED. VII STANDARD TEA EXPORT VS CIT (1992) 198 ITR 573(K ER) THE CLAIM TO THE EXTENT OF RS. 3,40,000 WAS ONLY A MERE PROVISION ON ACCOUNT OF INTEREST WHICH THE ASSESSEE MAY BECOME L IABLE TO PAY ON THE OUTSTANDING AMOUNTS TO THE BANK IN FUTURE. FURT HER, THE SUM OF RS. 3,40,000 WAS ONLY THE EXPECTED LOSS ON ACCOUNT OF I NTEREST FOR THE PERIOD AFTER 31-12-1979 ON THE AMOUNTS PAYABLE TO T HE BANK ON ACCOUNT OF DISCOUNTING OF EXPORT SALE BILLS. THE AM OUNT IN QUESTION WAS NOT EVEN AN ACCRUED INTEREST AS ON 31-12-1979 A ND EVEN THOUGH THE ASSESSEE KEPT THE MERCANTILE METHOD OF ACCOUNTI NG, THERE WAS NO ITA NO.1581/BANG/2013 PAGE 9 OF 17 GROUND FOR DEDUCTION OF THE AMOUNT FROM THE PROFITS OF THE YEAR. THE AMOUNT OF RS. 3,40,000 SOUGHT TO BE DEDUCTED BY THE ASSESSEE WAS A CONTINGENT LIABILITY OF A YEAR OTHER THAN THE YEAR OF ACCOUNT. FURTHER, NO INTEREST TO THE BANK WAS OUTSTANDING AS ON 31/12 /1979 AND INTEREST IF, AT ALL, WOULD BE ONLY FOR FUTURE YEARS. THUS, T HERE WAS NO JUSTIFICATION FOR THE CLAIM OF DEDUCTION OF RS. 3,4 0,000, BEING A PROVISION MADE FOR FUTURE INTEREST. VIII CIT VS ASHOK IRON & STEEL ROLLING MILL (1993), 199 ITR 815 (A11) THE SUPREME COURT IN THE CASE OF CIT V. A. GAJAPATH Y NAIDU [1964} 53 ITR 114 HAS HELD THAT IN MERCANTILE SYSTEM DEDUC TION CAN BE MADE ONLY IN THE YEAR IN WHICH THE LIABILITY TO PAY ACCR UES AND IT ACCRUES ONLY WHEN THE LIABILITY CRYSTALLIZES OR BECOMES ASC ERTAINED. APPLYING THE DICTUM OF THE SUPREME COURT IN THE PRESENT CASE IT WAS APPARENT THAT IT WAS ONLY WHEN THE ASSISTANT LABOUR COMMISSI ONER PASSED AN ORDER ON 31-12-1973 DETERMINING THE DISPUTE AS TO T HE CATEGORIES IN WHICH THE VARIOUS EMPLOYEES SHOULD BEFITTED AND CLA SSIFIED, THAT THE LIABILITY TO PAY ACCRUED. BEFORE THIS THE LIABILITY WAS UNCERTAIN, VAGUE AND INCHOATE. THE ASSESSEE, THEREFORE, RIGHTLY DEDU CTED THE AMOUNT IN QUESTION IN THE YEAR IN QUESTION, WHICH WAS THE YEA R IN WHICH THE LIABILITY TO PAY MATERIALISED AND WAS ACTUALLY PAID . IX CIT VS PALLAVAN TRANSPORT CORPN. LTD (1997) 091 TAX NAB 132 (MAD) IN THE INSTANT CASE THE AMOUNT APPROPRIATED TO THE CONTINGENT RESERVE WHICH WAS SET APART TO MEET POSSIBLE EXIGENCIES WAS NOT A PROVISION FOR KNOWN EXISTING LIABILITIES AND, THEREFORE, WAS NOT DEDUCTIBLE AS BUSINESS EXPENDITURE. X COLABA CENTRAL CO-OP. CONSUMER'S WHOLESALE & RETAIL STORES LTD VS CIT (1998) 229 ITR 209(BOM) AS TO THE ALTERNATE SUBMISSION OF THE ASSESSEE TO T REAT THE AMOUNT SO SET APART AS A BUSINESS EXPENDITURE, EVIDENTLY THE ASSESSEE HAD NOT INCURRED ANY EXPENDITURE AT ALL. THE SUPREME COURT IN INDIAN MOLASSES CO. (P.) LTD. V. CIT [1959] 37 ITR 66 HAS DEFINED 'EXPENDITURE' AS WHAT IS 'PAID OUT OR AWAY' AND SOM ETHING WHICH IS GONE IRRETRIEVABLY. THAT WAS NOT SO IN CASE OF APPR OPRIATION OF PROFITS TO THE SHARE CAPITAL REDEMPTION FUND. BY SUCH APPRO PRIATION NOTHING HAD BEEN PAID OUT TO ANYBODY NOR ANYTHING HAD GONE FROM THE ASSESSEE EVEN FOR A WHILE NOT TO SPEAK OF `IRRETRIE VABLY'. THAT BEING SO, QUESTION OF DEDUCTION OF THE SAME AS AN EXPENDITURE UNDER SECTION 37(1) COULD NOT ARISE. THEREFORE, THE TRIBUNAL WAS RIGHT IN HOLDING THAT T HE ASSESSEE COULD NOT CLAIM DEDUCTION EITHER UNDER SECTION 37 OR SECT ION 28 OF THE AMOUNT SET APART FOR THE CAPITAL CONTRIBUTION REDEM PTION FUND. 10.0 A READING OF THE DECISIONS CITED ABOVE, INDICA TE THAT AS PER ITA NO.1581/BANG/2013 PAGE 10 OF 17 PROVISION OF THE INCOME TAX ACT MAKES DISTINCTION B ETWEEN AN EXISTING LIABILITY AND CONTINGENT LIABILITY. UNDER THE PRESE NT SCHEME OF THE ACT ANTICIPATED LOSS CANNOT BE DEDUCTED, THOUGH LOSS IS CERTAIN. IN OTHER WORDS A LOSS WHICH IS NEITHER SUFFERED NOR INCURRED IN THE ACCOUNTING YEAR IS NOT DEDUCTIBLE AGAINST THE ACTUAL RECEIPT O F THE YEAR -EDWARD COLLINS & SMS LTD. VS IRC (1924) 12 TC 773. IN VIEW OF THE DISCUSSION MADE I DO NOT FIND INFIRM ITY IN THE ASSESSING OFFICER'S FINDINGS AND THE SAME IS UPHELD. WHILE S UBMITTING WRITTEN SUBMISSION, THE APPELLANT RELIED UPON CERTAIN CASE LAWS IN ITS SUPPORT, THEREFORE NEED TO DISCUSS THE SAME :- A. M/S BHARAT EARTH MOVERS VS CIT (2000) 245 ITR 42 8 (5C) THE LAW IS SETTLED : IF A BUSINESS LIABILITY HAS DE FINITELY ARISEN IN THE ACCOUNTING YEAR, THE DEDUCTION SHOULD BE ALLOWED AL THOUGH THE LIABILITY MAY HAVE TO BE QUANTIFIED AND DISCHARGED AT A FUTURE DATE. WHAT SHOULD BE CERTAIN IS THE INCURRING OF THE LIAB ILITY. IT SHOULD ALSO BE CAPABLE OF BEING ESTIMATED WITH REASONABLE CERTAINTY THOUGH THE ACTUAL QUANTIFICATION MAY NOT BE POSSIBL E. IF THESE REQUIREMENTS ARE SATISFIED THE LIABILITY IS NOT A C ONTINGENT ONE. THE LIABILITY IS IN PRAESENTI THOUGH IT WILL BE DISCHAR GED AT A FUTURE DATE. IT DOES NOT MAKE ANY DIFFERENCE IF THE FUTURE DATE ON WHICH THE LIABILITY SHALL HAVE TO BE DISCHARGED IS NOT CERTAI N. A FEW PRINCIPLES WERE LAID DOWN BY THIS COURT, THE RELEVANT OF WHICH FOR OUR PURPOSE ARE EXTRACTED AND REPRODUCED AS UND ER: (I) FOR AN ASSESSEE MAINTAINING HIS ACCOUNTS ON THE MERCANTILE SYSTEM, A LIABILITY ALREADY ACCRUED, THOUGH TO BE DISCHARGE D AT A FUTURE DATE, WOULD BE A PROPER DEDUCTION WHILE WORKING OUT THE P ROFITS AND GAINS OF HIS BUSINESS, REGARD BEING HAD TO THE ACCEPTED P RINCIPLES OF COMMERCIAL PRACTICE AND ACCOUNTANCY. IT IS NOT AS I F SUCH DEDUCTION IS PERMISSIBLE ONLY IN THE CASE OF AMOUNTS ACTUALLY EX PENDED OR PAID ; (II) JUST AS RECEIPTS, THOUGH NOT ACTUAL RECEIPTS B UT ACCRUED DUE ARE BROUGHT IN FOR INCOME-TAX ASSESSMENT, SO ALSO LIABI LITIES ACCRUED DUE WOULD BE TAKEN INTO ACCOUNT WHILE WORKING OUT THE P ROFITS AND GAINS OF THE BUSINESS ; (III) A CONDITION SUBSEQUENT, THE FULFILMENT OF WHI CH MAY RESULT IN THE REDUCTION OR EVEN EXTINCTION OF THE LIABILITY, WOUL D NOT HAVE THE EFFECT OF CONVERTING THAT LIABILITY INTO A CONTINGENT LIAB ILITY; (IV) A TRADER COMPUTING HIS TAXABLE PROFITS FOR A P ARTICULAR YEAR MAY PROPERLY DEDUCT NOT ONLY THE PAYMENTS ACTUALLY MADE TO HIS EMPLOYEES BUT ALSO THE PRESENT VALUE OF ANY PAYMENTS IN RESPE CT OF THEIR SERVICES ITA NO.1581/BANG/2013 PAGE 11 OF 17 IN THAT YEAR TO BE MADE IN A SUBSEQUENT YEAR IF IT CAN BE SATISFACTORILY ESTIMATED. SO, IS THE VIEW TAKEN IN CALCUTTA CO. LTD. V. CIT [ 1959] 37 ITR 1 (SC) WHEREIN THIS COURT HAS HELD THAT THE LIABILITY ON T HE ASSESSEE HAVING BEEN IMPORTED, THE LIABILITY WOULD BE AN ACCRUED LI ABILITY AND WOULD NOT CON- VERT INTO A CONDITIONAL ONE MERELY BECAUSE THE LIABILITY WAS TO BE DISCHARGED AT A FUTURE DATE. THERE MAY BE SOME D IFFICULTY IN THE ESTIMATION THEREOF BUT THAT WOULD NOT CONVERT THE A CCRUED LIABILITY INTO A CONDITIONAL ONE ; IT WAS ALWAYS OPEN TO THE TAX A UTHORITIES CONCERNED TO ARRIVE AT A PROPER ESTIMATE OF THE LIA BILITY HAVING REGARD TO ALL THE CIRCUMSTANCES OF THE CASE. B. OIL & NATURAL GAS CORPN. LTD. VS. CIT (2010) 322 ITR 180(SC) IN CIT V. WOODWARD GOVERNOR INDIA (P.) LTD. [2009} 312 IIR 254/ 179 TAXMAN 326, THE SUPREME COURT, DEALING WITH THE SAID ISSUES EXTENSIVELY, SUMMARIZED THE FOLLOWING FACTORS WHICH SHOULD BE TAKEN INTO ACCOUNT IN ORDER TO FIND OUT IF AN EXPENDITURE ON ACCOUNT OF FLUCTUATION IN THE FOREIGN CURRENCY RATES, WHEN THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, IS DEDUC TIBLE: (I)WHETHER THE SYSTEM OF ACCOUNTING FOLLOWED BY THE ASSESSEE IS THE MERCANTILE SYSTEM WHICH BRINGS IN THE DEBITS OF THE AMOUNT OF EXPENDITURE FOR WHICH A LEGAL LIABILITY HAS BEEN IN CURRED EVEN BEFORE IT IS ACTUALLY DISBURSED AND CREDITS, WHAT IS DUE, IMM EDIATELY IT BECOMES DUE EVEN BEFORE IT IS ACTUALLY RECEIVED; (II)WHETHER THE SAME SYSTEM IS FOLLOWED BY THE ASSE SSEE FROM THE VERY BEGINNING AND IF THERE WAS A CHANGE IN THE SYSTEM, WHETHER THE CHANGE WAS BONA FIDE; (III)WHETHER THE ASSESSEE HAD GIVEN THE SAME TREATM ENT TO LOSSES CLAIMED TO HAVE ACCRUED AND TO THE GAINS THAT MAY A CCRUE TO IT; (IV)WHETHER THE ASSESSEE HAS BEEN CONSISTENT AND DE FINITE IN MAKING ENTRIES IN THE ACCOUNT BOOKS IN RESPECT OF LOSSES A ND GAINS; (V)WHETHER THE METHOD ADOPTED BY THE ASSESSEE FOR M AKING ENTRIES IN THE BOOKS, BOTH IN RESPECT OF LOSSES AND GAINS IS A S PER NATIONALLY ACCEPTED ACCOUNTING STANDARDS; (VI)WHETHER THE SYSTEM ADOPTED BY THE ASSESSEE IS F AIR AND REASONABLE OR IS ADOPTED ONLY WITH A VIEW TO REDUCE THE INCIDE NCE OF TAXATION. APPLYING THESE FACTORS TO THE FACTS OF THE INSTANT CASE, IT WAS CLEAR THAT LOSS CLAIMED BY THE ASSESSEE ON ACCOUNT OF FLUCTUAT ION IN RATE OF FOREIGN EXCHANGE AS ON DATE OF BALANCE-SHEET WAS AL LOWABLE AS AN ITA NO.1581/BANG/2013 PAGE 12 OF 17 EXPENDITURE UNDER SECTION 37(1). [PARAS 10 AND 11] SO FAR AS ADJUSTMENT IN THE ACTUAL COST OF IMPORTED ASSETS ACQUIRED IN FOREIGN CURRENCY WAS CONCERNED, UNDER THE UNAMENDED SECTION 43A, 'ACTUAL PAYMENT' WAS NOT A CONDITION PRECEDENT FOR MAKING NECESSARY ADJUSTMENT IN THE CARRYING COST OF THE FIXED ASSET ACQUIRED IN FOREIGN CURRENCY BUT UNDER THE AMENDED SECTION 43A, WITH EF FECT FROM 1-4- 2003, SUCH PAYMENT OF THE DECREASED/ENHANCED LIABIL ITY ON ACCOUNT OF FLUCTUATION IN FOREIGN EXCHANGE RATE HAS BEEN MADE A CONDITION PRECEDENT FOR MAKING ADJUSTMENT IN THE CARRYING AMO UNT OF THE FIXED ASSET. [PARA 12] IN THE INSTANT CASE, ALL THE ASSESSMENT YEARS IN QU ESTION BEING PRIOR TO THE AMENDMENT TO SECTION 43A WITH EFFECT FROM 1-4-2 003, THE ASSESSEE WOULD BE ENTITLED TO ADJUST THE ACTUAL COST OF THE IMPORTED CAPITAL ASSETS ACQUIRED IN FOREIGN CURRENCY, ON ACCOUNT OF FLUCTUATION IN RATE OF EXCHANGE OF EACH OF THE RELEVANT BALANCE SHEET D ATES, PENDING ACTUAL PAYMENT OF VARIED LIABILITY. [PARA 13] C. CIT VS DINESH KUMAR GOEL (2011) 331 ITR 10 (DELH I) A CONJOINT READING OF SECTION 145 OF THE INCOME-TAX ACT AND SECTION 211 OF THE COMPANIES ACT SHOWS THAT THOSE ASSESSEES , WHICH ARE COMPANIES AND ARE SHOWING INCOME, INTER ALIA, UNDER THE HEAD 'INCOME FROM PROFIT AND GAINS OF BUSINESS OR PROFES SION' HAVE TO FOLLOW THE ACCOUNTING STANDARDS PRESCRIBED. THE GOVERNMENT OF INDIA HAS NOTIFIED THE ACCOUNTING STANDARDS DATED 29-5-1996 I N EXERCISE OF ITS POWER UNDER SECTION 145(2). ACCOUNTING STANDARD-I R ELATES TO THE DISCLOSURE OF ACCOUNTING POLICY AND PUTS AN OBLIGAT ION ON THE ASSESSEE TO DISCLOSE ALL SIGNIFICANT ACCOUNTING POLICIES ADO PTED IN THE PREPARATION AND PRESENTATION OF FINANCIAL STAGES. P ARA 6 THEREOF DEFINES CERTAIN EXPRESSION WHICH OCCURRED IN PARAS 1 TO 5. CLAUSE (B) THEREOF SPELLS OUT THE DEFINITION OF 'ACCRUAL: FROM THAT DEFINITION, IT APPEARS THAT THE TERM 'ACCRUAL' RELATES TO REVENUES EARNED OR COST INCURRED. TWO THINGS FOLLOW FROM THIS, VIZ., UNLESS THE REVENUE IS EARNED, IT IS NOT ACCRUED LIKEWISE, UNLESS THE EXPE NSES ARE INCURRED, COST IN RESPECT THEREOF CANNOT BE TREATED AS ACCRUE D. SECONDLY, IT RECOGNIZES THE MATCHING CONCEPT, VIZ., RECEIPTS ARE TO BE MATCHED WITH INCOME TO ARRIVE AT THE NET INCOME, WHICH WOULD THE N BE EXIGIBLE TO TAX [PARA 22] READING OF THE ACCOUNTING STANDARD MAKES IT CLEAR T HAT THE REVENUE IS RECOGNIZED ONLY WHEN THE SERVICES ARE ACTUALLY REND ERED IF THE SERVICES ARE RENDERED PARTIALLY, REVENUE IS TO BE S HOWN PROPORTIONATE TO THE DEGREE OF COMPLETION OF THE SERVICES. THIS R EALLY CLINCHES THE ISSUE IN FAVOUR OF THE ASSESSEE. [PARA 25] IN THE INSTANT CASE, THE RECEIPTS RELATING TO THE U NEXECUTED PACKAGES, WHICH WERE NOT SHOWN IN THE RELEVANT YEAR, WOULD BE SHOWN IN THE SUCCEEDING YEAR. RATE OF TAX IN RESPECT OF COMPANIE S REMAINED THE SAME IN ALL THOSE YEARS. THEREFORE, THE REVENUE DID NOT LOSE ANYTHING ITA NO.1581/BANG/2013 PAGE 13 OF 17 AS IT WOULD RECEIVE THE TAX ON THAT INCOME IN THE SUCCEEDING Y EAR. [PARA 26] D. CIT VS TRIVENI ENGG. & INDUSTRIES LTD (2011) 336 ITR 374 (DELHI) NO DOUBT, UNLESS THE EXPENDITURE IS ACTUALLY INCURR ED OR IT IS ACCRUED IN THE RELEVANT YEAR, IT WOULD NOT BE ALLOW ED AS DEDUCTION. SUCH A LIABILITY HAS TO BE IN PRAESENTI. HOWEVER, AT THE SAME TIME, IN THE GIVEN SCENARIO WHERE IN RELATION TO THE PROJECT WORKS UNDERTAKEN BY THE ASSESSEE, COMPLETED CONTRAC T METHOD OF ACCOUNTING WAS FOLLOWED, WHICH WAS CONSISTENT WITH THE ACCOUNTING STANDARDS AND THESE ACCOUNTING STANDARDS ALSO LAY DOWN THE NORMS INDICATING THE PARTICULAR POINT OF T IME WHEN THE PROVISIONS FOR ALL KNOWN LIABILITIES AND LOSSES HAV E TO BE MADE, THE MAKING OF SUCH A PROVISION BY THE ASSESSEE APPE ARED TO BE JUSTIFIED MORE SO WHEN THE ASSESSEE HAD RECOGNIZED GAIN AS WELL ON SUCH PROJECT DURING THE RELEVANT YEAR ITSELF. TH AT APPEARED TO BE IN CONSONANCE WITH PRINCIPLE OF MATCHING COST AN D REVENUE AS WELL HOWEVER, IN THE PROJECTED SCENARIO OF THE INST ANT CASE, THE ENTIRE EXERCISE WAS REVENUE NEUTRAL. IT WAS A MATTE R OF RECORD THAT AGAINST THE PROVISION OF RS. 139 LAKHS, THE AS SESSEE HAD TO ACTUALLY INCUR EXPENDITURE OF RS. 218.03 LAKHS, I.E ., MORE THAN THE PROVISION MADE. IT WAS UNDISPUTED THAT THE EXPENDIT URE INCURRED BY THE ASSESSEE ON THE PROJECT WAS ADMISSIBLE DEDUC TION. THE ONLY DISPUTE THAT THE REVENUE SOUGHT TO RAISE WAS REGARD ING THE YEAR OF ALLOWABILITY OF EXPENDITURE. CONSIDERING THAT THE A SSESSEE WAS A COMPANY ASSESSED AT UNIFORM RATE OF TAX, THE ENTIRE EXERCISE OF SEEKING TO DISTURB THE YEAR OF ALLOWABILITY OF EXPE NDITURE WOULD, IN ANY CASE, BE REVENUE NEUTRAL [PARA 11]. E. CIT VS. ANSAL PROPERTIES & INDUSTRIES LTD.(2013 352 ITR 637 (DELHI) '13. THE AO WAS OF THE OPINION THAT ONCE, THE PROJECT I S COMPLETED IN THE BOOKS OF ACCOUNTS AND THE QUESTION OF EXPENDITU RE IS ACCOUNTED FOR, THE ENTRIES MADE SUBSEQUENTLY WOULD ACQUIRE TH E CHARACTER OF CONTINGENT LIABILITIES. THE AO WAS AGREED BY THE FA CT THAT THE ASSESSEE HAD ADMITTED THAT THE ACTUAL EXPENDITURE DEBITED AS AGAINST THE PROVISION MADE CAN BE OR CANNOT BE THE SAME AND THE REFORE CONCLUDED THAT SUCH PROVISION THEREFORE WAS A CONTINGENT LIAB ILITY BY VIRTUE OF UNCERTAINTY OF THE QUANTUM INVOLVED. 14. THE TRIBUNAL AFFIRMED THE CIT (APPEALS) ORDER BY P LACING RELIANCE ON CERTAIN JUDGMENTS OF THE CALCUTTA AND BOMBAY HIG H COURTS. THE REVENUE HAD RELIED UPON THE DECISION OF THE SUPREME COURT IN CALCATTA COMPANY LTD. VS. CIT REPORTED IN (1959) 37 ITR 1. THE TRIBUNAL AFTER GOING THROUGH THESE DECISIONS HELD T HAT THE CIRCUMSTANCES OF THIS CASE SHOWED THAT THE (APPEAL) 'S COMMISSIONER REASONING WERE SOUND AND CONVINCING AND THAT IN THE ABSENCE OF ANY SPECIFIC DEVIATION FROM THE ACCOUNTING METHODS AND PRACTICES BY THE ASSESSEE, THE CONCLUSION ARRIVED AT BY THE AO WAS N OT WARRANTED. ITA NO.1581/BANG/2013 PAGE 14 OF 17 15. THIS COURT ALSO RECOLLECTS THE DECISION OF THIS VE RY COURT. THE SAME IS ALSO COVERED BY THE DECISION OF THIS COURT IN CIT V. TRIVENI ENGINEERING AND INDUSTRIES LIMITED, REPORTED IN (20 11) 336 ITR 374. 16. IN VIEW OF THE ABOVE, ALL THE QUESTIONS FRAMED IN THIS REFERENCE ARE ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. THE REFERENCE IS THEREFORE CLOSED IN ABOVE TERMS.' F. PRAKASH LEASING LTD VS. DY. CIT (2012) 208 TAXM AN 64 (KAR) YET ANOTHER REASON GIVEN BY THE AUTHORITIES FOR NOT ACCEPTING THE CLAIM OF THE ASSESSEE IS THAT THE ACCOUNTING PRACTICE CAN NOT BE JUSTIFIED BY ANY PROVISIONS OF THE STATUTE OR IS CONTRARY TO IT. THE INCOME-TAX LAW DOES NOT MARCH STEP BY STEP IN THE DIVERGENT FOOTPR INTS OF THE ACCOUNTANCY PROVISIONS. THE QUESTION IS WHETHER THE RECEIPT OF MONEY IS TAXABLE OR NOT AND WHETHER CERTAIN DEDUCTIONS FR OM THAT RECEIPT ARE PERMISSIBLE IN LAW OR NOT. THE QUESTION HAS TO BE D ECIDED ACCORDING TO THE PRINCIPLES OF LAW AND NOT IN ACCORDANCE WITH TH E ACCOUNTING PRACTICE. THE ACCOUNTING PRACTICE CANNOT OVERRIDE T HE STATUTORY PROVISION OF THE ACT. IN SUPPORT OF THE SAID CONTEN TION RELIANCE IS PLACED ON THE JUDGMENT OF THE APEX COURT IN TUTICOR IN ALKALI CHEMICALS & FERTILIZERS LTD. V. CIT [1997} 227 1TR 172/ 93 TAXMAN 502. THERE CANNOT BE ANY DISPUTE AS FAR AS T HE SAID PROPOSITION OF LAW IS CONCERNED. HOWEVER, WHEN THE LAW, AS AMENDED SUBSEQUENT TO THE AFORESAID JUDGMENT OF THE APEX COURT, EXPRESSLY PROVIDED THAT THE CENTRAL GOVERNME NT MAY NOTIFY IN THE OFFICIAL GAZETTE FROM TIME TO TIME TH E ACCOUNTING STANDARDS TO BE FOLLOWED BY ANY CLASS OF ASSESSEES OR IN RESPECT OF ANY CLASS OF INCOME, THE ASSESSMENT ORDERS TO BE PASSED UNDER THE ACT BY THE AUTHORITIES HAVE TO BE IN CONFORMITY WITH THE ACCOUNTING STANDARDS NOTIFIED BY THE CENTRAL GOVERN MENT. IN TERMS OF THE AFORESAID PROVISIONS, THE CENTRAL GOVE RNMENT HAS NOTIFIED IN THE OFFICIAL GAZETTE THE ACCOUNTING STA NDARDS, WHICH EXPLAIN THE MEANING OF WHAT IS ACCRUAL FOR THE PURP OSE OF THE ACT. THE ACCRUAL REFERS TO THE ASSUMPTION THAT REVE NUES AND COSTS ARE ACCRUED THAT IS, RECOGNIZED, AS THEY ARE EARNED AND INCURRED (AND NOT AS MONEY IS RECEIVED OR PAID) AND RECORDED IN THE FINANCIAL STATEMENTS TO WHICH PERIOD THEY ARE R ELATED ADMITTEDLY, INSOFAR AS THE LEASE EQUALIZATION CHARG ES ARE CONCERNED, IT IS NOT PROVIDED IN THE NOTIFIED ACCOU NTING STANDARDS BY THE DEPARTMENT. IT IS ALSO NOT IN DISP UTE THAT IN THE ACT WHAT THE LEASE EQUALIZATION CHARGES IS NOT EXPL AINED IN THE ABSENCE OF ANY SPECIFIC PROVISION IN THE ACT DEALIN G ON THE SUBJECT, WHEN THE ACCOUNTING STANDARD IS NOW MADE T HE BASIS OF MAINTAINING THE ACCOUNTS FOR THE PURPOSE OF INCOME- TAX, EVEN IF THE CENTRAL GOVERNMENT HAS NOT NOTIFIED IN THE OFFI CIAL GAZETTE THE ACCOUNTING STANDARDS, CERTAINLY THE ACCOUNTING STANDARDS PRESCRIBED BY THE INSTITUTE OF CHARTERED ACCOUNTANT S HAVE TO BE FOLLOWED THEREFORE, THE REASONING OF THE AUTHORITIE S, THOUGH THE ITA NO.1581/BANG/2013 PAGE 15 OF 17 CLAIM OF THE ASSESSEE IS BASED ON SUCH ACCOUNTING S TANDARDS OF THE ICAI WHILE DECIDING WHETHER RECEIPT OF MONEY IS TAXABLE OR NOT, THAT IT HAS TO BE DECIDED IN ACCORDANCE WITH T HE PROVISIONS OF LAW AND NOT IN ACCORDANCE WITH THE ACCOUNTING PR ACTICE, HAS NO SUBSTANCE AS THERE IS NO INCONSISTENCY BETWEEN T HE SAID ACCOUNTING PRACTICE AND ANY PROVISIONS OF THE ACT. [PARA 12].' THE CASE LAWS CITED ABOVE, THE FACTS ARE DISTINGUIS HABLE THAN THAT THE FACTS OF THE APPELLANT'S CASE, HENCE NOT APPLICABLE . 6. FROM THE ABOVE PARAS REPRODUCED FROM THE ORDER O F CIT (A), IT COMES OUT THAT A CATEGORICAL FINDING HAS BEEN GIVEN BY CIT (A) IN PA RA 7.3 OF HIS ORDER THAT DURING THE PREVIOUS YEAR UNDER CONSIDERATION, NO CR EDIT ENTRIES WERE MADE IN THE LEDGER ACCOUNT OF RESPECTIVE CONSUMER NOR REFUN DED ANY AMOUNT COLLECTED IN EXCESS OF PRICE INDEX NOTIFIED BY IEEMA. HE HAS ALSO GIVEN A FINDING THAT CREDIT ENTRY MADE IN THE GESCOM, GULBARGA FOR RS. 4 8,25,288/- IS BASED ON THE CREDIT NOTE ISSUED BY THE ASSESSEE DATED 22.07. 2010 AFTER THE LAPSE OF THE RELEVANT PREVIOUS YEAR. ON THE BASIS OF THESE TWO FACTS, THIS IS CONCLUDED BY CIT(A) THAT NO ACTUAL LIABILITY EXISTED DURING THE RELEVANT PERIOD AND THEREFORE, HE HELD THAT MERELY PUTTING ASIDE OF MONEY WHICH MA Y BECOME EXPENDITURE IN FUTURE IS NOT ALLOWABLE UNDER IT ACT. THE CIT (A) HAS FOLLOWED VARIOUS JUDGMENTS OF VARIOUS HIGH COURTS INCLUDING HONBLE ALLAHABAD HIGH COURT, BOMBAY HIGH COURT, CALCUTTA HIGH COURT, KERALA HIGH COURT AND MADRAS HIGH COURT. HE ALSO FOLLOWED THE JUDGMENT OF HONBLE AP EX COURT RENDERED IN THE CASE OF SHREE SAJJAN MILLS LTD. VS. CIT AS REPORTED IN 156 ITR 585. THE CIT(A) HAS ALSO DISCUSSED ABOUT THE APPLICABILITY OF VARIO US JUDGMENTS CITED BEFORE HIM BY LD. AR OF ASSESSEE INCLUDING THE JUDGMENT OF HON BLE APEX COURT RENDERED IN THE CASE OF BHARAT EARTH MOVERS VS. CIT(SUPRA) O N WHICH RELIANCE HAS BEEN PLACED BEFORE US. AS PER THIS JUDGMENT, IT WAS HEL D THAT IF A BUSINESS LIABILITY HAS DEFINITELY ARISEN IN THE ACCOUNTING YEAR, THE D EDUCTION SHOULD BE ALLOWED ALTHOUGH THE LIABILITY MAY HAVE TO BE QUANTIFIED AN D DISCHARGED AT A FUTURE DATE. IT IS ALSO HELD IN THE SAME JUDGMENT THAT WHAT SHOU LD BE CERTAIN IS THE INCURRING OF THE LIABILITY AND IT SHOULD ALSO BE CAPABLE OF B EING ESTIMATED WITH REASONABLE CERTAINTY THOUGH THE ACTUAL QUANTIFICATION MAY NOT BE POSSIBLE AND IF THESE REQUIREMENTS ARE SATISFIED, THE LIABILITY IS NOT A CONTINGENT LIABILITY. IN THE PRESENT CASE IN PARA 7.2 OF ORDER OF CIT(A) AS REPR ODUCED ABOVE, THE LEDGER ITA NO.1581/BANG/2013 PAGE 16 OF 17 EXTRACT OF 5 CONSUMERS GIVING THE AMOUNT OF TOTAL S ALE FOR EVERY CONSUMER ALONG WITH AMOUNT OF RECEIPT FROM THAT CONSUMER AND THE C LOSING BALANCE OF SAID CONSUMER ALONG WITH OPENING BALANCE IS SHOWN. FROM THE SAID CHART, IT IS SEEN THAT IN RESPECT OF BESCOM, BANGALORE AGAINST THE TO TAL SALE IN THE PRESENT YEAR OF RS. 49.64 CRORES, THE ASSESSEE HAS RECEIVED RS. 50.27 CRORES, SIMILARLY IN RESPECT OF HESCOM, HUBLI AGAINST THE TOTAL SALE IN THE PRESENT YEAR OF RS. 12.93 CRORES, THE ASSESSEE HAS RECEIVED RS. 8.09 CR ORES AND IN CASE OF GESCOM, GULBARGA AGAINST THE TOTAL SALE OF RS. 14.2 5 CRORES, THE ASSESSEE HAS RECEIVED RS. 20.78 CRORES. IN RESPECT OF CESCO M, MYSORE AGAINST THE TOTAL SALE OF RS. 9.25 CRORES, THE ASSESSEE HAS REC EIVED RS. 8.23 CRORES IN THE PRESENT YEAR AND THERE WAS AN OPENING CREDIT BALANC E OF RS. 8,77,285/-. IN RESPECT OF MESCOM, MANGALORE AGAINST THE TOTAL SALE OF RS. 51.33 LAKHS, THE ASSESSEE HAS RECEIVED RS. 50.45 LAKHS. NOTHING HAS BEEN BROUGHT ON RECORD BEFORE US TO SHOW THAT ALTHOUGH MORE THAN 8 YEARS H AVE EXPIRED SINCE THE END OF THE RELEVANT PREVIOUS YEAR ENDING ON 31.03.2010, ANY FINAL PRICE VARIATION HAS BEEN ARRIVED AT AND ANY PAYMENT WAS MADE BY THE ASS ESSEE TO THE RESPECTIVE CUSTOMERS OR ANY AMOUNT WAS CREDITED TO THEIR ACCOU NT IN THE BOOKS OF THE ASSESSEE IN RESPECT OF THIS NEGATIVE PRICE VARIATIO N CLAIMED BY THE ASSESSEE FOR THE PRESENT YEAR. UNDER THESE FACTS, IN OUR CONSID ERED OPINION, THIS JUDGMENT OF HONBLE APEX COURT RENDERED IN THE CASE OF BHARAT E ARTH MOVERS VS. CIT(SUPRA) IS NOT APPLICABLE AND THE REMAINING JUDG MENTS CITED BEFORE THE CIT(A) ARE ALSO NOT RENDING ANY HELP TO THE ASSESSE E IN THE PRESENT CASE. HENCE WE FIND NO REASON TO INTERFERE IN THE ORDER O F CIT (A). 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THE DATE MENT IONED ON THE CAPTION PAGE. SD/- SD/- (N.V. VASUDEVAN) (ARUN KUMAR GARODIA) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE, DATED, THE 11 TH APRIL, 2018. /MS/ ITA NO.1581/BANG/2013 PAGE 17 OF 17 COPY TO: 1. APPELLANT 4. CIT(A) 2. RESPONDENT 5. DR, ITAT, BANGALORE 3. CIT 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY, INCOME TAX APPELLATE TRIBUNAL, BANGALORE.