The DCIT, Circle-3, Ahmedabad V. M/s. Monarch Comtrade Pvt.Ltd., Ahmedabad

ITA 2675/AHD/2015

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 9044 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 2 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-12-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 22-09-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S N DIVETIA
• Keywords: Business income; Speculation loss; Bad and doubtful debts
• Section: 37(1)

Judgement Text

ITA NO.2675/AHD/2015 ASSESSMENT YEAR: 2011-12 PAGE 1 OF 7 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD B BENCH, AHMEDABAD BEFORE SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER AND SHRI MAHAVIR PRASAD, JUDICIAL MEMBER ITA NO.2675/AHD/2015 ASSESSMENT YEAR: 2011-12 DY. COMMISSIONER OF INCOME TAX, VS. M/S.MONARCH COM TRADE PVT. LTD., CIRCLE 1(3), AHMEDABAD. MONARCH HOUSE, NEAR ISHWAR BHUVAN, COMMERCE CROS ROADS, NAVRANGPURA, AHMEDABAD. [PAN AAICS 2001 G] (APPELLANT) (RESPONDENT) APPELLANT BY : MUDIT NAGPAL, SR. D.R. RESPONDENT BY : S.N. DIVETIA, A.R. DATE OF HEARING : 04.09.2018 DATE OF PRONOUNCEMENT : 03.12.2018 O R D E R PER MAHAVIR PRASAD, JUDICIAL MEMBER: THIS APPEAL HAS BEEN PREFERRED BY THE REVENUE AGAIN ST ORDER OF LD. CIT(A) DATED 15.07.2015 FOR THE ASSESSMENT YEAR 2011-12. 2. THE REVENUE HAS TAKEN FOLLOWING GROUNDS OF APPEA L :- 1. THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FAC TS IN DELETING THE ADDITION OF RS.61,26,915/- ON ACCOUNT OF BAD DEBTS CLAIMED B Y THE ASSESSEE WITHOUT APPRECIATING THE FACT THE THE CONDITIONS LAID DOWN IN SECTION 36(2) OF THE ACT WERE NOT SATISFIED COMPELLED TO MAKE ADDITION UNDER THE HEAD DISALLOWANCE OF BAD DEBTS. 2. THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FACT S BY DELETING THE DISALLOWANCE OF RS.1,81,695/- ON ACCOUNT OF DISALLO WANCE OF LOSS ON TRADING WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE FAI LED TO PROVE THAT THE TRANSACTION IN HEDGING NATURE AS PER PRINCIPLE LAID DOWN BY HONBLE GUJARAT HIGH COURT IN THE CASE OF PANKAJ OIL MILL. AS THE SAME IS TREATING AS SPECULATION LOSS WITHIN THE MEANING OF SECTION 43(5 ) OF THE ACT, THE SAME CANNOT BE ALLOWED TO SET OFF AGAINST THE BUSINESS S CHEME. 3. THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FACT S BY DELETING THE ADDITION OF RS.2,02,676/- ON ACCOUNT OF PRIOR PERIOD EXPENSE S WITHOUT APPRECIATING THE FACT THAT SUCH EXPENSES ARE TO BE CONSIDERED IN THE YEAR WHICH IT PERTAINS. ITA NO.2675/AHD/2015 ASSESSMENT YEAR: 2011-12 PAGE 2 OF 7 4. THE ORDER OF THE LD. CIT(A) BEING ERRONEOUS AND BAD IN LAW AND ACTS IS LIABLE TO BE REVERSED THAT THE ORDER OF THE AO BE R ESTORED. 3. FACTS OF THE CASE ARE THAT THE ASSESSEE IS A COM MODITY BROKER AND IT HAS WRITTEN OFF IN ITS BOOKS OF ACCOUNTS RS.61,26,915/- AS BAD DEBTS. THIS AMOUNT WAS OUTSTANDING AMOUNT PAYABLE BY THE CLIENTS FOR WHOM IT HAS DONE THE BROKERING WORK AND EARNED THE BROKERAGE. THE PART OF THE DEBT I.E . THE BROKERAGE AMOUNT HAS BEEN TAKEN INTO ACCOUNT AS INCOME. DURING THE COURSE OF HEARING VIDE LETTER DATED 06.02.2014 THE ASSESSEE HAD FILED REPLY TO SHOW CAU SE NOTICE ALONG WITH LIST OF PARTIES WITH AMOUNT AS WELL AS COPIES OF LEDGER ACCOUNT OF LAST THREE YEARS OF THE PARTIES IN WHOSE CASE BAD DEBT/BUSINESS LOSSES HAVE BEEN CLAIM ED TO HAVE WRITTEN OFF AS IRRECOVERABLE ON ACCOUNT OF AMOUNT NOT RECEIVED TOW ARDS THEIR COMMODITIES TRANSACTIONS IN THE ACCOUNT IN TERMS OF ACTION 36(1 )(VII) READ WITH SECTION 36(2) OF THE ACT. ASSESSEE SUBMITTED THAT FROM THE ABOVE DETAIL S IT CAN BE APPRECIATED THAT ALL THE BAD DEBT PERTAINS TO HIS CLIENT WHICH WAS NOT RECOV ERED FROM THE CLIENT HAS BEEN WRITTEN OFF AS BAD DEBT. IT WAS FURTHER SUBMITTED BY THE ASSESSEE THAT HE IS IN THE BUSINESS OF COMMODITIES BROKING. ASSESSEE HAD PURC HASED THE COMMODITIES ON BEHALF OF HIS CLIENT IN THE EXCHANGE AND AGAINST TH E PURCHASE OF THE SAID COMMODITIES, HE HAD PAID THE MONEY TO THE EXCHANGE ON BEHALF OF THE SAID CLIENT. THE BROKERAGE RECEIVED BY THE ASSESSEE WAS SHOWN AS INCOME IN HIS BOOKS OF ACCOUNT OF THE IMMEDIATE PREVIOUS YEAR. SINCE THE BALANCE AMOUNT COULD NOT BE RECEIVED FROM THE CLIENTS ON WHOSE BEHALF THE AFORESAID COMMODITIES W ERE PURCHASED, THE ASSESSEE DURING THE YEAR IN QUESTION HAD WRITTEN OFF THE SAI D SUM AS A BAD DEBT/BUSINESS LOSS. 4. AGAINST THE ADDITION OF RS.61,26,915/- ASSESSEE PREFERRED FIRST STATUTORY APPEAL BEFORE THE LD. CIT(A) WHO GRANTED RELIEF TO THE ASS ESSEE. NOW THE REVENUE IS BEFORE US. IN THIS CASE APPELLANT HAD CLAIMED RS.61,26,91 5/- AS BAD DEBT BUT THE ASSESSING OFFICER WAS NOT SATISFIED WITH THE CONTENTION OF TH E ASSESSEE AND HELD THAT CONDITION LAID DOWN IN SECTION 36(2) OF THE ACT WAS NOT SATIS FIED. DURING THE COURSE OF APPELLATE PROCEEDINGS THE ASSESSEE SUBMITTED THAT IN A.Y. 201 0-11 THE ISSUE HAS BEEN DECIDED IN ASSESSEES FAVOUR BY THE LD. CIT(A). COPY OF TH E ORDER WAS SUBMITTED TO THE LD. CIT(A) AND IT WAS OBSERVED BY THE LD. CIT(A) THAT I DENTICAL GROUND OF BAD DEBT WAS RAISED IN APPEAL FOR AY 20010-11 WHERE THE ISSUE WA S DECIDED IN FAVOUR OF THE ASSESSEE BY DELETING ADDITION OF RS.14,07,297/- MAD E ON ACCOUNT OF DISALLOWANCE OF BAD DEBTS. SINCE SIMILAR BAD DEBTS WERE ALLOWED IN EARLIER YEAR, SHOWING CONSISTENCY ITA NO.2675/AHD/2015 ASSESSMENT YEAR: 2011-12 PAGE 3 OF 7 THE LD. CIT(A) GAVE RELIEF TO THE ASSESSEE. IN SUP PORT OF HIS CONTENTION THE ASSESSEE ALSO CITED A JUDGEMENT OF HONBLE BOMBAY HIGH COURT IN THE MATTER OF CIT VS. SHREYAS S. MORAKHIA (2012) 342 ITR 285 AND RELEVANT PARAGRA PH OF THE JUDGEMENT IS REPRODUCED AS UNDER :- SECTION 36(2)(I) PROVIDES THAT A DEDUCTION ON ACCO UNT OF A BAD DEBT CAN BE ALLOWED ONLY WHERE SUCH DEBT OR PART THEREOF HAS BEEN TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE ASSESSEE. TH E DEBT COMPRISED OF THE VALUE OF THE SHARES TRANSACTED AND THE BROKERAG E PAYABLE BY THE CLIENT. THE BROKERAGE AS WELL AS THE VALUE OF THE S HARES CONSTITUTED A PART OF THE DEBT DUE TO THE ASSESSEE SINCE BOTH AROSE OU T OF THE SAME TRANSACTION. THE FACT THAT THE LIABILITY TO PAY BRO KERAGE AROSE AT A POINT IN TIME ANTERIOR TO THE LIABILITY TO PAY THE VALUE OF THE SHARES TRANSACTED MAKES NO MATERIAL DIFFERENCE TO THE POSITION. AS TH E BROKERAGE FROM THE TRANSACTION OF THE PURCHASE OF SHARES HAD BEEN TAXE D IN THE HANDS OF THE ASSESSEE AS BUSINESS INCOME, THE DEBT OR PART THERE OF HAS BEEN TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE ASSESSE E AND THE REQUIREMENTS OF SECTION 36(1)(VII) R.W.S. 36(2) WER E SATISFIED. (ISSUE REGARDING THE VALUE OF THE SHARES WHICH REMAIN IN T HE HANDS OF THE ASSESSEE WHICH HAS TO BE ADJUSTED AGAINST THE AMOUN T RECEIVABLE FROM THE CLIENT LEFT OPEN) 5. SINCE THE LD. CIT(A) FOLLOWED THE ORDER OF EARLI ER A.Y. I.E. 2010-11, RESPECTFULLY FOLLOWING THE JUDGEMENT OF HONBLE BOMBAY HIGH COUR T (SUPRA), WE DISMISS THIS GROUND OF APPEAL OF THE REVENUE. 6. NOW WE COME TO GROUND NO.2 WITH REGARD TO DELETI ON OF DISALLOWANCE OF RS.1,81,695/- ON ACCOUNT OF LOSS ON TRADING. 7. THE ASSESSEE HAD CLAIMED RS.1,81,695/- AS LOSS O N TRADING. ASSESSING OFFICER DISALLOWED IT TREATING THE SAME AS SPECULATION LOSS AS PER SECTION 73 OF THE ACT. THE ASSESSEE IN APPEAL BEFORE THE LD.CIT(A) SUBMITTED T HAT THE SAID LOSS WAS ON ACCOUNT OF DIFFERENCE WITH THE PARTIES WHILE ENTERING INTO THE TRANSACTION FOR PURCHASE AND SALE ON BEHALF OF THE CLIENT THE AMOUNT WAS DEBITED TO T HE CLIENTS ACCOUNT AND ULTIMATELY THE ASSESSEE HAD TO PAY THE AMOUNT TO THE EXCHANGE. AS SESSEE HAS ALSO SUBMITTED THAT THE DECISION CITIED BY THE ASSESSING OFFICER OF PAN KAJ OIL MILLS IS NOT APPLICABLE BECAUSE THE ASSESSEE HAS NOT CLAIMED THAT THE TRANS ACTIONS ARE ENTERED INTO FOR HIS OWN SELF FOR THE PURPOSE OF HEDGING. ASSESSEE HAD ALSO RELIED UPON THE DECISION OF PARKAR SECURITIES LTD. VS. DCIT 8 SOT 257 (AHD) AND ITO VS. RAJVI SECURITIES PVT. LTD. 19 TAXMANN.COM 274 (AHD.). LD. CIT(A). THE LD. CI T(A) WAS OF THE VIEW THAT THE LOSS CLAIMED BY THE ASSESSEE DOES NOT FALL WITHIN THE PU RVIEW OF SECTION 73 OF THE ACT. THE ITA NO.2675/AHD/2015 ASSESSMENT YEAR: 2011-12 PAGE 4 OF 7 LD. CIT(A) OBSERVED THAT ON THE IDENTICAL ISSUE THE DECISION OF AHMEDABAD ITAT IN THE CASE OF ITO VS. RAJVI SECURITIES PVT. LTD. 19 TAXMA NN.COM 274 (AHD.) SUPPORTS THE CONTENTION OF THE ASSESSEE, THE RELEVANT PARAGRAPH OF THE SAID DECISION AS REPRODUCED BY THE CIT(A) READS AS UNDER :- SECTION 28(I), READ WITH SECTION 73 OF THE INCOME TAX ACT, 1961 BUSINESS LOSS/DEDUCTIONS ALLOWABLE AS ASSESSMEN T YEAR 2001-02 ASSESSEE-COMPANY WAS A SUB-BROKER ENGAGED IN BUSINE SS OF SHARE DEALING ON BEHALF OF IT CLIENTS DURING RELEVANT Y EAR, ASSESSEE PURCHASED CERTAIN SHARES ON BEHALF OF CLIENTS BUT CLIENTS REF USED TO TAKE DELIVERY OF SHARES SUBSEQUENTLY, THOSE SHARES WERE SOLD BY AS SESSEE AT A LOSS ASSESSEE SOUGHT SET OFF OF SAID LOSS AGAINST ITS BU SINESS INCOME EARNED IN FORM OF BROKERAGE ASSESSING OFFICER TAKING A V IEW THAT LOSS INCURRED ON PURCHASE AND SALE OF SHARES WAS TO BE TREATED AS SPECULATION LOSS IN TERMS OF PROVISIONS CONTAINED IN EXPLANATION TO SEC TION 73, REJECTED ASSESSEES CLAIM FOR SET OFF OF LOSS ON APPEAL, I T WAS NOTED THAT BY DOCUMENTARY EVIDENCE PRODUCED BY ASSESSEE BEFORE AS SESSING OFFICER IT WAS ESTABLISHED THAT PURCHASE OF SHARES WAS MADE ON LY ON BEHALF OF ITS CLIENTS WHETHER EXPLANATION TO SECTION 73 IS ATTR ACTED ONLY WHEN PART OF BUSINESS OF ASSESSEE-COMPANY CONSISTS OF PURCHASE A ND SALE OF SHARES OF OTHER COMPANIES - HELD, YES WHETHER, IN INSTAN T CASE, TRANSACTION IN SHARES UNDERTAKEN BY ASSESSEE AS ITS OWN UNDER COMP ULSION AFTER CERTAIN CLIENTS DISOWNED PART OF SUCH TRANSACTIONS DID NOT CONSTITUTE ITS BUSINESS OF SHARE DEALING AND THEREFORE, LOSS INCURRED BY AS SESSEE IN SUCH TRANSACTIONS DID NOT FALL WITHIN AMBIT OF EXPLANATI ON TO SECTION 73 HELD, YES WHETHER, THEREFORE, LOSS INCURRED BY ASSESSEE ON PURCHASE AND SALE OF SHARES IN QUESTION WAS TO BE TREATED AS BUSINES S LOSS WHICH COULD BE SET OFF AGAINST ITS BROKERAGE INCOME HELD, YES [I N FAVOUR OF ASSESSEE] 8. RESPECTFULLY FOLLOWING THE AFORESAID JUDGMENT AN D IN OUR CONSIDERED OPINION THE LD. CIT(A) HAS PASSED A DETAILED REASONED ORDER, TH E SAME DOES NOT REQUIRE ANY KIND OF INTERFERENCE AT OUR END. THUS, WE DISMISS THIS GROUND OF APPEAL OF THE REVENUE. 9. NOW WE COME TO THIRD GROUND OF APPAL WITH REGARD TO DELETION OF ADDITION OF RS.2,02,676/- ON ACCOUNT OF PRIOR PERIOD EXPENSES W ITHOUT APPRECIATING THE FACTS THAT SUCH EXPENSES ARE TO BE CONSIDERED IN THE YEAR IN W HICH IT PERTAINS. 10. IN THIS CASE ASSESSEE HAD PAID THE SOFTWARE EXP ENSES OF RS.8,10,705/- FOR THE PERIOD FROM 01.01.2010 TO 31.12.2010. THE ASSESSIN G OFFICER HAS DISALLOWED 25% OF THIS EXPENDITURE OF RS.2,02,676/-. THE ASSESSEE IN APPEAL BEFORE THE LD.CIT(A) SUBMITTED THAT THE SAID PAYMENT WAS MADE TO FINANCI AL TECHNOLOGIES LIMITED AND IT WAS MAKING SUCH TYPE OF PAYMENT ON YEAR ON YEAR BAS IS. THE ASSESSEE IS ACCOUNTING FOR THE EXPENSES AS AND WHEN THE BILL IS RECEIVED B Y IT. THE AMOUNT GETS CRYSTALLISED ITA NO.2675/AHD/2015 ASSESSMENT YEAR: 2011-12 PAGE 5 OF 7 ONLY ON RECEIPT OF THE BILL FROM THE SAID PARTY. A SSESSEE IS CONSISTENTLY FOLLOWING THE SAID METHOD OF ACCOUNTING. ASSESSEE HAD ALSO POINT ED OUT THAT THE SAID PARTY IS RAISING THE BILLS FOR CALENDAR YEAR FROM JANUARY TO DECEMBER. THE ASSESSEE HAD ALSO SUBMITTED COPY OF INVOICES FOR THE SAID PARTY FOR P REVIOUS AND SUCCEEDING ASSESSMENT YEAR. FURTHER, NO SUCH DISALLOWANCE WAS MADE BY TH E A.O. IN THE PAST OR IN SUCCEEDING YEAR. THE ASSESSEE HAD RELIED UPON THE D ECISION OF SAURASTHRA CEMENT & CHEMICALS INDUSTRIES VS. CIT 213 ITR 523. THE RELE VANT EXTRACT FROM THE SAID DECISION, AS REPRODUCED BY THE LD. CIT(A) IN HIS OR DER, IS REPRODUCED AS UNDER :- . 8. QUESTION NO.4 RELATES TO THE CLAIM OF THE ASSE SSEE FOR DEDUCTION OF RS.2,79,057 ON ACCOUNT OF SURTAX LIABILITY AS DEDUC TIBLE EXPENSES FOR THE PURPOSE OF BUSINESS. IT HAS BEEN BROUGHT TO OUR NOT ICE THAT THE ANSWER IS SQUARELY COVERED BY A DECISION OF THIS COURT IN THE CASE OF S.L.M. MANEKLAL INDUSTRIES LTD. V. CIT [1988] 172 ITR 176 , IN FAVOUR OF THE REVENUE AND AGAINST THE ASSESSEE. ACCORDINGLY QUESTION NO. 4 IS ANSWERE D IN THE AFFIRMATIVE, I.E., IN FAVOUR OF THE REVENUE AND AGAINST THE ASSESSEE. 9. QUESTION NO.5 RELATES TO THE EXPENDITURE OF RS. 39,823 ACTUALLY INCURRED DURING THE PREVIOUS YEAR BUT WAS NOT ALLOWED AS DED UCTION FROM THE PROFIT OF THE PREVIOUS YEAR ON THE GROUND THAT THE LIABILITY IN R ESPECT OF VARIOUS EXPENSES INCLUDED IN THE AFORESAID SUM HAD ARISEN IN THE EAR LIER PREVIOUS YEAR AND NOT IN THE RELEVANT PREVIOUS YEAR AND AS THE ASSESSEE MAIN TAINED THE ACCOUNTS ON MERCANTILE SYSTEM, THE SAME WAS NOT ALLOWABLE EXPEN SES OF THE PREVIOUS YEAR IN QUESTION. 10. FROM THE STATEMENT OF THE CASE AND THE ORDER O F THE TRIBUNAL IT APPEARS THAT THE CONTENTION OF THE ASSESSEE WAS THAT THE EX PENDITURES IN DISPUTE WERE INCURRED IN THE YEAR UNDER CONSIDERATION BECAUSE TH EY WERE QUANTIFIED IN THE PREVIOUS YEAR CONCERNED, AND THE COMMISSIONER (APPE ALS) REST CONTENDED BY SAYING THAT WHEN THE EXPENSES RELATED TO THE EARLIE R ACCOUNTING YEARS, HOW EACH OF THESE EXPENSES COULD BE QUANTIFIED IN THE Y EAR OF CONSIDERATION. THE TRIBUNAL AFFIRMED THE DISALLOWANCE BY OBSERVING THA T THERE IS NO DISPUTE THAT THE ASSESSEE-COMPANY MAINTAINED ITS BOOKS OF ACCOUNT ON MERCANTILE BASIS. IT WAS OBSERVED THAT IF THAT IS SO, THERE WAS NO JUSTIFICA TION IN CLAIMING THESE EXPENSES FOR THE ASSESSMENT YEAR UNDER APPEAL. HAVING CONSID ERED THE MATERIAL ON RECORD, WE DO NOT FIND ANY JUSTIFICATION FOR THE DI SALLOWANCE OF THE CLAIM OF THE ASSESSEE ON SUCH ABSTRACT PROPOSITION. MERELY BECAU SE AN EXPENSE RELATES TO A TRANSACTION OF AN EARLIER YEAR IT DOES NOT BECOME A LIABILITY PAYABLE IN THE EARLIER YEAR UNLESS IT CAN BE SAID THAT THE LIABILI TY WAS DETERMINED AND CRYSTALLIZED IN THE YEAR IN QUESTION ON THE BASIS O F MAINTAINING ACCOUNTS ON THE MERCANTILE BASIS. IN EACH CASE WHERE THE ACCOUNTS A RE MAINTAINED ON MERCANTILE BASIS IT HAS TO BE FOUND IN RESPECT OF A NY CLAIM, WHETHER SUCH LIABILITY WAS CRYSTALLIZED AND QUANTIFIED DURING THE PREVIOUS YEAR SO AS REQUIRED TO BE ADJUSTED IN THE BOOKS OF ACCOUNT OF THAT PREVIOUS Y EAR. IF ANY LIABILITY, THOUGH RELATING TO THE EARLIER YEAR, DEPENDS UPON MAKING A DEMAND AND ITS ACCEPTANCE BY THE ASSESSEE AND SUCH LIABILITY HAS BEEN ACTUALL Y CLAIMED AND PAID IN THE ITA NO.2675/AHD/2015 ASSESSMENT YEAR: 2011-12 PAGE 6 OF 7 LATER PREVIOUS YEARS, IT CANNOT BE DISALLOWED AS DE DUCTION MERELY ON THE BASIS THAT THE ACCOUNTS ARE MAINTAINED ON MERCANTILE BASI S AND THAT IT RELATED TO A TRANSACTION OF THE PREVIOUS YEAR. THE TRUE PROFITS AND GAINS OF A PREVIOUS YEAR ARE REQUIRED TO BE COMPUTED FOR THE PURPOSE OF DETE RMINING TAX LIABILITY. THE BASIS OF TAXING INCOME IS ACCRUAL OF INCOME AS WELL AS ACTUAL RECEIPT. IF FOR WANT OF NECESSARY MATERIAL CRYSTALLISING THE EXPENDITURE IS NOT IN EXISTENCE IN RESPECT OF WHICH SUCH INCOME OR EXPENSES RELATES, THE MERCA NTILE SYSTEM DOES NOT CALL FOR AN ADJUSTMENT IN THE BOOKS OF ACCOUNT ON ESTIMA TE BASIS. IT IS ACTUALLY KNOWN INCOME OR EXPENSES, RIGHT TO RECEIVE OR LIABI LITY TO PAY WHICH HAS COME TO BE CRYSTALLISED, IS TO BE TAKEN INTO ACCOUNT UNDER MERCANTILE SYSTEM OF MAINTAINING BOOKS OF ACCOUNT. AN ESTIMATED INCOME O R LIABILITY, WHICH IS YET TO BE CRYSTALLISED, CAN ONLY BE ADJUSTED AS CONTINGENC Y ITEM BUT NOT AS AN ACCRUED INCOME OR LIABILITY OF THAT YEAR. TO ILLUSTRATE, WE FIND FROM THE DETAILS OF THE EXPENSES THAT CERTAIN EXPENSES ARE RELATED TO THE F EES PAID TO THE EXPERTS, OUT OF POCKET EXPENSES INCURRED BY THE CONSULTATION FIR M AND DISCHARGE OF LIABILITY ON ACCOUNT OF DEMURRAGES CLAIMED BY THE PORT AUTHOR ITIES. SUCH ITEMS WITHOUT INVESTIGATION INTO THE FACT ABOUT THE CRYSTALLIZATI ON OF SUCH DUES CANNOT BE DISALLOWED MERELY ON THE GROUND THAT THEY RELATE TO THE TRANSACTIONS PERTAINING TO EARLIER ACCOUNTING YEAR. IN THIS CONNECTION IT I S USEFUL TO REFER TO A DECISION OF THE GAUHATI HIGH COURT IN THE CASE OF CIT V. NATHMAL TOLARAM [1973] 88 ITR 234 WHICH WAS A CASE ARISING UNDER THE INDIAN INCOM E-TAX ACT, 1922, AS TO THE INTERPRETATION OF SECTION 10(2)(XV) WHICH IS CORRES PONDING TO SECTION 37(1) OF THE 1961 ACT. THE QUESTION RELATED TO THE CLAIM OF DEDU CTION ON ACCOUNT OF THE SALES TAX LIABILITY PAID DURING THE YEAR 1957-58, W HEREAS THE LIABILITY RELATED TO THE ACCOUNTING YEAR 1949-50. THE DIVISION BENCH IN THAT CASE OBSERVED AS UNDER: '... UNDER SECTION 4 OF THE INCOME-TAX ACT, THE INC OME THAT ACCRUES OR ARISES DURING ANY PREVIOUS YEAR ALONE IS TO BE TAKEN NOTE OF. THERE IS, THEREFORE, A BAR TO INCLUDE ANY INCOME THAT ACCRUES OR ARISES OUTSID E THE PREVIOUS YEAR SUBJECT TO THE DEEMING PROVISIONS IN THE ACT. THERE IS, HOW EVER, NO EXPRESS BAR IN LAW, NOR ONE BY NECESSARY IMPLICATION, RESTRICTING THE P OWER OF THE INCOME-TAX OFFICER TO EXCLUDE THE EXPENDITURE LAID OUT OR EXPE NDED UNDER SECTION 10(2)(XV) OF THE 1922 ACT. WE ARE, THEREFORE, UNABLE TO ACCED E TO THE SUBMISSION OF THE LEARNED COUNSEL FOR THE DEPARTMENT. SECTION 10(2)(XV), SHORN OF OTHER DETAILS FOR OUR P URPOSE, PROVIDES FOR MAKING ALLOWANCES OF ANY EXPENDITURE 'LAID OUT' OR 'EXPENDED'. THE WORDS 'LAID OUT' ARE WITH REFERENCE TO THE MERCANTILE SYSTEM WH ILE THE WORD 'EXPENDED' IS WITH REGARD TO THE CASH SYSTEM. ONCE THERE WAS THE SALES TAX DEMAND IN THIS CASE, WHICH WAS AN ENFORCEABLE LIABILITY AND AS SUC H A REAL EXPENDITURE, FOR WHICH THE ASSESSEE LAID OUT THE AMOUNT BY DEBITING HIS ACCOUNT IN THE ACCOUNTING YEAR WHICH WAS ALSO THE YEAR OF DEMAND O F THE DEPARTMENT, DEDUCTION CAN BE LEGITIMATELY CLAIMED UNDER SECTION 10(2)(XV). HERE IS A CASE, WHERE THERE IS NO DOUBT ABOUT THE GENUINENESS OF TH E EXPENDITURE. THERE IS ALSO THE COMPULSIVENESS IN THE SALES TAX DEMAND WHI CH CAN BE IGNORED ONLY AT PERIL OF THE ASSESSEE. THIS EXPENDITURE HAD NEVER B EEN TAKEN NOTE OF IN THE EARLIER YEARS FOR ONE REASON OR THE OTHER. IN THE A BSENCE OF ANY LEGAL BAR IN THE WAY OF THE ASSESSEE CLAIMING THIS EXPENDITURE IN TH E YEAR OF DEMAND FOR WHICH PROVISION HAS ALREADY BEEN MADE IN HIS ACCOUNTING Y EAR, DEDUCTION UNDER ITA NO.2675/AHD/2015 ASSESSMENT YEAR: 2011-12 PAGE 7 OF 7 SECTION 10(2)(XV) IS PERMISSIBLE IN LAW AND HAS BEE N RIGHTLY ALLOWED BY THE TRIBUNAL.' (P. 238) 11. IN VIEW OF THE ABOVE, THE LD. CIT(A) WAS OF THE OPINION THAT THE ASSESSEE HAS RIGHTLY CLAIMED THE SAID EXPENDITURE IN THE YEAR UN DER CONSIDERATION AS IT WAS CRYSTALLIZED IN THE YEAR UNDER CONSIDERATION ONLY A ND ALSO IT IS FOLLOWING THE SAID ACCOUNTING PRACTICE CONSISTENTLY. ACCORDINGLY, THE DISALLOWANCE MADE BY THE ASSESSING OFFICER OF RS. 2,02,676/- WAS DELETED BY THE LD. CIT(A). 12. SINCE THE LD. CIT(A) HAS PASSED A DETAILED REAS ONED ORDER, WE ARE NOT INCLINED TO INTERFERE IN THE ORDER PASSED BY THE LD. CIT(A). THUS, WE DISMISS THIS GROUND OF APPEAL OF THE REVENUE. 13. IN THE RESULT, APPEAL FILED BY THE REVENUE IS D ISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 3 RD DAY OF DECEMBER, 2018. SD/- SD/- (PRADIP KUMAR KEDIA) (MAHAVIR PRASAD) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD, THE 3 RD DAY OF DECEMBER, 2018 PBN/* COPIES TO: (1) THE APPELLANT (2) THE RESPONDENT (3) CIT (4) CIT(A) (5) DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER UE COPY ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABAD