Commissioner of Income Tax vs Beekay Engineering Corporation

Shri Rajeev Shrivastava with Smt. v. Shraddha Rao, counsel for the applicant.

This reference has been made u/s 256(1) of the Income Tax Act, 1961 (henceforth "the Act") by the Income Tax Appellate Tribunal, Nagpur (henceforth "the Tribunal") at the instance of the Revenue and the Tribunal has referred the following question of law for our opinion:

Whether on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that payment of Rs. 1,37,767 made to Bhilai Engineering Corporation pertains to the financial year 1989-90, as they were incorporated in the assessee''s end product only within the financial year 1989-90?

Briefly stated, the facts of the case as projected in paragraph 1 of the order of the Tribunal are that the assessee had made a payment of Rs. 1,36,767 to the Bhilai Engineering Corporation (henceforth the "Corporation") in respect of certain jobs done by them from December, 1988, to June, 1989. The bills were raised by the party in the month of August, 1989. According to the assessee, as he was not aware of the actual liability on the last date of the accounting period, he claims this deduction only when the bills were submitted by the Corporation. The Assessing Officer has, however, held that as the assessee was following the mercantile system of accounting, the expenditure should have been claimed as deduction in the earlier year and not in the subsequent year and accordingly, disallowed the claim. The Commissioner of Income Tax (Appeals) confirmed the order of the Assessing Officer. However, the Tribunal reproducing the guidelines of the Institute of Chartered Accountants, held that in day-to-day business, it is not always possible to ascertain the liabilities of a particular day. In view of the facts of this case, it is obvious that the liability could be ascertained only in the accounting year previous to the assessment year 1990-91. Further, relying upon the decision rendered by the High Court of Punjab & Haryana in the matter of Commissioner of Income Tax Vs. Pretty Cycle Industries, , it was held that the assessee was entitled for deduction.

Shri Rajeev Shrivastava, learned Counsel for the applicant/Revenue submitted that the facts of the present case are distinguishable from the facts of the case of Commissioner of Income Tax Vs. Pretty Cycle Industries, as in the instant case, the assessee entered into contract with the Corporation for certain job works. In the financial years 1988-89, the job work spread between December, 1988, and June, 1989, in two financial years. The contention of the assessee that there was a delay and difficulty in ascertaining the precise quantum of liability cannot postpone the accrual of the liability in the mercantile system of accounting.

On the other hand, Shri Neelabh Dubey, learned Counsel assisting the court in the matter, after going through the record, submits that there is no factual enquiry conducted by the Assessing Officer to rebut the assessee''s contention that the amounts were not ascertainable. Therefore, in view of the fact that the job work was done in two financial years between December, 1988, and June, 1989, the disallowance of the entire amount of Rs. 1,37,767 by. the Assessing Officer has rightly been deleted by the Tribunal.

After hearing the submissions made by learned Counsel and after going through the order of the Assessing Officer and the impugned order, we are of the opinion that there is no material available on record on the basis of which, the Assessing Officer could reach the conclusion that the amount was ascertainable.

In these circumstances, we uphold the order of the Tribunal and answer the reference in favour of the assessee.