Ascertained liability allowable under the mercantile system of accounting (Principle of Consistency)

IN THE INCOME TAX APPELLATE TRIBUNAL

DELHI BENCHES: “B” New Delhi

BEFORE SHRI A.D. JAIN, JM AND

SHRI J.SUDHAKAR REDDY, AM

ITA no. 1901/Del/2011

Assessment Year: 2006-07

ACIT, Circle 10(1)

New Delhi

(Appellant)

Vs.

Dewan Sugar Ltd.

Surya Plaza, 1st floor

K 185, Sarai Jullena, New Friends Colony

New Delhi

PAN: AAACD 3465 H

(Respondent)

Appellant by: Ms. Shumana Sen, CIT, D.R

Respondent by: Sh. Sanjay Sood, C.A. and Sh. N.K.Chadha, Adv.

O R D E R

PER J.SUDHAKAR REDDY, AM

This is an appeal filed by the Revenue directed against the order of the Ld.CIT(A)-XVI, New Delhi dated 9.12.2010 pertaining to the Assessment Year 2006-07.

2. Facts in brief:- The assessee is a Company and is engaged in the business of manufacturing of white crystal sugar. It filed its return of income on 25.11.2006 declaring total income of Rs.1,01,251/-. The Ld.AO complete the assessment u/s 143(3) on 31.12.2008 determining the total income of the assessee at Rs.1,47,49,159/- and allowed set off of this amount from brought forward losses. Aggrieved at the additions made to the returned income the assessee filed an appeal before the Ld.Commissioner of Income Tax (Appeals)- XVI, New Delhi. The First Appellate Authority granted part relief. Aggrieved with the relief given by the First Appellate Authority the Revenue has filed this appeal on the following grounds.

“1. On the facts and circumstances of the case and in law, the Ld.Commissioner of Income Tax (Appeals) has erred in allowing relief of Rs.40,81,730/- on account of addition made in respect of provisional liability for expenses outstanding when assessee itself admitted for non payment of provisional liability.

2. On the facts and circumstances of the case and in law, the Ld.Commissioner of Income Tax (Appeals) has erred in allowing relief on account of addition made in respect of UP Trade Tax and Interest on Excise Duty of Rs.14,05,285/-.”

3. We have heard Ms.Shumana Sen, the Ld.Sr.D.R. on behalf of the Revenue and Mr. Sanjay Sood, the Ld.Counsel on behalf of the assessee.

4. Rival contentions heard. On a careful consideration of the facts and circumstances of the case and on perusal of the papers on record and orders of the authorities below, case laws cited, we hold as follows.

6. The first issue is regarding the deletion of an addition of Rs.40,81,730/- being provisional liability for expenses outstanding. The Ld.AO dealt with the issue at page 2, para 3 of his order in the following words.

“3. In the details of creditors, the assessee company has claimed provisional liability of Rs.40,81,730.60. In the explanation submitted by the assessee company, it has been submitted that the liability has been booked for the material procured by the company for its sales commission, electric stores purchased and expenditure on Repairs& Maintenance. The purchase bills were received but cleared on later dates and paid on subsequent year. The liability was booked in view of giving the true and fair picture of the balance sheet.

Therefore the same should not be disallowed. As the assessee company has itself admitted of having not made payment of this provisional liability, this amount of Rs.40.81 lacs cannot be allowed and is accordingly added to the total income of the assessee company.”

7. The Ld.Commissioner of Income Tax (Appeals) followed the decision of his predecessor for the Assessment Year 2004-05 and deleted the addition made. Before us the Ld.D.R. submits that the Ld.Commissioner of Income Tax (Appeals) has not applied the law to the facts of the case. She submits that there is no finding that the expenditure in question crystallized during the year. The Ld.Counsel for the assessee on the other hand points out that the decision of the Ld.Commissioner of Income Tax (Appeals) on the very same issue for the Assessment Year 2004-05 was accepted by the Revenue. He submits that this is ascertained liability.

8. The Ld.Commissioner of Income Tax (Appeals) while adjudicating this issue for the Assessment Year 2004-05, came to a conclusion that the liability in question is ascertained liability and hence allowable under the mercantile system of accounting. The Ld.Counsel for the assessee made a statement at the Bar that these liabilities were discharged in the immediately succeeding Assessment Year. This is a timing issue i.e. the year of allowability of the expenses is in dispute. On the principle of consistency, we are of the considered opinion that the order of the First Appellate Authority has to be upheld as in the earlier Assessment Year the finding of the Ld.Commissioner of Income Tax (Appeals) on the year of allowability has not been challenged by the Revenue. In the result this ground of the Revenue is dismissed.

9. Ground no.2 is on the issue of allowability of interest on late deposit of excise duty and interest on late deposit of trade tax. We hold that the First Appellate Authority was right in relying on the decision of Hon’ble P&H High Court in the case of CIT vs. Hoshiarilal Kewal Krishan, 202 taxmann 441 (P&H) and holding that the payments in question are compensatory in nature and hence allowable. We find no infirmity in the same.

10. In the result the appeal of the Revenue is dismissed.

Order pronounced in the Open Court on 12th July, 2013.

Sd/- Sd/-

(A.D. JAIN) (J.SUDHAKAR REDDY)

JUDICIAL MEMBER ACCOUNTANT MEMBER

Dated: the 12th July, 2013

*manga

Copy of the Order forwarded to:

1. Appellant;

2. Respondent;

3. CIT;

4. CIT(A);

5. DR;

6. Guard File

By Order

Asst. Registrar

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