R.C. GUPTA Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) RELEVANT to the Assessment Year 1979 -80 following question has been referred for our opinion:

(2.) ON a scrutiny of the assessed's Trading Account the Assessing Officer ('AO') noticed that during the Assessment Year 1979 -80 a sum of Rs.50,761 stood debited to the raw material account. The Explanation of the assessed was that this amount was payable to M/s. Hindustan Steel Limited for certain purchases which had been made on 22.10.1975 but in respect of which the assessed had disputed its liability. According tot he assessed the liability stood accrued in the financial year ending 31.3.1979 since a suit for recovery had been filed by Hindustan Steel Limited against it on 18.8.1978. The Assessing Officer disallowed the claim on the ground that the said amount did not relate to any purchases made during the previous year 1978 -79 relevant to the Assessment Year 1979 -80. The appeal filed by the assessed was allowed by the Commissioner of Income Tax (Appeals) ['CIT (A)']. Relying on the judgment of the Hon'ble Supreme Court in Kedarnath Jute Manufacturing Company Limited v. : [1971]82ITR363(SC) , the CIT (A) held that the liability of Rs.50,761 had accrued against the assessed during the accounting year ending on 31.3.1979.

(3.) LEARNED Counsel for the assessed contended that the liability accrued to the assessed the minute purchases were made. Merely because the assessed had disputed the liability did not mean that it ceased to be a liability. He submitted that once a suit was filed for recovery of the said sum by Hindustan Steel Limited, the liability became an ascertained one. Since the assessed followed the mercantile system of accounting it was bound to account for the said liability by making a provision therefore. In any event if at a subsequent point in time the suit was dismissed, the Petitioner would be required to offer the said amount to tax in terms of Section 41(1) of the Income Tax Act, 1961.