COMMISSIONER OF INCOME TAX Vs. AGRAWAL GUDAKU FACTORY

JUDGEMENT

(1.) THIS is an income-tax reference under Section 256(1) of the Income-tax Act, 1961, and the following two questions have been referred at the instance of the Revenue for answer by this court ;

(2.) THE brief facts giving rise to this reference are these : For the assessment year 1983-84, the assessee had claimed deduction of Rs. 40,935 towards payment of entry tax. THEre was no dispute that the expenditure pertained to earlier years. However, the assessee claimed deduction during the year on two grounds. THE first was that the clarification as to the liability of the assessee for payment of entry tax on gudaku was issued by the Commissioner of Sales Tax on November 2, 1981, which was the date falling during the accounting period relevant to the present assessment year. It was claimed that the entry tax pertained to Diwali years 1977-78 and 1978-79 and the assessments for entry tax in respect of these two years were made on December 30, 1981, and June 28, 1982. THEse two dates also fell during the accounting period relevant to the assessment year 1983-84. THE Assessing Officer disallowed the claim holding that the liability and the clarification by the Commissioner of Sales Tax were irrelevant considerations. It was further held by him that since the assessee was maintaining accounts following the mercantile system, the liability was allowable in the year in which the liability accrued. THE completion of the assessment was simply quantification of the liability.

(3.) IN Kedarnath's case [1971] 82 ITR 363 (SC), their Lordships of the Supreme Court have taken the view that whenever account is maintained, the assessee is entitled for deduction in the year in which the liability accrued. Before the Delhi High Court in Addl. CIT v. Rattan Chand Kapoor [1984] 149 ITR 1 a similar question came up for consideration and their Lordships observed that the assessee had adopted a hybrid system of accounting, IN that context, their Lordships said that the liability will be treated to have been arisen in the year in which the demand was raised. It was observed (headnote) :