2011 (8) TMI 60 - HC - Income Tax

Disallowance - contingent liability - Scrutiny - assessee was maintaining suspense account crediting a sum of Rs.23,77,458/- in the trial balance for the year ended on 31.3.1991 - Merely because future payments were made out of the funds said to be kept in the suspense account, the allowance could not be made - No evidence has been placed before the authorities concerned to show that the expenditures had been incurred during the relevant assessment year to be shown in the suspense account - Decided in favour of the revenue

Summary

Issues:
1. Whether the balance in the "suspense fund" should be allowed as an expenditure when the amounts were expended in future years?
2. Whether the outstanding balance in the suspense account represents a contingent liability?

Analysis:

Issue 1:
The appellant, engaged in the business of printing and selling lottery tickets, filed a return showing a loss for the assessment year 1991-92. The Assessing Officer noted a sum credited to a suspense account in the trial balance. The appellant claimed that the amounts in the suspense account were payable at the end of the year and were subsequently paid. The Assessing Officer disallowed the amount as the appellant failed to provide evidence. The Commissioner of Income Tax (Appeals) allowed the appeal, and the Tribunal upheld this decision. The Tribunal found that the outstanding balance was paid during the relevant year and constituted less than 10% of the total turnover. The Tribunal also noted the common nature of the expenses related to lottery draws. The High Court held that the appellant failed to substantiate that the suspense account amount was utilized in previous years. Only liabilities crystallized within the previous year and paid out of the fund should be allowed. The Court allowed the appeal filed by the Revenue.

Issue 2:
The Revenue contended that the appellant did not produce sufficient evidence to support their claims. The Revenue argued that the expenses were incurred in a different assessment year and the fund was used to meet contingent liabilities. The Court observed that the appellant did not provide evidence to show that the amount in the suspense account was utilized in previous years. The Court agreed with the Revenue that only liabilities crystallized within the previous year and paid out of the fund should be allowed. As the appellant failed to substantiate their claim, the Court allowed the Revenue's appeal.

In conclusion, the High Court allowed the appeal filed by the Revenue, holding that the appellant did not provide evidence to support their claim that the amount in the suspense account was utilized in previous years. The Court emphasized that only liabilities crystallized within the previous year and paid out of the fund should be allowed.