2015 (1) TMI 1020 - HC - Income Tax

Claim of deduction of liability - assessee failed to debit the liability in its books of accounts - Held that - Unable to appreciate the suggestion that if an assessee under some misapprehension or mistake fails to make an entry in the books of account and although, under the law, a deduction must be allowed by the Income-tax Officer, the assessee will lose the right of claiming or will be debarred from being allowed that deduction. Whether the assessee is entitled to a particular deduction or not will depend on the provision of law relating thereto and not on the view which the assessee might take of his rights nor can the existence or absence of entries in the books of account be decisive or conclusive in the matter. The Tribunal was right in confirming the order of the Commissioner of Income-tax (Appeals) and in directing the Assessing Officer to allow the deduction of the liability. - Decided in favour of assessee.

Summary

Issues:
- Challenge to the judgment and order of the Income Tax Appellate Tribunal by the appellant-revenue in two separate tax appeals.
- Dismissal of the appeal filed by the revenue by the Tribunal in both cases.
- Question of law regarding deduction of liability by the Assessing Officer.
- Interpretation of the provision for deduction under the Income Tax Act.
- Comparison with a previous Apex Court decision in Kendarnath Jute Mfg. Co. Ltd. v. Commissioner of Income-Tax (Central), Calcutta.

Analysis:
1. The High Court of Gujarat heard two tax appeals where the appellant-revenue challenged the judgments and orders of the Income Tax Appellate Tribunal. The Tribunal had dismissed the appeals filed by the revenue in both cases, leading to a common judgment due to identical facts and legal issues.

2. The appeals revolved around the deduction of liability by the Assessing Officer under the Income Tax Act. In one case, the Assessing Officer determined the total income of the assessee after making an addition to the declared total loss. The Commissioner of Income Tax (Appeals) partly allowed the appeal filed by the assessee, leading to the revenue's appeal before the Tribunal.

3. The substantial question of law formulated by the Court focused on whether the Tribunal was correct in confirming the order of the Commissioner of Income-tax (Appeals) directing the Assessing Officer to allow the deduction of the liability, despite no provision or payment made by the assessee during the relevant year.

4. The appellant-revenue argued that the Tribunal erred in dismissing their appeal and not properly appreciating the material on record. However, the respondents' advocate cited the precedent set by the Apex Court in Kendarnath Jute Mfg. Co. Ltd. v. Commissioner of Income-Tax (Central), Calcutta, supporting the assessee's right to claim deduction even without a corresponding entry in the books of accounts.

5. After hearing both parties and reviewing the Apex Court decision, the High Court concluded that the issue was already settled in favor of the assessee. The Court emphasized that the entitlement to a deduction depends on the law, not the assessee's accounting entries. Therefore, the Court dismissed the appeal, holding that the Tribunal was correct in confirming the order of the Commissioner of Income-tax (Appeals) regarding the deduction of the liability.