9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2016 (6) TMI 895 - HC - Income TaxBooking of expenses against the receipt of Escalation of price of supply of goods - mercantile system of accounting - Held that - We accept the principle which has been sought by learned advocate Mr. Shah for the appellant but on the facts of the present case when the assessee has shown the expenses ultimately the assessee has not shown the amount which he is entitled to receive in the books of account. The assessee has not even shown the outstanding balance anywhere in the books of account. The assessee has relied on clause 12 of the contract as referred to above and subsequently it has credited the escalation payments after the claims sanctioned and payments have been received from the railways. Though the expenses are claimed at the relevant year the assessee has not shown the same in the books of account. In our view the principles sought to be relied on by the assessee are for the expenses incurred and not for the income. The assessee has to show in the books of account the expenses incurred or future income or bill outstanding from the railway. This has not been done. We are therefore in complete agreement with the view taken by the Tribunal. - Decided against assessee
Issues Involved:
1. Entitlement to escalated price incurred for supply of raw materials. 2. Application of the mercantile system of accounting for accrued liabilities. 3. The relevance of matching concept in computing taxable income. 4. Change in method of stock valuation and its acceptance by revenue authorities. 5. Determination of business liability and its treatment in accounts. Detailed Analysis: 1. Entitlement to Escalated Price Incurred for Supply of Raw Materials: The appellant-assessee, a contractor supplying concrete sleepers to the railway, was entitled to escalated prices for special cement and High Tensile Steel (Strand Wire) as per the contract clause. The assessee raised bills for the relevant assessment years (1984-85, 1985-86, and 1986-87) based on this entitlement. 2. Application of the Mercantile System of Accounting for Accrued Liabilities: The appellant cited the Supreme Court's decision in *Calcutta Co. Ltd. v. Commissioner of Income-tax (1959) 37 ITR 1*, arguing that estimated expenditure under a contract should be considered an accrued liability under the mercantile system of accounting. The appellant claimed that the revised bill amount for the relevant year, shown as income, was received subsequently, necessitating a revised return. 3. The Relevance of Matching Concept in Computing Taxable Income: The appellant relied on *Bharat Earth Movers v. Commissioner of Income-tax (2000) 245 ITR 428*, which established that a business liability arising in the accounting year should be deducted, even if quantification and discharge occur later. The appellant argued that this principle should apply to their case, as the liability was not contingent but present. 4. Change in Method of Stock Valuation and Its Acceptance by Revenue Authorities: The appellant also referenced *Taparia Tools Ltd. v. Joint Commissioner of Income-tax (2003) 260 ITR 102* and other cases, arguing that the method of accounting should reflect the correct profit for each year. The appellant contended that the Tribunal erred in confirming the lower authorities' decision to tax the amount received under escalation claims in the year it was credited, rather than when it was accrued. 5. Determination of Business Liability and Its Treatment in Accounts: The Tribunal noted that the appellant had not shown the amount entitled to be received in the books of account, nor had they recorded the outstanding balance. The Tribunal held that the principles cited by the appellant were applicable for expenses incurred, not for income. The appellant's failure to show the expenses or future income in the books of account led to the dismissal of the appeals. Conclusion: The Tribunal dismissed the appeals, agreeing with the lower authorities that the appellant's method of accounting was inconsistent and did not reflect the true financial position. The appellant's failure to record the escalated amounts in the books of account was a significant factor in the decision. The Tribunal upheld that the amount received under escalation claims should be taxed in the year it was credited, not when it was accrued.
|
