1994 (9) TMI 116 - AT - Income Tax

Summary

Issues:
Ascertainment of liability in respect of power charges payable to Maharashtra State Electricity Board for computation of income under section 28 and section 115J.

Analysis:
The case involved appeals by both the assessee and the revenue regarding the ascertainment of liability for power charges payable to the Maharashtra State Electricity Board. The assessee had made provisions in its books of account for liabilities relating to power charges from previous years. The dispute centered around whether these liabilities could be deducted from the current year's profits and book profits under section 28 and section 115J, respectively. The DCIT rejected the assessee's claims, leading to appeals and subsequent orders by the CIT(A) and the ITAT Bombay-D.

The main issue revolved around the date of ascertainment of the liability. The assessee argued that the liability was crystallized in the assessment year 1990-91, justifying its exclusion from book profits under section 115J. However, the revenue contended that the liability was not related to the relevant year and was not crystallized during that period. The ITAT Bombay-D analyzed the evidence and arguments presented by both parties to determine the date of ascertainment of the liability.

The ITAT Bombay-D rejected the assessee's claim that the liability was crystallized in early 1990, citing lack of evidence and contradictory explanations provided by the assessee. The tribunal also noted that the representation made by the assessee to the Maharashtra State Electricity Board did not convert the enforceable liability into a non-enforceable one. The tribunal further emphasized that liabilities accrued in earlier years could not be deducted while computing business income under section 28.

Ultimately, the ITAT Bombay-D held that the liability was ascertained for the assessment year 1990-91 and could be excluded from book profits under section 115J. However, the tribunal dismissed the revenue's appeal and rejected certain grounds of the assessee's appeal related to liabilities accrued in previous years. The judgment provided a detailed analysis of the legal provisions and factual circumstances to arrive at its decision regarding the ascertainment of the liability for power charges payable to the Maharashtra State Electricity Board.