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TMI Blog2003 (6) TMI 182X X X X Extracts X X X X X X X X Extracts X X X X ..... e did also include the expenses relating to two foreign tours undertaken by the assessee. The first tour was to U.S.A. and the second one was to European countries. The expenses of Rs. 57,325 accounted by the assessee towards USA tour was disallowed by the Assessing Officer on the ground that it was not incurred for the purpose of assessee's business. The expenses claimed for the second tour to European countries amounted to Rs. 5,69,241. On a detailed examination the Assessing Officer found that the assessee had refunded Rs. 1,45,555 as unspent portion of the money withdrawn towards the tour expenses and also the assessee was not in a position to produce evidences in support of the expenditure claimed to the extent of Rs. 1,71,325. The cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the assessee was following cash system of accounting. When the assessee-firm had given money to its partners to undertake foreign tour, the entire payment was treated as expenditure, as it should be under the cash system of accounting. As on 31-3-1995, i.e. the date of closing of the relevant previous year, the partner had not rendered the accounts relating to his foreign tour and in fact he did not return from abroad on that date. He came back only in April 1995. It is only thereafter the partner had furnished the details of the travelling expenses and refunded the balance. When the firm received the refund in cash, the same was credited in assessee's travelling expenses account for the previous year 1995-96, which would have a bearing o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... representative appearing for the Revenue contended that the amounts being not spent for travelling expenditure, the same could not be allowed as a deduction in computing the taxable income of the assessee-firm for the impugned assessment year 1995-96. He supported the orders of the lower authorities on this point. 8. We heard both sides in detail and considered the issue. We appreciate the arguments made by the learned counsel appearing for the assessee at length. The learned counsel has made attempt to defend her case, relying on the method of accounting regularly employed by the assessee-company; being the cash system of accounting. It is the earnest argument of the learned counsel that the assessee having paid the amount to its partner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e crucial test to be applied in examining the deducibility of a claim of expenditure is whether the said expenditure was actually incurred or not, during the relevant previous year. If the expenditure had been incurred, the same can be allowed as a deduction depending upon the method of accounting regularly followed by an assessee. If the assessee is following cash system of accounting, then, the expenditure can be allowed as a deduction on actual payment. If the assessee is following accrual system of accounting, the expenditure can be allowed as a deduction on due basis even if the payment was not made during the previous year. The question of examining the method of accounting, whether cash system or accrual system, arises only after the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t have been taken by the partner either in Indian currency on in foreign currency. Whether the partner had availed foreign exchange or he had spent money in Indian rupee, the total amount spent by the firm before the foreign tour was in the form of advance; i.e., tour advance. The payment does not take the character of expenditure immediately on payment of the amount. This is because the payment was made for undertaking the foreign tour and the foreign tour was not complete by the time of payment. The foreign tour was yet to commence. Therefore, whatever may be the actual method of accounting employed by the assessee, as the foreign tour undertaken by the partner of the firm was not complete, the initial payment or expenditure incurred by t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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