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TMI Blog1987 (10) TMI 109X X X X Extracts X X X X X X X X Extracts X X X X ..... in her decision and the provision for liability accrued in the relevant previous year and therefore it ought to have been considered by the Commissioner (Appeals) and such provision was necessary in view of the statutory audit of the company and therefore the order of the Commissioner (Appeals) should be set aside and the claim made by the assessee should be allowed. 2. The assessee is a private limited company and follows financial year as the previous year. It manufactures aluminium conductors which are sold to Electricity Board against orders. The Government allots aluminium to various users including the assessee. Whenever the assessee is not allotted or not having sufficient aluminium for carrying out the orders it borrowed certain q ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssioner (Appeals) was not agreeable to the claim of the assessee that the additional liability by ways of increase in prices accrued on the date of borrowal itself. The claim of the assessee by making provision of increase in price in the accounting year was meant to discount the current years profit earned for the assessment year 1981-82. According to him when the material is obtained on allotment and if repaid to the lenders or declares the price paid for purchasing the material at that time would get automatically set off against that year's profit. In other words, the Commissioner (Appeals) held that the set off of increase in price would be relevant against the profits of the year in which the material was returned and not in the year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aluminium ingots and assessee make the provision only for the difference. Ultimately in the year in which the goods were purchased and returned only the balance amount after taking into account the original deposit made at the time of borrow all and the provision made earlier in the profit and loss account is paid to the lender with which he clears the invoice and reimburses the loan of ingots. According to the mercantile method of accounting followed by the assessee such provision was required to be made according to the requirements of the Companies Act and therefore the authorities were not justified in rejecting the claim. The learned departmental representative on the other hand supported the orders of the authorities. 5. We have dul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion to be discharged in the future. Ultimately when the assessee gets fresh allotment of aluminium ingots and the loans are returned the difference in the purchase price of that year and the value already debited in the purchase price of that there and the value already debited in the purchase account at the time of loan and the provision made to the profit and loss account is debited to the purchase account in the year of return and claimed it as an expenditure. The debit in deposits against loan account made at the time of taking loan and the credit in the supplier's account to the same extent are closed b y passing contra entries. Similarly the outstanding liability account for the provision made in the profit and loss account is also c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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