9911796707
TMI Blog2011 (5) TMI 649X X X X Extracts X X X X X X X X Extracts X X X X ..... and the raw material for producing these railway tyres was purchased from Ispat Profiles Limited. During the financial year 1997-98, the assessee received complaints about quality of railway tyres. In the opinion of assessee, the defects pointed out in railway tyres were on account of defective raw material supplied by Ispect Profiles Limited. It was in this backdrop that the assessee decided not to pay outstanding bills payable to Ispat Profiles Limited, and unilaterally write back these dues to the credit of his profits and loss account. In effect thus the amount payable to Ispat Profiles Limited was adjusted as damages claimed on account of poor quality of raw material supplied, and offered to tax. This claim for damages, however, was r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd., accrued during the F.Y. 1998-99 and the same was accordingly allowed under section 37(1). Subsequently, in the A.Y. 2001-02, the appellant suo-moto wrote back the liability and offered the same for taxation u/s.41 (1). The appellant has now reclaimed the same amount in the A.Y. 2004-05 by reversing the entries made in the FY 2000-2001. In my opinion if the AO was to allow this, it would amount to a double deduction u/s.37 (1) as this amount has already been allowed in the A.Y. 1999-2000. It is only by virtue of a legal fiction, created by section 41(1), that this amount was brought to tax in the A.Y. 2001-02. There is no legal fiction, of a similar nature, in the statute whereby a reversal of an amount written back to the P&L account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct that ultimately assessee had to pay off this liability- though at a lesser amount, that the liability to pay to Ispat Profiles Limited did exist in the relevant previous year, even as it did not reflect in the assessee's account. Under these circumstances, disallowing the liability debited to profit and loss account, on the ground that it is a contingent liability, was clearly erroneous. The profits of the assessee are to be computed on the basis of normal accountancy practices, and it is only elementary that all known liabilities are to be provided for while computing business profits. There was thus no infirmity in assessee's claim for deduction of liability of Rs. 1,07,83,402 payable to Ispat Profiles Limited. The stand of the authori ..... X X X X Extracts X X X X X X X X Extracts X X X X
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