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TMI Blog2011 (5) TMI 649X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowing the liability debited to profit and loss account, on the ground that it is a contingent liability, is erroneous. It is only elementary that all known liabilities are to be provided for while computing business profits. Other grounds of appeal are restored to the file of CIT(A) for adjudication on merit. - Decided partly in favor of assessee. - I.T.A No.922/ Mum/2009 - - - Dated:- 31-5-2011 - O R D E R Per Pramod Kumar: 1. This appeal is directed against CIT (A) s order dated 26th November, 2008 for the assessment year 2004-05. 2. Ground Nos.1 and 2 are not pressed and are dismissed as such. 3. In ground No.3, the assessee is aggrieved that the CIT(A) erred in sustaining disallowance of Rs. 1,07,83,402 on account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lity of Rs. 1,07,83,402 was brought back to accounts- a liability for payment of outstanding dues to Ispat Profiles Limited. The Assessing Officer disallowed the same. He was of the view that it was a contingent liability. The Assessing Officer further noted that the liability to Ispat Profiles Limited was finally settled for Rs. 65,00,000 vide memorandum of understanding dated 1st September, 2004, and that the actual liability can at best be claimed in the relevant assessment year i.e. 2005-06. He was of the view that the liability was ascertained and crystallized only on 1.9.2004 i.e. previous year relevant to the assessment year 2005-06. Accordingly, claim of deduction for Rs. 1,07,83,402 was disallowed. Aggrieved, assessee carried the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, by reversing the entry of Rs. 1,07,83,402 all the assessee did was to create a contingent liability which has rightly been disallowed by the AO. This ground of appeal is therefore, dismissed. 5. The assessee is not satisfied and is in appeal before us. 6. We have heard the rival contentions, perused the material on record and duly considered the factual matrix of the case as also the applicable legal position. 7. We find that in the relevant previous year, the assessee has merely reversed a unilateral write back of dues payable to vendor. As a matter of fact, as later developments showed, the very decision of writing off amount payable to Ispat Profiles Limited was premature and based on too optimistic an appraisal of vendor s wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT, 24 ITR 481, while anticipated loss is thus taken into account, anticipated profits is not brought into account, as no prudent trader would care to show increased profit before it s actual realization . The underlying principle is the theory of conservation in accounting which has the sanction of Hon ble Courts above. In view of these discussions, as also bearing in mind the entirety of the case, we deem it fit and proper to direct the Assessing Officer to delete the impugned disallowance of Rs. 1,07,83,402 The assessee gets relief accordingly. 8. Ground No. 3 is thus allowed. 9. Ground No.4 was not pressed by the assessee and is dismissed as such. 10. In ground Nos.5,6 and 7, the assessee has challenged levy of interest u/s.234 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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