9911796707
TMI Blog2016 (10) TMI 710X X X X Extracts X X X X X X X X Extracts X X X X ..... ility of section 43B, the Assessing Officer first time disallowed the expenditure in question. Therefore the assessee as well as revenue were under bona fide belief that the provisions of section 43B of the Act are applicable in respect of the kist payment uptil. The practice of accounting for a particular item of expenditure on cash basis was accepted for such a long time then it becomes revenue neutral as it was not claimed on due basis in the earlier assessment year. In view of the undisputed fact that in substance the system of accounting followed by the assessee is cash basis and further consistent treatment of expenditure of kist payment has been given and accepted over several years on payment basis then disallowance for this year is not justified. It is not the case of the department that this method of accounting of kist payment on cash basis is not consistently followed by the assessee. Therefore following this system of accounting consistently should not be disturbed in a particular year and particularly for the year under consideration when this claim was not made on accrual basis in the earlier year due to consistently followed accounting treatment otherwise it wou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceedings, the Assessing Officer noted that the assessee had claimed ₹ 5.35 Crores in respect of Kundapura taluk and ₹ 12.09 Crores in respect of Karkala taluk. The total difference in the claim of kist as per the agreement was ₹ 95.85 lakhs. The assessee was asked to substantiate as to why the kist not relatable to the relevant assessment year is claimed and why not the same be disallowed. The assessee filed detailed reply. The Assessing Officer rejected the contention and explanation of the assessee and held that the system of accounting followed by the assessee was mercantile and when the assessee recognizes the income on accrual basis, the expenses should also be claimed on mercantile system basis. The Assessing Officer was of the view that even if the expenses of kist payment amounting to ₹ 95,84,505 was not claimed in the previous assessment year on accrual basis, the same cannot be allowed as deduction. The Assessing Officer further held that the provisions of section 43B is not applicable to the facts of this case. On appeal, the CIT (Appeals) allowed the claim of the assessee in the first round of appeal vide order dt.20.10.2011 by holding that the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e purpose of section 43B of the Act. It was further submitted that the mercantile system of accounting was followed by the assessee in respect of the expenses like vendor wages, partners salary, establishment charges, bank interest and charges, audit fees, accounting charges, etc. However, the expenditure on kist payment and kist interest as well as permit fees consisting of 93% of total expenditure which was accounted and claimed on payment basis. The ld. AR has pointed out that out of total expenditure of ₹ 18.90 Crores an amount of ₹ 17.60 Crores towards kist payment and kist interest has been accounted and claimed on payment basis and only 7% of other administrative expenses are accounted on mercantile basis. Therefore predominant portion of the assessee's business expenditure was accounted on cash basis due to special circumstances and nature of its business. He has further contended that in the books of accounts the income and expenditure has been recorded on daily cash basis throughout the year. All the expenses like kist, kist interest, permit fees, vehicle maintenance, bank guarantee commission, electricity, telephone, etc has been accounted on cash basis. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een claimed by the assessee on accrual basis in the earlier assessment year and consequently the assessee paid excess tax than what was due if the expenditure would have been claimed on accrual basis. It is also not disputed that more than 93% of the expenditure has been accounted and claimed by the assessee on payment basis right from the year 2000 till the assessment year under consideration. Even otherwise prior to the judgment of Hon'ble jurisdictional High Court in the case of CIT Vs. Sri Balaji Co. (supra), the said expenditure of kist was considered as allowable on payment basis. The Assessing Officer has examined all the expenditure booked by the assessee in the books of accounts and found that most of them are booked on the basis of payment but the Assessing Officer has deliberately stated that the same are not instrumental in determining the system of accounting. The relevant part of the Assessing Officer reads as under : Therefore, it can be seen from the accounting system followed by the assessee in respect of the expenditure and revenue heads, except kist payment, have been accounted on mercantile basis and in some cases being non-determinable expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X
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