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TMI Blog2016 (10) TMI 710X X X X Extracts X X X X X X X X Extracts X X X X ..... eals) erred in dismissing the appeal of the appellant. 2. The ld. Appellate authority ought to have appreciated that the directions given by the Hon'ble ITAT while sitting aside the earlier assessment had not been followed by the ld. ITO. 3. The learned CIT (Appeals), erred in sustaining the Assessing Officer's finding that the assessee was following a system of accounting which was essentially mercantile, although the facts cited by him do not support such a conclusion. 4. Without prejudice, the addition made by the A.O. is arbitrary, unreasonable and requires to be cancelled. 5. For these and such other grounds that may be urged at the time of hearing, the appellant prays that the appeal may be allowed." 3. This is second ro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee 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 Rs. 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 assessee essentially followed the cash system of accounting. On further appeal by the revenue, the Tribunal vide order dt.20.10.2011 set aside the matter to the record of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the kist payment comes under the purview of section 43B of the Act. Accordingly, the assessee took cognizance of the departmental position regarding kist payment and claimed deduction of the payment of kist only on payment basis consistently. He has further submitted that this consistent treatment of accounting would also avoid re-working of tax liability and filing revised return in the event of department's stand on section 43B of the Act is allowed in the Supreme Court. However, eventually after the gap of 7 to 8 years, the Hon'ble Supreme Court upheld the view taken by the Hon'ble jurisdictional High Court as well as other High Courts by holding that kist could not be treated as excise duty for the purpose of section 43B of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ely affect the assessee whereas there is no revenue effect when this amount was not claimed in the earlier year rather it will be double taxation on the same income. 5. On the other hand, the ld. DR has submitted that the application under Section 43B has been decided by the Tribunal in the earlier round of appeal and the only issue in the remand proceedings before the Assessing Officer was to examine the system of accounting followed by the assessee. The Assessing Officer has examined the system of accounting and found that the assessee is following mercantile system of accounting. Accordingly, the claim of the assessee of the expenditure pertaining to the earlier year cannot be allowed in the year under consideration. He has relied upon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ual 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of kist payment on cash basis and the Assessing Officer accepted the same because of the reason that the department has taken a stand that the provisions of section 43B are applicable on the kist payment to the Government. Only after the judgment of Hon'ble jurisdictional High Court and final settlement of the issue of applicability 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 issue was finally closed by Hon'ble Supreme Court once the practice of accounting for a particular item of expenditure on cash basis was acce ..... X X X X Extracts X X X X X X X X Extracts X X X X
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