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TMI Blog2018 (6) TMI 286X X X X Extracts X X X X X X X X Extracts X X X X ..... icial Member Assessee by : Shri Manjeet Kumar Verma, Adv Revenue by : Shri A.K.Mohanty, JCIT ORDER Per N.S.Saini, AM This is an appeal filed by the assessee against the order of the CIT(A)- Ranchi dated17.10.2016 for the assessment year 2012-13. 2. The sole issue involved in this appeal is that the CIT(A) erred in confirming the disallowance of ₹ 53.04,968/- on account of contingent liability. 3. The brief facts of the case are that the Assessing Officer observed that the assessee has debited ₹ 53,04,968/- as security money account in the profit and loss account. The Assessing Officer added the same to the income of the assessee observing that accounting practice cannot override any provisions of Inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one on the revenue side and the other on the capital side. [5.23] In the case of Sutlej Cotton Mills Ltd. v CIT [1979] 116 I1R 1 (SC) the ratio was that the way in which entries are made by an assessee in his books of account is not determinative of the question whether the assessee has earned any profit or suffered any loss. The assessee may, by making entries which are not in conformity with the proper accountancy principles, conceal profit or show loss and the entries made by him cannot, therefore, be regarded as conclusive one way or the other. It was held that Whether the loss suffered by the assessee was a trading loss or not would depend on whether the loss was in respect of a trading asset or a capital asset. In the former c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i) whether the system adopted by the assessee is fair and reasonable or is adopted only with a view to reduce the incidence of taxation. [5.25] The Apex Court in the above case has allowed for liabilities as expenses if certain conditions are fulfilled. However, the same has to be in respect of 'deductible expenses'. The moot question is whether the booking of loss of the FD (its encashment for non fulfilment of the conditions of the contract) can be termed as an 'deductible expense'? As explained above the entry is not an ascertained liability' the expense of which had not arisen but was likely to arise in the future. In the case of the appellant it was an item of 'asset' which the appellant booked as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or to avoid future recurring payments of a revenue character. Expenditure in this sense is equal to disbursement which, to use a homely phrase, means something which comes out of the trader's pocket. Thus, in finding out what profits there be, the normal accountancy practice may be to allow as expense any sum in respect of liabilities which have accrued over the accounting period and to deduct such sums from profits. But the income-tax law do not take every such allowance as legitimate for purposes of tax. A distinction is made between an actual liability in praesenti and a liability de futuro which, for the time being, is only contingent. The former is deductible but not the latter. The recurring liability of pension ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of paying out or away money is the primary meaning. Expenditure is thus what is paid out or away and is something which is gone irretrievably. To be an allowance within clause (xv) of section 10(2) of the 1922 Act, the money paid out or away must be (a) paid out wholly and exclusively for the purpose of the business and further (b) must not be (i) capital expenditure,. The case of the appellant with regard to the booking, of anticipated loss of money of the FD is not revenue in nature and therefore cannot be said to be an allowable liability. [5.281 In the case of MP Financial Corporation v CIT [1987] 165 ITR 765 (MP) the ruling was that As regards the deduction of the amount of discount on the bonds, the same principles as ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income. On that basis, therefore, the Assessing Officer had taxed the assessee. [5.31] The appellant has also relied upon the case of Rotork Controls (supra). As discussed above the case law does not help the appellant. [5.32] Based on the above it is held that the amount of Z53,04,968/- claimed as expenses was not an allowable expense and the same was rightly disallowed by the Ld. Assessing Officer. Ground of appeal is dismissed. 5. Ld A.R. argued before us that it was retention money kept by the contractor to be paid on future date after the project was completed and any defect therein was removed as per the satisfaction of the contractor. 6. Ld D.R. supported the order of the Assessing Officer. 7. We have heard ..... X X X X Extracts X X X X X X X X Extracts X X X X
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