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TMI Blog2012 (3) TMI 625X X X X Extracts X X X X X X X X Extracts X X X X ..... ing of the appeal. 2. Facts in brief, as per relevant orders are that e-return declaring income of ₹ 1,09,51,605/-filed on 30.09.2008 by the assessee, proprietor of M/s Ten Travels, engaged in the business of tour and travel, was selected for scrutiny with the service of a notice u/s 143(2) of the Income-tax Act, 1961 (hereafter referred to as the Act) issued on 14.01.2010. During the course of assessment proceedings, the Assessing Officer (A.O. in short) noticed that the assessee debited a sum of ₹ 50,22,310/- under the head vehicle insurance. On perusal of details of expenses, the AO noticed that the assessee paid insurance charges even for the period falling in the subsequent assessment year. To a query by the AO, the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icle insurance expenses have varied between 2.76% to 2.12% of the gross turnover in the assessment years 2006-07 to 2010-11. In the assessment year 2008-09, the percentage ratio of vehicle insurance to gross receipts comes to 2.56%, in the preceding year to 2.59% and in the subsequent year to 2.35%. Hence, there is no case of disproportionate increase in expenditure, or of unsupported or non genuine expenditure. It is also verified that the appellant does not make any provision for the vehicle insurance expenses but debits the sums actually paid. There is no doubt that insurance expenses are invariably paid for the subsequent twelve months period, i.e. are always repaid. However, as the method of accounting is consistent, there are no groun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roach of the ld. CIT(A). Under the mercantile system of accounting, the assessee is entitled to claim deduction on the basis of incurring the liability irrespective of the date of payment. Even such liability can be claimed on the basis of provisions where such liability is not qualified. On the other hand, under the cash system of accounting, the assessee is entitled to claim deduction on the basis of payment irrespective of the date of incurring of liability. Under the mercantile system of accounting, in terms of provisions of sec. 145(1) of the Act, deduction can be claimed only if it is established that liability has been incurred in the year under consideration. The liability for payment of premium is incurred at the time of commenceme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt, relying upon their earlier decision held that The above issues are squarely covered by a Division Bench decision of this court in the case of CIT v. Southern Roadways Ltd. reported in [2004] 265 ITR 404, wherein it has been held as follows (page 407) : The assessee paid a sum of ₹ 26,729 out of which a sum of ₹ 22,034 has been paid towards postage, telegram, telephone, etc., and a sum of ₹ 4,695 has been paid as rates and taxes. The assessee-company in its accounts treated them as prepaid and showed it as an asset in its balance-sheet. However, the payments were made in pursuance of demands raised by the postal, telephone and telegraph departments, etc., the same was claimed as a deduction in computing the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld be allowed. Hence, we are of the view that the actual expenditure incurred has to be allowed notwithstanding the method of accounting the assessee followed. 5.1 In view of the foregoing and in the light of aforesaid decision, the assessee is entitled to claim this amount as a legitimate deduction in the year of account in question and consequently, in the assessment for the relevant assessment year. Therefore, we have no hesitation in upholding the findings of the ld. CIT(A). Thus , ground no. 1 in the appeal is dismissed. 6. No additional ground having been raised in terms of residuary ground no.2, accordingly this ground is also dismissed. 7. In result, appeal is dismissed. Order pronounced in Open Court - - TaxTMI - ..... X X X X Extracts X X X X X X X X Extracts X X X X
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