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TMI Blog2019 (9) TMI 317X X X X Extracts X X X X X X X X Extracts X X X X ..... diture. It also covers a liability which the assessee has incurred in praesenti although it is payable in futuro (See Madras Industrial Investment Corporation Limited v. Commissioner of Income Tax [1997 (4) TMI 5 - SUPREME COURT] In order to claim deduction of business expenditure, it is not necessary that the amount has been actually paid or expended during the relevant accounting year itself. It is sufficient that the liability for payment had incurred or accrued during the relevant accounting year. The actual payment of amount or discharge of liability may occur in future. What is crucial is the accrual of liability for payment or expenditure during the relevant accounting year. But, a contingent liability that may arise in fut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al building complexes. During the assessment year 2009-10, the assessee sold a portion of the mall building constructed by it. The construction of the building was not completed at that time. In the revised return of income filed on 06.04.2011, deduction of the expenses incurred during the financial years 2009-10 and 2010-11 for completing the construction of the building was claimed by the assessee. The assessing authority disallowed the aforesaid deduction claimed and completed the assessment. 3. The assessee took up the matter in appeal before the Commissioner of Income Tax (Appeals). The appellate authority allowed the appeal by observing as follows: In this case, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enge in this appeal filed by the revenue. 5. We have heard learned counsel for the department and also the learned counsel for the respondent. 6. Learned counsel for the department contended that the claim for deduction of future expenses made by the assessee cannot be allowed. Learned counsel contended that there is a distinction between amount spent to pay off an actual liability and a liability that would be incurred in future which is only contingent. It is contended that the former is deductible but not the latter. 7. Per contra, learned counsel for the respondent contended that the amount claimed as deduction was expenditure to be incurred to meet an accrued liability and not a conting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incurred or the liability in respect thereof has accrued even though it may have to be discharged at some future date. The profit of a trade or business is the surplus by which the receipts from the trade or business exceed the expenditure necessary for the purpose of earning those receipts. It is the meaning of the word profits in relation to any trade or business. Whether there be such a thing as profit or gain can only be ascertained by setting against the receipts the expenditure or obligations to which they have given rise (See Calcutta Company Limited v. Commissioner of Income Tax, West Bengal : AIR 1959 SC 1165 ) 11. In Calcutta Company Limited (supra), the assessee was a company conducting the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e appellant to earn those receipts was to be deducted even if there had not been actual disbursement made by it during the accounting year. ..... Inasmuch as the liability which had thus accrued during the accounting year was to be discharged at a future date the amount to be expended in the discharge of that liability would have to be estimated in order that under the mercantile system of accounting the amount could be debited before it was actually disbursed. ..... The appellant here is being assessed in respect of the profits and gains of its business and the profits and gains of the business cannot be determined unless and until the expenses or the obligations which have been incurred are set off against the receipts. .... We are defini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. What should be certain is the incurring of the liability. It should also be capable of being estimated with reasonable certainty though the actual quantification may not be possible. If these requirements are satisfied the liability is not a contingent one. The liability is in praesenti though it will be discharged at a future date. It does not make any difference if the future date on which the liability shall have to be discharged is not certain . 14. It is discernible from the decisions referred to above that, in order to claim deduction of business expenditure, it is not necessary that the amount has been actually paid or expended during the relevant accounting year itself. It is sufficient that the liability for pay ..... X X X X Extracts X X X X X X X X Extracts X X X X
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