9911796707
TMI Blog1982 (6) TMI 5X X X X Extracts X X X X X X X X Extracts X X X X ..... nts are being used. It is needless to say that the tools are short lived. They become useless or obsolete in a couple of years, so that the assessee has to be constantly replacing old tools with new ones. In terms of accounting, what the assessee does is to write down the value of the tools every year by a certain figure, claiming the figure as a deduction, in arriving at the year's net profits. This deduction does not represent either an outgoing or an item of expenditure, but was claimed as an allowance by the assessee apparently as an itemised loss or, at any rate, as a proper charge against revenue in the profit and loss account. Whatever be the basis of the claim, the assessee sought to deduct the amount of write-off in the value of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in its incometax assessment in the relevant year of sale, a deduction in the sum of Rs. 59,465, which represented the aggregate amount of disallowance made by the ITO in all the prior years out of the amounts written off by the assessee as and towards depreciation in the value of tools and implements. The assessee claimed that the sum of Rs. 59,465 was a proper debit item to be allowed in the computation of the profits for the concerned year ended May 31, 1969. The ITO, however, disallowed the claim. When the matter was taken in appeal before the Tribunal, they accepted the claim of the assessee as to one-half. Hence this reference brought at the instance of the I.T. Department. In their order, the Tribunal have quite clearly discountena ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee's claim must nevertheless be allowed on the footing that it must be construed as an item of expenditure. It is plain to see that no expenditure whatever was involved in the transaction, since there was no outgoing or laying out of any money by the assessee to the extent of Rs. 59,465 or any other sum. What is more, the assessee's claim does not relate at all to the year of account in question, namely, the year ended May 31, 1969. Hence, we do not see any justification for allowing the claim for deduction of Rs. 59,465 or any portion thereof as proper item of allowance in this year for the purpose of computation of taxable profits. The figure of Rs. 59,465 merely represents the aggregate sum of disallowance effected by the ITO in the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... during the current accounting year that the tools were actually disposed of by the assessee at the written down book value and hence to the extent that the ITO earlier had disallowed any portion of the amount, such portion must properly come in for deduction during this year. Learned counsel submitted that the reason why the ITO had disallowed portions of the expenditure in the prior years was that there was absence of proof that the tools had become useless or deteriorated. The extent of the deterioration, according to learned counsel, has been proved by the fact that in the current year the purchaser was prepared to take the tools at book value, as recorded and written down by the assessee in its books. Learned counsel, accordingly, urge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he claim for deduction or allowance of expenditure in a year later than the year to which it relates. That, however, is not the law or even the principle of accountancy. Items of expenditure are properly allowed only if they had occurred in the appropriate years, and can be regarded as proper debit items against profit in the respective years alone. The Tribunal has referred to us the following two questions of law, as arising out of their order: "1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that 50% of the losses disallowed in earlier years and acquiesced by the assessee should be allowed as a deduction ? 2. Whether, on the facts and in the circumstances of the case ..... X X X X Extracts X X X X X X X X Extracts X X X X
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