TMI Blog1994 (7) TMI 115X X X X Extracts X X X X X X X X Extracts X X X X ..... add the same to the taxable income. This order of the CIT(A) was challenged in appeal before the Tribunal by the assessee as well as by the Department. The Tribunal vide its order dt. 27th March, 1989 confirmed the order refusing registration to the firm but at the same time set aside the assessment to be made afresh after obtaining the books of accounts from the custody of the Court and examining the same. The present assessment was made after obtaining the books of accounts of the firm from the custody of the Court of Hon'ble District Session Judge, Ernakulam. In framing the present assessment, the Assessing Officer had just took the profit as disclosed in the accounts in a sum of Rs. 7,66,253 and made certain disallowances to the extent of Rs. 2,80,995 and thus determined the income from arrack shops at Rs. 10,47,248. In so doing the expenditure on the kist payment in a sum of Rs. 26,37,661 was taken into account without taking into account the kist payable in respect of the previous year in a sum of Rs. 8,63,046. The latter amount was not taken into account because the liability towards the kist payment in such sum was not found debited to the accounts of the assessee. He too ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear under appeal, viz. the year ended on 31st March, 1981, the assessee-firm had maintained books of accounts and other records for the business carried on by it, and that these books and records are available in the custody of the Court in connection with some criminal proceedings against the partners of the assessee-firm in respect of certain events that had taken place long after the year under appeal. At the same time, it is also equally clear that neither the assessee nor the Department is able to have any access to these accounts and records in the custody of the Court to enable the income-tax authorities to make a proper assessment and for the assessee to meet the case put forward by the Departmental authorities by offering a proper explanation with reference to the figures recorded in the books of accounts and other relevant records in the Court's custody. This difficulty was already noticed by the CIT(A) when he set aside the assessment on 26th Sept., 1984 from which we have already quoted supra. The position has not improved even today as could be seen from the fact that even in the present assessment proceedings, the IAC could only take an extract of certain figures from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the fresh assessment proceedings, in the light of our directions given above." It is as a result of the above directions that the impuged assessment order was passed on 27th March, 1991 under s. 143(3) r/w s. 254 of the IT Act, 1961 and in this assessment, the Assessing Officer had not given deduction for the kist payable in a sum of Rs. 8,63,406 and had also not given deduction for depreciation in a sum of Rs. 42,700. These was short deduction in respect of arrack duty. The CIT(A) declined to grant these deductions for the simple reason that the Tribunal had directed the Assessing Officer to compute the income on the basis of the books of accounts after procuring the same from the custody of the Court. A comprehensive reading of the order of the Tribunal cannot lead to such a literal interpretation of its order. The system of accounting followed by the assessee is admittedly the mercantile system of accounting, as has been mentioned in the assessment order itself—first, second and third (the present) assessment orders. Once the assessee is found to be following mercantile system of accounting whether or not the kist payable in respect of the relevant previous year is debit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e only on the basis of the accounts. In fact the directions are to compute the income in accordance with law after obtaining the books of accounts and after hearing the assessee. In law, if the mercantile system of accounting has been followed by the assessee, expenses that have accrued due whether paid or not should be considered as eligible for deduction. Therefore, kist amount of Rs. 8,63,406 that has accrued due but not paid by the assessee should be an appropriate deduction in the computation of the income of the assessee for the relevant previous year. In the light of the decision of the Supreme Court in the case of Kedernath Jute Mfg. Co. vs. CIT (1971) 82 ITR 363 (SC) it is immaterial whether the expenditure which accrued due in the relevant previous year is debited in the accounts or not. As for the quantum of the kist amount there is no dispute as the same has been quantified in the previous two assessment orders, in respect of the same assessment year and the same assessee. For these reasons, therefore, we direct the Assessing Officer to deduct a sum of Rs. 8,63,406 in the computation of income. 7. Turning to depreciation, we uphold the contention of the learned Chart ..... X X X X Extracts X X X X X X X X Extracts X X X X
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