TMI Blog2004 (4) TMI 277X X X X Extracts X X X X X X X X Extracts X X X X ..... st income. The AO has dealt with this ground briefly in the assessment order. He refers to the assessee s letter stating that the interest deposits amounts to Rs. 30,424, against which the disclosed interest was Rs. 24,000. The difference of Rs. 6,424 was accordingly added by him as income. The CIT(A) noted the assessee s contention but held that, since the assessee was following the mercantile system of accounting, it was required to declare the interest on accrual basis. The assessee did not bring any evidence on record to show that the interest of Rs. 6,424 had been declared in the asst. yr. 1997-98. In this view of the matter and having regard to the assessee s letter filed before the AO, he confirmed the addition. 5. The assessee is in further appeal. The contention briefly is that the full reconciliation of the interest has been filed and even as per the mercantile system followed by the assessee, the interest has been correctly shown in the return. Reference was made to pp. 8 and 8.1 of the paper book which shows the interest on deposit account for the year ended 31st March, 1998 and the interest receivable account for the period 1st April, 1998 to 30th April, 1998. Refere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of cash as on 31st March, 1998 Rs. 34,858 Total Rs. 7,11,406 So far as the payment to the airlines is concerned, the brief facts are these. The assessee has a branch in Cochin. In respect of air tickets sold during the last fortnight of March, 1997, the assessee has accounted for the sale proceeds of Rs. 11,09,155. However, because of the procedure involved in the national and international ticketing, the assessee would not be in a position to know the amounts payable to the airline company on account of tickets, contemporaneously. The correct amount payable is known to the assessee only in the first fortnight of April, 1997 when the assessee receives the statement from the airline companies showing the amount of commission payable to the assessee for ticketing services and the amount payable by the assessee-company to the airlines. On account of this procedure, the assessee came to know that in respect of the ticket sales made in the last fortnight of March, 1997, it had to pay Rs. 6,35,551 to the various airline companies only in the first fortnight of April, 1997. Accordingly the amount was paid and debited in the assessee s P L a/c, but since the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the assessee was following mercantile system. He also observed that the assessee did not file any evidence of payment to airlines as in the account books, the payments were not shown in the account of the airlines but shown as prior period expenses. It was his view that as per the mercantile system followed by the assessee, the payments should be shown in the respective accounts of the airlines and mere furnishing of details of payment does not prove the assessee s claim. In this view, he sustained the disallowance. 11. The assessee is in further appeal. We have carefully considered the argument and perused the relevant pages of the paper book to which our attention was drawn. There is no dispute that the assessee follows mercantile system of accounting. The dispute is only with regard to the question as to when the liability to pay the price of the ticket to the airlines company accrued. We find it difficult to accept the contention of the learned counsel for the assessee that the liability did not accrue when the sales were effected. In our opinion, when the tickets are sold, albeit on behalf of the airline company, the assessee would certainly be aware of the fact that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee may well raise a claim that the price of ticket sold during the last fortnight of March, 1998 should be allowed in the assessment year under appeal. There is thus, no justification for any departure from the past practice. Therefore, though we reject the assessee s claim that the liability accrued only in the first fortnight of April, 1997, having regard to the consistent practice adopted by both the sides over a considerably long period of time, we see no need to depart from the same. Accordingly, we direct the Departmental authorities to allow deduction of Rs. 6,35,551. 14. So far as the doubtful debts of Rs. 40,997 and the shortage of cash Rs. 34,858 are concerned, the Departmental authorities have not dealt with these claims separately. The AO has not said anything in respect of these claims. The CIT(A) has, however, deleted the disallowance of the doubtful debts and, therefore, the appeal of the assessee to this extent is redundant. As regards the shortage of cash, the CIT(A) has held that no evidence has been filed. The learned counsel for the assessee has, however, drawn our attention to the affidavit of Devis Manjali, the managing director of the assessee-comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a trading liability and not a loan. In the paper book, the details of the payments made in the next financial year, copies of the bank statements and ledger account of the airline companies or travel agents were also filed in the paper book. 18. The CIT(A), however, rejected the assessee s explanation by observing that there was no confirmation from the airline companies. He perused the account copy filed by the assessee and noticed that the assessee had purchased ticket from other travel agencies also, such as National Travel, Hansa Aviation etc. and that the amounts payable to them were shown as payable to M/s Kuwait Airways. He, therefore, felt that the assessee should have filed the confirmation from the airlines. In the absence of confirmation, he sustained the addition. 19. The assessee is in further appeal. Strong reliance is placed on the statement of facts filed before the CIT(A) as well as the detailed written submissions filed before him where entire facts and evidence with regard to the above have been brought to the notice of the CIT(A). In fact, the CIT(A) has also noted these facts but has confirmed the addition only on the ground that no confirmation was filed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mount received by the assessee in the regular course of its business as an advance. Further the assessee has received service charges of Rs. 46,039 in connection with the visa services which amount has been shown in the statement of commission filed with the AO under cover of letter dt. 23rd March, 2001, a copy of which has been filed at p. 165 of the paper book. In view of these facts, the addition is deleted. 22. The ticket advance of Rs. 4,125 has been adjusted on 21st Dec., 1998 against bill raised and the amount has been squared up. We are of the view that the Departmental authorities have unreasonably rejected this explanation of the assessee. The CIT(A) would appear to have based his decision only on suspicion to the effect that the squaring up of the account may not have existed when the AO examined the accounts. We accordingly delete the amount. 23. As regards the addition of Rs. 25,386 this represents a provision made for payment of audit fee, accounting charges and service tax payable. All the details were filed before the AO who has not stated anything to doubt them but has added it under s. 68 of the Act only because there is no confirmation. The CIT(A) has rejecte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee only to show that the expenditure was incurred for the purpose of the business irrespective of whether it resulted in benefit to the business or not. However, the objection of the IT authorities that the directors visited religious places and places of shopping has to be reckoned with. While, therefore, holding that the CIT(A) was not justified in sustaining a disallowance of 50 per cent of the foreign travel expenses, we direct the AO to examine the expenditure in terms of r. 6D of the IT Rules, a proposal which was agreed to before us by the learned counsel for the assessee. The AO is, therefore, directed to regulate the expenditure under the above rule and disallow the amount if any, found not allowable as per the rule. The ground is disposed of accordingly. 28. Sub-ground 5 is directed against the levy of interest of Rs. 5,20,955 under s. 234B of the Act. The contention of the assessee is that there are no directions or reasons in the assessment order in support of the levy and thus the rule laid down by the Hon ble Supreme Court in CIT Ors. vs. Ranchi Club Ltd. (2000) 164 CTR (SC) 200 : (2001) 247 ITR 209 (SC) has been violated. List of other authorities has ..... X X X X Extracts X X X X X X X X Extracts X X X X
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