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2016 (6) TMI 895 - GUJARAT HIGH COURT

2016 (6) TMI 895 - GUJARAT HIGH COURT - TMI - Booking of expenses against the receipt of Escalation of price of supply of goods - mercantile system of accounting - Held that:- We accept the principle which has been sought by learned advocate Mr. Shah for the appellant but on the facts of the present case when the assessee has shown the expenses, ultimately the assessee has not shown the amount which he is entitled to receive in the books of account. The assessee has not even shown the outstandin .....

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e has to show in the books of account the expenses incurred or future income or bill outstanding from the railway. This has not been done. We are, therefore, in complete agreement with the view taken by the Tribunal. - Decided against assessee - TAX APPEAL NO. 470 of 2000 With TAX APPEAL NO. 471 of 2000 With TAX APPEAL NO. 472 of 2000 - Dated:- 7-6-2016 - MR. KS JHAVERI AND MR. G.R.UDHWANI, JJ. FOR THE APPELLANT : MR HM TALATI, ADVOCATE, MR TEJ SHAH, ADVOCATE FOR THE OPPONENT : MR KM PARIKH, ADV .....

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dated 15.11.1979 where the following terms of contract were made between the parties: 12. Escalation on prices of raw material - The contract rate per monoblock concrete sleeper in terms of clause 2 of the contract is based on the following prices of principal raw material viz., cement & HTS. Special cement ₹ 425/- per tonne for works station/works siding if any. High Tensile Steel ₹ 6300/- per tonne. (Strand Wire) If the cost of raw material, as indicated above, is increased or .....

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was entitled to the escalated price incurred for supply of special cement and High Tensile Steel (Strand Wire). Accordingly, the assessee has raised its bill with the authorities. The assessee has incurred expenses for the relevant assessment years, namely, assessment years 1984- 85, 1985-86 and 1986-87. 4. Learned advocate Mr. Shah for the appellant has taken us to the order of the Tribunal and contended that in view of the decision of the Supreme Court in the case of Calcutta Co. Ltd. v. Commi .....

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ed sale proceeds of said lands. The learned advocate for the appellant contended that the facts of the present case were that the revised bill amount for the relevant year shown as income was received subsequently. Therefore, the assessee has filed revised return and on the basis of that principle his income is to be considered for the relevant year. 5. The learned counsel for the appellant has relied on the decision of the Supreme Court in the case of Bharat Earth Movers v. Commissioner of Inco .....

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ability 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. Applying the principles laid down in Metal Box Co. of India Ltd. v. Their Workmen (1969) 73 ITR 53 (SC) and Calcutta Co. Ltd. v. CIT (1959) 37 ITR 1 (SC), it must be held that the provision made by the assessee-company for meeting the liability incurred by it under the le .....

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placed reliance on the decision of the Bombay High Court in the case of Taparia Tools Ltd. v. Joint Commissioner of Incometax reported in (2003) 260 ITR 102 where the court has observed and held as under: Whether matching concept in which revenue and income earned during an accounting period, irrespective of actual cash in flow, is required to be compared with expenses incurred during same period, irrespective of actual outflow of cash, is very relevant to compute taxable income, particularly in .....

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Co. v. Commissioner of Income-tax reported in (2002) 257 ITR 180 (Guj) where it has been held as follows: As to when a business liability arises is an issue which is no longer res integra. The Supreme Court in the case of Bharat Earth Movers v. CIT (2000) 245 ITR 428/112 Taxman 61 has laid down the law and a fer principles. The relevant principles for the instant case are as follows: (i) For an assessee maintaining his accounts on the mercantile system, a liability already accrued, though to be .....

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gains of the business; (iii) A condition subsequent, the fulfilment of which may result in the reduction or even extinction of the liability, would not have the effect of converting that liability into a contingent liability; (iv) A trader computing his taxable profits for a particular year may properly deduct not only the payment actually made to his employees but also the present value of any payments in respect of their services in that year to be made in a subsequent year if it can be satis .....

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see had given detailed working of the estimated liability for the year under consideration and there was no dispute as regards the same. Furthermore, merely because subsequently there might be a reduction or even extinction of liability, it would not have the effect of converting such accrued liability into a contingent liability. 8. Further reliance has been placed on the decision of this court in the case of Commissioner of Income-tax v. Atul Products Ltd. reported in (2002) 255 ITR 85 wherein .....

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hat, as a result of the change made in the method of stock valuation, the taxable income of the assessee had been reduced. Any change in any method of stock valuation is bound to make some change in the taxable income. Simply because, by virtue of the change introduced by the assessee, the taxable income of the assessee had been reduced, by no stretch of imagination, it could be said that the assessee had an intention to deliberately undervalue its stock so as to reduce its tax burden. It has be .....

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have a method which was followed by the entire industry. Moreover, it had also been held by the instant court in the case of CIT v. Ganga Charity Trust Fund [1986] 162 ITR 612/29 Taxman 413, that when the accounting method is changed with a bona fide intention, the change should be accepted by the revenue. Looking to the law laid down by several High Courts on the subject-matter, it is very clear that if the method of stock valuation is changed by the assessee and if the change is bona fide, eve .....

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ollowed in the subsequent years. The assessee had changed the method so as to see that the method adopted by the assessee was also as per the method adopted by other business units in the industry. It were also pertinent to note that in the subsequent years, the revenue had not objected to the change made by the assessee in the method of stock valuation. 9. The learned counsel for the appellant has further relied on the decision in the case of Commissioner of Income-tax v. Carborandum Universal .....

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in contention was that the new method should be applied both to the closing and opening stock of the year in order to get a true picture of the assessee s profits, was also correctly rejected by the Tribunal. If the assessee was called upon to apply the new method of valuation to the opening stock as well, then in consequence thereof, the value of the closing stock of the preceding year would also get altered, calling for a modification of the assessment for the preceding year. Thus, if the reve .....

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year. So long as the method of valuation adopted by the assessee got recognition from the practising accountants and the commercial world, the adoption of that method could not be quashed by the revenue unless the adoption of that method, was found to be not bona fide or restricted for a particular year. The Tribunal s decision as thus, correct. 10. The decision of the Bombay High Court in the case of Taparia Tools Ltd. (supra) has been carried to the Supreme Court. The Supreme Court in the case .....

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nts to spread the expenditure over a period of ensuing years, it can be allowed only if the principle of Matching Concept is satisfied, which upto now has been restricted to the cases of debentures. 19. In the instant case, as noticed above, the assessee did not want spread over of this expenditure over a period of five years as in the return filed by it, it had claimed the entire interest paid upfront as deductible expenditure in the same year. In such a situation, when this course of action wa .....

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ined on the touchstone of provisions contained in the Act [see: Kedarnath Jute Manufacturing Co. Ltd. v. Commissioner of Income-tax (Central), Calcutta (1972) 3 SCC 252; Tuticorin Alkali Chemicals & Fertilizers Ltd., Madras v. Commissioner of Incometax, Madras (1997) 6 SCC 117; Sutlej Cotton Mills Ltd. v. Commissioner of Income-tax, Calcutta (1978) 4 SCC 358; and United Commercial Bank, Calcutta v. Commissioner of Income-tax, WB-III, Calcutta (1999) 8 SCC 338]. 20. At the most, an inference .....

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ssment by applying the provisions of that Act and not to go beyond the said return. There is no estoppel against the Statute and the Act enables and entitles the assessee to claim the entire expenditure in the manner it is claimed. 11. The learned counsel for the appellant has relied on the decision of this court in the case of Commissioner of Income-tax vs. Unique Mercantile Service (P) Ltd., reported in (2015) 56 Taxmann.com 429 (Gujarat) in which it is held as under: In view of the aforesaid .....

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e, the assessee was justified in spreading over the amount of membership fee and expenses. 12. The learned counsel for the appellant has, therefore, contended that the Tribunal has committed error in confirming the action of the lower authorities in holding that the amount received under escalation claims from the Western Railway and credited when received in the books of account were correctly taxed in the year in which the same were credited. 13. Learned advocate Mr. Shah has fairly conceded t .....

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aken us through paragraph No. 9 at page 20 of the order of the Tribunal and contended that the assessee has changed the method of accounting and while considering the case of the appellant in paragraph No. 7 at page 18, the Tribunal has rightly observed as under: The learned counsel further submitted that even though the assessee had been earlier filing the returns without showing the escalation claims, it had revised the return for A.Ys. 1984-85 and the escalation claims have been included in t .....

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