TMI Blog2004 (9) TMI 27X X X X Extracts X X X X X X X X Extracts X X X X ..... for short) towards utilisation of certain credit facilities by the assessee. The carrying charges generally included bank charges, bank interest, etc., which the assessee was allegedly required to reimburse. As such, carrying charges has been disallowed in the past to the assessee as well as other assessees of this group, the Assessing Officer has disallowed the carrying charges for the assessment year under consideration which come to a sum of Rs. 27,90,717. In appeal the Commissioner of Income-tax (Appeals) confirmed the same since they were being disallowed in the earlier years. The assessee preferred an appeal before the Tribunal. The Tribunal had affirmed the order of the Commissioner of Income-tax (Appeals). In this context, the present appeal has been filed. The appeal was admitted on the grounds as quoted below: (i) Whether the Tribunal was justified in law in holding disallowance of carrying charges of Rs. 27,90,717? (ii) Whether the finding of fact is perverse? Appellant's submission: Mr. Khaitan, appearing on behalf of the appellant, contends that the amount which was payable to Bilaspur Industries was retained by the assessee, who utilised the same for the purpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... charged at a future date would be a proper deduction while working out the profits and gains of the business. He further contended that even if it can be presumed that ultimately the amount may not be paid either by the assessee but that such a contingency is covered under section 41 of the Income-tax Act, 1961, inasmuch as in such event, it would again be eligible for being assessed. The respondent's contention: Mr. Som, learned counsel for the Department, pointed out that the reflection of the carrying charges as accrued liability of the assessee was, in fact, a device to avoid taxes at the hands of its sister concern. He referred to the accounts for the assessment years of the Bilaspur Industries and as well as the other two sister concerns to point out that this has never been shown to be a liability of the assessee. Inasmuch as Bilaspur Industries has not reflected this amount in its account either as income or otherwise, neither it has shown the liability towards the bank charges. This part has been shown to be neutral in its account. It has neither shown the liability towards the UCO Bank nor as amount receivable from the assessee. He has also pointed out that there is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l for the parties, the questions that fall for our determination are as to (1) whether the income could be assessed at the hands of the assessee, (2) whether the assessee is entitled to claim deduction of the interest payable under section 37. In order to determine the second question, it is to be examined whether this amount could be said to have been spent or expended wholly or exclusively for the purpose of earning the income by the assessee out of the amount utilised by it. Whether the income could be assessed at the hands of the assessee: Whether this is a colourable device to help someone else to avoid tax not, is not relevant for the purpose of assessing the income at the hands the assessee. If someone avoids tax, in that event, it would be its own liability and for which in this case Bilaspur Industries would be liable. But income when assessed at the hands of the assessee, it has to be assessed under the provision of the Act. Once it is shown to be an income of the assessee, it becomes assessable in the hands of the assessee. Having regard to the facts and circumstances of this case, this income is assessable at the hands of the assessee irrespective of the fact as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowed as a deduction. Such a view was taken in Bharat Earth Movers [2000] 245 ITR 428 (SC). In a mercantile system, a liability already accrued, though to be discharged at a future date, would be a proper deduction while working out the profits and gains of the business. Just as receipts though not actual receipts but accrued due are brought in for income-tax assessment, so also liabilities accrued due would be taken into account while working out the profits and gains of the business. The possibility of reduction or even extinction of the liability would not have the effect of converting the liability into a contingent one. In computing its taxable profits of a particular year, the assessee may properly deduct not only the payment actually made but also the amount payable in a subsequent year. It was so held in Amrish and Co. [2002] 257 ITR 180 (Guj). Whether the amount was spent or expended for the business: The definition of interest in section 2(28A) defines to mean any amount payable in respect of any monies borrowed or debt incurred including a deposit, claim or other similar right or obligation or in respect of any credit facility. In this case, admittedly, the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the hands of the assessee, i.e., whether it itself is avoiding income or not. If by reason of the assessee's business Bilaspur Industries has avoided tax, in that event, it would be the Bilaspur Industries, which would be liable for such avoidance. Conclusion: From the discussions made above, it appears that the income earned by the assessee out of the amount payable to Bilaspur Industries, since retained by it, is an income at the hands of the assessee, irrespective of its liability towards Bilaspur Industries and the manner in which Bilaspur Industries has treated the same in its own account. In case any amount is detained even if it is not proved that there is any agreement for payment of interest thereon, even then on account of retention, compensation in the form of interest would be payable whether demanded or not in praesenti, but the assessee deems it accrued/due and which is capable of being calculated/estimated and is shown in its account though payable in future, it would be a liability of the assessee laid out or expended for utilisation of the amount in order to earn the income in the course of its business. How Bilaspur Industries would be dealing, is wholly immat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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