TMI Blog2006 (6) TMI 94X X X X Extracts X X X X X X X X Extracts X X X X ..... penalty deduction related to the accounting year 1989-90 relevant to the assessment year 1990-91. The facts would show that the Kerala State Electricity Board had deducted a sum of Rs. 4,24,851 from supply bills for delay in supply during the year 1989-90. Subsequently, the Board refunded a sum of Rs. 2,18,529 to the assessee during the accounting period 1990-91. The liability for the penalty accrued during the accounting period 1989-90 relevant to the assessment year 1990-91. Even if it is true that part of the amount was refunded by the Electricity Board the actual liability relates only to the assessment year 1990-91. The assessee was following the mercantile system of accounting. Hence, the assessee should have claimed the same in the y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd loss account an amount of Rs. 2,28,336 towards penal deduction from supply bills. The Assessing Officer also noticed that there was no such claim for the earlier years. When the assessee was informed of the same, the assessee explained that the assessee had failed to deliver the goods as per schedule and, therefore, the assessee was liable to pay 1 per cent. of the value of the materials supplied as liquidated damages for every month or part thereof subject to 10 per cent. value of belated supplies. Since the assessee was following the mercantile system of accounting he was asked to explain as to why the claim for deduction of penalty should not be disallowed in the absence of any such claim in the previous years. The assessee replied st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, held that the liability in fact accrued during the accounting year 1989-90 relevant to the assessment year 1990-91 and, therefore, it should have been claimed in the same year itself. The Commissioner, therefore, rejected the claim. The alternative claim was also rejected on the ground that there was a specific reason for deduction of the amount from the supply bills, that the deduction was not made for short payment but for delay and, therefore, it could not be treated as bad debt. Aggrieved by the said order the assessee took up the matter before the Tribunal. The Tribunal, however, deleted the disallowance made by the Assessing Officer on the ground that the claim of the assessee that the amount crystallized during the year under cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the delay in supply and arises out of the contract and not a penalty. Counsel submitted in any view of the matter there is no substantial question of law raised by the Revenue for consideration by this court. Counsel made reference to the decision of this court in CIT v. A.M. Zainalabdeen Musaliar [2001] 250 ITR 534. Counsel submitted that the order of the Tribunal deleting the deduction is not a substantial question of law. Counsel, therefore, submitted that there is no justification in disturbing the finding of the Tribunal. Indisputedly, the assessee is following the mercantile system of accounting. An assessee who is following the mercantile system of accounting is entitled to deduct from the profits and gains of its business liabi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction related to the accounting year 1989-90 relevant to the assessment year 1990-91. The facts would show that the Kerala State Electricity Board had deducted a sum of Rs. 4,24,851 from supply bills for delay in supply during the year 1989-90. Subsequently, the Board refunded a sum of Rs. 2,18,529 to the assessee during the accounting period 1990-91. The liability for the penalty accrued during the accounting period 1989-90 relevant to the assessment year 1990-91. Even if it is true that part of the amount was refunded by the Electricity Board the actual liability relates only to the assessment year 1990-91. The assessee was following the mercantile system of accounting. Hence, the assessee should have claimed the same in the year 1989-90. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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