TMI Blog1996 (8) TMI 73X X X X Extracts X X X X X X X X Extracts X X X X ..... trode Mfg. Co. Ltd., Coimbatore ? " The assessee is a firm which manufactures welding rods. For the said business, the assessee-firm obtained on loan basis raw material mainly wire rods from sister concern, Ahura Welding Electrode Mfg. Company Ltd., Coimbatore, as the said raw material had become scarce. The said sister concern of Coimbatore was unable to use its full quota of wire rods on account of cut of electricity in Tamil Nadu State. The loan agreement between the sister concern and the assessee was that when required by them (sister concern) the wire rods would be returned which meant the quantity of wire rods obtained on loan basis returnable of the same quality and quantity. No time or date was fixed for returning of the raw mate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as shown in its account, with an agreement to return the same on demand. It is also necessary to mention here that the assessee had shown the entries in the liability account for the assessment years 1973-74 and 1974-75 of 347.402 and 292.017 tonnes at the rate of Rs. 2,525.56 for Rs. 16,14,891.05. And in the assessment year 1975-76 the entry of 104.803 tonnes at the rate of Rs. 3,336.04, Rs. 3,49,626, besides the entry of Rs. 5,18,237.31 on account of difference in rate of loan of goods taken in the accounting years 1973-74 and 1974-75. It is very pertinent to note here that the assessee's entries in the liability account for Rs. 16,14,891.05 for the assessment years 1973-74 and 1974-75 and of Rs. 3,49,626 for 1975-76 are accepted and all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s very pertinent to note that the rate of the goods shown by the entry in the assessee's account is not challenged or, is not alleged to be an inflated one. The amount of Rs. 24,82,756.36 is an estimated amount which will have to be expended by the assessee in the course of his business in order to return the raw materials taken as loan. From the said amount of Rs. 24,82,754.36, the assessee has correctly deducted the amount of Rs. 16,14,891.05 which was claimed in the previous two years. Out of the remaining amount of Rs. 8,67,836.31, the amount of Rs. 5,18,237.31 is on account of the rise in price of the raw material from Rs. 2,525.56 to Rs. 3,336.04. It is not at all possible to arrive at the profit of the assessee's business without the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o point out in several decisions that what the Income-tax Act purports to tax is business profits, and business profits are the true profits of a business as ascertained according to commercial principles. There may be an expenditure or there may be a loss which may not be an admissible loss under any of the provisions of section 10(2) and yet such an expenditure or loss would have to be allowed in order to determine what were the true profits of a business, and it is the duty of every one who has anything to do with taxing business people to understand what are the principles of commercial expediency. Unless one understands these principles it is difficult to make a proper assessment on a business or on a businessman." Now, let us turn t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stalments. He had credited in his accounts Rs. 43,692 representing the full price and at the same time made a debit entry of Rs. 24,809 as estimated expenditure towards development as per the mercantile system of accounting. He had made the debit entry of Rs. 24,809 without actually spending any amount which he was to spend some time in future. Hence, the said entry was not accepted by the Commissioner of Income-tax. But the said debit entry was approved and accepted by the apex court in the said case. The learned advocate for the assessee has cited before us the case of New India Industries Ltd. v. CIT [1993] 203 ITR 933 (Guj). But it is a case covered by section 43A of the Income-tax Act. Section 43A is a special provision consequential ..... X X X X Extracts X X X X X X X X Extracts X X X X
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