TMI Blog2017 (10) TMI 1577X X X X Extracts X X X X X X X X Extracts X X X X ..... als and later date, measurement of work done by the client after the closing of the accounts, staff salary payments revision of pay structures etc with retrospective effect. The identical issue arose in the case of the assessee wherein for assessment year 2006 2007 the Ld. CIT appeal has allowed the claim of the assessee relying upon the decision in case of Saurashtra cement and chemicals industries Ltd versus CIT [ 1994 (10) TMI 30 - GUJARAT HIGH COURT] . DR could not controvert the findings of the CIT appeal as well as could not place before us any reason that the expenditure has not been crystallized during the year. - Decided against revenue. - ITA No. 4129/Del/2011 - - - Dated:- 27-10-2017 - Shri H.S. Sidhu, Judicial Member A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge of consultancy, design and engineering services in all the fields of telecommunication in India as well as abroad. The major clients of the company in India of the Department of telecommunications, BSNL, MTNL, railways, Gail and power grid etc. 4. For the assessment year 2005 06 assessee filed its return of income originally and the assessment was completed on 03/12/2007 at an income of ₹ 1 2633 9586/ . Subsequently notice under section 148 of the income tax act was issued on 16/3/2010 wherein the reasons recorded that the assessee has shown in form number 3CD report prior period income of ₹ 5863220/- in the profit and loss account and deducted there from Prior period expenses of the 12365111/ which should have been dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ehemently stated that the Ld. CIT appeal has correctly deleted the addition by following the order in case of the assessee for earlier years. He further based on record the written submission contesting the validity of reassessment proceedings. On the merits of the case he submitted that these are the expenditure, which crystallized during the year therefore, they are not prior period expenditure he relied on the several decisions supporting his view. 9. We have carefully considered rival contentions as well as the perused the orders of the lower authorities. The assessee is a government organization following the mercantile system of accounting where the expenses are recognized only when they are crystallized. It was further stated that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he same was not allowable expenses of the previous year in question. 10. From the statement of the case and the order of the Tribunal it appears that the contention of the assessee was that the expenditures in dispute were incurred in the year under consideration because they were quantified in the previous year concerned, and the Commissioner (Appeals) rest contended by saying that when the expenses related to the earlier accounting years, how each of these expenses could be quantified in the year of consideration. The Tribunal affirmed the disallowance by observing that there is no dispute that the assessee-company maintained its books of account on mercantile basis. It was observed that if that is so, there was no justification in cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not call for an adjustment in the books of account on estimate basis. It is actually known income or expenses, right to receive or liability to pay which has come to be crystallised, is to be taken into account under mercantile system of maintaining books of account. An estimated income or liability, which is yet to be crystallised, can only be adjusted as contingency item but not as an accrued income or liability of that year. To illustrate, we find from the details of the expenses that certain expenses are related to the fees paid to the experts, out of pocket expenses incurred by the consultation firm and discharge of liability on account of demurrages claimed by the port authorities. Such items without investigation into the fact about ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ystem while the word 'expended' is with regard to the cash system. Once there was the sales tax demand in this case, which was an enforceable liability and as such a real expenditure, for which the assessee laid out the amount by debiting his account in the accounting year which was also the year of demand of the department, deduction can be legitimately claimed under section 10(2) (xv) . Here is a case, where there is no doubt about the genuineness of the expenditure. There is also the compulsiveness in the sales tax demand which can be ignored only at peril of the assessee. This expenditure had never been taken note of in the earlier years for one reason or the other. In the absence of any legal bar in the way of the assessee clai ..... X X X X Extracts X X X X X X X X Extracts X X X X
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