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TMI Blog2006 (11) TMI 186X X X X Extracts X X X X X X X X Extracts X X X X ..... I. T. A. No. 34 of 2003 read as under : "(1) Whether the Tribunal was justified in allowing the assessee to claim a deduction of Rs. 33,14,000 on account of an interest said to be payable to the bank SBICI when no such liability accrued during the assessment year in question nor any such provision meeting with that liability was provided in the books of account ? (2) Whether a sum of Rs. 33,14,000 claimed by the assessee by way of deduction in his total income for the assessment year in question can be disallowed by taking recourse to section 14A of the Income-tax Act ? (3) Whether the assessee is entitled to claim a deduction of Rs. 33,14,000 in the assessment year in question as business expenditure without making any provision in tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... return for the assessment year 1992-93 on December 31, 1992, showing loss of Rs. 5,10,72,920. This return was processed under section 143(1)(a) by way of intimation dated March 24, 1993, at rupees nil. The intimation was subsequently modified by way of order under section 154 dated March 30, 1995. During the pendency of the proceedings, as revealed by the order of the Assessing Officer, it was brought to his notice that liability to pay a sum of Rs. 33.14 lakhs had accrued in respect of the interest payable to BCCI ["Bank of Credit and Commerce International (Overseas) Ltd."], but on account of the closure of the said bank, the amount could not actually be paid to the said bank. Similarly, in the assessment year 1992-93 pertaining to the I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proceedings are pending deduction should be allowed. The facts of the case have been examined, BCCI had actually gone into liquidation in the financial year 1991-92 and as such no interest was payable to the assessee. The assessee had accordingly not created any liability of interest in the books. Later on the bank was revived and the demand was raised by the bank dated February 21, 1994, calling for payment of all arrears. Thus, the liability to pay these amounts given in February, 1994, when the bank had pressed for payment whereas liability in the financial year 1991-92 had ceased because the bank itself was liquidated. The assessee had not made this claim by filing the revised return. He could have filed the return before March, 1994, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... versy. Learned counsel for the Revenue strenuously urged that the assessee having not made any claim in the return filed for the assessment years 1992-93 and 1993-94, was estopped from claiming allowance for the amount of interest liability and, therefore, when the claim was made in the assessment year 1994-95, direction to make deduction for this amount was made by the authorities. 8. Mr. S. C. Goyal, learned counsel for the assessee, submits that the approach of the Assessing Officer in respect of the income pertaining to the assessment years 1992-93 and 1993-94 was erroneous inasmuch as in the mercantile system of accounting, liability is included in the accounts on accrual basis, notwithstanding that the amount has actually not been pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision of the Rajasthan High Court, learned counsel for the assessee submits that in the mercantile system what is material is the date of accrual irrespective of the fact whether the amount has been received or paid during the year in question. 9. From the fact that the assessee was following mercantile system and it is not denied that the liability to pay interest to the bank accrued in the years pertaining to assessment years 1992-93 and 1993-94, we are of the view that the Revenue erred in treating the said liability as having been discharged in the year 1994-95 without considering that in view of the mercantile system of accounting, it should have been referred to the year pertaining to the assessment year 1992-93. We are, therefore, o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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