TMI Blog2009 (3) TMI 132X X X X Extracts X X X X X X X X Extracts X X X X ..... ecause the award was challenged in appeal by the assessee cannot be a ground for holding that the liability had not been incurred – ITAT has committed an error - the liability arose in the hands of the assessee and merely because the award was challenged that fact did not make the award unenforceable in law. The assessee was accordingly held entitled to claim deduction in the said case – decided in favor of assessee - 379 of 1999 - - - Dated:- 4-3-2009 - D. A. MEHTA and S. R. BRAHMBHATT JJ. J. P. Shah for the appellant. K. M. Parikh for the respondent. JUDGMENT The judgment of the court was delivered by D. A. MEHTA J.- On September 6, 2000, the appeal came to be admitted by formulating the following substantial questio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the period relevant to the assessment year in question. 3. The learned counsel appearing for the appellant submitted that the Tribunal had failed to appreciate the fact that the assessee was following the mercantile system of accounting. That accordingly on the day an award came to be made, viz., May 28, 1987, whereunder the assessee was called upon to pay damages of US$ 51,329 (on conversion amounting to Rs. 7,14,824), the assessee had incurred liability and was entitled to claim deduction thereof. In support of the submission made reliance was placed on the judgment of this court rendered in the case of CIT v. Official Liquidator, Ahmedabad Manufacturing and Calico Printing Co. Ltd. [2000] 244 ITR 156 as well as the judgment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Australian party. The assessee however, failed to open the letter of credit even by the extended date and in fact repudiated the contract through their letter dated August 29, 1986, to the brokers M/s. Vaidehi Spices Agency, Bombay. Arbitration proceedings were initiated by the Australian party before the Grain and Feed Trade Association (GAFTA). However, the assessee objected to the jurisdiction of GAFTA and claimed that no written agreement existed with the Australian party and there was no occasion to refer any dispute between the parties to Arbitration within GAFTA and that GAFTA have no competence or jurisdiction to proceed to make any award or decision in the matter. The assessee further submitted that the failure to open the le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8. In mercantile system of accounting it is well settled that both receipt and liability accrue at the earliest point of time and are not postponed merely on the basis of an entry made or absence of an entry. Admittedly, the assessee is following the mercantile system of accounting. On May 28, 1987, when the Trade Association made an award for damages for breach of contract the liability to pay such damages had already been incurred by the assessee. Merely because the award was challenged in appeal by the assessee cannot be a ground for holding that the liability had not been incurred. The Tribunal has committed an error in law in placing reliance upon the decision relatable to a claim for enhancement of compensation in land acquisition ..... X X X X Extracts X X X X X X X X Extracts X X X X
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