TMI Blog1981 (3) TMI 64X X X X Extracts X X X X X X X X Extracts X X X X ..... nting adopted by the assessee was the mercantile system, the assessing authority rejected its claim. The order of the assessing authority was confirmed, on appeal, by the AAC. However, the Income-tax Tribunal allowed deduction of Rs. 16,132 on the ground that the assessee had incurred an enforceable legal liability only from the date on which it received the demand notice for payment of the said sum from the assessing authority on April 27, 1970. Dissatisfied thereby, the revenue got referred the following question to this court : " Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the purchase tax liability for a sum of Rs. 16,132 relating to the assessment year 1967-68 for which deman ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 's case [1971] 82 ITR 363 (SC), wherein it was held that the assessee was entitled to deduction irrespective of the fact whether he had made an allowance for the same in the account books or not in the accounting year. None of these decisions, therefore, can be relied upon for the proposition that in the case of an assessee who has adopted the mercantile system of accounts a deduction on account of business expenses, the liability respecting which has not arisen in the accounting year can be allowed because no deduction was claimed in the year in which it accrued or that it was discharged in that accounting year. In Nathmal Tolaram's case [1973] 88 ITR 234, the assessee was allowed such a deduction in the assessment year with the followin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purchases or sales which are subject to taxation, the obligation to pay the tax arises and taxability is attracted. Although that liability cannot be enforced till the quantification is effected by assessment proceedings the liability for payment of tax is independent of the assessment .... An assessee who follows the mercantile system of accounting is entitled to deduct from the profits and gains of the business such liability which had accrued during the period for which the profits and gains were being computed ......" Again, according to sub-s. (1) of s. 145 of the I.T. Act, income chargeable under the head " Profits and gains of business or profession " or " Income from other sources " shall be computed in accordance with the method ..... X X X X Extracts X X X X X X X X Extracts X X X X
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