TMI Blog1999 (9) TMI 117X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee in the accounts is Rs. 2,17,54,063. As per the Tax Audit Report a sum of Rs. 40,27,001 included therein relates to earlier years. Since the assessee is maintaining its accounts according to the mercantile system the expenditure which does not relate to the relevant accounting period cannot be allowed as a deduction in computing its income of the relevant accounting period. Consequently the same is being disallowed." 2.2 On appeal by the assessee, the CIT(A) has deleted the same with the following observation: "The next ground of appeal is against addition of Rs. 42,27,001 on account of interest. The Ld. A/R submitted that the appellant followed Mercantile System of accounting. The appellant took Term Loan from U.B.I. During ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9. But in this case there was abnormal situation. The Assessing Officer did not consider the same on this perspective. He has made the disallowance simply stating that the expenses related to earlier year. But the fact remained that the liability arose during the previous year relevant to the assessment year 1989-90 consequent upon Interim Injunction and Suit filed by the Bank. In view of its business interest, the appellant was not in a position to charge interest for the period January to March, 1988 in the a/cs. for assessment year 1988-89. The matter should have been considered by the Assessing Officer considering the peculiar situation of the case. The liability of the interest though relating to the assessment year 1988-89 arose in as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent year 1989-90 and as such, the assessee had to provide interest for the period from January, 1988 to March, 1988, amounting to Rs. 40,27,001 in the accounts for the year beyond 31-3-1989 relevant to the assessment year 1989-90. In view of the above facts, it is submitted that the liability of payment of interest of Rs. 40,27,001 relating to the period from January, 1988 to March, 1988 arose during the year because of the claim of the Bank presented in the suit filed before the Hon'ble High Court and hence, the said interest though relating to earlier year is allowable as deduction in the year under appeal, and the CIT(A) has rightly deleted the same which should be upheld. The AR has also filed a Paper-book containing pages 1 to 22. 2. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the Suit of the Bank are in a flux and fluid stage. Therefore, debiting of the interest during the year under appeal is not at all correct. We may also mention here that at the time of hearing before as it was specifically asked regarding the fate of the said suit by the Bank and it was stated that the said suit is still pending for disposal. In this connection, we may further mention the Supreme Court decision in the case of CIT v. Hindustan Housing Land Development Trust Ltd. [1986] 161 ITR 524/27 Taxman 458. Their Lordships in the said case at page 527 have held that "As long as E.D. Sassoon Co. v. CIT [1954] 26 ITR 27 (SC), this Court considered the question as to the point at which income could be said to accrue or arise to an as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'accrued income' is that income which the assessee has a legal right to receive." 2.6 The above ratio is applicable both in case of 'income' and 'expenditure' also. Unless the income or the expenditure is ascertained and they are contingent, it cannot be allowed as deduction. In the instant case, the claim of the assessee is merely on the ground of filing of the suit by the bank and the claim of the same on the basis of the receipt of the copy of the suit cannot be allowed as deduction without the said suit attaining its finality. In view of the above cited facts and considering the entire facts and circumstances of the case, we held that the CIT(A) is not justified in deleting the interest in the question and accordingly we reverse his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ok up the issue to the first appellate authority. The first appellate authority has directed the Assessing Officer to accept the basis adopted in earlier years and modify the assessment accordingly. The Revenue is aggrieved by the said finding of the first appellate authority and is in appeal before the Tribunal. 4.1 Learned DR in this connection relied on the findings of the Assessing Officer and the learned AR on the findings of the CIT(A). Learned AR of the assessee further submitted that in view of the CIT(A)'s order dated 23-11-1992 for the assessment year 1988-89 and order under section 251 of the IT Act dated 2-2-1993 for the assessment year 1988-89, it is submitted that the computation as made by the Assessing Officer after the di ..... X X X X Extracts X X X X X X X X Extracts X X X X
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