2000 (11) TMI 126 - HC - Income Tax

High Court rejects deduction claim against business profits, emphasizing accrual under mercantile accounting.

The High Court ruled in favor of the Revenue, rejecting the assessee's deduction claim against business profits for the specific assessment year. The ... Business Expenditure Issues:1. Interpretation of deduction claim against business profits for a specific assessment year.2. Application of Beedi Act provisions for deduction claim.3. Accrual of liability under mercantile system of accounting.4. Impact of apex court judgment on crystallization of liability.5. Dispute resolution between Revenue and assessee regarding deduction claim.Analysis:1. The High Court was tasked with determining the correctness of allowing the assessee's claim for deduction against business profits for a particular assessment year. The Tribunal remanded the matter to the Income-tax Officer for further examination of specific claims related to previous assessment years, which led to the reference question for the High Court's opinion.2. The case involved the application of provisions of the Beedi Act for the deduction claim made by the assessee. The assessee argued that due to transitional problems, the entire amount should be allowable as expenditure in the year claimed. The Tribunal, considering the peculiar circumstances, allowed the deduction for the year under consideration but directed a detailed examination of specific claims for previous years.3. The issue of accrual of liability under the mercantile system of accounting was crucial in this judgment. The Income-tax Officer rejected the deduction claim for previous years, emphasizing that the liability accrued during those specific years, not during the year under consideration. The High Court analyzed the accrual principles under the mercantile system and the timing of liability crystallization.4. The impact of the apex court judgment on the crystallization of liability was a significant aspect of the dispute. The assessee argued that the liability was crystallized during the year in question after the apex court's decision, justifying the Tribunal's conclusions. However, the Revenue contended that the settled position of law, as per the apex court's decision, did not support the Tribunal's view.5. The judgment referenced the apex court decision in Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363, highlighting the principles related to liability accrual under the mercantile system of accounting. The High Court concluded that the assessee's stand, based on the divergence of views and the apex court's final decision during the assessment year, was not acceptable. The High Court ruled in favor of the Revenue, rejecting the assessee's deduction claim for the specific assessment year in question.