Mercantile accounting principle bars deduction for expenditure paid in an earlier year and not attributable to the relevant assessment year.

An assessee maintaining mercantile accounts cannot claim a deduction for assessment year 1977-78 for expenditure that was incurred and paid in 1975, because it did not relate to the relevant previous year. The Tribunal's approach of allowing the claim merely because the final bill was prepared and paid in the year of claim was held to be inconsistent with the settled accounting principle governing mercantile method deductions. The deduction was therefore not allowable for the assessment year in question, and the issue was answered against the assessee.

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Issues: Whether, on the facts and in the circumstances of the case, an amount paid in 1975 could be allowed as a deduction for the assessment year 1977-78 in the hands of an assessee maintaining mercantile accounts.

Analysis: The assessee maintained its accounts on the mercantile basis. The expenditure in question had been incurred and paid in 1975, long before the relevant accounting period for assessment year 1977-78. On that footing, the amount could not be treated as expenditure of the relevant previous year. The Tribunal's view allowing the claim merely because the final bill was prepared and paid in the year of claim was contrary to the settled position.

Conclusion: The deduction was not allowable for assessment year 1977-78; the question was answered in the negative, against the assessee and in favour of the Revenue.

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