Accrual of income and allowability of disputed electricity expense depend on admitted liability, not mere book entry.

Income relating to disputed electricity bills was not taxable as accrued income where the Gujarat Electricity Board had not admitted the bills and the assessee did not dispute that position. The fact that the amount had been shown in the original return did not by itself create accrual. The corresponding electricity expenditure was also allowable on commercial principles, and its deductibility did not depend solely on its treatment in the books. On these facts, the addition and disallowance relating to the disputed electricity-bill amount were not sustainable.

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Issues: Whether the assessee's claim for deletion of income relating to electricity bills not admitted by the Gujarat Electricity Board and for allowance of the corresponding electricity expense was allowable on the basis that income had not accrued and the liability had arisen in the course of business.

Analysis: The assessee filed a revised return after realizing that the earlier return had wrongly treated the disputed electricity-bill amount as accrued income and had omitted the corresponding liability claimed by the Gujarat Electricity Board. The record showed that the bills raised by the assessee were not admitted by the Gujarat Electricity Board, that the assessee did not dispute that position, and that the figures were later reflected as prior period expenditure in the succeeding year. On these facts, the income could not be treated as having accrued merely because it had initially been shown in the return. The corresponding business expenditure was also allowable on commercial principles and not merely because it had or had not been entered in the books.

Conclusion: The assessee succeeded on this issue and the addition/disallowance relating to the disputed electricity-bill amount was not sustainable.

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