Court upholds Tribunal decision on deduction claim for payment to Bhilai Engineering Corp.

The High Court of Chhattisgarh upheld the Tribunal's decision in favor of the assessee regarding the deduction claim for a payment made to Bhilai Engineering Corporation. The Court found that the Assessing Officer did not conduct a factual inquiry to rebut the claim of unascertainable amounts, supporting the Tribunal's decision to delete the disallowance. The Court ruled that there was insufficient material to conclude that the amount was ascertainable, thus allowing the deduction under the mercantile system of accounting.

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Issues:
Interpretation of Income-tax Act, 1961 - Accrual of liability in mercantile system of accounting - Deduction claim for payment made to Bhilai Engineering Corporation.

Analysis:
The High Court of Chhattisgarh was presented with a reference under section 256(1) of the Income-tax Act, 1961, regarding the accrual of liability in the mercantile system of accounting and the deduction claim for a payment made to Bhilai Engineering Corporation. The Tribunal had referred the question of law to the High Court concerning the justification of holding that a payment made to the Corporation pertained to the financial year 1989-90. The case involved the assessee making a payment to the Corporation for certain job works done between December 1988 and June 1989, with bills raised in August 1989. The Assessing Officer disallowed the claim, stating that under the mercantile system, the expenditure should have been claimed in the earlier year. However, the Tribunal, considering the practical difficulties in ascertaining liabilities, allowed the deduction based on the guidelines of the Institute of Chartered Accountants and a precedent from the High Court of Punjab & Haryana. The applicant/Revenue argued that the accrual of liability should not be postponed due to difficulty in ascertaining the exact liability under the mercantile system. The amicus curiae pointed out the lack of factual inquiry by the Assessing Officer to rebut the assessee's claim of unascertainable amounts, supporting the Tribunal's decision to delete the disallowance. The High Court, after reviewing the submissions and records, upheld the Tribunal's decision, stating the absence of material to conclude that the amount was ascertainable, thereby ruling in favor of the assessee.

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