Mercantile accounting: liability crystallized earlier so blasting expenses remain deductible despite later payment; disallowance reversed.

Under the mercantile system of accounting, compression and blasting expenses were held deductible because the liability crystallized in the relevant previous year; detailed bills and evidence of tax deducted at source established the expenses were incurred wholly and exclusively for business. Payment in a subsequent year did not negate deductibility, and on the materials furnished there was no basis to disallow the claimed expenditure; accordingly the disallowance was found unwarranted and the addition was not sustained.

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Issues: Whether the disallowance of compression and blasting expenses of Rs. 58,69,491 for Assessment Year 2018-19 on the ground that the expenses pertained to an earlier year (though payment was made in the year under consideration) was justified.

Analysis: The assessee maintains books under the mercantile system of accounting. Detailed bills and evidence of tax deducted at source in respect of the blasting expenses were furnished. The expenses were shown to have been incurred wholly and exclusively for the purposes of business and the liability in respect thereof had crystallized in the relevant previous year; payment in a subsequent year therefore does not negate the deductibility under the mercantile system. On the records and materials furnished, no basis exists for making the addition disallowing the blasting expenses.

Conclusion: The disallowance of Rs. 58,69,491 on account of compression and blasting expenses is not warranted; the appeal is allowed in favour of the assessee and no addition is called for on this account.

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