TaxTMI 
TaxTMI 
1986 (1) TMI 161
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.... There was no written contract with DESU on this supply. Total value of the coal supplied was Rs. 16,00,525.25. Against this, the assessee was paid Rs. 10,64,192.10. There was thus a balance of Rs. 5,35,375.15. 3. The above amount of Rs. 5,35,375.15 was withheld by DESU. This was no the plea that the coal supplied was of inferior quality and did not conform to specifications. The assessee filed a suit for recovery and also got 'a decree which was passed for Rs. 3,50,154 by order dated1-2-1978'. 4. Since Rs. 5,35,375.15 was withheld by DESU, the assessee also reduced the purchased and supplied to DESU. In other words, the assessee did not claim as deduction in the trading account for the year concerned, the full purchase price billed by his suppliers. He claimed only the purchase amount so billed less the amount withheld by DESU. Assessment was also completed for that year (1973-74) on that basis. 5. But the above method adopted by the assessee and the reduced claim made in the trading account for purchases was against accounting procedure. The method of accounting following by the assessee was mercantile. The trading account should not, therefore, have been manipulated in ....
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.... of coal and other claims of the assessee : Rs. (a) Being deduction out of bills 1,69,855.91 (b) Due to increase in coal price 90,461.97 (c) Being the cost of one wagon coal ....
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....p; ----------- 4. During the succeeding previous year (assessment year 1979-80), the assessee received Rs. 1,45,000 as compensation out of above amount of Rs. 3,50,154 ordered by the High Court. Rs. 2,05,154 was received during the relevant previous year itself (year ended on31-3-1978). The entire amount was, however, brought to tax by the ITO as a protective measure disregarding the assessee's affidavit of17-6-1982which stated that DESU had filed an appeal against the judgment of the learned single Judge of the Delhi High Court dated1-2-1978challenging the payment of Rs. 1,45,000 out of the total amount of Rs. 3,50,154. This appeal of DESU was admitted vide order dated27-9-1978in RFA (OS) No. 16 of 1978. Hence, to the extent of Rs. 1,45,000, it could be said that the issue has not become final. But the balance of Rs. 2.05,154 was clearly taxable for this assessment year. 53 ITR 114 5. Following the decision of the Supreme Court in CIT v. A. Gajap....
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....ed Trading Corpn. was one of these parties. His address was furnished (but then no request was made for his been summoned under section 131). According to the Commissioner (Appeals) the real question was whether there was any liability to the collieries due from the assessee in respect of the deductions made. 6. To find out the above, the Commissioner (Appeals) records, the assessee was requested again and again to produce the correspondence file with those collieries which has been pressing their claims. No such evidence was made available. The assessee had to be examined ultimately on solemn affirmation. This was on7-1-1984. In this statement, the assessee categorically stated that he has no papers or records with him to show that the collieries in question had been pressing for the payment of the amounts withheld by him. No suit was filed by any of those parties. None of them referred the matter for arbitration. The assessee also expressed inability to get the copies of his arbitration. The assessee also expressed inability to get the copies of his accounts in the books of those parties. The reason given was that he was to on good terms with them. 7. The Commissioner (Appe....
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....he present case, interest was not under any statute. It was awarded by the Court as a part of an implied contract and to compensate the assessee for not having been in possession of his legitimate moneys for several years. Thus, the right to receive the interest in question along with the right to received the different in the coal supplied, accrued or arose to the assessee only form the decision of the Delhi High Court. Prior to that, it was only a claim and hence, the entire interest and not merely that pertaining to the period '1-4-1977 to1-2-1978' was liable to tax on accrual basis for this assessment year. The assessee is hence in appeal. 10. Shri C. S. Aggarwal, the learned counsel for the assessee, as well as Shri P. K. Sridharan, the departmental representative, were heard. We were take through the material on record and the parties also addressed us at length. The prayer of the assessee's learned counsel was that there was no case for taxing the sum of Rs. 2,05,154. The department's case was that the entire sum of Rs. 3,50,154 was rightly taxable this year. Arguments were also addressed specifically on the taxability of the interest component in the amount of Rs. 2,05,1....
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.... expression 'where an allowance or deduction has been made ......' in section 41(1) should be actually read as 'where an allowance or deduction ought to have been made'. With respect, we are reluctant to follow this decision as it apparently results in rewriting the statute. The position in law has, however, been made quite clear by the Supreme court as also by other High Courts. We would notice here some of the relevant decisions briefly. 14.1 Tirunelveli Motor Bus Service Co. (P.) Ltd. v. CIT [1970] 78 ITR 55 (SC) : The provisions interpreted was section 10(2A) of the Indian Income-tax Act, 1922 ('the 1922 Act'), in pari materia with section 41(1) of the 1961 Act. The court held that section 10(2A) "applies only when an allowance for deduction has been made in the assessment of any year in respect of any loss, expenditure or trading liability incurred by the assessee" and subsequently there is a remission or receipt of money. This Commissioner (Appeals) has apparently considered this decision but preferred the chaff (difference in facts) to the grain-the ratio disdained-of the decision. A trading liability may be said to have accrued under the system of accounting but section ....
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....relate back to the year of contract. Specially so when there was no upward revision of the contractual rates for the assessment year 1973-74 in financial year 1977-78. We, therefore, hold that the impugned amount cannot be taxed this year on the analogy of A. Gajapathy Naidu's case either. 16. This takes us to the finding of the Commissioner (Appeals) to the effect that quite apart from section 41(1) of the ratio disdained of A. Gajapathy Naidu's case the impugned amount was taxable this year (on the basis of accrual) in the light of the decisions in Jaiprakash Om Prakash Co. Ltd.'s case and Motilal Padampat Sugar Mills Co. (P.) Ltd.'s case. We have considered the facts and the ratio decidendi of these decisions. In the first case, apart from a totally different factual position, all that the Supreme Court did there was to hold that a question of law arose in the matter. In the second case, the Court's decision in the context of the peculiar facts of the case, took note of the fact that the assessee's method of accounting was mercantile. The method of accounting is mercantile in the instant case but then as regards the impugned amount the accrual of the amounts has to be related....
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....'due' to the assessee in April 1951 and, hence, it was not taxable for the assessment year 1956-57. 3. That the assessee credited its profit and loss account with the compensation amounts for the calendar year 1955 was of no consequence. From this fact it cannot be argued that for this particular receipt the assessee adopted a different system of accounting. Method of maintaining accounts it one thing and the actual entries in accounts maintained is a different thing. What is relevant is the actual method of accounting and not the actual entries. Hence, we hold that there is no case for bringing to tax the amount in question for the assessment year in appeal before us (1978-79). 18. We then come to the taxability of the interest component. We have seen the decision in Fazilka Electricity Supply Co. Ltd.'s case. The Court was Concerned with interest awarded under the Indian Electricity Act, 1910, read with the Punjab Electricity Supply Act, 1939. As rightly noted by the Commissioner (Appeals) in that case interest was awarded by the umpire on30-7-1961. The award was made a rule of the Court on28-9-1962. Interest of Rs. 1,55,620 was paid to the assessee on13-2-1963. The Tribuna....