TaxTMI 
TaxTMI 
TaxTMI 
2016 (11) TMI 668
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....cted inspite of following reasons: i) The assessee is following mercantile basis of a accounting. Therefore, he is required to follow matching principle i.e. All expenditures relevant to accounted sales/income should be accounted in same year and vice versa, whether bills of relevant parties are received or not. Where ever bills are received, it is credited to party's account and where ever bills are not received for such expenditure entry for provision of expenditure is passed. Expenditure a/c Dr To Provision to Expenditure a/c Cr This entry is required to arrive at true and fair figure of profit for the said year as per normally accepted accounting principles. ii) Entry for provision of earlier year is duly is reversed ....
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....ebited the commission expenses to profit and loss account which had resulted in reduction of his profit and hence TDS should have been made from such expenses. The AO observed that as per the provisions of Section 194H, TDS should be made from the commission amount 'likely to be credited' if the amount exceeded Rs. 2,500/- and as the amount of commission debited by the appellant was Rs. 26,00,000/- which was in excess of the amount stipulated in Section 194H, the assessee should have done TDS on this commission amount. The AO also observed that the accounting practice of the assessee of debiting the amount of Rs. 26,00,000/- at the end of the year and crediting the same amount back on the first day of the next FY by passing reverse entry sh....
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....9. This shows that the liability has not crystallized in this year. Such contingent liability is inadmissible as a deduction whatever accounting method the appellant follows-mercantile or cash. This is so because even in mercantile system unless the liability to pay crystallizes it cannot be claimed as a deduction. The very fact that the appellant reverses the whole of the provision on the 1st day of the next F.Y. & then debits the actual amount along with the payees names and other details during the next FY establishes that the liabilities for which provision was made on 31st March had not crystallized. Therefore the amount of provision made was a non deductible expenditure. In case it is to be held that the liability had crystallized in ....
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....id nor credited to the account of the receiver. It was under those circumstances that the Courts held that there was no liability to deduct tax. The letter to TISCO given by CBDT is also in respect of Interest on Deep Discount Bonds. As against this, in the case of the appellant the expense is neither accrued nor quantifiable and hence the provision itself is inadmissible for deduction - whether TDS made or not. If, as has been mentioned earlier, it is argued that the amount is quantifiable and accrued, then the details would be known to the appellant and the same should be credited to the commission agent's account and TDS made. 5.3 During the course of appeal proceedings, a reconciliation of current year sales/purchases with the pa....
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.... the appellant has stated different amounts of commission paid for the year none of which match with the provisions made. Furthermore, the appellant failed to furnish the details of transactions done through commission agents appearing at serial no 11 to 17 in the detail furnished by it before me which raises serious doubts about the genuineness of these payments. Similarly, the actual payments made on account of commission for sales/purchases in subsequent periods are different in different submissions. However, as far as this year is concerned, the provisions are contingent in nature, not quantifiable or accrued, and therefore inadmissible as a deduction. Therefore, in my considered opinion, the amount of provision of Rs. 26,00,000/- made....
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....nasmuch as the provision of law will take precedence over an untenable practice adopted by the assessee. Besides, Section 40a(ia) provides that as and when the assessee makes the payment of relevant TDS, the expenditure will be allowed in the year of payment. Besides, the ld. CIT(A) has given clear findings that the provision was made on whims and fancies of the assessee without any proper basis and even the genuineness of the expenditure; therefore, the ld. CIT(A) has disallowed the expenditure. The facts in the cases of IDBI and Mahindra and Mahindra (supra) are on different footings and the CBDT circular is also in a different context. In this case, the simple question is non-crystallization and liability being unascertained entry in the....