TaxTMI 
TaxTMI 
2006 (6) TMI 94
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....f accounting. The assessment year in question is 1991-92. The assessee is engaged in the manufacture and supply of aluminium cables for the use of the Kerala State Electricity Board. The Assessing Officer while framing the assessment noticed that the assessee had claimed in the profit and loss account an amount of Rs. 2,28,336 towards penal deduction from supply bills. The Assessing Officer also noticed that there was no such claim for the earlier years. When the assessee was informed of the same, the assessee explained that the assessee had failed to deliver the goods as per schedule and, therefore, the assessee was liable to pay 1 per cent. of the value of the materials supplied as liquidated damages for every month or part thereof sub....
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....iability got finally crystallized not during the previous year relevant to the assessment year but during the subsequent year under consideration and, therefore, it should be allowed. Alternatively it was contended that it should be treated as bad debt. The Commissioner of Appeals, however, held that the liability in fact accrued during the accounting year 1989-90 relevant to the assessment year 1990-91 and, therefore, it should have been claimed in the same year itself. The Commissioner, therefore, rejected the claim. The alternative claim was also rejected on the ground that there was a specific reason for deduction of the amount from the supply bills, that the deduction was not made for short payment but for delay and, therefore, it c....
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....ion of this court in CIT v. K.A. Karim and Sons [1982] 133 ITR 515. Counsel appearing for the assessee, however, submitted that the Tribunal was right in holding that the claim of the assessee was crystallized during the year under consideration and that the amount in question was damages for the delay in supply and arises out of the contract and not a penalty. Counsel submitted in any view of the matter there is no substantial question of law raised by the Revenue for consideration by this court. Counsel made reference to the decision of this court in CIT v. A.M. Zainalabdeen Musaliar [2001] 250 ITR 534. Counsel submitted that the order of the Tribunal deleting the deduction is not a substantial question of law. Counsel, therefore, subm....
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....as following the mercantile system of accounting the assessee should have accounted for the penalty by deducting in the accounting year 1989-90 itself to maintain a claim. The Kerala State Electricity Board had made a deduction towards penalty from bills for delayed supplies and the penalty deduction related to the accounting year 1989-90 relevant to the assessment year 1990-91. The facts would show that the Kerala State Electricity Board had deducted a sum of Rs. 4,24,851 from supply bills for delay in supply during the year 1989-90. Subsequently, the Board refunded a sum of Rs. 2,18,529 to the assessee during the accounting period 1990-91. The liability for the penalty accrued during the accounting period 1989-90 relevant to the assessmen....