TaxTMI 
TaxTMI 
2018 (6) TMI 286
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....e Assessing Officer observed that the assessee has debited Rs. 53,04,968/- as security money account in the profit and loss account. The Assessing Officer added the same to the income of the assessee observing that accounting practice cannot override any provisions of Income tax Act when the question is whether a receipt of money is taxable or not or whether certain deductions from that receipt are permissible or not, the question has to be decided according to the principle of the law and not in accordance with any accountancy practice. 4. On appeal, the CIT(A) deleted the addition by observing as under: "[5.22] In the case of the appellant it is not that the appellant has provided for a certain sum (say 10% of the contract val....
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....d the entries made by him cannot, therefore, be regarded as conclusive one way or the other. It was held that "Whether the loss suffered by the assessee was a trading loss or not would depend on whether the loss was in respect of a trading asset or a capital asset. In the former case, it would be a trading loss but not so in the latter." As held above the loss in the case of the appellant is that of a capital asset and therefore not allowable. [Incidentally this case law was cited by the appellant in its favour]. [5.24] It would also be relevant to analyse the case laws cited by the appellant so as to understand its point of view. The first case is that of Woodward Governors (supra). In that case the Hon'ble SC has noted that "....
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....can be termed as an 'deductible expense'? As explained above the entry is not an ascertained liability' the expense of which had not arisen but was likely to arise in the future. In the case of the appellant it was an item of 'asset' which the appellant booked as 'expense'. Therefore, the principles of Woodword (supra) would not be applicable. [5.26] Second case law relied upon by the appellant is that of Indian Mollases Co. Ltd. v CIT [1959] 37 ITR 66 (SC). In this case it was held that : - "There are certain principles of a fundamental character. The first is that capital expenditure cannot be attributed to revenue and vice versa. Secondly, it is equally clear that a payment in a lump sum does....
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.... do not take every such allowance as legitimate for purposes of tax. A distinction is made between an actual liability in praesenti and a liability de futuro which, for the time being, is only contingent. The former is deductible but not the latter. The recurring liability of pension which is compressed into a lump payment should itself be a legal obligation and that, if contingent the present value of the future payments should be fairly estimable. If the pension itself be not payable as an obligation and if there be a possibility that no such payment may be necessary in the future, the whole of the amount cannot be deducted but only the present value of the future liability, if it can be estimated As to the ques....
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....ticipated loss of money of the FD is not revenue in nature and therefore cannot be said to be an allowable liability. [5.281 In the case of MP Financial Corporation v CIT [1987] 165 ITR 765 (MP) the ruling was that As regards the deduction of the amount of discount on the bonds, the same principles as are applicable in the case of issue of debentures at discount, would be attracted in the case of issue of bonds at a discount. The amount of discount in effect, represents deferred interest. Looked at as such, a proportionate amount of discount can be written off out of revenue every year, during the period the bonds would remain outstanding. Therefore, though the assessee would not be justified in claiming deduction of the entire amo....