Commissioner of Income Tax vs Travancore Titanium Products Ltd.

K.S. Paripoornan, J.—At the instance of the Revenue, the Income Tax Appellate Tribunal has referred the following question of law for the decision of this court :

"Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that an amount of Rs. 5,572 paid in 1975 is an allowable deduction for the assessment year 1977-78 ?"

The respondent is a public limited company, It is an assessee to Income Tax. We are concerned with the assessment year 1977-78. The previous year ended on December 31, 1976, Admittedly, the company is maintaining its accounts on mercantile basis. For the relevant assessment year, the company claimed an amount of Rs. 5,572 as an allowable deduction, This plea was rejected by the Income Tax Officer holding that the assessee was following the mercantile system of accounting and that the expenditure relating to earlier years could not be allowed as a deduction. It has come out in evidence that the amount was paid as early as in 1975. The above decision was confirmed in appeal by the Commissioner of Income Tax (Appeals). In second appeal, the Appellate Tribunal held that where the claim was made in the year in which the final bill was prepared and paid, such deduction could be allowed. The plea of the assessee was accepted. Thereafter, at the instance of the Revenue, the Income Tax Appellate Tribunal has referred the above question of law for the decision of this court.

We heard counsel for the Revenue as also counsel for the respondent/ assessee. Since the assessee is maintaining its accounts on the mercantile basis, the expenses incurred in 1975, long before the accounting period, cannot be claimed to be an expenditure for the assessment year 1977-78. This position is settled by the decisions of this court in L.J. Patel and Company Vs. Commissioner of Income Tax, and Commissioner of Income Tax Vs. K.A. Karim and Sons and Others, . The Appellate Tribunal was in error in allowing the claim made by the assessee.

Therefore, we answer the question referred to us in the negative, against the assessee and in favour of the Revenue.

The reference is answered as above.

A copy of this judgment under the seal of this court and the signature of the Registrar shall be forwarded to the Income Tax Appellate Tribunal, Cochin Bench.