JOINT COMMISSIONER OF INCOME TAX vs. RASHBIHARI ENTERPRISES LIMITED

Facts

The assessee, Rashbihari Enterprises Limited, filed its return for Assessment Year 1996-97 declaring a total loss. The Assessing Officer determined the total income at Rs.33,74,188/- by adding Rs.1,32,13,446/-. The Commissioner of Income Tax (Appeals) partly allowed the assessee's appeal, directing the deduction of this amount. The revenue appealed to the Income Tax Appellate Tribunal (ITAT), which dismissed the revenue's appeal. The revenue then filed these appeals before the High Court challenging the ITAT's orders in ITA No.2278/Ahd/1999 and ITA No.1442/Ahd/2001. The High Court noted that the facts and questions of law were identical in both appeals.

Held

The High Court held that the question of law raised in the appeal was already concluded in favour of the assessee and against the revenue by the decision of the Apex Court in Kendarnath Jute Mfg. Co. Ltd. v. Commissioner of Income-Tax (Central), Calcutta. The Apex Court held that whether an assessee is entitled to a deduction depends on the provision of law, not on the existence or absence of entries in the books of account. The Court found that the assessee, maintaining accounts on the mercantile system, was justified in claiming the deduction of the liability, even if a provision or payment was made in a subsequent year. Therefore, the High Court dismissed the revenue's appeals, holding that the Tribunal was right in confirming the CIT(A)'s order allowing the deduction of the liability.

Key Issues

1. Whether, on the facts and in the circumstances of the case, and in law, the Income-tax Appellate Tribunal was right in confirming the order of the Commissioner of Income-tax (Appeals) directing the Assessing Officer to allow the deduction of a liability, even though neither the provision for the same nor the payment of the same was made by the assessee during the year under consideration, and though the provision and payment were made in Assessment Year 2000-2001? Assessee's contention: The question of law is concluded by the Apex Court in the case of Kendarnath Jute Mfg. Co. Ltd. v. Commissioner of Income-Tax (Central), Calcutta, reported in [1971] 82 ITR paged 363, in favour of the assessee. Revenue's contention: The Tribunal committed an error in dismissing the appeal and did not properly appreciate the material on record, thus the appeals deserve to be allowed.