C.I.T.PATIALA vs. M/S GURU NANAKCONSTN.CO.MALERKOTLA.

ITR/171/1989HC Punjab & HaryanaPHHC01022542198901 March 2007Author: MR. JUSTICE RAJESH BINDAL,MR. JUSTICE M.M. KUMAR3 pages
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What did the High Court hold?

The High Court held that the Tribunal was justified in allowing the expenditure as a deduction. The Court noted that the assessee incurred the expenditure during a previous year where there were no business receipts, meaning the expenditure could not be set off against any income and had to be carried forward. The Court observed that the seized books indicated the expenses related to the business conducted by the assessee. Since the receipts against the work done prior to April 1, 1974, were received after April 1, 1974, these expenses could not be claimed until receipt and thus had to be carried forward and allowed in the relevant accounting period. The AO and CIT(A) were not justified in disallowing these claims. The question of law was answered against the revenue and in favour of the assessee.

What were the facts?

The assessee, M/s Guru Nanak Constn. Co., Malerkotla, filed a return for assessment year 1975-76 declaring income at Rs. 2,29,873. The assessment was initially framed at Rs. 3,17,970 and later rectified to Rs. 2,28,296. Following a search and seizure operation under Section 132 of the Income Tax Act, 1961, proceedings under Section 147(a) were initiated. The Assessing Officer (AO) disallowed an expenditure of Rs. 3,41,747, observing it did not pertain to the relevant accounting period. The assessee contended that although the firm was constituted on April 1, 1974, the expenditure related to a work awarded earlier, and receipts were received after April 1, 1974. The Commissioner of Income-Tax (Appeals) rejected this, but the Income Tax Appellate Tribunal (Tribunal) allowed the expenditure as a deduction.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law and on facts in deleting the disallowance of Rs. 3,41,747 made by the assessing officer on account of expenditure not pertaining to the accounting period relevant to the assessment year 1975-76? Assessee's contentions (as accepted by the Tribunal): Even though the expenditure was incurred prior to April 1, 1974, it related to a work awarded to the firm, and receipts for this work were received after April 1, 1974. As no sales (receipts) occurred before April 1, 1974, the expenses could not be claimed earlier and had to be carried forward and allowed in the accounting period relevant to the assessment year under appeal. Revenue's contention: The expenses, having not been incurred during the year in question, could not be allowed even if they were for the business of the assessee.

Which sections of the Income-tax Act were involved?

Section 132,Section 147(a)

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I.T.R.

N o.171 of 1989

-1- *** IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH I.T.R.

N o.171 of 1989

Date of decision: 1.3.2007 The Commissioner of Income-Tax, Patiala ...Petitioner Versus M/S Guru Nanak Constn.Co. Malerkotla ...Respondent CORAM: HON'BLE MR.JUSTICE M.M.KUMAR HON'BLE MR.JUSTICE RAJESH BINDAL Present: Mr.S.K.Garg Narwana, Advocate for the revenue. RAJESH BINDAL, J. Following question of law has been referred for opinion of this Court by the Income Tax Appellate Tribunal, Chandigarh Bench, Chandigarh (for short 'the Tribunal') arising out of order dated 8.9.1988 passed in I.T.A.No.606/Chandi/87, in respect of the assessment year 1975- 76..

1.

Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in law and on facts in deleting disallowance of Rs.3,41,747/- made by the assessing officer on account of expenditure not pertaining to the accounting period relevant to the assessment year 1975-76? The facts, as noticed by the Tribunal in the statement of the case, are that the assessee filed his return of income for the assessment year in question on August 29, 1975 declaring his income

The order continues below.

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