DCIT, CIRCLE - 7(1), KOLKATA, KOLKATA vs. M/S. STANDARD CHROME LTD., KOLKATA

The captioned appeal filed by the Revenue, pertaining to Assessment Year 2004-2005, is directed against the order passed by ld. Commissioner of Income Tax (Appeals)-4, Kolkata, dated 27.07.2017, which in turn arises out of an order passed by the Assessing Officer u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act’), dated 12.12.2006.

At the time of hearing none appeared on behalf of assessee in spite of issuance of notice for hearing more than one occasion and Ld. Departmental Representative (DR), was present for the appellant Revenue. In the absence of any appearance by the assessee, the appeal is being disposed of ex parte qua the assessee, after hearing Ld. DR for the Revenue on merits in terms of Rule 24 of the Income Tax Appellate, Tribunal, Rules 1963.

The brief facts qua the issue are that during the assessment year, the assessee has debited electricity arrear amount to the tune of Rs. 4,48,31,493/-. The Note No.5 of schedule 18, of financial statements of the company, provides the following details about the arrear amount to the tune of Rs. 4,48,31,493/-, which is given below :

Aggrieved by the stand taken by the Assessing Officer, the assessee carried the matter in appeal before the ld. CIT(A), who has deleted the addition. Aggrieved, the Revenue is in appeal before us.

After hearing ld DR for the Revenue, we note that merely because an expense relates to a transaction of an earlier year it does not become a liability payable in the earlier year unless it can be said that the liability was determined and crystallized in the year in question on the basis of maintaining accounts on the mercantile basis. In each case where the accounts are maintained on the mercantile basis it has to be found in respect of any claim, whether such liability was crystallized and quantified during there previous year so as to be required to be adjusted in the books of account of that previous year. If any liability, though relating to the earlier year, depends upon making a demand and its acceptance by the assessee and such liability has been actually claimed and paid in the later previous years it cannot be disallowed as deduction merely on the basis the accounts are maintained on mercantile basis and that it relates to a transaction of the previous year. For that we rely on the judgment of Hon`ble Gujarat High Court in the case of Saurashtra Cement & Chemical Industries Ltd. v. CIT 213 ITR 523 (Guj). We note that the assessee is a loss making concern and due to continuous losses company has become sick. In the instant case liability for electricity dues was disputed and was settled at Rs.4,48,31,493/-, during the year. We note that where liability for electricity is disputed, it crystallizes in the year in which agreement is reached between the payer and the payee. Therefore, the assessee has rightly

In the result, the appeal filed by the Revenue is dismissed.