AAKAR ENTERPRISES,CHENNAI vs. ACIT NON CORPORATE CIRCLE 9, CHENNAI

This appeal of the assessee is directed against the order of the Commissioner of Income Tax (Appeals) -10, Chennai, dated 28.09.2017 and pertains to assessment year 2004-05.

The only issue arises for consideration is disallowance of ₹4,25,000/- towards provision for yield testing.

Shri N.K. Mohnot, the Ld. representative for the assessee, submitted that the assessee has debited ₹4,25,000/- towards provision for yield testing. According to the Ld. representative, this amount was shown as outstanding in the balance sheet of the assessee. The assessee was following mixed system of accounting. According to the Ld. representative, the Assessing Officer disallowed the claim of the assessee only on the ground that the liability was discharged subsequently in the financial year under consideration. According to the Ld. representative, the CIT(Appeals) is not correct in saying that the liability is unascertained one. The Ld. representative further clarified that there was no demand raised during the year under consideration. The Ld. representative further submitted that the mixed system of accounting is also one of the method of accounting. According to the Ld. representative, the assessee has imported cashew during the year under consideration from overseas countries and sold the same on Highseas Sale basis. According to the Ld. representative, the assessee has filed entire material before the Assessing Officer as well as the CIT(Appeals) to establish the Highseas Sale of cashew imported by the assessee.

On the contrary, Shri AR.V. Sreenivasan, the Ld. Departmental Representative, submitted that the assessee could not satisfactorily explain the provisions made while claiming that it was following mixed system of accounting. According to the Ld. D.R., the claim of liability is only unascertainable one and no demand was raised during the year under consideration. Referring to the order of the CIT(Appeals), more particularly at page 7, the Ld. D.R. pointed out that even in case where the assessee was maintaining mercantile system of accounting, the unascertainable liability for which a provision was made cannot be allowed as deduction. According to the Ld. D.R., contingent liability does not constitute expenditure, therefore, the same cannot be allowed as deduction while computing taxable income. Therefore, according to the Ld. D.R., the CIT(Appeals) has rightly confirmed the order of the Assessing Officer.

We have considered the rival submissions on either side and perused the relevant material available on record. The provision for yield testing is an unascertainable liability and there was no demand during the year under consideration. Unless a provision was made for meeting a liability which was ascertainable one and it was crystalized during the year under consideration, this Tribunal is of the considered opinion that the same cannot be allowed during the year under consideration.

In the result, the appeal filed by the assessee stands dismissed.