Law:

Section:

Section 145 of the income-tax act, 1961-Method of accounting-Year in which liability/expenditure deductible-Whether assessee, following mercantile system of accounting, is entitled to deduction of additional liability on account of devaluation in the year in which devaluation takes place and not in the year in which actual payment is made-held, yes Facts The assessee-company incurred additional expenditure in the payment of foreign loan owing to devaluation of Indian currency on 6-6-1966. It was maintaining its accounts on mercantile basis. The assessee's claim made in respect of the assessment years 1968-69 and 1969-70 was rejected by the ITO on the ground that the additional expenditure was incurred in the year 1966-67 when the devaluation had taken place, and could have been allowed only in that year and not in the years when the actual payment was made. The AAC agreed with the ITO but the Tribunal, on further appeal, allowed the assessee's claim for deduction of the impugned additional liability in the year in which it was actually paid. On reference: Held It is settled that in a case where the assessee follows the mercantile system of accounting, profit or loss on account of devaluation takes place, in the year in which the devaluation takes place. In the instant case, under the mercantile system of accounting followed by the assessee, the impugned liability arose or accrued in the accounting year in which devaluation took place and not in the year of actual payment. The Tribunal was, therefore, not justified in allowing the assessee's claim during the assessment years 1968-69 and 1969-70. Case review Khandelwal Bros. (P.) Ltd. v. CIT [1979] 117 ITR 452 (Cal.) and Bestobell (India) Ltd. v. CIT [1979] 117 ITR 789 (Cal.) followed . Calcutta Jute Agency (P.) Ltd. v. CIT [1979] 117 ITR 741 (Cal.) and Sutlej Cotton Mills Ltd. v. CIT [1979] 116 ITR 1 (SC) distinguished. Cases referred to Oil India Co. Ltd. v. CIT [1982] 137 ITR 156 (Cal.), Imperial Tobacco Co. (of Great Britain And Ireland) Ltd. v. Kelly[1943] 25 TC 292 (CA), Khandelwal Brothers Pvt. Ltd. v. CIT [1979] 117 ITR 452 (Cal.), Bestobell (India) Ltd. v. CIT[1979] 117 ITR 789 (Cal.), Calcutta Jute…

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