Law:

Section:

Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Year in which deductible - During previous year relevant to assessment year 1974-75, assessee dealing in purchase and sale of cotton got its cotton baled by another factory and paid Rs. 26.10 per bale for pressing which was the rate fixed by association of factories in that area - However, Government published an order fixing pressing charges at Rs. 16 per bale - Association got stay against this order on 3-4-1974, i.e., after end of accounting period in question - In next following year, i.e., year relevant to assessment year 1975-76, factory paid back Rs. 14,200 as association had decided to charge at rate of Rs. 16 per bale only for pressing with retrospective effect - Whether payment made by assessee at Rs. 26.10 per bale was allowable as deduction in 1974-75 and Rs. 14,200 could only be added back after amount was received from factory in 1975-76 - Held, yes Facts The assessee-firm dealt in purchase and sale of cotton. It got its cotton ginned and baled from another factory. During the previous year relevant to the assessment year 1974-75, it got its cotton baled by the said factory and paid Rs. 26.10 per bale for pressing in accordance with the rate fixed by the association of ginning and pressing factories in that area. The Government made an order on 16-10-1973 fixing the pressing charges at Rs. 16 per bale. The order was challenged by the association and a stay order was made on 3-4-1974, i.e., after end of the accounting period in question. In the following previous year relating to the assessment year 1975-76, the factory paid back to the assessee Rs. 14,200 as the association had decided to charge at the rate of Rs. 16 only with retrospective effect for pressing a bale. For the assessment year 1974-75, the ITO allowed the claim only to the extent of Rs. 16 per bale and disallowed the claim of Rs. 14,200 and added it to the total income of the assessee. The Tribunal upheld the ITO's order. On reference : Held The most important consideration is whether an expenditure has been incurred solely for the purpose of the business and if it has been so incurred then it will not be material…

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