Law: Income Tax Act, 1961

Section: 144,37

Income-tax----Business expenditure---Accounting---Liability in respect of additional fuel surcharge for power consumption ---Assessee following mercantile system of accounting---Agreement between assesssee and Electricity Board that fuel surcharge would form part of monthly bill---Deduction allowable for fuel surcharge in year of consumption of electricity and not in year of quantification ---Assessee consuming electricity in previous year relating to assessment year 1981-82---Additional fuel surcharge allowable in assessment year 1981-82---Indian Income Tax Act, 1961, S.37. The assessee was a public limited company. During the accounting year relevant to the assessment year 1981-82, the assessee consumed electricity and received a notice of demand for additional fuel surcharge in September, 1983, relevant to the assessment year 1984-85. In the original return for the assessment year 1981-82, the assessee did not claim deduction in respect of the amount of Rs.25,48,047 on account of additional fuel surcharge for power consumption. But the assessee claimed it before the Inspecting Assistant Commissioner in the proceeding under section 144B of the Income Tax Act, 1961. The claim of the assessee was not allowed by the Inspecting Assistant Commissioner for the assessment year 1981-82 on the ground that the amount of liability was not ascertained and quantified. An ad hoc provision of Rs.3,71,980 had been made by the assessee in the assessment year 1981-82 for additional fuel surcharge. The Tribunal held that the liability for additional fuel surcharge accrued only after the assessee received the bill in September, 1983, i.e., after the liability was quantified by the Electricity Board and, therefore, the additional fuel surcharge was allowable in the assessment year 1984-85. On a reference: Held, that by virtue of clauses 19,20 and 25(9) of the agreement entered into between the Board and the assessee it was agreed that fuel charges would form part of the bill issued monthly and would depend upon the units consumed by the assessee during the month. Therefore, the liability accrued under the agreement when the. electricity was consumed by the assessee in the…

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