Case Law Details
Kamla Retail Ltd. Vs ACIT (ITAT Chandigarh)
It is no doubt true that it is incumbent upon the assessee to account for the expenses in respective financial year in which they are incurred or the liability towards such expenses has accrued which is in line with the mercantile system of accounting as well as concept of matching accounting principle where the revenues and corresponding expenses are accounted for in the respective years.
At the same time, there are business exigencies where at times, the parties either disputes either the supply of goods or availment/rendering of services or the quantification and or remission of amount payable and the same are settled in subsequent financial year(s). To take care of such exigencies, what is relevant to determine is the crystallization of liability or in other words, when the amount has actually become due and payable.
The principle of crystallization of liability in inherent in the mercantile system of accounting and has been well accepted by the Courts while allowing the claim towards the expenses and has been understood to mean where the liability has become due and payable. In other words, where the other person can make a lawful claim against the assessee and in the event of default, the matter may be agitated before the appropriate legal forum.
Secondly, from the Revenue’s perspective, what is equally relevant is that there are no changes in the maximum marginal rates of taxation and there is no loss of revenue where the expenses are booked in subsequent financial year.
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