Allowance cannot be made merely because future payments were made out of the funds said to be kept in the suspense account

Madras High Court

Dated: 01.08.2011

Tax Case (Appeal) No. 534 of 2004

Commissioner of Income Tax, Madurai Vs. K. A. S. Mathivanan

APPEAL under Section 260A of the Income Tax Act against the order dated 9.9.2003 made in ITA No.1297/Mds/96 on the file of the Income Tax Appellate Tribunal, Madras ‘B’ Bench, for the assessment year 1991- 92.

J U D G M E N T

(Judgement of the Court was delivered by M.JAICHANDREN,J.)

This Tax Case (Appeal) has been filed by the Revenue as against the order of the Income Tax Appellate Tribunal dated 9.9.2003 n respect of the assessment year 1991-92.  The substantial questions of law arising for the consideration of this Court are as follows:

“1. Whether in the facts and circumstances of the case, the Tribunal was right in holding that the balance remaining in the “suspense fund” should also be allowed as an expenditure, when the amounts were only expended in the future years?

2.  Whether in the facts and circumstances of the case, the Tribunal was right in holding that the outstanding balance does not represent a contingent liability?”

2.  The assessee, who has been engaged in the business of printing and selling lottery tickets had filed the return of income for the assessment year 1991-92, showing a loss of Rs.1,28,506/-. The return was processed, under Section 143(1)(a) of the Income Tax Act, 1961,  and and intimation had been issued.  The case was selected for scrutiny and a hearing notice, under Section 143(2) of the Act, was also issued.  Based on the details given by the assessee and on a perusal of the accounts, it was noticed by the Assessing Officer that the assessee was maintaining suspense account crediting a sum of Rs.23,77,458/- in the trial balance for the year ended on 31.3.1991.  The assesse had furnished the details as under:

3.  In the reply filed by the assessee, dated 28.3.1994, it had been stated that the above items of expenditure were kept in the suspense account, as they were payable at the end of the year and that the same had been paid, subsequently.  In connection with the said claim of the assessee, he had been asked to furnish evidence to prove that the above amounts had actually been cleared off during the next year and also to prove that the liability to pay the said amounts had actually occurred or arisen during the accounting year.  Since, the assessee had failed to adduce any evidence to prove his stand, the amount, kept in the suspense account, was disallowed by the Assessing Officer, by his order, dated 29.03.1994. Aggrieved by the said order, the assessee had filed an appeal before the Commissioner of Income Tax (Appeals).  Accepting the submissions of the assessee, the Commissioner of Income Tax (Appeals) had allowed the appeal, thereby, deleting the addition made by the Assessing Officer. Aggrieved by the same, the  Revenue had filed an appeal before the Income Tax Appellate Tribunal.

4.  On considering the claim made by the assessee, the Tribunal had held in favour of the assessee stating that total expenses shown by the assessee for the relevant previous year was a sum of Rs. 2,40,92,426/-.  The outstanding balance at the end of the previous year was only a sum of Rs. 23,77,458/-.  The balance was paid by the assessee during the relevant previous year itself.  This worked out to less than 10% of the total turnover for the year.  The future payments to be made out of the account related to a series of lottery drawn and many expenses thereof were common in nature. The assessee usually follows the consistent practice of adjusting such payables towards the issuance of tickets to the agents, from time to time.  The Tribunal had further held that the assessing officer had not pointed out anything to hold that the outstanding demand represented,  only a contingent liability.  Accordingly, the Tribunal had found that the order of the Commissioner of Income Tax (Appeals), in deleting the addition, is justified.  Accordingly, the appeal filed by the Revenue was dismissed.  Aggrieved by the same, the Revenue has come before this Court by preferring the present appeal.

5. The main contention of the learned Standing Counsel appearing for the Revenue is that the assessee had not produced sufficient evidence, by way of records, to substantiate his claims.  Merely because future payments were made out of the funds said to be kept in the suspense account, the allowance could not be made.  He had also submitted that the Tribunal had failed to see that the expenses have been incurred in a different assessment year.  He had further submitted that the Tribunal had failed to see that the fund had been termed as “suspense account” and had been utilised by the assessee only for the purpose of meeting out certain contingent liabilities. As such, the Tribunal erred in accepting the claim of the assessee.

6.  There is no representation on behalf of the assessee.  After considering the submissions made by the learned standing counsel appearing for the Revenue and on a perusal of the records, it is seen that the assessee had not placed any evidence to substantiate his claim   that   the   amount  kept  in  the “suspense account” had been utilised during the previous years. No evidence has been placed before the authorities concerned to show that the expenditures had been incurred during the relevant assessment year to be shown in the “suspense account”. Further, only those of the liabilities, which had been found to have crystalised, within the previous year, and paid out of the fund, should have been allowed.  In such circumstances, this Court finds it appropriate to allow the appeal filed by the Revenue.  Accordingly, the Tax Case (Appeal) stands allowed.  No costs.