Demand on account of duty / electricity raised in subsequent is allowable even though pertain to earlier years         

RHon’ble Gujarat Hon’ble High Court in the case of Saurashtra Cement & Chemical Industries Ltd. Vs. CIT 23 ITR 523 (Guj) at page 531 has observed

 “… such items without investigation in to the facts about the crystallization of such dues could not be disallowed merely on the ground that they related to transactions pertaining to an earlier accounting year”

In this context it is also submitted that merely because an expense relates to an earlier year, it does not become the liability payable in that particular year.

Any liability, though pertaining to earlier year, depends upon making a demand and its acceptance by the assessee. If such liability has actually been claimed during subsequent year, it cannot be disallowed merely on the ground that the accounts are maintained on mercantile basis and it relates to transactions pertaining to an earlier year.

ITAT Delhi Bench in the case of Kumar Aerosoles (P) Ltd. Vs. ACIT 55 TTJ 385 (Del) wherein expenses relating to electricity, telex, typewriter rent and telephone though relating to earlier years, are allowable in the year in which the demand is raised.

 ITO v. Infratex Eng. Co. 38 TTJ 551 (Del), the ITAT Delhi has held that even though the assessee has maintained books of account on mercantile basis, the assessee could not claim liability in the earlier year when the same had not accrued.

It is now well settled that even under mercantile system of accounting the liability is allowable in the year of accrual even if it relates to an earlier year.

 United bank of India vs. DCIT (1999) 68 ITD 332 (Cal) it has been held that any liability which may be considered to have been arisen only in a subsequent year has to be allowed as deduction even if the same may be attributable to the business conducted by the assessee in an earlier year.