CBDT Circular No. 14, dated 11-4-1955 — In the case of an assessee following mercantile system of accounting interest expenditure which has accrued during the previous year is allowable as deduction even if it was not debited to P&L Account and also not c

ACIT v. Technofab Engg. Ltd.

ITA No. 4698/Del./2005 & 2666/Del./2006

A.Ys. : 2002-03 and 2003-04

Dated : 30-7-2009

CBDT Circular No. 14, dated 11-4-1955 — In the case of an
assessee following mercantile system of accounting interest expenditure which
has accrued during the previous year is allowable as deduction even if it was
not debited to P&L Account and also not claimed in the return of income but
was claimed by filing a letter, before the assessment, making the claim.

Facts :

The assessee was following mercantile system of accounting,
which was accepted by the Assessing Officer. The assessee had not debited some
interest in its books of accounts and consequently the same was not even
claimed as deduction while computing the total income. The assessee did not
revise its return of income but filed a letter, before completion of
assessment, making a claim that deduction for interest accrued during the
previous year be allowed in accordance with the method of accounting regularly
followed by it. The AO did not accept the claim made by the assessee.

The CIT(A) directed the AO to allow liability of interest
although the same was not debited to the books of account and the said claim
was not made by filing a revised return.

Aggrieved, the revenue preferred an appeal to the Tribunal.

Held :

The CBDT has issued circulars, which are binding on the
Department, to the effect that the assessee should be properly guided in
relation to the claims. The CBDT has emphasized upon the AOs to assess the
correct income to tax. If the assessee is following a particular method of
accounting and he has omitted to claim the deduction or exemption, to which he
is otherwise entitled, the Board has emphasized that the AO should guide the
assessee so that the correct income is assessed as per the provisions of the
Act. In Circular No. 14 dated 11-4-1955 CBDT has emphasized that the
Department should not take advantage of the assessee’s ignorance to collect
more tax out of him than the liability due from him. This Circular is very
much binding on the Department. In the light of the said Circular and also in
view of the findings of the CIT(A) that the claim made by the assessee was a
perfectly legal claim supported by the method of accounting which the AO has
accepted from year to year, the Tribunal upheld the order of CIT(A).

The appeal filed by the Revenue was dismissed.