Assessee paid municipal tax for which cheques were issued to local authority prior to end of previous year relevant to assessment year, however, bank statements showed realization only on commencement of next assessment year, deduction in respect of such municipal tax was to be allowed during previous year. When a cheque is not dishonoured but encashed, payment relates back to date of tendering of cheque and date of payment would be date of delivery of cheque. Followed CIT v. Ogale Glass Works Ltd (1954) 25 ITR 529 (SC) (Arising from Punalur Paper Mills Ltd. v ITO (2009) 29 SOT 449 (Cochin) (Trib.) (ITA Nos. 1378 to 1423 of 2019 dt. 7-02-2019) (AY.1996-97 to 2002-03, 2004-05)
CIT v. Punalur Paper Mills Ltd. (2020) 268 Taxman 47 (Ker.)(HC)
S. 37(1) : Business expenditure–Cheque issued–Realised in next assessment year–Cheque is not dishonoured but encashed, payment relates back to date of tendering of cheque and date of payment would be date of delivery of cheque-Allowable as deduction during previous year.