Meaning of “Incurred by assessee”

The meaning of incurred by assessee under section 145 of the Income Tax Act is not defined in the act itself. But we can take guidance from decisions by various high courts. Here are excerpts of courts orders in which the Hon’ble High Court tried to explain the meaning of incurred by assessee.

Meaning of incurred by assessee defined by court

The phrase ‘incurred by assessee’ used in section 145 of the Income Tax Act came up before Hon’ble Bombay High Court in CIT vs. Loknete Balasaheb Desai S.S.K. Ltd. [2011] 200 TAXMAN 238/243 CTR 181/339 ITR 288/12 TAXMANN.COM 40 (BOM.) and it explained.

Meaning : The expression ‘incurred by the assessee’ in section 145a(b) is followed by the words ‘to bring the goods to the place of its location and condition as on the date of valuation’. Thus, the expression ‘incurred by the assessee’ relates to the liability determined as tax, duty, cess or fee payable in bringing the goods to the place of its location and condition of the goods.

Explanation to section 145a(b) makes it further clear that the income chargeable under the head ‘profits and gains of business’ shall be adjusted by the amount paid as tax, duty, cess or fee. Therefore, the expression ‘incurred’ in section 145a(b) must be construed to mean the liability actually incurred by the assessee.

Section 145 of Income tax act

Method of accounting.

145. (1) Income chargeable under the head “Profits and gains of business or profession” or “Income from other sources” shall, subject to the provisions of sub-section (2), be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee.

(2) The Central Government may notify in the Official Gazette from time to time income computation and disclosure standards to be followed by any class of assessees or in respect of any class of income.

(3) Where the Assessing Officer is not satisfied about the correctness or completeness of the accounts of the assessee, or where the method of accounting provided in sub-section (1) has not been regularly followed by the assessee, or income has not been computed in accordance with the standards notified under sub-section (2), the Assessing Officer may make an assessment in the manner provided in section 144.

In this article, you can get guidance from high courts on the meaning of incurred by assessee under section 145 of the Income Tax Act.

Updated up to Finance Act 2021