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2011 (5) TMI 649 - AT - Income TaxTheory of conservation in accounting - assessee wrote off trade liability and offered the amount to tax in A.Y. 98-99 - unilateral write off was premature, the assessee wrote back the amount in A.Y. 04-05 claiming it as deduction – A.O. disallowed the same deeming it be contingent liability – amount was settled in A.Y. 05-06 for lesser amount – Held that:- It is evident from the legal proceedings initiated by the vendor and from the fact that ultimately assessee had to pay off this liability though at a lesser amount. The liability to pay to vendor did exist in the relevant previous year, even as it did not reflect in the assessee’s account. Thereby, disallowing the liability debited to profit and loss account, on the ground that it is a contingent liability, is erroneous. It is only elementary that all known liabilities are to be provided for while computing business profits. Other grounds of appeal are restored to the file of CIT(A) for adjudication on merit. - Decided partly in favor of assessee.
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