TMI Blog2007 (9) TMI 189X X X X Extracts X X X X X X X X Extracts X X X X ..... in holding that the disputed liability of Rs.50,761 was not allowable as deduction in the Assessment Year 1979-80?" 2. On a scrutiny of the Assessee's Trading Account the Assessing Officer ('AO') noticed that during the Assessment Year 1979-80 a sum of Rs.50,761 stood debited to the raw material account. The explanation of the Assessee was that this amount was payable to M/s. Hindustan Steel Limited for certain purchases which had been made on 22.10.1975 but in respect of which the Assessee had disputed its liability. According tot he Assessee the liability stood accrued in the financial year ending 31.3.1979 since a suit for recovery had been filed by Hindustan Steel Limited against it on 18.8.1978. The Assessing Officer disallowed the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... very of the said sum by Hindustan Steel Limited, the liability became an ascertained one. Since the Assessee followed the mercantile system of accounting it was bound to account for the said liability by making a provision therefor. In any event if at a subsequent point in time the suit was dismissed, the Petitioner would be required to offer the said amount to tax in terms of Section 41 (1) of the Income Tax Act, 1961. 5. Appearing for the Revenue, Mr. Sanjeev Sabharwal, learned senior Standing Counsel, submitted that the liability in instant case was contractual and not an ascertained liability. As held by the Tribunal, the criteria for determining the nature of a statutory liability, as explained in Kedarnath Jute Manufacturing Compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to the Ahmedabad Textile Industry Research Association towards its annual contribution for the year ending 31.3.1958. There was a dispute about a bill raised by the Association and the payment was ultimately made by the Assessee only in the previous year relevant to the Assessment Year 1960-61. Although the liability was not a statutory one, it was held that the said liability, relateable to the period 1.4.1957 to 31.3.1958, had accrued only in the previous year relevant to the Assessment Year 1960-61 and hence should be allowed in that year. 8. The Hon'ble Supreme Court in Bharat Earth Movers v. Commissioner of Income Tax (2000) 245 ITR 428 reiterated the principles for deciding whether a business liability is an ascertained or a conti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dition subsequent, the fulfilment of which may result in the reduction or even extinction of the liability, would not have the effect of converting that liability into a contingent liability; (iv) A trader computing his taxable profits for a particular year may properly deduct not only the payments actually made to his employees but also the present value of any payments in respect of their services in that year to be made in a subsequent year if it can be satisfactorily estimated.? 9. The liability in the instant case was capable on being estimated with reasonable certainty when a recovery suit was filed by Hindustan Steel Limited against the Assessee on 18.8.1978. Merely because the liability was not a statutory one it could not be sa ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
