TMI Blog1997 (3) TMI 64X X X X Extracts X X X X X X X X Extracts X X X X ..... epartment cannot be equated with or considered to be a demand notice and thus erred in not allowing the claim of excise duty amounting to Rs. 46,86,431 ?" The assessee is a limited company engaged in the business of manufacturing textiles. This reference pertains to the assessment year 1979-80, the relevant previous year being the financial year ending on March 31, 1979. In its return of income for the above assessment year under the Income-tax Act, 1961 (for short "the Act"), the assessee claimed deduction of a sum of Rs. 46,86,431 on account of excise duty on the basis of show cause-cum-demand notices for the years 1976-77, 1977-78 and 1978-79 received by the assessee during the relevant previous year from the excise authorities. The as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ------------- The Income-tax Officer found that the show-cause notice did not create any liability against the assessee. According to him, in the instant case, neither was there a crystallised liability nor had the assessee accepted any part of it. The Income-tax Officer also noticed that the assessee had neither made any payment in pursuance of the show-cause notice nor made any provision for the same or any part thereof in its accounts for the relevant previous year because, according to the assessee itself, it was not liable to pay any amount as excise duty as alleged in the show-cause notices. The assessee accordingly denied the same. As earlier stated, neither was the cause shown by the assessee rejected by the excise authorities nor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer. Learned counsel for the Revenue pointed out to us that in the instant case neither the assessee incurred any liability in pursuance of the show-cause notices nor any provision was made by the assessee for the same or any part thereof in its accounts in the previous year relevant to the assessment year under consideration. According to learned counsel, it is a case where merely a notice had been issued to the assessee to show cause as to why the amount mentioned therein should not be held to be due from the assessee. It was not a demand notice which could have the effect of accrual of liability. In such a situation, it is contended that no liability accrued at all for which deduction could be claimed. It was further submitted tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d be deductible as an accrued liability even though the assessee objects to it and seeks to get the order of the concerned authority reversed, subject, however, to any statutory provision to the contrary (viz., section 43B of the Income-tax Act, 1961, as inserted by the Finance Act, 1983, with effect from April 1, 1984, which provides that certain liabilities can be deducted only on actual payment). In the instant case, there was no actual liability in praesenti. No demand was raised against the assessee of any amount. What was served on the assessee by the Collector was merely a show-cause notice. The assessee did not admit any liability and showed cause refuting the allegations made in the show-cause notice. Even according to the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unting is entitled to deduct from the profits and gains of the business such liability which had accrued during the period for which the profits and gains were being computed. It can again not be disputed that the liability to payment of sales tax had accrued during the year of assessment even though it had to be discharged at a future date." We have also perused the decision of the Madras High Court in Pope the Kingh Match Factory v. CIT [1963] 50 ITR 495, which was referred to with approval by the Supreme Court in the above case. In that case also, a demand for excise duty was served on the assessee and though he was objecting to it and seeking to get the order of the Collector of Excise reversed, he debited the amount in his accounts o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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