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Issues involved:
The issue involves determining whether a provision made in the books for a sum of Rs. 9,58,532 is an allowable deduction in the year of provision or in the year of actual settlement u/s 256(1) of the Income-tax Act, 1961 for the assessment year 1985-86. Judgment Details: Assessment of Provision: The assessee, a partnership firm engaged in transportation, made a provision of Rs. 9,58,532 in its books for claims of non-delivery or short-delivery of goods. The Assessing Officer found that the claims were not accepted by the assessee, were disputed, and not quantified by the end of the year. The contention of absolute liability under section 9 of the Carriers Act was denied, leading to disallowance of the deduction claimed. Commissioner's Decision: The Commissioner concurred with the Assessing Officer, stating that the liability arises only when the carrier fails to prove lack of negligence or criminal act. The liability was not considered as accepted merely based on provision in the books. Tribunal's Ruling: The Tribunal allowed the deduction, distinguishing between the occurrence and quantification of liability. It emphasized that the liability accrues when claims are recognized and provision made, irrespective of negotiations or subsequent settlements. The statutory liability of the carrier under the Carriers Act was highlighted as absolute. Legal Precedents: Referring to the case of Kedarnath Jute Manufacturing Co. Ltd. v. CIT, the Tribunal emphasized that statutory liabilities, like that of the carrier under the Carriers Act, are independent of quantification and accrue when the loss occurs. The liability to pay damages under the Carriers Act was deemed statutory, akin to sales tax liabilities. Differentiating Factors: Authorities related to damages from breach of contract were deemed irrelevant as the liability in the current case was statutory, not contractual. The liability under the Carriers Act was considered absolute and accrued when the loss happened. Conclusion: The Tribunal ruled in favor of the assessee, allowing the deduction for the provision made in the books for damages claimed during the relevant previous year, emphasizing the statutory and absolute nature of the carrier's liability under the Carriers Act.
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