1998 (1) TMI 67 - HC - Income Tax

Summary

Issues Involved:
The judgment involves the question of whether the assessee is entitled to deduction on the provision made in the books based on show-cause notices from the excise department.

Details of the Judgment:

Issue 1: Liability Deduction based on Show-Cause Notices
The assessee, a public limited company, was issued show-cause notices by the excise authorities regarding excise duty calculations. The assessee made a provision for the amount mentioned in the notices in its accounts and claimed deduction. The Income-tax Officer allowed deduction for a portion but rejected the rest as the notice was received after the accounting year. The Commissioner of Income-tax (Appeals) rejected the claim, stating that no liability had accrued. The Tribunal, however, allowed the deduction, leading to the Revenue's appeal.

Issue 2: Contingent Liability and Deductibility
The court considered whether the liability claimed by the assessee based on the show-cause notices constituted an actual liability for deduction. Referring to previous case law, the court emphasized that only liabilities actually existing in the year could be deducted, not contingent ones. It was noted that no demand was raised against the assessee, and the show-cause notices did not result in an accrued liability. The court held that the claimed liability was contingent and could not be considered as expenditure for income-tax purposes.

Conclusion:
The court ruled in favor of the Revenue, denying the deduction based on the show-cause notices as the liability was contingent and not an actual liability. The court distinguished the case from previous judgments where ascertained liabilities were allowed as deductions. The assessee was advised to address the subsequent assessment year's adjustment with the Tribunal.