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Issues:
1. Accrual of liability for the assessee in a sum of Rs. 3,48,405 for the assessment year 1980-81. Analysis: The case involved a question regarding the accrual of liability for the assessee in a sum of Rs. 3,48,405 for the assessment year 1980-81. The assessee, a registered co-operative society sponsored by the Government of Kerala, was involved in the manufacturing and distribution of exercise books for students as per government orders. The government had fixed the price of the books, but the assessee sold them at a higher rate, leading to a dispute. The government eventually directed the assessee to remit the excess amount collected. The assessee made a provision in its accounts for this excess amount after the accounting period ended, claiming it as a deduction. However, the assessing authority, the Appellate Assistant Commissioner, and the Appellate Tribunal all rejected the claim, leading to the reference to the High Court for a decision. The key question before the court was whether the liability to pay the sum of Rs. 3,48,405 had arisen during the relevant accounting period. The court noted that the liability only arose by virtue of the government order dated August 17, 1979, which was after the accounting period had ended on June 30, 1979. The court emphasized that the provision made in the accounts after the close of the accounting period based on the government order was not a permissible deduction under the mercantile system of accounting followed by the assessee. Therefore, the court held that the authorities were justified in disallowing the claim for deduction of the sum of Rs. 3,48,405. In conclusion, the court answered the question referred in the affirmative, ruling against the assessee and in favor of the Revenue. The judgment was delivered by Judge G. Sivarajan, and a copy was to be sent to the Income-tax Appellate Tribunal, Cochin Bench.
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