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Interpretation of accrued liability under the Income-tax Act for computing net income. Detailed Analysis: The case involved a partnership firm claiming a deduction of Rs. 1,20,000 under "Forest compensation" for the assessment year 1983-84. The firm argued that the liability was statutory and had accrued during the assessment year, even though quantification had not been done as per the Orissa Forest Contract Rules, 1966. The Assessing Officer disallowed the claim due to lack of quantification, but the Commissioner of Income-tax (Appeals) accepted the plea and directed the deletion of the addition made by the Assessing Officer. The Revenue appealed to the Tribunal, which found the claim to be imaginary as there was no determined liability. The Tribunal rejected the application under section 256(1) of the Act, leading to the High Court directing the Tribunal to state a case for opinion. The dispute centered around whether the liability was accrued or contingent. The assessee argued that the liability was accrued, despite lack of quantification, while the Revenue contended that it was contingent and unascertained, spanning two years. Rule 17 of the Orissa Forest Contract Rules was crucial, stating that compensation for damage in a Government forest by a contractor shall be assessed by the Divisional Forest Officer, with the decision being final and binding, subject to appeal to the Conservator of Forests. The High Court analyzed the rule and held that the liability for compensation only crystallized upon quantification by the authority, not before. The reports served on the assessee were notifications of infractions, not immediate liabilities. The absence of a scheduled rate for compensation meant the liability could not be precisely fixed without quantification. Therefore, the Court agreed with the Tribunal that a contingent liability, which may or may not arise, cannot be allowed as a deduction. The Court answered the referred question in the negative, favoring the Revenue and rejecting the assessee's claim. The judgment was concurred by both judges, leading to no costs being awarded. In conclusion, the High Court clarified the distinction between accrued and contingent liabilities, emphasizing the necessity of quantification for a liability to be considered accrued for deduction purposes under the Income-tax Act. The decision was based on a thorough analysis of the statutory provisions and factual circumstances of the case, ultimately upholding the Tribunal's view on the matter.
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