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Issues Involved:
The judgment involves two main issues: 1. Whether the liability for damages payable to the DGS & D arose during the relevant accounting year and is deductible for the assessment year 1977-78. 2. Whether the liability to excise duty in the sum of Rs. 44,312 should be allowed in computing the income for 1977-78. Issue 1: Liability for Damages The assessee, a private limited company, failed to supply the agreed quantity of strawboard to the Director General of Supplies and Disposals, resulting in a demand for damages of Rs. 4,91,653. An arbitrator awarded Rs. 3,00,000 against the assessee. The Commissioner of Income-tax (Appeals) contended that no liability had accrued as the claim was unilateral and unaccepted. The Tribunal, however, allowed the deduction, leading to a reference to the High Court. The Revenue argued that under the mercantile system, the liability did not arise until specific events occurred, citing relevant case law. The High Court held in favor of the Revenue on this issue. Issue 2: Excise Duty Liability The Commissioner found that a wrong debit of Rs. 44,312 was made to the sales account for additional excise duty that was not levied in the relevant year. He suggested the deduction could be claimed when a formal demand notice is issued. Contrarily, the Tribunal allowed the deduction for the liability in the year under appeal. The Revenue relied on specific cases to support its position, while the assessee cited different cases favoring their stance. The High Court sided with the assessee on this issue, concluding that the Tribunal's finding was correct and the deduction should be allowed. In conclusion, the High Court ruled in favor of the Revenue regarding the liability for damages payable to the DGS & D, and in favor of the assessee regarding the liability to excise duty. The reference was disposed of accordingly, with no order as to costs.
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