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Issues:
1. Interpretation of agreement regarding electricity charges. 2. Entitlement to deduction of a specific sum in business profits for a particular assessment year. Analysis: Issue 1: Interpretation of agreement regarding electricity charges The case involved a dispute over the deduction of electricity charges by an assessee, Kanoria Chemicals & Industries Ltd., for the assessment year 1974-75. The Income Tax Officer disallowed the deduction, citing that the liability for the charges arose in prior years based on the mercantile system of accounting. However, the Tribunal found that the assessee had disputed the bills from the U.P. State Electricity Board, claiming the rates were higher than agreed upon. The Tribunal highlighted the terms of the agreement between the assessee and the Government of U.P., emphasizing clauses related to bill disputes and arbitration. The Tribunal concluded that there was no enforceable legal liability on the excess electricity consumption bills, especially since the assessee had solid grounds for disputing the charges. The Tribunal's decision was based on the fact that the liability only crystallized after arbitration and the award was made, as per legal precedents cited. Issue 2: Entitlement to deduction of a specific sum in business profits The Tribunal's decision was further supported by legal precedents, such as the case of CIT vs. Orient Supply Syndicate, which emphasized that a statutory liability becomes eligible for deduction under the mercantile system of accounting when it becomes real and enforceable. In this case, the Tribunal found that the demand for the specific sum of &8377; 18,62,580 became real and enforceable only after the arbitration award was made, resolving the dispute over the electricity charges. The Tribunal rejected the Revenue's argument that the liability accrued as soon as the bills were presented, highlighting the importance of the arbitration process in determining the enforceability of the liability. The Court agreed with the Tribunal's findings, answering both questions in favor of the assessee and allowing the deduction claimed. In conclusion, the judgment clarified the interpretation of the agreement regarding electricity charges and affirmed the entitlement of the assessee to claim the deduction of the specific sum in the computation of business profits for the relevant assessment year based on the arbitration award's enforceability.
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