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Issues involved: Assessment of excise duty liability provision for the year 1967-68.
Summary: The High Court of Allahabad addressed the issue of whether a provision of Rs. 16,00,876 towards excise duty liability was admissible as a deduction for the assessment year 1967-68. The assessee, a public limited company engaged in manufacturing and sale of synthetic materials, had made this provision but disputed the liability in a writ petition before the Delhi High Court. The Delhi High Court ruled in favor of the assessee, but the Excise Department appealed to the Supreme Court. The Income Tax Officer (ITO) disallowed the deduction based on the Delhi High Court's decision. However, the assessee argued that as the Excise Department continued to insist on the payment despite the pending appeal, the deduction should be allowed. The Appellate Authority Commission (AAC) accepted the assessee's plea based on the Supreme Court's decision in a similar case. The Income-tax Appellate Tribunal upheld the AAC's decision, leading to the Department appealing to the High Court. The High Court, after considering the arguments, affirmed the Tribunal's decision based on the principles established by the Supreme Court. It noted that the assessee could claim the deduction as the Excise Department was challenging the Delhi High Court's decision and insisting on the payment. Referring to a previous case involving the same assessee, the High Court reiterated that a provision for a business liability could be claimed as a deduction even if disputed, following the mercantile system of accounting. The High Court concluded in favor of the assessee, citing previous judgments and the Revenue's ability to tax if the liability ceased due to a court decision. In alignment with the previous decision of the Division Bench, the High Court ruled in favor of the assessee, allowing the deduction for the excise duty provision. The assessee was awarded costs amounting to Rs. 250.
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