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Issues involved:
1. Deductibility of police deployment charges during a factory lock-out period. Detailed Analysis: The case involves a private limited company appealing against the disallowance of a deduction related to police deployment charges during a factory lock-out period for the assessment year 1980-81. The company debited an amount of Rs. 7,54,530 in its Profit & Loss account for police deployment during the lock-out period, which was included in total security charges. The Income-tax Officer disallowed this deduction, stating that the bill from the Superintendent of Police was disputed and subject to a writ petition. The Commissioner of Income-tax (Appeals) upheld this decision, leading to the main dispute in the appeal. The company argued that under the Mercantile method of accounting, the liability for police deployment charges arose when the services were performed during the lock-out period. They cited the Kedarnath Jute Mfg. Co. Ltd. case to support their claim that the disputed bill did not affect the deductibility of the expenses. The company contended that the method of accounting and services rendered were crucial, not the disputed bill's status. They emphasized their entitlement to the deduction based on the services provided by the police during the lock-out period. On the other hand, the Departmental Representative argued that normal police deployment did not create a liability for payment under the Karnataka Police Act, 1963. They highlighted that additional police deployment required an application and cost agreement, which was lacking in this case. The representative contended that the company had no liability until determined by the District Magistrate, as per the Act. They asserted that the company's refusal to accept the bill and ongoing legal challenges indicated the absence of a valid liability for the claimed deduction. The Tribunal analyzed the submissions and the bill's details, noting discrepancies in dates but emphasizing that the liability for police deployment charges during the lock-out period was contingent on acceptance or determination of liability under the Karnataka Police Act, 1963. The Tribunal concluded that the company's failure to accept the bill or establish a contractual liability rendered the claimed deduction inadmissible under the Mercantile accounting method. The Tribunal upheld the authorities' decision to disallow the deduction based on the lack of accepted or determined liabilities for the police deployment charges during the lock-out period.
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