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TMI Blog2011 (5) TMI 816X X X X Extracts X X X X X X X X Extracts X X X X ..... nue is in appeal against the judgment of the Tribunal dated 31.10.2010 raising the following question for our consideration "Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in allowing deduction of claim of ONGC liability, disregarding the fact that during the year assessee has not paid any amount towards this liability. It was a contingent liability and the real character of payment was that the advance or deposit and not of an expenditure under the mercantile system of accounting followed by the assessee?" 2. For the assessment year 2005-2006, the assessee had claimed deduction of Rs.8,11,99,503/- being amount of interest payable to ONGC. The Assessing Officer, during the course of assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed on the decision of Division Bench of this Court in the case of Alembic Chemical Works Ltd. vs. Deputy Commissioner of Income-Tax reported in [2004] 266 ITR 47, wherein the Bench observed that in the case of the assessee following the mercantile system of accounting, liability is said to be properly incurred when the dispute between the parties is amicably settled or finally adjudicated, where the liability in question is not a statutory liability. It has been further held as under:- "Thus, the settled position in law is that in the case of an assessee following the mercantile system of accounting a liability is said to be properly incurred when the dispute between the parties is amicably settled or finally adjudicated, where the liab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ischarging such a liability, which according to the assessee, had crystallized with the decision of the Supreme Court. The assessee's liability to pay interest and other charges to the ONGC, clearly achieved finality. The said liability, therefore, the Tribunal found to have arising. In our view, rightly so, it is in this background that the decision in the case of Bharat Earth Movers vs. CIT (supra) can be appreciated. In the said case, the Apex Court observed as under:- "The law is settled: if a business liability has definitely arisen in the accounting year, the deduction should be allowed although the liability may have to be quantified and discharged at a future date. What should be certain is the incurring of the liability. It sho ..... X X X X Extracts X X X X X X X X Extracts X X X X
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