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TMI Blog2004 (9) TMI 62X X X X Extracts X X X X X X X X Extracts X X X X ..... s were an allowable deduction in the years under consideration, viz., assessment years 1976-77, 1977-78, 1978-79 and 1979-80? 2. Whether the Tribunal was correct in allowing the assessee's claim for a sum of Rs. 82,077 as liability raised against him by an order of the Regional Director, E.S.I., by his order dated October 29, 1975, for the years other than the assessment year 1976-77?" The present reference relates to the assessment years 1977-78 to 1979-80. Briefly stated the facts giving rise to the present reference are as follows: The respondent-assessee is a private limited company enjoying income from manufacture of glass articles. During the course of assessment for the years 1976-77 to 1979-80, the Income-tax Officer declined t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In respect of the amount of payment to the Director, Employees State Insurance Corporation, it may be mentioned here that the factory was closed in June, 1968 on account of continuous losses and serious labour problems. It remained closed up to August, 1969, when the same was restarted after amicable settlement with the workers. The dispensary also remained closed. However, it was reopened on February 1, 1971. As the factory did not function from June, 1968, and no services were rendered, the workers resisted deduction on account of E.S.I, and accordingly the respondent did not provide in its books of account any liability on that account. After the restart there was no proper functioning of the dispensary, as there was only a skeleton staf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not possible to comprehend how the liability would cease to be one because the assessee had taken proceedings before the higher authorities for getting it reduced or wiped out so long as the contention of the assessee did not prevail with regard to the quantum of liability, etc. An assessee who follows the mercantile system of accounting is entitled to deduct from the profits and gains of the business such liability, which had accrued during the period for which the profits and gains were being computed. It can again not be disputed that the liability to payment of sales tax had accrued during the year of assessment even though it had to be discharged at a future date. In Pope The King Match Factory v. CIT [1963] 50 ITR 495 (Mad), a deman ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unting period because of the demand notice issued by the Excise Department after the show-cause notice and on the basis of the trade notice issued by the Collector in October, 1979, the obligation under the law to pay the excise duty arose at that stage. Raising of the dispute by the assessee by filing a writ petition for quashing or deduction of the said liability would not be a ground for holding that liability to pay the excise duty as per the demand notice was not incurred. The apex court has held that the amount was to be allowed as a deduction when the demand notice was issued, i.e., April 21, 1980, relating to the assessment year 1981-82. Applying the principle laid down by the apex court in the aforesaid case, we find that the dema ..... X X X X Extracts X X X X X X X X Extracts X X X X
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