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TMI Blog2002 (6) TMI 41X X X X Extracts X X X X X X X X Extracts X X X X ..... upholding the order of the first appellate authority in allowing the contingent liability as an expenditure and is not the said decision perverse? (ii) Whether, on the facts and in the circumstances of the case, the Tribunal was justified and correct in law in upholding the order of the first appellate authority in deleting the addition of contingent liability for the purpose of computation of book profit which was added back as per the provisions of clause (c) of the Explanation to section 115JA? (iii) Whether, on the facts and in the circumstances of the case, the Tribunal was justified and correct in law in holding that no additional tax is imposable when total taxable income is loss after adjustment made under section 143(1)(a) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t liability was converted into a confirmed liability only on September 25, 1989, which was beyond the previous year relevant to the assessment year under consideration. The Assessing Officer held that since the liability was not determined during the relevant previous year, the assessee cannot charge it to the accounts in the said assessment year even though the liability may relate to the period within the previous year. The Assessing Officer, therefore, held that the amount of Rs.12,96,000 cannot be allowed as a deduction for the year and added back the same. The Assessing Officer added the said contingent liability to the ASEB to the book profit of the assessee for computation of income under section 115JA of the Income-tax Act. Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the liability not only pertained to the year under consideration but was also raised and paid. The Tribunal therefore held that the said amount is required to be allowed as deduction in the year under consideration. The Tribunal upheld the order of the first appellate authority. Hence, this appeal. We have heard Shri U. Bhuyan, learned counsel for the appellant, and Dr. A.K. Saraf, assisted by Mr. S.K. Agarwal, learned counsel for the assessee. Mr Bhuyan raises the question that the contingent liability can be deducted only if the amount is sufficiently certain. Mere raising a demand itself is not sufficient to allow a deduction by the company. In this case, the basic difference is that not only was the demand raised but the amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laim of the assessee. The Supreme Court has pointed out that even if the liability is a contingent liability, provided the discounted value is ascertainable it can be taken into account. Here, in this case, as indicated above, there was no dispute with regard to the demand made by the ASEB and that amount was paid. So, the amount can naturally be deducted. Mr. Bhuyan has also placed reliance on Indian Molasses Co. (Pvt.) Ltd. v. CIT [1959] 37 ITR 66, wherein the Supreme Court held as follows: "The income-tax law does not allow as expenses all the deductions a prudent trader would make in computing his profits. The money may be expended on grounds of commercial expediency but not of necessity. The test of necessity is whether the intention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... situation of the case. Here, demand and payment have been made, but there was a proceeding before the court. On the other hand, Dr. Saraf, the learned advocate for the assessee, joining issue with Shri Bhuyan, has placed reliance on Pope the King Match Factory v. CIT [1963] 50 ITR 495 (Mad). This case was later on approved by the Supreme Court in Kedarnath Jute Manufacturing Co. Ltd. v. CIT [1971] 82 ITR 363, wherein the Supreme Court pointed out in the facts of the case that if the liability had even been quantified and demand had been created by means of a notice the liability would not cease to be one for which deduction can be claimed as because the assessee had taken proceedings before the higher authorities for getting it reduced ..... X X X X Extracts X X X X X X X X Extracts X X X X
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