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TMI Blog1980 (1) TMI 63X X X X Extracts X X X X X X X X Extracts X X X X ..... come-tax Act ? 3. Whether there was material on record justifying the Tribunal's finding that the liability of Rs. 69,383 for damages had crystallised in the accounting period relevant to the assessment year under consideration ? 4. Whether the claim of the assessee for damages could be held to be an allowable deduction in computing the assessee's income liable to assessment for the year under consideration ? " So far as the first two questions are concerned, they are clearly covered by the decision of this court in the case of Saraya Sugar Mills P. Ltd. v. CIT [1972] 116 ITR 387 (FB) and in view of that decision the assessee's claim for interest on the arrears of sales tax and interest on the outstanding balance of the sales tax was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... suance of this clause in the relevant previous year which began on the Dasahara of 1970, and ended on the Dasahara of 1971. Subsequently on 14th June, 1972, the Superintending Engineer, Electricity Stores Procurement Circle, U.P. State Electricity Board, Lucknow, by letter No. 6286-SP (T) /I/ CEH-315/67 (L.M.) made a demand for Rs. 69,383 for breach of the contract. The letter sent is to the following effect : " A contract No. SP/433/68 dated 21-9-68 was executed by you with the Board ......... In accordance with the terms of the contract the supplies were to be completed by July, 1969 ......... Out of 5,000 only 3,976.649 Km. supplied so far. For the balance you have expressed your inability to execute the order. You are, therefore, guil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Tribunal cannot be upheld. Before a claim for damages can be allowed even in cases where the assessee follows the mercantile system, the liability must be in praesenti,i.e., it must be an actual liability, and not one which may arise in future. Contingent liability which may or may not arise cannot be allowed as deduction. The decisions of this court in the cases of A.P S. Cold Storage and Ice Factory v. CIT [1979] 119 ITR 709, Kanpur Tannery Ltd. v. CIT [1958] 34 ITR 863, New Victoria Mills Co. Ltd. v. CIT [1966] 61 ITR 395 CIT v. Mathulal Baldeo Prasad [1961] 42 ITR 517 establish this principle,as also the pronouncement of the Supreme Court in the case of CIT v. Swadeshi Cotton and Flour Mills P. Ltd. [1964] 53 ITR 134 (SC). Counsel fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctricity Board be in a position to know the period of deficient commercial and efficient working of its plant on account of non-performance of the contract in full by the assessee. A time lag would be there before such ascertainment is possible. Further, the liability under the clause arises only in case of non-working of the plant efficiently and commercially and not otherwise. Thus, mere breach of the contract does not in all cases create a liability. This apart, as the assessee pressed for waiver of the amount which was ultimately allowed, the liability under cl. 27 could not be said to have crystallized till such time as the waiver issue was decided by the Electricity Board. In the present case, as has been seen, the amount was ultimate ..... X X X X Extracts X X X X X X X X Extracts X X X X
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