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TMI Blog1990 (10) TMI 111X X X X Extracts X X X X X X X X Extracts X X X X ..... trite from said company in the relevant year. On 7th May, 1980 and 27th Sept., 1980 said company wrote letters to assessee stating that central excise authorities were demanding from said company excise duty on sodium nitrite on the ground that sodium nitrite could also be used for manufacturing dyes. The said company demanded Rs. 2,62,086 (Rs. 87,392 + Rs. 1,72,528 + Rs. 7,591) being the excise duty on supplies made to assessee for period from 5th June, 1979 to 25th Dec., 1980. The said company informed the assessee that they were contesting the demand of excise authorities, as according to them, demand by excise authorities was not justified. The assessee made a provision for Rs. 2,62,086 and claimed deduction which was disallowed by ITO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was nothing to indicate that in the year in question the assessee had accepted the liability. In any case the liability was a contingent liability as neither the assessee nor M/s Deepak Nitrite Ltd. had accepted the same and said contingent liability was not allowable as deduction in view of decisions in the case of Indian Molasses Co. (Pvt) Ltd. vs. CIT (1959) 37 ITR 66 (SC) and in the case of Southern Railway of Peru Ltd. vs. Owen (H.M. Inspector of Taxes) (1957) 32 ITR 737 (HL). 5. We have considered the rival submissions and facts on record. In support of the plea that assessee incurred liability for amount in question in the relevant accounting year, reliance is placed on the two letters received from M/s Deepak Nitrite Ltd., and on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xcise authority, we will refund the said deposit or the continuing bank guarantee will cease to operate." 7. It is clear from this letter that what is required from assessee is a deposit of amount in question which would be refunded in future in case of success on point in controversy. 8. Similar is the tenor of the second letter which is dt. 22nd Sept., 1980. It is mentioned therein that reply had been filed before central excise authority. There is request for deposit of additional amount. It is clarified that "Amounts paid by you will be treated as deposit and will be refunded if the case is favourably decided by the central excise authority." 9. As far as these two letters are concerned, their contents do not indicate that any l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity is that which has crystallised although it may be quantified later on. A liability which has not at all crystallised in the relevant accounting year cannot be claimed as deduction in computation of profits and gains of business of that year even when system of accounting is mercantile. Deposits required to be made in course of business to meet contingent liability would not qualify for deduction in computation of profits and gains of business. We had asked the learned representative of assessee whether there were any other relevant documents of year in question and we were told that there were none. From the two documents referred to above we are unable to draw an inference that deductible liability had been incurred by the assessee in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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