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Section 37(1) of the Income-tax Act 1961 - Business expenditure - Allowability of - Whether excise duty liability arising on basis of show-cause notice issued by Central Excise Department was allowable under section 37 - Held, yes FACTS The assessee claimed an amount of Rs. 2,10,421 on account of demand notices received during the year. But the ITO found that the assessee's claim was based on mere 'show-cause notices' and that they did not create an enforceable legal liability during the previous year. On appeal, the Commissioner (Appeals) agreed with the view of the ITO and confirmed the disallowance. The Tribunal held that the assessee was entitled to the deduction of Rs. 13,781 and Rs. 6,376 as the notices were dated 16-10-1979, and 17-1-1980, respectively, and were served in the relevant accounting year on the assessee. However, the date of service of notices dated 14-3-1979, demanding Rs. 1,05,514 and Rs. 78,750 could not be furnished by the assessee. In the circumstances, this matter was restored to the file of the ITO. On reference : HELD In view of the decision in the case of CIT v. Century Enka Ltd. [1981] 130 ITR 267 (Cal.), the Tribunal was justified in law in holding that the excise duty liability arose on the basis of the show-cause notices issued by the Central Excise Department and, in that view of the matter, the claim for excise duty liability amounting to Rs. 2,04,421 was allowable in assessment. Note : The case was decided in favour of the assessee. CASE REFERRED TO CIT v. Century Enka Ltd. [1981] 130 ITR 267 (Cal.). JUDGMENT Ajit K. Sengupta, J.-In this reference under section 256(2) of the Income-tax Act, 1961, the following question of law for the assessment year 1980-81 has been referred to this court: "Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the excise duty liability arises on the basis of the show-cause notices issued by the Central Excise Department and, in that view of the matter, the claim for excise duty liability amounting to Rs. 2,04,421 is allowable in assessment?" The facts, briefly stated, are as follows: The assessee claimed an amount of Rs. 2,10,421 on…

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