Law:

Section:

Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Year in which deductible - Assessment year 1989-90 - Excess amount of electricity charges, demanded by ASEB, was paid by assessee but appeal was filed - Interim order was passed staying enhanced demand - High Court upheld validity of enhancement - Assessee converted amount, which was treated by it as contingent liability, into confirmed liability and claimed deduction - Assessing Officer disallowed deduction on ground that liability was not determined during relevant previous year and it did not pertain to assessment year in question - Whether since there was no dispute with regard to demand made by ASEB and fact that amount was paid, deduction should have been allowed - Held, yes FACTS The assessee claimed that it had paid excess amount of electricity charges demanded by the Assam State Electricity Board (ASEB). It filed an appeal in the High Court, in respect of which an interim order was passed staying the enhanced demand of electricity charges. That amount was treated by the assessee in its books as contingent liability. Ultimately, the validity of enhancement was upheld by the High Court. During the course of assessment proceedings, the assessee converted the aforesaid contingent liability into a confirmed liability and charged it to the accounts and claimed deduction for the same. The Assessing Officer was of the view that the said liability was converted into a confirmed liability on a date which was beyond the previous year relevant to the year under consi-deration and held that it did not pertain to assessment year under consideration. He, therefore, disallowed the deduction. On appeal, the Commissioner (Appeals) allowed the deduction on the ground that the liability lost its contingent character and became finalised before finalisation of the accounts. On further appeal, the Tribunal upheld the order of the Commissioner (Appeals). On appeal by the revenue under section 260A : HELD The revenue contended that the contingent liability could be deducted only if the amount was sufficiently certain and mere raising a demand itself was not sufficient to allow a deduction by the company. In…

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