Law:

Section:

Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Year in which deductible - Assessment year 1982-83 - Assessee was engaged in sales of motor cars and their spare parts as a dealer of 'P' - Following Government's decision to hike selling price of car, 'P' asked assessee to make further payments on purchases made earlier - Assessee initially disputed said demand, but same was finally settled vide agreement dated 20-9-1981 at certain sum - Assessee made payment during relevant previous year and, accordingly, claimed deduction from its income - Assessing Officer disallowed assessee's claim holding that liability in question did not relate to assessment year under consideration but related to period 1969 to 1971 - Tribunal allowed assessee's claim holding that liability to pay accrued and arose on date of final settlement, i.e., in accounting period under consideration relevant to assessment year 1982-83 - Whether Tribunal was justified in allowing assessee's claim - Held, yes FACTS The assessee was engaged in sales of motor cars and their spare parts as a dealer of 'P'. During the course of assessment proceedings for the assessment year 1982-83, it was noticed that the assessee had debited a sum in profit and loss account under the head "Car Price Difference paid to 'P' and, accordingly, claimed it as deduction during the year under consideration from its total income. The amount represented difference in the selling price of the car by 'P' as fixed by the notification of the Government in September, 1969 and the price refixed on the of the Supreme Court of India in November, 1971. Consequent upon the increase in prices by the Government, the 'P' had asked the assessee to make further payment on the purchases made earlier. Since the assessee did not recover said amount from the customers, it denied the liability and created a dispute with the principals, i.e., 'P' as according to them the liability was restricted to the recovery that could be affected from the customers. After a long correspondence between the assessee and the principals, the liability in question was finally settled by an agreement dated 20-9-1981 at certain sum and the assessee…

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