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[2008] 303 ITR 133 (HP) HIGH COURT OF HIMACHAL PRADESH Jai Kumar Muni Chand v. Commissioner of Income-tax DEEPAK GUPTA AND V. K. AHUJA, JJ. ITR NO. 24 OF 1995 OCTOBER 29, 2007 Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of Even in a case where assessee maintains his accounts on mercantile basis liability to pay tax can be said to be properly arising only when dispute between parties is settled or finally adjudicated upon [Assessment year 1983-84] Even in a case where the assessee maintains his accounts on mercantile basis the liability to pay tax can be said to be properly arising only when the dispute between the parties is settled or finally adjudicated upon. The petitioner was working as a forest contractor. He entered into an agreement with the District Forest Officer, Kotgarh on 3-7-1979. He was liable to pay the sale-tax which, at the relevant time, was 10 per cent. The rate of sales-tax was enhanced by a retrospective amendment to the H.P. General sales-tax Act with effect from 1-2-1979. The assessee challenged the amendment before the High Court. His writ petition was dismissed on 23-4-1980. Thereafter, the assessee filed Special Leave Petition before the Supreme Court in June, 1980 and a stay order was granted in his favour on 18-6-1980. The matter was finally decided on 18-11-1982 and the stay order was vacated on the said date. As a result of the aforesaid decision the assessee deposited the amount of sales-tax. He claimed deduction with respect to the enhanced liability of sales-tax by showing it as liable to be paid in the year 1982, i.e. the assessment year 1983-84. The claim was disallowed on the ground that the liability to pay tax had arisen on 1-2-1979 and since the assessee was following the mercantile system of accounting the deduction could have only been sought for the relevant year. Held that the assessee challenged the amendment and finally the matter was decided on 18-11-1982. The assessee was found liable to pay the tax only on that date. There was a valid stay order operating in his favour till the said date. Therefore, the assessee was entitled to claim deduction of the amount of sales-tax in the…

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