[aaykarbhavan] Contingent liabilities do not constitute expenditure and cannot be the subject-matter of deduction even under the mercantile system of accounting.

 BOMBAY HIGH COURT - Income Tax

M/s. Mafatlal Industries Ltd. Versus Commissioner of Income Tax

Accrual of expenditure - interest liability on excise duty - interest for the period 1.4.82 to 31.3.83 payable pursuant to the Gujarat High Court order dated 6.4.1984 – Held that:- Contingent liabilities do not constitute expenditure and cannot be the subject-matter of deduction even under the mercantile system of accounting. - There was no actual liability in praesenti - no demand was raised against the assessee - The assessee did not admit any liability and showed cause refuting the allegations made in the show-cause notices - the cause shown by the assessee was accepted by the excise authorities and proceedings initiated by the show-cause notices were dropped - the liability claimed by the assessee as a liability on account of excise duty was merely a contingent liability which cannot constitute expenditure for the purposes of income-tax – Decided against Assessee.

Regards

Prarthana Jalan

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Posted by: Prarthana Jalan <prarthanajalan@ymail.com>

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