Accrued liability and export deduction principles: leave with wages allowed, while export-related weighted deduction needs fresh examination.

Weighted deduction for export-related expenditure under section 35B required fresh examination because the existing record was insufficient to finally determine entitlement, and the assessee had to be allowed to adduce evidence on the relevant heads of expenditure. The claim for leave with wages was treated as an accrued liability, because the obligation arose from statutory entitlement and was consistently reflected in the assessee's accounts; that deduction was sustained. The text also notes the general principle that an accrued liability is deductible if it is not merely contingent, while export-deduction claims depending on factual substantiation may be remitted for reconsideration.

---

---

Issues: (i) Whether weighted deduction under section 35B of the Income-tax Act, 1961 was allowable on the export-related expenditure claimed by the assessee, and whether the matter required reconsideration by the Tribunal; (ii) Whether the assessee's claim for deduction towards leave with wages was allowable as an accrued liability.

Issue (i): Whether weighted deduction under section 35B of the Income-tax Act, 1961 was allowable on the export-related expenditure claimed by the assessee, and whether the matter required reconsideration by the Tribunal.

Analysis: The controversy on the section 35B claim was covered by the then-applicable Supreme Court decisions on the scope of weighted deduction. In view of those authorities, the matter could not be finally determined on the existing record and required fresh examination by the Tribunal. The assessee was to be given an opportunity to adduce evidence and substantiate the claim under the relevant heads of expenditure.

Conclusion: The issue was remitted to the Tribunal for fresh decision in accordance with law.

Issue (ii): Whether the assessee's claim for deduction towards leave with wages was allowable as an accrued liability.

Analysis: The Tribunal had examined the claim in the light of the requirements of section 79 of the Factories Act, 1948, and had recorded that the liability for leave with wages arose on the basis of the statutory entitlement of workers and the consistent accounting treatment followed by the assessee. The claim was supported by the governing principle that a liability which has accrued is deductible even if its quantification is made on a reasonable basis, and the view taken was consistent with the Supreme Court's decision on leave encashment liabilities.

Conclusion: The deduction for leave with wages was rightly allowed in favour of the assessee.

Final Conclusion: The reference was disposed of by remitting the weighted deduction questions for reconsideration while sustaining the deduction for leave with wages.

Ratio Decidendi: A liability that has accrued in the accounting year is deductible if it is not merely contingent, and export-deduction claims requiring factual substantiation may be remitted for fresh adjudication where the governing legal position so warrants.

---