Accrual-based deduction allowed where liability had accrued, even without actual payment under the Income-tax Act.

Deduction under section 80VV was held allowable where the expenditure had been incurred in the previous year, even though it was not actually paid. The High Court reasoned that the statutory term "incurred" refers to accrual of liability, and actual payment is not required unless the assessee follows the cash system of accounting. On the facts, the liability to pay Rs. 5,000 had already accrued in the relevant previous year, so there was no basis to read "paid" into the provision. The deduction was therefore correctly allowed in favour of the assessee.

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Issues: Whether deduction under section 80VV of the Income-tax Act, 1961 was allowable on expenditure incurred in the previous year even though the amount had not actually been paid.

Analysis: The provision speaks of expenditure "incurred" in the previous year. Actual payment is not a necessary condition unless the assessee follows the cash system of accounting. On the facts found, the liability to pay Rs. 5,000 had already accrued in the relevant previous year, and there was no basis to substitute the concept of "paid" for "incurred" in construing the section.

Conclusion: The deduction was rightly allowed; the question is answered in the affirmative and in favour of the assessee.

Ratio Decidendi: Where a deduction provision allows expenditure "incurred" in the previous year, the assessee is entitled to the deduction on accrual of liability and actual payment is not required unless the cash method applies.

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