Contingent excise duty liability is not deductible when only show-cause notices existed and no accrued demand arose.

A deduction for differential excise duty cannot be claimed merely on the basis of show-cause notices. Where no demand was raised in the accounting year and the notices were later quashed, no liability in praesenti existed; at most, the liability was contingent on future adjudication. For income-tax purposes, deduction is available only for an actual liability existing in the year of account, and the rule in Kedarnath Jute Manufacturing Co. Ltd. did not apply because no statutory demand had accrued. The claimed deduction was therefore not allowable as expenditure in the relevant assessment year.

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Issues: Whether the assessee was entitled to deduction of differential excise duty on the basis of show-cause notices, and whether such amount represented an accrued liability deductible in the relevant assessment year.

Analysis: The deduction claimed by the assessee was founded only on show-cause notices issued by the Central Excise Department. No demand had been raised against the assessee in the accounting year, and the notices were subsequently quashed. On these facts, there was no liability in praesenti. The liability, if any, was only contingent and dependent on future adjudication. Deduction under the Income-tax Act is available only for an actual liability existing in the year of account. The rule in Kedarnath Jute Manufacturing Co. Ltd. applied only where a statutory demand had actually accrued, which was not the position here.

Conclusion: The assessee was not entitled to deduction of the differential excise duty for the assessment year in question; the claim was not allowable because it arose only from a contingent liability.

Ratio Decidendi: An amount based only on a show-cause notice, without an accrued or existing liability in the accounting year, is a contingent liability and is not deductible as expenditure under the Income-tax Act.

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