Mercantile accounting allows deduction of a quantified excise duty liability once it becomes legally enforceable, despite pending appeals.

Under the mercantile system, a quantified statutory excise duty demand was treated as an accrued and legally enforceable liability when it crystallised, even though payment was disputed and appeals were pending. Because the demand remained operative and capable of coercive recovery until set aside, it was not merely contingent. The liability was therefore deductible in the relevant accounting year, and the disallowance was held incorrect.

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Issues: Whether the excise duty demanded by the authorities became an accrued and legally enforceable liability in the relevant accounting year so as to be deductible under mercantile accounting.

Analysis: The liability arose from a formal statutory demand for a quantified sum of excise duty. Under the mercantile system, a liability is deductible when it is incurred and becomes enforceable in law, not only when it is actually paid. The pendency of appeals against the demand did not make the liability contingent, because the demand remained operative and capable of coercive recovery until set aside. The distinction between a contingent liability and an ascertained enforceable liability was applied to hold that the excise duty had crystallised in the relevant year.

Conclusion: The amount of excise duty was an accrued liability in the accounting year and was deductible. The disallowance was incorrect, and the answer to the question was in favour of the assessee.

Ratio Decidendi: Under the mercantile system, a quantified statutory liability becomes deductible when it is legally enforceable, even if payment is disputed or deferred by pending appeals.

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