Accrued liability requirement: a mere excise show-cause notice does not create deductible expenditure under income-tax law.

A provision made only because excise show-cause notices were issued was held not to be deductible, because no demand notice or adjudication had been made during the accounting year and the assessee had not admitted liability. As the proceedings were later dropped, no present liability had accrued and the amount remained a contingent liability. A book entry alone does not convert an uncrystallised liability into allowable expenditure under income-tax law. The deductible claim therefore failed, and the principle stated is that only an existing, accrued liability in praesenti can be allowed as expenditure.

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Issues: Whether a provision made merely on the basis of show-cause notices issued by the excise authorities could be allowed as a deductible liability in computing income.

Analysis: The amount claimed as deduction was not supported by any demand notice or adjudication during the relevant accounting year. The assessee had only received show-cause notices, had not admitted liability, and the proceedings initiated by those notices were later dropped. On the facts, no present liability had accrued and the claim rested only on a contingent liability. A mere provision in the books does not convert an uncrystallised or contingent liability into deductible expenditure.

Conclusion: The deduction was not allowable; the claim failed and the question was answered against the assessee and in favour of the Revenue.

Final Conclusion: Deductibility under income-tax law requires an existing and accrued liability, and a show-cause notice by itself does not create an allowable expenditure.

Ratio Decidendi: A liability is deductible only when it has actually accrued and exists in praesenti; a mere show-cause notice, without demand or adjudication, gives rise only to a contingent liability and cannot be allowed as expenditure.

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