Disputed excise duty deduction fails where the liability did not survive and was not an actual liability.

A disputed excise duty demand was claimed as a deduction despite the assessee contesting the levy and making no provision in its accounts. The Calcutta HC held that the Tribunal was not justified in allowing the amount as expenditure for the relevant assessment year because the demand had ultimately not survived and was found not to be an actual liability. The court expressly declined to decide the broader question whether a disputed demand is deductible in the year claimed even without any accounting provision, and answered the reference in favour of the Revenue.

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Issues: Whether excise duty demand of Rs. 2,71,400, though disputed and not provided in the accounts, was an allowable expenditure for the assessment year under consideration.

Analysis: The reference arose under Section 256(2) of the Income-tax Act, 1961 for the assessment year 1978-79. The assessee had claimed deduction of the excise duty demand although it had contested the levy and made no provision in its accounts. The matter was decided on the subsequent event that the disputed demand had ultimately not survived and was found not to be an actual liability of the assessee. The court expressly refrained from deciding the broader legal question whether a disputed demand is deductible in the year in which it is claimed despite no provision being made.

Conclusion: The Income-tax Appellate Tribunal was not justified in allowing the claimed excise duty as expenditure for the year under consideration, and the question was answered in the negative, in favour of the Revenue.

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