Accrued excise duty liability under show-cause notices served in the accounting year was held deductible for tax purposes.

Excise duty liability covered by show-cause-cum-demand notices served within the relevant accounting year was treated as accrued and therefore deductible in the assessment year 1980-81. The Calcutta High Court applied its earlier ruling in CIT v. Century Enka Ltd. and accepted that service of such notices during the accounting year fixes the liability for deduction purposes. On that basis, the Tribunal's view allowing the deduction was upheld, and the referred question was answered in favour of the assessee.

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Issues: Whether excise duty liability arising from show-cause-cum-demand notices served during the relevant accounting year was allowable as a deduction in the assessment year 1980-81.

Analysis: The question referred arose under section 256(2) of the Income-tax Act, 1961. The parties accepted that the issue was governed by the earlier decision of the same court in CIT v. Century Enka Ltd., on the principle that liability under show-cause-cum-demand notices can be regarded as accrued when the notices are served within the relevant accounting year. On that basis, the court held that the Tribunal was right in treating the claim as deductible in respect of notices served during the accounting year.

Conclusion: The referred question was answered in the affirmative and in favour of the assessee.

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