Accrued liability and reassessment limits: disputed licence fee remained deductible, while reopening failed without fresh tangible material.

Under the mercantile system, enhanced licence fee payable to the Railways was treated as an accrued liability once the obligation had arisen and could be reasonably estimated, even though it was disputed, unpaid and subject to later adjustment; the deduction was therefore allowable in the relevant years. Reopening under the Income-tax Act was held unsustainable where it was not based on fresh tangible material and relied only on the earlier controversy over the claim; the reassessment jurisdiction was therefore invalid for the specified years. On the remanded matters, the Tribunal did not fully address the earlier directions, but the deduction of licence fee for the later years was nevertheless upheld on merits.

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Issues: (i) Whether the enhanced licence fee payable to the Railways was an accrued liability deductible in the year of accrual, notwithstanding dispute, non-payment, and pendency of proceedings. (ii) Whether the reopening of assessments under Section 147 of the Income-tax Act, 1961 for the relevant assessment years was valid. (iii) Whether the order of the ITAT dated 31 July 2009 conformed to the earlier remand directions, and whether the deduction of licence fee claimed for the later assessment years was rightly allowed.

Issue (i): Whether the enhanced licence fee payable to the Railways was an accrued liability deductible in the year of accrual, notwithstanding dispute, non-payment, and pendency of proceedings.

Analysis: A liability is not contingent merely because it is disputed, quantified later, or subject to subsequent adjudication. Under the mercantile system, expenditure is deductible once the liability has arisen and can be estimated with reasonable certainty, even if payment is postponed. The order of the Estate Officer did not extinguish the assessee's liability for enhanced licence fee for all times to come, but only indicated that revision must be made in accordance with law. The repeated demands raised by the Railways showed that the liability remained alive. The pendency of arbitration and the possibility of later adjustment did not convert the liability into a contingent one.

Conclusion: The enhanced licence fee was an accrued liability and was deductible in the relevant years; this issue was decided in favour of the assessee.

Issue (ii): Whether the reopening of assessments under Section 147 of the Income-tax Act, 1961 for the relevant assessment years was valid.

Analysis: Reopening must rest on legally sustainable reasons to believe based on fresh tangible material. Here, the earlier acceptance of the claim in some years and the absence of any new material showed that the reassessment was not founded on a valid jurisdictional basis. The reopening could not be justified merely by reference to earlier controversy over the licence fee claim.

Conclusion: The assumption of jurisdiction under Section 147 was invalid for the specified assessment years, and this issue was decided in favour of the assessee.

Issue (iii): Whether the order of the ITAT dated 31 July 2009 conformed to the earlier remand directions, and whether the deduction of licence fee claimed for the later assessment years was rightly allowed.

Analysis: For the appeals where remand compliance was in question, the Tribunal had not fully dealt with all matters required by the earlier remand. For the later assessment years, once the licence fee was held to be an accrued liability, the deduction claimed by the assessee could not be denied merely because the amount had not yet been paid or because the Revenue disputed the revision. The same principle supported the allowance for the later years.

Conclusion: The Tribunal did not fully comply with the remand directions in the relevant appeals, but the deduction of licence fee was correctly allowed on merits; this issue was substantially in favour of the assessee.

Final Conclusion: The assessee succeeded on the substantive deductibility issue and on the invalidity of reopening, while the Revenue failed in the connected appeals. The impugned orders were sustained only to the extent they allowed deduction of the accrued licence fee, and the reassessment-based additions were set aside where jurisdiction was lacking.

Ratio Decidendi: Under the mercantile system, a liability becomes deductible when it has arisen and can be reasonably estimated, even if disputed or unpaid, and reassessment cannot be sustained without fresh tangible material showing escapement of income.

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