Crystallized liability test bars deduction for claimed contract loss where obligation was not established by year-end.

A provision for contract loss was deductible only if the liability had crystallized by year-end and was supported by material showing an existing obligation. The tribunal found that the arbitration proceedings and settlement arose after the relevant previous year, and the record did not show any ascertained or acknowledged liability during that year. The claimed rental compensation was also unsupported by material explaining how it was computed or why it had become payable. A mere contractor claim, without an admitted liability, was insufficient; the disallowance was restored and the assessee's deduction claim failed.

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Issues: Whether the provision claimed for contract loss, including the amount said to be payable to the contractor and the rental compensation, constituted a crystallized liability allowable as a deduction.

Analysis: The provision was not shown to have crystallized as on the close of the relevant previous year. The arbitration proceedings and the eventual settlement arose after the year-end, and the record did not establish that the assessee had an ascertained or acknowledged liability during the year. The amount claimed as rental compensation was also unsupported by material showing how it was computed or why it had become payable. A mere claim by the contractor, without a corresponding admitted liability, was insufficient to treat the amount as an accrued liability.

Conclusion: The provision was not allowable as a crystallized liability; the disallowance was rightly restored and the assessee's claim failed.

Final Conclusion: The deletion made by the first appellate authority was set aside and the Revenue succeeded in full.

Ratio Decidendi: A provision is deductible only when the liability has crystallized and is supported by material showing an existing obligation; a contingent or merely claimed liability is not allowable.

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