Mercantile system deduction principle bars later claim of provident fund liability after accrual and dispute resolution.

Under the mercantile system, employees' provident fund contribution is deductible only in the year in which the liability accrues, not in a later year when payment is made after dispute resolution. The liability arose from year to year during the relevant period and could have been claimed in those years, so it was not allowable in assessment year 1972-73. The later adjudication and subsequent payment did not defer accrual for deduction purposes, and the claim was rejected in favour of the Revenue.

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Issues: Whether the employees' provident fund contribution of Rs. 16,486 relating to the period from February 1962 to December 1970 was allowable as a deduction in the assessment year 1972-73.

Analysis: The assessee maintained accounts on the mercantile system, under which expenditure is allowable when the liability accrues. The obligation to pay the employees' provident fund contribution arose from year to year during the relevant period and could have been claimed in those years. The dispute regarding liability had been finally adjudicated before the close of the relevant accounting period, and the fact that payment was made later did not defer the accrual of the liability for deduction purposes.

Conclusion: The deduction was not allowable in assessment year 1972-73, and the question was answered against the assessee and in favour of the Revenue.

Ratio Decidendi: Under the mercantile system, a liability is deductible in the year in which it accrues, even if payment is made later after dispute resolution.

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