Crystallisation of liability determines deductibility of business expenditure when the liability is first ascertained in the relevant year.

Business expenditure is allowable in the year in which the liability crystallises, if the assessee cannot show that the liability was known or ascertainable earlier. On the stated facts, the debit note issued on 31 December 1977 was the first material indicating the liability, and there was no evidence of earlier ascertainment. The expenditure was therefore treated as having crystallised in the relevant previous year and was deductible for the assessment year under consideration.

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Issues: Whether the assessee was entitled to claim the liability of Rs. 13,436 as business expenditure in the previous year relevant to the assessment year 1978-79 when the debit note was issued and the liability was ascertained on 31 December 1977.

Analysis: The liability was not shown to have been known or ascertainable by the assessee before 31 December 1977. The debit note issued on that date was the first material indicating the assessee's liability, and the record contained no evidence to show an earlier ascertainment. On those facts, the expenditure was treated as having crystallised in the relevant previous year.

Conclusion: The claim was allowable as business expenditure in the previous year relevant to the assessment year under consideration, and the contrary finding was incorrect.

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