Mercantile deduction of disputed police deployment charges fails where liability was not finally determined or accepted

Police deployment charges claimed on mercantile basis were held not deductible for the assessment year 1980-81 because the liability was still disputed, had not been accepted by the assessee, and had not been finally determined under the Karnataka Police Act, 1963. The first bill was raised only after the close of the previous year, while the second amount was merely a provision without any bill. On these facts, there was no concluded statutory liability accruing in the relevant year, so the principles of accrued liability under mercantile accounting did not justify the deduction. The disallowance was therefore upheld.

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Issues: Whether the assessee was entitled to deduction of police deployment charges claimed on mercantile basis for the assessment year 1980-81 when the liability was disputed, the bill was raised after the close of the previous year, and the amount had not been accepted or finally determined.

Analysis: The assessee's claim related to charges for police deployment during a lock-out period. The liability for such charges depended on whether the deployment was additional deployment at the assessee's instance and, if disputed, on determination under the Karnataka Police Act, 1963, or on acceptance of the demand by the assessee. The first bill was raised after the end of the previous year, the second amount was only a provision without any bill, and the liability had not been accepted by the assessee. On these facts, the claim did not represent a concluded statutory liability accruing in the relevant previous year. The principles governing mercantile accounting and deduction of accrued liabilities did not assist the assessee because the liability itself remained undetermined and disputed.

Conclusion: The deduction of the police deployment charges was not allowable for the assessment year 1980-81 and the disallowance was upheld against the assessee.

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