Crystallised liability required for excise deduction, while gratuity, foreign-loan exchange loss, and guest house claims were disallowed.

Excise duty claimed only on the basis of mere show cause notices was not deductible under the mercantile system because no crystallised legal liability had arisen. Incremental gratuity liability actuarially valued was also disallowed under the governing statutory bar and Supreme Court authority. Exchange loss on remittance of a foreign currency loan was treated as capital in nature, so it was not allowable as revenue expenditure; the alternative claim for investment allowance also failed because the amount did not satisfy the statutory conditions. Expenditure on a transit house was sustained as guest house expenditure, and the assessee failed on all substantive grounds.

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Issues: (i) Whether excise duty claimed on the basis of mere show cause notices was an allowable deduction on the mercantile system of accounting; (ii) whether the incremental liability for gratuity actuarially valued was deductible; (iii) whether exchange difference on remittance of foreign currency loan was allowable as revenue expenditure and, alternatively, whether investment allowance was admissible on that amount; and (iv) whether expenditure on the transit house was disallowable as guest house expenditure.

Issue (i): Whether excise duty claimed on the basis of mere show cause notices was an allowable deduction on the mercantile system of accounting.

Analysis: Liability to excise duty may accrue when the taxable event occurs, but in the case of unadmitted liability the enforceable obligation arises only when the excise authority determines the demand. A mere show cause notice is only a proposal to levy duty and does not itself create a present legal liability. The cited authority on accrued excise liability did not govern a case where no demand had been adjudicated and no liability had crystallised in the relevant year.

Conclusion: The deduction was not allowable and the disallowance was upheld against the assessee.

Issue (ii): Whether the incremental liability for gratuity actuarially valued was deductible.

Analysis: The claim stood covered by the statutory bar and the controlling Supreme Court decision on gratuity liability, under which the deduction was not available in the manner claimed.

Conclusion: The claim was disallowed against the assessee.

Issue (iii): Whether exchange difference on remittance of foreign currency loan was allowable as revenue expenditure and, alternatively, whether investment allowance was admissible on that amount.

Analysis: The exchange difference on repayment of the foreign currency loan was held to be on capital account and therefore not deductible as revenue expenditure. For the alternative claim, investment allowance was found unavailable because the amount did not represent qualifying installation cost in the relevant year and the statutory conditions for the allowance were not satisfied.

Conclusion: Both the revenue-expenditure claim and the alternative investment-allowance claim failed against the assessee.

Issue (iv): Whether expenditure on the transit house was disallowable as guest house expenditure.

Analysis: The accommodation was treated as guest house accommodation for purposes of the relevant disallowance provisions, and the estimate of expenditure was not accepted as erroneous.

Conclusion: The disallowance was sustained against the assessee.

Final Conclusion: All substantive grounds were rejected and the assessee did not succeed on any issue decided in the appeal.

Ratio Decidendi: A deduction for excise duty on the mercantile system requires a crystallised legal liability, not a mere show cause notice proposing future adjudication of duty.

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