Statutory liability is deductible when demanded, even if contested in litigation, under the Kedarnath Jute principle.

A statutory price-difference liability under a wheat purchase control order was treated as deductible in the year the competent authority raised the demand, even though the assessee continued to dispute the demand in litigation. Applying the principle in Kedarnath Jute Mfg. Co. Ltd., the text states that a statutory obligation accrues and is deductible when it becomes a real and enforceable liability, and not only when litigation ends. Earlier Calcutta High Court decisions were distinguished because the liabilities there had not been demanded in the relevant year. The deduction was therefore allowed in assessment year 1983-84.

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Issues: Whether the assessee was entitled to deduction of the price difference liability in the assessment year 1983-84 on the basis of the demand raised by the competent authority, notwithstanding pending litigation challenging the demand.

Analysis: The liability arose from a statutory demand for enhanced wheat purchase price under the licensing and control order made under section 3 of the Essential Commodities Act. The amount was demanded during the relevant previous year, and the assessee had claimed it in that assessment year. The earlier Calcutta High Court decisions relied on by the Department were distinguished on facts because in those cases the amounts had not been demanded in the relevant year and became real and enforceable only later. The principle in Kedarnath Jute Mfg. Co. Ltd. was applied, since a statutory liability is deductible in the year in which it is incurred or demanded, even if its enforceability is disputed in litigation.

Conclusion: The deduction of Rs. 1,70,595 was allowable in the assessment year 1983-84 and the Department's challenge failed.

Final Conclusion: The statutory liability was held deductible in the year of demand, so the assessee succeeded and the departmental appeal did not survive.

Ratio Decidendi: A statutory liability becomes deductible when it is demanded and accrues as a real and enforceable obligation, even if the assessee disputes the demand in pending litigation.

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