Accrued statutory liability remains deductible under mercantile accounting even when payment is disputed in litigation.

Under the mercantile system, a statutory cess arising from business transactions during the accounting year was treated as an accrued and deductible liability. The fact that payment was disputed in writ proceedings did not make the obligation contingent, because the liability had already arisen under the levy. The amount collected under the marketing levy therefore remained payable to the Marketing Committee, and the authorities relied on supported deduction of an accrued business liability even where payment was contested. The cess was accordingly allowable as a deduction.

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Issues: Whether the cess payable to the Marketing Committee, though disputed in writ proceedings, was an accrued and deductible business liability in the assessee's mercantile accounts.

Analysis: The assessee followed the mercantile system of accounting, and the liability to pay the cess arose simultaneously with the business transactions during the relevant previous year. The dispute in the writ petition did not convert the statutory obligation into a contingent liability. The amount collected under the marketing levy remained payable to the Marketing Committee, and the reasoning in the relevant authorities supported deduction of a liability that had already accrued, even though payment was contested.

Conclusion: The cess liability was an accrued statutory liability and was allowable as a deduction; the assessee succeeded on this issue.

Ratio Decidendi: Under the mercantile system, a statutory liability that accrues during the accounting year is deductible even if its payment is disputed or deferred by litigation, provided the liability has in fact arisen.

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