Arbitral award liability accrues only on court confirmation, and disputed contractual claims are not deductible before enforceability.

An arbitral award does not create an allowable deduction merely on being passed when the liability is disputed and the award is still under challenge; for accrual purposes, the obligation crystallises only when the award is made the rule of the court and becomes enforceable. The article also notes that deletion of interest was incorrect where the assessment order had in fact charged interest under section 234B, and the contrary appellate relief rested on a clerical misunderstanding. The ratio emphasises that a quantified but contested contractual liability is not deductible until judicial confirmation fixes enforceability.

---

---

Issues: (i) whether the arbitration award created an allowable liability in the assessment year 1998-99 even though the award was challenged and was made the rule of the Court only later; and (ii) whether the deletion of interest under sections 234A, 234B and 234C was justified.

Issue (i): whether the arbitration award created an allowable liability in the assessment year 1998-99 even though the award was challenged and was made the rule of the Court only later.

Analysis: The liability was not a mere quantification issue. The assessee was disputing the liability itself, and the award had not become enforceable merely on being passed by the arbitrator. The later judicial proceedings showed that the award required confirmation in Court before it could be treated as a binding enforceable obligation. The doctrine of hindsight did not alter the date of accrual of liability. On the facts, the relevant date was when the award was made the rule of the Court, not the date of the award.

Conclusion: The disallowance was restored and the deduction was held to be not allowable in assessment year 1998-99, in favour of Revenue.

Issue (ii): whether the deletion of interest under sections 234A, 234B and 234C was justified.

Analysis: The assessment order showed that interest was in fact charged under section 234B, and the references to sections 234A and 234C in the assessee's copy were the result of a clerical mistake. The appellate deletion proceeded on a misunderstanding of the original assessment order.

Conclusion: The levy of interest under section 234B was upheld, in favour of Revenue.

Final Conclusion: The revenue's appeal succeeded on the principal deduction issue and on the interest issue, while the remaining prior-period expense relief granted by the appellate authority was left undisturbed, resulting in a partial allowance of the appeal.

Ratio Decidendi: Where an arbitral award is under challenge and requires being made the rule of the Court before becoming enforceable, the liability does not accrue for deduction purposes until that judicial confirmation occurs; a disputed contractual liability cannot be treated as crystallized merely because the arbitrator has quantified it.

---