Contingent liability for post-suit interest and genuine cash business payments shaped partial tax relief.

Interest claimed for the period after institution of the bank's suit was treated as a contingent liability, because award of pendente lite and future interest depended on judicial discretion under civil procedure principles; the disallowance was upheld. Estimated disallowance from truck maintenance expenses was deleted because the assessee furnished details and the record did not justify a selective estimate without cogent adverse material. Disallowance for cash payments under the income-tax law was also deleted because the payments were supported by bills, the payees were identified, and business exigencies explained the cash mode.

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Issues: (i) Whether the liability towards interest claimed after institution of the bank's suit was an accrued and allowable deduction; (ii) Whether the estimated disallowance out of truck maintenance expenses was justified; (iii) Whether the disallowance under section 40A(3) of the Income-tax Act, 1961, for cash payments was sustainable.

Issue (i): Whether the liability towards interest claimed after institution of the bank's suit was an accrued and allowable deduction.

Analysis: The claim related to interest for the period after the suit had been filed by the bank. Under section 34 of the Code of Civil Procedure, 1908, award of interest after the date of suit rests in the discretion of the Court, and an agreement to pay interest till realisation does not exclude that discretion. Since the liability to pay pendente lite and future interest depended on judicial determination, it could not be treated as an ascertained liability. The mercantile system and past allowance did not alter that character.

Conclusion: The claim was held to be a contingent liability and the disallowance was upheld against the assessee.

Issue (ii): Whether the estimated disallowance out of truck maintenance expenses was justified.

Analysis: The assessee produced details of the expenditure and no cogent material was brought to doubt the genuineness of the expenses. The estimate was made without a reasonable basis and the record did not support a selective disallowance merely because some items were small or not separately verified.

Conclusion: The disallowance was deleted in favour of the assessee.

Issue (iii): Whether the disallowance under section 40A(3) of the Income-tax Act, 1961, for cash payments was sustainable.

Analysis: The payments were supported by bills and the identity of the payees was not doubted. The cash payments were made for repairs and purchase of small parts in business exigencies, and the surrounding circumstances supported the assessee's explanation. On those facts, the rigid application of the disallowance provision was not warranted.

Conclusion: The disallowance under section 40A(3) was deleted in favour of the assessee.

Final Conclusion: The appeal succeeded only in part, with relief granted on the truck maintenance and cash payment disallowances, while the interest claim was rejected.

Ratio Decidendi: Interest accruing after institution of a suit is not an ascertained liability where its award depends on judicial discretion, and genuine business payments supported by records and accepted identity of payees may not be disallowed merely because they were made in cash.

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