Quantified trading liability becomes deductible when ascertained and recovered, even if the assessee continues to dispute it.

Contract damages and extra expenditure became deductible as a business loss only when the liability was quantified and recovered by the contracting authority. Until quantification, the amount remained an anticipated liability and could not be claimed on a notional basis. The assessee's continuing dispute in arbitration did not defer deductibility once the liability had been ascertained and enforced. Any later remission or cessation would be dealt with separately under the applicable statutory scheme. The disallowance was therefore not sustainable, and the deduction was allowable in the year of quantification and recovery.

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Issues: Whether the amount recovered from the assessee towards damages and extra expenditure under the contract was deductible in the relevant year as a business loss or trading liability despite the dispute as to liability.

Analysis: The liability arose when the contracting authority quantified the amount and called upon the assessee to pay it. Before that quantification, the liability was only anticipated and could not be deducted on a notional basis. Since the amount had been ascertained and recovered, the mere fact that the assessee continued to dispute the liability in arbitration did not postpone the allowability of the deduction. The position was consistent with the treatment of quantified trading liabilities and with the statutory scheme that later remission or cessation, if any, would be governed separately.

Conclusion: The amount was allowable as a deduction in the year in which it was quantified and recovered, and the disallowance was not sustainable.

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