Year-end sales-tax liability remained deductible where proceedings were still pending and possible refund would be taxed later.

Sales-tax liability outstanding at year-end was deductible because it remained a subsisting liability on the last day of the accounting year and the related proceedings had not finally abated. The possibility of a future refund did not convert the existing liability into a non-deductible amount, since any later remission or refund, if obtained, would be brought to tax under section 41(2) of the Income-tax Act, 1961. The disallowance was therefore unsustainable, and the liability was allowable as a deduction in the relevant year.

---

---

Issues: Whether the sales-tax liability of Rs. 36,337, outstanding at the close of the accounting year, was deductible in computing the assessee's income.

Analysis: The liability was held to be still subsisting on the last day of the accounting year, as the relevant sales-tax proceedings had not finally abated and were still subject to further judicial scrutiny. The possibility of a future refund did not make the existing liability non-deductible, since any remission or refund, if eventually obtained, would be taxable under section 41(2) of the Income-tax Act, 1961.

Conclusion: The sales-tax liability was allowable as a deduction in the relevant year, and the disallowance was unsustainable.

---