H.N. Seth, J.
1. In respect of assessee's assessment for the year 1967-68, the Income-tax Appellate Tribunal, Allahabad, has, at the instance of the Commissioner of Income-tax, stated the case and referred the following question for the opinion of this court:
' Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was legally justified in holding that a provision of Rs. 16,00,876 towards excise duty liability was an admissible deduction during the year under consideration '
2. Briefly stated the facts giving rise to the present reference are that for the assessment year 1967-68, the accounting period of the assessee ended on 30th June, 1966. The assessee which was a public limited company and which carried on the business of manufacture and sale of synthetic materials had made a provision of Rs. 16,00,876 for payment of excise duty on polymer chips. It, however, disputed the liability for payment of this duty in a writ petition filed before the Delhi High Court. That writ petition was decided in favour of the assessee on 23rd August, 1970. However, the Excise Dept. went up in appeal before the Supreme Court which was pending at the time of making of the assessment of the assessee for the year 1967-68. The ITO was of the opinion that as it had been decided by the Delhi High Court that the assessee was not liable to pay the excise duty, no deduction in respect of the provision made by the assessee for payment thereof could be allowed in computing its taxable income. Aggrieved, the assessee went up in appeal before the AAC, and claimed that as the excise authorities, despite the decision of the Delhi High Court, were insisting that excise duty for which the provision had been made by the assessee, was payable and had taken the matter up in appeal before the Supreme Court, the assessee was entitled to claim the deduction in respect of the said provision in the assessment year in question. The AAC relying upon a decision of the Supreme Court in the case of Kedarnath Jute Mfg. Co. Ltd. v. CIT : 82ITR363(SC) , accepted the plea of the assessee. He, accordingly, allowed the appeal filed by the assessee.
3. The Department then took up the matter in appeal before the Income-tax Appellate Tribunal and contended that in view of the decision of the Delhi High Court there was no liability of the assessee to pay the excise duty in respect of which it was claiming deduction and it further contended that the fact that the Excise Dept. had questioned the decision of the Delhi High Court by means of an appeal to the Supreme Court was irrelevant. The Income-tax Appellate Tribunal repelled the plea of the Department and affirmed the order passed by the AAC. At the instanceof the Department, the Tribunal has stated the case and referred the aforementioned question for opinion of this court.
4. Having heard learned counsel for the parties, we have no manner of doubt that the order passed by the Tribunal that the case was covered by the principles laid down by the Supreme Court in the case of Kedarnath Jute Mfg. Co. Ltd. v. CIT : 82ITR363(SC) , is correct and that notwithstanding the decision of the Delhi High Court, the assessee is entitled to claim deduction in respect of the provision for payment of excise duty made by it in the relevant assessment year, inasmuch as the excise dept. had gone up in appeal to the Supreme Court and was questioning the correctness of that decision and was insisting that the assessee was liable to pay the excise duty.
5. Similar controversy was raised in the assessee's own case in the case of J. K. Synthetics Ltd. v. O. S. Bajpai, ITO : 105ITR864(All) , wherein the learned judges of this court, after considering the question with regard to ceasing of the liability for payment of excise duty and holding that such a liability could not, in the circumstances of the case, be said to have been ceased ; went on to observe thus (p. 882):
' The same is the position with regard to the current liability of Rs. 2,08,29,486. The company's liability to pay excise duty on polymer chips has not been wiped out. We have already mentioned that the excise authorities are still raising demands for the excise duty on polymer chips. We might mention here that item No. 15A of Schedule I of the Central Excises and Salt Act, 1964, has been amended with effect from 29th February, 1974. The judgment of the Delhi High Court does not deal with the duty leviable under the amended provision. For that reason also the decision of the Delhi High Court cannot be said to be final because duty is now being sought to be levied under the amended provisions of the Act. The company, no doubt, is still resisting the claim of the Excise authorities, but this fact does not debar the company from claiming deduction on account of the excise duty being demanded from it and for which the company had made provision in its books of account. The company is following the mercantile system of accounting and it can legitimately claim deduction in respect of a business liability even if such liability has not been quantified or paid. In Kedarnath Jute Manufacturing Co. v. Commissioner of Income-tax : 82ITR363(SC) , the Supreme Court held that an assessee who follows the mercantile system of accounting can claim deduction under Section 10(2)(xv) in respect of a business liability before it is quantified and even when such liability is being disputed. It has further been held that even if the assessee does not make a provision for such a liability in its books of account, he is still entitled to claim deduction because the question whether the assessee is entitled to a particular deduction or not depends upon the provisions of law relating thereto and not on the view which the assessee might take of his rights nor can the existence or absence of entries in the books of account be decisive or conclusive of the matter. The same view has been taken by this court in Commissioner of Income-tax v. Poonam Chand Trilok Chand : 105ITR618(All) , where it has been held that a statutory liability is an allowable deduction in the very year to which it relates even though the same is disputed. We, accordingly, hold that the assessee was entitled to claim deduction in respect of the liability for excise duty for which it had made a provision in its account books, even though the liability was being disputed in a court of law. We might reiterate here that the Revenue will not suffer any loss because if ultimately the liability ceases as a result of the decision of the Delhi High Court or of the Supreme Court, the Department can bring it to tax under Section 41(1) of the Act.'
6. Following the decision of the Division Bench of this court in J.K. Synthetics Ltd. v. O.S. Bajpai, ITO : 105ITR864(All) , we answer the question referred to us in the affirmative and in favour of the assessee. The assessee shall be entitled to costs which are assessed at Rs. 250.