only dispute in this appeal relaters to amount of Rs. 94,926 which assessee had to pay to Director General of Supplies and disposal but claim was not allowed by ITO. There is no dispute about facts of this case. assessee claims that amount was deducted from assessees balance with Director General of Supplies and Disposal. According to assessee, it was business loss but according to ITO, it was firstly not business loss and further in view of fact that assessee was having mercantile system of accounting, it was not allowable in this year. facts in this behalf are that assessee had filed tender for supply of some sophisticated item based on designs. They could not be supplied to government because, according to assessee, risings were defective. In meantime Director General of Supplies Disposal floated risk purchase tender and cancelled contract of assessee on account of risk purchase for alleged breach of contract. government also recovered sum of Rs. 1,09,701.20 which included Rs. 14,000 in respect of risk purchase against tender dated 14-10-1973 and Rs. 94,626 which is now amount in dispute. recovered were mostly made between June and August 1978. ITO allowed deduction for Rs. 14,000 but rejected balance claim firstly on ground that it was not made out wholly and exclusively for earning taxable income; it was not determined liability for current year as suit was filed in Court; loss did not pertain to transaction effected in current year since contract was cancelled in 1976 and necessary provision should have been made in 1976; loss of Rs. 94,000 was still subject of dispute. 2. When matter came up before Commissioner [Appeals] lie was to he opinion that so far as question of being business loss was concerned, amount paid by way of damages for compensation to Government in connection with contract taken by assessee, same had to be considered as business loss in view of decision in CIT v. Shantilal [P.] Ltd. [1983 Taxation 166] [sic]. However, so far as year in which loss could be claimed Commissioner [Appeals] was of opinion that this was not statutory liability but only contractual liability which too was in dispute and it was not certain whether assessee at all would be liable to pay amount to Government despite of actual recovery having been made, being made, because assessee's case had been that breach of contract was not on account of default on part of assessee but on account of faulty designs given to him. In view of fact that assessee had maintained accounts on mercantile system, actual recovery of money would not affect question as to which year deduction should be allowed. For this purpose Commissioner [Appeals] relied upon decision of Hon'ble Supreme Court in CIT v. Swadeshi Cotton and Flour Mills [P.] Ltd. [1964] 53 ITR 134 which lays down that employer incurs liability towards bonus when commission was settled and if claim for bonus was disputed and referred to arbitration, it was neither allowable in year in which profits were made and in respect of which bonus was payable nor in year in which it was debited in books of account, but only in year in which dispute was settled by award of Industrial Tribunal. This part of Commissioner [Appeals] conclusion has been challenged by assessee. 3. We are inclined to uphold assessee's contention. In this behalf we looked into letter dated 20-7-1978 on which reliance was place by representative of assessee. same clearly shows that Director General of Supplies and Disposal wrote to assessee that purchaser was entitled to recover from assessee sum of Rs. 94,926 towards extra expenditure incurred in terms of clause 14 of General Conditions of Contract. assessee was, therefore, called upon to pay said amount in any branch of Reserve Bank of India and forward treasury receipts. treasury challan was also sent. Now before this letter was issued, there was only assessee's liability which had not been quantified. Therefore, assessee could not claim any deduction on anticipated basis and ITO's conclusion that claim relates to earlier year is obviously wrong. In this behalf we may refer to decision of Madras High Court in M. S. P. Senthikumara Nadar and Sons v. CIT [1957] 32 ITR 138. same is view expressed at pp. 202 and 203 but Allahabad High Court in ITAT v. B. Hill and Co. [P.] Ltd. [1983] 142 ITR 185. This contention also gets support from another decision of Madras High Court in G. Manavala Naidu v. CIT [1961] 41 ITR 725. 4. We now take up case sent up by Commissioner. It is not disputed on behalf of assessee that it was still contesting liability and had t k e n up matter in arbitration, but liability itself had been fully ascertained. In E. C. Bose & Co. [P.] Ltd. v. ITO [1982] 2 ITD 149 decided by Calcutta Bench 'B' of Tribunal, assessee had claimed some liability on account of claims of employees for compensation payable under Workmen's Compensation Act, 1923. ITO allowed claim. Commissioner withdrew allowance on ground that claim would occur only when compensation was actually adjudicated by Commissioner under section 19 of that Act. On appeal Tribunal held that in spite of fact that liability could not be enforced till its quantification by Commissioner, same was allowable deduction because liability arose as soon as personal injury was caused to workers. Here Government has actually recovered amount from assessee's bills and same has been fully quantified. Again in CIT v. Sugar Dealers [1975] 100 ITR 425 [All.], assessee had committed breach of contract for purchase of rice and on that account deputy director of food forfeited Rs. 67,290 deposited by assessee as security. By award, regional director of food upheld forfeiture of property and assessee claimed amount as deduction. Tribunal accepted claim. On reference, it was held that contingency relating to breach of contract and consequent forfeiture of deposit had taken place in year pertaining to that assessment year and had become liability in praesenti. fact that assessee had contested liability and took proceeding for recovery of this security amount, did not alter legal position. As has been rightly observed at p. 429, law has made ample provision for situation like this under section 10[2A] of Indian Income-Tax Act, 1922 corresponding to section 41[1] of Income-tax Act, 1961, according to which: "[1] Where allowance or deduction has been made in assessment for any year in respect of loss, expenditure or trading liability incurred by assessee, and subsequently during any previous year assessee has obtained, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure or some benefit in respect of such trading respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof, amount obtained by him or value of benefit accruing to him shall be deemed to be profits and gains of business or profession and accordingly chargeable to income-tax as income of that previous year, whether business or profession in respect of which allowance or deduction has been made is in existence in that year or not." With these remarks, we accept appeal and delete disallowance. stay application consequently becomes infructuous and is dismissed. 5. In result appeal is allowed. *** ADVANCE AUTOTECHNICO (P) LTD. v. INCOME TAX OFFICER