EGBERT SINGH, A.M. ORDER This is appeal by assessee in which first ground is that CIT (A) erred in holding that deduction of Rs. 26,09,102 on account of gratuity on actuarial valuation claimed under s. 37(1) of IT Act, 1961 ( Act ) was not allowable. It is appeal by assessee that this claim is not hit by provisions of s. 40A (7) of Act. At time of hearing it is pointed out by learned counsel of assessee that this point is covered by decision of Hon ble Calcutta High Court in case of CIT vs. New Swadeshi Mills of Ahmedabad Ltd. (1984) 39 CTR (Cal) 223 : (1984) 147 ITR 163 (Cal) which was against assessee. 2 . We have heard both sides. We are of opinion that CIT (A) was justified in holding that deduction of provision for gratuity liability was not admissible in view of specific provisions contained in s. 40A (7) and decision of Hon ble High Court referred to earlier. 3 . second ground of appeal is that CIT (A) erred in not allowing deduction of Rs. 9,03,665 being liability of Cotton Corporation of India Ltd. for liquidated damages. appeal by assessee is that liability had been arisen during year and even if assessee did not accept liability, deduction claimed was allowable. 4. It is seen that assessee has filed additional ground of appeal by letter dt. 29th Jan., 1985. It is clarified before us by assessee s learned counsel that additional ground was taken in order to incorporate correct amount of loss claimed which should be at Rs. 22,62,475 in place of Rs. 9,03,665. 5 . From assessment order it is seen that assessee claimed deduction of Rs. 9,03,665 being difference of debit notes and credit notes issued by Cotton Corporation of India Ltd. for imported cotton delivery of which was not taken by company. ITO noted that liability has not been accepted by assessee and same has not been provided for in accounts also and, therefore, claim was not entertainable. 6. assessee took up matter before CIT (A) contending that ITO erred in allowing claim. It was clarified that in 1977 assessee made several contracts for purchase of different imported cotton with Cotton Corporation of India Ltd. and that subsequently there was considerable delay in sending of goods by Cotton Corporation of India Ltd. and market value was down and company refused to take delivery of goods. It was further clarified before CIT (A) that Corporation claimed damages of Rs. 9,03,665 which company did not accept. Thereafter suit was filed by Corporation before Honble Bombay High Court some time in March 1979 which is still pending. It was contended before CIT (A) that mere non- acceptance of liability by assessee and non-provision in accounts would not mean that liability did not exist. CIT (A), in circumstances, agreed with ITO when matter has not been accepted by assessee and issue was pending for adjudication. He pointed out that no evidence in form of agreement or otherwise was produced that liability was accepted during year under consideration, as in fact assessee-company completely denied liability. CIT (A) noted that it was not case of assessee that statutory liability was disputed. In short, CIT (A) sustained disallowance. Hence, this appeal before us. 7 . It is submitted by learned counsel for assessee that both authorities below erred in rejecting claim of assessee although there was liability to pay damages to Cotton Corporation of India Ltd. on basis of contracts made between assessee and that Corporation. Reference is made by assessee s learned counsel to various papers in paper book to indicate that there were various contracts made by assessee and Cotton Corporation of India Ltd. for supplying goods and that assessee has appointed Cotton Corporation of India Ltd. as its agent on basis of contract made between them, copy of which has been placed at p. 16 of paper book. It is, therefore, urged that it was not case of transaction between principal and principal as in fact Cotton Corporation of India Ltd. acted on direction or otherwise of assessee on basis of contracts made with it. It is also submitted that cl. (4) of contract provides that if delivery is not taken, assessee would have to compensate for damages, if any, incurred by Corporation and that according to cl. (7) of said contract assessee would indemnify Corporation against all actions, claims, proceedings, damages and losses, etc., in respect of or in connection with or in relation to or arising out of any matter under this agreement. It is, therefore, urged that authorities below failed to consider terms of contracts and obligations of assessee in case delivery of goods was not taken on basis of delivery orders. It is also contended that CIT (A) erred in stating that no evidence in form of any agreement or otherwise has been shown to establish that liability was accepted during previous year. It is also submitted that mere fact that liability was in dispute claim of assessee cannot be dismissed on that ground, particularly when issue is sub justice in Court of law. In short, it is urged that claim of assessee may be allowed. 8. learned Departmental Representative resists submissions made on behalf of assessee. Reference being made to decisions of Hon ble Allahabad High Court in case of Swadeshi Cotton Mill Co. Ltd. vs. CIT (1980) 15 CTR (All) 334 : (1980) 125 ITR 33 (All). It is argued that there was no condition to enable assessee to refuse to take delivery as contract was for particular purpose as provided by law of contract. According to learned Departmental Representative, damages may have to be paid for breach of contract, but for such payment no deduction would be admissible for income-tax purposes particularly when such damages did not arise in normal course of contract. It is also submitted that there is no paper or indication that assessee accepted liability to pay damages. According to learned Departmental Representative, ITO considered various aspects of matter keeping in view that assessee was maintaining mercantile method of accounting and in absence of any provision, claim cannot be allowed. It is also urged that case before Hon ble Supreme Court in Kedarnath Jute Mfg. Co. Ltd. vs. CIT (1971) 82 ITR 363 (SC) was in connection with claim for sales tax deduction which is statutory liability, whereas this liability of assessee in present case was not statutory one. It is argued, however, that later on if liability was accepted and quantified, it is for assessee to put claim at relevant point of time but not for year under appeal. In short, it is urged that appeal by assessee may rejected. 9 . In reply, assessee s learned counsel stressed claim that Cotton Corporation of India Ltd. is only agent of assessee and that as per cl. (15) of contract goods became property of assessee on shipment. assessee s learned counsel also refers to decisions in Kedarnath Jute Mfg. Co. Ltd. s case (supra), with emphasis at p. 367, Sulej Cotton Mills Ltd. vs. CIT 1978 CTR (SC) 155 : (1979) 116 ITR 1 (SC) with emphasis p. 5, Prafulla Kumar Malik vs. CIT (1967) 63 ITR 62 (SC), CIT vs. Shantilal (P.) Ltd. (1983) 35 CTR (SC) 395 : (1983) 144 ITR 57 (SC), CIT vs. Surya Prabha Mills (P.) Ltd. (1980) 123 ITR 654 (Mad.), CIT vs. Reliable Water Supply Service of India (P.) Ltd. (1980) 124 ITR 199 (All.), CIT vs. R. D. Sharma & Co. (1982) 30 CTR (Bom) 223 : (1982) 137 ITR 333 (Bom.) and Addl. CIT vs. Arvind Mills Ltd. (1977) 109 ITR 212 (Guj.). According to learned counsel for assessee, liability on account of damages was quantified and accordingly, same was allowable liability on date as soon as Corporation sold goods to other parties. He refers to other decisions in CIT vs. Sugar Dealers (1975) 100 ITR 424 (All.), Motilal Padmpat Sugar Mills vs. CIT (1977) 106 ITR 988 (All.), CIT vs. Swadeshi Mining & Mfg. Co. Ltd. (1978) 112 ITR 276 (Cal.), CIT vs. Orient supply Syndicate (1981) 22 CTR (Cal) 285 : (1982) 134 ITR 12 (Cal.) and CIT vs. Centry Enka Ltd. (1981) 130 ITR 267 (Cal.). It is urged, therefore, that in circumstances claim of assessee was wrongly disallowed by authorities below. 10. We have heard both sides and have perused orders of authorities below along with papers placed before us for our consideration. As mentioned earlier ITO disallowed claim of assessee as assessee did not accept liability. CIT (A) sustained rejection. Before us it is submitted that liability to Cotton Corporation of India Ltd. was embedded in contract itself. It is seen that ITO and CIT (A) have looked into various clauses of contracts before rejecting claim of assessee. Of course, liability of assessee in present case cannot be said to be statutory liability. But even then terms and various clauses of contracts should have been examined vis-a-vis claim of assessee itself. It is seen that matter is still pending before Hon ble High Court for adjudication. In these circumstances, we consider it necessary that ITO should call for contracts and to examine terms thereof for verification of claim of assessee. It is also necessary to ascertain dates on which Cotton Corporation of India Ltd. sold consignment to other parties as assessee refused to take delivery of consignments. 11. In chart placed in paper book at p. 3, it is seen that there were various claims for other assessment years also on basis of certain or particular contracts for supplying of different bales of different consignments of imported cotton. We find that more facts and basic materials are required to be brought on record after considering various terms of contracts. before dispute is finally settled. In circumstances, it is necessary that matter should be restored to file of ITO for fresh disposal after taking into account our observations made above and after considering contracts and after giving assessee opportunity of being heard. For this purpose we set aside orders of authorities below on this point for fresh disposal. 12. next ground of appeal is regarding claim of assessee for relief under s. 80J of Act for Rs. 8,00,307 as against Rs. 2,62,945 computed in assessment order. We have heard both sides and have perused orders of authorities below for our consideration. We deem it fit as suggested by assessee s learned counsel that matter may be disposed of afresh by ITO keeping in view decision of Hon ble Supreme Court in case of Lohia Machines Ltd. vs. Union of India (1985) 44 CTR (SC) 328 : (1985) 152 ITR 308 (SC). Accordingly orders of authorities below are set aside for fresh disposal by ITO in light of decision of Hon ble Supreme Court in Lohia Machines Ltd. s case (supra). 13. There is no other ground of appeal for decision. 14. In result, appeal by assessee shall be treated as party allowed for purpose of statistics. I do not fully concur with my learned brother and, therefore, express my view separately. 2. Two grounds out of three taken by assessee-company in this appeal against order of CIT (A) arising out of assessment for asst. yr. 1979- 80 are simple inasmuch as they are not seriously contested. 3 . First of them is regarding disallowance of gratuity liability of Rs. 26,09,102 determined on actuarial valuation without any contribution towards approved gratuity fund. According to tax authorities below, said claim was hit by s. 40A (7); whereas stand of assessee has been that it is allowable under s. 37(1). Such plea as raised by assessee has been turned down by Hon ble Calcutta High court in case of New Swadeshi Mills of Ahmedabad Ltd. (supra). ground of appeal, therefore, fails and I concur with my learned brother on this point. 4. second of these two points is regarding computation of relief under s. 80J. Law on this point has already been sets at rest by judgment of Hon ble Supreme Court in case of Lohia Machines Ltd. (supra) and, therefore, ITO is directed to compute relief accordingly, I thus concur with my learned brother on this point too. 5. Next I come to third ground of appeal. facts relevant to this point are these. assessee is textile industry. Hada Textile Industries Ltd. entered into four contracts detailed below with Cotton Corporation of India Ltd. on its behalf and also for and on behalf of assessee-company for importing cotton : (1)Contract No. G/298 dt. 7th March, 1977 (2)Contract No. G/301 dt. 7th March, 1977 (3)Contract No. G/546 dt. 29th March, 1977 (4)Contract No. G/432 dt. 18th March, 1977. Copy of contract No. G/298 dt. 7th March, 1977 has been placed before us i n paper book at p. 16 and it is stated by learned counsel for assessee that other contracts were in identical terms. According to said contract, Cotton Corporation of India Ltd. was to import cotton as agent of Hada Textiles Industries Ltd. and contractee had furnished bank guarantee to Cotton Corporation of India Ltd. for 25 per cent of approximate value of guarantee of cotton to be imported. It was also term of contract that price of said goods be paid by contractee and in default thereof, Corporation would be entitled to forfeit deposit paid by contractee and also to take delivery of goods and to sell them and contractee would be liable for losses suffered by Corporation. It is said that assessee and so also Hada Textiles Industries Ltd. did not clear off bill of lading and as such did not take delivery of cotton imported under aforesaid four contracts. Cotton Corporation of India Ltd. thereby suffered loss. Cotton Corporation of India Ltd. thereafter filed four civil suits in ordinary original civil jurisdiction of High Court at Bombay as detailed below : Sl. Suit Filed Contract Amount No. No. on No. Rs. 28th 28th 1337 1. Aug., G/298 8,67,339.82 of 1980 1980 22nd 1325 2. Aug., G/301 1,25,572.86 of 1980 1980 28th 1338 3. Aug., G/546 18,13,141.15 of 1980 1980 25th 322 4. Feb., G/432 6,66,836.63 of 1981 1981 34,72,890.46 Out of said claim of Rs. 34,72,890 made in those suits, it is said by assessee that loss and interest due thereon in sum of Rs. 22,62,475 pertained to accounting period relevant to asst. yr. 1979-80. According to learned counsel for assessee, claim for trading loss should, therefore, have been made by assessee for Rs. 22,62,475 but by mistake claim was made for Rs. 9,03,665 only. He has, therefore, filed application for permission to take additional ground of appeal that loss of Rs. 22,62,475 should have been allowed by CIT (A). 6. It is contended by learned counsel for assessee that liability is ascertained liability. According to him, assessee is contesting in all four civil suits before Bombay High Court only for sake of making delay in discharging liability, but nonetheless liability stands and, therefore, it should have been allowed by tax authorities below. He in support placed reliance upon following judgments of Hon ble Supreme Court and High Courts : Kedarnath Jute Mfg. Co. Ltd. s case (supra), Motilal Padampat Sugar Mills case (supra), Swadeshi Mining & Mfg. Co. Ltd. s case (supra), Century Enka Ltd. s case (supra), Orient Supply Syndicate s case (supra), CIT vs. J. K. Cotton Spg. & Wvg. Mills Co. (1980) 16 CTR (All) 131 : (1980) 123 ITR 911 (All.), R. D. Sharma & Co. s case (supra), Prafulla Kumar Malik s case (supra), Sugar Dealers case (supra), Arvind Mills Ltd. s case (supra), Surya Prabha Mills (P.) Ltd. s case (supra), Reliable Water Supply Service of India (P.) Ltd. s case (supra), Calcutta Co. Ltd. vs. CIT (1959) 37 ITR 1 (SC), Sutlej Cotton Mills Ltd. s case (supra) and Shantilal (P.) Ltd. s case (supra). 7 . learned Departmental Representative, on other hand, refuted claim on ground that it was not ascertained liability in praesenti. He placed reliance upon Swadeshi Cotton Mills Co. Ltd. s case (supra). 8 . Before I reach conclusion it is necessary to advert to written statement of assessee filed in Bombay High Court. claim of Cotton Corporation of India Ltd. has been contested by assessee on all scores. Following preliminary objections have been rised by assessee in its written statement : (1)The Court has no jurisdiction to entertain and try suit. (2)The suit is barred by limitation. (3)The suit is bad for misjoinder of causes of action and misjoinder of parties. assessee further challenged stand of Cotton Corporation of India Ltd. that any contract was entered into for and on behalf of it by Hada Textile Industries Ltd. It is also alternatively alleged that Cotton Corporation o f India Ltd. had played fraud on Hada Textile Industries Ltd. assessee denied privacy of contract between it on one hand and said corporation on other. Even on merit of claim each and every fact has been denied by assessee throwing all blame on Cotton Corporation of India Ltd. for importing cotton and incurring loss therein. 9. It is thus obvious that liability in respect of which assessee claims deduction is contractual liability. By no stretch of imagination it can be statutory liability. Difference between statutory liability and contractual liability has to be borne in mind. Simply because contractual liability, between principal and agent, is enforceable in Court of law it cannot become statutory liability. Statutory liability is determined by provisions of statute itself. It is settled law that no contractual liability can be said to arise until it is ascertained in praesenti either by admission of parties to dispute or is adjudicated in appropriate proceedings. There are several judgments of Hon ble Supreme Court and High Courts on this point. To begin with, reference may be made to judgments of Hon ble Supreme Court in CIT vs. Swadeshi Cotton & Flour Mills (P.) Ltd. (1964) 53 ITR 134 (SC). In that case, assessee paid bonus to its employees for calendar year 1947 in terms of award made in 1949 under Industrial Disputes Act, 1947. Hon ble Supreme Court held that since claim of bonus was settled by award to Industrial Tribunal only in 1949, liability could be attributed to only that year. In case of CIT vs. Roberts McLean & Co. Ltd. (1978) 111 ITR 489 (Cal), Hon ble Calcutta High Court held that since dispute was settled by arbitration by award in March 1960, liability arose only in March 1960, though pertained to earlier period. In same terms is judgment of Hon ble Calcutta High Court in case of CIT vs. Soorajmull Nagarmull (1981) 22 CTR (Cal) 6 : (1981) 129 ITR 169 (Cal). In that case, assessee followed mercantile system of accounting and loss was held allowable only in year in which dispute was settled. Reference can advantageously be also made to judgments of Hon ble Allahabad High Court in CIT vs. Oriental Motor Car Co. (P.) Ltd. (1980) 16 CTR (All) 140 : (1980) 124 ITR 74 (All), CIT vs. Lalchhman Das Mathura Das (1980) 124 ITR 411 (All) and Swadeshi Cotton Mills Co. Ltd. s case (supra). In case of A. P. S. Cold Storage & Ice Factory vs. CIT (1979) 119 ITR 709 (All), Hon ble Allahabad High court held that liability did not arise for being claimed as deduction even though award was given by arbitrator since said award was also disputed by assessee and it did not become rule of Court. 1 0 . judicial pronouncements cited by learned counsel for assessee are not in point. Kedarnath Jute Mfg. Co. Ltd. s case (supra), Motilal Padampat Sugar Mills case (supra), Swadeshi Mining & Mfg. Co. Ltd. s case (supra), Century Enka Ltd. s case (supra) and Orient Supply Syndicate s case (supra) pertain to statutory liability and not contractual liability. In cases of J. K. Cotton Spg. & Wvg. Mills Co. (supra) and R. D. Sharma & Co. (supra) liability was not disputed by assessee and was as such ascertained amount because of admission of assessee. In cases of Prafulla Kumar Malik (supra), Sugar Dealers (supra) Arvind Mills Ltd. (supra), Surya Prabha Mills (P.) Ltd. (supra) and Reliable Water Supply Service of India (P.) Ltd. (supra), there was no question before High Courts as to in which year liability should be allowed. cases of Calcutta Co. Ltd. (supra) and Sutlej cotton Mills Ltd. (supra) and Shantilal (P.) Ltd. (supra) are not at all in point. 11. matter for consideration is quite plain and simple, namely, that assessee has incurred certain liabilities for breach of contract for which civil suits have been filed which are being contested by assessee and, thus, question is whether under these facts and circumstances, liability can be said to have arisen in praesenti. In view of above discussion, answer to this question is in negative. Such plain and simple question does not require any further investigation of facts as to what was contract between assessee and Cotton Corporation of India Ltd. or whether assessee is in fact liable or not. I am, therefore, with respect unable to agree with my learned brother that orders of AAC and ITO should be set aside for ascertaining various clauses of contract and dates on which Cotton Corporation of India Ltd. sold consignment to other parties. It is needless to mention that power of remand should be exercised judiciously and not capriciously. It should not be exercised when all basic materials necessary for disposal of matter are already on record United Commercial Bank vs. CIT (1982) 27 CTR (Cal) 284 : (1982) 137 ITR 434 (Cal.) Enquiry as to various terms of contract between assessee on one hand and Cotton Corporation of India Ltd. on other and dates on which Cotton Corporation of India Ltd. sold consignments to other parties would not serve any purpose since that material has no bearing on issue involved in this case. Further it is pertinent to note that assessee has denied contract in toto in written statement filed before Hon ble High Court. According to assessee, there was no privacy of contract between it and Cotton Corporation of India Ltd. 12. I, therefore, express my inability, with respect, to agree with my learned brother. In my judgment, assessee is not entitled to claim of deduction of liability. I, therefore, propose appeal to be dismissed on all grounds with observation that ITO shall verify that computation of relief is done in accordance with amended provision of s. 80J. ORDER UNDER S. 255(4) OF IT ACT, 1961 Since we differ in opinion on following point, case be placed before President for appropriate orders under s. 255(4) of Act : "Whether under facts and circumstances of case it is necessary to refer case back to ITO for examination of various terms and clauses of contract and dates on which Cotton Corporation of India Ltd. sold consignments to other parties on refusal by assessee to take delivery of consignments, or without such enquiry appeal of assessee on point of claim for trading loss can be decided and deserves to be dismissed ?" THIRD MEMBER ORDER T. D. SUGLA, PRESIDENT.: On difference of opinion between learned Members who heard appeal originally, following point of difference : "Whether under facts and circumstances of case it is necessary to refer case back to ITO for examination of various terms and clauses of contract and dates on which Cotton Corporation of India Ltd. sold consignments to other parties on refusal by assessee to take delivery of consignments, without such enquiry appeal of assessee on point of claim for trading loss can be decided and deserves to be dismissed?" was stated for reference by President to Third Member within meaning of s. 255(4). president having assigned matter to himself, case came up before me as Third Member for hearing. 2 . I have heard parties at length and have gone through facts on record and catena of case of laws cited by parties of both sides. controversy is in narrow compass. There does not appear to be any decision squarely covering point at issue. claim for liability, admittedly, arose out of four contracts between Cotton Corporation of India Ltd. and Hada Textile Industries Ltd. contracts are for purchase of cotton to be imported and are said to have been executed by Hada Textile Industries Ltd., on their own behalf and on behalf of assessee. shipping documents had arrived but were not retired by assessee during previous year. After due notices to assessee, cotton imported under contracts was sold by Cotton Corporation of India Ltd. in open market at loss during previous year itself. In one case, even demand for loss, interest, etc., was made by Cotton Corporation of India Ltd. during previous year. In other cases, demands have been raised in following previous year. assessee is maintaining its accounts on mercantile system. 3. On above facts, if assessee had considered itself liable for loss, interest and damage under contracts, estimated its liability and made provision for it in its books, decision of Supreme Court in case of Calcutta Co. Ltd. (supra) would be normally applied and assessee would be entitled to deduction on account of loss, damage, etc. Also, if assessee had considered itself tentatively liable, made provision for liability but had at same time proposed to content liability on various grounds, there would have been no difficulty in accepting assessee s claim for deduction, it being settled law that mere fact that assessee is contesting liability does not matter in case of person following mercantile system of accountancy; what matters is legal view of liability. 4. case herein is materially different. assessee has not considered itself liable at all. It has made no provision for liability in its books of this year or in any of following years till date of hearing before me. liability under contracts is vehemently contested as is evident from copy of written statement filed by assessee before Hon ble Bombay High Court in which suits filed by Cotton Corporation of India Ltd. are pending. Some of objections taken by assessee are fundamental as noted by Judicial Member in his order. 5 . It is true that law in this regard is that claim in case of assessee following mercantile system of accountancy is to be allowed on basis of accrual of liability and not on fact whether entries regarding liability are made or not. It is also true that in this regard legal view of liability is material rather than view assessee takes of it. However, this is oversimplification of issue. If assessee really follows mercantile system of accountancy, it is bound to make provision for liability accrued even if it challenges it on some technical ground. If provision is not made in accounts of year in which liability is said to have been incurred nor in any of following seven-eight years, there are only two possible inferences : (i) assessee might have considered itself not liable at all, and (ii) chances of liability being fastened on assessee are so remote that it has decided to debit liability to its P&L A/c only when it has to suffer liability actually. To my mind, when Courts observed that in case of person following mercantile system of accountancy uniformly fact that entry about liabilities not made in books is not material, cases under contemplation were where entry was not made through inadvertence and not those where entries were not made consciously. In fact non-making of entries of alleged accrued liabilities in books over years, leads to inference of change in method of accounting, there being no dispute about fact that it is seldom that accounts are maintained by assessee purely on mercantile or cash system. Therefore, it may not be improper to hold that vis-a-vis these contracts assessee has started following cash system. Besides, there is good reason in this case, to accept assessee s stand taken before Bombay High Court that it is not liable at all because of number of flaws in execution of contracts themselves and in other steps taken by Cotton corporation of India Ltd. In either case, alleged liability cannot be allowed as loss or liability of year. 6 . It may be true that assessee can claim deduction on basis of liability accrued and yet contest liability tooth and nail. So far as case laws on issue are concerned, they are all with regard to statutory liabilities. For present, I am in agreement with assessee s counsel that that fact by itself would not mean that said principle cannot be applied in case of contractual obligation. However, it cannot, perhaps, be disputed that that would only mean that question as regards contractual liability is wide open and will have to be decided on basis of first principles. 7 . Assuming that fact that assessee has not yet made any entry about alleged liability in its books cannot be attributed to mistake and yet it will not stand in way of its claiming deduction provided alleged liability is in praesenti and not de future or contingent. I am inclined to agree with counsel for assessee that ITO has to decide whether liability has or has not accrued in terms of contracts as for matters coming up before him, ITO has exclusive jurisdiction as held by Supreme Court in case of Chhatrasinhji Kesarisinhji Thakore vs. CIT (1966) 59 ITR 562 (SC). No doubt, job is difficult inasmuch as ITO does not have necessary expertise to interpret terms of contract for purpose of determining mutual obligations of parties having regard to their subsequent conduct. job has become all more difficult in this case as assessee who has contested liability before High court absolutely, is taking just contrary stand in these proceedings. other party, i.e., Cotton Corporation of India Ltd., will naturally support its stand. Therefore, in order to decide question of nature of liability I have to depend upon available material, i.e., terms of contracts, correspondence exchanged between parties, plain filed by Cotton Corporation of India Ltd. and written statement filed by assessee. On going through available material carefully, I agree with learned Judicial Member that this is, certainly, not case of liability in praesenti. alleged liability cannot, therefore, be allowed as deduction even on this score. 8. learned counsel, it may be stated, and also contended that mere fact that assessee was disputing its liability and eventually no liability might be fastened on it should not go against his client s claim for deduction. According to him, purpose of s. 41(1) of Act was to take care of such situation. Here again, argument advanced has not impressed me. If there is no liability in praesenti and still liability is allowed as deduction, firstly, payment of tax on alleged liability gets postponed to time of final settlement of dispute which may take ten to fifteen years if not more. Secondly, assessee having not made entry about alleged liability in its books, it is difficult, if not impossible, to conceive situation when ITO after ten or fifteen years when assessee is eventually found not liable in this regard at all, will have any means to know about it and apply provisions of s. 41(1). Therefore, even balance of convenience is in favour of not allowing such claim for deduction. 9. Having regard to above discussion, I am inclined to agree with learned Judicial Member that assessee s claim for deduction requires to be rejected. My order will now go to Division Bench for decision according to majority view. *** SHAKTIGARH TEXTILES AND INDUSTRIES LTD. v. INCOME TAX OFFICER