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29. When examined from the above principle as laid down by the Hon'ble Supreme Court, Gujarat High Court and other High Courts, the initial liability arose when the contract was not honoured i.e., in the asst. yr. 1992-93. However, the appellant could not have claimed it in that year because the claims were offset by the counter claims, in this case, the appellant was liable to deliver securities to PNB and SBP and it had to take delivery from SBI and NHB. The appellant has claimed the loss on receipt of the order of the Special Court which passed decree in favour of PNB. But here again the claim, in my opinion, is not allowable because the appellant did not accept the decree and filed appeal before the Supreme Court which is still pending. The fact that the appellant conceded before the Supreme Court the liability of Rs. 182 crores is not borne out from the interim order of the Supreme Court. Even if the liability was conceded by the appellant before the Hon'ble Supreme Court, it was only in April, 1996 which is beyond asst. yr. 1996-97. As held by the Hon'ble Supreme Court in the case of CIT v. Hindustan Housing & Land Development Trust Ltd. (supra), where right to receive payment is in dispute, there can be said to be no accrual. Following this ratio, I am of the considered opinion that since the liability was disputed by the appellant before the Supreme Court, the liability was only a contingent liability not allowable in asst yr. 1996-97.

'A potential loss to an enterprise may be reduced or avoided because a contingent liability is matched by a related counter claim or a claim against a third party. In such cases, the amount of the provision is determined after taking into account the probable recovery under the claim if no significant uncertainty as to measurability or collectibility exists.' On this point, I will like to refer to the decision of Hon'ble Supreme Court also in the case of Indian Molasses Co. (P) Ltd. v. CIT (1959) 37 ITR 66 (SC). It has been observed by the Hon'ble Supreme Court that :

As per the judgment of Special Court and subsequent interim orders of Supreme Court the payments made are debited to PB a/c pending final judgment of Supreme Court and receipt of counter party claims from other banks/others. The PB account will be netted off against the receivables/ provision held. This is as per prescribed procedure of the bank.' The above comments of the bank indicate that the receivables are to be netted off against the liabilities.

33. From the facts and legal position as narrated above, it is concluded that no final liability has arisen in the asst. yr. 1996-97. The liability arising on account of Special Court decree in favour of PNB and settlement in the case of SBP is only contingent liability to be set off against receivables from other parties. I may mention here that the appellant has already received substantial amount from NHB which is good enough to take care of major part of liability. Out of 9.5 crore units of UTI scheme sold to PNB and SBP, 7.5 crores of units were purchased from NHB against whom the assessee has succeeded before the Special Court. Therefore, the loss claimed by the assessee of Rs. 288.07 crores is not allowable in asst. yr. 1996-97."

18.2 In the case of Alembic Chemical Works Ltd. (supra), before the Gujarat High Court the assessee was following mercantile system of accounting where the liability is sought to be properly incurred when the dispute between the parties is amicably settled or finally adjudicated, where the liability in question is not a statutory liability. The Court in this connection observed that where the liability in question is not a statutory liability. The assessee in this case was manufacturing drugs, had claimed the liability to pay user charges to the ONGC in respect of the gas consumed after 29th Jan., 1997 and the interest on the account. The Government of India issued a circular on 30th Jan., 1987 for fixing the price of gas supplied by the ONGC, but the said circular was challenged before the High Court and in 1993, the petition filed by the assessee came to be dismissed by the Court and an appeal was pending before the Supreme Court against the decision. According to the assessee, there was an earlier decision of the Supreme Court dt. 4th May, 1990, wherein it was held that ONGC was entitled to demand as per its decision, and, therefore, the assessee submitted that in light of that decision, the rejection by the Court of the petition preferred by the assessee the claim of the assessee was allowable in full as there was no likelihood that the Supreme Court would allow the appeal in view of its earlier judgment. It was also submitted that the liability in relation to the demand for the entire period after 29th Jan., 1987, which had been incurred but had not been paid fully in the light of the pending litigation. All the three authorities, viz. the AO, the CIT(A) and the Tribunal held that the liability was contingent and could not be allowed and consequently the interest could not also be allowed. The High Court on reference held that the liability to ONGC was pending adjudication by way of appeal in the Supreme Court and till the point of time, the same was finally adjudicated the liability in question would remain a contingent liability and so the interest payable on the arrears of such unpaid liability. By relying upon the Supreme Court decision in the case of Swadeshi Cotton & Flour Mills (P) Ltd. (supra) the Court observed that despite the earlier view declared by the Supreme Court between the same parties, the present appeal has been admitted and is pending, and, therefore, if not possible to accept the contention on behalf of the assessee that the conclusion in the pending appeal is a foregone conclusion. In the present case the assessee has admitted a part of the liability and the matter was pending before the Supreme Court with respect to other part.