The liability for purchase tax accrued in the previous year and could not be claimed in the subsequent year. However, the entire business of the assessee was eligible for the allowance under S.80 J, and the assessee was entitled to investment allowance on the diesel generator and transformer.

Paripoornan, J.

1. At the instance of the Revenue, the Income Tax Appellate Tribunal has referred the following three questions of law, for the decision of this Court:

"1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in upholding the order of the Commissioner of Income Tax (Appeals) who held that purchase tax of Rs. 2,86,436 was allowable as a deduction in the assessment ?

2. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in upholding the order of the Commissioner of Income Tax (Appeals) who held that the entire business of the assessee was eligible for the allowance under S.80 J ?

3. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in upholding the order of the Commissioner of Income Tax (Appeals) who held that the assessee was entitled to investment allowance on the diesel generator and transformer ?"

2. The respondent/assessee is a private limited company having the business of catching and purchasing fish, processing them and exporting them. We are concerned with the assessment year 1977-78, for which the accounting period ended on 28th February 1977. During the assessment year, the 'assessee debited a sum of Rs. 12,01,787 as provision for purchase tax and surcharge. Out of this, a sum of Rs. 2,86,435 admittedly related to purchase tax and surcharge on cashew kernels in which the assessee was dealing and related to the assessment year 1975-76. The assessee made the claim for allowance of this amount even for the assessment year 1975-76. The claim was rejected. That prompted the assessee to renew the claim in the assessment year 1977-78. It was so done on the ground that the Income Tax Officer agreed to allow this amount in the year in which the payment was obligatory. But, when the plea was put forward in the succeeding assessment year 1977-78, the Income Tax Officer relied on the decision of the Supreme Court in Kedarnath Jute Mfg. Co. Ltd. v. C.I.T. 82 I.T.R. 363 and held that a liability can be allowed in the year to which the liability related and since in the present case the liability related to the assessment year 1975-76, it could not be allowed in the assessment year 1977-78. But, in appeal, the Commissioner of Income Tax (Appeals) held that the disallowance made on this score, by the Income Tax Officer, was not justified. In second appeal before the Appellate Tribunal, counsel for the Revenue fairly stated that the law permitted the allowance or deduction only for the assessment year 1975-76, the year in which the liability arose or accrued, and if the assessee were to make an application to the department, the department would certainly look into the matter. This was recorded by the Appellate Tribunal. Even so, the Appellate Tribunal considered the claim of the assessee on the merits and came to the conclusion that the assessee's claim for allowance is allowable, even on the merits, in the assessment year 1977-78 and upheld the decision of the C.I.T. (A) Apart from the above, the assessee claimed deduction under S.80 J of the Income Tax Act on the capital employed in its business; The assessing authority held that the assessee's business consisted of catching, of fish, maintaining a cold storage, processing of fish and export of the same. The assessing authority held that deduction under S.80 J of the Act is allowable only in respect of the cold storage or the freezing plant of the assessee. The assessee was directed to file a balance sheet showing the assets and liabilities of the cold storage. It was not done. The claim was rejected by the Income Tax Officer. 'In appeal, the Commissioner of Income Tax (Appeals) held that the assessee was processing fish and marine products as an industry, that it has a cold storage, that even if the assessee could not be treated as a manufacturer, it was a producer of frozen fish and other marine products and so entitled