JUDGMENT S. C. MOHAPATRA, J. - This is a reference at the instance of the assessee under section 256(1) of the Income-tax Act, 1961 (in short "the Act"). The following question of law has been referred to this Court by the Income-tax Appellate Tribunal, Cuttack Bench, for the opinion of this Court : "Whether, on the facts and in the circumstances of the case, the assessee is entitled to deduction of Rs. 2,22,161 towards the sales tax liability for the assessment year 1971-72 ?" 2. The assessee is a limited company incorporated under the Companies Act, 1956. It carries on the business of manufacture and sale of steel tubes. In respect of sale of tubes for the year 1962-63, it was liable to pay sales tax under the Central Sales Tax Act, 1947. Under the scheme of the sales tax law, a dealer is liable to pay the tax on the turnover of the sale. The rate of tax depends on the nature of sale. A dealer is liable to file the return and along with the return pay the tax admitted to be the liability. If the return figure is accepted by the assessing authority, the assessment is completed. Where the assessing officer requires examination of the accounts for examining the correctness of the return, he calls upon the dealer to produce the accounts and on examination of such accounts either accepts the return figure or computes the turnover on the materials available. Under some circumstances, the assessing officer makes the assessment to the best of his judgment which becomes final subject to appeals and reference. Along with the order of assessment, a notice of demand is issued and in the case of non-payment of the tax demanded, realisation is made. In respect of the year 1962-63, the Sales Tax Officer completed the assessment on 31st March, 1966 to the best of his judgment and made an additional demand of Rs. 11,02,698 on the assessee. The assessee paid a small amount under protest but did not make any provision for payment of the balance since he contested the levy. Being a company, its creditors reflected the amounts as contingent liability in the printed accounts. The objection of the assessee to the additional demand ultimately could be appreciated by the Sales Tax Tribunal and the additional demand was reduced to Rs. 2,22,161 by order dated 28th May, 1970. Being a company, its creditors reflected the amounts as contingent liability in the printed accounts. The objection of the assessee to the additional demand ultimately could be appreciated by the Sales Tax Tribunal and the additional demand was reduced to Rs. 2,22,161 by order dated 28th May, 1970. This amount being a business expenditure was claimed as deduction by the assessee in respect of the assessment for the previous year 1970-71 in the assessment year 1971-72. The Income-tax Officer did not allow the deduction in the year 1971-72 but in appeal the assessee became successful. In the second appeal by the Revenue, the Tribunal reversed the decision of the first appellate authority and affirmed the order of the Income-tax Officer in this respect. 3. There is no dispute that the mercantile method of accounting is employed by the assessee. In this method, entries are posted in the books of account on the date of the transaction, i.e., on the date on which rights accrue or liabilities are incurred, irrespective of the date of payment. See AIR 1964 SC 1843 (Commissioner of Income-tax, Madras v. A. Krishnaswami Mudaliar) and AIR 1986 SC 757 (State Bank of Travancore v. Commissioner of Income-tax, Kerala). Even when the assessee failed to post the entry in its books of account, it would be entitled to the benefits since the same would depend on the provision of law relating thereto and not on the view which the assessee might take of his rights since the existence or absence of entries in the books of account cannot be decisive or conclusive in the matter. See [1971] 28 STC 672 (SC); AIR 1971 SC 2145 [Kedarnath Jute Mfg. Co. Ltd. v. Commissioner of Income-tax (Central), Calcutta]. Relying on this decision the Appellate Tribunal held that the assessee is not entitled to the deduction in the assessment year 1971-72 in which it claimed the same. 4. Mr. B. K. Mohanty, the learned counsel for the assessee, submitted that from the stage of the sale transaction in the year 1962-63, the obligation to pay tax under the relevant Sales Tax Act arose whether quantified or not. On the first quantification in the assessment order made by the Sales Tax Officer, the right of the Revenue to realise the tax by coercive process arose which continued till realisation. On the first quantification in the assessment order made by the Sales Tax Officer, the right of the Revenue to realise the tax by coercive process arose which continued till realisation. Where the assessee disputed the quantification but not the liability, the same becomes final in the second appellate order of the Sales Tax Tribunal. Mr. Mohanty relied upon the decision reported in [1971] 28 STC 672 (SC); AIR 1971 SC 2145 (Kedarnath Jute Mfg. Co. Ltd. v. Commissioner of Income-tax) and submitted that the decision of the Calcutta High Court reported in [1970] 25 STC 243; [1970] 75 ITR 507 (Commissioner of Income-tax, West Bengal v. Royal Boot House) was approved by the Supreme Court where the claim of deduction was allowed even when the liability was not quantified. In the decision of the Supreme Court itself the deduction was shifted to the stage of first assessment by the Sales Tax Officer even though the same was challenged in higher forums. In that context, it was observed : "............. the moment a dealer makes either purchases or sales which are subject to taxation, the obligation to pay the tax arises and taxability is attracted. Although that liability cannot be enforced till the quantification is effected by assessment proceedings, the liability for payment of tax is independent of the assessment. It is significant that in the present case, the liability had even been quantified and a demand had been created ............ It is not possible to comprehend how the liability would cease to be one because the assessee had taken proceedings before higher authorities for getting it reduced or wiped out so long as the contention of the assessee did not prevail with regard to the quantum of liability, etc. An assessee who follows the mercantile system of accounting is entitled to deduct from the profits and gains of the business such liability which had accrued during the period for which the profits and gains were being computed .............." The decision makes it clear that an assessee who regularly follows the method of a mercantile system of accounting can claim the deduction in respect of the liability for payment of sales tax from the stage of the transaction which attracted the liability till the same does not cease. "Accrued" in this context cannot be read as "initially accrued". "Accrued" in this context cannot be read as "initially accrued". Till the liability is ceased, it shall be "accrued" and the Income-tax Officer is to examine if the assessee is liable to expend the amount claimed towards his business. 5. The matter can be examined from another angle. If the notice of demand is taken to be the basis for accrual, on the liability being reduced, a fresh demand notice is to be issued, Analysing the decision of the Supreme Court reported in AIR 1964 SC 1473 (Income-tax Officer, Kolar Circle v. Seghu Buchiah Setty), a Division Bench of this Court in the decision reported in [1971] 27 STC 481 (L. K. Joshi & Co. v. Commissioner of Sales Tax, Orissa) held : "An analysis of the majority view in the Supreme Court case would indicate that their Lordships came to the conclusive that when the assessment order is set aside or the amount of demand is reduced or enhanced, a further demand notice would issue in accordance with the appellate or revisional order." Thus, on the decision in the second appeal by the Sales Tax Tribunal reducing the demand by the Sales Tax Officer, a fresh demand notice is to be given. This attracts the liability of the assessee and in view of the fact that it regularly keeps its books of account adopting the mercantile system, it can claim the deduction under section 37 during the assessment year 1971-72 since the liability was of the year 1970-71. 6. Reliance has been placed by Mr. B. K. Mohanty, on a decision of the Gauhati High Court reported in [1973] 88 ITR 234 (Commissioner of Income-tax, Assam v. Nathmal Tolaram). Mr. S. C. Roy, the learned Standing Counsel for the Revenue, relied upon the decisions of the Kerala High Court reported in [1974] 97 ITR 152 (L. J. Patel & Company v. Commissioner of Income-tax, Kerala) and of the Bombay High Court reported in [1986] 162 ITR 556 (Commissioner of Income-tax v. Tata Chemicals Limited). Each of the decision is correct on its own facts. Accordingly, they are not required to be discussed. 7. Thus, on analysis, it can safely be concluded that the assessee who maintains regularly the mercantile system of accounts can claim deduction in the year when the liability to the sales tax was finally determined by the Sales Tax Tribunal in the second appeal. 8. Accordingly, they are not required to be discussed. 7. Thus, on analysis, it can safely be concluded that the assessee who maintains regularly the mercantile system of accounts can claim deduction in the year when the liability to the sales tax was finally determined by the Sales Tax Tribunal in the second appeal. 8. In the result, the question is answered in favour of the assessee. There shall be no order as to costs. R. C. PATNAIK, J. - I agree. Reference answered in the affirmative.