The assessee implemented a Voluntary Retirement Scheme (VRS) for its employees. Liability towards compensation for employees covered under VRS worked out to Rs. 12.83 crores the said amount was amortized over a period of 60 months started from accounting year 2000-01 and this was reflected in balance sheet as at 31-3-2001. During assessment year 2001-02 assessee claimed deduction of Rs. 2,56,70,399, i.e., one-fifth of aforesaid amount of Rs. 12.83 crores. Assessing Officer disallowed claim of deduction of Rs. 2,56,70,399 and only allowed actual payment made during assessment years 2001-02, i.e., Rs. 17,22,059 and balance amount was treated as contingent liability on ground that what could not be ascertained or quantified could not be treated as expenditure. Commissioner (Appeals) affirmed order of Assessing Officer holding amortization of accrued liability as capital expenditure.-Tribunal concurred with view of Commissioner (Appeals) that only amount paid during year had to be taken into consideration and not entire amount payable under VRS. On appeal the Court held that  in view of definition of ‘paid’ under section 43(2) that contemplates an accrual liability Tribunal erred in treating liability under VRS not as an accrued one but in proceeding on basis that only amount actually paid during assessment year 2001-02 could be allowed. Order of lower authorities are set aside. (AY. 2001-02)