The Court held that the commission of ₹30 lakhs paid to the managing director for the assessment year (AY) 2004-2005 was not deductible as a revenue expenditure under the mercantile system of accounting, as the liability was ratified only in the subsequent AY 2005-2006. The appellant company claimed the deduction based on a resolution passed in December 2003, but the liability was approved in the Annual General Meeting (AGM) on September 30, 2004. The Court ruled that the liability crystallised in AY 2005-2006 upon ratification in the AGM, and despite the mercantile system recognising accrued liabilities, the approval was a prerequisite for the liability to arise. Therefore, the expense could not be claimed for AY 2004-2005 as the liability was contingent until ratified. The High Court upheld the Tribunal’s order, dismissing the appeal and answering the question of law in favour of the Revenue. (AY. 2004-2005)