PATHAK J. - (1.) The Income -tax Appellate Tribunal has referred the following question : 'Whether, on the facts and in the circumstances of the case, the Income -tax Appellate Tribunal was right in treating the sum of Rs. 49,516 as a loss allowable as a deduction in the assessment year 1959 -60 ?'
(2.) THE reference related to the assessment year 1959 -60, the relevant previous year being the accounting year ending September 30, 1958. The method of accounting is mercantile. The Government of India in the Ministry of Food and Agriculture framed a scheme for the promotion of the export of sugar. In pursuance of that scheme the Sugar Export Promotion Ordinance, 1958, was promulgated. On June 27, 1958, a notification was issued by the government fixing 50 thousand tons of sugar as the quantity for export out of India during the period ending October 31, 1958. On June 27, 1958, the Government issued an order under clause 5 of the Ordinance informing the assessee that 179.48 tons of sugar had been allotted in its case as its quota for export. On July 17, 1958, the export agency division of the Indian Sugar Mills Association addressed a letter to the assessee making a demand for the supply of specified number of bags of sugar representing the assessees quota. The assessee estimated the price which it expected to receive in respect of the sugar so demanded, and calculating the loss at Rs. 53,310 it debited its profit and loss account on September 30, 1958, by that figure and made a corresponding entry in the contingency account. The entry narrated that it represented the estimate loss on sugar to be exported out off the production of the year 1957 -58 under the orders of the Government. The amount appeared in the balance -sheet of the assessee on September 30, 1958, on the liability side under the heading 'provision for contingency on export of sugar'. In the subsequent year, the loss was actually quantified at Rs. 49,516 and, therefore, the assessee credited the profit and loss account with Rs. 3,794 in the subsequent year.
(3.) IN assessment proceedings for the assessment year 1959 -60, the assessee claimed a loss set at the original figure of Rs. 53,310. The Income -tax Officer disallowed the claim on the ground that it related to an unascertained loss and was in the nature of a provision only. The assessee appealed The Appellate Assistant Commissioner held that the loss amounting to Rs. 53,310 could not be allowed entirely and that the sum which could be allowed was Rs. 49,516 being the actual loss ascertained by the time the assessment was finalised. The Income -tax Officer carried the case in appeal to the Income -tax Appellate Tribunal. The principal submission before the Tribunal on behalf of the Income -tax Officer was that the loss was in the nature of a contingent liability or an unascertained liability during the year under consideration and, therefore, could not be legitimately claimed as a deduction against the profits of that year. The Tribunal found that upon the demand made by the letter of July 17, 1958, the assessee was under a legal obligation to export a specified quantity of sugar at a stipulated price and that the assessee would suffer a loss on the transaction. It observed the the loss was occasioned by the circumstance that the assessee had value of the stock of sugar at market price while the export was to be made at a much lower price. In the opinion of the Tribunal, the loss accrued as soon as the demand was made upon the assessee to supply the sugar. Having regard to the regular method of accounting on the basis of which the assessee computed its profits and gains, the Tribunal held that the loss was determined and ascertained. Accordingly, it dismissed the Income -tax Officers appeal.;