Law:

Section:

Section 28(i), read with section 41, of the Income-tax Act, 1961 - Business loss/ deductions - Allowable as - Assessment year 1987-88 - Assessee entered into a contract with Railways for supplying certain materials which contained a condition that in case of rejection of material supplied, replacement would be at cost of assessee - Goods were returned twice and railway authorities demanded amount incurred in transaction of returning goods - Assessee admitted amount and reflected same in his accounts maintained under mercantile system and claimed deduction of said amount as loss arising in assessment year 1987-88 when demand was made - Whether assessee was entitled to make such entry in accounts maintained in mercantile system as soon he admitted liability and, therefore, he was entitled to deduction of loss in computing income of assessment year in which such entry was made, subject, however, to section 41 - Held, yes FACTS The assessee entered into a contract with the Railways for supplying certain materials which contained a condition that in case of rejection of the material supplied, the replacement would be at the cost of the assessee. The goods were returned twice and the railway authorities demanded a sum on account of the expenditure incurred in the transaction of returning goods and also asked the assessee to refund the commission received from the Railways in respect of the supplies so made. The assessee admitted the amount and reflected the same in his accounts maintained under mercantile system and claimed deduction of the said amount as loss arising in the assessment year 1987-88 when the demand was made. The Assessing Officer did not allow the deduction. On appeal, the Commissioner (Appeals) allowed the same. However, the Tribunal disallowed the deduction. In appeal, the revenue submitted that as there was no acknowledgement in writing signed by the assessee to Railways, reflection of liability in accounts could not be treated to be an admission. However, assessee contended that the admission of such liability was different from the acknowledgement contemplated under section 18 of the Limitation Act and had nothing to do with the recoverability of…

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