Law: Income Tax Act, 1922

Section: 10

[Indian Income Tax Act, 1922 (XI of 1922)].........Section 10-Loss-Mercaw tile system of accounting-Supply of sugar under compulsory demand by Government Loss estimated and debited in the account books in the year relevant to the assessment year 1959-60-Loss quantified in the following year but before assessment was finalised whether should be allowed in 1959-60 by substituting the finally quantified figure for the estimated loss-Held yes. It is settled law that when an assessee maintains his account book on the mercantile system of accounting, the date on which the liability accrues is the date to be considered for the purpose of entering that liability in the accounts. That is so even though the liability is capable of estimate only and its actual qualification has to be postponed. The difficulty in making the estimate did not convert the accrued liability into a conditional cue, because it was always open to the income tax authorities to arrive at a proper estimate thereof having regard to all the circumstances of the case. On July 7, 1958 the Government issued an order under clause 8 of the Sugar Export Promotion Ordinance informing the assessee-Company that 179.48 tons of sugar had been allotted as its quota for export and a demand for the supply of a specified number of bags was made. 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, the last day of its accounting year by that figure. In assessment proceedings for the assessment year 1959-60, the assessee claimed a loss of Rs. 53,310, The Income Tax Officer disallowed the claim on the ground that it related to an unascertained loss, On appeal, 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 1055 ascertained by the time the assessment was finalised. On appeal by the Income Tax Officer, the Appellate Tribunal held that having regard to the regular method of accounting on the basis of which the assessee computed its profits and…

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