Law:

Section:

Section 28(i) of the income-tax act, 1961-Business loss/deduction-Assessee-Firm, maintaining accounts on mercantile basis and adopting financial year as previous year, incurred loss of Rs. 38,673 in cycle spare parts export business, commenced in assessment year 1971-72, but not debited in profit and loss account as import entitlements against export received in assessment year 1972-73-Assessee claimed deduction, inter alia, of loss in assessment year 1972-73-ITO disallowed the same as not being relevant to year in question-Tribunal directed set off of impugned loss of Rs. 32,118, after adjusting premium of Rs. 6,555 on import licences in assessment year 1972-73-Whether tribunal right in law-Held, on facts, yes Facts The assessee-firm carried on business in sale of cycle and its spare parts. It kept its accounts regularly on mercantile system and adopted the financial year as its previous year. For the assessment year 1971-72, it started export of cycle spare parts and incurred a loss of Rs. 38,673 in the export business, which was not transferred to the profit and loss account for the relevant year, but was transferred directly to the balance-sheet as on 31-3-1971. The same was not claimed as a business expenditure. For the assessment year 1972-73, its accounts reflected a loss of Rs. 49,278, including the preceding year's loss of Rs. 38,673. The assessee claimed the entire amount of Rs. 49,278 as loss from export business pleading that the preceding year's deficit of Rs. 38,673 could not be transferred to the profit and loss account as import entitlements against the exports were yet to be received. It also stated that four import licences worth Rs. 16,317 (received after the previous year ending 31-3-1971) were in hand as on 31-31972 and after adjusting the premium of Rs. 6,555 on these licences, the loss in exports, as on 31-3-1972, was reduced to Rs. 32,118. The ITO did not accept the assessee's plea and disallowed the loss of Rs. 38,673 holding that the same did not relate to the year in question in view of mercantile system of accounts. The assessee's appeal before the AAC was unsuccessful. The Tribunal, however, allowed the set off of the said loss of…

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