Law: Income Tax Act, 1922

Section:

Income-tax-----Business expenditure---Mercantile system of accounting---Expenditure in which year allowable---Penalty imposed on assessee for infraction of Customs Act in assessment year 1979-80---Government setting aside order of penalty in 1982---By applying the doctrine of "relating back" liability stood wiped out in assessment year 1979-80 itself---Deduction not allowable merely because payment was made. The general rule is that deduction can be permitted in respect of only those expenses or losses which have accrued in the relevant accounting year. This general rule, however, is required to be applied after taking into account subsequent events which have a bearing on the issue being decided by the authority concerned. It is, therefore, permissible in law to take into consideration, at the time of deciding an issue, such subsequent events, consideration, at the time of deciding an issue, such subsequent events, legal or factual, which may have an effect on the decision of the issue. It is necessary to do so for the obvious reason that the aim of law is to do substantial justice between the parties and to impart to them not merely legal or technical justice but, as far as possible, real and substantial justice. During the accounting period relevant to the assessment year 1979-80, the assessee-firm carried on its business activities with head office at place J and a branch office at place B and was maintaining its accounts on the mercantile system of accountancy. On December 5, 1977, the assessee¬ firm, through its branch office at B, entered into a contract with a foreign company to import crude palm oil and accordingly obtained an import licence on December 30, 1977 from the concerned authorities and also obtained on January 6, 1978, a letter of credit from a bank. As per this letter of credit, the expiry date of shipment was February 3, 1978. This letter of credit was, however, later on cancelled by the bank. On January 13, 1978, the Government of India issued a public notice whereby the import of crude oil was banned. The rigours put by this public notice were, however, partially relaxed by issuing another public notice on February 22, 1978, to the…

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