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Issues:
- Determination of whether the sum of Rs. 1,74,827 could be treated as a loss in the previous year for the assessment year 1949-50. Analysis: The case involved an assessee firm dealing in cloth that faced an irretrievable loss of 176 bales of cloth during the partition in 1947. The firm had debited its goods account with Rs. 1,74,827, the price of the lost goods, and credited the amount to the Ahmedabad firm. Subsequently, a compromise was reached with the Government of India in 1951, resulting in a settlement of Rs. 1,24,586. The key issue was whether the initial loss should have been shown in the assessment year 1949-50 and the recovered amount shown as profit in 1952-53 or if the loss should not have been allowed until the settlement with the government. The lower authorities had differing opinions, leading to a reference to the President of the Income-tax Appellate Tribunal. The Commissioner relied on a previous case involving embezzlement to argue that the loss should have been claimed in the year it occurred. However, the majority opinion of the Appellate Tribunal, supported by the learned Accountant Member, held that the loss was correctly accounted for in the assessment year 1949-50. The Tribunal emphasized the absence of an admitted liability for the loss and the uncertain prospect of recovery, distinguishing it from cases of embezzlement or bad debts where an admitted liability exists. The Tribunal concluded that the loss of stock-in-trade during the relevant year necessitated the treatment of the amount as a loss. The judgment highlighted the distinction between losses due to embezzlement and bad debts, where an admitted liability exists, and the present case where the loss was irretrievable and recovery prospects were uncertain. The majority opinion of the Tribunal was upheld, affirming that the loss should be recognized in the assessment year 1949-50. The judgment was delivered by D. Falshaw and Harbans Singh, JJ., with Harbans Singh J. concurring.
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