1990 (8) TMI 14 - HC - Income Tax

Business Expenditure, New Industrial Undertaking, Special Deduction, Year In Which Expenditure Allowable

Summary

Issues:
1. Deduction under section 80J(1) of the Income-tax Act for losses from an industrial undertaking.
2. Allowability of liability arising from breach of contract quantified after the end of the previous year.

Analysis:
1. The first issue pertains to the deduction allowable under section 80J(1) of the Income-tax Act for losses from an industrial undertaking to be carried forward and set off against profits in the following assessment year. The court referred to a previous decision in CIT v. M. A. Paper and Card Board Factory Pvt. Ltd. [1986] 160 ITR 877, where a similar question was addressed. Following the precedent, the court answered in the affirmative and in favor of the assessee, allowing the deduction to be carried forward and set off against future profits.

2. The second issue involves the allowability of a liability amounting to Rs. 3,35,140 arising from a breach of contract and quantified after the end of the previous year. The assessee argued that since the liability was quantified during the pendency of the assessment proceedings, it should be an allowable deduction. However, the Commissioner of Income-tax directed the Income-tax Officer to withdraw the deduction previously allowed. The Tribunal upheld this decision, stating that the liability was not an allowable deduction for the assessment year 1982-83. The court considered that the award made by the arbitrator, though quantified after the end of the previous year, did not result in a legally enforceable settlement between the parties. As the award was not filed or enforced by a court decree, it was deemed ineffective for claiming the liability as a deduction. Therefore, the court answered the question in the affirmative and in favor of the Revenue, disallowing the deduction for the liability arising from the breach of contract.

In conclusion, the High Court of Calcutta addressed the issues of deduction under section 80J(1) for losses from an industrial undertaking and the allowability of a liability arising from a breach of contract quantified after the previous year. The court ruled in favor of the assessee for the first issue based on precedent but sided with the Revenue for the second issue, disallowing the deduction for the liability due to lack of enforceability.