2009 (2) TMI 29 - HC - Income Tax

Assessee claimed a set off on account of loss by fire whether the aforesaid set off of loss, could be claimed by the assessee in A.Y. 1983-84 revenue contend that the instant loss had taken place during the A.Y 1978-79 - applicant-assessee, did not accept the same as his own loss till the dismissal of the civil suit on 31.5.1982 - held that loss must be accepted to have incurred during the F.Y 1982-83 (A.Y. 1983-84)- revenue should have allowed the deduction of the loss in the A.Y. 1983-84

Summary

Issues:
1. Claim of set off on account of loss in revised return for assessment year 1983-84.
2. Determination of the date when the loss was incurred.

Analysis:
1. The applicant-assessee, M/s New Diwan Oil Mills, Chandigarh, disclosed an income of Rs.1,48,800/- in its return of income filed on 27.7.1983. During a survey under Section 133-A of the Income Tax Act, 1961, conducted on 20.1.1984, discrepancies in stocks were found, leading to the applicant-assessee acknowledging an additional income of Rs.1 lac. Subsequently, on 14.3.1984, the applicant-assessee filed a revised return for the financial year 1982-1983, claiming a set off on account of loss amounting to Rs.1,48,950/-. The key issue was whether this set off of loss could be claimed by the applicant-assessee for the assessment year 1983-84. The respondent-revenue contended that the loss, which occurred due to the destruction of goods in a fire in 1978, could only be set off in the assessment year 1978-79.

2. The crux of the matter revolved around the date when the loss was incurred. The applicant-assessee argued that the loss became evident only after the dismissal of a civil suit filed in 1978 seeking reimbursement for the destroyed goods. The civil suit was dismissed on 31.5.1982, leading the applicant-assessee to accept the loss as its own for the first time. The High Court emphasized that the determination of the date of loss must be based on the facts of the case. Despite the fire destroying the goods in 1978, the applicant-assessee continued to reflect the goods in its inventory, believing the liability lay with the Punjab State Warehousing Corporation (PSWC). Only after the civil suit failed did the applicant-assessee acknowledge the loss, leading to the revised return in 1984. The court concluded that the loss must be deemed to have occurred in the financial year 1982-83, and the revenue should have allowed the deduction in the assessment year 1983-84.

3. The court considered precedents cited by both parties but emphasized that each case's facts and circumstances must be evaluated to determine when a liability was incurred. By analyzing the sequence of events and the applicant-assessee's actions, the court established that the loss crystallized in 1982-83. Consequently, the court ruled in favor of the applicant-assessee, stating that the Tribunal erred in disallowing the claim of loss in the assessment year 1983-84.