1979 (7) TMI 123 - AT - Income Tax

Summary

Issues Involved:
1. Deduction of Rs. 1,10,534 claimed by the assessee for the value of confiscated rice.
2. Disallowance of contribution to the Welfare Fund.

Detailed Analysis:

1. Deduction of Rs. 1,10,534 for Confiscated Rice:

Facts:
The assessee, a registered firm deriving income from milling paddy and selling rice, had 1,110 quintals of rice seized by the Civil Supplies Department. The rice was auctioned, and the assessee claimed a deduction for the loss in the year 1974-75. The ITO disallowed the claim due to lack of evidence supporting the value of the stock. The AAC upheld the disallowance, citing the violation of regulations by the assessee and the failure to contest the confiscation in court.

Assessee's Argument:
The assessee argued that the confiscation occurred on 22nd July 1971, and the finality of the confiscation was only confirmed by the Supreme Court in May 1976. Therefore, the write-off was appropriate in the year 1974-75 when the assessee realized the stock would not be returned.

Department's Argument:
The Department contended that the loss arose from the infraction of the Essential Commodities Act and should not be allowed as a deduction. Moreover, the write-off should have been made in the years 1972-73 or 1973-74 when the seizure originally occurred.

Tribunal's Decision:
- The Tribunal noted the sequence of events, including the annulment of the initial confiscation by the District Judge and the subsequent confirmation by the Supreme Court.
- The Tribunal concluded that the write-off was justified in the year 1974-75 as the assessee became aware of the finality of the confiscation only on 4th Dec. 1973, when the Revenue Divisional Officer confirmed the confiscation.
- The Tribunal held that the write-off was necessary to reflect the true income or loss for the year accurately.

Separate Judgment by Judicial Member:
- The Judicial Member disagreed, arguing that the loss occurred on 18th Nov. 1971, when the initial confiscation order was passed.
- He emphasized that the loss was due to the infraction of law and should not be allowed as a deduction.
- He cited the Punjab High Court's decision in CIT vs. Tulsiram Karamchand, stating that the loss should be claimed in the year when the goods were irretrievably lost.

Third Member's Decision:
- The Third Member agreed with the Accountant Member, noting that the assessee was justified in writing off the stock in the year 1974-75.
- He emphasized that the claim was made on the basis of the stock being out of possession and not on the infraction of law.
- The Third Member concluded that the reduction in stock should be allowed as it reflects the true gross profit.

Final Order:
In conformity with the Third Member's decision, the amount of Rs. 1,10,534 was allowed as a deduction while computing the business income for the year 1974-75.

2. Disallowance of Contribution to Welfare Fund:

Facts:
The assessee claimed a deduction of Rs. 6,955 as a contribution to the Welfare Fund, which was disallowed by the ITO and confirmed by the AAC.

Tribunal's Decision:
- The Tribunal referenced a Special Bench decision in ITA No. 1402/Hyd/1975-76, dt. 25th Oct., 1977, which allowed such contributions as deductions.
- Following the precedent, the Tribunal held that the assessee was entitled to claim the contribution to the Welfare Fund as a deduction from its total income for the year under appeal.

Final Order:
The appeal was allowed, and the contribution to the Welfare Fund was permitted as a deduction.

Conclusion:
The appeal was allowed, granting the assessee the deduction of Rs. 1,10,534 for the confiscated rice and Rs. 6,955 for the contribution to the Welfare Fund.