1985 (7) TMI 169 - AT - Income Tax

Summary

Issues:
1. Dispute over the deduction of Rs. 94,926 by the assessee to the Director General of Supplies and Disposal.
2. Determination of whether the amount is a business loss and the year in which the loss can be claimed.

Analysis:
1. The dispute in the appeal revolves around the deduction of Rs. 94,926 by the assessee to the Director General of Supplies and Disposal, which was disallowed by the ITO. The assessee claimed it as a business loss, while the ITO contended it was not a business loss and not allowable due to the mercantile system of accounting. The ITO rejected the claim citing reasons like the liability was not determined for the current year, the loss did not pertain to transactions in the current year, and the amount was still under dispute.

2. The Commissioner (Appeals) acknowledged the amount as a business loss based on a previous decision but questioned the year in which the loss could be claimed. The Commissioner noted that the liability was contractual and in dispute, making it uncertain if the assessee would be liable to pay. The Commissioner relied on a Supreme Court decision regarding the timing of claiming liabilities under a mercantile system. The Commissioner's conclusion was challenged by the assessee.

3. The Appellate Tribunal upheld the assessee's contention after examining the letter from the Director General of Supplies and Disposal, which quantified the liability. The Tribunal referred to past court decisions supporting the deduction based on quantification of liability. It was noted that the liability had been fully ascertained even though the matter was in arbitration. The Tribunal cited cases where liabilities were allowed deductions despite being under dispute, emphasizing that once quantified, the liability becomes allowable.

4. The Tribunal referenced various legal precedents to support its decision, emphasizing that the quantification of liability and the certainty of payment were crucial factors in allowing the deduction. The Tribunal highlighted that the law provides for situations where deductions made in previous assessments are subsequently recovered, deeming such recoveries as taxable income. The Tribunal accepted the appeal, deleted the disallowance, and dismissed the stay application, ultimately allowing the deduction of Rs. 94,926 by the assessee to the Director General of Supplies and Disposal.