1984 (7) TMI 204 - AT - Income Tax

Summary

Issues:
1. Deduction of loss claimed by the assessee for the assessment year 1978-79.

Detailed Analysis:
The appeal before the Appellate Tribunal ITAT Madras-C involved the deduction of a loss amounting to Rs. 20,37,818 claimed by the assessee for the assessment year 1978-79. The assessee-company was engaged in the business of bottling soft drinks under a franchise agreement with an American company. However, due to the Indian government's denial of permission to the American company to sell soft drink concentrates in India, the business faced uncertainty, leading to the cessation of selling certain soft drinks. The assessee decided to retain only 20,000 bottles out of a total stock of 32,25,852, and wrote off the remaining bottles, valuing them at Rs. 20,37,847.18.

The Income Tax Officer (ITO) disallowed the claim, stating it was premature and could represent a capital loss. The Commissioner of Income Tax (Appeals) considered additional facts, including a compensation offer from the American company for the unusable bottles. The CIT(A) concluded that the claim was premature as negotiations for compensation were ongoing, and the assessee had not sold or destroyed any bottles during the relevant period.

The assessee argued that the loss claim was justified as a large stock of bottles had become non-utilizable due to business circumstances. They contended that the compensation offer was for business discontinuation, not for the bottles' value. The department argued that the claim was premature and should be treated as a capital loss.

The Tribunal held that the assessee was entitled to the deduction of the loss. It found that the bottles had become unusable in the business, and events subsequent to the accounting year end did not affect the loss sustenance. The Tribunal rejected the capital loss argument, noting the historical treatment of bottle replacements as revenue expenses. The Tribunal directed the IAC (Assessment) to allow the loss claim of Rs. 20,37,848 and modify the assessment accordingly.

In conclusion, the Tribunal allowed the appeal, ruling in favor of the assessee and directing the deduction of the claimed loss amount.