1970 (12) TMI 17 - HC - Income Tax

Whether the loss suffered by the assessee due to the breach of contract could be allowed as deduction- assessee also filed suit against the buyer for the recovery of loss

Summary

Issues:
1. Disallowance of loss claimed by the assessee in the income tax return for the assessment year 1953-54.
2. Justification of upholding the disallowance of Rs. 9,160 on account of loss and damages suffered by the petitioner due to breach of contract by the purchaser.

Detailed Analysis:
1. The judgment involved the disallowance of a loss claimed by the assessee in its income tax return for the assessment year 1953-54. The assessee, a firm owning a ginnery and oil mill, sold oil to a company which breached the contract, leading to a loss of Rs. 9,160. The Income-tax Officer disallowed the claim due to the ongoing litigation with the purchaser. The Appellate Assistant Commissioner and the Income-tax Appellate Tribunal upheld the disallowance based on the premise that the loss was not settled. The High Court, however, emphasized that the loss was incurred during the relevant accounting year and could not be postponed due to pending litigation. The court ruled in favor of the assessee, allowing the claim for the loss suffered.

2. The second issue pertained to the justification of upholding the disallowance of Rs. 9,160 on account of loss and damages suffered by the petitioner due to a breach of contract by the purchaser. The Tribunal had upheld the disallowance citing the ongoing litigation as a reason for uncertainty regarding the final outcome. However, the High Court held that the exact amount of loss suffered was recorded in the books of account and was not disputed. The court clarified that the loss was incurred during the relevant accounting year and should not be contingent upon the resolution of the litigation. Therefore, the court ruled in favor of the assessee, stating that the amount of loss could not be postponed due to the pending litigation and should be allowed as claimed.

In conclusion, the High Court judgment addressed the disallowance of the loss claimed by the assessee for the assessment year 1953-54, emphasizing that the loss was suffered during the relevant accounting year and should not be postponed due to ongoing litigation. The court ruled in favor of the assessee, allowing the claim for the loss incurred due to the breach of contract by the purchaser.