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TMI Blog1982 (12) TMI 72X X X X Extracts X X X X X X X X Extracts X X X X ..... re, damages had to be paid. The ITO disallowed the claim stating that firstly the amount of damage could be ascertained only by arbitration and further the sanction of the Reserve Bank had to be obtained for remittance of money abroad and merely because the assessee followed mercantile system of accounting and damages were debited to the accounts of the year, the liability could not be considered as having become final. The ITO has also mentioned in the assessment order five instances to show that intimation about the claim had been received from foreign buyers only sometime in 1977, that is, after the close of the accounting year. The ITO, therefore, added back Rs. 8,47,406 which was claimed as a deduction. 3. When the appeal went up to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in respect of such contracts where delivery could be made subsequent to June, 1976 would not arise for consideration in this year. 6. We have considered the rival submissions. We have also gone through the list of contracts and we find that except for the case of contract for supply of 600 cartons to Fishernut Company, New York and 8,150 cartons to Nollander Trading Corpn., New York, in all other cases the period of delivery extended beyond the close of the accounting year in June, 1976. If at all, therefore, the loss could be claimed in this year,it will only be in respect of non-fulfilment of the two specific contract with Fishernut Company and Nollander Trading Corporation, to which we have referred. 7. Adverting to the argument o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ach of contract, the cause of action is no longer based on the contract itself but on its breach. As the amount of damages thus received is the amount of damages suffered by it by reason of the breach of the contract, the nature of the transaction would not class as a speculative transaction within the meaning of section 43(5), If the contract itself was not of a speculative nature. Payment of such damages would not amount to "speculative loss".— CIT vs. Pioneer Trading Co. P. Ltd. (1968) 70 ITR 347 (Cal), Daulatram Rawatmull vs. CIT (1970) 78 ITR 503 (Cal), CIT vs. Ramjeewan Sarawgee Sons (1977) 107 ITR 845 (Cal), CIT vs. Arun General Industries Ltd. (1977) 110 ITR 286 (Cal), Steel Enterprises P. Ltd. vs. CIT (1977) 110 ITR 288 (Ca), CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore or after breach of the contract is immaterial if actual delivery of the goods is absent. Even where the contract is highly speculative and accounts to a wagering contract, if it is settled by actual delivery, it will not be a speculative transaction for the purpose of section 43(5). The section dispenses with all other tests except whether there was actual delivery or transfer of commodity when the contract is settled. R. Chinnaswami Chettiar vs. CIT (1974) 96 ITR 353(Mad)." 9. In deciding this case, we would follow the view expressed by the Calcutta, Delhi and Mysore High Courts. The ITO would verify whether the amounts in question were paid or quantified after the breach of contract had occurred or whether it was so done before the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ood included in the gross claim of Rs. 12,49,563, to which we have referred. Since this amount relates to payment on account of quality difference the same has to the allowed as a deduction. 11. The next contention is that the CIT (Appeals) went wrong in having disallowed weighted deduction u/s 35B(1)(b) of the Act, on commission paid to Indian agents at Bombay of Rs. 67,746 on export of cashew kernels to U.S.S.R as well as salary and allowance of the Managing Director and other staff. The CIT(A) made the disallowance on the ground that all the expenses were incurred in India. As far as the payment of commission to Indian agents for export of goods is concerned, the matter regarding purchase by Russian buyers has been dealt by the Tribun ..... X X X X Extracts X X X X X X X X Extracts X X X X
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