9911796707
TMI Blog1990 (11) TMI 107X X X X Extracts X X X X X X X X Extracts X X X X ..... ed under section 263 of the Income-tax Act, 1961 ?" The assessee is a limited company engaged in manufacture and sale of jute articles, especially gunny bags. The assessment year concerned is 1973-74. During the relevant previous year, an order was served upon the assessee under rule 114(2) of the Defence of India Rules, 1971, issued by the Director-General of Supplies and Disposals, Calcutta, calling upon the assessee to supply 7,110 bales of jute bags during the period November, 1971, to September, 1972. The supply was to be made at a notified price which was lower than the market price. As against 7,110 bales ordered to be supplied, the assessee manufactured 5,270 bales during the relevant previous year, out of which only 3,405 bales w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. But sale there must be for the assessee to claim the resulting loss as a deduction. Without a sale, there is no loss. As a fact, in the relevant previous year, sale was only of 3,405 bales and not of 7,110 bales. The Tribunal has taken the view that since the requisition order created a liability to supply, the loss arose on the date the said order was served upon the assessee, because the assessee was maintaining its accounts on the mercantile basis. It is the correctness of this view that is in question before us. Learned standing counsel for the Revenue argues, and with a good amount of justification, that it may be that the order served upon the petitioner is a statutory order, that he was bound to obey it, and that its infraction ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... maintaining the mercantile system of accounting. Though he received only a part of the sale price, he entered on the credit side the full sale price. Similarly, on the debit side, he debited the entire estimated expenditure required for development of the land, though, as a matter of fact, he had not spent all that amount during the relevant previous year, but only a part thereof. The question was whether he was entitled to deduction of the entire estimated expenditure or only of that amount which he had actually spent during the relevant previous year. Having regard to the system of accounting and the method of entries on the credit side and the debit side, the Supreme Court held that the assessee was entitled to debit the entire estimated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be allowed is not Rs. 53,310, but only Rs. 49,516. The latter figure was worked out on the basis of the price actually fixed by the Government in the following year. This was confirmed in appeal by the Tribunal whereupon the matter was brought to this court by way of reference. This court approved the reasoning of the Tribunal in the following words (at p. 787) : "Now, having regard to the circumstance that the assessee was bound in law to comply with the demand made on July 17, 1958, a liability to supply the sugar demanded must be taken in reality to have arisen in law on that date. The assessee could not refuse to supply the sugar, and it may be assumed, therefore, that the sale took place on that date. The question next arises, whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be deemed that the sale took place on that date. Since the said decision is binding upon us, we follow the same and since the facts are broadly identical, we must hold that, in the present case too, a sale can be deemed to have taken place on the date the requisition order was served upon the assessee. In all such cases, it is evident that, in the subsequent years, actual facts can be ascertained and necessary adjustments made, to wit, if the remaining number of bales are not sold in the subsequent years, the proportionate amount can be added back to the income. For the above reasons, the question referred is answered in the affirmative, that is, in favour of the assessee and against the Revenue. There shall be no order as to costs. - ..... X X X X Extracts X X X X X X X X Extracts X X X X
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