9911796707
TMI Blog1991 (10) TMI 76X X X X Extracts X X X X X X X X Extracts X X X X ..... upply of 10,300 cartons of W-320 Indian cashewnuts kernels during the month of July to September 1983. Out of the total eight contracts for 10,300 cartons, the assessee-company did fulfil two contracts for supply of 1000 cartons in the month of December 1983. Six contracts for 9,300 cartons were not fulfilled by the assessee because of failure to procure the required quantity of cashewnut at a reasonable cost due to cashew crops failure during that season. The assessee would have incurred heavy losses if it had actually supplied the material. Upon the assessee not fulfilling the commitment, the buyers, M/s. Commodim (Produce) Ltd., London, had written a letter to the brokers indicating that the seller (assessee) went in default to fulfil th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment year. As such it is very clear that under any circumstances the so called liability was not absolutely due in the year. (3) further, it is noteworthy and interesting feature that the assessee has not made any attempt or taken any legal action against its suppliers who have really put the company into this situation. On the contrary the assessee company had agreed for appointment of the Arbitrators and also readily accepted the decision of the Arbitrators. All these facts show that the company was more interested in creating the liability rather than taking any steps to compensate its losses by taking legal steps against the local suppliers. This creates doubt about the bona fides of the expenditure. The discussion made above leads to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the Reserve Bank of India. With these observations, the assessee's plea for deduction came to be turned down by the CIT(Appeals). Thus the assessee is before us. 3. The learned counsel for the assessee submitted that the arbitration award was given on 22-12-1983 for default of contractual obligations, which should have taken place between August 1983 to October 1983. It was submitted by the assessee's counsel that approval was received from Reserve Bank of India in February 1986 permitting the remittance of foreign exchange. Drawing our attention to the terms and conditions of trade, the assessee claimed that the view of the tax authorities that all was a contrived situation and a colourable device to claim deduction under the Act, was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sel for the assessee reiterated that the damages became completely ascertained liability within the previous year relevant to the assessment year. Section 9 of Foreign Exchange Regulation Act provides for bar only against the payment. Further reliance was placed on the decisions in CIT v. Grand Cashew Corpn. [1990] 182 ITR 216 (Ker.), A. Yunus Kunju v. ITO [1986] 19 ITD 9 (Coch.), CIT v. Mathulal Baldeo Prasad [1961] 42 ITR 517 (All.), Shrikant Textiles v. CIT [1971] 81 ITR 222 (Bom.) and ITO v. Pfizer Corpn. [1985] 12 ITD 351 (Bom.) and also the decision of the Supreme Court in Satish Kumar v. Surinder Kumar AIR 1970 SC 833. 4. The departmental representative, on the other hand, relying upon the order of the Assessing Officer and the CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the contract and obligations. The matter, under the terms of contract, came to be referred to arbitration. The department has not placed any material to doubt the genuineness of the arbitration or the determination of the arbitration award to say that there was a colourable device created by the assessee to get an undeserved deduction under the Income-tax Act. We are unable to persuade ourselves to accept these findings by the tax authorities without any material. The arbitration award was passed on 22-12-1983 awarding damages to be paid by the assessee. The nature of the liability under the arbitration award, in the instant case, is one for unliquidated damages and the liability to pay the damages became crystallized when the amount of dam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovisions of sections 4 to 7 of the said Act. The other regulatory provisions for obtaining the Reserve Bank of India approval for payment, etc., will not affect the time of accrual. The case relied upon by the revenue does not squarely apply to the facts before us. In the case before the Supreme Court, it was concerned with the provisions of section 326 of the Companies Act, 1956, which contained an absolute prohibition against an appointment or reappointment of a Managing Agent before approval of the Central Government was obtained. In those circumstances, the Supreme Court held that the assessee's liability to pay the remuneration to Managing Agent arose only when the Government conveyed its approval and not prior to that day. In the case ..... X X X X Extracts X X X X X X X X Extracts X X X X
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