Partly allowed

C.I.T. v. Lucky Bharat Garage Pvt. Ltd.

Chhattisgarh HC9 Nov 2009ITR/103/1999

Case brief

AI extract

What is this about?

The High Court, answering a reference by the Income Tax Appellate Tribunal, held that loss on account of goods lost in transit is deductible in the year claims are lodged showing actual value when there is no hope of recovery, supporting the Tribunal's deletion of addition.

What did the court decide?

Question of law referred to the Tribunal answered in the affirmative in favor of the assessee.

C.I.T. Vs Lucky Bharat Garage Pvt. Ltd. — Income Tax | Chhattisgarh HC (2009)

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HIGH COURT OF CHHARTTISGARH AT BILASPUR

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Coram:Hon'ble Shri Dhirendra Mishra & Hon'ble Shri R.N. Chandrakar. JJ

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ITRNo.103/1999

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Applicant The Commissioner of Income Tax, Jabalpur (CG)

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Versus Respondent Lucky Bharat Garage Pvt. Ltd., Raipur Reference under Section 56 (1) of the Income Tax Act. 1961 Present: Shri S.R. Rao, counsel for the appltoant. Oral Order (Passed on 10th of November, 2009)

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Per Dhirendra Mishra. J:-

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This reference under Section 256 (1) of the Income Tax Act, 1961 has been made by the Income Tax Appellate Tribunal (for short the 'Tribunal'), Nagpur and the Tribunal has made the following question of law for our opinion:-

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"Whether on the facts and in the drcumstances of the case, the Tribunal was justified in law in deleting the addition made by A.O. disallowing the loss of earlier year of Rs.1,46,478/- when the assessee maintains book of account on mercanttle basis?"

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(2) Facts as projected in para-3 of the statement of the case are thal the Assessing Officer made an addition of Rs.1 ,46,478/on account of loss -ih transit. On scrutiny of profit and loss account, the Assessing Officer noticed that a sum of Rs. 12,61,9017- was debited under the head "claim and refunds". The Assessing bfficer noticed that certain amounts claimed do not pertain to the year under consideration. On queries, the assessee submitted that there was a gap between the Garage Receipt date (henceforth the 'G.R. date') and actual date of

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lodgment of claims with the company, which are generally 3-4 months and,therefore, the claims relatable to a period prior to 3- 4 months from the start of accounting year has been claimed to be allowable. Since the amount was not pertaining to the year under consideration, the Assessing Officer disallowed an amount pertainlng to the earlier years. However, the appeal preferred by the assessee was allowed by the CIT (Appeals) and it was held that this was a systematic method followed by the assessee. Therefore. there was no reason to disallowthe claim. Against the order of the CIT (Appeals), the Department preferred second appeal and the same has again been dismissed by the Tribunal. However, the tnstant reference has been made at the instance of Revenue.

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(3) Shri S. Rajeshwara\Rao, learned counsel for the applicant vehemently argued that the assessee follows mercantile system of accounting and, therefore, any loss suffered by (he assessee for a particular period is to be assessed as loss of that particular period. Since the assessee has not made any pFovision for a likely loss that he might suffer due to non delivery of the goods against the G.R. date, he cannot be permitted deduction in the subsequent financial year only on the ground that the claim against damages was settled in the following year. Reliance is placed on Caicutta Co. Ltd. Vs. Commissioner of Income Tax reported in(1959)37 ITR 1 (SC).

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(4) Heard Shri S. Rajeshwara Rao, learned counsel for the applicant.

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(5) The respondenf did not cause its appearance despite service of notice.

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(6) The facts as detailed above are not in dispute. The CIT (Appeals), while allowing the appeal of the a^essee, observed that loss in transit is a trading loss and allowable as deduction. For a loss to beclaimed, the assessee must have been put to

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some expense or payment during the year. In this case, while G.R. date was of an earlier period, the claims were lodged only when there were no chances of restitution or recovery of the goods^{lostintransit.} Thus, as per the legal position, the expenses were rightly claimed in the year in which the claims were received by the appellant showing the actual value of goods misplaced. Reliance has also been placed on Commissioner of Income Tax vs. Tulsi Ram Karamchand reported in (1964) 52 ITR 180 (PUNJAB) and Commissioner oflncome Tax vs. Sassoon J. Dawof&Co.reported in (1984) 146 ITR390 (BOMBAY).

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(7) In Calcutta Co. Ltd (supra), expenditure accrued to the assessee but not actually incurred during the relevant year. The assessee was maintaining mercantile system of accounting. The assessee claimed deduction towards the expenditure accrued to him, which was disallowed by the Revenue on the ground that he actually did not incur the expenditure. The Hon'ble Supreme Court held thus:-

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"Where the- assessee was following the mercantile system of accounting is entitled to deduct expenditure which is incidental to the business is deductible on accrual basis though it was not actually incurred during the relevant accounting year."

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"Expression "profits and gains" in s. 10(1) of 1922 has to be understood in its commercial sense which same can be computed only on deducting the necessary expenditure, whether the expenditure is actually incurred or the liability in respect thereof has accrued."

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(8) However, in the instant case, the assessee suffered trading loss due to loss in transit. Though theG.R. date was of eariier

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period, the claims were lodged only when there were no chances of restitution of recovery of the goods lost in transit.

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(9) ln the matter of Tulsi Ram l^ramchand (supra), in identical situation, the High Court of Punjab & Haryana heldthus:-

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"Loss on account of loss of goods in transit treated as loss in the relevant year when hope of recovery was remote and notice for suit was given to the Government and not when, in fact, compensation was received."

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(10) In the case of Sassoon J. David & Co. (supra), on the basis of factual finding recorded by the Tribunal that the assessee entertained genuine hopes that amount due to it was recoverable till assessment year 1969-70, it lost all hopes of recovery during previous year relevant to that assessment year and accordingly, the amount written off was deductible as business loss in the assessment year 1969-70, the Bombay High Court held thus:-

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"A company whose funds were embezzled by its director who was adjudged insolvent subsequently was justified in writing off total loss only after it lost all hopes of recovery and in claiming deduction thereof accordingly.

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.J'

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(11) In G. Manavala Naidu vs. Commissioner of Income Tax/Excess Profits Tax reported in (1961) 41 ITR 725 (Madras), it was held thus:-

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"Assesse& having short-delivered goods to the contr^ctee over several years was entitled toclaim deduction ofwhole amount in the year when the contractee first made demand to make good the value of goods short-delivered.

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(12) In the instant case, the Tribunals below have recorded a factual finding that the claims were allowed only when there were no chances of restitution of recovery of the goods lost in transit.

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The expenses were rightly claimed in the year in which the claims were received by the appellant showing actual value of the goods misplaced.

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(13) We are in respectful agreement with the law laid down by the Hon'ble Courts referred to above. Accordingly, we answer the question of law referred to us by the Tribunal in the affirmative in favour of the assessee and against the appellant/Revenue.

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Sd/DIffiUENDRA MISHRA ' Judge

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Sd/R.N. Chandrakar Judge

C.I.T. v. Lucky Bharat Garage Pvt. Ltd.

Case brief

What is this about?

What did the court decide?

C.I.T. v. Lucky Bharat Garage Pvt. Ltd.

Case brief

What is this about?

What did the court decide?

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