Irretrievable stock loss treated as deductible loss in the accounting year, allowing deduction for the previous year assessment.

Where goods were irretrievably lost in transit during the accounting year and no admitted liability or realistic prospect of recovery existed, the cost of the lost stock must be written off from the goods account and transferred to the profit and loss account; accordingly the loss is deductible in that accounting year for assessment purposes. The analysis distinguishes such definite contemporaneous losses from embezzlement or bad debts where ascertainment depends on admitted liability or efforts to realise value, and concludes the amount in question is allowable as a prior-year loss.

---

---

Issues: Whether the cost of goods amounting to Rs. 1,74,827, irretrievably lost in transit during the relevant accounting year, could legally be treated as a loss in the previous year for the assessment year 1949-50.

Analysis: The facts show an undisputed, irretrievable loss of the entire consignment during the accounting year; there was no admitted liability to recover the value and prospects of recovery from Government sources were speculative until a later compromise. Applying recognised accounting methods, the fictitious debit in the goods account at the end of the accounting year required transfer to the profit and loss account. The case differs from embezzlement or bad-debt situations where an admitted liability or a demonstrable attempt to realise a debt affects the year of ascertainment. Here the loss was definite in fact at the accounting year-end and was not merely an uncertain or contingent claim awaiting settlement.

Conclusion: The sum of Rs. 1,74,827 representing the cost of the lost goods is to be treated as a loss in the previous year relevant to assessment year 1949-50; the question is answered in the affirmative in favour of the assessee.

Ratio Decidendi: Where goods are irretrievably lost during the accounting year and there is no admitted liability or realistic prospect of recovery, the cost of such lost stock must be transferred to the profit and loss account and is deductible as a loss in that accounting year.

---