Deductible stock loss principle: irretrievable loss of goods is recognised in the year the stock disappears, not when later recovered.

The cost of a cloth consignment irretrievably lost during the accounting year was treated as a deductible loss in the relevant assessment year because, by the year-end, the goods had ceased to form part of closing stock and no existing liability remained to be recovered. A later compromise with the Government was only a subsequent recovery against a loss already sustained, not the event creating the loss. The note distinguishes this situation from embezzlement and bad debt cases, where timing depends on ascertainment or recovery; here, the disappearance of the stock itself made the loss real in that accounting year.

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Issues: Whether the cost of the lost cloth consignment could be treated as a loss in the previous year relevant to the assessment year 1949-50.

Analysis: The consignment of cloth was irretrievably lost during the accounting year in circumstances showing that, on the last day of that year, the goods were no longer in closing stock and no admitted liability then existed from which the loss could be recovered. The later compromise with the Government merely resulted in a subsequent recovery against a loss already suffered. The case was distinguished from embezzlement and bad debt situations, where the timing of ascertainment or recovery is material, because here the stock itself had disappeared and the loss had become real in the relevant accounting year.

Conclusion: The loss was deductible in the assessment year 1949-50 and the answer was in favour of the assessee.

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