2015 (1) TMI 746 - HC - Income Tax

High Court rules on disallowance of trading liability under Section 43B of Income Tax Act

Oswal Agro Mills Ltd. Versus Commissioner of Income Tax

The High Court upheld the disallowance of a contractual trading liability under Section 43B of the Income Tax Act, citing the liability as contingent upon ... Contractual trading liability - disallowance under Section 43B - Held that:- The amount is not an ascertained liability. The Court held that such liability is contingent upon an uncertain fact and, therefore, deduction claimed by the assessee was not permissible in view of Section 43B of the Income Tax Act. See Oswal Agro Mills Ltd. vs. Commissioner of Income Tax [2014 (2) TMI 378 - DELHI HIGH COURT ] - Decided against assessee. Disallowance of loss incurred on account of devaluation of Rupee - Held that:- Loss incurred on account of devaluation of Rupee is governed by the ruling in CIT vs. Woodword Governor India Pvt. Ltd. (2009 (4) TMI 4 - SUPREME COURT ) wherein held the loss incurred is clearly admissible and the disallowance made by the Revenue was not justified. Decided in favour of assessee. Issues:1. Disallowance of contractual trading liability under Section 43B of the Income Tax Act.2. Disallowance of loss incurred on account of devaluation of Rupee.Analysis:1. The first issue revolves around the disallowance of an amount incurred as a contractual trading liability under Section 43B of the Income Tax Act. The assessee, engaged in manufacturing and trading, had agreements with overseas processors for the purchase of imported materials. The Revenue disallowed a specific amount, claiming it was not permissible under Section 43B. The Income Tax Appellate Tribunal upheld this disallowance, leading to an appeal before the High Court. Citing relevant case law, including the judgment in Oswal Agro Mills Ltd. vs. Commissioner of Income Tax, the Court concluded that the liability was contingent upon an uncertain fact and thus not an allowable deduction under Section 43B. The Court relied on precedents such as Kedarnath Jute Manufacturing Co. Ltd. v. CIT, Calcutta Co. Ltd. v. CIT, and Bharat Earth Movers v. CIT to support its decision. Therefore, the Court answered the first two questions affirmatively and against the assessee, partially allowing the appeal.2. The second issue pertains to the disallowance of a sum representing a loss incurred due to the devaluation of the Rupee. The Court referred to the ruling in CIT vs. Woodword Governor India Pvt. Ltd. to determine the admissibility of such a loss. Following the Supreme Court's judgment in that case, the Court found the loss to be clearly admissible, contrary to the disallowance made by the Revenue. Consequently, the Court answered the third question in the affirmative, but in favor of the assessee. As a result, the appeal was partly allowed based on the Court's analysis and application of relevant legal principles and precedents.