Trading loss from contract breach is deductible when actually suffered, despite pending recovery litigation.

A trading loss arising from breach of contract is deductible in the year it is actually suffered and quantified in the accounts, even if litigation for recovery remains pending. The pendency of a suit does not postpone or negate an already incurred loss; any later recovery is brought to tax in the year of receipt, and any shortfall can be adjusted in that later year. On that basis, the disallowance of the assessee's claim was not justified, and the loss was held allowable for the relevant assessment year.

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Issues: Whether the assessee's loss arising from breach of contract was deductible in the assessment year 1953-54 despite pending litigation for recovery of the amount.

Analysis: The loss was actually suffered in the relevant accounting year and had been quantified and entered in the books under the proper head. Its deductibility did not depend on the final outcome of the suit against the defaulting purchaser. If later recovery was obtained, the recovered amount would be brought to tax in the year of recovery, and if a lesser amount was eventually realised, the difference could be adjusted in that later year. The mere pendency of litigation did not postpone or negate the loss already incurred.

Conclusion: The disallowance was not justified and the question was answered in the negative, in favour of the assessee and against the revenue.

Ratio Decidendi: A trading loss is allowable in the year in which it is actually suffered and cannot be postponed merely because litigation for recovery of the amount remains pending; any subsequent recovery is dealt with in the year of receipt.

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