TaxTMI 
TaxTMI 
1987 (8) TMI 140
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.... USA for exploration, development and production of oil inIran. These three parties had entered into a contract in 1965 with a National Iranian Oil Co. The terms of the contract were that these three companies will do exploration at their own expenses and on discovery of oil the development and production sales will start in which the National Iranian Oil Co. ("NIOC" in short) was to participate to the extent of 50% in expenses as well as in the share of oil produced. For operation of this agreement a non-profit company called Iranian Marine International OilCo. ("IMINOCO" in short) had been brought into existence. The accounts maintained by the "IMINOCO" are sent to the constituents and the share of expenditure is remitted by these constit....
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....lars as well as in Rials. They were either the unspent balance left with AGIP or balance left with "IMINOCO" and also in the form of balances in the Dollars account or Rial account inTehran. The company did not carry out any change in these balances as on the date of devaluation that is20-12-1971, but decided to convert the balances on1-1-1971, which incidentally fell in the other accounting period. This was mainly done for convenience and for ensuring actual information about the balances. In case of sale proceeds, however, the company changed the rate of exchange from20th December, 1971itself and this change was effected in the accounts for 1971. 4. Before the Inspecting Assistant Commissioner the question arose about the allowance of ....
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.... be allowed and the profit was to be assessed. The CIT (Appeals) was of the view that the assessee had not suffered any actual loss on devaluation as the loss has not been booked at the time of actual remittance or meeting a liability and it was merely a provision for a future possible loss. According to the CIT (Appeals), the claim of loss was not in conformity with the accounting system followed by the assessee as was apparent from the exchange differences shown in the earlier years. He upheld the order of the assessing officer. 6. The learned counsel for the assessee drew our attention to the note prepared by the chief Accountant, which explained the background for this claim. He pointed out that the assessee was following the mercant....
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....nbsp; Rs. 3,48,460 Rs. 2,16,179 Loss in development expenditure Rs. 2,16,387 Loss under income-tax Rs. 37,93,613 Balance net loss Rs. 34,45,153 The learned counsel submitted that the loss incurred by the company in respect of income-tax could not be allowed and the same may be disallowed. However, he pressed his claim for the balance of the loss. It was contended by him that in 1966 when there was devaluation the assessee-company had made similar entries in the bo....
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....nt or receipt. He referred to the exchange difference account as maintained by the assessee from year to year and submitted that the assessee had been showing losses on the taking place of the actual transaction. It was submitted that the assessee could not claim merely a provision as there was no actual liability merely as a result of devaluation. He submitted that the assessee could not be allowed to have a different system for claiming this loss when he had been showing loss or profit on the basis of actual transactions in this year as well as in earlier years. According to the Departmental Representative the loss had not been incurred by the assessee in the present case. He also pointed out that the assessing officer had made it clear t....
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.... any reference to the assessee's actually meeting a higher liability or receiving a smaller amount as a result of devaluation. There is force in the inferences drawn by the CIT (Appeals) that it appeared to be merely a provision for a future possible loss. 9. In the present case the assessee has to face one more difficulty for the allowance of this loss. The learned counsel had relied on the decision of the Calcutta High Court in the case of Samuel Osborn (India) Ltd. for the proposition that a loss could take place on the date of devaluation. In the present case, unfortunately for the assessee, the devaluation had taken place on 20th December, 1971 and thus even if the assessee's arguments were to be accepted, the loss could be consider....