1971 (2) TMI 6

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....ing the accounting year ending September 30, 1958. The method of accounting is mercantile. The Government of India in the Ministry of Food and Agriculture framed a scheme for the promotion of the export of sugar. In pursuance of that scheme the Sugar Export Promotion Ordinance, 1958, was promulgated. On June 27, 1958, a notification was issued by the Government fixing 50 thousand tons of sugar as the quantity for export out of India during the period ending October 31, 1958. On June 27, 1958, the Government issued an order under clause 5 of the Ordinance informing the assessee that 179.48 tons of sugar had been allotted in its case as its quota for export. On July 17, 1958, the export agency division of the Indian Sugar Mills Association....

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....ppeal to the Income-tax Appellate Tribunal. The principal submission before the Tribunal on behalf of the Income-tax Officer was that the loss was in the nature of a contingent liability or an unascertained liability during the year under consideration and, therefore, could not be legitimately claimed as a deduction against the profits of that year. The Tribunal found that upon the demand made by the letter of July 17, 1958, the assessee was under a legal obligation to export a specified quantity of sugar at a stipulated price and that the assessee would suffer a loss on the transaction. It observed that the loss was occasioned by the circumstance that the assessee had valued the stock of sugar at market price while the export was to be mad....

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....trary. Subsequently, in the following year when the price was actually fixed and it was possible to quantify the loss suffered by the assessee the loss so quantified had to be substituted for the loss estimated by the assessee, and it is the finally quantified figure of loss which alone could be taken into consideration for the purpose of the claim made by the assessee. It is settled law, we think, that when an assessee maintains his account books on the mercantile system of accounting, the date on which the liability accrues is the date to be considered for the purpose of entering that liability in the accounts. That is so, even though the liability is capable of estimate only and its actual quantification has to be postponed. Reference ma....