TaxTMI 
TaxTMI 
1986 (3) TMI 122
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....and the decision of the Hon'ble High Court referred to earlier. 3. The second ground of appeal is that the Commissioner (Appeals) erred in not allowing deduction of Rs. 9,03,665 being liability of the Cotton Corporation of India Ltd. for liquidated damages. The appeal by the assessee is that the liability had been arisen during the year and even if the assessee did not accept the liability, deduction claimed was allowable. 4. It is seen that the assessee has filed an additional ground of appeal by a letter dated 29-1-1985. It is clarified before us by the assessee's learned counsel that the additional ground was taken in order to incorporate the correct amount of the loss claimed which should be at Rs. 22,62,475 in place of Rs. 9,03,665. 5. From the assessment order it is seen that the assessee claimed deduction of Rs. 9,03,665 being the difference of debit notes and credit notes issued by the Cotton Corporation of India Ltd. for imported cotton the delivery of which was not taken by the company. The ITO noted that the liability has not been accepted by the assessee and the same has not been provided for in the accounts also and, therefore, the claim was not entertainable.....
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.... acted on the direction or otherwise of the assessee on the basis of the contracts made with it. It is also submitted that clause (4) of the contract provides that if delivery is not taken, the assessee would have to compensate for the damages, if any, incurred by the Corporation and that according to clause (7) of the said contract the assessee would indemnify the Corporation against all actions, claims, proceedings, damages and losses, etc., in respect of or in connection with or in relation to or arising out of any matter under this agreement. It is, therefore, urged that the authorities below failed to consider the terms of the contracts and the obligations of the assessee in case delivery of the goods was not taken on the basis of the delivery orders. It is also contended that the commissioner (Appeals) erred in stating that no evidence in the form of any agreement or otherwise has been shown to establish that the liability was accepted during the previous year. It is also submitted that the mere fact that the liability was in dispute the claim of the assessee cannot be dismissed on that ground, particularly when the issue is sub justice in the Court of law. In short, it is ur....
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....982] 137 ITR 333 (Bom.) and Addl. CIT v. Arvind Mills Ltd. [1977] 109 ITR 212 (Guj.). According to the learned counsel for the assessee, the liability on account of damages was quantified and accordingly, the same was an allowable liability on the date as soon as the Corporation sold the goods to the other parties. He refers to the other decisions in CIT v. Sugar Dealers [1975] 100 ITR 424 (All.), Motilal Padmpat Sugar Mills v. CIT [1977] 106 ITR 988 (All.), CIT v. Swadeshi Mining & Mfg. Co. Ltd. [1978] 112 ITR 276 (Cal.), CIT v. Orient supply Syndicate [1982] 134 ITR 12 (Cal.) and CIT v. Centry Enka Ltd. [1981] 130 ITR 267 (Cal.). It is urged, therefore, that in the circumstances the claim of the assessee was wrongly disallowed by the authorities below. 10. We have heard both the sides and have perused the orders of the authorities below along with the papers placed before us for our consideration. As mentioned earlier the ITO disallowed the claim of the assessee as the assessee did not accept the liability. The Commissioner (Appeals) sustained the rejection. Before us it is submitted that the liability to the Cotton Corporation of India Ltd. was embedded in the contract itself....
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.... of appeal for decision. 14. In the result, the appeal by the assessee shall be treated as party allowed for the purpose of statistics. Per Shri S. K. Jain, Judicial Member - I do not fully concur with my learned brother and, therefore, express my view separately. 2. Two grounds out of three taken by the assessee-company in this appeal against the order of the Commissioner (Appeals) arising out of assessment for the assessment year 1979-80 are simple inasmuch as they are not seriously contested. 3. First of them is regarding disallowance of gratuity liability of Rs. 26,09,102 determined on actuarial valuation without any contribution towards an approved gratuity fund. According to the tax authorities below, the said claim was hit by section 40A (7); whereas the stand of the assessee has been that it is allowable under section 37(1). Such plea as raised by the assessee has been turned down by the Hon'ble Calcutta High court in the case of New Swadeshi Mills of Ahmedabad Ltd. The ground of appeal, therefore, fails and I concur with my learned brother on this point. 4. The second of these two points is regarding computation of relief under section 80J. Law on this point ha....
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.... Rs. 1. 1337 of 1980 28-8-1980 G/298 8,67,339.82 2. 1325 of 1980 22-8-1980 G/301 1,25,572.86 3. 1338 of 1980 28-8-1980 G/546 18,13,141.15 4. 322 of 1981 25-2-1981 G/432 6,66,836.63 ------------ &nb....
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.... reach the conclusion it is necessary to advert to the written statement of the assessee filed in the Bombay High Court. The claim of Cotton Corporation of India Ltd. has been contested by the assessee on all scores. Following preliminary objections have been raised by the assessee in its written statement : (1) The Court has no jurisdiction to entertain and try the suit. (2) The suit is barred by limitation. (3) The suit bad for misjoinder of causes of action and misjoinder of parties. The assessee further challenged the stand of the Cotton Corporation of India Ltd. that any contract was entered into for and on behalf of it by Hada Textile Industries Ltd. It is also alternatively alleged that the Cotton Corporation of India Ltd. had played fraud on Hada Textile Industries Ltd. The assessee denied privacy of contract between it on the one hand and the said corporation on the other. Even on merit of the claim each and every fact has been denied by the assessee throwing all the blame on the Cotton Corporation of India Ltd. for importing cotton and incurring loss therein. 9. It is thus obvious that the liability in respect of which the assessee claims deduction is a con....
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.... point. Kedarnath Jute Mfg. Co. Ltd.'s case, Motilal Padampat Sugar Mills' case, Swadeshi Mining & Mfg. Co. Ltd.'s case, Century Enka Ltd.'s case and Orient Supply Syndicate's case pertain to statutory liability and not the contractual liability. In the cases of J. K. Cotton Spg. & Wvg. Mills Co. and R. D. Sharma & Co. liability was not disputed by the assessee and was as such an ascertained amount because of admission of the assessee. In the cases of Prafulla Kumar Malik, Sugar Dealers Arvind Mills Ltd., Surya Prabha Mills (P.) Ltd. and Reliable Water Supply Service of India (P.) Ltd., there was no question before the High Courts as to in which year liability should be allowed. The cases of Calcutta Co. Ltd. and Sutlej cotton Mills Ltd. and Shantilal (P.) Ltd. are not at all in point. 11. The matter for consideration is quite plain and simple, namely, that the assessee has incurred certain liabilities for breach of contract for which civil suits have been filed which are being contested by the assessee and, thus, the question is whether under these facts and circumstances, the liability can be said to have arisen in present. In view of above discussion, answer to this question ....
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....t of claim for trading loss can be decided and deserves to be dismissed ?" was stated for reference by the President to a Third Member within the meaning of section 255(4). The president having assigned the matter to himself, the case came up before me as the Third Member for hearing. 2. I have heard the parties at length and have gone through the facts on record and the catena of case of laws cited by the parties of both the sides. The controversy is in a narrow compass. There does not appear to be any decision squarely covering the point at issue. The claim for liability, admittedly, arose out of four contracts between the Cotton Corporation of India Ltd. and Hada Textile Industries Ltd. The contracts are for purchase of cotton to be imported and are said to have been executed by Hada Textile Industries Ltd., on their own behalf and on behalf of the assessee. The shipping documents had arrived but were not retired by the assessee during the previous year. After due notices to the assessee, the cotton imported under the contracts was sold by the Cotton Corporation of India Ltd. in the open market at loss during the previous year itself. In one case, even demand for loss, intere....
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....een incurred nor in any of the following seven-eight years, there are only two possible inferences : (i) the assessee might have considered itself not liable at all, and (ii) chances of the liability being fastened on the assessee are so remote that it has decided to debit the liability to its profit and loss account only when it has to suffer the liability actually. To my mind, when the Courts observed that in the case of a person following the mercantile system of accountancy uniformly the fact that entry about the liabilities not made in the books is not material, the cases under contemplation were where the entry was not made through inadvertence and not those where the entries were not made consciously. In fact non-making of entries of alleged accrued liabilities in the books over the years, leads to the inference of a change in the method of accounting, there being no dispute about the fact that it is seldom that the accounts are maintained by an assessee purely on mercantile or cash system. Therefore, it may not be improper to hold that vis-a-vis these contracts the assessee has started following cash system. Besides, there is good reason in this case, to accept the as....