The assessee, Messrs, Laxmi Ginning and Oil Mills, Khanna, is a firm which owns a ginnery and oil mill. The assessment year in question is 1953-54, corresponding to which the previous year ended on May 30, 1952. In that year the assessee sold 495 maunds, 27 seers of oil, manufactured by it, to Amrit Banaspati Company Ltd. at the rate of Rs. 57-8-0 per maund, that is, for a total value of Rs. 26,642. The purchaser-company did not take delivery of the oil contracted to be purchased by it and thus committed a breach of the contract. The assessee sold that quantity of oil in the market at the risk of the purchaser which fetched a price of Rs. 42 per maund. The assessee thus realised a total sum of Rs. 20,572 from the resale of that oil and incurred a loss of Rs. 9,160 which was debited by the assessee-firm to the ground-nut account and credited to 'the claim in dispute accounts'. The assessee-firm, thereafter, filed a suit against Amrit Banaspati Company Ltd. for recovering the said loss and ultimately obtained a decree in 1962. The assessee-firm claimed the above loss in its income-tax return for the assessment year 1953-54 which was disallowed by the Income-tax Officer on the following ground :
'The assessee is still fighting the case in the High Court for recovery of the amount. Since the loss debited to the trading account has not been finally settled, the debit as created in the groundnut account cannot be allowed and the same is being added back.'
The assessee preferred an appeal against the disallowance of the loss but the Appellate Assistant Commissioner upheld the disallowance on the same ground as given be the Income-tax Officer. The assessee then filed a further appeal to the Income-tax Appellate Tribunal which was dismissed with the following observations :
'The authorities below have disallowed this claim on the ground that the assessee has filed a suit against the purchaser for recovering the said amount which is still pending in the High Court and that till it is finally decided it cannot be stated as a matter of fact that the assessee has suffered the loss. We agree with the reasoning of the authorities below and uphold the disallowance.'
The assessee then applied under section 66(1) of the Income-tax Act, 1922, hereinafter called 'the Act,' to the Tribunal for reference of the case to this court for opinion. That application was rejected with the result that the assessee filed a petition under section 66(2) of the said Act which was allowed by this court and a direction was issued to the Income-tax Appellate Tribunal to state the case and refer the following question of law for opinion to this court :
'Whether, on the facts and in the circumstances of the present case, the Tribunal was justified in upholding the disallowance of Rs. 9,160 on account of loss and damages suffered by the petitioner owing to breach of contract by Amrit Banaspati Company Ltd. ?'
The form of the question indicates that there was no dispute that the assessee-firm had suffered a loss of Rs. 9,160 on the basis of the contract of sale entered into by it with Amrit Banaspati Company Ltd. for the sale of 495 maunds, 27 seers of oil. This loss was suffered by the assessee-company during the accounting year relevant to the year 1953-54 and the exact amount of the loss suffered was entered in the books of account of the assessee-firm under the proper head which has not been disputed. It cannot be said that the amount of loss would have crystallised only after the litigation between the assessee-firm and the Amrit Banaspati Company Ltd. had been finally decided. The loss was suffered by the assessee-firm in the accounting year relevant to the assessment year 1953-54, and if, as a result of litigation, it was found entitled to less amount than the amount claimed, the difference could be included in the assessable income of the assessee for the year during which the final decision of the litigation was made. Similarly, if the assessee had been successful in obtaining the entire amount of loss from the Amrit Banaspati Company Ltd. the amount could be included in the income of the assessee for the year during which the amount was actually recovered. The pendency of the litigation about the loss suffered cannot militate against the fact that the loss was suffered by the assessee-firm during the accounting year in question. The amount of that loss cannot be postponed in view of the pendency of the litigation referred to above.
For the reasons given above, our answer to the question referred to us is in the negative, that is, in favour of the assessee and against the revenue. The assessee will be entitled to costs which we assess at Rs. 200.
Question answered in the negative.