COMMISSIONER OF INCOME TAX Vs. INDIAN OVERSEAS BANK

JUDGEMENT

(1.) AT the instance of the Revenue, the following questions have been referred by the Income-tax Appellate Tribunal to this court for its opinion, respectively, in relation to the years 1968-69 and 1969-70, in relation to the same assessee :

(2.) SINCE the facts giving rise to these two reference are substantially the same, it will suffice to refer to the facts in one case. The assessee is a nationalised bank. On September 27, 1968, it filed its return of income for the assessment year 1968-69. The assessment was completed on March 17, 1972, and the income assessed was Rs. 62,94,890. Subsequently, the ITO on the basis of an audit note proceeded to reassess and eventually brought to tax an amount of Rs. 9,20,125 which was shown by the assessee as a provision against profit on exchange. The assessee appealed to the AAC contesting the validity of the reopening of the assessment under s. 147(b) of the I.T. Act. The assessee also questioned the reassessment resulting in the inclusion of sum of Rs. 9,20,125 on merits. The AAC held against the assessee on the question of validity of reassessment under s. 147(b). On merits, however, the AAC held that the assessee is entitled to claim deduction of Rs. 9,20,125 in its assessment for the year 1968-69. The Revenue took the matter in appeal to the Tribunal questioning the finding of the AAC on merits. The assessee also filed its cross-objections before the Tribunal on the question of applicability of s. 147(b) under which the reopening of the original assessment has been made. The Tribunal rejected the assessee's cross-objection upholding the view taken by the AAC on the aspect is against the assessee and the assessee has not come up before us on reference. Therefore, that finding of the Tribunal has become final and conclusive. Thus, the question of reopening the original assessment under s. 147(b) is not in dispute before us and only question referred to us for our decision is, whether the assessee is entitled to the deduction of Rs. 9,20,125 said to be a provision against profit on exchange as held by the Tribunal.

(3.) IN CIT v. Shewbux Jahurilal [1962] 46 ITR 688 (Cal), an assessee had entered into a contract with another company to supply jute on future dates at specified rates. The contract contained a clause that in the event of non-delivery of the goods on the due dates, the buyer had the option to cancel the contract and to recover the difference between the price fixed in the contract and the market price on the date of cancellation. The assessee was not able to supply the goods on the due dates. The buyer, therefore, cancelled the contract on March 1, 1947, and claimed the difference in price as damages from the assessee and a sum of Rs. 1,35,000 was determined as the amount payable by the assessee. The assessee claimed this amount as a loss in the year 1950-51. The income-tax authorities held that this was a loss pertaining to the year 1946 and that the assessee should have claimed the loss in the assessment year 1947-48. The court held that though the assessee maintained his accounts on the mercantile system, he was not bound to show all anticipated loss and when the claims were made and pay tax on that basis and have matter readjusted later when the anticipated loss was quantified, and that the loss could be claimed only when it was ascertained. It was further held that the mercantile system of book-keeping does not cast on an assessee any obligation to take note of all claims that may be raised against him whether good or bad.