COMMISSIONER OF INCOME-TAX Vs. PRETTY CYCLE INDUSTRIES

JUDGEMENT

(1.) THE assessee firm carries on business in sale of cycle and cycle parts. The previous year for the assessment year 1972-73 ended on 31st March, 1972. The method of accounting regularly employed by the assessee is mercantile. During the previous year ending 31st March, 1971, relevant to the assessment year 1971-72, the assessee started export of cycle parts. According to the general manufacturing and trading account and export trading account for the year ending 31st March, 1971, the assessee incurred a loss of Rs. 38,673 in the export business. This loss was not transferred to the profit and loss account for the year ending 31st March, 1971, but was transferred to the balance-sheet as on 31st March, 1971. The said loss was not claimed as a business expenditure, for the assessment year 1971-72.

(2.) DURING the assessment year 1972-73, the assessee also carried on export business and as per the general manufacturing and trading account and export trading account for the year ending 31st March, 1972, it incurred a loss of Rs. 49,278, This loss included the loss of Rs. 38,673 incurred during the previous year ending 31st March, 1971. During this year, the assessee claimed the entire amount of Rs, 49,278 as loss from business in export. The ITO disallowed the claim of the assessee claiming that the deficit of Rs. 38,673 could not be transferred to the profit and loss account as import entitlements against the exports were yet to be received. It was pointed out that four import licences worth Rs. 16,387 had been received after the previous year ending 31st March, 1971, and these licences were in hand as on 3lst March, 1972. The premium on these licences was 40 per cent. , i. e. , Rs. 6,555 and after reducing this figure from Rs. 38,673, the loss in exports as on 31st March, 1972, was reduced to Rs. 32,118. The ITO did not accept the assessee's contention and disallowed Rs. 38,673 on the ground that the method of accounting followed by the assessee was mercantile and the said loss did hot relate to the year in question.

(3.) THE first appeal filed by the assessee before the AAC was also dismissed.