COMMISSIONER OF INCOME TAX Vs. KISHANGARH MADIRA SANGH

JUDGEMENT

(1.) THIS is a reference under Section 256(1) of the Income-tax Act, 1961, (for brevity, hereinafter, "the Act") at the instance of the Revenue to decide the following question of law :

(2.) THE relevant assessment year is 1968-69. THE assessee-firm carries on business of purchase and sale of country liquor. THEre was a minimum guarantee clause requiring the assessee to purchase liquor of the value of Rs. 5,07,640. . THE assessee lifted liquor of the value of only Rs. 2,67,745 and there was a shortfall of Rs. 2,29,525. THE assessee accordingly incurred a liability to pay this amount. Towards discharge of that liability, a sum of Rs. 50,772 deposited by the assessee as security was forfeited. THE assessee did not debit the amount of shortfall of Rs. 2,29,525 in the books of account showing it as business loss. All the same, the assessee claimed deduction of this amount as business loss. THE Income-tax Officer disallowed it taking the view that the assessee had not paid the amount of which he claimed deduction and, therefore, it was not an expenditure incurred during the relevant accounting year. THE Appellate Assistant Commissioner of Income-tax confirmed the order of the Income-tax Officer dismissing the assessee's appeal. THE assessee's further appeal to the Tribunal succeeded and the Tribunal held that notwithstanding the fact that this amount was not shown as business loss in the assessee's books of accounts and there being no evidence to show that the same was paid by the assessee, this amount was to be deducted as business loss. Aggrieved by the view taken by the Tribunal, the Revenue sought a reference which has been made to decide the above-quoted question of law.