B.S. Dhillon, J.@mdashThe 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.
4. Second appeal filed by the assessee before the Income Tax Appellate Tribunal, Chandigarh Bench, Chandigarh (hereinafter referred to " as the Tribunal ") was accepted. The plea that the loss in question could not be transferred to the profit and loss account as import entitlement against the exports were yet to be received, was accepted. The Tribunal accepted the plea of the assessee that this plea arose only during the assessment year in question and should have been allowed as a business loss of that year. The Tribunal, therefore, directed that the assessee should be allowed to set off of the loss of Rs. 32,118 in the export of cycle parts against the income of that year. The revenue having made a reference application, the Tribunal has referred the following question of law to this court for its opinion:
" Whether, on the facts and in the circumstances of the case, the Tribunal was right in law directing that the assessee should be allowed a set off of the loss of Rs. 32,118 in the export of cycle parts in the assessment year 1972-73 ?"
5. After hearing the learned counsel for the parties and taking into consideration the material on the record, we are inclined to answer the question referred to us in the affirmative, i.e., in favour of the assessee and against the revenue. The Tribunal taking into consideration the material on the record, recorded a categorical finding that the loss in export trading account was not determinable up to 31st March, 1971, as import licences for the export of cycle parts were received by the assessee only during the accounting year relevant to the assessment year 1972-73. It was held by the Tribunal that in these circumstances the assessee was fully justified to claim the loss in respect of the assessment year under consideration. For coming to this conclusion, the Tribunal placed reliance on a judgment of the Allahabad High Court in CIT v. Shri Silk Mills, Mal Dahiya, Varanasi (ITR No. 447 of 1971) decided on 30th January, 1973, and in our view rightly.
6. It is no doubt true that in the mercantile system of accounts, the loss becomes deductible at the point when it accrues. Its allowance need not be postponed unless it is paid. However, two conditions have to be satisfied. Firstly, that the loss or liability should have accrued in the relevant previous year, and secondly, it should be an ascertained liability. In a given case, where the liability which has accrued, is not ascertainable, it is difficult to hold that the loss has to be claimed during the assessment year in which the loss or liability accrued. In the present case, the assessee was given the import licences after 31st March, 1971. The assessee was not in a position to ascertain the market value of the goods so imported against the import licences. The said value may vary from time to time. In this view of the matter, the loss incurred by the assessee in export of cycle spare parts was not ascertainable as the value of the goods to be imported as against the import licences could not be ascertained before 31st March, 1971, as the import licences were received after that date and during the subsequent assessment year. The proposition of law propounded by us finds ample support from the decision of the Calcutta High Court in
7. Shri Awasthy, on the other hand, places reliance on the decision of their Lordships of the Supreme Court in
8. Similarly, the decision of their Lordships of the Supreme Court in
9. The decision of the Madras High Court in
10. For the reasons recorded above, the question referred to this court is answered in the affirmative, i.e., in favour of the assessee and against the revenue. However, there will be no order as to costs.
