TMI Blog1987 (8) TMI 140X X X X Extracts X X X X X X X X Extracts X X X X ..... Iran. These three parties had entered into a contract in 1965 with a National Iranian Oil Co. The terms of the contract were that these three companies will do exploration at their own expenses and on discovery of oil the development and production sales will start in which the National Iranian Oil Co. ("NIOC" in short) was to participate to the extent of 50% in expenses as well as in the share of oil produced. For operation of this agreement a non-profit company called Iranian Marine International OilCo. ("IMINOCO" in short) had been brought into existence. The accounts maintained by the "IMINOCO" are sent to the constituents and the share of expenditure is remitted by these constituents toTehran. 2. At the time of making the assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce left with AGIP or balance left with "IMINOCO" and also in the form of balances in the Dollars account or Rial account inTehran. The company did not carry out any change in these balances as on the date of devaluation that is20-12-1971, but decided to convert the balances on1-1-1971, which incidentally fell in the other accounting period. This was mainly done for convenience and for ensuring actual information about the balances. In case of sale proceeds, however, the company changed the rate of exchange from20th December, 1971itself and this change was effected in the accounts for 1971. 4. Before the Inspecting Assistant Commissioner the question arose about the allowance of this loss on devaluation. He held that as the assessee was sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s) was of the view that the assessee had not suffered any actual loss on devaluation as the loss has not been booked at the time of actual remittance or meeting a liability and it was merely a provision for a future possible loss. According to the CIT (Appeals), the claim of loss was not in conformity with the accounting system followed by the assessee as was apparent from the exchange differences shown in the earlier years. He upheld the order of the assessing officer. 6. The learned counsel for the assessee drew our attention to the note prepared by the chief Accountant, which explained the background for this claim. He pointed out that the assessee was following the mercantile system and, therefore, there was nothing wrong in claiming ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... el submitted that the loss incurred by the company in respect of income-tax could not be allowed and the same may be disallowed. However, he pressed his claim for the balance of the loss. It was contended by him that in 1966 when there was devaluation the assessee-company had made similar entries in the books and the gain as a result of devaluation was reflected in the books. He contended that as the assessee became liable to pay a larger amount or to receive a smaller amount, this resulted in a loss and was allowable as the assessee was following the mercantile system of accounting. Besides the case relied upon before the CIT (Appeals), referred to the decision of the Supreme Court in the case of State Bank of India v. CIT [1986] 157 ITR 6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his loss when he had been showing loss or profit on the basis of actual transactions in this year as well as in earlier years. According to the Departmental Representative the loss had not been incurred by the assessee in the present case. He also pointed out that the assessing officer had made it clear that loss could be allowed to the assessee on the actual transactions taking place and thus the company would not lose if the loss was allowed not at the point of devaluation but at a time when the result of that devaluation becomes effective in respect of different transactions. 8. We have considered the rival submissions. It is an accepted position before us that the assessee had been showing the result of difference in exchange on the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Samuel Osborn (India) Ltd. for the proposition that a loss could take place on the date of devaluation. In the present case, unfortunately for the assessee, the devaluation had taken place on 20th December, 1971 and thus even if the assessee's arguments were to be accepted, the loss could be considered in that accounting period, which ended on 31st December, 1971. The liability of the assessee could arise only as a result of happening of some event and that event, according to the assessee, was devaluation. This event having taken place in the earlier accounting period, the assessee could have made a claim in the assessment year 1972-73 for which the accounting period ended on31-12-1971. It was for the sake of accounting convenience that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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