TMI Blog1984 (4) TMI 35X X X X Extracts X X X X X X X X Extracts X X X X ..... ce to refer to the facts in one case. The assessee is 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 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 a 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. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tstanding contracts will certainly constitute the assessee's stock-in-trade, that the assessee has to, therefore, value the stock-in-trade at cost or on market value whichever is lower, according to the well established accounting principles and, therefore, the assessee is entitled to work out on a scientific basis the amount of possible loss on account of the outstanding contracts based on the rupee-sterling exchange rates as on December 31, 1967, at Rs. 9,20,125, that amount had to be provided before ascertaining the correct income of the assessee and that it cannot, therefore, be said that the amount of Rs. 9,20,125 under consideration was only an estimated provision and as such it cannot be allowed. The said view of the AAC has been accepted by the Tribunal. The Tribunal, apart from confirming the view taken by the AAC, has also given an additional reason for upholding the assessee's claim for deduction that the sum of Rs. 9,20,125 is not a fictional figure. According to the Tribunal, it represents the actual loss arising out of the devaluation that had already taken place in the accounting year and, if there is any fluctuation, it will be duly taken note of by the assessee in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng year amounts to stock-in-trade and, therefore, they have to be duly valued for the computation of the profits. We are inclined to agree with the learned counsel for the Revenue that in this case the deduction is claimed as against the profits of the year in respect of a notional loss and not actual loss. Admittedly, there is no settlement of the outstanding contracts during the accounting year. Whether the outstanding contracts will result in a loss or not will be known only when the outstanding contracts are settled. Manavala Naidu v. CIT [1961] 41 ITR 725, which was relied on by the Revenue, applies to the facts of this case. In that case, a sum of Rs. 15,845 was demanded by the purchaser from the assessee as the value of certain goods short delivered. The said amount was paid by the assessee and he claimed that amount as a loss. The court held that the loss having been ascertained in the year of account, it was only with reference to that year, he could claim that loss. The said decision supports the Revenue in so far as it holds that loss can be claimed only in the year of ascertainment. In Karam Chand Thaper and Bros P. Ltd. v. CIT [1969] 74 ITR 26 (SC), the assessee had en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t according to that principle, neither profit nor loss can be anticipated. A trader may have made such a good contract in one year that it is virtually certain to produce a large profit in later years. But he cannot be required to pay tax on that profit until it actually accrues. And conversely, he may have made such an improvident contract in one year that he will certainly incur a loss in the later years. But he cannot use that loss to diminish his liability for tax in the earlier year. According to the learned judges in that case, the principle of commercial accounting is that a notional profit or a notional loss cannot enter into the computation of profits in a year. That principle is subject to an exception as regards stock-in-trade and this aspect of the case has been dealt with in the said decision as follows (at page 273): " This principle is subject to an exception as regards stock-in-trade. If it were applied logically, stock-in-trade must always be valued at the end of the year at cost, even if it could have been bought at the end of the year much more cheaply. But for half a century at least traders have been allowed to value such stock at the end of the year at its m ..... X X X X Extracts X X X X X X X X Extracts X X X X
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