TMI Blog1982 (3) TMI 49X X X X Extracts X X X X X X X X Extracts X X X X ..... reased as a result of devaluation of the Indian rupee on 6th June, 1966. The assessee-company was, therefore, required to pay an additional liability of Rs. 19,48,067 to the suppliers of U.K. The assessee claimed this liability as a deduction in computing the profits for the assessment year 1967-68. The ITO, however, disallowed this amount by relying on the judgment of the Bombay High Court in the case of Pohoomal Brothers [1965] 55 ITR 112. It was further observed by him that this could not be allowed even as an expenditure under s. 37 of the I.T. Act. The AAC, on appeal, held that the amount in question was in respect of the outstanding dues on account of purchase of raw materials and, therefore, it could not be termed as a loss but an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ------------------------- Less : Credit Notes received during the year 42,427.60 ------------------------- 41,19,219.10 ------------------------- Less : Amount paid during the year 9,66,529.06 ------------------------- 31,52,690.04 ------------------------- Add : Amounts received during the year 1,01,539.97 ------------------------- 32,54,230.01 ------------------------- Post-devaluation position Opening balance as at 6th June, 1966 32,54,230.01 Add : Devaluation loss 19,49,067.84 ------------------------- 52,03,297.85 ------------------------- On 6th June, 1966, the assessee-company had to pay Rs. 32,64,23001. But since devaluation took place on 6th June, 1966, the assessee-company wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be said to have fallen on the assessee out of any business transaction. It was further pointed out that even if the loss had fallen on the assessee it had not sprung directly from the assessee's business and in any event the loss suffered was not deductible as it was of capital nature. The outstanding amount of unpaid price was debt and it was in the nature of a deposit. It was also argued that as the assessee maintained its accounts on the mercantile basis, the liability for the price of goods purchased arose in the year in which the delivery of the goods was obtained. It was argued that in this case, the liability for the payment of the goods purchased arose in the accounting year ended on the 30th September, 1965. Therefore, the deva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l. It has been found by the Tribunal that the plant and machinery purchased by the assessee from the non-resident suppliers formed part of the stock-in-trade of the assessee. The assessee was also following the mercantile system of accounting. The expenses were debited to the trading account on accrual basis. There was an outstanding liability to pay Rs. 32,64,230.01 to the foreign supplier on account of supply of plants and machineries. As a result of the devaluation of the rupee on the 6th June, 1966, that liability increased by Rs. 19,49,067.84. The Tribunal found that the trading liability of the earlier year had remained as a trading liability of the accounting year in question. This is not a case of reopening the accounts of an earlie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll not make any difference in this case. The liability was and remained a trading liability. In order to discharge that liability, the assessee, after devaluation, had to pay larger amount in rupees. The additional liability arose not in the accounting year when the purchases of goods were effected but in the accounting year when the devaluation took place. The cases on which the counsel for the Revenue has relied upon are all cases of loans or deposits which were not trade debts at all. In the present case the liability arose on account of purchase of goods and remained a trading liability subsequently. Nothing has happened after the liability arose to divest it of the character of a trading debt and convert it into a loan. In fact the f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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