(Appeal by special leave from the judgment and order, dated 7th July, 1980, of the Allahabad High Court in ITR No. 710 of 1973. The judgment of the High Court is reported as CIT (Addl.) v. Glass Miniature Bulb Industries (1981) 130 ITR 41 (All.).

Income-tax---

----Business loss---Year in which allowable---Manufacture and sale of miniature bulbs---Proposal for expansion of business for manufacture of fluoresce cent tubes---Amount paid for procuring manufacturing licence and permit for release of foreign exchange---Failure to procure permit for foreign exchange within time stipulated---All Falling within same accounting period---Loss allowable in that year---Writing off of loss in later year---Has no effect.

The appellant, a firm which carried on the business of manufacture and sale of miniature bulbs, pursuant to a proposal to expand its business, advances between July 1961, and April, 1962, a sum of Rs.60,000 to M. whose assistance it sought for procuring a manufacturing licence for the manufacture fluorescent tubes as well as. a permit for the release of foreign exchange for importing machinery, plant and equipment for the manufacture of fluorescent tubes. M. had undertaken to refund the amount in the event of delay or failure to obtain the licence and permit. M. could procure only the manufacturing licence in December, 1961; he could not procure the permit for foreign exchange; and since the appellant could not import the machinery, the manufacturing licence was revoked. The appellant filed a suit for recovery of the sum of Rs.60,000 in 1964, the suit was decreed ex parte but no steps were taken to execute the decree. The appellant wrote off the amount in its accounts for the accounting period ending April 30, 1963, and claimed deduction thereof as a bad debt for the assessment year 1964-65. The claim was rejected by the Income-tax Officer. The Appellate Tribunal, however, allowed deduction of the amount as a business loss. On a reference, the High 'Court held that if the amount was a trading loss, it was not allowable for the assessment year 1964-65 as the loss occurred during the accounting period relevant to the assessment year 1963-64 because the payment of the amount as well as the default by M had all occurred during the accounting period ending 30th April, 1962. The High Court also rejected the argument that the contract became impossible of performance only in the year ending 30th April, 1963, because M had undertaken to procure the foreign exchange permit by 15th January, 1962 and he had failed to do so. On appeal to the Supreme Court:

Held, dismissing the appeal, that on the facts found and evident from the record, the conclusion of the High Court was unexceptionable.

Decision of the Allahabad High Court in CIT (Addl.) v. Glass Miniature Bulb Industries (1981) 130 ITR 41 affirmed.

J.P. Goyal, Senior Advocate (M.R. Bidsar and S.K. Jain, Advocates with him) for Appellant.

K.N. Shukla, Senior Advocate (R. Satish and D.S. Mehra, Advocates with him) for Respondent.

ORDER

This appeal is preferred against the judgment of the Allahabad High Court (see (1981) 130 ITR 41), answering the question referred to it in the negative, i.e., in favour of the Revenue and against the assessee. The question referred to the High Court under section 256 (1) of the Income Tax Act, 1961, reads (at page 43):

"Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the sum of Rs. 60,000 paid to Shri Mohan Lal Vyas represented the trading loss of the assessment year 1964-65."

The appellant's accounting year relevant to the assessment year 1964-65 was the year ending April 30, 1963.

The appellant is a partnership firm engaged in the business of manufacture and sale of miniature bulbs. In the assessment proceedings relating to the year 1964-65, it claimed a deduction of a sum of Rs.60,000 as a bad debt. According to the appellant, it proposed to expand its business to undertake the manufacture of fluorescent tubes. For that purpose, it sought the assistance of one Mohan Lal Vyas and paid to him, between July, 1961. and April, 1962, a sum of Rs.60,000. In return, the said person agreed to procure the manufacturing licence under the provisions of the Industries (Development and Regulation) Act and a licence or permit for the release of foreign exchange necessary for the import of machinery, plant and equipment for the manufacture of fluorescent tubes. Mohan Lai Vyas procured the manufacturing licence on December 5, 1961, but he could not procure a licence or permit for the release of requisite foreign exchange for import of machinery, plant and equipment. Since the appellant could not import the machinery, the Government revoked the manufacturing licence as well. The appellant's case was that inasmuch as there was a stipulation between it and Mohan Lal Vyas where under the latter undertook to refund the said sum of Rs.60,000 in the event of his failure to obtain the said licences and permits, the appellant filed a suit for recovery of the said sum being Original Suit No. 106 of 1964 on the file of the Civil Judge, Kanpur. The suit was decreed ex parte. The appellant, however, took no steps whatsoever to execute the said decree with the result that no amount was recovered thereunder. The appellant says, it treated it as a bad debt and debited the said amount to the profit and loss account, on April 30, 1963. It is on the above facts that the said deduction on account of bad debt was claimed.

The Income Tax Officer rejected the appellant's claim. He found the whole story doubtful. He commented on the fact that no proceedings were ever taken for execution of the, decree. On appeal, the Appellate Assistant Commissioner agreed with the Income-tax Officer and dismissed the appeal. The assessee filed a further appeal to the Tribunal. Before the Tribunal, it shifted its stand. It now claims the said amount as a business loss. The Tribunal not only allowed the appellant to shift the basis of his claim but also allowed it--without examining whether such a payment could ever by admitted as a trading loss. Be that as it may, the Revenue applied for and obtained reference of the aforementioned question under section 256 (1) of the Act. The High Court opined that if. it is a trading loss, it arose in the accounting year relevant to the previous assessment year (1963-64) and not in the accounting year relevant to the assessment year 1964-65, wherein it was claimed. It noticed that even according to the appellant, the entire amount of Rs.60,000 was paid during the accounting year ending 30th April, 1962, and further that the failure to obtain the licences/permits, which entitled the appellant to refund of the amount, also occurred during the said accounting year. The appellant then urged a new argument before the High Court, viz. that the trading loss must be deemed to have occurred in the year in which the contract became incapable of performance and that the said situation arose only in the accounting year relevant to the assessment year 1964-65. This argument was rejected by the High Court, and rightly in our opinion, observing that it was never the basis of the assessee's claim that the contract became incapable of performance when the licence under the I.D.R. Act was revoked. On the contrary, the High Court pointed out, the assessee's case before the Appellate Tribunal (on the basis of the receipt dated 31st December, 1961) was that Mohan Lal Vyas had undertaken to obtain the foreign exchange permit on or before 15th January, 1962, and in the event of delay or failure in doing so, he undertook to return the amount.

In the circumstances, the High Court held that the trading loss claimed by the appellant had occurred during the accounting year ending on 30th April, 1962, and cannot be allowed in the assessment year 1964-65. We see no reason to take a different view of the matter. On the facts found and evident from the record, the conclusion of the High Court is unexceptionable.

The appeal accordingly fails and is dismissed. No order as to costs.

M.B.A./238/T.F. ???????????????????????????????????????????????????????????????????????????????? Appeal dismissed.