Brief of the case:
The ITAT Delhi in the case of Seagram Distilleries Pvt. Ltd concluded that the provision for losses in the ordinary course of business can be allowed if the provisions are made on scientific basis. Thus, the provision in respect of breakage losses is allowable as the same have been measured scientifically taking into account the past business experience.
Facts of the case:
- The assessee company is engaged in the business of manufacturing and sale of grain neutral spirit. It claimed deduction of provision for transit breakage representing the expected losses during transportation of goods from factory to destinations.
- The provision was made on month to month basis. However, once the goods reach their destination the provision was reversed and only actual breakage was debited to the profit and loss account.
- The Assessing Officer considered such provision as provision for contingent liability which may or may not arise and accordingly disallowed the same.
- The assessee claimed that the provision was made on the basis of past experience of its sister concern engaged in the same line of business, as such the basis adopted was scientific. Therefore, the provision should be allowed as deduction.
- The order of AO was confirmed by the CIT (A) , by holding that there is significant gap between the losses provided and actually incurred due to breakage , thus, the basis of arriving of the same by the assessee doesn’t seem to be scientific.
- Aggrieved by the CIT (A)’s order, assessee is now in appeal before the ITAT.
Contention of the Assessee:
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