TaxTMI 
TaxTMI 
2014 (10) TMI 211
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.... qua the deductibility of the sums paid to banks/financial institutions by the assessee-company as a guarantor of M/s. Vespa Car Co. Ltd. ('VCCL' for short), a joint venture (JV) company (of the assessee and its foreign technical collaborator, M/s. Piaggio Cspa) engaged in the manufacturing of two wheelers, claimed at Rs. 436.15 lacs and Rs. 620.67 lacs for the two consecutive years respectively. 2.1 The background facts of the case are fairly simple and undisputed. We enlist the same as follows. The assessee, an Indian company in which public is substantially interested, is engaged in two wheeler business, having set up a scooter project in technical collaboration with M/s. Piaggio Cspa, Italy in 1982-83 for manufacturing one lac scooters p.a. During the financial year 1983-84, the company received a letter of intent (LI) for manufacturing, additionally, two lac scooters as well as 30,000 threewheelers annually. Rather than setting up a new unit or expanding its existing facilities, the company considered it prudent to form a new joint venture company with Piaggio for the purpose. This, it is stated, would ensure equity participation of Piaggio in the new project. Accordingly, ....
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....he computation of business income, the assessee is in second appeal. We enlist the respective cases of both the sides, as culled out from the orders of the authorities below, the written submissions and the arguments advanced before us. The assessee's case 2.2 The same is based on the premise that the assessee's action in discharging the guarantees (by accepting the OTS offer of the creditors) was guided by business consideration/s and, therefore, qualifies for deduction as revenue expenditure of it's business. The formation of the JV company was only a mode of conduct of its two wheeler business, and the guarantees furnished, as a part of the trade practice, is therefore only in the ordinary course of its business. Toward the business purpose/s, the following were cited as the various incidences that would have arisen were the guarantee/s to be invoked: "The assessee's act was motivated with following reasons: a) Eliminating the impediments in company obtaining enhanced working capital. b) Avoiding additional burden on the company's assets if called upon to pay as a guarantor. c) Avoiding cost of litigation that would ensure if the guarantee is not honored. d)....
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....odel, as where a company with a distinct business advantage is formed or otherwise acquired to be subsequently sold or hived off for a consideration. Clauses 9 and 10 of its Memorandum of Association (MOA) fall under Part B thereof, i.e., 'The objects incidental or ancillary to the attainment of the main objects'. The same are, therefore, only in the nature of enabling provisions. That is not to state or suggest that the formation of the new company could have no business angel to it or relationship with the assesseecompany, which it may well have. By own admission, the assessee states that though it had enough resources to set up the new project or enhance the capacity on its own (refer reply dated 22.09.1999 at para 1.2 of the assessment order) that would not have ensured equity participation by Piaggio in the new venture. Why? It does not explain. Then, again, how is it relevant; it having only enough resources of its own? If anything, it shows a distinction between the two companies. Be that is it may, these, in any case, could be relevant considerations for the promoters in undertaking a particular project in a particular company - as it's project was considered for being impl....
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....ith Piaggio, and its equity participation as well as other arrangements unequivocally show or exhibit it as a promoter, with its interest being long term and in the capital field. There is no question of identity of interest, or of the said company being formed for pursuing the company's business. That is, the assessee company's equity participation, funding (by way of unsecured loan for Rs. 225 lacs - which, as it appears, is interest-free) and its guaranteeing loans (by different banks/FIs), the transfer of technology and sub-licensing the project - though for consideration - are toward its setting up the new project, define its role as a promoter of the said company, geared towards setting up a new project for which it held a LI. Why, the loss on the irrecoverability of debt, i.e., assuming the same as having been incurred for business purposes, would be on capital account. The ld. Authorized Representative (AR) was in fact during hearing queried directly in the matter, i.e., as to the nature of the loss sustained if instead of furnishing the guarantee/s, the assessee-company had advanced loans, even if on interest-free basis, or had contributed by way of equity capital, and whi....
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....atively as a business expenditure for the assessment year 1952-53. There was evidence to show that the assessee expected to obtain the selling agency of the goods to be produced by the textile mill: Held, (i) that the assessee company, in making the large payments, intended to acquire a capital asset for itself. In any event the amounts were spent in 1948 and not in the year of account ending December 31, 1951. They could not, therefore, be allowed as business expenditure under section 10(2)(xv) of the Income-tax Act, 1922. (ii) That as the assessee company was neither a banker nor a money-lender, the advances paid by the assessee company to the private company to purchase the shares could not be said to be incidental to the trading activities of the assessee. A debt, for the purposes of section 10(2)(xi), was something more than a mere advance and meant something which was related to the business or resulted from it. It was an outstanding which, if recovered, would have swelled the profits, and not merely money handed over to someone for purchasing a thing which that person failed to return even though no purchase was made. The amount due from the private company could not, ....
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....classified as a capital loss. In fact, there is no write off of the debt in accounts in the instant case, so that the loan continues to outstand, and thus cannot be considered or presumed as a case of loss arising on account of the debt becoming irrecoverable. This aspect of the matter stands discussed in greater detail in the ensuing part of this order. 3.4 We, next, consider the issue of disallowance of interest on the said loan/s, or even loss, i.e., assuming it to have been incurred, being agitated by the assessee per a separate ground (G # 2). The two disallowances being interrelated, the same, though agitated separately, have been taken up together. Further on, though the matter was argued before us as consequential, so that the same treatment and consideration, i.e., as attends or informs the decision qua the principal amount, would hold for interest thereon also, and thus apply, we are, however, not inclined to treat the matter as so. This is as it would be so only where the disallowance of the principal amount is for the reason that the same does not constitute a business loss, having not been incurred for the purpose of business, and not where the loss is held as non-d....
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....ady customer in the assessee and, thus, a business purpose in setting up the same, which is in any case not disputed. As regards the additional capacity with the assessee, the same does not entail or warrant any additional expenditure by it. The sale of parts between the two companies would not be without consideration and, further, at prices which would sustain the same on an ongoing basis. In fact, the claim/s falls flat on face when considered in light of the fact that the assessee-company is itself engaged in enhancing its production capacity from the present 2 lac scooters p.a. to 6 lac scooters p.a.; in fact, since the financial year 1995-96, so that it would rationalize and balance its internal sub-capacities in-house, i.e., where not so. The claim/s has no basis in facts as manifest from record, besides being conceptually infirm. No wonder, we do not find much discussion or any pressing of its claim, much less substantiation thereof, by the assessee before the authorities below. 3.6 Continuing further, in our view, rather than being for a business purpose, which is in any case unproved, it is a case, to the contrary, of being just the opposite. The allegiance of a compan....
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....assessee's business, of which there is no iota of evidence, the same ought to be correspondingly furnished by Piaggio - the other promoter, as well in-as-much as VCCL is a joint venture with defined shares. We have already noted that being toward setting up of a project, the same would in any case be on capital account. Our question though is what business purpose or even share-holder's interest does this serve. Rather, by eliminating any business risk to the other stakeholders in the JV company (by effectively undertaking their exposure) - the guaranteed amount in fact exceeding the entire debt finance (long-term), the company, rather than its own, it has served the interest of the shareholders of the creditor companies. If not, thus, doing a disservice to its shareholders, it certainly cannot assume business risk of others and yet claim it as its business purpose. So much for the claimed business purpose in furnishing the guarantees, which stands accordingly put paid. In fact, as contended by the ld. Departmental Representative (DR) during hearing, the assessee continued to furnish the guarantees even till much after the JV company had ceased operations and its finances deteriora....
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....its assets as at the end of the relevant years is nil, while the assessee-company has treated the entire amount paid as a loss; rather, treating it as so the moment it is paid. How can it be; being in fact a contradiction in terms. The hon'ble jurisdictional high court in Lord's Dairy Farm Ltd. vs. CIT [1955] 27 ITR 700 (Bom.), speaking in the context of a loss, stated that so long as there is possibility of recovery, the loss cannot be said to have been suffered (at pg.708). As such, looking at from any angle, the assessee's claim is not maintainable. 3.8 We, in view of the foregoing, endorsing the Revenue's stand, uphold the denial of the claim in respect of the sums advanced by the assessee-company as a guarantor towards one time settlement, as well as the interest thereon, as not deductible as business expenditure either u/s.36 or 37(1) of the Act. With regard to the principal sum, the Assessing Officer (A.O.) has (for A.Y. 1997-98), without prejudice, also stated that the amount actually paid during the year is below that being claimed (by Rs. 36.65 lacs), so that the claim would have to be limited thereto. There is no finding by the ld. CIT(A) in the matter nor any argumen....
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....e. While the ld. AR would on being queried by the Bench in this regard, seek to distinguish the same, in our view, the ratio of the said decisions is squarely applicable. Where the furnishing of the guarantees or advancing of loans was not undertaken in the ordinary course of its business, the same is not a business expenditure of the assessee and, in any case of the matter, would be a case of capital expenditure. We may though refer to the decision in the case of S. A. Builders Ltd. vs. CIT(A) [2007] 288 ITR 1 (SC), referred to by the assessee. The decision in ratio states of an advance to a sister company as being subject to the test of commercial expediency for interest thereon to be considered as admissible. An aspect which has been examined by us to be found as factually not obtaining in the instant case. Further, the said decision itself makes it abundantly clear that the same, rendered in the peculiar facts of the case, cannot be adopted as a precedent. In fact, of late, doubts have been expressed on the said decision, so that the matter stands referred to a larger bench (refer CIT vs. Tulip Stars Hotel Ltd. (in CA Nos.7138-7140 dated 30.04.2012)). Issue No.2 4. The....
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....extent, the assessee is allowed relief at any stage, either for the preceding year or for the current year/s, it could not claim and, therefore, be allowed double relief, i.e., as revenue expenditure for the relevant years and then again as depreciation for the subsequent years. As such, irrespective of what our decision would be, we make it clear that the relief to the assessee under its alternate plea would obtain if and to the extent the assessee's claim qua the revenue expenditure is disallowed, i.e., at any stage; the ld. CIT(A) having confirmed the disallowance in respect of the travelling expenditure. Further, the onus to justify that there is no double claim shall be on the assessee. 6.2 On merits, we begin by delineating the issue before us. The background facts are that the assessee is since the previous year relevant to A.Y. 1995-96 engaged in expansion and diversification programme. The new facility, called Jhagadia unit, shall increase the company's facility from 2 lac scooters p.a. to 6 lac scooters p.a., besides three-wheeler, and is envisaged to set up at a cost of Rs. 204 crores, the details of which are as under (refer para 12/pg.9 of the tribunal's order u/s.2....
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....ation or supervision thereof, which is to be planned and executed to the minutest detail. The details of plant and machinery, down to the lowest operation, have to be specified and the vendors shortlisted, which is itself an exercise, implying crystallization of the quality and price of supply. The travel expenditure could be for visiting the site (as all the personnel may not be located threat), or even at the vendor's site where the machinery or a part of the project is under fabrication, or even for negotiation of the purchase thereof, and so on. 6.3 The premise of the tribunal's order (supra) is that the determination of whether an expenditure is a capital expenditure is essentially a matter of fact, to be decided on the basis of the well settled legal principles, which it in fact list out (refer para 12 pgs.6-9 of section 254(1) of the order for A.Y. 1995-96 and 1996-97 (supra)), culling out the same from Hylam Ltd.'s case (supra). However, what we find to have guided its decision is that the expenditure is toward acquiring an asset which would result in an advantage in the capital field, which it also found to be also the accounting mandate in its respect on the basis of t....
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.... the appreciation of the entire facts of the case, even as clarified by the apex court in Assam Bengal Cement Co. Ltd. vs. CIT [1955] 27 ITR 34 (SC), one of its earlier judgments and a locus classicus on the subject, venturing, with great circumspection, to delineate some (3 in number) broad principles, as deduced from precedents, including those under the English law, at pg.44 of the reports, finding itself in agreement with those as enunciated in Benarsidas Jagannath, In re [1947] 15 ITR 185 (Lah) (FB). The criteria, it cautioned, have to be applied one after the other from the businessman's point of view and come to a conclusion on a fair appreciation of the whole situation as to whether the expenditure incurred in a particular case is of the nature of capital expenditure or revenue expenditure, in which latter case only it would be deductible (pg. 45) (also refer Empire Jute Co. Ltd. vs. CIT [1980] 124 ITR 1 (SC)). It may also be relevant to extract its observations in explaining those tests, even as the discussion in the following pages (pgs.46, 47) is equally important and relevant: 'This synthesis attempted by the Full Bench of the Lahore High Court truly enunciates the p....
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....htly observed that in the great diversity of human affairs and the complicated nature of business operations it is difficult to lay down a test which would apply to all situations.' (pg.45) The test as laid down in British Insulated and Helsby Cables Ltd. [1925] 10 Tax Cases 155 (HL), a leading authority on the subject, by Viscount Cave, L.c., i.e., where the expenditure is made for acquiring or bringing into existence an asset or advantage for the enduring benefit of the business, it is properly attributed to capital and is in the nature of the capital expenditure, found its concurrence; the apex court in fact stating of the same as being almost universally accepted (pg.39). It is the very same test that, as would be noted, that has been applied by the tribunal, drawing support from the decision in the case of Hyllam Ltd. (supra). How could, we wonder, the same be disputed? 6.5 Accounting Standard (AS)-10 'Accounting for fixed assets' issued (in 1985) by Institute of Chartered Accountants of India (ICAI) (which is mandatory in its application u/s.211 of the Companies Act, 1956 since 01.11.1998), after an exhaustive and comprehensive examination, including the review of the i....
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....ually begins is prolonged, all expenses incurred during this period are charged to the profit and loss statement. However, the expenditure incurred during this period is also sometimes treated as deferred revenue expenditure to be amortised over a period not exceeding 3 to 5 years after the commencement of commercial production." The emerging principles to be followed are listed at paras 18 - 37 of the Standard. Paras 20, 21 are most relevant for our purpose, and read as under (pg.148): "Main Principles 18. ........... 19. ............ 20. The cost of a fixed asset should comprise its purchase price and any attributable cost of bringing the asset to its working condition for its intended use. 21. The cost of a self-constructed fixed asset should comprise those costs that relate directly to the specific asset and those that are attributable to the construction activity in general and can be allocated to the specific asset." The same, it would be noted, bears a striking similarity with the principles, evolved over a long period of time so as to be accorded the status of being universally acceptable, by the hon'ble courts of law, so that all costs that can reasona....
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....(supra), and then time and again by the apex court, as in the case of Empire Jute Co. Ltd. (supra), that what is to be seen is as to whether the expenditure is toward the profit making structure or apparatus, which is the source of income/profit, so as to be satisfy the test of enduring benefit, i.e., in the capital field, or the same (i.e., the profit making structure or apparatus) remains untouched or unaltered, and only enables the assessee to work it more efficiently or better. As succinctly put in Assam Bengal Cement Co. Ltd. (supra) (pg.44): 'You do not use it 'for the purpose of your concern, which means, for the purpose of carrying on your concern, but you use it to acquire the concern.' There was no addition or expansion of the profit making apparatus; no enlargement of the permanent structure yielding produce, but only enabling its working for a longer time and, thus, primarily or essentially related to its operation in the latter case, so that the expenditure on purchase of loom hours by the assessee was held to be on revenue account. The finding in the former case, i.e., Assam Bengal Cement Co. Ltd. (supra), based on the same principles, and which must therefo....
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.... court as in the case of Ciba of India Ltd. vs. CIT [1993] 202 ITR 1 (Bom) and Koya Constructions (P.) Ltd. vs. Dy. CIT [2013] 38 taxmann.com 441 (Hyd. - Trib.), cited by the tribunal in its order, are clearly on the point and supportive, so that any expenditure attributable to bringing an asset in existence for its working for its intended use forms part of its cost. That the expenditure in both these cases was for travel, for which exception is made by the ld. CIT(A), is in our view of no moment. 6.8 We may, however, draw a distinction between the interest expenditure and other than the interest expenditure comprised in the impugned expenditure, in that the former is deductible u/s.36(1)(iii) as against 37(1) for the latter, so that, as judicially declared, may include capital expenditure as well. The decision in the case of Dy. CIT vs. Core Healthcare Ltd. [2001] 251 ITR 61 (Guj) has since been upheld by the apex court in Dy. CIT vs. Core Health Care Ltd. [2008] 298 ITR 194 (SC). The hon'ble Punjab & Haryana high court vide its decision in CIT vs. Vardhman Polytex Ltd. [2008] 299 ITR 152 (P & H), clarified that the provision of section 36(1)(iii) and Explanation 8 to section ....
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.... the amendment thereto). The actual cost u/s.43(1) would, therefore, stand to be modified to that extent. 6.9 Finally, we may discuss the assessee's reliance, to begin with, on the decision in the case of Havells India Ltd. (supra), as also its indiction of the tribunal's reliance on the decision in the case of Hylam Ltd. (supra), i.e., in the assessee's case for the preceding years. There is no discussion on the precedents by the hon'ble court in Havells India Ltd. (supra), whose findings are at para 20 of its judgment. As explained in the case of Assam Bengal Cement Co. Ltd. (supra), the question to be asked is whether it (the expenditure) is for the purpose of business or for acquiring the same. We have, with reference to first principles laid down in the case of Assam Bengal Cement Co. Ltd. (supra), as well as the decision in the case of Empire Jute Co. Ltd. (supra), found an enlargement of the permanent or the capital structure, the profit making apparatus, as a criterion in determining if the expenditure under reference is in the capital field. Whether it is for a new facility or for additional facility is of no consequence, as either amounts to an increase in the capacity....
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....ence, toward providing guidance in the matter. The assessee in order to meaningfully pursue its objection was required to show any infirmity in any of the principles, or that followed by the assessee, and which resulted in the tribunal misleading itself. In fact, we find that each of the three principles cited by the apex court in Assam Bengal Cement Co. Ltd. (supra) find mention in the case of Hylam Ltd. (supra). The final decision may well not be correct, which would only imply an incorrect application of those principles or misappreciation of the facts of the case, and not by itself an incorrect statement of the principles. In Praga Tools Ltd (supra), the expenditure under reference was held as revenue on the basis that it had a direct nexus or relation to the carrying on or the conduct of the business and, therefore, was an integral part of the profit making process. The proposition is undisputed. How would that, however, assist the assessee's case is not understood. There was no reference to either the said decision or in the case of Hylam Ltd. (supra) by the ld.AR while arguing the case on merits, but only toward making out the instant case as not covered thereby against the ....
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.... (supra) that even the enduring benefit test may break down in certain cases, so that it cannot be applied blindly or mechanically without regard to the particular/peculiar facts and circumstances of a given case. This again finds reiteration by the hon'ble jurisdictional high court in Standard Mills Co. Ltd. vs. CIT [1994] 209 ITR 85 (Bom). Where then is the question of reference to a larger bench, which proposition by the assessee, as we gather from record, stands unaccepted by the hon'ble President of the tribunal. The issue arising for adjudication is whether the expenditure under reference is, in the facts and circumstances of the case, incurred in relation to the acquisition of an asset forming part of the capital structure of the business, i.e., in its working condition for the intended user or not. A decision, thus, has to be made in each case on an appreciation of the facts of the case. The tribunal has already decided against the assessee for the immediately two preceding years, and against which decision the assessee is in appeal before the hon'ble high court, and which would, therefore, have a direct bearing on the instant case as well; the expenditure being on and q....
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....itive item as the EDD quality CR sheet, would amount to a large sum. Accordingly, 10% of the total purchase as made from these two parties, i.e., Rs. 2,28,17,887/-, was disallowed u/s.37(1) as being not wholly and exclusively incurred for the purpose of business. In appeal, the assessee explained that the EDD quality steel being procured by it, an Original Equipment Manufacturer (OEM), was not available in the open market in-asmuch as that the rate comparison as made by the A.O. was not valid. The assessee was purchasing goods from four different suppliers, rates for which, though different, were comparable and in each case higher than the 'market' rate as found by the A.O. Reliance was placed on the decision in the case of Godavari Sugar Mills Ltd. vs. CIT [1985] 155 ITR 306 (Bom). The ld. CIT(A) deleted the disallowance on that basis, holding that the A.O. had no power to disallow an expenditure on the ground of it being excessive or unreasonable. Aggrieved, the Revenue is in appeal vide its ground no.1. 9. Before us, while the ld. DR would rely on the order of the A.O., the ld. AR, relying on the decisions by the apex court in CIT vs. Walchand and Co. (P.) Ltd. [1967] 65 I....
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.... and, further, based on an objective assessment of the matter. Reference in this regard may be made to the decisions in the case of CIT vs. Navsari Cotton & Silk Mills [1982] 135 ITR 546 (Guj) and Ram Bahadur Thakur Ltd. vs. CIT [2003] 261 ITR 390 (Ker) (FB), which (latter) stands rendered on an extensive review of the case law, including the decisions by the apex court referred to by the assessee, listing various tests or parameters on the anvil of which the admissibility of the expenditure u/s.37(1) is to reckoned, and which includes reasonableness as well. It is trite law that in the expression 'wholly and exclusively' used in section 37(1), the word 'wholly' refers to the quantum of the expenditure, the sums spent, and the word 'exclusively' occurring in the qualifying condition of the said provision refers to the motive or the objective of incurring the expenditure, so that both the purpose, exhibiting the nature or the character of the payment, and its quantum, are relevant and, therefore, would need to be substantiated. Quantum, it is to be appreciated, may have a direct bearing or relation with the genuineness of the expenditure itself. What is proscribed though is the q....
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....nto the shoes of the businessman so as to decide what ought to be expended, how and where. He is however, at the same time, duty bound to determine that the expenditure as claimed has been expended for business purposes, viewed of course from a businessman's point of view - nothing more and nothing less. The assessee, being in the intimate know of its affairs, only could explain the purpose of expending the amount as 'actually' expended, so that the issue is essentially with regard to the reality of the expenditure (to the extent claimed). Reasonableness, it would be thus seen, is imbued in and an essential element of the assessment process, being fundamental to its objectivity and cogency, i.e., the parameters on which a valid assessment rests. That reasonableness is a relevant consideration is a part of the well-settled law, as emphasized once again by the hon'ble jurisdictional high court in Ramanand Sagar vs. Dy. CIT [2002] 256 ITR 134 (Bom). In fact, the hon'ble courts, as in the cases of Lachminarayan Madan Lal vs. CIT [1972] 86 ITR 439 (SC); Steel Containers Ltd. vs. CIT [1978] 112 ITR 995 (Cal); Niemla Textile Finishing Mills (P) Ltd. vs. CIT [1975] 100 ITR 611 (Puj), ha....
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....ntial attribute of assessment. In fact, to the rule of law itself, unless of course one argues that law itself is not 'fair' and 'reasonable' - which attributes again go hand in hand. There is, further, one more reason as to why we have sought to capsule the controversy arising in the manner done. This is as the initial onus to rebut what is apparent is not real is on the person who so alleges, so that the payment at the rate being recorded in the books of both the assessee-purchaser and the seller, and without doubt the goods having been bought in the quantity mentioned, has been apparently at that rate. So however, the A.O. has on the basis of the enquiries material to show that the stated rate may not be the real rate, which is lower than the recorded rate by no less than 10%, so that the initial onus on the Revenue gets discharged. In fact he has, apart from the market, also made enquiries from M/s. Bajaj Auto Ltd., another bulk purchaser, through the concerned A.O., which reveals the prevailing rate of the specified quality of steel at Rs. 22.50 per kg. (Ex-Pune). The assessee on being called upon to state its case has, without exhibiting so, admitted to purchasing the rele....
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....fter allowing the assessee a proper opportunity to present its case. We decide accordingly. 11. We may now discuss the various other issues and grounds raised in the instant appeals, proceeding appellant-wise and, further, year-wise:- Assessee's Appeals 12. Ground nos.3, 4 & 5 and the additional ground of the assessee's appeal for A.Y. 1997-98 (as well as additional ground for A.Y. 1998-99) were not pressed during the hearing. The additional ground/s was in fact not argued for its admission as well. The same are accordingly dismissed as not pressed and not admitted, as a case me be. We decide accordingly. 13. Ground No.6 for A.Y. 1997-98 (as well as ground no.5 for A.Y. 1998-99) are qua interest u/ss. 234 & 234C. The same were admitted by the parties as consequential. In fact, section 234C is levied only on the short-fall on the advance-tax reckoned with reference to the return of income, so that it is independent of the subsequently assessed income. The grounds are, accordingly, dismissed. We decide accordingly. Result 14. The assessee appeal for A.Y. 1997-98 is, accordingly, partly allowed. 15. Ground No.3(III) for A.Y. 1998-99 is in respect of disallowance o....
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....ciple of commercial accounting in the matter. The purchase of the raw material stood completed on the delivery of the relevant goods to the assessee as per the relevant contract/s. Any subsequent increase (or decrease) in the corresponding purchase liability, would be independent of the purchase cost, which gets crystallized on the date of purchase, i.e., on it being completed. That is, the same would not keep varying with each fluctuation in the exchange rate till the entire liability in respect of the purchase is liquidated. Reference in this context may be made to the decision in the case of CIT vs. Tata Iron & Steel [1998] 231 ITR 285 (SC). Though rendered in the context of cost of a capital asset, the principle in our view would apply equally for any asset. The AS-2, not dilating in the matter, the assessee before the ld. CIT(A) relied on international accounting standard, which advocates factoring the exchange fluctuation in the cost of the purchase only when the same is in respect of a recent purchase, in the event of severe devaluation, and where there was no means of hedging the transaction. The premise is clear - the exchange fluctuation is ordinarily not factored into th....
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.... and not where it is so on a temporary basis. Further, if the same is advanced by incurring an interest-bearing debt (or liability), interest cost would continue to be incurred. We observe this as we find it strange that despite being a simple matter of fact, a controversy in its respect should continue to subsist, with vast difference in the amounts calculated and contested, as under, even as there is no disagreement that interest expenditure, only to the extent actually incurred, could be subject to disallowance:- A.Y. Disallowance Assessee's working 1997-98 1,23,886 18,937 1998-99 1,08,24,515 not provided 1999-00 1,66,86,012 not provided In fact, we observe that the AO has in working the disallowance excluded the period for which overdraft facility was not availed. The disallowance on the opening outstanding has been made by applying a flat rate of 17% per annum, and which rate again does not appear to be disputed. The Revenue in fact supports it's case by stating that the disallowance for A.Y. 1999-00 stands since accepted by the assessee. Though that may be indicative, the matter has to be finally decided on merits, by issuing clear findi....
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.... conceded as squarely covered by the tribunal's order dated 31.10.2007 in the assessee's case for A.Ys. 1995-96 & 1996-97. A perusal of the same reveals the said issue to be arising in the assessee's appeals for the said years (in ITA Nos.3207 & 3208/Mum/2001), with the relevant grounds being dismissed as not pressed by the tribunal. Surely, there is under the circumstances no question of the said issue being covered; there being no finding or decision by the tribunal on the merits of the case for the said years. So however, the issue stands covered by the decision by the apex court in Britannia Industries Ltd. vs. CIT [2005] 278 ITR 546 (SC), setting the law in the matter. We accordingly confirm the disallowance as made u/s.37(4) of the Act. We decide accordingly. 25. Ground No. 5 for A.Y. 1997-98 and ground no.4 for A.Ys.1998-99 & 1999-00 in the Revenue's appeals, being in respect of disallowance u/s. 40A(9) qua contributions to Lohia Officer's Club, LML Officer's Club and Worker's benevolent fund, were again claimed as covered by the order of the tribunal in the assessee's case for the immediately two preceding years (supra). Following the tribunal's order for the relevant ye....
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....t is open for the assessee to argue of the provision being tax neutral, and that no adjustment, therefore, to the profit as disclosed per its operating statement shall arise. The same may well be, but is not a matter of presumption and, would need to be demonstrated. The adjustment, if any, that may result to the declared profit/loss is, it may appreciated, incidental and in fact consequential. The provision being mandatory, effect thereto is to be in any case or view of the matter given. Further, it is only the value of the closing stock, gross of all levies, etc., so determined, that would be required to be carried over for being considered, likewise, as the value of the opening stock for the following year. As clarified by the tribunal in Hercules Pigment Industry vs. ITO (in ITA No. 271/Mum(H)/2012 dated 29.05.2013, reported at [2013] 93 DTR (Mum-Trib) 49) upon an extensive review of the matter, including the decision in Indo Nippon Chemicals Co. Ltd. (supra), that only by following scrupulously the mandate of law (section 145A), notwithstanding the claims of tax neutrality, would ensure the determination of correct income, even as the provision is mandatory. 27.3 Our decisi....
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.... definite findings of fact. We decide accordingly. 29. Ground no. 7 of the Revenue's appeal for A.Y. 1997-98 is in respect of disallowance qua provision for bad debts. The same, though stated at Rs. 3,29,000/- in the relevant ground, was conceded by the ld. DR to be a typographical mistake in-as-much as the correct amount is Rs. 2,39,000/-, for which amount the provision was claimed and disallowed. Further, the issue though contended as covered by the tribunal's order for the earlier years (supra), is actually not so in-as-much as the assessee did not press the relevant ground/s before the tribunal for those years. Further, on a perusal of the impugned order, it is found that the ld. CIT(A) has actually confirmed the disallowance in view of the retrospective amendment to section 36(1)(vii) of the Act by Finance Act, 2001 w.r.e.f. 01.04.1989, i.e., by way of Explanation thereto. The said ground, thus, does not arise out of the impugned order, and is in fact misconceived. Rather, the assessee has also not pressed its additional ground which is qua this disallowance. Either way, no prejudice to the Revenue though arises. We decide accordingly. 30. The only remaining ground is Gr....