AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2015 (10) TMI 2008
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....le in the fact s and ci rcumstances of the case. 2.1. Brief fact s of the case are that the assessee is engaged in the business of cultivation of green leaves and manufacture and sale of Black Tea. The assessee had borrowed External Commercial Borrowings (hereinafter referred to as 'ECB') of USD 50,00,000 and utilized the same for general business purposes. Hence, this goes to prove that the loan has been obtained for revenue account. This loan was outstanding as on 31s t March, 2005 and the same was restated at the exchange rate prevailing at the end of the year in consonance with the Accounting Standard 11 (AS- 11) issued by the Institute of Chartered Accountants of India (ICAI) by the assessee-company. The assessee incurred a Notional Exchange Loss of Rs. 10,00,000/- on such restatement in view of the increase in liability payable on the loan account. This is worked out as under:- Loan balance as on 31.03.2004 21,77,50,000 Less: Value of loan as on 31.03.2005 USD 50,00,000 @ 43.75 21,87,50,000 The difference representing exchange loss by way of increase in liability Rs.10,00,000/ 2.2. The Assessing Officer disallowed the same as the ex....
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....bmissions and perused the material available on record. It is seen from the ECB loan agreement, which was filed based on a speci fic query from the Bench by the A.R. that the loan was utilized for general corporate purposes and not for acquisition of any fixed assets. Hence, we hold that the borrowings were utilized on Revenue Account and the provisions of section 43A of the Act were not applicable at all in the fact s of the case. Based on this, it could logically be concluded that any exchange fluctuat ion arising out of the restatement of the said loan at the end of the year, be it gain or loss, would also fall on revenue account and hence, automatically comes under the ambit of taxation if it is a gain and allowable as an expenditure if it is a loss. This issue is squarely covered by the decision of the Hon'ble Supreme Court in the case of CIT -vs.- Woodward Governor India P. Ltd. reported in 312 ITR 254 (SC), wherein the questions raised before thei r Lordships were as under:- (i) Whether, on the facts and circumstances of the case and in law, the additional liability arising on account of fluctuation in the rate of exchange in respect of loans taken for revenue purposes co....
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.... and exclusively for the purposes of the business should be allowed in computing the income chargeable under the head "profits and gains of business". In Sections 30 to 36, the expressions "expenses incurred" as well as "allowances and depreciation" has also been used. For example, depreciation and allowances are dealt with in Section 32. Therefore, Parliament has used the expression "any expenditure" in Section 37 to cover both. Therefore, the expression "expenditure" as used in Section 37 may, in the circumstances of a particular case, cover an amount which is really a "loss" even though the said amount has not gone out from the pocket of the assessee. 14. In the case of M.P. Financial Corporation v. CIT reported in 165 ITR 765 the Madhya Pradesh High Court has held that the expression "expenditure" as used in Section 37 may, in the circumstances of a particular case, cover an amount which is a "loss" even though the said amount has not gone out from the pocket of the assessee. This view of the Madhya Pradesh High Court has been approved by this Court in the case of Madras Industrial Investment Corporation Ltd. v. CIT reported in 225 ITR 802. According to the Law and Practice ....
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.... shape of appreciated value of the closing stock is not brought into account, as no prudent trader would care to show increase profits before actual realization. This is the theory underlying the Rule that closing stock is to be valued at cost or market price, whichever is the lower. As profits for income-tax purposes are to be computed in accordance with ordinary principles of commercial accounting, unless, such principles stand superseded or modified by legislative enactments, unrealized profits in the shape of appreciated value of goods remaining unsold at the end of the accounting year and carried over to the following years account in a continuing business are not brought to the charge as a matter of practice, though, as stated above, loss due to fall in the price below cost is allowed even though such loss has not been realized actually. At this stage, we need to emphasise once again that the above system of commercial accounting can be superseded or modified by legislative enactment. This is where Section 145(2) comes into play. Under that section, the Central Government is empowered to notify from time to time the Accounting Standards to be followed by any class of assessee....
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....e the ld. CIT(Appeal s), who deleted this addition. Aggrieved, the Revenue is in appeal before us on the following Ground:- "In the facts and circumstances of the case the ld. CIT(A) has erred in restricting the disallowance u/s 36(1)(va) read with section 2(24)(x) of the Income Tax Act, 1961 from Rs. 1,84,308/- to Rs. 18,048/-". 5.2. Ld. D.R. vehemently supported the order of the Assessing Officer. In response to this, ld. A.R. argued that the date of remittances of EPF is mentioned in pages 9-10 of the assessment order and argued that the issue is covered in favour of the assessee by the decision of the Hon'ble Apex Court in the case of Vinay Cement Limited reported in 313 ITR 1 (SC). 6. We have heard the rival submissions on this issue and hold that this issue is directly covered in favour of the assessee by the decision of the Apex Court in Vinay Cement Limited reported in (20090) 313 ITR 1 (SC), wherein it has been held that "statutory item like EPF is paid before the due date of filing the return of income be allowed irrespective of the fact where the contribution related to the employee and employer". From the verification of the dates as stated in the assessment or....
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.... are to be allowed and that was rightly allowed. Inasmuch as if the income for tea grown was assessed under the agricultural income-tax, in that event, the same cess paid of green leaf would have been eligible for deduction at the time of computation of the agricultural income. But when by fiction in respect of tea grown and manufactured, the agricultural component of the income out of tea grown is also computed under the Income-tax Act along with the income out of the tea manufactured from the tea grown. When by fiction the income as computed as an income under the Act, all deductions as are available both for the agricultural component and for the business component of the income are to be allowed as a natural corollary to the fiction so created. Such deductions, which are allowed in order to arrive at the total income exigible to tax, are to be allowed and the apportionment of the total income so computed is to be made. If the agricultural part of the deductions is made applicable for deduction from the 60 per cent of the total income so computed, in that event, this 60 per cent would be again made assessable under the Agricultural Income Tax Act which is not permissible. In tha....
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....oceedings it self. 8.4. We have heard the rival submissions. It is seen from the assessment order that the aforesaid three receipt s had been duly accepted by the Assessing Officer as business income in the assessment proceedings itself, which was also the claim of the assessee in i ts revised return. However, while adopting the figure of income from other sources, the Assessing Officer did not adopt the figures as stated in the revised return but adopted a totally different figure. Hence, in the facts and circumstances of the case, we deem it fit and appropriate, in the interest of justice and fair play, to set aside this issue to the file of the Assessing Officer to adopt the correct figure of income from other sources after verification of proper workings in this regard from the assessee. Needless to mention, that the assessee be given reasonable opportunity of being heard to present its workings. Accordingly, Ground No. 3 raised by the Revenue is partly allowed. 9. The next issue to be decided in this appeal is as to whether the ld. CIT(Appeals) is correct in allowing the claim of the assessee that the miscellaneous receipts aggregating to Rs. 46,26,553/- arose from tea b....