TaxTMI 
TaxTMI 
TaxTMI 
2006 (6) TMI 513
X X X X Extracts X X X X
X X X X Extracts X X X X
....e assessee has claimed a deduction under section 43B of the Act towards payment of ₹ 2.50 Crores on the basis of copy of challan enclosed with the return. As per Challan, the amount was deposited under the head 'Miscellaneous' and further it was narrated in the challan that, deposit is being made under Protest in pursuance of Investigations being carried out by DGAE, New Delhi. In the circumstances of the case when the DOAE, New Delhi raised the demand during the financial year, printed booklet was printed on 26-6-1998. The assessee company had deposited the amount of ₹ 2.50 Crores under Protest which has been shown in the balance sheet as 'Advance'. As per order of DOAE, New Delhi, the assessee company has deposited the alleged amount of ₹ 2.50 Crores under Protest. The Tribunal (CEGAT) set aside the order passed by the DOAE. The assessee claimed the advance so paid under protest as deductible expenses under section 43B of the Act treating the same as regular Excise duty payment. The Assessing Officer did not accept the Explanation of the assessee and the Assessing Officer was of the view that the assessee has made the payment on 14-3-1998 during the relevant fin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....00 and the show cause notice of DG, Anti Evasion, New Delhi was set aside. The Department's Civil appeal against this order vide No. D-8526/2001 was later on dismissed by the Supreme Court by their order dated 10-9-2001. This payment of ₹ 2.5 Crores was then adjusted by the Department against the regular liability of excise duty on manufacturing of goods by the appellant for the year in which it was refunded. Therefore, this payment is certainly not of any accrued/determined liability and it is only an advance payment/deposit made during the accounting period. The Assessing Officer was thus justified in not considering it as a determined/accrued liability and not allowing it on payment basis under section 43B of the Income-tax Act. This disallowance is therefore, confirmed." 5. The ld. Counsel for the assessee argued that the payment of ₹ 2.50 crores made on 19-3-1998 is an allowable expenditure under section 43B, though the said demand raised had been held to be invalid and quashed by the Supreme Court vide civil Appeal No. D/8526 of 2001 dated September 10, 2001. In such a situation the amount can be brought to tax under section 41(1) when the liability ceased.....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... like razors, cartridges containing blades etc. in their factories conforming strictly to the drawings, specifications and instructions provided by the assessee. For this purpose assesses was required to supply packing and materials like labels, cartoons, boxes etc. and the ownership of these material given to job workers would remain with the assessee and the job workers were required to submit them a inventory statement relating to stock of materials regularly and assessee was entitled to inspect the factory premises of the job workers at any time to verify the stock of materials supplied by them and also to check the quality and specification of the final products manufactured by the job workers. In consideration of the job work, done by the job workers, the assessee paid job charges worked out on the basis of 1000 units of the products manufactured by job workers and the Central Excise duty payable on them by job workers. At the time of clearance of finished goods the job workers pay central excise duty at a price based on the value of the components, parts and packaging materials supplied by the assessee company plus job charges including profit margin of the job workers. 8. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rice. There was no justification for adopting the method of valuation provided under rule 6(b)(ii ) of the Central Excise Valuation Rules, 1975 because the goods were not consumed captively. The price of the goods was very well known when it was entered the market stream and the same represented the intrinsic value of the goods in which all the considerations have been entered. (These facts had been taken from the Civil Appeal Order No. D/8526/2001 dated 10-9-2001 of Hon'ble Supreme Court of India where civil appeal filed by Central Excise Department, New Delhi was dismissed). Ultimately, dismissing the said civil appeal the Hon'ble Supreme Court had given a finding as under : "In view of our findings, we find no reason for upholding any duty as confirmed by the ld. Commissioner and do not approve appropriation made of amounts paid voluntary or otherwise. We cannot find any reason of cause to invoke penalty clauses as are being determined in this impugned order before us. The same was, therefore, required to be set aside." "In view of our findings we would set aside the order of demand of duty and or appropriation of the amounts and penalties as imposed, and wou....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he provisions of the Bengal Finance (Sales Tax) Act, 1941, and the rules framed thereunder there is an obligation on the part of every registered dealer (and one has to be a registered dealer if his sales are beyond a certain limit) to pay tax on all sales in certain specified manner. The liability to pay sales tax is not dependent upon assessment or demand but is an obligation to pay the tax either annually, quarterly or monthly, as the case may be, under the particular rule guiding the particular dealer." 12. By reading the above decision, it is very clear that the assessee had made the sales during the year and actual liability under the Bengal Finance (Sales Tax) Act, 1941 had arisen on the assessee, for which the assessee made a provision in its books of account. Though the said actual liability was not paid by the assessee in that case and the Hon'ble Calcutta High Court in that case had held that such liability to pay sales tax is not dependent upon the assessment or demand but is an obligation to pay the tax either annually, quarterly or monthly as the case may be under the particular rule guiding the particular dealer. This decision of Hon'ble Calcutta High Court, i....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... that regard from their income on the ground that the liability to pay these amounts had been incurred by them in the relevant previous year, it was to stop this mischief that section 43B was inserted (Allied Motors (P.) Ltd. v. CIT [1997] 224 ITR 677, 682-831 (SC). The relevant part of the decision of the Apex Court in the case of Allied Motors (P.) Ltd. (supra) is as under: "However, 'any sum payable' in clause (a ) of section 43B was open to the interpretation that the amount payable in a particular year should also be statutorily payable under the relevant statute in the same year. Explanation 2 was, therefore, added by the Finance Act, 1989, with retrospective effect from April 1, 1984, for the purpose of removing any ambiguity about the term 'any sum payable' under clause (a) of section 43B". 15. It appears that the assessee has made the payment of ₹ 2.50 crores to the excise department only on the issue of show cause notice dated 2-1-1998. What amount has been mentioned in the show cause notice has not been put in record by either parties. Show cause notices dated 3-4-1998 and 4-5-1998 were also issued has been gathered by us from the record available bef....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the decision of the Apex Court in the case of Indian Smelting Refining Co. Ltd. (supra) where the facts of the case and the decision of the Apex Court is as under : "The assessee company engaged in the manufacture of ingots, billets and castings, was liable to pay excise duty on its products which it was paying regularly. For the assessment year 1980-81, the excise authorities felt that the excise duty paid by the assessee had not been correctly calculated. Accordingly, three show cause notices were issued asking the assessee to show cause as to why demand should not be made for payment of ₹ 90,22,783. The assessee did not admit any liability and showed cause accordingly. No adjudication was made during the relevant previous year nor any demand was raised against the assessee. The adjudication was made much later in December, 1982, when the cause shown by the assessee was accepted and the proceedings initiated by the above three show cause notices were dropped. However, the assessee made a provision for a sum of ₹ 90,22,800 in its accounts of the accounting year 1979 itself on the basis of the show cause notices and claimed deduction in respect thereof in the co....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rder of the excise authorities cannot be said that the assessee had made the payment for the statutory liability on the assessee for the impugned year. The said payment is therefore cannot be allowed as a deduction under section 43B of the Act. The assessee had argued that entries in the books of account are not determinative of profit & loss of the assessee and he has relied upon the decisions in the following cases: 1.State Bank of India v. CIT [1986] 157 ITR 67 1 (SC) 2.CIT v. Mughal Lines Ltd. [1962] 46 ITR 590 (Bom.) We have considered the reliance placed by the ld. Counsel for the assessee but as discussed earlier and we have upheld the decision of lower authorities that the assessee has not incurred any liability during the year or in the earlier years, therefore, the said payment of ₹ 2.50 crores to the excise department is not an allowable deduction under section 37(1) read with section 43B of the Act. The assessee had shown the said payment of ₹ 2.50 crores as advance in its books of account, does not prove that the assessee has incurred the actual liability during the impugned year or in the earlier years. Therefore, in the circumstances and facts of the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rcantile system of accounting. Accounting Standard 11 issued by the Institute of Chartered Accountants of India, New Delhi also requires that the exchange loss arising on account of restatement of the current/trading liability has to be charged to profit & loss account of the year in which the exchange loss has arisen. 3. Several decisions also support the case of assessee where it was held that if the exchange difference is allowed on revenue account and as a result of trading activity, it has to be allowed as revenue expenditure in the year in which such liability accrues if the method of accounting followed is mercantile. ONGC v. Dy. CIT 261 ITR 1 (Delhi)(AT-SB) Bhel v. Dy. CIT 98 TTJ 565 (Del.) Sutlej Cotton Mills Ltd. v. CIT 116 ITR 1 (SC) CIT v. Martin Harris (P.) Ltd. 154 ITR 460 (Cal.) CIT v. U.B.S. Publishers & Distributors 147 ITR 114 (All.) CIT v. International Combustion India (P.) Ltd. 137 ITR 184 (Cal.) 4. The principles laid down for allowing a business loss is explained at page 1436 to 1439 of the commentary of Chaturvedi and Pitthisaria 5th addition. For allowing a business loss following principles are applicable: (i)A loss arising in....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lause 7 of this agreement, the assessee shall repay the principal amount borrowed in half year installments and first instalment shall be due six months after the date of remittance of loan together with interest payable in the manner and the rate mentioned in clause 6 of the agreement. Therefore, it is clear that the money has been borrowed by the assessee for financing long term working requirement and any repayment of the same with interest is not on revenue account. Since the liability cannot be ascertained for a part period at the end of the financial year, therefore, the liability on account of foreign exchange fluctuation is impossible to be ascertained and it will not arise at the end of financial year until the period of six monthly rests corresponds to end of financial year which is not the case of the assessee. The decision cited by ld. Counsel for the assessee are not applicable in the present case. Therefore, the liability on account of foreign exchange fluctuation arises only by the period of six monthly rests from the date of remittance expires. Hence, the ld. CIT(A) and Assessing Officer was justified in not allowing the liability of ₹ 30,31,455 which has aris....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ation of foreign exchange rate. He did so by following the assessment order for an earlier year, wherein it was held (bat such loss was a notional loss. The was upheld by the Commissioner (Appeals). On further appeal: Held, that in order to find out if an expenditure is deductible the following have to be taken into account (i) whether the system of accounting followed by the assessee is mercantile system, which brings into debit the expenditure amount for which a legal liability has been incurred before it is actually disbursed and brings into credit what is due, immediately it becomes due and before it is actually received; (ii) whether the same system is followed by the assessee from the very beginning and if there was a change in the system, whether the change was bona fide; (iii) whether the assessee has given the same treatment to losses claimed to have accrued and to the gains that may accrue to it; (iv) whether the assessee has been consistent and definite in making entries in the account books in respect of losses and gains; (v ) whether the method adopted by the assessee for making entries in the books both in respect of losses and gains is as per nationally accepted a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y were duly audited by the Comptroller and Auditor-General of India and further approved and endorsed by Parliament. In the case of the assessee the 'event', i.e., the change in the value of foreign currency in relation to Indian currency had already taken place in the current year. Therefore, the loss incurred by the assessee was a fait accompli and not a notional one. The assessee's claim of loss on account of fluctuation in foreign currency rate was allowable." 25. In the present case the assessee has been following a consistent method of accounting on the basis of principles of commercial sense and maintaining mercantile system of accounting. The assessee is maintaining mercantile system of accounting in accordance with accounting standard II issued by Institute of Chartered Accountant of India which came into effect on or after 1-4-1987, para 23 and 25(a) of the said accounting standard reads as under : "23. At each balance sheet date, there may be items of foreign currency assets and liabilities, i.e., items to be received or paid in foreign currency, in respect of transactions not settled within the same accounting period. An exercise should be carried out to p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....view of above discussions, we hold that the foreign exchange fluctuation loss is an allowable expenditure and accordingly we reverse the order of ld. CIT(A) on this issue. Thus ground no. 2 of the assessee is allowed. 27. In Ground no. 3, the assessee is aggrieved that the ld. CIT(A) erred in confirming disallowance of ₹ 13.00 lacs out of domestic traveling expenses. 28. The brief facts of this ground are contained at page 3 and 4 of Assessing Officer's order as under : "The assessee company has debited a sum of ₹ 12995765 on a/c of local traveling and ₹ 11509042 on a/c of traveling and accommodation abroad. Since all the vouchers are not verifiable, therefore, the assessee was asked to explain as to why disallowance out of them should not be made as done in the earlier years. The assessee has furnished photo copies of some of the vouchers for test check. But the minute details such as the name of the employees who traveled abroad, destination of journey, purpose of journey, tour report and its relevancy to the business carried on by the assessee-company has not been furnished. Facts and circumstances of the case are identical to the assessment year 1996-....
X X X X Extracts X X X X
X X X X Extracts X X X X
....terial or evidence in his possession. He was also told about this fact. He, however, argued that similar disallowances have been made in past but they have been deleted subsequently by the CIT(Appeals). During assessment year 1993-94 no disallowance was made because the disallowances made in assessment year 1992-93 of ₹ 2.5 lacs and ₹ 3.00 lacs respectively were deleted/reduced by the CIT (Appeals). In assessment year 1996-97 again a disallowance of ₹ 1,97,345 has been made out of the total traveling expenses of ₹ 2.96 crores but the assessee is in appeal against this disallowance. He, therefore, argued that the disallowance made by the Assessing Officer of ₹ 13,00,000 out of domestic traveling should be deleted. I have considered the facts of the case and the arguments of both the sides. This is a case where in spite of being given the specific opportunities to produce the details in regard to domestic traveling expenses during the course of assessment proceedings as well as during the remand proceedings, the appellant has chosen not to furnish them. In the past only minor disallowances were made and therefore the past precedence is not binding. Th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....act that the assessee had been given opportunities time and again. The assessee was given opportunity to furnish the details by the Assessing Officer during the course of preparation of remand report but the assessee did not bother to furnish the details. The ld. CIT(A) also gave an opportunity to the assessee but the assessee had failed to give any convincing Explanation before the CIT(A) but argued that no additions have been made in the past and therefore, addition should not be made during the year. Such type of Explanation do not make the expenditure genuine when it is not possible for the authorities below to find out whether the expenses have been incurred wholly and exclusively for the purpose of business or not. The ld. Counsel for the assessee had argued that the internal and statutory auditors have not pointed out any defect in such expenditure. Though statutory auditor does not give the certification of genuineness of expenses but such arguments are convincing to some extent but that does not serve the purpose of genuineness of expenditure as a wholes. Therefore, in the circumstances of the case and looking into the internal control of the assessee, the Assessing Office....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... ₹ 66,22,767 have been furnished by the assessee along, with certain bills vouchers in support. On scrutiny of bill dated 17-10-1997 it appears that Mr. & Mrs. S. Gopal have enjoyed the accommodation. The remaining detail of accommodation has been supported by only City Bank credit note made by the assessee-company and these are not supported by the ills of hotels issued to the concerned visitors. In absence of the bills, it cannot be decided whether the employee enjoyed the accommodation independently or along with his/her spouse. Details of ₹ 30,95,216 (below ₹ 10,000) has not been supported by the evidences. In these circumstances, a disallowance of ₹ 10 lacs is being made treating it not incidental and necessary for business purpose." 33. The ld. CIT (A) vide page 13 & 14 of his order observed as under : "I have considered the facts of the case and the arguments of both the sides. This is a case where in spite of being given the specific opportunities to produce the details in regard to overseas traveling/accommodation expenses during the course of assessment proceedings as well Us during the remand proceedings, the appellant has chosen not....
X X X X Extracts X X X X
X X X X Extracts X X X X
....assessee in the opinion of Assessing Officer had incurred expenses on LIC to European countries but had given colour of business tours to avoid taxes. The assessee has not given any explanation in this regard. As regards accommodation expenses exceeding ₹ 10,000 the assessee has submitted the details of expenses for amount of ₹ 35,27,360 out of total expenses of ₹ 66,22,576. No bills were submitted for verification of the genuineness of balance of the expenditure. The Assessing Officer has made a disallowance of ₹ 20 lacs i.e 10 lacs each on traveling and accommodation. The assessee did not submit the details to the Assessing Officer even during the remand proceedings and even before the ld. CIT(A). In the circumstances and facts of the case it was not possible for the Assessing Officer to find out the genuineness of the expenditure and ld. CIT(A) has rightly restricted the total disallowance at 10 per cent of ₹ 1,15,09,042. Therefore we find no we find no infirmity in the order of the ld. CIT(A) on this issue. Thus ground no. 4 of the assessee is dismissed. 35. In Ground No. 5, the assessee is aggrieved that the ld. CIT(A) erred in confirming disallo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....section 36 of the Income-tax Act, before any claim for allowance for a bad debt is established, it must appear that the concerned bad debt is written off as irrecoverable in the account books of the assessee. This requirement is a condition for the grant of claim for bad debt allowance. If the debit entries posted by the assessee indicate that bad debt has been written off as irrecoverable in the accounts of the assessee, then the statutory condition stands fully complied with. If the assessee has posted entries in the profit and loss account and the corresponding entries are posted in the bad debt reserve account, it would be sufficient compliance with the provisions of the statutory requirement for writing off as irrecoverable, the concerned debt in the books of the assessee. Vithaldas H. Dhanjibhai Bardanwala v. CIT 130 ITR 95 (Guj.): Under section 36 of the Income-tax Act of 1961, it is clear that before any claim for allowance for a bad debt is held established by the ITO it must appear that the concerned bad debts was written off as irrecoverable in the account books of the assessee for the relevant previous year. This requirement become a condition for the grant of claim ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....at debit to the profit & loss account is sufficient compliance and therefore the claim made by the assessee be directed to be allowed." 39. After hearing the parties, we find that the assessee company debited a sum of ₹ 25,21,567 in the P & L account. The Assessing Officer found that the amount has not been held to be irrecoverable but a provision has been made in the books of account. Accordingly, he inferred that such amount has not become bad and since the fact and circumstances in this regard, in his opinion, was same as in the assessment year 1996-97 where such bad debts had been disallowed, he did not accept this claim of bad debt and added this amount in the income of the assessee company. 40. The ld. CIT(A) confirmed this disallowance holding that as per provisions of section 36(i )(vii) read with section 36(2) of the Income-tax Act, a bad debt cannot be allowed only by creating a provision in this regard in the books of account. He observed that even before him Assessee Company failed to submit any evidence/argument whatsoever to establish that these debts have actually been written off as bad and irrecoverable in the relevant accounting year. 41. On the oth....
X X X X Extracts X X X X
X X X X Extracts X X X X
....inting A.C. Sheet rooting with M.S. angle from etc. ₹ 149250 P/Replacing M.S. grideses channels, fees Angles, beams with new whenevers stru Changes are proposed layout plan. ₹ 382550 From the study of the bills raised it appears that the work done by the M/s. R.K. Agencies is not revenue nature and it is of capital nature as it is evident from the description of the work done. Therefore, a sum of ₹ 5 lacs out of the above is disallowed and added back in the income. However, the same is allowed to be capitalized under the head building and depreciation at the rate of 50 per cent of normal rate is allowed." 44. Before the ld. CIT (A) the ld. Counsel for the assessee argued that bills of R.K. Agencies are related to repairs and valuation, expenses in the factory building at Bhiwadi which included replacement of torned and damaged parts of building and all the repairs carried out by the assessee were of routine nature which were required to be done regularly to maintain the building functional. The Assessing Officer did not provide any opportunity to explain the nature of the expenses and disallowed the same only on the basis of narration of the bills. The....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... produced for the verification of such expenses as claimed by the assessee. From the perusal of month-wise details, the Assessing Officer observed that the canteen expenses claimed in the month of April were ₹ 96,003 whereas these expenses for the month of March were ₹ 3,47,740 and similar trend was there in respect of Employees Welfare expenses and no explanation or vouchers were produced for verification of genuineness of expenses and accordingly the Assessing Officer disallowed a sum of ₹ 3,00,000 out of canteen expenses and ₹ 3,50,000 out of Employees Welfare expenses and added the same to the income of the assessee. 49. In the remand proceedings, as per comments of the Assessing Officer the assessee was given an opportunity vide order sheet dated 14-11-2002, 2-12-2002, 5-12-2002 but the assessee failed to produce the vouchers and any explanation required from the assessee. The ld. CIT (A) verified the order sheet and found the same to be correct The assessee failed to produce vouchers or any explanation as regards the genuineness of the expenses even after a reasonable opportunity was given to the assessee in the remand proceedings on 14-11-2002. In th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ter. Assessee's explanation that the production of vouchers will not serve the purpose of the Assessing Authority cannot be said to be a logical explanation . Though the Assessing Officer has not made any comparison of expenses incurred under this head with the expenses incurred in the immediately last year. Looking to the circumstances of the case and non production of vouchers by the assessee and in the absence of any cogent or logical explanation, a possible leakage of expenses which are not incurred wholly and exclusively for the purpose of business, cannot be ruled out. The ld. CIT(A) in the circumstances of the case has rightly allowed a relief of ₹ 50,000 and sustained the balance of disallowance of ₹ 6 lacs under the head Employees Welfare expenses and Canteen expenses. We find no error in the order of ld. CIT (A) on this issue which is hereby, sustained as it is. Thus ground no. 7 of the assessee is dismissed. 51. In Ground no. 8, the assessee is aggrieved that the ld. CIT(A) erred in confirming disallowance of ₹ 3.00 lacs out of Stores and Spare Parts consumed Expenses. 52. We have heard the parties. The facts of the case are that the assessee was aske....
X X X X Extracts X X X X
X X X X Extracts X X X X
....g the disallowance under this head and therefore, we reverse the order of ld. CIT(A) who has wrongly sustained the additions made by the Assessing Officer on this issue. Thus we allow ground no. 8 of the assessee. 55. In Ground no. 9, the assessee is aggrieved that the ld. CIT(A) erred in confirming disallowance of ₹ 8.00 lacs out of Lost Revenue Expenses. 56. We have heard the parties. The facts of this case are as per page 7 of the Assessing Officer's order as under: "The assessee company has debited a sum of ₹ 11398940 on account of lost revenue expenses. The assessee company filed note on these expenses vide letter dated 30-1-2001 stating that lost revenue expenses are part of the head 'Advertisement and sales promotion expensed'. No documentary evidence have been produced regarding the claim of these expenses. Therefore, looking to the above facts the expenses claimed are not verifiable and appears on the higher side also. A disallowance of ₹ 8 lacs is being made out of the expenses claimed and same is added back in the income of the assessee-company". 57. The ld. CIT(A) vide para xiv of his order observed as under : "The appellant file....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sis out of the lost revenue expenses. This disallowance is neither excessive nor unreasonable and is rather justified on facts, it is, therefore, confirmed." 58. After perusal of the facts, we find that assessee has incurred expenditure on advertisement and sales promotion which in fact was a lost revenue expense amounting to ₹ 1,13,98,940 which according to the Assessing Officer in the remand report was an expense on loss of goods in transit i.e. loss of goods when they are moved from point of production to the point of distribution. The assessee has not produced any detail or vouchers in this regard and ld. Counsel for the assessee argued that these expenses are the expenses for the purposes of the business and all the payments for these expenses are made through account payee cheques and bills are procured for each and every expense. During advertisement and sales promotion there is always likelihood that some of the goods are genuinely lost and therefore such loss is a genuine expenditure and the same cannot be treated as not incurred wholly and exclusively for the purpose of business. Since the Assessing Officer has not pointed out any defect in the bills of adver....
X X X X Extracts X X X X
X X X X Extracts X X X X
....provides that books profit means the net profit as shown in the profit & loss account for the relevant previous year prepared under sub-section (2), as increased by : (a) the amount of Income-tax paid or payable, and the provision therefore, or (b) the amounts carried to any reserves by whatever name called; or (c) the amount or amounts set aside to provisions made for meeting liabilities other than ascertained liabilities; or (d) the amount by way of provision for losses of subsidiary companies; or (e) the amount or amounts of dividends paid or proposed; or (f) the amount or amounts of expenditure relatable to any income to which any of the provisions of Chapter III applies. Thus only adjustment as per clause a to above can be made to the profit & loss account prepared in accordance with Schedule VI of the Companies Act 1956. No other adjustment as may be made in the normal computation of income can be made in determination of book profit. The loss on account of foreign exchange fluctuation is a provision made in accounts in accordance with schedule VI of the Companies Act for meeting the ascertained liabilities. Accounting Standard 11 issued by the Institute of Char....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng provision). The Assessing Officer has considered the entire claim as provision for loss. The provision for loss is made only in respect of those assets which has impaired. This is made as per the accounting principles and practices duly audited by the statutory auditor. Hence such loss claimed in the books cannot be a subject matter of adjustment in computing the book profit under section 115JAA. 62. After perusal of the facts and the decisions relied upon by the ld. Counsel for the assessee and in the circumstances of the present case, we are convinced with the arguments of ld. Counsel for the assessee. Therefore the profit for the purpose of section 115J has to be computed on the basis of profit & loss account prepared in accordance with Part-II and Part-III of schedule VI of Companies Act, 1956 and adjustment in the present case for provision for foreign exchange fluctuation, provision for bad and doubtful debts and provision for loss on sale of fixed asset cannot be made While computing profits under section 115JA of the Act. Hence we reverse the order of ld. CIT (A) on this issue. Thus ground no. 10 of (he assessee is allowed. 63. The Ground No. 11 is general in nature wh....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... is an existence of debt. In the present case the Assessing Officer's grievance as regards the debt from supplier is that the assessee has not submitted any detail with which the Assessing Officer could ascertain whether the debt are the existing debt for the purpose of business of the assessee. Similarly, the advances to the employees are not covered under section 36(1)(vii) of the Act and, therefore, the assessee has to establish the loss is for the purpose of business. The assessee has not submitted any detail before the authorities below in this regard to establish its claim. In such circumstances and in the interest of justice, the verification of the details by the Assessing Officer is required to ascertain whether there is an existence of debt before any provision is made in the books of account and similarly the details are required to be verified as regards employees advance for claiming the expenditure/loss to the income of the assessee. Therefore, the matter as regards the amount recoverable from suppliers, zone-wise debtors and employees advances is restored to the file of the Assessing Officer who will give the reasonable opportunity to the assessee to establish its cl....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nd bill. On scrutiny of the details it is noticed that the purpose of journey against some trip of the employees has not been mentioned in the details. Therefore, in absence of adequate evidences it cannot be said that these trips were performed exclusively and wholly for the business purposes. On perusal of details of journey performed by Shri Pradeep Pant at Sl. No. 3 from Delhi to London, Moscow, Slpetersube, Dubai (Airways ticket no. 6893558400), it is observed that the journey was performed by Sh. Pant with Miss Pinki. This shows that family of Mr. Pant is also accompanied with him and expenditure was claimed for both. Further, vouchers prepared by M/s. Thomas Cook & Company and presented to the company are not clear, therefore, they cannot be examined for each and every entries there in. Keeping in view these facts and the past history of the case, a disallowance of ₹ 2,00 lacs is made and added in the total income of the assessee company for the reasons mentioned above. 8. Similarly, out of accommodation on overseas journey, disallowance of ₹ 50000 is being made on account of expenditure not incurred wholly and exclusively for business purposes. Thus, total di....
X X X X Extracts X X X X
X X X X Extracts X X X X
....owance in such cases at the rate of 10 per cent of total expenses incurred by the assessee. Since the disallowance in the impugned year is less than 10 per cent of the total expenses incurred by the assessee, therefore, following the decision in assessee's own case for the assessment year 1998-99 (supra), we confirm the action of the ld. CIT(A) who has rightly confirmed the action of the Assessing Officer. Thus ground no. 4 of the assessee dismissed. 81. In Ground no. 5, the assessee is aggrieved that the ld. CIT(A) erred in directing the Assessing Officer to treat the rent recovered as Income from Other Sources and thereby to exclude it from income computed under the head Profits Gains of Business while calculating deduction under section 80HHC. AND ITA No. 388/JP/03 (Department) Assessment year 1999-2000 82. In tills appeal, the Department is aggrieved that the ld. CIT(A) has erred in directing the Assessing Officer for not including the entire receipts of ₹ 1,92,47,604 as Income from Other Sources by ignoring the fact that such receipts were for providing service on account of finance, personnel, secretariat, administration and planning services to Gillette Diversifie....
X X X X Extracts X X X X
X X X X Extracts X X X X
....erved that the assessee has let out its business premises and incurred other indirect expenses under different heads and it is not possible to segregate these expenses. Therefore, it is taxable under the head income from other sources. Accordingly, entire amount of ₹ 1,92,47,604 as recovery of common service expenses appropriated on income side of P & L a/c does not qualify for the purpose of deduction under section 80HHC." 84. The ld. CIT (A) treated the rent received as income from other sources and directed the Assessing Officer to grant relief on account of recovery of charges by giving following findings : (i) Agreement in question are generally for sharing of common expenses by way of fixed charges per month. It has not been established by the Assessing Officer that they are in the nature of income by way of brokerage, commission, interest and rent for the purpose of computing deduction under section 80HHC. (ii) The Assessing Officer in assessment order has mentioned that agreement with Gillete Diversified Operations Pvt. Ltd. is for letting out of premises at the rate of ₹ 21,000 per month. Though this agreement is not on record but since the Assessing....