AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2022 (2) TMI 284
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....prescribed by the institute of Chartered Accountants of India 1.2. Erred in not appreciating the fact that such inventory is actually written off in the books of account and is not a mere provision as contemplated by the learned AO 1.3. Without prejudice to the above, even if it is treated as a provision of obsolete inventory the same ought to have been allowed as deduction 1.4. Without prejudice to the above the write-off ought to be allowed as a deduction in the subsequent year (AY 2003-04) as accepted by the learned CIT (A) Disallowance of foreign exchange loss 2. Erred in not appreciating the fact that foreign exchange loss (arising either on account of payment to trade creditors or year-end restatement of their balances) is revenue in nature and thereby not deciding the issue himself but giving directions to the leaned AO to examine the nature of loss whether revenue or capital in nature Initiating Penalty proceedings u/s.271(1)(c) 3. Erred in upholding the action of the AO in initiating the penalty u/s.271(1)(c) The assessee has also raised an additional ground (Ground no,.4)before us with respect to claim towards advance write off - Excise duty on exports of ....
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....e assessee for an amount of Rs. 4,77,19,005/- as NIL. 5. The AO, in addition to the disallowance proposed by the TPO,made several additions/disallowances to the returned income of the assessee and reduced the returned loss to Rs. 73,79,890/- as detailed below:-. Rs. Rs. Loss as per return - 19,24,19,480 Add Administrative Expenses disallowed by the TPO 4,77,19,005 Add Leasehold improvement 50,48,684 Add Inventory written off 12,54,31,371 Add Loss on account of foreign exchange variation 68,40,528 18,50,39,588 Total income (-)73,79,892 Rounded off (-)73,79,890 6. Aggrieved by the order of the DCIT, the assessee filed appeal before the CIT(A). 7. The CIT(A) partially allowed the appeal of the assessee by confirming following additions made by the AO:- i) Disallowance of inventory written off - Rs. 12,54,31,371/- ii) Foreign exchange fluctuation loss - Rs. 68,40,528/- 8. Now the assessee is before us aggrieved by the order of the CIT (A) for confirming the AO's above mentioned disallowances of inventory write off and foreign exchange fluctuation loss 9. We ....
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....h was lying with the converters was written off by the officials of the parent company of the assessee if they have not been able to inspect the same (ii) Why a provision debited to the profit and loss account should be allowed under the Income Tax Act (iii) The loss of stock lying with converter which is to be allowed as a bad debt has to be established to have become bad and also actually write it off from the books during the year (iv) The date of which the converter became bankrupt is not furnished by the assessee but mentioned the year as 2002 (v) The actual write off details of the dead stock of raw materials of Rs. 2,60,08,063 with Litaka Pharmaceuticals which was destroyed was not furnished by the assessee (vi) All evidences which have been filed indicate that if at all this inventory was to be written off it should have been written off in the financial year 2002-03 (AY 2003-04) (vii) The amounts debited in the books as of 31.03.2002 is not more than a mere provision and hence the deduction cannot be allowed for inventory writeoff The AO also observed that the inventories were written off as per the authorization memo between 21.10.02 to 24.10.02, i.e., six da....
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....ance made by the AO. The CIT(A), in his order, has made the following observations on the submissions made by the assessee:- "On examination of these Inventory Disposal Authorization sheets, it appears that the stock has not been disposed of till 24.10.2002. Moreover the sheets do not indicate in any manner that the inventory written off was to be disposed off as on 31.03.2002. Inventory Disposal Authorization indicates an authorization to dispose. A power to authorize necessarily includes the power not to authorize. Therefore, even if it were considered that there was due authorization to dispose of inventory as on 24.10.2002, there could not have been an authorization to dispose of the inventory items by a prior date of 31.03,2002. Another aspect of the matter is that the appellant has stated that the goods had become useless and gave foul smell. Such determination could only be with a prospective date. It is not conceivable as to how on 24.10.2002 it could be determined that the goods had become worthless or soul smelling as on 31.03,2002. The letter containing information about M/s. Dominion Pharmaceuticals Pvt Ltd and M/s Dominion Chemical Industries given by the ACIT Cent....
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....d a letter dated 08-08- 2008 obtained from by the ACIT Central Excise Bengaluru II division before the AO in order to support its submission that the Dominion group has closed its business in 2002 itself. In the above said letter, it was mentioned that the Dominion group of companies have operated upto November, 2001 only. With regard to this letter, the Ld D.R submitted that the above said letter was obtained only in 2008 and it does not support the case of the assessee that the raw materials lying with Dominion group became obsolete as on 31.3.2002. The Ld. DR also submitted that, without prejudice, even if the claim of the assessee had to be accepted, then the same requires examination only in the financial year 2002-03 relevant to AY 2003-04. 12. We have heard rival submissions and perused the record. The key point for consideration here is Whether the claim for inventory write-off made by the assessee in the books of accounts as 31.03.2002 can be allowed as deduction during the year under consideration or not. We noticed that the evidences in the form of disposal notes furnished by the assessee are all dated in October, 2002, meaning thereby, the decision to write off these ....
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....sum of Rs. 68,40,528/- on account of foreign exchange fluctuation loss. The AO noticed that, out of the above said claim, a sum Rs. 44,00,768/- pertained to realized loss and the balance amount of Rs. 24,39,760/- related to the loss arising on account of restatement of liabilities as at the year end. The assessee submitted the ledger account of the foreign exchange loss with a bifurcation between realized and unrealized exchange loss. However, the AO disallowed entire claim of Rs. 68,40,528/- holding that the exchange fluctuation loss can be claimed as deduction only on actual incurring of loss at the time of payment. 13.2 The CIT (A) relied on the judgment of the Hon'ble Supreme Court inthe case of CIT Vs. Woodward Governors India Pvt. Ltd., (2009) 312 ITR 254 (SC) and directed the AO to allow loss actually incurred during the year and disallow only unrealized loss arising on account of restatement of liabilities. 13.3 Before us the Ld.AR made submissions relying on the decision of the Hon'ble Supreme Court SC in the case of Woodwards Governors India Pvt. Ltd., (Supra) and also on the decision of the ITAT New Delhi in assessee's own case for the assessment year 2001-02 in ITA No....
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....sent case follows such an accounting standard). In view of the above the loss on account of foreign exchange claimed by the assessee deserves to be allowed. The 5th ground of appeal is accordingly allowed." In the written submissions made before Ld CIT(A), the assessee has stated that the exchange difference does not pertain to any capital items. This fact was not disputed before us. Hence the loss arising on restatement of outstanding liabilities is on revenue items and the same is allowable as deduction as per the decision rendered by the co-ordinate bench in the assessee's own case in an earlier year, referred supra. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to allow the loss of Rs. 24,39,760/- arising on account of restatement of liabilities of revenue items. 14. The assessee has raised an additional ground before us with respect to claim towards advance write off - Excise duty on exports of Rs. 1,20,16,395/- It reads as under:- Ground no.4 : Claim towards Advance written off - excise duty on exports of INR 1,20,16,395 The Assessing officer ("learned AO") and Commissioner of Income tax (Appeals) ("Learned CIT(A)") has erred in ....
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....ly, the Ld A.R submitted that the assessee did not claim deduction of excise duty payment in AY 2002-03 and its claim made in AY 2007-08 was also rejected. In effect, the excise duty paid by the assessee has not been allowed and it has caused great prejudice to the assessee. He submitted that the assessee did not claim the excise duty payment in AY 2002-03, even though it is allowable as deduction, only for the reason that it is eligible for duty draw back. In view of the developments that happened subsequently, the assessee is praying for deduction of the excise duty paid by it to the extent of Rs. 1,20,16,395/- in AY 2002-03, since the assessee did not receive duty draw-back and further the claim made in AY 2007-08 was disallowed. He submitted that the above said claim of the assessee can be examined independently, dehors the developments that happened in AY 2007-08. 14.4 The Ld A.R also submitted that the assessee has filed additional evidences in support of the above said claim. He prayed for admission of additional evidences as well as additional evidences. 14.5 The Ld. DR submitted that the assessee has disputed the disallowance made in AY 2007-08 by filing appeal before Ho....