TaxTMI 
TaxTMI 
2022 (2) TMI 284
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....escribed under "Accounting Standard 2 - Valuation of inventories" 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....
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.... Transfer Pricing Officer who submitted his report dated February 21, 2005 proposing to take the cost of administrative expenses debited by the 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 los....
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....ove said items and accordingly furnished before AO, the copies of authorization obtained from its parent company for write off of inventory. 9.3 The assessing officer after considering the submissions of the assessee held that (i) How the stock which 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 20....
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....said that the closing stock is required to be valued at lower of cost or net realizable value. 9.5 With regard to the write off of the goods lying with Converters, the assessee reiterated the submissions made before the AO. 9.6 The CIT(A), however, was not convinced with the contentions of the assessee and accordingly confirmed the disallowance 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....
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.... submitted that the decision to write off the raw materials and finished goods were taken in the month of October, 2002 and hence the cause of action arose only in the succeeding year. He submitted that the assessee has not brought any material on record to show that the materials became obsolete as on 31.3.2002 itself. The Ld D.R submitted that the assessee had submitted 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 ....
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.... raw material or finished goods. We therefore, based on our discussions made above, are in agreement with the stand taken by the CIT(A) in disallowing the claim of inventory in the assessment year 2002-03. 13. The next issue relates to the claim of Loss arising on account of foreign exchange fluctuation. 13.1. During the year under consideration, then assessee has claimed a 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 act....
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....ted for at the end of the accounting year, the same cannot be said to be notional and it cannot be said that the assessee could claim the fluctuation loss or gain only in the year when the loan was actually repaid. The Tribunal held that the loss was not a notional loss and was to be allowed as deduction. The Tribunal also referred to the AS-2 of the Institute of Chartered Accountants of India (the assessee in the present 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 r....
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....in view of the litigation on duty drawback, wrote off an amount of Rs. 1,20,16,395/- out of the above said amount during the financial year relevant to AY 2007-08 and claimed the same as a deduction in the computation of income of the said assessment year. The deduction claimed in the AY 2007-08 was disallowed by the AO and the same was also upheld by both the CIT(A) and the ITAT Bangalore Bench in IT(TP)A No.924/Bang/2012). 14.3. Accordingly, 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 submitt....