Sandvik Asia P. Ltd, Pune V. ACIT Cir-10 Pune, Pune

ITA 1841/PUN/2012

• Counselvise Citation: 184124514 RSA 2012
• Duration Of Justice: 2 year(s) 3 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-12-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 09-12-2014
• Assessment Year: 2002-2003
• Appeal Filed On: 17-09-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B C MALAKAR
• Keywords: Business expenditure; Capital receipt; Revenue expenditure; Capital expenditure
• Section: 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE MS. SUSHMA CHOWLA, JUDICIAL MEMBER AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NOS. 1841 & 1842/PN/2012 (ASSESSMENT YEARS : 2002-03 & 2003-04) SANDVIK ASIA PRIVATE LIMITED, MUMBAI-PUNE ROAD, DAPODI, PUNE 411012 PAN NO.AACCS6638K .. APPELLANT VS. ACIT, CIRCLE-10, PUNE .. RESPONDENT ITA NOS. 2053 & 2054/PN/2012 (ASSESSMENT YEARS : 2002-03 & 2003-04) ACIT, CIRCLE-10, PUNE .. APPELLANT VS. SANDVIK ASIA PRIVATE LIMITED, MUMBAI-PUNE ROAD, DAPODI, PUNE 411012 PAN NO.AACCS6638K .. RESPONDENT ASSESSEE BY : SHRI DHANESH BAFNA REVENUE BY : SHRI B.C. MALAKAR DATE OF HEARING : 09-12-2014 DATE OF PRONOUNCEMENT : 31-12-2014 ORDER PER BENCH : ITA NOS. 1841/PN/2012 & 1842/PN/2012 FILED BY THE ASSESSEE AND ITA NOS. 2053 & 2054/PN/2012 FILED BY THE REVEN UE ARE CROSS APPEALS AND ARE DIRECTED AGAINST THE SEPARATE ORDER S DATED 02-07-2012 OF THE CIT(A)-V, PUNE RELATING TO ASSESSMENT YEARS 2002-03 & 2003- 04 RESPECTIVELY. FOR THE SAKE OF CONVENIENCE, ALL THESE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF IN THIS CO MMON ORDER. 2 ITA NO.1841/PN/2012 (A.Y. 2002-03) (BY ASSESSEE) : ITA NO.2053/PN/2012 (A.Y. 2002-03) (BY REVENUE) : 2. GROUND OF APPEAL NO. 1 BY THE ASSESSEE READS AS UNDER : GROUND 1 : EXPENDITURE PERTAINING TO EMPLOYEE STOCK PURCHASE SCHEME 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)- V , PUNE {LD. 'CIT(A)'}, ERRED IN UPHOLDING THE ACTION OF TH E ASSESSING OFFICER ('AO') IN DISALLOWING THE EXPENDITURE OF INR 5,392,0 55 PERTAINING TO EMPLOYEE STOCK PURCHASE SCHEME. THE APPELLANT PRAYS THAT THE EXPENDITURE OF INR 5,39 2,055 PERTAINING TO EMPLOYEE STOCK PURCHASE SCHEME SHOULD BE ALLOWED A S A DEDUCTIBLE EXPENDITURE. 2.1 FACTS OF THE CASE, IN BRIEF, ARE THAT THE AO DU RING THE COURSE OF ASSESSMENT PROCEEDINGS NOTED FROM THE NOTES FORMING INTEGRAL PART OF COMPUTATION OF INCOME THAT THE ASSESSEE COMPANY DUR ING THE YEAR HAS ISSUED 7590 EQUITY SHARES TO ITS EMPLOYEES AT A CON CESSIONAL PRICE OF RS.100/- EACH UNDER EMPLOYEE STOCK PURCHASE PLAN (E SPS) AS AGAINST THE PREVALENT MARKET PRICE OF RS.850/- PER SHARE. THE DIFFERENCE AMOUNT OF RS.53,92,055/- HAS BEEN DEBITED BY THE AS SESSEE COMPANY AS BUSINESS EXPENDITURE. HE, THEREFORE, ASKED THE ASSESSEE TO EXPLAIN AND JUSTIFY THE CLAIM OF SUCH DEBIT OF RS.53, 92,0 55/- TO THE PROFIT AND LOSS ACCOUNT. IT WAS SUBMITTED BY THE ASSESSEE THA T THE SAME WAS FORMULATED AS PER GUIDELINES OF SEBI AND THE SEBI G UIDELINES FOR DEBITING SUCH EXPENDITURE IS BINDING IN NATURE. 2.2 HOWEVER, THE AO REJECTED SUCH EXPLANATION OF TH E ASSESSEE AND HELD THAT SEBI GUIDELINES ARE NOT BINDING AS FAR AS COMPUTATION OF INCOME UNDER THE PROVISIONS OF INCOME TAX ARE CONCE RNED. REJECTING THE EXPLANATION GIVEN BY THE ASSESSEE AND DISTINGUI SHING THE DECISION OF THE CHENNAI BENCH OF THE TRIBUNAL IN THE CASE OF SSI LTD. VS. DCIT (REPORTED IN 85 TTJ 1049) CITED BEFORE HIM, THE AO HELD THAT THE SAME 3 IS NOT ALLOWABLE. HE FURTHER OBSERVED THAT THE DIF FERENTIAL AMOUNT OF RS.53,92,055/- REPRESENTED ONLY THE NOTIONAL/CONTIN GENT EXPENDITURE AND NOT ACTUAL EXPENDITURE AND THEREFORE CANNOT BE ALLOWED AS DEDUCTION IN THE COMPUTATION OF INCOME. 3. BEFORE THE CIT(A) IT WAS SUBMITTED THAT THE SCHE ME WAS PRIMARILY INTENDED TO PROMOTE THE BUSINESS INTEREST OF THE COMPANY BY MAKING THE EMPLOYEES STAKEHOLDER IN THIS COMPANY. THIS PRACTICE IS FOLLOWED UNIVERSALLY AND IS NOT LIMITED TO INDIA OR THE ASSESSEE COMPANY. IT WAS ARGUED THAT IT IS A FORM OF EMPLOY EE COMPENSATION AND THEREFORE ALLOWABLE AS DEDUCTION U/S.37(1) OF T HE I.T. ACT. FURTHER, SUCH DIFFERENTIAL AMOUNT HAS BEEN DEBITED AS PER GUIDELINES OF SEBI. VARIOUS DECISIONS WERE ALSO RELIED ON BY THE ASSESSEE BEFORE THE LD.CIT(A). 3.1 HOWEVER, THE LD.CIT(A) ALSO WAS NOT SATISFIED W ITH THE EXPLANATION GIVEN BY THE ASSESSEE AND UPHELD THE AC TION OF THE AO. WHILE DOING SO, HE RELIED ON THE DECISION OF THE DE LHI BENCH OF THE TRIBUNAL IN THE CASE OF RANBAXY LABORATORIES LTD. V S. DCIT VIDE ITA NO.1666/DCIT/2006 WHERE SIMILAR CLAIM HAS BEEN DISA LLOWED. 3.2 AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASS ESSEE IS IN APPEAL BEFORE US. 4. THE LD. COUNSEL FOR THE ASSESSEE AT THE OUTSET R EFERRED TO THE DECISION OF THE BANGALORE SPECIAL BENCH OF THE TRIB UNAL IN THE CASE OF BIOCON LTD. VS. DCIT (LTU) REPORTED IN 144 ITD 21 W HEREIN IT HAS 4 BEEN HELD THAT DISCOUNT ON ISSUE OF EMPLOYEE STOCK OPTIONS IS ALLOWABLE AS DEDUCTION IN COMPUTING THE INCOME UNDE R THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. IT I S ON ACCOUNT OF AN ASCERTAINED LIABILITY AND NOT A CONTINGENT LIABILIT Y AND IT CANNOT BE TREATED AS A SHORT TERM CAPITAL RECEIPT. HE ALSO R ELIED ON THE FOLLOWING DECISIONS : 1. CIT VS. PVP VENTURES LTD., - 90 DTR 340 (MAD.) 2. SSI LTD. VS. DCIT 85 TTJ 1049 (CHN.) 3. STERLITE OPTICAL TECHNOLOGIES LTD. VS. DCIT 7136 & 7177/MUM/2004 4. BHARTI AIRTEL LIMITED VS. ACIT ITA NO.5636/DEL /2011 4.1 HE SUBMITTED THAT SINCE THE ASSESSEE IN THE IMP UGNED ASSESSMENT YEAR HAS ISSUED THE SHARES, THEREFORE, I N VIEW OF THE DECISION OF THE BANGALORE BENCH OF THE TRIBUNAL, TH E DEDUCTION HAS TO BE ALLOWED. HE ALSO SUBMITTED THAT THE SPECIAL BEN CH WHILE DECIDING THE ISSUE HAS CONSIDERED THE DECISION OF THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF RANBAXY LABORATORIES LTD. ( SUPRA). 5. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAND HEAVILY RELIED ON THE ORDER OF THE CIT(A). 6. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY B OTH THE SIDES, PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED TH E VARIOUS DECISIONS CITED BEFORE US. THERE IS NO DISPUTE TO THE FACT T HAT THE ASSESSEE IN THE IMPUGNED ASSESSMENT YEAR HAS ISSUED 7590 EQUITY SHA RES TO ITS EMPLOYEES AT CONCESSIONAL PRICE OF R.100/- EACH UND ER ESPS AGAINST THE PREVALENT MARKET PRICE OF RS.850/- PER SHARE. THE DIFFERENCE AMOUNT OF RS.53.92 LAKHS HAS BEEN DEBITED BY THE AS SESSEE COMPANY 5 AS BUSINESS EXPENDITURE. WE FIND THE BANGALORE SPE CIAL BENCH OF THE TRIBUNAL IN THE CASE OF BIOCON LTD., (SUPRA) WHILE DECIDING AN IDENTICAL ISSUE HAS HELD THAT DISCOUNT ON ISSUE OF EMPLOYEE STOCK OPTION PLAN (ESOP) IS ALLOWABLE AS DEDUCTION IN COM PUTING THE INCOME UNDER THE HEAD PROFITS AND GAINS OF BUSINES S OR PROFESSION. IT IS ON ACCOUNT OF AN ASCERTAINED LIABILITY AND IT CANNOT BE TREATED AS A SHORT CAPITAL RECEIPT. WHILE DOING SO, THE SPECIAL BENCH OF THE TRIBUNAL HAS ALSO CONSIDERED THE DECISION OF THE DE LHI BENCH OF THE TRIBUNAL IN THE CASE OF RANBAXY LABORATORIES LTD. ( SUPRA) WHICH HAS BEEN RELIED ON BY THE CIT(A) WHILE REJECTING THE CL AIM OF THE ASSESSEE. RESPECTFULLY FOLLOWING THE DECISION OF THE BANGALOR E SPECIAL BENCH OF THE TRIBUNAL AND IN ABSENCE OF ANY DISTINGUISHABLE FEATURES BROUGHT TO OUR NOTICE BY THE LD. DR, WE SET-ASIDE THE ORDER OF THE CIT(A) ON THIS ISSUE AND DIRECT THE AO TO ALLOW THE CLAIM OF EXPEN DITURE OF RS.53,92,055/-. THE GROUND RAISED BY THE ASSESSEE ON THIS ISSUE IS ACCORDINGLY ALLOWED. 7. GROUNDS OF APPEAL NO.2 BY THE ASSESSEE AND GROUN DS OF APPEAL NO.2A AND 2B BY THE REVENUE IN ITA NO.2053/PN/2012 READ AS UNDER: BY ASSESSEE: GROUND 2: DISALLOWANCE OF WARRANTY PROVISION IN NOR MAL TAX COMPUTATION THE LD. CIT(A) ERRED IN HOLDING THAT PROVISION FOR W ARRANTY OF INR 6,703,381 IS EXCESSIVE IN NATURE AND RESTRICTING THE AL LOWANCE TO THE EXTENT OF ACTUAL EXPENSES OF INR 2,209,381. THE APPELLANT PRAYS THAT THE ENTIRE PROVISION FOR WAR RANTY OF INR 6,703,381 SHOULD BE ALLOWED AS A DEDUCTION IN COMPUTI NG THE TAXABLE INCOME AS PER NORMAL PROVISIONS OF TAX. 6 BY REVENUE : 2A. WHETHER ON THE FACTS AND CIRCUMSTANCES OF TH E CASE AND IN LAW, THE CIT(A) WAS JUSTIFIED IN RESTRICTING THE ADDITION O N ACCOUNT OF WARRANTY PROVISIONS TO RS. 44,94,000/-. 2B. WHETHER ON THE FACTS AND CIRCUMSTANCES OF TH E CASE AND IN LAW, THE CIT(A) WAS JUSTIFIED IN HOLDING THAT THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF ROTORK CONTROLS LTD [314 ITR 62] IS APPLICABLE IN THIS CASE WHEN SCIENTIFIC BASIS OF THE PR OVISION OF WARRANTY IS NOT CONCLUSIVELY ESTABLISHED. 7.1 FACTS OF THE CASE, IN BRIEF, ARE THAT THE AO DU RING THE COURSE OF ASSESSMENT PROCEEDINGS OBSERVED THAT THE ASSESSEE COMPANY HAS DEBITED AN AMOUNT OF RS.67.30 LAKHS ON ACCOUNT OF P ROVISION FOR WARRANTY EXPENSES. THE ASSESSING OFFICER CONFRONTE D THE REPRESENTATIVE OF THE ASSESSEE AND ASKED AS TO WHY THE SAME SHOULD NOT BE DISALLOWED TREATING THE SAME AS CONTINGENT LIABI LITIES. IT WAS SUBMITTED THAT THE PROVISION FOR WARRANTY EXPENSES IS NOT CONTINGENT IN NATURE AS THE COMPANY EXPECTS TO INCUR THE EXPENDIT URE. WHEN THE ASSESSING OFFICER ASKED THE ASSESSEE FOR THE BASIS OF COMPUTATION OF PROVISION THE ASSESSEE SUBMITTED THE BREAK UP STATI NG THAT WARRANTY IS PROVIDED @2% OF INVOICE VALUE. THE ASSESSING OFFIC ER HELD THAT THE ASSESSEE COMPANY HAD NOT SUBMITTED ANY SCIENTIFIC F ORMULA FOR COMPUTATION OF PROVISION FOR WARRANTY. ACCORDINGLY RELYING UPON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF BH ARAT EARTH MOVERS VS. CIT REPORTED IN 245 ITR 428 AND INDIAN S MELTING & REFINERY CO. VS. CIT REPORTED IN 248 ITR 4, THE ASS ESSING OFFICER DISALLOWED THE AMOUNT TREATING THE SAME AS CONTINGE NT LIABILITY. 8. BEFORE CIT(A) THE ASSESSEE FILED SUBMISSIONS GIV ING THE DETAILED WORKING OF PROVISION FOR WARRANTY FROM F.Y . 2001-02 TO F.Y. 2004-05 IN THE LIGHT OF DECISION OF HONBLE SUPREME COURT IN THE CASE 7 OF ROTORK CONTROLS PVT. LTD. VS. CIT REPORTED IN 31 4 ITR 62. IT WAS SUBMITTED THAT PROVISIONS MADE WERE ALSO SIMILAR TO THE AMOUNTS OF EXPENDITURE INCURRED BY THE COMPANY OVER THE WARRAN TY PERIOD. IT WAS FURTHER SUBMITTED THAT THE WARRANTY PROVISIONS ARE NEVER EXCEEDING 0.50%. IT WAS ACCORDINGLY SUBMITTED THAT THE ENTIR E PROVISION FOR WARRANTY SHOULD BE TREATED AS ALLOWABLE EXPENDITURE . 9. BASED ON THE ARGUMENTS ADVANCED BY THE ASSESSEE THE LD.CIT(A) DELETED AN AMOUNT OF RS.22,09,381/- AND S USTAINED THE BALANCE AMOUNT OF RS.44,91,000/- BY OBSERVING AS UN DER : 19. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AND REPLY OF THE APPELLANT. WARRANTY LIABILITY PROVISION IS AN ALLOWA BLE EXPENDITURE AS HELD BY THE HON'BLE SUPREME COURT IN THE CASE OF ROT ORK CONTROL INDIA (P) LTD. (SUPRA), PROVIDED IT IS CALCULATED ON SCIENT IFIC BASIS. HOWEVER, THE CHART OF WARRANTY PROVISION FOR VARIOUS PROJECTS AND ITS UTILIZATION AS PER ANNEXURE-1 SHOWS THAT ACTUAL EXPE NDITURE HAS BEEN CLAIMED TO BE SHOWN UPTO FOUR-FIVE YEARS FOR WHI CH NO SUPPORTING DOCUMENTS ARE AVAILABLE WITH THE APPELLANT . WHEN ASKED THAT WHAT IS THE DURATION OF WARRANTY, THE LEARNED C OUNSEL OF THE APPELLANT SUBMITTED THAT IT IS FOUR TO FIVE YEARS BUT NO EVIDENCE COULD BE GIVEN. GENERALLY TERMS OF WARRANTY IS 12 TO 16 MO NTHS AND THEREFORE CLOSING BALANCE OF PROVISIONS AS ON 31-03-200 3 IS TAKEN AS EXCESS. THE SAME IS WORKED OUT AS UNDER : TEESTA PROJECT : RS.38,64,000/- MSPL PROJECT : RS.83,000/- (TO BE IGNORED AS AMOUNT IS SMALL) KARWAR PROJECT : RS.2,70,000/- KANTHAL PROJECT : RS.3,60,000/- ------------------------ TOTAL EXCLUDING MSPL PROJECT : RS.44,94,000/- ------------------------ 20. THOUGH THE APPELLANT CLAIMS THAT PROVISION FOR WA RRANTY COMPARED TO OVERALL TURNOVER NEVER EXCEEDED 0.50%, THE FACT OF THE MATTER IS WORKING OF THE PROVISION IS NOT ON ANY SCIENT IFIC BASIS. IT IS QUITE EXCESSIVE AS THE SUBSEQUENT UTILIZATION HAS PROVED AND THEREFORE PROVISIONS FOR WARRANTY LIABILITY TO THE EXTENT OF RS. 44,94,000/- IS TREATED AS EXCESS. ACCORDINGLY, THE ASSESSING OFFICER IS D IRECTED TO RESTRICT DISALLOWANCE TO RS.44,94,000/-. THE APPELLAN T GETS RELIEF OF RS.22,09,381 (67,03,381 44,94,000). THUS THE GROU ND IS PARTLY ALLOWED. 8 9.1 AGGRIEVED WITH SUCH PART RELIEF GIVEN BY THE CI T(A) THE ASSESSEE AS WELL AS THE REVENUE ARE IN APPEAL BEFOR E US. 10. THE LD. COUNSEL FOR THE ASSESSEE AT THE OUTSET SUBMITTED A CHART GIVING DETAILS OF PROJECT-WISE WARRANTY PROVISION F OR F.Y. 2001-02 TO F.Y. 2004-05. HE SUBMITTED THAT THE ASSESSEE IS CON SISTENTLY FOLLOWING THE METHOD OF PROVIDING WARRANTY FROM YEAR TO YEAR AND THERE WAS NO DISALLOWANCE IN THE PAST ON THIS ACCOUNT. AGAIN RE FERRING TO THE SAID CHART, HE SUBMITTED THAT THE PROVISION FOR WARRANTY IS GIVEN FOR A PERIOD STARTING FROM 1 YEAR TO 4 YEARS AND IN CASE THERE IS AN EXCESS PROVISION, THE SAME HAS SUBSEQUENTLY BEEN REVERSED. HE GAVE THE DETAILS OF SUCH WARRANTY PROVISION COMPANY-WISE AND DREW THE ATTENTION OF THE BENCH TO THE REVERSAL OF THE ENTRY IN CASE OF L&T AMOUNTING TO RS.66,05,000/- DURING THE F.Y. 2004-05 . 10.1 REFERRING TO THE DECISION OF THE HONBLE SUPRE ME COURT IN THE CASE OF ROTORK CONTROLS INDIA PVT. LTD., (SUPRA) HE SUBMITTED THAT WHEN LARGE NUMBER OF SOPHISTICATED GOODS ARE MANUFA CTURED AND SOLD WITH WARRANTY AND THE PAST RECORDS SHOW THAT DEFECT S EXISTED IN SOME OF THE ITEMS, THE PROVISION MADE BY THE ASSESSEE FO R WARRANTY CLAIMS ON THE BASIS OF PAST EXPERIENCE IS ALLOWABLE AS DED UCTION U/S.37. REFERRING TO THE DECISION OF THE MUMBAI BENCH OF TH E TRIBUNAL IN THE CASE OF VOLTAS LTD. VS. DCIT REPORTED IN 61 TTJ 543 HE SUBMITTED THAT THE TRIBUNAL IN THE SAID DECISION HAS HELD THA T PROVISION FOR TRADE GUARANTEES DURING WARRANTY PERIOD IS AN ALLOWABLE E XPENDITURE HE ALSO RELIED ON THE DECISION OF THE PUNE BENCH OF TH E TRIBUNAL IN THE CASE OF ITO VS. WANSON (INDIA) LTD., REPORTED IN 5 ITD 102 (PUNE) 9 AND THE DECISION OF THE BANGALORE BENCH OF THE TRIB UNAL IN THE CASE OF WIPRO GE MEDICAL SYSTEMS LTD., VS. DCIT REPORTED IN 81 TTJ 455 (BANG.) 11. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHE R HAND RELIED ON THE ORDER OF THE AO. HE SUBMITTED THAT THERE IS NO PROPER BASIS FOR ALLOWING THE CLAIM. 12. THE LD. COUNSEL OR THE ASSESSEE IN HIS REJOINDE R SUBMITTED THAT EVEN THE EXPENDITURE INCURRED DURING THE YEAR AGAIN ST THE WARRANTY PROVISION HAS BEEN DISALLOWED BY THE AO. 13. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAV E ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. FROM THE VA RIOUS DETAILS FURNISHED BY THE ASSESSEE, WE FIND THE ASSESSEE IS CONSISTENTLY MAKING THE PROVISION FOR CLAIMING WARRANTY EXPENSES AND TH ERE WAS NO DISALLOWANCE IN THE PAST. FOR THE IMPUGNED ASSESSM ENT YEAR, THE ASSESSING OFFICER DISALLOWED THE SAME HOLDING THAT SUCH PROVISION IS AN UNASCERTAINED LIABILITY AND THEREFORE CANNOT BE ALLOWED AS DEDUCTION. WE FIND THE LD.CIT(A) GAVE PART RELIEF TO THE ASSESSEE BY HOLDING THE BALANCE OF PROVISION AS ON 31-03-2003 A MOUNTING TO RS.44,94,000/- AS EXCESS PROVISION. THEREFORE, FRO M THE TOTAL DISALLOWANCE OF RS.67,03,381/- HE SUSTAINED AN AMOU NT OF RS.44,94,000/- AND ALLOWED THE BALANCE AMOUNT TO TH E ASSESSEE. WE FIND FROM THE DETAILED CHART FILED BY THE ASSESSEE THAT IT HAS INCURRED ACTUAL EXPENSES AGAINST THE WARRANTY PROVISION IN S UBSEQUENT YEARS. 10 WHENEVER, THERE IS EXCESS PROVISION, THE ASSESSEE S UOMOTO HAS WRITTEN BACK THE SAME IN ITS BOOKS OF ACCOUNTS. FURTHER, T HE ASSESSEE IS FOLLOWING THIS METHOD OF MAKING PROVISION FOR WARRA NTY SINCE LAST SO MANY YEARS AND THERE WAS NEVER ANY DISALLOWANCE ON THIS ACCOUNT AS STATED BY THE LD. COUNSEL FOR THE ASSESSEE AT THE B AR. 13.1 THE HONBLE SUPREME COURT IN THE CASE OF ROTOR K CONTROLS PVT. LTD. (SUPRA) HAS HELD THAT WHEN LARGE NUMBER OF SOP HISTICATED GOODS ARE MANUFACTURED AND SOLD WITH WARRANTY AND THE PAS T RECORDS SHOW THAT DEFECTS EXISTED IN SOME OF THE ITEMS, THE PROV ISION MADE BY THE ASSESSEE FOR WARRANTY CLAIMS ON THE BASIS OF PAST E XPERIENCE IS AN ALLOWABLE DEDUCTION U/S.37. THE VARIOUS DECISIONS RELIED ON BY THE LD. COUNSEL FOR THE ASSESSEE ALSO SUPPORT THE CASE OF T HE ASSESSEE. SINCE THE ASSESSEE IN SUBSEQUENT YEARS HAS INCURRED EXPEN DITURE AGAINST SUCH WARRANTY PROVISION, THEREFORE, WE DO NOT FIND ANY J USTIFICATION IN THE ORDER OF THE CIT(A) RESTRICTING THE DISALLOWANCE TO RS.44,94,000/- WHICH WAS THE AMOUNT OUTSTANDING AS ON 31-03-2003,I .E. AFTER A PERIOD OF 12 MONTHS FROM THE END OF THE ACCOUNTING YEAR. WE ACCORDINGLY SET-ASIDE THE ORDER OF THE CIT(A) ON THIS ISSUE AND DIRECT THE ASSESSING OFFICER TO DELETE THE ENTIRE DISALLOWANCE. GROUND OF APPEAL NO.2 BY THE ASSESSEE IS ACCORDINGLY ALLOWED AND GROUND OF A PPEAL NO.2 BY THE REVENUE IS ACCORDINGLY DISMISSED. 14. GROUNDS OF APPEAL NO.3 BY THE ASSESSEE AND GROU NDS OF APPEAL NO.5 BY THE REVENUE READ AS UNDER : 11 BY ASSESSEE : GROUND 3: DISALLOWANCE OF WARRANTY PROVISION IN COM PUTATION OF TAX AS PER THE PROVISIONS OF SECTION 115 JB OF THE ACT THE LD. CIT(A) ERRED IN HOLDING THAT PROVISION FOR W ARRANTY IS EXCESSIVE TO THE EXTENT OF INR 4,494,000 AND ADDING T HE SAME WHILE COMPUTING THE BOOK PROFITS AS PER THE PROVISIONS OF SECT ION 115JB JB OF THE ACT. THE APPELLANT PRAYS THAT NO ADDITION BE MADE TOWARDS PROVISION FOR WARRANTY, WHILE COMPUTING THE BOOK PROFITS AS PER SECT ION 115JB OF THE ACT. BY REVENUE : 5. WHETHER ON THE FACTS AND CIRCUMSTANCES OF T HE CASE AND IN LAW, THE CIT(A) WAS JUSTIFIED IN DIRECTING THE A.O. TO REC OMPUTE THE BOOK PROFIT FOR THE PURPOSE OF SEC. 115JB OF THE ACT, BY A DOPTING THE FIGURE OF PROVISION FOR WARRANTY AT RS. 44,94,000/- AS AGAINST RS. 67,03,381/- MADE BY THE A.O.? 14.1 AFTER HEARING BOTH THE SIDES, WE FIND THE ABOV E GROUNDS ARE CONSEQUENTIAL TO THE FIRST 2 GROUNDS BY THE ASSESSE E. SINCE WE HAVE ALREADY ALLOWED THE CLAIM OF THE ASSESSEE, THEREFOR E, THESE GROUNDS BECOME ACADEMIC IN NATURE AND THEREFORE ARE NOT BEI NG ADJUDICATED. 15. GROUND OF APPEAL NO.1 BY THE REVENUE IN ITA NO.2053/PN/2012 READS AS UNDER : 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) WAS JUSTIFIED IN REDUCING THE ADDITION OF RS.14.16 LACS ON ACCOUNT OF ESTIMATED AMALGAMATION EXPENSES TO RS.878/- , WHEN THE SAME WAS HELD TO BE CONTINGENT AND UNASCERTAINED LIABI LITY BY THE A.O. 15.1 FACTS OF THE CASE, IN BRIEF, ARE THAT THE AO D URING THE COURSE OF ASSESSMENT PROCEEDINGS NOTED THAT THE ASSESSEE COMP ANY HAS CLAIMED DEDUCTION U/S.35DD BEING 1/5 TH OF RS.177.17 LAKHS OUT OF WHICH RS.70.84 LAKHS REPRESENTED ESTIMATED EXPENSES TO BE INCURRED 12 SUBSEQUENTLY. THE ASSESSING OFFICER TREATED IT AS CONTINGENT AND UNASCERTAINED LIABILITY. SINCE THE ASSESSEE HAS NO T INCURRED EXPENDITURE DURING THE YEAR, THE AO DISALLOWED 1/5 TH OF THE TOTAL AMOUNT OF RS.70.84 LAKHS WHICH CAME TO RS.14.16 LAK HS. 16. BEFORE CIT(A) IT WAS SUBMITTED THAT RS.70,84,07 8/- CONSISTED OF THE FOLLOWING AMOUNT: STAMP DUTY ON ADJUDICATION OF COURT ORDER FOR MERGER : RS.65,84,078/- PROFESSIONAL FEES : RS.5,00,000 IT WAS STATED THAT THE AMOUNT OF RS.65,84,078/- WAS PAID ON 3 RD APRIL 2002 AND OUT OF RS.5,00,000/- REPRESENTING PROFESSI ONAL FEES, PAYMENT WAS MADE TO THE TUNE OF RS.4,95,610/- LEAVING THE B ALANCE OF RS.4,390/- 17. BASED ON THE ARGUMENTS ADVANCED BY THE ASSESSEE THE LD.CIT(A) RESTRICTED SUCH DISALLOWANCE TO RS.878/- ONLY BY OBSERVING AS UNDER : 15. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AS WELL AS REPLY OF THE APPELLANT. THE SUBSEQUENT EXPENDITURE JUSTIFI ED THE ESTIMATED EXPENSES BEING DEBITED TO P&L A/C. IN MERCANTILE SYSTE M OF ACCOUNTING THE ESTIMATED EXPENSES PERTAINING TO THE YE AR NEEDS TO BE DEBITED TO THE P&L ACCOUNT. THEREFORE, ACTION OF T HE ASSESSING OFFICER TREATING THE AMOUNT OF RS.70,84,078/- AS UNASCERTAINED AND CONTINGENT LIABILITY CANNOT BE ACCEPTED. HOWEVER, SINCE THERE IS NO EXPLANATION FOR RS.4,390/- BEING EXCESS DEBIT ON ACCOU NT OF PROFESSIONAL FEED PAID, ADDITION OF RS.14.16. LAKHS IS R EDUCED TO RS.878/- (4390/5). THUS, THE GROUND IS PARTLY ALLOWED . 17.1 AGGRIEVED WITH SUCH ORDER OF CIT(A) THE REVENU E IS IN APPEAL BEFORE US. 13 18. AFTER HEARING BOTH THE SIDES, WE FIND NO INFIRM ITY IN THE ORDER OF THE CIT(A). WE FIND THE AO WHILE CONSIDERING THE N ATURE OF AMALGAMATION EXPENSES OF RS.177.17 LAKHS HAS NOTED THAT THE ACTUAL EXPENSES DEBITED TO P&L ACCOUNT AMOUNTED TO RS.106. 33 LAKHS AND ESTIMATED EXPENSES TO BE INCURRED SUBSEQUENTLY IS R S.70.84 LAKHS. ACCORDING TO HIM, THE EXPENSES OF RS.70.84 LAKHS RE TAINS ITS CHARACTER OF A CONTINGENT LIABILITY OR UNASCERTAINED CONTINGE NT LIABILITY. FURTHER, THIS EXPENDITURE HAS NOT BEEN INCURRED DURING THE Y EAR. THEREFORE, HE DISALLOWED 1/5 TH OF SUCH EXPENSE BEING RS.14.16 LAKHS. WE FIND THE LD.CIT(A) WHILE DECIDING THE APPEAL FOUND THAT ASSE SSEE HAS SUBSEQUENTLY INCURRED AN AMOUNT OF RS.65,84,078/- T OWARDS STAMP DUTY ON ADJUDICATION OF COURT ORDER AND ANOTHER RS. 4,95,610/- TOWARDS PROFESSIONAL FEES. THEREFORE, HE HELD THAT AN AMOU NT OF RS.70,84,078/- CANNOT BE CONSIDERED AS UNASCERTAINED CONTINGENT LI ABILITY FOR WHICH HE ALLOWED 1/5 TH OF SUCH EXPENDITURE AS DEDUCTION U/S.35DD. THE LD . DEPARTMENTAL REPRESENTATIVE COULD NOT CONTROVERT TH E ABOVE FACTUAL FINDINGS GIVEN BY THE LD.CIT(A). ACCORDINGLY, THE ORDER OF THE CIT(A) IS UPHELD ON THIS ISSUE AND THE GROUND RAIS ED BY THE REVENUE IS DISMISSED. 19. GROUND OF APPEAL NO.3 BY THE REVENUE READS AS U NDER : 3. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) WAS JUSTIFIED IN DIRECTING THAT SOFTWARE EXPEND ITURE OF RS. 30,03,323/- BE TREATED AS REVENUE EXPENDITURE, BY ME RELY RELYING ON ASSESSEE'S SUBMISSION AND WITHOUT VERIFYING THE ENDURING NA TURE OF THE SAID SOFTWARE. 19.1 FACTS OF THE CASE, IN BRIEF, ARE THAT THE AO D URING THE COURSE OF ASSESSMENT PROCEEDINGS NOTED THAT ASSESSEE HAS INCU RRED SOFTWARE 14 EXPENSES OF RS.39,68,000/- WHICH INCLUDES AN AMOUNT OF RS.30,13,323/- TOWARDS IMPORT OF COMPUTER SOFTWARE FOR SALES MANAGERS. HE, THEREFORE, ASKED THE ASSESSEE TO EXP LAIN AS TO WHY THE ABOVE SOFTWARE EXPENSES SHOULD NOT BE TREATED AS CA PITAL EXPENDITURE. REJECTING THE VARIOUS EXPLANATION GIVEN BY THE ASSE SSEE THE AO TREATED THE SAME AS CAPITAL EXPENDITURE AND ALLOWED DEPRECI ATION OF RS.7,50,830/-. THUS, HE MADE ADDITION OF RS.22,52, 493/-. 20. BEFORE CIT(A) IT WAS SUBMITTED THAT THE EXPENDI TURE HAS BEEN INCURRED ON APPLICATION SOFTWARE AND THE ASSESSEE C OMPANY IS NOT THE OWNER FOR SUCH SOFTWARE AS IT IS MERELY A LICENSE T O USE THE SOFTWARE. IT WAS SUBMITTED THAT THE RATE OF OBSOLESCENCE IN A PPLICATION SOFTWARE IS VERY HIGH AND DUE TO RAPID TECHNOLOGICAL ADVANCE MENT, NEED FOR REPLACEMENT OF SOFTWARE ARISES FREQUENTLY. VARIOUS DECISIONS WERE ALSO RELIED UPON. 21. BASED ON THE ARGUMENTS ADVANCED BY THE ASSESSEE THE LD.CIT(A) DELETED THE ADDITION MADE BY THE AO BY HO LDING THAT IN RESPECT OF APPLICATION SOFTWARE THERE IS NEED FOR R EGULAR UPGRADATION AND NO ENDURING BENEFIT CAN BE SAID TO HAVE DERIVED AFTER ACQUIRING THE SOFTWARES AS THE LIFE OF SUCH SOFTWARE IS VERY VERY LIMITED. 21.1 AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE RE VENUE IS IN APPEAL BEFORE US. 22. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES. WE FIND THE ISSUE STANDS SQUARELY DECIDED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN TH E CASE OF CIT VS. LUBRIZOL INDIA LTD. REPORTED IN 37 TAXMANN.COM 294 (BOM.) 15 WHERE IT HAS BEEN HELD THAT EXPENSES INCURRED TO OB TAIN THE APPLICATION SOFTWARE WHICH HAS TO BE UPGRADED FROM TIME TO TIME DUE TO CHANGE IN TECHNOLOGY HAS TO BE ALLOWED AS REVENUE EXPENDITURE . THE RELEVANT OBSERVATION OF THE HONBLE HIGH COURT AT PARA 3 OF THE ORDER READS AS UNDER : 3. SO FAR AS QUESTION B IS CONCERNED, THE TRIBUNAL HA S HELD THAT THE COMPUTER SOFTWARE EXPENSES INCURRED BY THE RESPONDE NT- ASSESSEE WAS REVENUE IN NATURE. THE EXPENSES WERE INCURRE D TO OBTAIN THE APPLICATION SOFTWARE WHICH GETS UPGRADED F ROM TIME TO TIME DUE TO CHANGE IN TECHNOLOGY. THIS LICENCE BEING FOR LIMITED PERIOD WOULD HAVE TO BE RENEWED FROM TIME TO TIME. IN THE AFORESAID CIRCUMSTANCES, THE TRIBUNAL HELD THAT CONSIDE RING THE NATURE OF THE SOFTWARE LICENCE I.E. APPLICATION SOFTW ARE, THE SAME HAS TO BE ALLOWED AS A REVENUE EXPENDITURE. IN VIEW O F THE FINDING OF FACT ARRIVED AT FURTHER BY THE TRIBUNAL THAT THE EX PENSES HAVE BEEN INCURRED ON APPLICATION SOFTWARE WHICH IS FOR A LIMIT ED TIME FRAME AND HAS TO BE RENEWED FROM TIME TO TIME, WE SEE NO RE ASON TO ENTERTAIN QUESTION B AS FRAMED BY THE REVENUE. 22.1 RESPECTFULLY FOLLOWING THE DECISION OF THE JUR ISDICTIONAL HIGH COURT CITED (SUPRA), THE ORDER OF THE CIT(A) ON THI S ISSUE IS UPHELD AND THE GROUND RAISED BY THE REVENUE IS DISMISSED. 23. GROUND OF APPEAL NO.4 BY THE REVENUE READS AS U NDER : 4. WHETHER ON THE FACTS AND CIRCUMSTANCES OF T HE CASE, THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE ADHOC ADDITIONS O N ACCOUNT OF CAR EXPENSES, COMMUNICATION EXPENSES, AND WORKMAN & STAFF WE LFARE COSTS, WHEN THE SAME WERE NOT SUBSTANTIATED WITH PROPER DOCUMENTARY EVIDENCES? 23.1 FACTS OF THE CASE, IN BRIEF, ARE THAT THE AO W HILE FRAMING THE ASSESSMENT MADE THE FOLLOWING ADDITIONS ON ADHOC BA SIS BEING PERSONAL IN NATURE : MOTOR CAR EXPENSES : RS.3,50,000 COMMUNICATION EXPENSES : RS.7,00,000 WORKMEN & STAFF WELFARE COST : RS.2,25,000/- 24. BEFORE CIT(A) IT WAS SUBMITTED THAT THE ASSESSE E IS A LIMITED COMPANY AND ITS BOOKS OF ACCOUNTS ARE AUDITED DUE TO LARGE NUMBER 16 OF EMPLOYEES IT IS NOT POSSIBLE TO MAINTAIN LOG BOO K. THE AUDITORS HAVE NOT TREATED THE EXPENSES AS PERSONAL EXPENSES. THE ASSESSING OFFICER TOO HAS NOT BEEN ABLE TO SHOW ANY ADVERSE F INDING IN THIS RESPECT. THE ASSESSEE PLACED RELIANCE ON THE DECIS ION OF THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF XEROX INDIA LT D. VS. DCIT REPORTED IN (2008) TIOL 557 (DEL) FOR THE PROPOSITI ON THAT ADDITION CANNOT BE MADE PURELY ON THE GROUND THAT EXPENDITUR E IS NOT FULLY VERIFIABLE. THE ASSESSEE FURTHER RELIED UPON DELHI TRIBUNALS DECISION IN CASE OF ACIT VS. AMTEK AUTO LTD., 112 TTJ 435 FO R THE SAME PROPOSITION. 25. BASED ON THE ARGUMENTS ADVANCED BY THE LD.CIT(A ), THE DELETED THE ADDITIONS BY OBSERVING AS UNDER : 35. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AS WELL AS THE REPLY OF THE APPELLANT. IN THE CASE OF COMPANY QUE STION OF PERSONAL EXPENDITURE DOES NOT ARISE. THE ISSUE OF BUSINESS OR NON- BUSINESS EXPENDITURE CAN BE THERE. BUT FOR THAT TOO, ADDITI ON CANNOT BE MADE ON ADHOC BASIS WITHOUT GIVING ANY FINDING IN RELATION TO PARTICULAR EXPENDITURE BEING INCURRED FOR THE PURPOSE OF BUSINESS OR OTHERWISE. NON MAINTENANCE OF LOG BOOKS MAY BE A TRIGGER FOR FU RTHER INQUIRY BUT THAT ITSELF CANNOT BE BASIS OF DISALLOWANCE IN CASE OF A COMPANY. THEREFORE, ON THE FACTS AND CIRCUMSTANCES OF THE CASE, IT IS HELD THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN MAKING ADHOC A DDITIONS IN RESPECT OF THE ABOVE THREE ITEMS. ACCORDINGLY, GROUN D NO. 10, 11 & 12 ARE ALLOWED AND THE ASSESSING OFFICER IS DIRECTED TO DEL ETE THE ABOVE ADDITIONS. 25.1 AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE RE VENUE IS IN APPEAL BEFORE US. 26. AFTER HEARING BOTH THE SIDES, WE FIND THE ISSUE STANDS DECIDED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HONB LE GUJARAT HIGH COURT IN THE CASE OF SAYAJI IRON AND ENGINEERING CO MPANY VS. CIT REPORTED IN 253 ITR 749 WHERE IT HAS BEEN HELD THAT PARTIAL 17 DISALLOWANCE OF EXPENDITURE FOR MAINTENANCE OF VEHI CLES IN CASE OF A PRIVATE LIMITED COMPANY CANNOT BE MADE. ADDITION, IF ANY CAN BE MADE IN THE HANDS OF THE CONCERNED DIRECTORS AS PER QUISITES BUT CANNOT BE DISALLOWED IN THE HANDS OF A LIMITED COMPANY. I N THIS VIEW OF THE MATTER, WE UPHOLD THE ORDER OF THE CIT(A) ON THIS I SSUE AND THE GROUND RAISED BY THE REVENUE IS DISMISSED. ITA NO.1842/PN/2012 (A.Y. 2003-04) (BY ASSESSEE) : ITA NO.2054/PN/2012 (A.Y. 2003-04) ( BY REVENUE) : 27. GROUNDS OF APPEAL NO.1 BY THE ASSESSEE AND GRO UNDS OF APPEAL NO.1 BY THE REVENUE READ AS UNDER : BY ASSESSEE : GROUND 1: DISALLOWANCE OF WARRANTY PROVISION IN NOR MAL TAX COMPUTATION THE LD. COMMISSIONER OF INCOME TAX (APPEALS)- V, PUNE {LD. 'CIT(A)'} ERRED IN HOLDING THAT PROVISION FOR WARRANTY OF INR 4,552,024 IS EXCESSIVE IN NATURE AND RESTRICTING THE ALLOWANCE TO T HE EXTENT OF ACTUAL EXPENSES OF INR 732,024. THE APPELLANT PRAYS THAT THE ENTIRE PROVISION FOR WAR RANTY OF INR 4,552,024 SHOULD BE ALLOWED WHILE COMPUTING THE TAXA BLE INCOME. BY REVENUE : 1A. WHETHER ON THE FACTS AND CIRCUMSTANCES OF T HE CASE AND IN LAW, THE CIT(A) WAS JUSTIFIED IN RESTRICTING THE ADDITION O N ACCOUNT OF WARRANTY PROVISIONS TO RS. 38,20,000/-. 1B. WHETHER ON THE FACTS AND CIRCUMSTANCES OF TH E CASE AND IN LAW, THE CIT(A) WAS JUSTIFIED IN HOLDING THAT THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF ROTORK CONTROLS LTD [314 ITR 62] IS APPLICABLE IN THIS CASE WHEN SCIENTIFIC BASIS OF THE PR OVISION OF WARRANTY IS NOT CONCLUSIVELY ESTABLISHED. 27.1 AFTER HEARING BOTH THE SIDES, WE FIND THE ABOV E GROUNDS ARE IDENTICAL TO THE GROUNDS OF APPEAL NO.2 IN ITA NO.1 841/PN/2012. WE HAVE ALREADY DECIDED THE ISSUE AND THE GROUND RAISE D BY THE ASSESSEE 18 HAS BEEN ALLOWED. FOLLOWING THE SAME RATIO, THIS G ROUND RAISED BY THE ASSESSEE IS ALLOWED AND THE GROUND RAISED BY THE RE VENUE IS DISMISSED. 28. GROUNDS OF APPEAL NO.2 BY THE ASSESSEE AND GROU NDS OF APPEAL NO.6 BY THE REVENUE READ AS UNDER : BY ASSESSEE : GROUND 2: DISALLOWANCE OF WARRANTY PROVISION IN COM PUTATION OF BOOK PROFIT AS PER THE PROVISIONS OF SECTION 115 JB OF THE ACT THE LD. CIT(A) ERRED IN HOLDING THAT PROVISION FOR W ARRANTY IS EXCESSIVE TO THE EXTENT OF INR 3,820,000 AND ADDING T HE SAME WHILE COMPUTING THE BOOK PROFITS AS PER THE PROVISIONS OF SECT ION 115JB OF THE ACT. THE APPELLANT PRAYS THAT NO ADDITION BE MADE TOWARDS PROVISION FOR WARRANTY, WHILE COMPUTING THE BOOK PROFITS AS PER SECT ION 115 JB OF THE ACT. BY REVENUE : 6A. WHETHER ON THE FACTS AND CIRCUMSTANCES OF T HE CASE AND IN LAW, THE CIT(A) WAS JUSTIFIED IN DIRECTING THE A.O. TO REC OMPUTE THE BOOK PROFIT FOR THE PURPOSE OF SEC. 115JB OF THE ACT, BY A DOPTING THE FIGURE OF PROVISION FOR WARRANTY & PROJECT SERVICE COST AT R S. 38,20,000/- AS AGAINST RS. 45,52,024/- MADE BY THE A.O.? 6B. WHETHER ON THE FACTS AND CIRCUMSTANCES OF TH E CASE AND IN LAW, THE CIT(A) WAS JUSTIFIED IN DIRECTING THE A.O. TO REC OMPUTE THE BOOK PROFIT FOR THE PURPOSE OF SEC. 115JB OF THE ACT, BY E XCLUDING PROVISION FOR DISCOUNT ON SALES OF RS.1,08,59,472/-. 28.1 AFTER HEARING BOTH THE SIDES, WE FIND THE ABOV E GROUNDS ARE CONSEQUENTIAL TO GROUNDS OF APPEAL NO.1 BY THE ASSE SSEE. WE HAVE ALREADY DECIDED THE GROUND IN FAOVUR OF THE ASSESSE E. THEREFORE, THIS GROUND BECOMES ACADEMIC IN NATURE AND THEREFORE IS NOT BEING ADJUDICATED. 29. GROUNDS OF APPEAL NO.2 BY THE REVENUE READS AS UNDER : 19 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF T HE CASE AND IN LAW, THE CIT(A) WAS JUSTIFIED IN HOLDING THAT THE UNUTILIZ ED CENVAT CREDIT CANNOT BE TREATED AS INCOME OF THE ASSESSEE, WHEN SEC. 1 45A INTRODUCED W.E.F. 01.04.1999 MANDATES INCLUSION OF TA X, DUTY, CESS ETC. IN THE VALUE OF STOCK AND THE CENVAT CREDIT AVAILABL E IS EQUIVALENT TO DUTY PAID. 29.1 FACTS OF THE CASE, IN BRIEF, ARE THAT THE AO D URING THE COURSE OF ASSESSMENT PROCEEDINGS NOTED THAT THE ASSESSEE COMP ANY HAS AVAILED CENVAT CREDIT OF RS. 17,41,57,482/- OUT OF WHICH TO TAL UTILIZATION WAS RS. 16,42,38,089/- LEAVING THE BALANCE CREDIT O F RS.99,19,393/-. THE ASSESSING OFFICER CONFRONTED THE ASSESSEE ON TH IS ISSUE AND ASKED WHY THE SAME SHOULD NOT BE TREATED AS INCOME OF THE ASSESSEE COMPANY. THE ASSESSEE SUBMITTED THAT UNUTILIZED MOD VAT CREDIT SHOULD NOT BE ADDED TO THE INCOME OF THE ASSESSEE A S THE ISSUE HAS BEEN DECIDED BY HON'BLE PUNE, TRIBUNAL IN FAVOUR OF THE ASSESSEE IN A.Y. 1993-94 AND FURTHER THE ISSUE IS ALSO COVERED BY SUPREME COURT'S JUDGMENT IN THE CASE OF CIT VS. INDO NIPPON CHEMICALS CO. LTD. 261 1TR PAGE 275. THE ASSESSING OFFICER DID NO T ACCEPT THE CONTENTION OF THE ASSESSEE ON THE PLEA THAT HAD THE COMPANY TAKEN CREDIT OF THE UNUTILIZED CENVAT, THE INCOME OF THE ASSESSEE WOULD HAVE INCREASED BY AN EQUAL AMOUNT. HE WAS ALSO OF T HE VIEW THAT ANY SURPLUS IN CENVAT CREDIT WOULD IMPLY THAT CENVAT HA S NOT BEEN UTILIZED BY THE ASSESSEE AND THE ASSESSEE HAD MADE SEPARATE PAYMENT FOR MEETING THE EXCISE LIABILITY. ACCORDINGLY, THE ASSESSING OFFICER ADDED THE UNUTILIZED CENVAT OF RS.99,19,393/- TO TH E TOTAL INCOME OF THE ASSESSEE COMPANY. 30. IN APPEAL THE LD.CIT(A) DELETED THE DISALLOWANC E BY OBSERVING AS UNDER : 20 15. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AS WELL AS REPLY OF THE APPELLANT. IT IS SEEN THAT THE ISSUE IS SQUARELY C OVERED BY SPECIAL BENCH CHANDIGARH TRIBUNAL DECISION OF DY.CIT VS. GLAX O SMITHKLINE CONSUMER HEALTHCARE LIMITED REPORTED IN 110 TTJ 183 WHICH HAS BEEN RELIED UPON BY THE APPELLANT. IT IS ALSO SEEN TH AT THE HON'BLE. 1TAT PUNE HAS ALLOWED THE ISSUE OF UNUTILIZED MODVAT C REDIT IN FAVOUR OF THE APPELLANT IN IT'S OWN CASE FOR A.Y,199 3-94 IN ITA NO.476/PN/1997 FOLLOWING THE SUPREME COURT JUDGMENT IN THE CASE OF INDO NIPPON CHEMICALS CO. LTD (2003) 261 ITR PAGE 275. IN THAT CASE UNUTILIZED MODVAT WAS ADDED TO THE VALUE OF CLOSI NG STOCK. IN THE PRESENT CASE UNUTILIZED CENVAT HAS BEEN TREATED AS INCO ME OF THE APPELLANT. RATIO OF THE HON'BLE SUPREME COURT DECISI ON(SUPRA) CAN BE SAID TO BE APPLICABLE IN THIS CASE TOO. MOREOVER THE D ECISION OF SPECIAL BENCH TRIBUNAL, CHANDIGARH (SUPRA) DIRECTLY COVERS TH E ISSUE UNDER CONSIDERATION. THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF SPECIAL BENCH OF CHANDIGARH TRIBUNAL, THE ASSESSING O FFICER IS DIRECTED TO DELETE THE ADDITION OF RS. 99,19,393/- A S THE WHOLE EXERCISE BECOMES REVENUE NEUTRAL ONCE IT IS HELD THAT CENVAT C REDIT IS NOTHING BUT ADVANCE PAYMENT OF EXCISE DUTY ELIGIBLE FOR DEDU CTION U/S.43B OF INCOME-TAX ACT. THUS, THE GROUND IS ALLOWED. 30.1 AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE RE VENUE IS IN APPEAL BEFORE US. 31. AFTER HEARING BOTH THE SIDES, WE FIND THE LD.CI T(A) WHILE ALLOWING THE CLAIM OF THE ASSESSEE HAS ALSO FOLLOWE D THE DECISION OF CHANDIGARH SPECIAL BENCH OF THE TRIBUNAL IN THE CAS E OF DCIT VS. GLAXO SMITHKLINE CONSUMER HEALTH CARE LTD. REPORTED IN 110 TTJ 183. FURTHER, THE PUNE BENCH OF THE TRIBUNAL IN AS SESSEES OWN CASE HAS ALLOWED THE ISSUE OF UNUTILIZED MODVAT CREDIT I N FAVOUR OF THE ASSESSEE FOR A.Y. 1993-94. THE LD. DEPARTMENTAL RE PRESENTATIVE COULD NOT BRING ANY DISTINGUISHABLE FEATURES SO AS TO TAKE A DIFFERENT VIEW THAN THE VIEW TAKEN BY THE LD.CIT(A). UNDER T HESE CIRCUMSTANCES AND IN VIEW OF THE VARIOUS DECISIONS CITED BY THE LD. COUNSEL FOR THE ASSESSEE, WE FIND NO INFIRMITY IN T HE ORDER OF THE CIT(A). ACCORDINGLY, GROUND RAISED BY THE REVENUE IS DISMISSED. 32. GROUNDS OF APPEAL NO.3 BY THE REVENUE READS AS UNDER : 21 3A. WHETHER ON THE FACTS AND CIRCUMSTANCES OF TH E CASE AND IN LAW, THE CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION OF RS.1,08,59,472/- MADE ON ACCOUNT OF PROVISION FOR DISCOUNT ON SALE WHEN NO EVIDENCE WAS BROUGHT ON RECORD BY THE CIT(A) WHICH WOULD SUPPO RT THAT CONTINGENT EVENT OCCURRED DURING THE YEAR ESPECIALLY WHEN SALES WERE MADE DURING THE LAST QUARTER. 3B. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION OF RS.1,08,59,472/- MADE ON ACCOUNT OF PROVISION FOR DISCOUNT ON SALE PLAC ING RELIANCE UPON THE CASE OF ROTORK CONTROLS LTD VS. CIT [314 ITR 62] WHEN NOTHING HAS BEEN BROUGHT ON RECORD TO SUGGEST THAT THE PROVISION WAS MADE ON SCIENTIFIC BASIS. 32.1 FACTS OF THE CASE, IN BRIEF, ARE THAT THE AO D URING THE COURSE OF ASSESSMENT PROCEEDINGS NOTED THAT THE ASSESSEE COMP ANY HAD MADE PROVISION FOR DISCOUNT ON SALES AT RS.1,08,59,472/- . THE ASSESSING OFFICER CONFRONTED THE ASSESSEE'S REPRESENTATIVE ON THIS ISSUE AND ASKED HIM TO EXPLAIN THE ADMISSIBILITY OF THE SAME. THE ASSESSEE SUBMITTED THAT THE PROVISION OF RS. 1.09 CRORES WAS MADE TOWARDS THE LIABILITY IN RESPECT OF SALES MADE AMOUNTING TO RS. 29 CRORES FROM JANUARY TO MARCH 2003. IT WAS FURTHER STATED THAT T HIS LIABILITY IS DISCHARGED ON QUARTERLY BASIS AND SINCE SALES OF RS . 29 CRORES WAS ACCOUNTED FOR IN THE BOOKS PROVISION FOR DISCOUNT W AS MADE IN THE BOOKS OF ACCOUNTS AS IT WAS REQUIRED TO BE PAID ON THE BASIS OF CONTRACTS WITH THE CUSTOMERS. THE A.O DID NOT ACCEP T THE CONTENTION OF THE ASSESSEE AS HE WAS OF THE VIEW THAT THE LIABILI TY TO PAY HAD NOT ACCRUED DURING THE PREVIOUS YEAR. WHILE DOING SO HE ALSO NOTED THAT NO DOCUMENTARY EVIDENCE WAS FILED IN SUPPORT OF THE CL AIM THAT THE LIABILITY HAS ACCRUED DURING THE PREVIOUS YEAR. 33. IN APPEAL THE LD.CIT(A) DELETED THE ADDITION BY OBSERVING AS UNDER : 22 18. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AS WELL AS THE REPLY OF THE APPELLANT. IT IS SEEN THAT PROVISION FO R DISCOUNT ON SALES HAS BEEN MADE IN THE BOOKS IN RESPECT OF SALES MADE IN T HE LAST QUARTER. THESE DISCOUNTS ARE GIVEN TO DEALERS ON ACHIEV ING SPECIFIC SALES TARGET AS PER TERMS OF CONTRACT .SINCE THE FINAL WORKING OF THE DISCOUNT FOR THE LAST QUARTER OF THE FINANCIAL YEAR W AS TO BE DONE FOR WHICH ALL THE DATA WERE YET TO BE RECEIVED IN RESPEC T OF ALL THE DEALERS, PROVISION FOR THE SAME WAS MADE IN THE BOOKS ON THE BASIS OF AVAILABLE DOCUMENTS WITH THE APPELLANT COMPANY. IN M ERCANTILE SYSTEM OF ACCOUNTING WHEN 'THE SALES OF RS.29 CRORES WERE RECORDED IN THE BOOKS OF ACCOUNTS, IT IS BUT NATURAL THAT THE CORR ESPONDING DISCOUNT SHOULD ALSO BE ACCOUNTED FOR. THE DISCOUNT L IABILITY COULD NOT BE QUANTIFIED AT THAT POINT OF TIME BUT IT CANN OT BE SAID THAT LIABILITY FOR THE SAME HAD NOT ACCRUED DURING THE PR EVIOUS YEAR RELEVANT TO THE A.Y. 2003-04. THE APPELLANT HAS RELI ED UPON THE DECISION OF BHARAT EARTH MOVERS LTD VS. CIT REPORTED I N 245 ITR 428 (SC) WHEREIN IT WAS HELD THAT IF A BUSINESS LIABILITY H AS DEFINITELY ARISEN IN THE ACCOUNTING YEAR ,THE DEDUCTION SHOULD B E ALLOWED ALTHOUGH THE LIABILITY MAY HAVE TO BE QUANTIFIED AN D DISCHARGED AT A LATER DATE. THE RATIO OF THE ABOVE DECISION OF THE S UPREME COURT IS APPLICABLE IN THIS CASE TOO. IN AN ANOTHER JUDGMENT O F HON'BLE SUPREME COURT IN ROTORK CONTROLS INDIA (P) LTD VS.CTT 314 ITR 62 IT HAS BEEN HELD THAT PROVISION FOR WARRANTY LIABILITY IS AN ALLO WABLE EXPENDITURE PROVIDED IT HAS BEEN CALCULATED ON SCIENTIFIC BASIS. I N THIS CASE THE LEARNED COUNSEL OF THE APPELLANT HAS SUBMITTED THAT AG AINST THE PROVISION OF RS.1.09 CRORES ACTUAL PAYMENT WAS TO THE T UNE OF RS.1.11 CRORES WHICH JUSTIFIES THE PROVISIONS MADE IN THIS REGARD . THEREFORE, ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND ALSO REL YING UPON THE ABOVE JUDGMENTS OF HON'BLE APEX COURT, IT IS HELD THA T THE ASSESSING OFFICER WAS NOT JUSTIFIED IN HOLDING THAT THAT THE LI ABILITY FOR SALES DISCOUNT HAD NOT ACCRUED DURING THE FINANCIAL YEAR R ELEVANT TO A.Y. 2003-04. ACCORDINGLY HE IS DIRECTED TO DELETE THE AD DITION OF RS.L,08,59,472/-. THUS THE GROUND IS ALLOWED. 33.1 AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE RE VENUE IS IN APPEAL BEFORE US. 34. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAV E ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. WE FIND IN THE INSTANT CASE THE AO DISALLOWED THE PROVISION FOR DISCOUNT ON SALES A T RS.1,08,59,472/- ON THE GROUND THAT SUCH LIABILITY TO PAY HAD NOT AC CRUED DURING THE PREVIOUS YEAR. WE FIND THE LD.CIT(A) DELETED THE A DDITION ON THE GROUND THAT SUCH PROVISION WAS MADE IN THE BOOKS IN RESPECT OF SALES 23 MADE IN THE LAST QUARTER. THESE DISCOUNTS ARE GIVE N TO DEALERS FOR ACHIEVING SPECIFIC SALES TARGET AS PER TERMS OF CON TRACT. FURTHER, HE HAD ALSO GIVEN A FINDING THAT AS AGAINST PROVISION OF RS.1.09 CRORES ACTUAL PAYMENT HAS BEEN MADE BY THE ASSESSEE TO THE TUNE OF RS.1.11 CRORES WHICH JUSTIFIES THE PROVISION MADE IN THIS R EGARD. ACCORDING TO HIM, THE DISCOUNT LIABILITY COULD NOT BE QUANTIFIED AT THAT POINT OF TIME. HOWEVER, IT CANNOT BE SAID THAT LIABILITY FOR THE S AME HAS NOT ACCRUED DURING THE PREVIOUS YEAR. WHILE DOING SO, HE HAS A LSO FOLLOWED THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF BHARAT EARTH MOVERS LTD., (SUPRA) AND ROTORK CONTROLS PVT. LTD., (SUPRA). SINCE THE LD. DEPARTMENTAL REPRESENTATIVE COULD NOT CONTROVERT THE FINDING GIVEN BY THE LD.CIT(A) THAT AS AGAINST PROV ISION OF RS.1.09 CRORES, THE ASSESSEE HAS MADE PAYMENT TO THE TUNE O F RS.1.11 CRORES TOWARDS THE PROVISION FOR DISCOUNT ON SALES, THEREF ORE, UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND NO INFIRMITY IN THE ORDER OF THE CIT(A) DELETING THE DISALLOWANCE MADE BY THE AO. W E ACCORDINGLY UPHOLD THE SAME AND THE GROUND RAISED BY THE REVENU E IS DISMISSED. 35. GROUNDS OF APPEAL NO.4 BY THE REVENUE READS AS UNDER : 4. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION OF RS. 72,10,000/- ON ACCOUNT OF LOSS IN FOREIGN EXCHANGE RATE FLUCTUATION, IGNORING THE PROVISIONS OF RULE 115 OF THE I.T.RULES, 1962. 35.1 FACTS OF THE CASE, IN BRIEF, ARE THAT THE AO D URING THE COURSE OF THE ASSESSMENT PROCEEDINGS NOTICED THAT THE ASSESSE E COMPANY HAS CLAIMED EXPENDITURE OF RS.72,10,000/- AS 'EXCHANGE LOSS'. THE ASSESSING OFFICER CONFRONTED THE ASSESSEE ON THE AD MISSIBILITY OF THE SAID EXPENDITURE. THE ASSESSEE SUBMITTED THAT INVOI CES FOR 24 IMPORT/EXPORT ARE BOOKED ON THE SPOT RATE I.E THE R ATE APPLICABLE ON THE DAY OF THE TRANSACTION. HOWEVER, WHEN THE INVOICES ARE ACTUALLY RECEIVED OR PAID AS THE CASE MAY BE, THE SAME IS DO NE ON THE BASIS OF RATE APPLICABLE ON THE DATE OF PAYMENT. THIS LEADS TO GAIN OR LOSS ON ACCOUNT OF FLUCTUATION OF EXCHANGE RATES, IT WAS FU RTHER SUBMITTED THAT NET RESULT OF LOSS OF RS.72.10 LAKHS IS DIRECTLY RE LATED TO BUSINESS OF THE ASSESSEE AND SINCE THE LOSS HAS BEEN INCURRED D URING THE PREVIOUS YEAR, THE SAME IS ALLOWABLE AS BUSINESS LOSS. THE A .O HOWEVER, DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE HOLDING T HAT PURCHASES ARE TO BE DEBITED AT THE ACTUAL COST INCURRED FOR MAKING T HE PURCHASES AND .SIMILARLY THE RECEIPTS SHOULD ALSO BE ACCOUNTED FO R ON THE BASIS OF ACTUAL. ACCORDINGLY HE DISALLOWED THE LOSS ON ACCOU NT OF EXCHANGE RATE FLUCTUATION AMOUNTING TO RS.72,10,000/- 36. IN APPEAL THE LD.CIT(A) DELETED THE ADDITION BY OBSERVING AS UNDER : 22. 1 HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AS WELL AS REPLY OF THE APPELLANT IN THIS CASE IT IS SEEN THAT THE IN THE HEADING OF THE RELEVANT PARA 7 OF THE ASSESSMENT ORDER WHICH DEALS WITH THE ISSUE MENTION IS MADE IN RESPECT OF FIXED ASSETS WHILE FR OM THE READING OF THE PARA IT BECOMES CLEAR THAT THE LOSS IS RELATED TO TRADING ASSETS RELATING TO IMPORT AND EXPORT OF GOODS. THEREFOR E, USE OF FIXED ASSETS IN THE HEADING APPEARS TO BE TYPOGRAPHICAL MISTAK E AND IS ACCORDINGLY IGNORED. IN THE MERCANTILE SYSTEM OF AC COUNTING EXPENSES RELATING TO PURCHASE AND SALE OF THE RELEVANT PERIOD HAS TO BE ACCOUNTED FOR. THE APPELLANT HAS BEEN FOLLOWING T HIS PRACTICE AS PER ACCOUNTING STANDARDS 11 APPROVED BY THE ICAI. IT S STAND IS ALSO SUPPORTED BY VARIOUS DECISIONS CITED ABOVE INCLUDING TH E DECISION OF JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. DEMPO AND CO.(P) LTD (SUPRA). THEREFORE IN VIEW OF THE ABOVE POSITION, THE ACTION OF THE A.O CANNOT BE UPHELD. ACCORDINGLY, HE IS DIRECTED TO DEL ETE THE ADDITION OF RS.72,10,000/- ON ACCOUNT OF FOREIGN EXCHANGE FLUCTU ATION. THE GROUND IS THUS ALLOWED. 36.1 AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE RE VENUE IS IN APPEAL BEFORE US. 25 37. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAV E ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. THE ONLY DI SPUTE TO BE DECIDED IN THE IMPUGNED GROUND IS REGARDING THE DISALLOWANC E OF RS.72,10,000/- ON ACCOUNT OF LOSS IN FOREIGN EXCHAN GE RATE FLUCTUATION. WE FIND THE ASSESSING OFFICER DISALLOWED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT PURCHASES ARE TO BE DEBITED AT THE ACTUAL COST INCURRED AND RECEIPTS ARE TO BE ACCOUNTED AT ACTUALS. SINCE THE ASSESSEE HAS CREATED A SEPARATE ACCOUNT FOR FOREIGN EXCHANGE FLU CTUATION SUCH AMOUNTS ARE NEITHER INCLUDED IN THE PURCHASE NOR IN THE RECEIPTS AND THEREFORE THE SAME IS NOT AN ALLOWABLE EXPENDITURE. WE FIND THE LD.CIT(A) HAS ALLOWED THE CLAIM OF THE ASSESSEE HOL DING THAT THE LOSS IS RELATED TO TRADING ASSETS RELATING TO IMPORT AND EXPORTS OF GOODS. ACCORDING TO HIM, IN MERCANTILE SYSTEM OF ACCOUNTIN G, EXPENSES RELATING TO PURCHASE AND SALE OF THE RELEVANT PERIO D HAS TO BE ACCOUNTED FOR. SINCE THE ASSESSEE IS FOLLOWING THIS PRACTICE AS PER ACCOUNTING STANDARD-11 APPROVED BY THE ICAI AND THE VARIOUS DE CISIONS CITED BEFORE HIM ARE IN SUPPORT OF THE ASSESSEE, THE LD.C IT(A) DIRECTED THE ASSESSING OFFICER TO DELETE THE DISALLOWANCE MADE B Y THE ASSESSING OFFICER. WE FIND NO INFIRMITY IN THE ORDER OF LD.C IT(A) ON THIS ISSUE. WE FIND THE HONBLE BOMBAY HIGH COURT IN THE CASE O F CIT VS. V.S. DEMPO & CO. PVT. LTD. HAS HELD THAT A LOSS ARISING IN THE PROCESS OF CONVERSION OF FOREIGN CURRENCY WHICH IS PART OF THE TRADING ASSET OF THE ASSESSEE IS A TRADING LOSS AS ANY OTHER LOSS. THE CAUSE WHICH OCCASIONS TO LOSS IS IMMATERIAL. WHAT IS MATERIAL IS WHETHER THE LOSS HAS ACCRUED 26 IN THE COURSE OF CARRYING ON THE BUSINESS OR IS INC IDENTAL TO IT. IT HAS BEEN HELD THAT IF THERE IS A LOSS IN A TRADING ASSE T, IT WOULD BE A TRADING LOSS WHATEVER BE ITS CAUSE BECAUSE IT WOULD BE A LO SS IN THE COURSE OF CARRYING ON THE BUSINESS. SIMILARLY, THE HONBLE S UPREME COURT IN THE CASE OF CIT VS. WOODWARD GOVERNOR INDIA PVT. LTD., REPORTED IN 312 ITR 254 HAS HELD THAT LOSSES SUFFERED BY THE ASSESS EE ON ACCOUNT OF FLUCTUATION IN THE RATE OF FOREIGN EXCHANGE AS ON T HE DATE OF THE BALANCE SHEET IS AN ITEM OF EXPENDITURE U/S.37(1) O F THE I.T.ACT. 37.1 RESPECTFULLY FOLLOWING THE RATIO OF THE ABOVE DECISIONS AND CONSIDERING THE FACT THAT LOSS AMOUNTING TO RS.72,1 0,000/- WAS INCURRED BY THE ASSESSEE ON ACCOUNT OF FOREIGN EXCH ANGE RATE FLUCTUATION IN RESPECT OF IMPORT AND EXPORT TRANSAC TIONS MADE DURING THE YEAR WE FIND NO INFIRMITY IN THE ORDER OF THE C IT(A) ALLOWING THE CLAIM OF LOSS OF RS.72,10,000/- ON ACCOUNT OF FOREI GN EXCHANGE RATE FLUCTUATION AS A REVENUE EXPENDITURE. WE ACCORDINGL Y UPHOLD THE SAME AND THE GROUND RAISED BY THE REVENUE IS DISMISSED. 38. GROUNDS OF APPEAL NO.5 BY THE REVENUE READS AS UNDER : 5. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) WAS JUSTIFIED IN REDUCING THE ADDITION OF RS.14.16 LACS ON ACCOUNT OF ESTIMATED AMALGAMATION EXPENSES TO RS. 878/- , WHEN THE SAME WAS HELD TO BE CONTINGENT AND UNASCERTAINED LIABI LITY BY THE A.O. 38.1 AFTER HEARING BOTH THE SIDES, WE FIND THIS GRO UND IS IDENTICAL TO GROUND OF APPEAL NO.1 IN ITA NO.203/PN/2012 FILED B Y THE REVENUE. WE HAVE ALREADY DECIDED THE ISSUE AND THE GROUND HA S BEEN DISMISSED. FOLLOWING THE SAME RATIO, THIS GROUND BY THE REVENU E IS DISMISSED. 27 39. IN THE RESULT, THE APPEALS FILED BY THE ASSESSE E ARE ALLOWED AND THE APPEALS FILED BY THE REVENUE ARE DISMISSED. PRONOUNCED IN THE OPEN COURT ON 31-12-2014. SD/- SD/- (SUSHMA CHOWLA) (R.K. P ANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE DATED: 31 ST DECEMBER, 2014 SATISH COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. DEPARTMENT 3. THE CIT(A)-V, PUNE 4. THE CIT-V, PUNE 5. THE D.R, B PUNE BENCH 6. GUARD FILE BY ORDER // TRUE COPY // ASSISTANT REGISTRAR ITAT, PUNE BENCHES, PUNE