ASST CIT 16(3), MUMBAI V. ALLIED GEMS CORPORATION (BOMBAY), MUMBAI

ITA 2502/MUM/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 8806 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 9 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-01-2017
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 04-08-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 11-04-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A RAMACHANDRAN
• Assessee Lawyers: JIGNESH A SHAH
• Keywords: Opportunity of being heard; Proportionate interest
• Section: 143(3); 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A, MUMBAI BEFORE SHRI G.S.PANNU, ACCOUNTANT MEMBER AND SHRI RAMLAL NEGI, JUDICIAL MEMBER ITA NO.2502/MUM/2014 (ASSESSMENT YEAR 2009-10) THE ACIT, 16(3), 2 ND FLOOR,MATRU MANDIR, TARDEO ROAD, MUMBAI 400 007 ...... APPELLANT VS. M/S. ALLIED GEMS CORPORATION (BOMBAY), 2505, PANCHRATNA, OPERA HOUSE, MUMBAI -400 004 PAN: AAEFA 7201P .... RESPONDENT APPELLANT BY : SHRI A.RAMACHANDR AN RESPONDENT BY : SHRI JIGNESH A.SHAH DATE OF HEARING : 22/09/2016 DATE OF PRONOUNCEMENT : 20 /01/2017 ORDER PER G.S.PANNU,A.M: THE CAPTIONED APPEAL FILED BY THE ASSESSEE PERT AINING TO ASSESSMENT YEAR 2009-10 IS DIRECTED AGAINST AN ORDER PASSED BY CIT(A)-27, MUMBAI DATED 24/01/2014, WHICH IN TURN, ARISES OUT OF AN ORDER PASSED BY THE ASSESSING OFFICER UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) DATED 30/12/2011. 2. IN THIS APPEAL, REVENUE RAISED THE FOLLOWING GRO UNDS OF APPEAL:- 2 ITA NO.2502/MUM/2014 (ASSESSMENT YEAR 2009-10) GROUND NO. I 'WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT (A) HAS ERRED IN ALLOWING THE LOSS OF RS 49.64 LACS, WHEN INFACT THE FOREIGN EXCHANGE FLUCTUATION GAIN ON 31/03/2009 REGARDING THE SUNDRY DEBTORS AS PER AS-II WAS A GAIN OF RS 1.14 CRORES.?' GROUND NO. 2 'WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT (A) HAS ERRED IN ALLOWING THE CLAIM OF LOSS OF RS 49.64 LAC S, WHEN WHAT WAS VALUED WAS AN ASSET IN THE BALANCE SHEET VIZ. SUNDRY DEBTORS AND VALUATION OF WHICH HAD INCREASED BY RS 1.14 CRORES.? ' GROUND NO. 3 'WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT (A) HAS ERRED IN REDUCING THE ACTUAL VALUE REALISED BETWEEN 01/04/09 TO 07/09/09 OF THE SUNDRY DEBTORS FROM THE VALUATION OF THE FOREIGN EX CHANGE VALUATION GAIN OF RS 1.14 CRORES ON 31/03/09, WHEN INFACT SUCH ACTUAL REALISA TION WAS IN THE SUBSEQUENT FINANCIAL YEAR. ?' GROUND NO. 4 'WHETHER ON THE FACTS AND CIRCUMSTANCES OR THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN ACCEPTING THE VALUE OF SUNDRY DEBTORS REAL ISED IN A SUBSEQUENT FINANCIAL YEAR AND ALLOWED AS LOSS FOR AY 2009-10 AS BEING IN ACC ORDANCE WITH THE PRINCIPLES OF 'PRUDENCE' AS CONTAINED IN AS-I ?'. GROUND NO. 5 ' WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT (A) HAS ERRED IN ALLOWING DISALLOWANCE OF FOREIGN TRAVEL EX PENSES OF RS 3.88 LACS EVEN THOUGH THE ASSESSEE HAD VISITED COUNTRIES WHEREIN IHI BUSI NESS CONNECTION OF CLIENTS WAS FOUND. ?' GROUND NO. 6 : 'WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN RESTRICTING DISALLOWANCE OF RS 3.0 LACS FO REIGN EXCHANGE EXPENSES TO RS 50,000/- WITHOUT APPRECIATING THE FACTS OF THE CASE ' GROUND NO. 7: 'WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT (A) HAS ERRED IN RESTRICTING THE DISALLOWANCE UNDER SECTION .36(1)(III) OF THE INCOME-TAX ACT 1961 TO RS 1,88,955/- INSTEAD OF RS 7,20,000/- MADE BY THE ASSESSING OFFICER. ? 3. IN SO FAR AS GROUNDS OF APPEAL NO. 1 TO 4 ARE CO NCERNED, THEY RELATE TO A SINGLE ISSUE RELATING TO THE ACTION OF THE ASSESSIN G OFFICER IN DENYING A LOSS OF 3 ITA NO.2502/MUM/2014 (ASSESSMENT YEAR 2009-10) RS.49,64,937/- CLAIMED BY THE ASSESSEE ON ACCOUN T OF REALIZATION OF EXPORT PROCEEDS. 4. IN BRIEF, THE RELEVANT FACTS ARE THAT THE RESPON DENT ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF DEALING IN CUT & POLISHED DIAMONDS AND PRECIOUS & SEMI PRECIOUS STONES. IN THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTICED THAT ASSESSEE HAD CLAIMED A LOSS OF RS.49,64,937/- ON ACCOUNT OF REALIZATION OF EXPORT PROCEEDS, WHICH WAS OUTSTANDI NG AS ON 31/03/2009. IT WAS NOTED BY THE ASSESSING OFFICER THAT THOUGH THE SAID LOSS PERTAINED TO EXPORT RECEIVABLE OUTSTANDING AS ON 31/3/2009, BUT THE ACTUAL REALIZATION OF THE EXPORT PROCEEDS TOOK PLACE IN THE SUBSEQUENT FI NANCIAL YEAR OF 2009-10, CORRESPONDING TO ASSESSMENT YEAR 2010-11. THE ASSE SSING OFFICER DISALLOWED THIS CLAIM OF LOSS ON THE GROUND THAT THE REALIZATI ON OF OUTSTANDING EXPORT RECEIVABLES WAS AN EVENT WHICH TOOK PLACE IN THE SU BSEQUENT ASSESSMENT YEAR AND, THEREFORE, SUCH LOSS COULD NOT BE ALLOWED WHIL E COMPUTING THE INCOME FOR THE INSTANT ASSESSMENT YEAR. 4.1 IN APPEAL BEFORE CIT(A), ASSESSEE ASSAILED THE ORDER OF THE ASSESSING OFFICER ON VARIED GROUNDS. THE CIT(A) HAS REPRODUCE D THE ELABORATE SUBMISSIONS MADE BY THE ASSESSEE AND HAS THEREAFTER , HELD THAT THE IMPUGNED LOSS WAS ALLOWABLE CONSIDERING THE PRINCIPLES PRUDE NCE. THE CIT(A) NOTED THAT ASSESSING OFFICER DID NOT DOUBT THE AMOUNT SHORT RE ALIZED FROM THE DEBTORS AMOUNTING TO RS.49,64,937/-. THE FOLLOWING DISCUSS ION IN THE ORDER OF THE CIT(A) IS RELEVANT:- 2.4.12 THE PRINCIPLE OF PRUDENCE WAS AGAIN THE SUB JECT MATTER OF DISCUSSION BEFORE THE MUMBAI TRIBUNAL IN THE CASE OF JAMSHRI RANJITSI NGHJI SPINNING AND WEAVING MILLS LIMITED 41 ITD 142. THE TRIBUNAL WAS CONSIDERING WH ETHER THE NOTIONAL BENEFIT FROM IMPORT ENTITLEMENTS, UNDER THE DEEC SCHEME, AVAILAB LE AGAINST EXPORTS COULD BE TREATED AS INCOME ACCRUED TO THE COMPANY IN YEAR IN WHICH THE EXPORTS WERE MADE. THE COMPANY HAD ESTIMATED THE IMPORT ENTITLEMENT BE NEFITS AND RECOGNIZED IN ITS 4 ITA NO.2502/MUM/2014 (ASSESSMENT YEAR 2009-10) BOOKS OF ACCOUNT AS INCOME ACCRUED THE ESTIMATED AM OUNT, IN THE YEAR IN WHICH THE EXPORTS WERE MADE. THE IMPORT ENTITLEMENTS WERE NOT UTILIZED SINCE NO IMPORTS WERE EFFECTED DURING THAT YEAR. THE COUNSEL FOR THE COMP ANY ARGUING THAT THOUGH THE COMPANY HAD ACCOUNTED FOR THE INCOME, IT HAD NOT IN FACT ARISEN. THE COUNSEL QUOTED THE EXPERT ADVISORY OPINION OF THE ICAI WHICH HAS T IME AND AGAIN OPINED THAT ONE OF THE MAJOR CONSIDERATIONS GOVERNING THE SELECTION AN D APPLICATION OF ACCOUNTING POLICIES IS PRUDENCE, ACCORDING TO WHICH PROFITS AR E NOT ANTICIPATED BUT RECOGNIZED ONLY WHEN REALIZED IN VIEW OF THE UNCERTAINTY ATTAC HED TO FUTURE EVENTS. THE COMMITTEE HAD THEREFORE OPINED THAT NO REVENUE SHOU LD BE RECOGNIZED IN RESPECT OF SUCH IMPORT ENTITLEMENTS, TILL THEIR UTILIZATION. O N THIS REASONING THE TRIBUNAL HELD THAT NO INCOME HAD ACCRUED TO THE COMPANY, AS IT HAD NOT RECEIVED ANY TANGIBLE BENEFIT IN THE FORM OF 'CONCESSION OF DUTY IN THE YEAR WHEN TH E ENTITLEMENTS WERE ACCOUNTED FOR IN THE BOOKS, THEREBY VINDICATING THE PRINCIPLE OF PRUDENCE. 2.4.13 THE MUMBAI TRIBUNAL IN THE CASE VOLTAS LIMI TED VS. DCIT, 64 ITD 232 RULED THAT WHILST WORKING OUT PROFITS, ALL EXPECTED LOSSE S HAD TO BE ACCOUNTED FOR IN ORDER TO DETERMINE THE REAL INCOME OF THE COMPANY. IT THEREF ORE ALLOWED A CLAIM MADE OF DEDUCTION FOR WARRANTY PROVISIONS. IT HELD THAT SIN CE THE INCOME FOR WHICH THE PROJECTED EXPENDITURE HAD TO BE INCURRED WAS TAXED AS INCOME, THE EXPENDITURE TO EARN THE INCOME ESTIMATED ON REASONABLE BASIS HAD T O BE ALLOWED. 2.4.14 IT IS ALSO OBSERVED THAT THE LD.A.O. HAS NOT DOUBTED THE SHORT REALIZATION OF THE DEBTORS AMOUNTING TO RS. 49,64,937/- AND HENCE, IT CANNOT BE SAID THAT IT WAS AN IMPROPER CLAIM. THE APPELLANT HAD SHOWN THIS ENTRY UNDER THE SCHEDULE 'K' OF THE BALANCE SHEET AND HENCE, THE CLAIM WAS APPARENT FRO M BALANCE SHEET ITSELF. WHAT THE APPELLANT HAS DONE IS ONLY FOLLOW THE PRINCIPLE OF PRUDENCE AND WHEN A PARTICULAR CLAIM IS KNOWN TO HAVE CRYSTALLIZED, THE PRINCIPLE OF PRUDENCE MUST HOLD PRECEDENCE. EVEN THE UK SSAP 2 EXPLICITLY SAYS THAT WHERE THERE IS AN APPARENT CONFLICT BETWEEN THE ACCRUALS CONCEPT AND THE CONCEPT OF PRUDENCE, T HE LATTER PREVAILS. SIMILARLY, EVEN AS PER INDIAN AS-9, REVENUE IS RECOGNIZED ONLY WHEN MEASURABILITY AND COLLECTABILITY ARE REASONABLY CERTAIN. 2.4.15 IN VIEW OF THE PRINCIPLE OF ACCOUNTANCY CONS IDERED BY THE HON'BLE SUPREME COURT IN THE PLETHORA OF CASES CITED (SUPRA) INCLUD ING THE CELEBRATED DECISION IN THE CASE OF BHARAT EARTH MOVERS, 245 ITR 428 (SC) AND M ADRAS INDUSTRIES & INVESTMENT CORPORATION, 225 ITR 802 (SC). I AM OF THE CONSIDER ED OPINION THAT THE APPELLANT WAS CORRECT IN FOLLOWING THE PRINCIPLES OF PRUDENCE AS THE SUM OF RS.49,64,937/- WAS NOT ULTIMATELY REALIZED. IN ANY CASE, THIS LOSS WOULD HAVE TO BE ALLOWED IN THE NEXT YEAR AND THEREFORE, IT IS ONLY A QUESTION OF TIMING WHIC H IS IN DISPUTE. ACCORDINGLY, GROUND NO.1 IS ALLOWED. 4.2 AGAINST SUCH DECISION OF THE CIT(A), REVENUE IS IN APPEAL BEFORE US. BEFORE US, THE LD. DEPARTMENTAL REPRESENTATIVE HAS PRIMARILY REITERATED THE STAND OF THE ASSESSING OFFICER IN SUPPORT OF THE CA SE OF THE REVENUE. THE 5 ITA NO.2502/MUM/2014 (ASSESSMENT YEAR 2009-10) SINGULAR POINT WHICH HAS BEEN EMPHASIZED BY THE LD. DEPARTMENTAL REPRESENTATIVE IS THAT THE SAID LOSS COULD NOT BE SAID TO HAVE ACCRUED AS ON 31/03/2009, SINCE AS ON THAT DATE THE CORRESPONDING EXPORT RECEIVABLES WERE NOT ACTUALLY REALIZED, AND THAT SUCH REALIZATION HA PPENED IN THE SUBSEQUENT YEAR AND, THEREFORE, IT IS ONLY AT THE TIME OF ACTU AL REALIZATION THAT SAID LOSS IS LIABLE TO BE ACCOUNTED FOR. 4.3 ON THE OTHER HAND, LD. REPRESENTATIVE FOR THE A SSESSEE VEHEMENTLY DEFENDED THE ORDER OF THE CIT(A) AND IN PARTICULAR CONTENDED THAT THE CLAIM OF THE ASSESSEE IS FULLY SUPPORTED BY THE PRINCIPLE O F PRUDENCE, WHICH IS AN ACCEPTED CONCEPT EVEN IN ACCOUNTING STANDARD-1 NOTI FIED BY THE CENTRAL GOVERNMENT UNDER SECTION 145(2) OF THE ACT. IT IS POINTED OUT THAT IT IS A WELL ACCEPTED PRINCIPLE OF ACCOUNTANCY THAT PROVISION S HOULD BE MADE FOR ALL KNOWN LIABILITIES AND LOSSES EVEN THOUGH THE AMOUNT MAY NOT BE DETERMINED WITH CERTAINTY AND REPRESENTS ONLY A BEST ESTIMATE IN THE LIGHT OF AVAILABLE INFORMATION. IN THIS CONTEXT, LD. REPRESENTATIVE F OR THE ASSESSEE POINTED OUT THAT SO FAR AS THE REASONABLENESS OF THE LOSS IS CO NCERNED, THERE IS NO DISPUTE THAT IT HAS BEEN SUFFERED ON ACCOUNT OF ACTUAL SHO RT REALIZATION OF EXPORT PROCEEDS. THE LD. REPRESENTATIVE FOR THE ASSESSEE HAS PLACED RELIANCE ON THE JUDGMENT OF THE HONBLE ALLAHABAD HIGH COURT IN TH E CASE OF CIT VS. U.B.S. PUBLISHERS AND DISTRIBUTORS, 147 ITR 144(ALL) 4.4 WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. IT IS QUITE WELL UNDERSTOOD THAT SECTION -4 OF THE ACT, CHARGES INC OME TAX IN RESPECT OF THE TOTAL INCOME OF A PREVIOUS YEAR RELEVANT TO THE CON CERNED ASSESSMENT YEAR. SECTION -5 OF THE ACT, PRESCRIBES THE SCOPE OF TOTA L INCOME AND SO FAR AS WE ARE CONCERNED, THE DISPUTE RELATES TO THE INCOME CHARG EABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION; WH ICH IS LIABLE TO BE COMPUTED 6 ITA NO.2502/MUM/2014 (ASSESSMENT YEAR 2009-10) IN ACCORDANCE WITH THE METHODOLOGY PRESCRIBED IN SE CTION 145(1) OF THE ACT I.E. EITHER IN TERMS OF CASH OR MERCANTILE SYSTEM OF A CCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE. SUB-SECTION (2) OF SECTION 145 EMP OWERS THE CENTRAL GOVERNMENT TO NOTIFY ACCOUNTING STANDARDS FOR ANY CLASS OF ASSESSEES OR IN RESPECT OF ANY CLASS OF INCOME. IN THE PRESENT CA SE, ASSESSEE FIRM HAS MAINTAINED ITS ACCOUNTS ON MERCANTILE SYSTEM AND WHILE COMPUTING INCOME FOR THE YEAR UNDER CONSIDERATION, IT CLAIMED DEDUCT ION FOR A SUM OF RS.49,64,937/- REPRESENTING LOSS ON SHORT REALIZAT ION OF EXPORT PROCEEDS, WHICH WERE OUTSTANDING AS ON 31/3/2009, OF-COURSE, SHORT REALIZATION HAVING TAKEN PLACE IN THE SUBSEQUENT PERIOD. THE CLAIM OF THE ASSESSEE IS THAT THE MERCANTILE SYSTEM OF ACCOUNTING ADOPTED BY THE ASSE SSEE JUSTIFIES SUCH ADJUSTMENT AND FOR THAT MATTER, REFERENCE IS MADE T O THE PRINCIPLE OF PRUDENCE, WHICH HAS BEEN EMPHASIZED IN THE ACCOUNTI NG STANDARD -1 NOTIFIED UNDER SECTION 145(2) OF THE ACT ALSO. THE PRINCIPL E OF PRUDENCE SEEKS TO ENSURE THAT PROVISION OUGHT TO BE MADE FOR ALL KNOWN LIABI LITIES AND LOSSES EVEN THOUGH THERE MAY REMAIN SOME UNCERTAINTY WITH ITS D ETERMINATION. SO HOWEVER, IT HAS TO BE APPRECIATED THAT WHAT THE PRI NCIPLE OF PRUDENCE SIGNIFIES IS THAT THE PROBABLE LOSSES SHOULD BE IMMEDIATELY R ECOGNIZED. IN THE PRESENT CONTEXT, THE STAND OF THE ASSESSEE IS THAT THOUGH R EALIZATION OF EXPORT RECEIVABLES TOOK PLACE IN THE SUBSEQUENT PERIOD, BU T THE LOSS COULD BE ACCOUNTED FOR IN THE INSTANT YEAR ITSELF AS IT WOUL D BE PRUDENT IN ORDER TO REFLECT THE CORRECT FINANCIAL RESULTS. FACTUALLY SP EAKING, REVENUE DOES NOT DISPUTE THE SHORT REALIZATION FROM DEBTORS TO THE E XTENT OF RS.49,64,937/- AND, THEREFORE, IN SO FAR AS THE QUANTIFICATION OF THE L OSS IS CONCERNED, THE CLAIM OF THE ASSESSEE CANNOT BE ASSAILED ON GROUNDS OF UNCER TAINTY. THEREFORE, ASSESSEE IS JUSTIFIED IN DETERMINATION OF SUCH LOSS ON THE B ASIS OF ACTUAL FIGURES WHICH WERE AVAILABLE WHILE ASSESSING ITS INCOME IN THE INSTANT ASSESSMENT YEAR. IN THE CASE 7 ITA NO.2502/MUM/2014 (ASSESSMENT YEAR 2009-10) OF U.B.S. PUBLISHERS AND DISTRIBUTORS (SUPRA), WHI CH HAS BEEN RELIED UPON BEFORE US, THE ISSUE RELATES TO THE ASSESSMENT YEAR 1967-68 (PREVIOUS YEAR ENDING ON 31/05/1966). IN THE ASSESSMENT PROCEEDIN GS, IT WAS FOUND THAT ASSESSEE THEREIN HAD CLAIMED AN EXPENDITURE BY WAY OF PURCHASES OF A SUM OF RS.6,39,124/- REPRESENTING ADDITIONAL LIABILITY TOW ARDS FOREIGN SUPPLIERS IN RESPECT OF BOOKS IMPORTED ON CREDIT UPTO THE END OF 31/05/1966. THE SAID ADDITIONAL CLAIM WAS BASED ON ACCOUNT OF DEVALUATI ON OF INDIAN CURRENCY, WHICH HAD TAKEN PLACE ON 06/06/1966 I.E. AFTER THE CLOSE OF THE ACCOUNTING YEAR. SUCH A CLAIM WAS DISALLOWED ON THE GROUND TH AT IT DID NOT PERTAIN TO THE PREVIOUS YEAR ENDING 31/5/1966 AND THAT THE EVEN T OF DEVALUATION HAD TAKEN PLACE ONLY ON 06/06/1966, WHICH WAS AFTER THE CLOSE OF THE ACCOUNTING PERIOD. THE CLAIM OF THE ASSESSING OFFICER WAS THAT SINCE A SSESSEE WAS MAINTAINING ITS ACCOUNTS ON MERCANTILE SYSTEM, THE LIABILITY ON ACC OUNT OF DEVALUATION OF THE INDIAN CURRENCY COULD NOT BE SAID TO HAVE ACCRUED DURING THE ACCOUNTING PERIOD ENDING ON 31/5/1966 AS DEVALUATION TOOK PLAC E AFTER THE END OF THE ACCOUNTING PERIOD. THE TRIBUNAL ALLOWED THE CLAIM OF THE ASSESSEE HOLDING THAT THOUGH DEVALUATION OF INDIAN CURRENCY TOOK PLACE AF TER THE END OF THE PREVIOUS YEAR, BUT ASSESSEE WAS JUSTIFIED IN DETERMINING HIS LIABILITY ON THE BASIS OF THE ACTUAL FIGURES AVAILABLE WHEN ACCOUNTS FOR THAT YEA R WERE YET NOT FINALIZED. THE HONBLE ALLHABAD HIGH COURT AFFIRMED THE DECISION O F THE TRIBUNAL AND NOTED THAT LIABILITY TO PAY IN FOREIGN EXCHANGE ACCRUE D WITH THE IMPORT OF BOOKS AND WAS NOT AS A RESULT OF DEVALUATION. ACCORDING TO T HE HIGH COURT, SINCE THE ACTUAL FIGURE OF LOSS ON ACCOUNT OF DEVALUATION WAS AVAILABLE WHEN THE ACCOUNTS FOR 31/5/1966 ENDING WERE FINALIZED, THE SAME WAS AN ALLOWABLE DEDUCTION IN ASSESSMENT YEAR 1967-68 ITSELF. THE P ARITY OF REASONING LAID DOWN BY THE HON'BLE ALLAHABAD HIGH COURT IS SQUARELY AP PLICABLE IN THE PRESENT CASE ALSO. IN THE PRESENT CASE, SHORT REALIZATION OF EX PORT PROCEEDS TO THE EXTENT OF 8 ITA NO.2502/MUM/2014 (ASSESSMENT YEAR 2009-10) RS.49,64,937/-, TOOK PLACE IN NEXT YEAR BUT IT RE LATED TO EXPORT RECEIVABLE FOR THE INSTANT YEAR, AND AT THE TIME OF FINALIZATION OF ACCOUNTS FOR THE INSTANT YEAR, THE ACTUAL FIGURE WAS AVAILABLE, AND THEREFOR E, ASSESSEE MADE NO MISTAKE IN CONSIDERING IT FOR THE PURPOSES OF ARRIVING AT T HE TAXABLE INCOME. 4.5 EVEN OTHERWISE, IT HAS TO BE APPRECIATED THAT I NCOME TAX IS A LEVY ON INCOME AND THAT WHAT IS LIABLE TO BE ASSESSED IS RE AL INCOME AND WHILE COMPUTING SUCH REAL INCOME, SUBSTANCE OF THE MATTER OUGHT TO BE APPRECIATED. QUITE CLEARLY, THE ASSESSEE WAS AWARE WHILE DRAWING UP ITS ACCOUNTS FOR THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION THAT THE EXPORT RECEIVABLES, OUTSTANDING AS AT THE YEAR- END WERE SHORT RECOVERED BY A SUM OF RS.49,64,937/-AND, THEREFORE, THE REAL INCOM E FOR THE INSTANT YEAR COULD ONLY BE DEDUCED AFTER DEDUCTION OF SUCH LOSS. THER EFORE, CONSIDERING THE ENTIRETY OF FACTS AND CIRCUMSTANCES, IN OUR VIEW, T HE CIT(A) MADE NO MISTAKE IN ALLOWING THE CLAIM OF THE ASSESSEE, WHICH WE HEREBY AFFIRM. THUS, IN SO FAR AS GROUNDS OF APPEAL NO.1 TO 4 ARE CONCERNED, THE SAME ARE DISMISSED. 5. THE GROUNDS OF APPEAL NO.5 & 6 RELATE TO THE ACT ION OF THE ASSESSING OFFICER IN DISALLOWING THE EXPENSES OF RS.3,88,167/ - AND RS.3,00,000/- OUT OF FOREIGN TRAVEL EXPENSES AND FOREIGN EXCHANGE PURCHA SED FOR USE IN FOREIGN TRAVEL RESPECTIVELY. THE CIT(A) HAS DELETED THE E NTIRE ADDITION OF RS.3,88,167/- OUT OF FOREIGN TRAVEL EXPENSES AND RETAINED ONLY A DISALLOWANCE OF RS.50,000/- OUT OF EXPENSES INCURRED ON FOREIGN EXCHANGE PURCHA SED FOR USE IN FOREIGN TRAVEL. AGAINST SUCH A DECISION OF THE CIT(A), REV ENUE IS IN APPEAL BEFORE US. 5.1 IN THE CONTEXT OF THE AFORESAID GROUNDS, THE DI SCUSSION IN PARAS 4 & 5 OF THE ASSESSMENT ORDER REVEAL THAT DISALLOWANCE OF RS .3,88,167/- OUT OF FOREIGN TRAVEL EXPENSES HAVE BEEN MADE ON THE GROUND THAT I T PERTAINED TO THE VISIT OF 9 ITA NO.2502/MUM/2014 (ASSESSMENT YEAR 2009-10) PARTNERS TO SUCH COUNTRIES WHERE ASSESSEE HAS NOT D ONE ANY BUSINESS. THE DISALLOWANCE OF RS.3.00 LACS OUT OF THE FOREIGN EXC HANGE PURCHASED FOR USE IN FOREIGN TRAVEL WAS MADE BY THE ASSESSING OFFICER ON THE GROUND THAT NO DETAILS WERE FILED TO INDICATE HOW THE FOREIGN EXCHANGE WAS UTILIZED DURING THE COURSE OF FOREIGN TRAVEL. THE CIT(A) HAS NOTICED THAT THE ASSESSING OFFICER COULD NOT ENTER INTO SHOES OF THE ASSESSEE WHILE EXAMINING TH E CLAIM OF EXPENSES AND NOTED THAT THE PARTNERS OF THE APPELLANT FIRM HAD A CTUALLY VISITED THE COUNTRIES CONCERNED AND IN FACT, SUBSEQUENTLY SUBSTANTIAL BUS INESS WAS GENERATED FROM SUCH COUNTRIES. HE, THEREFORE, DELETED THE ENTIRE ADDITION OF RS.3,88,167/- OUT OF FOREIGN TRAVEL EXPENSES ON THE GROUND THAT IT RE LATED TO THE PURPOSES OF BUSINESS. WITH REGARD TO THE DISALLOWANCE OUT OF F OREIGN EXCHANGE PURCHASED FOR FOREIGN TRAVEL, IN THE ABSENCE OF DETAILS, THE CIT(A) HAS FOUND IT FIT TO RESTRICT THE DISALLOWANCE TO RS.50,000/- ONLY. 5.2 HAVING HEARD THE RIVAL PARTIES, WE FIND NO REAS ON TO INTERFERE WITH ABOVE FINDING OF THE CIT(A) AS NO COGENT REASONING HAS BE EN BROUGHT OUT BY THE LD. DEPARTMENTAL REPRESENTATIVE BEFORE US. AS A CONS EQUENCE, THE FINDING OF THE CIT(A) IS HEREBY AFFIRMED AND THE REVENUE FAILS ON THIS ASPECT ALSO. 6. THE LAST GROUND RAISED BY THE REVENUE IS WITH RE SPECT TO THE ACTION OF THE CIT(A) IN SUSTAINING A DISALLOWANCE OUT OF INTE REST EXPENDITURE UNDER SECTION 36(1)(III) OF THE ACT AT RS.1,88,955/- INST EAD OF RS.7,20,000/- MADE BY THE ASSESSING OFFICER. 6.1 IN THIS CONTEXT, THE RELEVANT FACTS ARE THAT AS SESSEE WAS FOUND TO HAVE ADVANCED A SUM OF RS.60,00,000/- FREE OF INTEREST T O M/S. ROUGH DIAMOND INDIA PVT. LTD., A SISTER CONCERN. THE ASSESSING OF FICER HAS ALSO NOTICED THAT THERE WAS NO BUSINESS TRANSACTION WITH THE SAID CON CERN DURING THE YEAR AND 10 ITA NO.2502/MUM/2014 (ASSESSMENT YEAR 2009-10) THAT ASSESSEE WAS OTHERWISE INCURRING INTEREST EXPE NDITURE ON BORROWINGS EVEN ON THE CAPITAL RAISED FROM THE PARTNERS. BEFO RE THE ASSESSING OFFICER ASSESSEE CONTENDED THAT THE SAID ADVANCE WAS GIVEN IN ASSESSMENT YEAR 2008- 09, WHICH COULD NOT BE ADJUSTED AGAINST THE LABOUR BILLS NOR COULD BE RECOVERED AND IN THAT ASSESSMENT YEAR PROPORTIONATE INTEREST OF RS.8,07,763/- WAS DISALLOWED BY THE ASSESSING OFFICER WHICH HAS S INCE BEEN REDUCED TO RS.1,60,000/- BY THE CIT(A). THE ASSESSING OFFICER NOTED THAT THE FACTS IN THIS YEAR WERE DIFFERENT AND THE PARTIAL RELIEF ALLOWED BY THE CIT(A) IN 2008-09 COULD NOT BE ALLOWED IN THIS YEAR AND THAT ASSESSEE WAS PAYING INTEREST ON BORROWING @12%. ACCORDINGLY, THE INTEREST PROPORTI ONATE TO THE AFORESAID INTEREST FREE ADVANCE OF RS.60,00,000/- WAS DETERMI NED AT RS.7,20,000/- AND DISALLOWED. THE CIT(A) HAS SINCE ALLOWED PARTIAL R ELIEF TO THE ASSESSEE BASED ON ALTERNATE PLEA THAT THE DISALLOWANCE BE WORKED OUT ON THE BASIS OF THE METHODOLOGY LAID DOWN BY THE CIT(A) IN ASSESSMENT Y EAR 2008-09 AND WHICH HAS BEEN ACCEPTED BY THE DEPARTMENT. 6.2 BEFORE US, LD. REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE ORDER OF THE CIT(A) FOR ASSESSMENT YEAR 2008-09 IS PLACED IN THE PAPER BOOK AT PAGES 42 TO 44 AND POINTED OUT THAT THE CALCULATION OF PR OPORTIONATE INTEREST DISALLOWABLE WAS MADE AFTER CONSIDERING THE AVAILAB ILITY OF NON-INTEREST BEARING FUNDS. IN THIS MANNER THE PART RELIEF AL LOWED BY THE CIT(A), AS PER DISCUSSION IN PARAS 2.4.19 TO 2.4.21, IS SOUGHT TO BE DEFENDED. 6.3 ON THE OTHER HAND, LD. DEPARTMENTAL REPRESENTAT IVE HAS REFERRED TO THE DISCUSSION IN THE ASSESSMENT ORDER, WHICH WE HAVE A LREADY ADVERTED TO IN THE EARLIER PARA, AND THE SAME IS NOT BEING REPEATED FO R THE SAKE OF BREVITY. 11 ITA NO.2502/MUM/2014 (ASSESSMENT YEAR 2009-10) 6.4 WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. THE RELEVANT DISCUSSION IN THE ASSESSMENT ORDER REVEALS THAT AS PER THE ASSESSING OFFICER ASSESSEE IS PAYING INTEREST ON CAPITAL RAISED FROM THE PARTNERS ALSO AND, THEREFORE, EVEN IF THE METHODOLOGY LAID DOWN BY THE CIT(A) IN ASSESSMENT YEAR 2008-09 IS TO BE ALLOWED, THE FUNDS TO THE EXTENT O F PARTNERS CAPITAL CANNOT BE TREATED AS AN INTEREST FREE FUND, AS ASSESSEE IS PA YING INTEREST ON SUCH FUNDS. BE THAT AS IT MAY, THE DISCUSSION BY THE CIT(A) IS QUITE SKETCHY AND IS BEREFT OF REQUISITE DETAILS, THEREFORE, WE DEEM IT FIT AND PR OPER TO SET-ASIDE THE ORDER OF THE CIT(A) AND DIRECT THE ASSESSING OFFICER TO RECO MPUTED THE AMOUNT DISALLOWABLE UNDER SECTION 36(1)(III) OF THE ACT BE ARING IN MIND THE METHODOLOGY APPROVED BY THE CIT(A) IN HIS ORDER DA TED 02/08/2011 FOR ASSESSMENT YEAR 2008-09. NEEDLESS TO SAY THAT THE ASSESSING OFFICER SHALL CARRY OUT THE AFORESAID EXERCISE AFTER PROVIDING THE ASSE SSEE A REASONABLE OPPORTUNITY OF BEING HEARD. THUS, ON THIS ASPECT R EVENUE SUCCEEDS FOR STATISTICAL PURPOSES. 7. RESULTANTLY, THE APPEAL OF THE REVENUE IS PARTLY ALLOWED, AS ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 20/01/2017 SD/- SD/- ( RAM LAL NEGI) (G.S. PANNU) JUDICIAL MEMBER ACCOCUNTANT MEMBER MUMBAI, DATED 20/01/2017 VM , SR. PS 12 ITA NO.2502/MUM/2014 (ASSESSMENT YEAR 2009-10) COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT , 2. THE RESPONDENT. 3. THE CIT(A)- 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI