BANSI S. MEHTA & CO., MUMBAI V. ITO (OSD) RG 11(2), MUMBAI

ITA 3795/MUM/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 0909 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-07-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Next Hearing Date: 13-07-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 11-06-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: M D INAMDARSHRI YOGESH THAR
• Keywords: TDS; Liquidation
• Section: 145; 6; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'F' BENCH, MUMBAI BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO. 3795/MUM/2009 (ASSESSMENT YEAR: 2004-05) M/S. BANSI S. MEHTA & CO. INCOME TAX OFFICER (OSD), RANGE 11(2) MERCHANT CHAMBER, 3RD FLOOR AAYAKAR BHAVAN, M.K. RO AD 41, NEW MARINE LINES VS. MUMBAI 400020 MUMBAI 400020 PAN - AAFB 6405 G APPELLANT RESPONDENT APPELLANT BY: SHRI M.D. INAMDAR/SHRI YOGESH THAR RESPONDENT BY: SHRI SANJAY GUPTA O R D E R PER B. RAMAKOTAIAH, A.M. THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER OF THE CIT(A)- XI, MUMBAI DATED 30.04.2009. 2. ASSESSEE HAS RAISED FIVE GROUNDS OUT OF WHICH GROUN D NO. 5 IS GENERAL IN NATURE. GROUND NO. 1 WITH REFERENCE TO NOT REFER RING ASSESSEES BOOKS OF ACCOUNT UNDER SECTION 144A HAS NOT BEEN PRESSED BY THE LEARNED COUNSEL. 3. THE ASSESSEE IS A FIRM OF CHARTERED ACCOUNTANTS AND FOR A.Y. 2004-05 ASSESSEE DECLARED TOTAL INCOME OF RS.2,30,82,779/-. THE SAME WAS ASSESSED AT RS.2,35,09,150/- BY MAKING VARIOUS DISALLOWANCES IN GROUND NOS. 2, 3 & 4. 4. WE HAVE HEARD THE LEARNED COUNSEL SHRI M.D. INAMDAR , PARTNER OF THE FIRM AND THE LEARNED D.R. 5. GROUND NO. 2 PERTAINS TO THE ISSUE OF AN AMOUNT OF RS.3,990/- SHOWN AS LIABILITY ON ACCOUNT OF STAFF PROFESSIONAL TAX I N THE BALANCE SHEET AS ON 31.03.2004, WHICH IS PAID IN THE MONTH OF APRIL 200 4. THE A.O. ASKED WHY THE SAID AMOUNT SHOULD NOT BE TREATED AS INCOME AS THE ASSESSEE IS FOLLOWING CASH SYSTEM OF ACCOUNTING AND THE AMOUNT HAS NOT BEEN PAID AS ON 31.03.2004. THE ASSESSEE EXPLAINED THAT THIS AMO UNT WAS DEDUCTED FROM ITA NO. 3795/MUM/2009 M/S. BANSI S. MEHTA & CO. 2 THE SALARY PAID TO THE STAFF AND THIS PROFESSIONAL TAX FOR THE MONTH OF JANUARY, FEBRUARY AND MARCH COLLECTED FROM THE STAF F SALARY WAS DEPOSITED WITH THE PROFESSIONAL TAX AUTHORITIES ON BEHALF OF THE EMPLOYEES IN APRIL 2004 AS REQUIRED UNDER THE RELEVANT ACT. SINCE THE GROSS AMOUNT WAS CLAIMED AS SALARY DEDUCTION THERE IS NO QUESTION OF CONSIDERING PROFESSIONAL TAX DEDUCTED ON BEHALF OF THE GOVERNMENT AS INCOME OF THE ASSESSEE SINCE THE SAME WAS PAID AS PER THE PROFESSIONAL TAX ACT. THE A.O., HOLDING THAT THE ASSESSEE HAS NOT FURNISHED ANY EXPLANATION, ADD ED THE AMOUNT AS INCOME OF THE YEAR. BEFORE THE CIT(A) IT WAS CONTEN DED THAT THE PROFESSIONAL TAX WAS DEDUCTED ON BEHALF OF THE SALARIED EMPLOYEE S OUT OF THE SALARY PAYMENT AND WAS NOT A LIABILITY OF THE ASSESSEE. TH IS AMOUNT WAS ALSO PAID AS PER THE ACT, HENCE, THERE IS NO QUESTION OF TREA TING THE SAME AS INCOME OF THE ASSESSEE. IT WAS ALSO SUBMITTED THAT PROVISIONS OF SECTION 2(24)(XX) CANNOT BE INVOKED AS THE SAME CANNOT BE TREATED AS INCOME OF THE ASSESSEE AS PER INCOME TAX ACT. IT IS ALSO FURTHER SUBMITTED THAT PETITION UNDER SECTION 154 FILED BEFORE THE A.O. IN THE LATER YEAR WAS ALSO REJECTED AND HENCE THERE IS DOUBLE DEDUCTION. THE CIT(A) DID NOT AGREE WITH ASSESSEES CONTENTION, HOWEVER, DIRECTED THE SAME TO BE ALLOWE D IN THE NEXT ASSESSMENT YEAR. ASSESSEE IS AGGRIEVED. 6. AFTER CONSIDERING THE ARGUMENTS OF THE LEARNED COUN SEL AND EXAMINING THE FACTS, WE ARE OF THE OPINION THAT THE ASSESSEE DESERVES TO BE SUCCEEDED ON THIS GROUND. IT IS NOT UNDERSTANDABLE HOW PROFES SIONAL TAX DEDUCTED FROM THE SALARY OF THE STAFF ON BEHALF OF THE GOVERNMENT CAN BE INCOME OF THE ASSESSEE. IT IS ONLY AN AMOUNT PAYABLE TO THE GOVER NMENT OF INDIA AND IT WAS ALREADY DISCHARGED WITHIN THE TIME LIMIT PERMIS SIBLE UNDER THE ACT. PROVISIONS OF SECTION 2(24)(XX) WILL APPLY ONLY TO THE AMOUNT DEDUCTED FROM THE SALARIES TOWARDS PF, ETC. PROVISIONS OF SECTION 43B) ARE APPLICABLE ONLY WHEN TAX AND OTHER AMOUNTS ARE COLLECTED AND PAYABL E BY THE ASSESSEE IN ITS COMPUTATION. PROFESSIONAL TAX IS NOT LIABILITY OF A SSESSEE, BEING LIABILITY OF THE EMPLOYEES AND FURTHER THE SAME IS ALSO PAID AS PER THE PROVISIONS OF THAT ACT. WE ARE ALSO SURPRISED TO NOTE THAT PROFESSIONA L TAXES PAID ON SIMILAR MANNER BY THE FIRM WAS ALLOWED BY THE CIT(A), EVEN THOUGH THE A.O. DISALLOWED THE SAID AMOUNT ALSO, ON CONSISTENT ACCO UNTANCY PRINCIPLES BASIS ITA NO. 3795/MUM/2009 M/S. BANSI S. MEHTA & CO. 3 BUT CONFIRMED THE SMALL AMOUNT OF RS.3,990/-. THE S AME PRINCIPLES APPLICABLE TO THE PROFESSIONAL TAX OF THE FIRM ARE EQUALLY APPLICABLE FOR THE PROFESSIONAL TAX OF THE STAFF ALSO. IN VIEW OF THIS , THE GROUND IS ALLOWED. 7. GROUND NO. 3 IS WITH REFERENCE TO TREATING THE ADVA NCE RECEIVED FROM CLIENT AS INCOME OF THE YEAR. 8. THE ASSESSEE HAS RECEIVED AN AMOUNT OF RS.1,05,000/ - (RECEIVED NET AMOUNT OF RS 99,487/- AFTER TDS WAS ADJUSTED) FROM M/S. CAZENOVE INDIA (HOLDINGS) PVT. LTD. VIDE LETTER DATED 05.05.2003 F ROM THE LIQUIDATOR OF THE ABOVE SAID COMPANY FOR COMPLETING THE AUDIT FOR THE YEAR ENDING 30 TH APRIL 2004. THE ASSESSEE COMPLETED THE AUDIT WORK AND RAI SED A BILL IN JUNE 2005 AFTER THE SERVICES WERE RENDERED AND ACCORDINGLY TH E ENTIRE AMOUNT WAS OFFERED IN A.Y. 2006-07 AND CLAIMED TDS OF RS.5,513 /- IN THAT YEAR. HOWEVER, FOR THE YEAR ENDING 31.03.2004 THE ASSESSE E HAS SHOWN THE NET AMOUNT OF RS.99,487/- RECEIVED AS ADVANCE IN THE BO OKS OF ACCOUNT. THE A.O. ASKED FOR EXPLANATION WHY THE SAME SHOULD NOT BE TREATED AS INCOME ON RECEIPT BASIS. IT WAS ASSESSEES CONTENTION THAT NO SERVICES WERE RENDERED AND NO INCOME HAS ACCRUED TO THE ASSESSEE AND THE A UDIT WORK OF THE SAID COMPANY WAS DONE AFTER THE ACCOUNTS WERE CLOSED ON 30.04.2004 AND THE BILL WAS RAISED IN 2005 AND OFFERED THE INCOME. THE A.O. DID NOT AGREE AND TREATED THE AMOUNT AS INCOME OF THE YEAR. BEFORE TH E CIT(A) THE ASSESSEE SUBMITTED THAT THE AMOUNT CANNOT BE TREATED AS INCO ME AS THE ASSESSEE RENDERED SERVICES SUBSEQUENTLY AND ANY RECEIPT CANN OT BE BROUGHT TO TAX AUTOMATICALLY UNLESS IT CAN BE CONSTITUTED AS AN IT EM OF INCOME. THE ASSESSEE RELIED ON THE DECISION OF THE HON'BLE BOMB AY HIGH COURT IN THE CASE OF MANILAL KHER AMBALAL AND CO. VS. A. G. LULL A, SEVENTH INCOME-TAX OFFICER 176 ITR 253. THE CIT(A), HOWEVER DID NOT AG REE WITH ASSESSEES CONTENTIONS AND UPHELD THE ACTION OF THE A.O. HOLDI NG THAT ON THE BASIS OF THE CASH METHOD OF ACCOUNTING THE AMOUNT CONSTITUTE INCOME FOR A.Y. 2004- 05. HOWEVER, HE GAVE A DIRECTION THAT THE SAME CANN OT BE TAXED IN A.Y. 2006-07. AGGRIEVED THE ASSESSEE IS BEFORE US. 9. THE LEARNED COUNSEL REFERRED TO THE PAPER BOOK FILE D BEFORE THE AUTHORITIES TO SUBMIT THAT ADVANCE WAS RECEIVED FRO M THE LIQUIDATOR FOR ITA NO. 3795/MUM/2009 M/S. BANSI S. MEHTA & CO. 4 COMPLETING THE AUDIT FOR THE YEAR ENDING ON 30 TH APRIL 2004 PURSUANT TO THE LIQUIDATION PROCEEDINGS INITIATED IN THE COMPANY AN D ALSO IN VIEW OF THE APPLICATION TO RBI FOR REPATRIATION OF FUNDS. HE AL SO REFERRED TO THE BILL DATED 15.06.2005 TO AN EXTENT OF RS.1,04,690/- RAISED ON THE ABOVE SAID PARTY AND THE FACT THAT THE SAME WERE OFFERED TO TAX IN A LAT ER YEAR, WHICH IS NOT IN DISPUTE. THE LEARNED COUNSEL, IN ADDITION TO THE CA SE LAW RELIED UPON BEFORE THE CIT(A), ALSO SUBMITTED THAT THE HON'BLE KARNATA KA HIGH COURT IN THE CASE OF CIT VS. SHANKARANARAYAN CONSTRUCTION CO. 19 7 ITR 688 HELD THAT ADVANCE AMOUNTS WOULD NORMALLY BE HELD AS DEPOSITS AND NOT RECEIVED AS INCOME AND THE AMOUNT RECEIVED ON ACCOUNT OF EXCESS MEASUREMENT WAS ONLY A DEPOSIT AND NOT INCOME LIABLE TO TAX. HE ALS O RELIED ON THE DECISION OF THE ITAT IN THE CASE OF K.K. KHULLAR VS. DCIT 116 I TD 301 (DEL) WHEREIN IT WAS HELD THAT DEBT TO THE EXTENT OF THE AMOUNT PERT AINING TO SERVICES RENDERED ONLY GOT VESTED IN THE ASSESSEE, THE REST OF THE AMOUNT WAS TAKEN AS LIABILITY TO BE ADJUSTED IN THE SUBSEQUENT YEAR AS AND WHEN THE SERVICES WERE RENDERED. THE WHOLE OF THE AMOUNT CANNOT BE DE CLARED AS INCOME IN THE YEAR OF RECEIPT OF AMOUNT EVEN UNDER THE CASH S YSTEM OF ACCOUNTING. 10. THE LEARNED D.R., HOWEVER, RELIED ON THE ORDERS OF THE A.O. AND THE CIT(A). 11. WE HAVE CONSIDERED THE ISSUE. AS SEEN FROM THE FACT S OF THE CASE, THE ASSESSEE RECEIVED ADVANCE FROM THE LIQUIDATOR OF TH E COMPANY AS AN ADVANCE FOR CONDUCTING THE AUDIT FOR THE PERIOD END ING 30.04.2004. OBVIOUSLY THE SERVICES CANNOT BE RENDERED SINCE THE ACCOUNTING YEAR HAS NOT BEEN CLOSED AND THE YEAR CLOSED ONLY AFTER 30 TH APRIL 2004. JUST BECAUSE OF THE AMOUNT WAS RECEIVED AS AN ADVANCE THE SAME CANN OT BE TREATED AS INCOME OF THE ASSESSEE UNLESS THE RECEIPT IS IN THE NATURE OF INCOME. THE COORDINATE BENCH IN THE ABOVE REFERRED CASE OF K.K. KHULLAR 116 ITD 301 HELD AS UNDER: - WHILE SECTIONS 4 AND 5 DEAL WITH THE SCOPE OF INCO ME AND ITS CHARGE TO INCOME-TAX, SECTION 145 IS A PROCEDURAL SECTION REG ARDING THE METHOD TO BE FOLLOWED FOR RECORDING OF INCOME IN THE BOOKS OF ACCOUNT. IT IS NO DOUBT TRUE THAT FOR THE ASSESSMENT YEAR 1997-98 AND ONWAR DS, THE ASSESSEE COULD FOLLOW EITHER CASH OR MERCANTILE SYSTEM OF AC COUNTING AND THE HYBRID SYSTEM OF ACCOUNTING WAS PROHIBITED. HOWEVER , WHAT IS TO BE ITA NO. 3795/MUM/2009 M/S. BANSI S. MEHTA & CO. 5 TAXED IS INCOME AND RECEIPT OF AN AMOUNT IS NOT THE BASIS FOR THE LEVY OF THE TAX. IN CIT V. SHOORJI VALLABHADAS & CO. [1962] 46 ITR 144 , THE SUPREME COURT HAS POINTED OUT THAT THE ACT TAKES IN TO ACCOUNT TWO POINTS OF TIME ON WHICH THE LIABILITY TO TAX IS ATTRACTED, NAMELY, (I) ACCRUAL OF INCOME OR (II) RECEIPT OF INCOME. IT HAS FURTHER BE EN MENTIONED THAT THE SUBSTANCE OF THE MATTER IS INCOME. IT IS ACCRUAL OF INCOME OR RECEIPT OF INCOME THAT CAN BECOME THE SUBJECT-MATTER OF TAX AN D IT IS THE INCOME WHICH HAS TO BE RECORDED AS PER SYSTEM OF ACCOUNTIN G FOLLOWED BY THE ASSESSEE IN VIEW OF SECTION 145, BECAUSE THE SUBSTA NCE OF THE MATTER INCOME. IN THE INSTANT CASE, THE ASSESSEE HAD REC EIVED CERTAIN AMOUNTS FOR SERVICES TO BE PERFORMED OVER A PERIOD OF TIME. THE AMOUNT RELATABLE TO THE SERVICES RENDERED IN THE YEAR UNDER CONSIDER ATION WAS SHOWN AS INCOME, THE REASON BEING THAT THE ASSESSEE HAD BECO ME ENTITLED TO RECEIVE THAT AMOUNT FROM THE CLIENT IN RESPECT OF T HE SERVICES RENDERED. IN OTHER WORDS, DEBT TO THE EXTENT OF THE AMOUNT PERTA INING TO SERVICES RENDERED ONLY GOT VESTED IN THE ASSESSEE; THE REST OF THE AMOUNT WAS TAKEN AS LIABILITY TO BE ADJUSTED IN THE SUBSEQUENT YEAR AS AND WHEN THE SERVICE WAS RENDERED. IT WAS CLEAR THAT THE EXCESS AMOUNT WOULD HAVE TO BE RETURNED IN CASE THE SERVICE WAS NOT PERFORMED I N THE SUBSEQUENT YEAR AND, THEREFORE, IN RESPECT OF SUCH AMOUNT NO D EBT WOULD COME INTO EXISTENCE IN FAVOUR OF THE ASSESSEE. THEREFORE, THA T AMOUNT DID NOT BECOME THE INCOME. ACCORDINGLY, THE COMMISSIONER (A PPEALS) HAD ERRED IN FINDING THAT THE ASSESSEE WAS FOLLOWING A HYBRID SYSTEM OF ACCOUNTING ON THE GROUND THAT THE WHOLE OF THE AMOUNT RECEIVED FROM THE CLIENTS AS RETAINERSHIP FEES WAS NOT DECLARED AS INCOME IN THE YEAR OF RECEIPT OF THE AMOUNT. 12. THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF MANILA L KHER AMBALAL AND CO. VS. A. G. LULLA, SEVENTH INCOME-TAX OFFICER 176 ITR 253 ALSO ESTABLISHED THE SAME PRINCIPLE THAT THERE IS NOTHING IMPROPER IN KEEPING SUCH DEPOSIT IN CLIENTS ACCOUNT AND ADJUST IT ON TERMIN ATION OF THE PROFESSIONAL WORK. THERE WAS, THEREFORE, ABSOLUTELY NO BASIS FOR COMING TO THE CONCLUSION THAT THE METHOD OF ACCOUNTING ADOPTED BY THE PETITI ONERS WAS SUCH THAT INCOME COULD NOT PROPERTY BE DEDUCED THERE FROM OF THAT ANY CHANGE WAS REQUIRED IN THE METHOD OF ACCOUNTING . EVEN THOUGH THE SAID CASE WAS DECIDED IN THE CONTEXT OF DIRECTIONS OF THE IAC UNDER SECTI ON 144A FOR CHANGE OF METHOD OF ACCOUNTING, THE PRINCIPLES ESTABLISHED EQ UALLY APPLY AS THE ASSESSEE HAS RECEIVED ONLY AMOUNT IN ADVANCE WHICH WAS HELD AS A DEPOSIT FOR THE FUTURE SERVICES TO BE RENDERED AND IN FACT THE ASSESSEE HAS RENDERED THE SERVICE SUBSEQUENTLY AND ADJUSTED THE SAME AND OFFERED TO TAX. IN VIEW OF THIS THE ACTION OF THE A.O. IN TREATING THE ADVA NCE AS RECEIPT WITHOUT ESTABLISHING HOW IT BECOMES INCOME CANNOT BE ACCEPT ED. MOREOVER, THE ITA NO. 3795/MUM/2009 M/S. BANSI S. MEHTA & CO. 6 CIT(A) ALSO DID NOT GIVE ANY VALID REASON FOR REJE CTING ASSESSEES CONTENTIONS. IN VIEW OF THIS, THE A.O. IS DIRECTED TO DELETE THE AMOUNT. THE GROUND IS ALLOWED. 13. GROUND NO. 4 PERTAINS TO THE DISALLOWANCE OF A SUM OF RS.20,659/- BEING FOREIGN EXCHANGE DIFFERENCE ON THE ALLEGED GR OUND THAT THE LOSS WAS NOTIONAL. 14. THE A.O. NOTED THAT THE ASSESSEE HAS CLAIMED LOSS O N ACCOUNT OF FOREIGN EXCHANGE DIFFERENCE OF THE ABOVE SAID AMOUN T. DETAILS WERE FILED DURING THE ASSESSMENT PROCEEDINGS. ASSESSEE EXPLAIN ED THAT THE BALANCE LYING IN EEFC ACCOUNT WAS VALUED ACCORDING TO THE R ULES OF THE INCOME TAX ACT AND THERE WAS A LOSS, ARISEN ON ACCOUNT OF VALU ATION OF FOREIGN EXCHANGE ON THE BALANCE SHEET DATE. THE VALUATION WAS DONE A S PER ACCOUNTING STANDARD AS-11 OF ICAI. IT IS ALSO FURTHER SUBMITTE D THAT IN THE EARLIER YEARS THERE WERE GAINS WHICH WERE OFFERED TO TAX. THE ASS ESSEE RELIED ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE O F SUTLEJ COTTON MILLS LTD. VS. CIT 116 ITR 1 FOR THE PROPOSITION THAT THE LOSS IS ALLOWABLE LOSS. THE A.O., HOLDING THAT THE ASSESSEE FOLLOWS CASH SYSTEM OF ACCOUNT, HELD THAT PROFIT OR LOSS WOULD ARISE WHEN THERE WAS ACTUAL UT ILIZATION OF FOREIGN CURRENCY AFTER CONVERSION TO RUPEES. SINCE THERE WA S NO UTILIZATION OF FOREIGN CURRENCY THE AMOUNT WAS ONLY NOTIONAL AND THE SAME WAS DISALLOWED. BEFORE THE CIT(A) THE ASSESSEE SUBMITTED THAT THE ASSESSEE FOLLOWED ACCOUNTING STANDARD ISSUED BY THE ICAI AND IN TERMS OF THE DEC ISION OF HON'BLE SUPREME COURT IN THE CASE OF SUTLEJ COTTON MILLS (SUPRA) TH E SAME WAS ALLOWABLE EXPENDITURE. THE ASSESSEE ALSO RELIED ON THE DECISI ON OF THE DELHI HIGH COURT IN THE CASE OF WOODWARD GOVERNOR INDIA PVT. LTD. 29 4 ITR 451 AND THE DECISION OF THE ITAT IN THE CASE OF HERBALIFE INTER NATIONAL INDIA PVT. LTD. 101 ITD 450 (DEL). THE ASSESSEE ALSO REFERRED TO RULE 1 15 OF I.T. RULES TO STATE THAT THE AMOUNT WAS AN ALLOWABLE EXPENDITURE. THE L EARNED CIT(A) EXTRACTED RULE 115 AND STATED AS UNDER WHILE DENYING THE LOSS CLAIMED: - 7.4 IT IS CLEAR FROM SUCH PROVISIONS THAT RULE 115 READ WITH EXPLANATION 2(C) WOULD NOT APPLY TO THE CASE OF THE APPELLANT BECAUSE SUB-RULE 2 MAKES AS SPECIFIC PROVISION IN RELATION TO INCOME WHICH IS RECEIVED IN OR BROUGHT INTO INDIA BY ANY ASSESSEE O N OR ON HIS BEHALF BEFORE THE SPECIFIC DATE IN ACCORDANCE WITH THE PRO VISIONS OF ITA NO. 3795/MUM/2009 M/S. BANSI S. MEHTA & CO. 7 FERA/FEMA. IN SUCH VIEW OF THE MATTER, I AM OF THE OPINION THAT THE CONCEPTS OF THE SPECIFIED DATE AND TELEGRAPHIC T RANSFER BUYING RATE WOULD NOT APPLY TO CASES WHICH ARE HIT BY SUB-RULE 2 OF RULE 115. AS FAR AS THE APPELLANTS REVISION UPWARDS IN EARLIER YEAR S IS CONCERNED, THE A.O. COULD NOT HAVE BROUGHT DOWN THE ADMITTED INCOM E AND TAX LIABILITY OF THE APPELLANT. I WOULD, THEREFORE, BE INCLINED T O BELIEVE THAT THE SAME COULD NOT BE AN ARGUMENT FOR ALLOWING DEDUCTION IN THE CURRENT YEAR. THE LOSS CLAIMED BY THE APPELLANT IS PURELY NOTIONAL IN NATURE AND HAS THE EFFECT OF REDUCING THE TAX LIABILITY. SUCH NOTIONAL LOSS, IN MY OPINION, IS NOT PERMISSIBLE UNDER LAW. THE DISALLOWANCES MADE B Y THE A.O., THEREFORE, DESERVE TO BE UPHELD. 15. AFTER CONSIDERING THE ARGUMENTS OF THE LEARNED COU NSEL AND THE LEARNED D.R., WE ARE OF THE OPINION THAT THE ASSESS EE IS CORRECT IN CLAIMING NOTIONAL LOSS. THE ASSESSEE BEING A PROFESSIONAL FI RM IS PERMITTED TO KEEP THE AMOUNT UPTO 50% OF RECEIPTS IN THE EEFC ACCOUNT FOR SUBSEQUENT UTILIZATION THEREOF. THE AMOUNT WAS CONVERTED INTO RUPEES AT TH E TIME OF ACTUAL RECEIPT AND OFFERED TO TAX ON THAT BASIS. HOWEVER, SINCE TH E ASSESSEE WAS PERMITTED TO KEEP THE AMOUNT IN EEFC ACCOUNT, AS PER RULE 115 EXPLANATION (C) THE AMOUNTS ARE TO BE VALUED ON THE LAST DAY OF THE PRE VIOUS YEAR OF THE ASSESSEE AND ACCORDINGLY, THE ASSESSEE WAS CONSISTENTLY VALU ING THE FOREIGN EXCHANGE. IF IT WAS A CREDIT IN THE VALUATION, THE GAINS ARE OFFERED TO TAX IN EARLIER YEARS SO, THE LOSS I.E. REDUCTION IN VALUE DUE TO FOREIGN EXCHANGE DIFFERENCE IS ALSO TO BE CONSIDERED ON SIMILAR FASHION. ASSESSEE RELIE D ON THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF WOODWARD GO VERNOR INDIA PVT. LTD. 294 ITR 451, WHICH WAS UPHELD BY THE HON'BLE SUPREM E COURT. FOLLOWING THE PRINCIPLE ESTABLISHED THEREIN, THE ASSESSEE IS ELIGIBLE FOR THE LOSS AND A.O. IS DIRECTED TO ALLOW THE SAME. THE LOSS IS NOT NOTIONAL AND ACCORDINGLY THE FINDINGS OF THE A.O. AND CIT(A) CANNOT UPHELD. THE GROUND IS ALLOWED. 16. IN THE RESULT, APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH JULY 2010. SD/- SD/- (N.V. VASUDEVAN) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 30 TH JULY 2010 ITA NO. 3795/MUM/2009 M/S. BANSI S. MEHTA & CO. 8 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) XI, MUMBAI 4. THE CIT XI, MUMBAI CITY 5. THE DR, F BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.