The ACIT, Circle-1(2), Baroda V. Koshambh Multitred Pvt.Ltd., Baroda

ITA 456/AHD/2008

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 5502 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 5 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-07-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2004-2005
• Appeal Filed On: 08-02-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M G PATEL
• Assessee Lawyers: SUDHANSHU S JHAD R
• Keywords: Gift; Commercial expediency; Set aside
• Section: 43B; 80HHC; 37(1); 205; 139(1); 145; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH AHMEDABAD BENCH AHMEDABAD BENCH AHMEDABAD BENCH D DD D BEFORE BEFORE BEFORE BEFORE SHRI SHRI SHRI SHRI N NN N. .. .S. SAINI S. SAINI S. SAINI S. SAINI, , , , ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER AND AND AND AND SHRI SHRI SHRI SHRI MAHAVIR SINGH, JUDICIAL MEMBER MAHAVIR SINGH, JUDICIAL MEMBER MAHAVIR SINGH, JUDICIAL MEMBER MAHAVIR SINGH, JUDICIAL MEMBER DATE OF HEARING 26-7-10: DRAFTED O N:26-7-10 ITA NO. 432 /AHD/ 2008 ASSESSMENT YEAR :2004-05 M/S KOSHAMBH MULTITRED PVT.LTD., 507,CITY PLAZA, DANDIA BAZAR, BARODA. VS. THE ASSISTANT COMMISSIONER OF INCOME- TAX, CIRCLE 1(2) AAYAKAR BHAVAN, NR.RACE COURSE CIRCLE, BARODA. PAN/GIR NO. : (A PPELLANT ) .. ( RESPONDENT ) ITA NO. 456 /AHD/ 2008 ASSESSMENT YEAR :2004-05 THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE 1(2) AAYAKAR BHAVAN, NR.RACE COURSE CIRCLE, BARODA. VS. M/S KOSHAMBH MULTITRED PVT.LTD., 507,CITY PLAZA, DANDIA BAZAR, BARODA. PAN NO:A AACK 7744 A APPELLANT BY : SHRI M. G. PATEL. RESPONDENT BY: SHRI SUDHANSHU S.JHA,D.R. O R D E R O R D E R O R D E R O R D E R PER N.S.SAINI , ACCOUNTANT MEMBER :- THESE ARE THE CROSS APPEALS FILED BY THE ASSESSEE AND REVENUE AGAINST THE ORDER OF THE LEARNED COMMISSION ER OF INCOME TAX(APPEALS)-I, BARODA DATED 31-10-2007. ITA NO.432 - 456/AHD/08 KOSHAMBHA MULTITRED PVT.LTD. ASSESSMENT YEAR 2004-05 - 2 - 2. GROUND NO1 OF THE APPEAL RELATES TO THE ADDITION OF `.20,01,095/- MADE IN RESPECT OF INCLUSION OF EXCIS E DUTY IN CLOSING STOCK U/S145A OF THE ACT. 3. THE BRIEF FACTS ARE THAT THE ASSESSING OFFICER O BSERVED THAT THE ASSESSEE HAD NOT INCLUDED THE EXCISE DUTY OF `. 20,01,095/- IN THE VALUE OF THE CLOSING STOCK AS REQUIRED UNDER SE CTION 145A OF THE ACT WHERE THE CLOSING STOCK WAS TO BE SHOWN BEI NG INCLUSIVE OF ALL DUTY, CESS AND TAXES. HE REJECTED THE ASSESSEE S PLEA THAT THE PURCHASES WERE DEBITED WITHOUT INCLUDING THE EXCISE AMOUNT CHARGED IN THE BILL AND, THEREFORE, IT COULD NOT AF FECT THE PROFIT AND LOSS ACCOUNT. HE DISMISSED THE ASSESSEES PLEA OF R E-WORKING THE OPENING STOCK ON THE BASIS OF THE SUPREME COURT DEC ISION IN THE CASE OF CIT VS. INDO NIPPON CHEMICAL LTD., 261 ITR 275 (SC). 4. IN APPEAL, BEFORE THE LEARNED COMMISSIONER OF IN COME TAX (APPEALS), THE ASSESSEE SUBMITTED THAT THE EXCISE D UTY WAS NOT DEBITED TO THE PROFIT AND LOSS ACCOUNT BUT WAS DEBI TED TO A SEPARATE ACCOUNT CALLED CENTRAL EXCISE RECEIVABLE ACCOUNT WHICH WAS SHOWN ON THE ASSETS SIDE IN THE BALANCE SHEET. THUS, IT DID NOT IMPACT THE PROFIT AND LOSS ACCOUNT AND, THEREFORE, NO ADDITION COULD BE MADE OF SUCH AN AMOUNT. HOWEVER, WITHOUT PREJUDI CE TO THIS SUBMISSION, THE ASSESSEE EXPLAINED THAT IF THIS AMO UNT WAS ADDED TO THE CLOSING STOCK, IT WILL HAVE TO BE ALLOWED AS AN EXPENDITURE IN THE PROFIT AND LOSS ACCOUNT OR THE SAME WOULD BE DE DUCTIBLE FROM THE CENTRAL EXCISE RECEIVABLE ACCOUNT WITHOUT A SEP ARATE ADDITION BEING MADE TO THE CLOSING STOCK ON THIS ACCOUNT. 5. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSE E THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) OBSERV ED AS UNDER: I HAVE CONSIDERED THE RIVAL SUBMISSIONS. IT IS O BSERVED THAT THE AMOUNT OF EXCISE DUTY HAS NOT BEEN DEBITED TO T HE PURCHASE ACCOUNT/ PROFIT AND LOSS ACCOUNT BUT HAS B EEN DEBITED TO THE CENTRAL EXCISE RECEIVABLE ACCOUNT. I F THE ITA NO.432 - 456/AHD/08 KOSHAMBHA MULTITRED PVT.LTD. ASSESSMENT YEAR 2004-05 - 3 - AMOUNT IS ADDED TO THE CLOSING STOCK UNDER SECTION 145A OF THE ACT, IT HAS TO BE TREATED ON PAR WITH THE RAW M ATERIAL PURCHASED AND ALLOWED UNDER SECTION 37 OR TO BE ALL OWED AS EXCISE DUTY PAYABLE UNDER SECTION 43B ON ACTUAL PAY MENT BASIS. THE NET RESULT WOULD BE THAT IT WILL NOT IMP ACT THE PROFIT OF THE APPELLANT. IN ANY CASE, THE INCLUSIVE METHOD OR THE EXCLUSIVE METHOD IS ULTIMATELY TAX NEUTRAL AS H ELD BY HON'BLE SUPREME COURT IN THE CASE OF INDO NIPPON OX O CHEMICALS CO. LTD., 261 ITR 275. UNDER THE CIRCUMST ANCES, THE ACTION OF THE ASSESSING OFFICER IN INCLUDING EX CISE DUTY IN CLOSING STOCK UNDER SECTION 145A IS CONFIRMED. HOWE VER, THE ASSESSING OFFICER DIRECTED TO ALLOW IT IN THE YEAR OF PAYMENT UNDER SECTION 43B. 6. THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASS ESSEE SUBMITTED THAT THE ASSESSEE IS FOLLOWING EXCLUSIVE METHOD OF ACCOUNTING FOR EXCISE DUTY AS THE EXCISE DUTY RATE ON PURCHASE OF RAW MATERIALS IS ALLOWED AS CENVET CREDIT TO THE AS SESSEE AND THEREFORE, THE AMOUNT OF EXCISE DUTY IS SHOWN AS RE CEIVABLE IN THE BALANCE SHEET BY THE ASSESSEE. THEREFORE, THE LEARN ED ASSESSING OFFICER WAS NOT JUSTIFIED IN MAKING ADDITION ON ACC OUNT OF EXCISE DUTY TO THE CLOSING STOCK OF THE ASSESSEE. IN THE A LTERNATIVE, IT WAS ARGUED THAT IF THE STAND OF THE LEARNED ASSESSING O FFICER IS TO BE ACCEPTED THEN THE EXCISE DUTY SHOULD BE INCLUDED IN OPENING STOCK, PURCHASES, CLOSING STOCK OF THE ASSESSEE. IF THIS I S DONE THE NET IMPACT OF THE EXCISE DUTY ON THE PROFIT OF THE ASSE SSEE WOULD BE NIL. 7. THE LEARNED DEPARTMENTAL REPRESENTATIVE ON THE O THER HAND ARGUED THAT IN VIEW OF PROVISIONS OF SECTION 145A O F THE ACT THE ASSESSEE IS REQUIRED TO INCLUDE THE AMOUNT OF EXCIS E DUTY IN THE CLOSING STOCK OF THE ASSESSEE. THEREFORE, THE LEAR NED ASSESSING OFFICER WAS JUSTIFIED IN HIS ACTION WHICH WAS CONFI RMED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS). 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE THE UNDISPUTED FACTS OF THE CASE ARE THAT THE ASSESSEE FOLLOWS EXC LUSIVE METHOD OF ACCOUNTING IN RESPECT OF EXCISE DUTY. THUS THE ASSE SSEES CLOSING ITA NO.432 - 456/AHD/08 KOSHAMBHA MULTITRED PVT.LTD. ASSESSMENT YEAR 2004-05 - 4 - STOCK ALSO DOES NOT INCLUDE ELEMENT OF EXCISE DUTY. AS PER THE BALANCE SHEET OF THE ASSESSEE PLACED AT PAGE NOS.1 TO 55 AT PAGE 43 SCHEDULE 7 THE CLOSING STOCK OF THE ASSESSEE WAS COMPRISED OF THE FOLLOWING ITEMS :- SCHEDFULE:7 INVENTORIES: PARTICULARS. AMOUNT (IN `.) AS ON 31 - 03 - 2004. RAW MATERIALS 1,23,53,399/ - GOODS FOR TRADING 33,91,645/ - SEMI FINISHED GOODS 86,89,184/ - FINISHED GOODS 8,08,665/ - SCRAP 1,28,213/ - PACKING MATERIALS 2,81,225/ - CONSUMABLE STORES. 0/ - TOTAL. 2,56,52,331/ - ACCORDING THE LEARNED ASSESSING OFFICER THE EXCISE DUTY WHICH WAS NOT INCLUDED IN THE VALUE OF CLOSING STOCK WAS `.20 ,01,095/-.THE BREAK UP OF THIS AMOUNT OF ` 20,01,095 AS TO HOW MU CH RELATES TO CLOSING STOCK OF FINISHED GOODS, CLOSING STOCK OF R AW MATERIAL AND CLOSING STOCK OF SEMI FINISHED GOODS ARE NOT AVAILA BLE ON RECORD NOR FURNISHED BY EITHER OF THE PARTIES. ACCORDING TO TH E LEARNED ASSESSING OFFICER THE ASSESSEE SHOULD HAVE INCLUDED THE ELEMENT OF EXCISE DUTY IN VALUATION OF CLOSING STOCK AS PER PR OVISIONS OF SECTION145A OF THE ACT AND HE THEREFORE, ADDED `.20 ,01,095/- TO THE INCOME OF THE ASSESSEE. ON APPEAL, THE LEARNED COMM ISSIONER OF INCOME TAX(APPEALS) CONFIRMED THE ACTION OF THE LEA RNED ASSESSING OFFICER BEFORE US THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE WAS ENT ITLED FOR CENVAT CREDIT IN RESPECT OF EXCISE DUTY PAID ON PUR CHASES OF RAW MATERIAL ETC., THEREFORE, THE LOWER AUTHORITIES WER E NOT JUSTIFIED IN INCLUDING EXCISE DUTY IN THE CLOSING STOCK OF THE ITA NO.432 - 456/AHD/08 KOSHAMBHA MULTITRED PVT.LTD. ASSESSMENT YEAR 2004-05 - 5 - ASSESSEE. THE ALTERNATIVE SUBMISSION OF THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE WAS THAT IF IT IS HE LD THAT EXCISE DUTY IS TO BE INCLUDED IN THE CLOSING STOCK VALUATI ON THEN OTHER ITEM LIKE OPENING STOCK PURCHASES AND SALES SHOULD HAVE ALSO BEEN RE- VALUED SO AS TO INCLUDE EXCISE DUTY ELEMENT THEREIN . HE CONTENDED THAT ON INCLUSION OF SUCH EXCISE DUTY ELEMENT IN VA LUATION OF OTHER ITEMS ALSO THERE WILL BE NO EFFECT IN THE PROFITS W HICH IS REFLECTED BY THE ACCOUNTS MAINTAINED ON EXCLUSIVE SYSTEM OF ACCO UNTING. HE THEREFORE, URGED FOR DELETION OF ENTIRE AMOUNT OF ` .20,01,095/-. THE LEARNED DEPARTMENTAL REPRESENTATIVE ON THE OTHER HA ND SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES. WE FIND THAT SECTION 145A WAS INSERTED IN THE STATUTE W.E.F. 1-4-1999. THE SAID S ECTION READS AS UNDER :- [METHOD OF ACCOUNTING IN CERTAIN CASES NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN SECTION 145, (A) THE VALUATION OF PURCHASE AND SALE OF GOODS AND INVENTORY FOR THE PURPOSES OF DETERMINING THE INCOME CHARGEABLE U NDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION' SHALL BE- (I) IN ACCORDANCE WITH THE METHOD OF ACCOUNTING REG ULARLY EMPLOYED BY THE ASSESSEE; AND (II) FURTHER ADJUSTED TO INCLUDE THE AMOUNT OF ANY TAX, DUTY, CESS OR FEE (BY WHATEVER NAME CALLED) ACTUALLY PAID OR INCU RRED BY THE ASSESSEE TO BRING THE GOODS TO THE PLACE OF ITS LOC ATION AND CONDITION AS ON THE DATE OF VALUATION. EXPLANATION : FOR THE PURPOSES OF THIS SECTION, ANY TAX, DUTY, CESS OR FEE (BY WHATEVER NAME CALLED) UNDER ANY LAW FOR THE TIME BEING IN FORCE, SHALL INCLUDE ALL SUCH PAYMENT NOTWITHSTA NDING ANY RIGHT ARISING AS A CONSEQUENCE TO SUCH PAYMENT. (B) INTEREST RECEIVED BY AN ASSESSEE ON COMPENSATIO N OR ON ENHANCED COMPENSATION, AS THE CASE MAY BE, SHALL BE DEEMED TO BE THE INCOME OF THE YEAR IN WHICH IT IS RECEIVED.] ITA NO.432 - 456/AHD/08 KOSHAMBHA MULTITRED PVT.LTD. ASSESSMENT YEAR 2004-05 - 6 - THUS THE SUBMISSION OF THE ASSESSEE THAT AS IT REGU LARLY FOLLOWS EXCLUSIVE METHOD OF ACCOUNTING AND AS CENVAT CREDIT IS ALLOWABLE IN RESPECT OF EXCISE DUTY PAID ON PURCHASE AND THEREFO RE, EXCISE DUTY SHOULD NOT BE INCLUDED IN VALUATION OF CLOSING STOC K IS FOUND TO BE UNACCEPTABLE. AS PER THE PROVISIONS OF SECTION 145 A IRRESPECTIVE OF REGULAR SYSTEM OF ACCOUNTING FOLLOWED BY THE ASSESS EE AND IRRESPECTIVE OF THE FACT CENVAT CREDIT IS AVAILABLE TO THE ASSESSEE FOR COMPUTING TOTAL INCOME TAXABLE UNDER THE PROVIS IONS OF SECTION 145A OF THE ACT THE PURCHASE, SALES AND INVENTORIES OF THE ASSESSEE ARE TO BE RE-VALUED FOR INCLUDING ALL THE TAXES ETC . WHICH ARE INCURRED ON THEM. HOWEVER, WE FIND FORCE IN THE SUB MISSION OF THE ALTERNATIVE ARGUMENT OF THE ASSESSEE TO THE EXTENT THAT AS PER PROVISIONS OF SECTION 145A THE LEARNED ASSESSING OF FICER OUGHT TO HAVE RE-VALUED NOT ONLY THE CLOSING STOCK BUT ALSO THE OPENING STOCK, PURCHASE AS WELL AS SALES FOR DETERMINING TH E INCOME OF THE ASSESSEE WHICH IS TAXABLE UNDER THE I.T. ACT. WE FI ND THAT NO MATERIAL WAS BROUGHT BEFORE US BY THE ASSESSEE TO S HOW THAT ON RE- VALUATION OF OPENING STOCK, PURCHASE AND SALES ALSO THE EFFECT ON THE NET PROFIT DETERMINED BY THE ASSESSEE WILL BE N IL. IN THE CIRCUMSTANCES, IN OUR CONSIDERED OPINION, IT SHALL BE IN THE INTEREST OF JUSTICE TO RESTORE THIS ISSUE BACK TO THE FILE O F THE LEARNED ASSESSING OFFICER FOR RE-ADJUDICATION AFRESH IN ACC ORDANCE WITH THE PROVISIONS OF SECTION 145A OF THE ACT. THE ASSESSEE IS ALSO DIRECTED TO SUBMIT BEFORE THE LEARNED ASSESSING OFFICER AS A ND WHEN CALLED BY THE LEARNED ASSESSING OFFICER THE RE-VALUED AMOU NT OF OPENING STOCK., PURCHASES AND SALES BY INCLUDING ELEMENT OF EXCISE DUTY THEREIN AND THE LEARNED ASSESSING OFFICER IS DIRECT ED TO VERIFY THE SAME AND THEREAFTER TO COMPUTE THE INCOME AS PER PR OVISIONS OF SECTION 145A OF THE ACT. WE ALSO LIKE TO OBSERVE TH AT IN RESPECT OF EXCISE DUTY ON CLOSING STOCK, CLOSING STOCK OF FINI SHED GOODS WHICH IS ALSO THE EXPENDITURE OF THE YEAR THE A.O. SHALL ALLOW DEDUCTION AS PER PROVISIONS OF SECTION 43B OF THE ACT AFTER VERI FYING THE PAYMENT WHICH HAS BEEN MADE WITHIN THE DUE DATE UNDER SECTI ON 139(1) OF THE ACT. WE SET ASIDE THE ORDERS OF THE LOWER AUTH ORITIES ITA NO.432 - 456/AHD/08 KOSHAMBHA MULTITRED PVT.LTD. ASSESSMENT YEAR 2004-05 - 7 - ON THIS ISSUE AND ALLOW THE GROUND OF APPEAL OF THE ASSESSEE FOR STATISTICAL PURPOSES. 9. GROUND NO.2 READS AS UNDER :- THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-I , BARODA HAS ERRED IN LAW AND ON FACTS OF THE BY CONF IRMING DISALLOWANCE OF `. 1,33,797/- IN RESPECT OF TRAVEL TICKETS FOR FOREIGN BUYERS. 10. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS ING OFFICER DISALLOWED EXPENDITURE OF `.1,33,797/- ON TRAVEL TI CKETS AND HOTEL ACCOMMODATION, GIFT ARTICLES LIKE T-SHIRTS AND CLOT HING MATERIAL AND HELMETS FOR THE BUYERS BEING INCURRED NOT FOR BUSIN ESS PURPOSES BUT BEING PERSONAL EXPENSES OF THE BUYERS. 11. ON THE APPEAL, THE ASSESSEE HAS SUBMITTED THAT FOR ITS BUSINESS IT HAD TO DEPEND LARGELY ON FOREIGN BUYERS AND EXPORT TURNOVER FOR ITS BUSINESS IT HAD TO DEPEND LARGELY ON FOREIGN BUYERS AND EXPORT TURNOVER DURING THE RELEVANT PREVIOUS YE AR WAS `.422.90 CRORE. IT HAS EXPLAINED THAT THE SAID EXPENDITURE H AS BEEN INCURRED IN THE INTEREST OF BUSINESS. 12. AFTER CONSIDERING THE SUBMISSIONS MADE BY THE A SSESSEE THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) OBSERV ED AS UNDER: I HAVE CONSIDERED THE RIVAL SUBMISSIONS. THE LEARN ED ASSESSING OFFICER HAS OBSERVED IN THE ASSESSMENT OR DER THAT THE MATTER WOULD HAVE BEEN DIFFERENT HAD THIS BEEN INCURRED BY THE ASSESSEE FOR THE PURPOSES OF PROCUR ING SAMPLES OR SPECIMEN ITEMS WHICH IN TERM WOULD BE SE EN TO PROMOTE THE PRODUCT OF THE COMPANY FOR ITS ULTIMAT E SALES ACROSS BORDER. EXPENSES WHICH PATENTLY AND PRIMA FA CIE APPEARED TO BE PERSONAL CANNOT CONSTITUTE EXPENDITU RE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. IT IS OBSERVED THAT THE APPELLANT HAS NOT BEEN ABLE TO REBUT THESE FACTS AND THIS ARGUMENT. UNDER THE CIRCUMSTAN CES, THE DISALLOWANCE MADE BY THE ASSESSING OFFICER IS CONFI RMED. ITA NO.432 - 456/AHD/08 KOSHAMBHA MULTITRED PVT.LTD. ASSESSMENT YEAR 2004-05 - 8 - 13. THE LEARNED AUTHORISED REPRESENTATIVE OF THE AS SESSEE SUBMITTED THAT THE LEARNED COMMISSIONER OF INCOME T AX (APPEALS) WAS NOT JUSTIFIED IN CONFIRMING THE DISALLOWANCE OF `.1,33,797/- IN RESPECT OF TRAVEL TICKETS OF FOREIGN BUYERS AS THE ASSESSEE IN ORDER TO MAINTAIN GOOD RELATION WITH THE CUSTOMERS HAS PA ID THE SAID EXPENSES. THE SAID EXPENSES WERE NOT INCURRED ON TH E DIRECTORS OF THE ASSESSEE-COMPANY BUT ON THE CUSTOMERS OF THE AS SESSEE AND WERE ACCORDINGLY EXPENSES INCURRED WHOLLY AND EXCLU SIVELY FOR THE PURPOSES OF THE ASSESSEE AND THEREFORE, NO DISALLOW ANCE OF THE SAME CAN BE MADE IN DETERMINING THE INCOME OF THE A SSESSEE. 14. THE LEARNED DEPARTMENTAL REPRESENTATIVE REFERRE D TO PAGE 133 OF THE PAPER BOOK AND POINTED OUT FROM THE DETA ILS OF EXPENSES FILED BY THE ASSESSEE IT CAN BE SEEN THAT THE NATUR E OF EXPENSES WERE SUCH AS SUITING MATERIAL, HOTEL BILLS, CD PURC HASED, SWEETS, SILVER ARTICLES, GIFTS, T-SHIRTS, HELMETS TICKETS E TC. THUS, THE NATURE OF THE EXPENSES SHOWS THAT THEY ARE IN THE NATURE O F PERSONAL EXPENSES AND HENCE WERE RIGHTLY DISALLOWED BY THE L EARNED ASSESSING OFFICER AND CONFIRMED IN APPEAL BY THE LE ARNED COMMISSIONER OF INCOME TAX (APPEALS) 14. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE ASSESSEE CLAIMED TO HAVE INCURRED `.1,33,797/- ON TRAVEL TICKETS FOR FOREIGN BUYERS. FROM THE DETAILS FURNISHED BY THE ASSESSEE THE LEARNED ASSES SING OFFICER FOUND THAT THE EXPENSES RELATES TO SUITING MATERIAL , HOTEL BILLS, CD PURCHASED, SWEETS, SILVER ARTICLES, GIFTS, T-SHIRTS , HELMETS TICKETS ETC. AND THEREFORE, DISALLOWED THE SAME AS PERSONAL EXPENSES OF THE BUYERS. IN APPEAL, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) CONFIRMED THE DISALLOWANCE. THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE EXPLAINED THAT THE E XPENDITURE INCURRED UNDER THIS HEAD BY THE ASSESSEE RELATE TO THE FOREIGN BUYER AT THE TIME OF THEIR VISIT IN INDIA. IN OUR CONSIDERED OPINION THE EXPENSES INCURRED IN RESPECT OF STAY AND TRAVEL OF BUYERS OF THE ITA NO.432 - 456/AHD/08 KOSHAMBHA MULTITRED PVT.LTD. ASSESSMENT YEAR 2004-05 - 9 - ASSESSEE COMPANY WERE INCURRED BY THE ASSESSEE-COMP ANY OUT OF COMMERCIAL EXPEDIENCY. SUCH AN EXPENDITURE CANNOT B E HELD AS PERSONAL EXPENSES OF THE ASSESSEE-COMPANY. WE THERE FORE, SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES AND RESTO RE THE MATTER BACK TO THE FILE OF THE LEARNED ASSESSING OFFICER F OR NECESSARY VERIFICATION AND THEREAFTER ADJUDICATION OF THE ISS UE AFRESH IN LIGHT OF THE OBSERVATIONS MADE HEREINABOVE. NEEDLESS TO M ENTION THAT THE LEARNED ASSESSING OFFICER SHALL ALLOW REASONABL E OPPORTUNITY OF HEARING TO THE ASSESSEE BEFORE DECIDING THE ISSUE A FRESH. THUS, THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED FOR STA TISTICAL PURPOSES. 15. GROUND NO.3 READS AS UNDER:- THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-I , BARODA HAS ERRED IN LAW AND ON FACTS OF THE CASE BY NOT DECIDING GROUND REGARDING DISALLOWANCE OF THE CLAIM OF DEDUCTION UNDER SECTION 80HHC OF THE INCOME TAX ACT , 1961. 16. AT THE TIME OF HEARING THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE DID NOT MAKE ANY SUB MISSION ON THIS GROUND OF APPEAL TAKEN BY THE ASSESSEE. THEREF ORE, THIS GROUND OF APPEAL IS DISMISSED FOR WANT OF PROSECUTION. 17. IN THE REVENUES APPEAL THE SOLE GROUND TAKEN B Y THE REVENUE IS AS FOLLOWS:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ER RED IN DELETING THE ADDITION OF `.30,52,595/- MADE ON ACCO UNT OF DISALLOWANCE OF ASSESSEES CLAIM OF PROVISION FOR F OREIGN EXCHANGE FLUCTUATION LOSS, HOLDING THAT IT IS AN AS CERTAINED LIABILITY, GOING AGAINST THE DECISION OF INDIAN OVE RSEAS BANK VS. CIT 151 ITR 446 (MAD.). 18. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS ING OFFICER DISALLOWED `. 30,52,595/- ON ACCOUNT OF FOREIGN EXC HANGE FLUCTUATION LOSS HOLDING IT TO BE A CONTINGENT LIAB ILITY ON THE BASIS OF THE DECISION IN THE CASE OF INDIAN OVERSEAS BANK LT D. VS. CIT, 151 ITA NO.432 - 456/AHD/08 KOSHAMBHA MULTITRED PVT.LTD. ASSESSMENT YEAR 2004-05 - 10 - ITR 446(MAD.). THE LEARNED ASSESSING OFFICER REJECT ED THE ASSESSEES PLEA THAT THE SAME HAD BEEN CLAIMED AS P ER THE ACCOUNTING STANDARDS BY RELYING ON THE DECISION IN THE CASE OF TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD., VS. CIT, 227 ITR 172(SC). 19. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) DELETED THE DISALLOWANCE BY OBSERVING AS UNDER :- 5. I HAVE CONSIDERED THE RIVAL SUBMISSIONS. IT IS OBSERVED THAT THE FOREIGN EXCHANGE FLUCTUATION LOSS IS ALLOW ABLE AS HELD BY THE DELHI HIGH COURT IN THE CASE OF CIT V. WOODWARD GOVERNOR INDIA P. LTD. &OTHERS (2007) TIOL 418 (DEL ) AND LUCENT TECHNOLOGIES HINDUSTAN LTD. V. JT.CIT 106 TT J 205 (BANG.). THE DELHI HIGH COURT HAS CLEARLY HELD WHIL E ANSWERING THE REFERENCE THAT INCREASE IN LIABILITY DUE TO FOREIGN EXCHANGE FLUCTUATION AS PER THE EXCHANGE RA TE PREVAILING ON THE LAST DATE OF FY IS ALLOWABLE AS A DEDUCTION AND IS NOT MERELY NOTIONAL OR CONTINGENT. UNDER T HE CIRCUMSTANCES, THE FOREIGN EXCHANGE FLUCTUATION LOS S OF `.30,52,595/- IS ALLOWED. 20. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUPPORT ED THE ORDER OF THE LEARNED ASSESSING OFFICER AND THE LEAR NED AUTHORISED REPRESENTATIVE OF THE ASSESSEE SUPPORTED THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS). 21. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE THE ASSESSEE CLAIMED DEDUCTION OF `.30,52,595/- ON ACCOUNT OF FO REIGN EXCHANGE FLUCTUATION LOSS IN RESPECT OF REVENUE LIABILITY O UTSTANDING AT THE END OF THE YEAR WHICH WAS DISALLOWED BY THE LEARNED ASSESSING OFFICER BY CONSIDERING THE SAME TO BE A CONTINGENT LIABILITY. IN APPEAL, THE LEARNED COMMISSIONER OF INCOME TAX (APP EALS) DELETED THE ADDITION FOLLOWING THE DECISION OF HON' BLE DELHI HIGH COURT IN THE CASE OF CIT VS. WOODWARD GOVERNOR INDI A PVT. LTD. & OTHERS (2007) 294 ITR 451 (DEL) AND THE ORDER OF TH E TRIBUNAL IN ITA NO.432 - 456/AHD/08 KOSHAMBHA MULTITRED PVT.LTD. ASSESSMENT YEAR 2004-05 - 11 - THE CASE OF LUCENT TECHNOLOGIES HINDUSTAN P. LTD., VS. JT.CIT 106 TTJ 205 (BANG) WHEREIN IT HAS BEEN HELD THAT INCREASE IN LIABILITY DUE TO FOREIGN EXCHANGE FLUCTUATION AS PER THE EXCHANGE RATE PREVAILING ON THE LAST DATE OF FINANCIAL YEAR IS ALLOWABLE AS A DEDUCTION AND IS NOT MERELY NOTIONAL OR CONTINGENT. WE FIND THAT TH E ISSUE IS ALSO COVERED BY THE DECISION OF THE HON'BLE SUPREME COUR T IN THE CASE OF CIT VS. WOODWARD GOVERNOR INDIA PVT. LTD.(2009) 312 ITR 254(SC) WHEREIN IT WAS HELD THAT LOSS SUFFERED BY T HE ASSESSEE IN RESPECT OF A REVENUE LIABILITY ON ACCOUNT OF EXCHAN GE DIFFERENCE AS ON THE DATE OF THE BALANCE SHEET IS AN ITEM OF EXPE NDITURE ALLOWABLE UNDER SECTION 37(1) IN THE YEAR OF ACCRUA L. THEREFORE, WE DO NOT FIND ANY GOOD REASON TO INTERFERE WITH THE O RDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS). IT IS CONFIRMED AND THE GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 22. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED FOR STATISTICAL PURPOSES AND THE APPEAL OF THE REVENUE IS DISMISSED. ORDER SIGNED, DATED AND PRONOUNCED IN THE COURT ON 30TH JULY,2010 SD/- SD/- ( MAHAVIR SINGH) (N. S. SAINI ) JUDICIAL MEMBER ACCOUNT ANT MEMBER AHMEDABAD; ON THIS 30TH DAY OF JULY, 2010 PATKI COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT(APPEALS)- 5. THE DR, AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT.REGISTRAR), ITAT, AHMEDABAD ITA NO.432 - 456/AHD/08 KOSHAMBHA MULTITRED PVT.LTD. ASSESSMENT YEAR 2004-05 - 12 - DATE INITIALS 1. DRAFT DICTATED ON 26-7-10 --------------- ---- 2. DRAFT PLACED BEFORE AUTHORITY 27-7-10 ----- -------------- 3. DRAFT PROPOSED & PLACED ------------------- JM BEFORE THE SECOND MEMBER 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER ----------- ----- ------------------- JM 5. APPROVED DRAFT COMES TO P.S ---------------- -- ------------------ 6. KEPT FOR PRONOUNCEMENT ON ---------------- --- ----------------- 7. FILE SENT TO THE BENCH CLERK ---------------- -------------------- 8. DATE ON WHICH FILE GOES TO THE ---------------- -------------------- 9. DATE OF DISPATCH OF ORDER ---------------- --- ------------------