TMI Blog2006 (12) TMI 175X X X X Extracts X X X X X X X X Extracts X X X X ..... y learned CIT(A). It is also true that the CIT(A) is competent to examine the allowability or otherwise of such expenditure. When the details were called for, the assessee has submitted that the sum out of such expenses was never claimed as expenses as the same were claimed in earlier years. The provision made in this regard for earlier year is now reversed. Thus, there is no question of any disallowance of such expenditure. We accordingly delete the disallowance. In our opinion, the claim of assessee could not have been dismissed holding the same as prior period expenditure . Any liability though relating to earlier year depends upon making a demand and its acceptance by the assessee and such liability has been actually claimed and paid in the year, cannot be disallowed as deduction merely on the basis that the accounts are maintained on mercantile basis and that it related to a transaction of the previous year, The expenses are contractual in nature and not statutory payments. Thus, the same will be allowed as liability in the year in which such liability crystallizes. Thus, the expenditures which were earlier in dispute and in view of the fact that the dispute is settled ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In the result, the appeal of assessee is allowed and that of Revenue is dismissed. - HON'BLE DEEPAK R. SHAH, A.M. AND P.K. MALHOTRA, J.M. For the Appellant : Piyush Kaushik For the Respondent : Smt. Purnima Singh ORDER DEEPAK R. SHAH, A.M.: 1. These cross-appeals by assessee and by Revenue are directed against order of learned CIT(A)-XI, New Delhi, dt. 25 th March, 2003. 2. We shall first deal with appeal of the assessee. The assessee company is carrying on the business of developing, manufacturing, selling and servicing computer system and software. It also renders technical assistance and services for use outside India in connection with the use, purchase, sale, import, export, lease or distribution, licence, design, manufacture of any computer machines, etc. It also provides consultancy services outside India related to the preparation and maintenance of accounting, strategical, scientific information and reports, data processing programming, systems analysis and machine services for solving and aiding commercial. industrial, scientific and research problems, and for all other related business. During the year, the assessee incurred an exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 97 of the paper book. On p. 97 of the paper book is the ledger account of trade show expenses. As sum of Rs. 10,97,532/- is credited to such account, being the provision for expenses made for earlier year and reversed during the current year. Thus, he submitted that the expenses were never claimed to the extent of Rs. 10,97,532/- as the same are claimed as expenditure in earlier year for which the bills were received during the year and paid during the year. As regards the expenses to the extent of Rs. 3,33,840/-, he submitted that the expenses crystallized during the year. The same is on account of payment due to M/s Anil Packaging Industries for their bills dt. 24 th Feb., 1998 and 10 th March, 1998. There was some dispute with M/s Anil Packaging Industries regarding printing of multicolour pamphlets. Due to the same, the assessee never made a provision for such liability payable to M/s Anil Packaging Industries. The dispute was resolved in the month of June, 1998, and was accordingly accounted for. The liability is contractual liability and not a statutory liability. The contractual liability is payable when it is crystallized unlike the statutory liability. For this purpose, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 2.4 We have considered rival submissions. There is no concept of deferred revenue expenditure known to the IT Act. The expenditure is either revenue expenditure or capital expenditure. The allowability of the same is to be looked into as per provisions of ss. 28 to 44 of the IT Act. The expenditures were treated as deferred revenue expenditure by the AO and 1/5 th of such expenditure were allowed. At first instance, it can be said that having satisfied himself that the expenditures are genuine and allowable as such, the AO allowed 1/5th of the same. Since the expenditures are in relation to advertisement, publicity, trade shows, etc., it can be held that the same are revenue in nature. Such expenditures do not bring any capital asset into existence. Thus, the same were rightly treated as revenue expenditures by learned CIT(A). It is also true that the CIT(A) is competent to examine the allowability or otherwise of such expenditure. When the details were called for, the assessee has submitted that the sum of Rs. 10,83,605/- out of such expenses was never claimed as expenses as the same were claimed in earlier years. The provision made in this regard for earlier year is now rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so fact that such accounts are duly audited as per s. 44AB of the Act, the same are allowable as such. We accordingly delete the disallowance of Rs. 44,569/-. 2.7 As regards the expenses amounting to Rs. 50,635/-, the expenses were incurred when the trade shows were organized. The assessee through trade shows reaches to its customers. During such trade shows a meeting was organized in the hotel and expenses relate to such meeting organized. Thus, the liability to pay such expenses at first instance is that on the assessee. Subsequently, even if the assessee has to recover the same or failed to recover such expenses, will not alter the claim of assessee. The expenses having been incurred during the trade show, which is in the course of business, the same are allowable as such. We accordingly delete the disallowance of Rs. 50,635/-. 3. The next ground of appeal is against disallowance of a sum of Rs. 87,52,111/- being the foreign exchange fluctuation loss for increase in liability for repayment of working capital loan availed from Mis Silicon Graphics Inc., USA. The AO held that the assessee has taken a term loan of US $ 30 lacs to meet the working capital requirement. Learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f customs duty paid during the year and included in the closing stock valuation. 4.1 The assessee pays customs duty at the time of import of raw material. The assessee from year to year claims the amount of customs duty paid as deduction under s. 43B even though such duty is forming part of closing stock valuation. For the next assessment year, in order to ensure that double deduction is not claimed, such amount is excluded from the computation of opening stock. The AO held that by claiming the deduction, the assessee has off-loaded the amount so paid from the closing value of the stock. The Hon'ble Supreme Court in the case of CIT vs. British Paints India Ltd. (1991) 91 CTR (SC) 108 : (1991) 188 ITR 44 (SC) held that duty paid should be added to the cost of stock for the purpose of valuation of same. As per s. 43B, the expenditures are allowable on payment basis provided the same are otherwise allowable. Though the decision of the Special Bench of Tribunal in the case of Indian Communication Network (P) Ltd. vs. IAC (1994) 48 TTJ (Del)(SB) 604 : (1994) 206 ITR 96 (Del)(SB)(AT) supports the contention of assessee, since a reference has been filed in this case before the High ..... X X X X Extracts X X X X X X X X Extracts X X X X
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