TMI Blog2012 (12) TMI 732X X X X Extracts X X X X X X X X Extracts X X X X ..... e - CIT(A) deleted the addition - Held that:- The detail of expenditure filed shows that as shown before the taxing authorities, the expenditure was incurred on networking, fire fighting, electricity cabling, flooring, tiling, sanitary partitions, etc. The premises on which the office of the assessee was situated was a rented premises taken by the assessee and the assessee was not an owner thereof. The expenditure, no doubt, was incurred in the ordinary course of business of the assessee. No addition whatsoever, was made to the structure on the rented premises. The assessee never got to acquire any new asset or advantage by expending the amount - thus CIT (A) rightly deleted the addition wrongly made by the Assessing Officer - against revenue. Foreign Exchange loss - disallowance of claim by CIT(A) - Held that:- As decided in CIT, Delhi-II, New Delhi versus M/s L.G. Electronics India Pvt. Ltd. [2008 (8) TMI 10 - HIGH COURT DELHI] oss on account of foreign exchange rate fluctuation is an allowable business expenditure u/s 37 - rightly been contended on behalf of the assessee that current assets and liabilities in foreign exchange in accordance with the AS 11, are required to be r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... service interfaces. ii) Profiling and optimization resulting from the findings was done to the data object layer in order to achieve greater scalability of the platform. iii) Based on feedback from users of the service, some user flows were modified which includes changes for different languages in which services is deployed. iv) Product integration with the telecom network element (SMSC, DP, etc.) was achieved in several operator networks. v) R D was done on some new product initiatives (like Yahoo Mobile IM for Reliance network) 4. Before the Assessing Officer, it was explained that the aforesaid expenditure had been incurred regularly as per the assessee s required business expediency on a recurring basis, to keep pace with the fast changing technology in the mobile phone industry, as per the agreements made with the service provider. The expenditure was claimed to be a revenue expenditure. 5. The Assessing Officer, however, held the expenditure to be capital in nature and disallowed it, holding that the assessee had amortized the said expenditure over a period of three years in its books of account whereas in its computation of income, the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty, vehicle maintenance, communication, insurance, provisional expenses, salary and other benefits to the employees, etc. The Assessing Officer nowhere made out the assessee to have acquired any asset of capital nature or to have derived any advantage for long-term by incurring the expenditure. It is patent on record that the assessee renders consultancy services and does not require any significant capital assets. The expenses were undoubtedly incurred in the course of the day-to-day business operations of the assessee, such operations being routine in nature, by way of providing value added services to its customers. It was also never the case of the Assessing Officer that the services so provided by the assessee were ever used by the assessee and not by the mobile operators. Further, it is common knowledge that mobile services required continued upgradation and monitoring. As such, the Ld. CIT (A) has rightly observed that the expenditure in question was incurred as a matter of routine, for the business and commercial expediency of the assessee s business, i.e., consultancy business. The Ld. CIT (A) has also declared that the capitalization of such expenses in preceding years wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this regard, for which, the said order is confirmed. 14. Ground No.1 raised by the department is rejected. 15. Apropos ground No.2, according to the said ground, the Ld. CIT (A) has erred in deleting the addition of Rs. 1,27,95,082/-, made on account of treatment of leased property improvement expenses as capital expenditure. 16. The Assessing Officer treated the leased property improvement expenses claimed by the assessee to the tune of Rs. 1,27,95,082/- and disallowed the same. This was done by treating the expenditure of Rs. 1,42,16,758/- claimed by the assessee as capital expenditure and allowing depreciation of 10% amounting to Rs. 14,21,676/- thereon. It was observed by the Assessing Officer that the assessee had taken space on rent and had incurred various expenses on networking, fire fighting, electricity cabling, flooring, tiling, sanitary partitions, etc.; that the assessee, in its books of account had amortised the said expenses over a period of three years, whereas in the computation of income, the assessee had claimed the expense as being revenue in nature. 17. The Ld. CIT (A), having deleted the addition made by the Assessing Officer, the department has raised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the parties on this issue and have perused the material on record with regard thereto. The detail of expenditure filed before us shows that as shown before the taxing authorities, the expenditure was incurred on networking, fire fighting, electricity cabling, flooring, tiling, sanitary partitions, etc. The premises on which the office of the assessee was situated was a rented premises taken by the assessee and the assessee was not an owner thereof. The expenditure, no doubt, was incurred in the ordinary course of business of the assessee. No addition whatsoever, was made to the structure on the rented premises. In fact, the whole idea of the incurrence of the expenditure was to make the leased premises suitable for the assessee s business purposes. The assessee never got to acquire any new asset or advantage by expending the amount. The Ld. CIT (A) has duly taken into consideration these facts while rightly deleting the addition wrongly made by the Assessing Officer. 21. For the above, we concur with the findings recorded by the Ld. CIT (A) and the same are upheld. Ground No.2 is also rejected. 22. In the Cross Objections, the assessee has raised the following ground:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g transactions completed during the year under consideration; that contingent notional liability cannot be allowed as a deduction, where there is no backing of actual remittances and completion of transactions; that as such, the order of the Ld. CIT (A) in this regard requires to be confirmed while dismissing the cross objection filed by the assessee. 27. We have heard the parties on this issue and have perused the material with regard thereto. In L.G. Electronics (supra), it has been held that loss on account of foreign exchange rate fluctuation is an allowable business expenditure u/s 37 of the IT Act. 28. In Woodward Governors (supra) also, it has been held, affirming the decision in CIT vs. Woodward Governors India Pvt. Ltd. , 294 ITR 451 (Del), that for valuing the closing stock at the end of a particular year, the value prevailing on the last date is relevant; that this is because profit/loss is embedded in the closing stock; that while anticipated loss is taken into account, anticipated profit in the shape of appreciated value of the closing stock is not brought into account, as no prudent trader would care to show increase in profits/actual realization; that this i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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