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TMI Blog2020 (5) TMI 17X X X X Extracts X X X X X X X X Extracts X X X X ..... TION LTD. VERSUS COMMISSIONER OF INCOME TAX [ 2010 (3) TMI 81 - SUPREME COURT] held that the loss suffered by the Assessee, maintaining accounts regularly on mercantile system and following accounting standards prescribed by the Institute of Chartered Accountants of India (ICAI), on account of fluctuation in the rate of foreign exchange as on the date of balance-sheet was an item of expenditure u/s 37(1) notwithstanding that the liability had not been discharged in the year in which the fluctuation in the rate of foreign exchange occurred. Loss claimed by the Assessee on account of fluctuation in the rate of foreign exchange as on the date of balance-sheet is allowable as expenditure under Section 37(1) - Decided in favour of the assessee Depreciation on the cost of the imported software from the eligible profits for the deduction u/s.10A - what can be allocated between the STP Unit and the non-STP Units is only indirect expenditure. The expenditure which can be directly be identified with a particular unit cannot be apportioned between the two units - HELD THAT:- Admittedly, the AO apportioned the depreciation between the STP units and the non-STP units, but the content ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Appeal No.CIT(A)-VIII/CHE/280/06-07 allowed the loss on account of the exchange rate fluctuation, as regards, to the re-calculation of profit eligible for deduction u/s.10B of the Act, the Ld.CIT(A) following the decision of the Hon ble Madras High Court in the case of CIT vs. Sundaram Clayton Ltd., reported in 281 ITR 425 and also in the case of IT vs. MM Forgings Ltd., reported in 257 ITR 60 and also the Hon ble Kerala High Court in the case of CIT vs. Abad Fisheries Ltd., reported in 258 ITR 641 held that the export turnover in respect of the sale proceeds were not received within the stipulated period, should be reduced from both export turnover as well as the total turnover. Similarly, as regards to the allocation of depreciation between the STP Units and non-STP Units, the Commissioner held that the depreciation on the imported software, which was exclusively used in the domestic sales cannot be allocated to STP Units and accordingly, directed the AO to exclude the depreciation on the cost of the imported software for the purpose of calculating the eligible profits for deduction u/s.10B of the Act. Thus, the Ld.CIT(A) partly allowed. 4. The Revenue challenged the corre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Ld.DR submitted that the loss on account of foreign exchange fluctuation rate is only notional. Further, he submitted that the loss should be computed in accordance with the provisions of Rule 115 of IT Rules, 1962. As regards to, the exclusion of depreciation on the cost of imported software, she submitted that the assessee had not raised any objection before the AO and therefore, the assessee is barred from agitating the same before the appellate authorities. 8. On the other hand, the Counsel for the assessee, Mr. R.Vijayaraghavan, submitted that the sale proceeds which were not received in and convertible foreign exchange within the stipulated period should be reduced from both export turnover and total turnover by following the judgments: CIT vs. Abad Fisheries Ltd., reported in 258 ITR 641 CIT vs. M/s.Maars Software International Ltd in TCA No.390 of 2009 dated 05.12.2018. 9. As regards to the disallowance of loss on account of foreign exchange fluctuation, the Ld.Counsel submitted that the decision of the Hon ble Uttarakhand High Court in the case of ONGC was reversed by the Hon ble Supreme Court, which was reported in (2010) 322 ITR 0180 regarding the excl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the debits of the amount of expenditure for which a legal liability has been incurred even before it is actually disbursed and credits, what is due, immediately it becomes due even before it is actually received; (ii) whether the same system is followed by the assessee from the very beginning and if there was a change in the system, whether the change was bona fide; (iii) whether the assessee has given the same treatment to losses claimed to have accrued and to the gains that may accrue to it; (iv) whether the assessee has been consistent and definite in making entries in the account books in respect of losses and gains; (v) whether the method adopted by the assessee for making entries in the books both in respect of losses and gains is as per nationally accepted accounting standards; (vi) whether the system adopted by the assessee is fair and reasonable or is adopted only with a view to reducing the incidence of taxation. Applying these factors on the facts of that case, it was held that the loss suffered by the Assessee, maintaining accounts regularly on mercantile system and following accounting standards prescribed by the Institute of Charter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... denominator as well and 'export turnover' cannot assume two different characteristics for two parts of the same formula. 14. In the light of the above legal position and facts, we do not find any reason to interfere with the order of the Ld.CIT(A). Accordingly, Ground No.3 stands dismissed 15. Ground No.4 challenges the decision of the Ld.CIT(A) to exclude the depreciation on the cost of the imported software from the eligible profits for the deduction u/s.10A of the Act. The principle is well settled that what can be allocated between the STP Unit and the non-STP Units is only indirect expenditure. The expenditure which can be directly be identified with a particular unit cannot be apportioned between the two units. Admittedly, the AO apportioned the depreciation between the STP units and the non-STP units, but the contention of the assessee is that the depreciation on imported software cannot be apportioned to STP Unit, because it was exclusively used in the domestic sales, is required to be adjudicated with reference to the evidence on record as it is a question of fact. But, it appears that the Ld.CIT(A) had not gone into the evidence whether the imported soft ..... X X X X Extracts X X X X X X X X Extracts X X X X
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