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2007 (8) TMI 477 - AT - Income TaxDeduction from business income - loss on unmatured contracts - fluctuation in the exchange rate of currencies - Forward Foreign Exchange Contracts - HELD THAT:- In the case of Chainrup Sampatram v. CIT [1953 (10) TMI 2 - SUPREME COURT], Hon'ble Supreme Court took note of this position and observed that "while anticipated loss is taken into account, anticipated profit...is not brought into account as no prudent trader would care to show increased profit before its actual realisation. This is the theory underlying the rule that the closing stock is to be valued at cost or market price whichever is lower, and it is now generally accepted as an established rule of commercial practice and accountancy". No doubt these observations were made in the context of valuation of stock but what is material is the theory underlying the principle of valuing closing stock at cost or market price whichever is lower and the fact that such a theory has the acceptance of the Hon'ble Supreme Court. Just because anticipated profits are not assessed to tax, it would not follow, as a corollary thereto, that anticipated losses cannot be allowed as deduction in computation of business income. Thus, we are of the considered view that the very basis of the action of the Assessing Officer was vitiated in law and on facts. We, therefore, deem it fit and proper to direct the Assessing Officer to delete the impugned disallowance. The assessee gets the relief accordingly. Disallowance by way of capital expenditure out of the pre-operative expenses - HELD THAT:- In the case of CIT v. Bush Boake Allen (India) Ltd.[1981 (10) TMI 32 - MADRAS HIGH COURT], held that expenses incurred cannot always be viewed as derivative expenses taking colour from the particular transaction to which they relate. Their Lordships were dealing with legal expenses. Their Lordships held that as the expenses are of revenue nature in their own right, the same have to be allowed as revenue deduction irrespective of its linkage with a capital expense. In our considered view, the same holds good true for travelling expenses as well. The travelling expenses are revenue expenses in nature and merely because the travel was in connection with doing the interior decoration work, it cannot be held to be capital expenditure in nature. We, therefore, deem it fit and proper to delete the impugned disallowance. The assessee gets the relief accordingly. Ground No. 6 is thus allowed. In the result, the appeal is partly allowed in the terms indicated above.
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