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2016 (6) TMI 1465 - AT - Income Tax‘Mark to market’ loss arising on re-valuation of creditors outstanding on the closing date of accounting year - allowable notional loss - CIT-A deleted the addition - HELD THAT:- CIT(A) has rightly relied upon the decision of Woodward Governor India (P.) Ltd. [2009 (4) TMI 4 - SUPREME COURT] wherein, while dealing with the question as to whether the additional liability arising on account of fluctuation in the rate of exchange can be allowed to be adjusted pending actual payment of the varied, the Hon'ble Supreme Court has observed that "expenditure" as used in section 37 in Income Tax Act may in the circumstances of a particular case cover an amount which is a "loss" even though said amount has not been given from the pocket of the assessee. CIT(A) has also rightly held that section 43A is not applicable to the trading assets. The issue is thus, squarely covered in favour of the assessee. Revaluation of closing stock - Whether payment on account of foreign exchange ought to be added to the actual cost of purchase of diamonds and closing stock revalued accordingly? - CIT-A deleted the addition - HELD THAT:- As decided in “IBM Global Services India P. Ltd [2007 (5) TMI 554 - ITAT BANGALORE] held at the time of purchase of the inventory, if the item has been purchased from a foreign country and the amount is payable in foreign exchange and if, the payment is deferred and the liability increases in Indian Rupees, then such liability cannot be termed to have increased the cost of the material. The cost price would be the original cost price and it cannot be increased due to subsequent foreign exchange fluctuation and increased liability on that account. Also confirmed by HC [2014 (5) TMI 852 - KARNATAKA HIGH COURT] Addition on account of sale of wastage and scrap value - Whether such scrap is valuable and used in various industries? - CIT-A deleted the addition - HELD THAT:- AO has made addition on certain assumptions that the scrap/wastage of the rough diamond must have fetched to the assessee an income. However, there is no evidence brought by him in this respect. He has just estimated the income at the rate of 5% of the purchase value of the rough diamonds. The Ld. CIT(A), however, has deleted the addition observing that there was no evidence of sale of scrap by the assessee. However, the Ld. CIT(A) has not given any finding as to what is done with the scrap and whether it has a nil value or it fetches some value to the assessee. Contention of the Ld. A.R., before us, is that the value of the scrap is taken into consideration while settling the rates with the labour contractor. We find that these facts have not been thoroughly examined by the lower authorities. We accordingly restore this issue to the file of the AO to decide it afresh after considering the evidences and explanations that may be furnished by the assessee in this respect.
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