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2022 (3) TMI 1014 - AT - Income TaxForeign exchange fluctuation loss - AO during the course of scrutiny assessment proceedings noticed that the assessee has claimed deduction / loss on account of difference between actual exchange amount and exchange amount accounted - HELD THAT:- This factual matrix remained uncontroverted and unchallenged. In the course of hearing, a query was also raised before assessee to demonstrate the accounting procedure adopted for the reversal of reinstatement of assets and liabilities as on 31st March of every year on account of exchange fluctuations, for which the ld. Counsel referred to the paper-book compilation submitted before us and demonstrated the accounting methodology adopted by the assessee for the same. As gone through the judgment in the case of Woodward Governor India P. Ltd. [2009 (4) TMI 4 - SUPREME COURT] wherein it was held that the loss suffered by assessee on account of foreign exchange difference as on the date of balance sheet is an item of expenditure allowable u/s.37(1) - it was held that the accounting method followed by an assessee continuously for a given period of time needs to be presumed to be correct till AO comes to conclusion for reasons to be given that said systems does not reflect true and correct profits. Disallowance of provision made towards stock - HELD THAT:- On perusal of records and on specific query to the ld. Counsel of the assessee, we noted that provision for stock made by assessee is totally on adhoc basis, contingent in nature and that there is no historic trend explained before us. In the case of Rotork Controls India P. Ltd.[2009 (5) TMI 16 - SUPREME COURT] has noted the issue regarding contingent liability like warranty provision and held that the value of contingent liability, like the warranty expenses, if properly ascertained and discounted on accrual basis can be claimed as item of deduction u/s.37(1) - But, Hon’ble Supreme Court stated that the principle of estimation of contingent liability is not the normal rule. It would depend on the nature of the business, the nature of sales, the nature of the product manufactured and sold and the scientific method of accounting adopted by the assessee. It would also depend upon the historical trend and upon the number of articles produced. All the parameters indicated by the Hon’ble Supreme Court while dealing with accounting for similar aspects like warranty provisions are not at all satisfied in the present case.
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