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2018 (6) TMI 1271 - AT - Income TaxDisallowance of freight charges - Held that:- Since the disallowance was made on estimate basis without any basis and as assessee could prove the genuineness of expenditure, we do not see any reason to differ from the findings of Ld.CIT(A). There is no merit in the contentions of Revenue. The grounds are dismissed. Addition of notional gain on freight expenses - Held that:- In the present case there is no denial that the amount of ₹ 85.23 crores borrowed was utilized for acquisition of capital assets. This being admitted position the exchange fluctuation can only be adjusted to the asset accounts by reducing the carrying amount of the fixed assets. It cannot be taxed as income - It is to be noted that in the next A.Y. 2009-10 there was a loss due to fluctuations in foreign exchange on the loans borrowed for acquisition of assets. The AO has not allowed this loss as deduction. There cannot be one method if the fluctuations result in reduction of liability and a different treatment if the fluctuations result in a higher liability. The fact that the liability increase due to exchange fluctuations in the next year has not been treated as allowable expenditure is relevant, for the purpose of determining whether the reduction in liability due to exchange fluctuations on amounts borrowed for acquisition of assets could be assessed as income in the year under appeal. The treatment in terms of taxation has to be uniform at all times - AO is directed to delete the disallowance Issue of Prorata premium - Held that:- Similar issue was considered by the Hon'ble Supreme Court in the case of Madras Industrial Investment Corporation Limited Vs. CIT [1997 (4) TMI 5 - SUPREME COURT] as held that since the entire liability to pay the discount had been incurred in the accounting year in question, the assessee was entitled to deduct the entire amount in that accounting year. This conclusion was not justified looking to the nature of the liability. It was true that the liability had been incurred in the accounting year. But the liability was a continuing liability which stretched over a period of 12 years. It was, therefore, a liability spread over a period of 12 years. In fact, allowing the entire expenditure in one year might give a very distorted picture of the profits of a particular year. Issuing debentures at a discount is another such instance where, although the assessee has incurred the liability to-pay the discount in the year of issue of debentures, the payment is to secure a benefit over a number of years. There is a continuing benefit to the business of the company over the entire period. The liability should, therefore, be spread over the period of the debentures. The appellant, therefore, had, in its return, correctly claimed a deduction only in respect of the proportionate part of discount over the relevant accounting period in question. - decided against revenue
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