TMI Blog2006 (8) TMI 435X X X X Extracts X X X X X X X X Extracts X X X X ..... ich are as follows : Assessing Officer had revised the valuation of closing stock made by the assessee by taking into account the element of exchange rate fluctuation pertaining to items which are in closing stock. Assessing Officer had primarily relying on the judgment of honourable Apex Court in the case of CIT v. British Paints India Ltd. [1991] 188 ITR 44 1 , held that the foreign exchange fluctuation has arisen in assessee s case directly in respect of closing stock and, therefore, that the exchange loss relatable to the closing stock has to be considered as only part of closing stock and that the assessee is not correct in claiming the entire loss even that relating to the closing stock as an expenditure incurred. AR sought our co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cessary to refer to section 145(1) of the Income-tax Act which lays down that the income chargeable to tax under the head "Profits and gains of business or profession" or "Income from other sources" should be computed in accordance with the method of accounting adopted regularly by the assessee. There was no dispute that the assessee had the method of accounting and it was regularly employed by it. The Assessing Officer has not pointed out any defects in the accounting method followed by the appellant or in the accounts maintained which were duly audited also. 3. Without prejudice for a moment even if the Assessing Officer s version is accepted, the profit shown in the next year will have to be reduced and this process will have to be car ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n account of exchange rate fluctuation and in certain cases when the exchange rate is less than the rate on the date on which the transaction is entered, the credit is also taken into account. Under these facts, the assessee s case is that the difference that arises subsequent to the purchases though it may relate to the purchases, it only represents the expenditure incurred for obtaining financial arrangement for making the purchases and cannot be treated as part of purchase cost for the purpose of valuation of closing stock. Though the expenditure is incurred in relation to purchases, its nature is only in the form of interest for obtaining credit for the extended period in discharging the liability on account of purchases. Under these fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Apex Court s judgment in the case of British Paints India Ltd. ( supra ) is not applicable. AR concluded submitting that the assessee is only a tax paying company which is consistently following the same method of valuation of closing stock and the closing stock only being opening stock of the next assessment year, that except resulting in distortion of the income offered to tax in several assessment years, there would not be any effective result in the ultimate tax liability of the assessee over a period. 4. DR relied on the orders of the Assessing Officer and CIT(A) and submitted that there being no dispute regarding the fact that the amount relates directly to purchases made, that considering the same as part of closing stock is ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riod of rising turnover and rising prices, the system adopted by the assessee as found by the Tribunal is opt to diminish the assessment of the taxable profit of a year. The profit of one year is likely to be shifted to another year which is an incorrect method of computing profits and gains for the purpose of assessments. Each year being self contained unit and the taxes of a particular year being payable with reference to the income of the year, as computed in terms of the Act, the method adopted by the assessee had been found to be such that income cannot properly be deduced therefrom. It is therefore, not only the right but the duty of the Assessing Officer to act in exercise of his statutory power as he has done in the instant case for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arises on account of variation in the exchange rate on the date on which the purchase is made and the date on which the same is settled through the bank pursuant to the arrangement with the bank. According to us, the relevant fact is that the assessee had entered into the arrangement of finance with its bank and with the party from which it is importing the material. Hence, the exchange rate fluctuation is directly attributable to the cost of the material purchased. According to us, in the case before us the expenditure incurred on foreign exchange fluctuation loss is directly related and attributable to the purchase of raw material which remained in the closing stock. The reliance placed by the AR on Accounting Standards 2 and 11, would al ..... X X X X Extracts X X X X X X X X Extracts X X X X
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