TMI Blog2012 (10) TMI 288X X X X Extracts X X X X X X X X Extracts X X X X ..... of foreign exchange prevailing on the last day of the financial year is not notional or contingent and has to be adjusted in the actual cost of assets in terms of Section 43A, in the year in which there is variation in the exchange rate, irrespective of the date on which it is paid - in favour of the assessee. Payment to the UP State Electricity Board for laying electric transmission lines in the premises - Revenue v/s Capital - Held that:- As decided in CIT Vs. Saw Pipes Ltd.[2007 (1) TMI 101 - DELHI HIGH COURT] that expenditure was incurred by the assessee for laying of electricity transmission lines, which did not become the property of the assessee. It was held that the expenditure did not bring in any enduring benefit and was deductible as revenue expenditure - in favour of the assessee. Addition towards value of the closing stock - CIT (Appeals) deleting the addition - Held that:- The revenue has accepted similar claims in the assessment made for the assessment years 1996-97 and 1997-98. A consistent method of valuing the stock has been adopted by the assessee. It was also accepted by the revenue. It would, therefore, be improper to allow the revenue to change its pos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of Rs.4,85,305/- as entertainment expenditure. It was claimed by the assessee that 35% of the aforesaid amount represented expenditure incurred on the food and beverage for the employees while they were entertaining the assessee's customers on behalf of the assessee. This amounted to Rs.1,69,857/-. In calculating the allowance for entertainment expenses under Section 37(2) of the Act, the assessee deducted the allowance claimed in respect of the employees from the total entertainment expenditure incurred and applied the limits for deduction prescribed by the Section on the balance amount and calculated the disallowance on account of entertainment expenditure accordingly. The Assessing Officer, however, took the view that no allowance in respect of the entertainment expenditure incurred on the employees could be granted and accordingly reworked the disallowance at Rs.2,37,653/- in the following manner : Total Entertainment Expenditure (As per report) Rs.4,85,305/- Allowable u/s 37(2) First Rs.10,000 100% Rs.10,000/- Remaining Rs.4,75,305/- @ 50% Rs.2,37, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ried the matter in appeal before the Tribunal and accepted the decision of the CIT (Appeals) following the judgment of this Court in CIT Vs. Woodward Governor India P. Ltd. (2007) 294 ITR 451. In that judgment, it was held that the increase on account of fluctuations in the rate of foreign exchange prevailing on the last day of the financial year is not notional or contingent and has to be adjusted in the actual cost of assets in terms of Section 43A, in the year in which there is variation in the exchange rate, irrespective of the date on which it is paid. 8. This issue now stands concluded by the judgment of the Supreme Court in CIT vs. Woodward Governor India P. Ltd. (2009) 312 ITR 254 in which the judgment of this Court was affirmed. The question having been concluded by the judgment of the Supreme Court (supra) we answer the substantial question of law in favour of the assessee and against the revenue. 9. The next question of law is whether payment made by the assessee to the UP State Electricity Board (UPSEB) for laying electric transmission lines in the assessee's premises represents revenue expenditure or capital expenditure. 10. The amount paid by the assessee is Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aler price is made on the assumption that the sale price would only be 65%. In the case of defective but repairable stock, a provision is made on account of estimated repairable stock. In the case of demo stock it was written off in three years at 25%, 50% and 100% in the third year. In the fourth category fell VCDs, video recorders etc. which remained unsold for more than one year and these are written off in two years. They were accordingly, valued at 37.5% of the cost. 14. The Assessing Officer did not accept the assessee's explanation. According to him the assessee is a multinational having strong presence in more than 40 countries and it spends a fortune in establishing this brand name. Even granting the pace at which technology develops in the field of consumer durables it is not possible to accept the claim that the goods produced by the assessee become junk in a short period of a year or six months. The Assessing Officer also noted that the stock had not become defunct or unsalable and that there was no method to justify the reduction in the value of the stock as was done by the assessee. Accordingly, he refused to allow the provision for defective stock and added the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 1997-98. A consistent method of valuing the stock has been adopted by the assessee. It was also accepted by the revenue. It would, therefore, be improper to allow the revenue to change its position only for one year, which would upset the method of valuation of the stock for a particular year thereby resulting in a distorted version of the profits. The method of valuation of closing stock can be disturbed only if it is found that the method followed is such that true profits and gains cannot be deduced therefrom. These are basic principles in income tax law and need no repetition or citing of authority. In the case of CIT Vs. Bharat Commerce and Industries Ltd. (1999) 240 ITR 256 cited by the Tribunal the loss arising out of the reduced valuation of slow moving raw material on the basis of estimated realisable value was held allowable. We do not find any infirmity in the orders passed by the CIT(Appeals) and the Tribunal on this point, having regard to the method adopted by the assessee consistently. We accordingly answer the question of law in favour of the assessee and against the revenue. 17. The second question of law is whether the Tribunal was right in law in confirming t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sales Qty. 41,254 60,644 54,542 56,779 76,386 Sales Value 53,70,40,746 74,18,78,271 66,16,91,561 77,29,82,225 88,31,12,779 e) the reasonableness of the expenditure has to be seen from the point of view of the businessman and the mere fact that some part of the expenditure inured to the benefit of another entity does not entitle the income tax authorities to disallow a part of the expenditure. In coming to the aforesaid conclusion the Tribunal relied on the following judgments: (i) CIT Vs. Walchand and Co. Private Ltd. (1967) 65 ITR 381 (ii) CIT Vs. Dalmia Cement (B) Ltd. (2002) 254 ITR 377 (Del.) (iii) Sassoon J. David and Co. (P)Ltd. Vs. CIT (1979) 118 ITR 261 (SC) On this basis the Tribunal allowed the assessee‟s appeal and dismissed the appeal filed by the revenue with the result that the entire expenditure of Rs.6,93,81,635/- stood allowed. 20. We have considered the facts and the submissions. The finding of the Tribunal that a part of the advertisement expenditure is reimbursed by the parent company is not under challenge. This itself should settle the issue in favour of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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