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2015 (8) TMI 1086 - ITAT MUMBAI

2015 (8) TMI 1086 - ITAT MUMBAI - [2015] 40 ITR (Trib) 540 (ITAT [Mum]) - Disallowance under the head foreign travelling expenses - Held that:- The assessee had furnished the details about the encashment/ surrender of foreign exchange before both the lower authorities. The Assessing Officer or the first appellate authority had not doubted the foreign tours undertaken by the employees of the assessee-company. After considering the material on record and the judgment of Krishnonics Ltd. [2007 (12) .....

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the stock. It is a fact that because of the recession, the assessee could not export the goods or sell the goods in the local market. Considering the peculiar circumstances it revalued the inventory. In our opinion the Assessing Officer/first appellate authority should have made further enquires in this regard. We find that in the case of Alfa Laval India Ltd. v. Deputy CIT [2003 (9) TMI 43 - BOMBAY High Court ] had held that in the subsequent assessment year the goods in question were sold at .....

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standing the real nature of the transactions. The assessee had not shown any income under the head exempt income under Chapter III of the Act for which it had claimed incurring of expenditure. Until and unless both these conditions are fulfilled provisions of section 14A cannot and should not be invoked. The first appellate authority had given a categorical finding of fact in this regard. Secondly, the Assessing Officer has not found any evidence that the interest expenses incurred by the assess .....

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ce or deduction ought to have been made in the assessment for any year in respect of any loss, expenditure or trading liability incurred by the assessee. The Assessing Officer has not discussed as to when the deduction was allowed. On the contrary the records reveal that no allowance or deduction had been made in the assessment of the assessee in any earlier year. Consequently, there was no question of invoking section 41(1). So, in our opinion the order of the first appellate authority does not .....

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year (AY). Grounds of appeal filed by the assessee reads as under : "Ground No. 1 : On the facts and in the circumstances of the case and in law : The learned Commissioner of Income-tax (Appeals) erred in confirming the disallowance of foreign travelling expenses of ₹ 5,87,765 out of total amount of ₹ 8,52,235 made by the Assessing Officer. The appellant prays that the same may please be allowed. Ground No. 2 : The learned Commissioner of Income-tax (Appeals) erred in confirmin .....

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in holding that the interest of ₹ 26,44,597 relating to borrowed funds, invested in assets generating income not includible in gross total income, could not be disallowed under section 14A of the Income-tax Act, 1961 on the ground that the assessee had not earned such income during the year. 2. On the facts and in the circumstances of the case and in law, the learned Commissioner of Income-tax (Appeals) erred in deleting the addition of ₹ 54,56,353 on account of cessation of liabilit .....

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the income of the assessee at ₹ 58,10,320. 2. First ground of appeal filed by the assessee deals with disallowance made under the head foreign travelling expenses. During the course of assessment proceedings, the Assessing Officer observed that the assessee had debited to profit and loss account ₹ 8,52,235 on account of foreign travelling charges, that out of that an amount of ₹ 2,64,470 was incurred towards the cost of tickets, that for other expenses, to the tune of ₹ 5 .....

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ers from abroad, that the expenditure was incurred for the purpose of the assessee's business. After considering the submissions of the assessee, the first appellate authority held that the Assessing Officer had disallowed part of the foreign travel expenditure as no details had been filed, that expenditure could not be allowed as the veracity of the same had not been established either before the Assessing Officer or himself. Accordingly, he rejected the appeal filed by the assessee. 2.2. B .....

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n of the Ahmedabad Tribunal in the case of ITO v. Krishnonics Ltd. [2009] 308 ITR (AT) 8 (Ahd). The Departmental representative (DR) supported the order of the first appellate authority. 2.3. We have heard the rival submissions and perused the material before us. We find that the assessee had furnished the details about the encashment/ surrender of foreign exchange before both the lower authorities. Page No.64 onwards evidence the encashment/surrender of foreign exchange. The Assessing Officer o .....

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ellate authority, we decide ground No. 1 in favour of the assessee. 3. Next ground of appeal is about disallowance of diminution in value of inventories of work-in-progress amounting to ₹ 1,95,00,000. During the assessment proceedings, the Assessing Officer found that in the notes on accounts in Schedule 17 the assessee had mentioned that work-in-progress (WIP) included the revaluated figures. The assessee contended that work- in-progress had been revaluated after technical revaluation of .....

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ee preferred an appeal before the first appellate authority. After considering the submission of the assessee and the assessment order, the first appellate authority held that the Assessing Officer had not accepted the claim made by the assessee on the ground that it was following the mercantile system of accounting and had not intimated the change of accounting system during the year, that the assessee could not reduce the value of closing stock, that it had reduced the profit for the year unde .....

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informed as to what safeguards were taken by it for such transactions. Finally, he upheld the order of the Assessing Officer. 3.2. Before us, the authorised representative stated that there was no change in method of accounting, that the assessee had followed the provisions of section 145(1), that the first appellate authority had taken wrong figures of local sales. He relied upon the cases of Chainrup Sampatram v. CIT [1953] 24 ITR 481 (SC) and Alfa Laval India Ltd. v. Deputy CIT [2004] 266 IT .....

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iation of opening and closing stock along with the details of work-in-progress which included jobs undertaken by it for customers (page No. 59 of paper book). We find that the assessee had stated that the customers had not fulfilled the commitments and had not taken deliveries of the machinery, that it obtained technical evaluation regarding the valuation of the material and accordingly stocks had been carried at net realisable value. Vide its letter dated January 30, 2006 (pages 61 and 62 of th .....

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ange in the method of valuing the stock and therefore the assessee was not required to report the change in the return about valuing the stock. It is a fact that because of the recession, the assessee could not export the goods or sell the goods in the local market. Considering the peculiar circumstances it revalued the inventory. In our opinion the Assessing Officer/first appellate authority should have made further enquires in this regard. We find that in the case of Alfa Laval India Ltd. v. D .....

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pted by the first appellate authority and disputed by the assessee. He should also verify the realised value of the inventory wherein reduction was made by the assessee during the year under consideration. In case it is found that goods were sold at the price or at the lesser price shown by the assessee as on the last date of the accounting year under consideration, the claim made by it has to be allowed. We want to make it clear that issue is being restored to the file of the Assessing Officer .....

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s no return on these investments from its sister concerns. He held that 38.4 per cent. of investment in shares (Rs.4,09,32,000 i.e., ₹ 1,57,17,888) was attributable to secured loan taken by the assessee. He applied section 14A of the Act and disallowed the interest on proportionate basis which worked out to ₹ 26,44,597. He added it back to the total income of the assessee. 4.1. Aggrieved by the order of the Assessing Officer, the assessee preferred an appeal before the first appellat .....

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377; 4.09 crores in two sister concerns while an amount of ₹ 1.37 crores had been paid interest, that the Assessing Officer had considered the investment in sister concern as to be covered under section 14A, that the Assessing Officer erred in invoking provisions of section 14A, that the assessee did not have any income during the year which was not forming part of the total income, that a deduction was allowable under section 37 of the Act, if the expenditure was not capital or personal i .....

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d no disallowance could be made on the basis of such presumption. He finally held that interest expenditure on borrowed fund was allowable on the facts of the case and provisions of section 14A was not applicable. 4.2. Before us, the Departmental representative (DR) supported the order of the Assessing Officer. The authorised representative (AR) stated that there was no evidence to prove that the assessee had earned exempt income and for that it had claimed some expenditure. 4.3. We have heard t .....

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ven a categorical finding of fact in this regard. Secondly, the Assessing Officer has not found any evidence that the interest expenses incurred by the assessee were not for wholly and exclusively for the business of the assessee. In these circumstances, we are of the opinion that the order of the first appellate authority does not suffer from any legal or factual infirmity. So, his order on both the counts-deletion of section 14A disallowance and allowing the interest expenditure under section .....

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e, that the assessee also failed to justify the balances shown as payable, that as per the provisions of section 41 of the Act, when the liability ceased to exist the same could not be allowed, that the liability shown by the assessee was no more payable, that creditors were shown since so many years, that the assessee also failed to file the correspondence made with the creditors, that it was not possible to consider the liability as payable. Finally, he made an addition of ₹ 54.56 lakhs. .....

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other manner whatsoever any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission on cessation thereof, that the Assessing Officer did not give any such findings but merely stated that the liability was "no more payable" as the "creditors were shown since so many years", that the Assessing Officer's conclusion that the provisions of section 41 of the Act were applicable was not supported by any evidence. Aft .....

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assessee for more than three years, that merely because they have remained outstanding for some years they did not come automatically under section 41(1) of the Act, that there should be some evidence on record that in respect of such loss or expenditure or trading liability claimed in earlier years the assessee has obtained in some manner some benefit by way of cessation or remission, that there should be some evidence on record that liability ceased to exists in respect of the outstanding, th .....

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