TMI Blog2015 (10) TMI 2008X X X X Extracts X X X X X X X X Extracts X X X X ..... section 37(1) of the Act for the assessment year 2005-06. - Decided in favour of assessee. Addition made towards employees’ contribution to Provident Fund (E.P.F.) - amount remitted beyond the due date prescribed under the P.F. Act but before the due date of filing the return of income under sect ion 139(1) - CIT(A) deleted the addition - Held that:- This issue is directly covered in favour of the assessee by the decision of the Apex Court in Vinay Cement Limited reported in (2007 (3) TMI 346 - Supreme Court of India) wherein it has been held that “statutory item like EPF is paid before the due date of filing the return of income be allowed irrespective of the fact where the contribution related to the employee and employer”. From the verification of the dates as stated in the assessment order, it is observed that the assessee had duly remitted the entire EPF dues before the due date of filing the return of income. We are not inclined to interfere with the decision of the ld. CIT(Appeal's). Accordingly, Ground raised by the Revenue is dismissed. - Decided in favour of assessee. Addition made on account of cess on green leaves - CIT(A) deleted the addition - Held that:- Rule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der of ld. Commissioner of Income Tax (Appeal s), Cent ral-I, Kolkata in Appeal No. 04/CCI. III/CIT(A)C-I/08-09 dated 23.04.2009 for the assessment year 2005-06, which is against the order of assessment framed under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the Act ). 2. The only issue to be decided in the appeal of the assessee is as to whether the ld. CIT(Appeal s) is correct in disallowing the Foreign Exchange loss of ₹ 10,00,000/- under section 43A of the Act without appreciating the fact that the said prov ision is not applicable in the fact s and ci rcumstances of the case. 2.1. Brief fact s of the case are that the assessee is engaged in the business of cultivation of green leaves and manufacture and sale of Black Tea. The assessee had borrowed External Commercial Borrowings (hereinafter referred to as ECB ) of USD 50,00,000 and utilized the same for general business purposes. Hence, this goes to prove that the loan has been obtained for revenue account. This loan was outstanding as on 31s t March, 2005 and the same was restated at the exchange rate prevailing at the end of the year in consonance with the Accounting Standard 11 (AS- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... copy of the ECB loan agreement. He further argued that since the ECB loan was utilized on revenue account and no fixed asset s were purchased out of the same, the provisions of section 43A of the Act per se are not applicable to the assessee. He relied on the decision of the Hon ble Supreme Court in the case of Woodward Governor India P. Ltd. reported in 312 ITR 254 (SC) in support of his contention that the exchange loss on restatement of the foreign currency loan for the end of the year leading to increase in liability is an allowable business expenditure. In response to this, ld. D.R. vehemently supported the order of the lower authorities. 2.5. We have heard the rival submissions and perused the material available on record. It is seen from the ECB loan agreement, which was filed based on a speci fic query from the Bench by the A.R. that the loan was utilized for general corporate purposes and not for acquisition of any fixed assets. Hence, we hold that the borrowings were utilized on Revenue Account and the provisions of section 43A of the Act were not applicable at all in the fact s of the case. Based on this, it could logically be concluded that any exchange fluctuat ion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ional liability arising on account of fluctuation in the rate of foreign exchange was merely a contingent/notional liability which does not crystallize till payment. In that case, the Supreme Court was considering the meaning of the expression expenditure incurred while dealing with the question as to whether there was a distinction between the actual liability in presenti and a liability de futuro. The word expenditure is not defined in the 1961 Act. The word expenditure is, therefore, required to be understood in the context in which it is used. Section 37 enjoins that any expenditure not being expenditure of the nature described in Sections 30 to 36 laid out or expended wholly and exclusively for the purposes of the business should be allowed in computing the income chargeable under the head profits and gains of business . In Sections 30 to 36, the expressions expenses incurred as well as allowances and depreciation has also been used. For example, depreciation and allowances are dealt with in Section 32. Therefore, Parliament has used the expression any expenditure in Section 37 to cover both. Therefore, the expression expenditure as used in Section 37 may, in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profits. The 1961 Act makes no provision with regard to valuation of stock. But the ordinary principle of commercial accounting requires that in the P L account the value of the stock-in- trade at the beginning and at the end of the year should be entered at cost or market price, whichever is the lower. This is how business profits arising during the year needs to be computed. This is one more reason for reading Section 37(1) with Section 145. For valuing the closing stock at the end of a particular year, the value prevailing on the last date is relevant. This is because profits/loss is embedded in the closing stock. While anticipated loss is taken into account, anticipated profit in the shape of appreciated value of the closing stock is not brought into account, as no prudent trader would care to show increase profits before actual realization. This is the theory underlying the Rule that closing stock is to be valued at cost or market price, whichever is the lower. As profits for income-tax purposes are to be computed in accordance with ordinary principles of commercial accounting, unless, such principles stand superseded or modified by legislative enactments, unrealized profits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... referred to as the Act ). 5. The first issue to be decided in this appeal of the Revenue is whether the ld. CIT(Appeal s) is correct in deleting the addition made towards employees cont ribution to Provident Fund (E.P.F.) amounting to ₹ 1,84,308/-, which was remitted beyond the due date prescribed under the P.F. Act but before the due date of filing the return of income under sect ion 139(1) of the Act. 5.1. The Assessing Officer disallowed the employees cont ribution to P.F. under section 36(1)(va), read with section 2(24)(x) of the Act, in view of the fact that the same were not remitted within the due date presc ribed under the P.F. Act. Aggrieved, the assessee challenged this issue before the ld. CIT(Appeal s), who deleted this addition. Aggrieved, the Revenue is in appeal before us on the following Ground:- In the facts and circumstances of the case the ld. CIT(A) has erred in restricting the disallowance u/s 36(1)(va) read with section 2(24)(x) of the Income Tax Act, 1961 from ₹ 1,84,308/- to ₹ 18,048/- . 5.2. Ld. D.R. vehemently supported the order of the Assessing Officer. In response to this, ld. A.R. argued that the date of remittances ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions contained in rule 8 with which we had occasion to deal in Union of India v. Warren Tea Ltd. [2004] 266 ITR 226 (Cal), APO No. 792 of 1999, disposed of by us on January 15, 2004, it appears that in respect of computation of income of tea grown and manufactured, a fiction has been created under which both the agricultural component and the business component of the income would be assessed together for the purpose of computing the income under the Act and only after the computation of the total income, the apportionment is to be made determining 60 per cent as agricultural income and 40 per cent as e xigible to tax under the Act. During the process of the computation, all deductions allowable at the time of computation are to be allowed and that was rightly allowed. Inasmuch as if the income for tea grown was assessed under the agricultural income-tax, in that event, the same cess paid of green leaf would have been eligible for deduction at the time of computation of the agricultural income. But when by fiction in respect of tea grown and manufactured, the agricultural component of the income out of tea grown is also computed under the Income-tax Act along with the income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... figure as declared in the revised return. Aggrieved, the assessee challenged this issue before the ld. CIT(Appeals), who di rected the Assessing Officer to re-visit the revised return of income, which modified the figure of income from other sources and income from business. Aggrieved, the Revenue is in appeal before us on the following ground:- In the facts and circumstances of the case the ld. CIT(A) has erred in deleting the income from other sources of ₹ 36,25,990/- determined by the Assessing Officer . 8.3. Ld. D.R. argued that the findings of the ld. CIT(Appeals) had no basis and prayed for setting aside the order of the ld. CIT(Appeal s) to the file of the Assessing Officer. In response to this, ld. A.R. stated that the aforesaid three receipts amounting to ₹ 36,25,990/- has been accepted as income from business as requested in the revised return by the Assessing Officer in the assessment proceedings it self. 8.4. We have heard the rival submissions. It is seen from the assessment order that the aforesaid three receipt s had been duly accepted by the Assessing Officer as business income in the assessment proceedings itself, which was also the claim o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... H. Received from IOL (Indian Oil Limited) Rs.2,34,000/- I. Realised from Auto Entines ₹ 81,142/- J. Bazar Rent ₹ 54,450/- K. Interest on I.T. Refund (99-2000) Rs.3,78,515/- L. Sundry receipt s Rs.28,45,070/- Total Rs.46,26,553/- 9.3. From the aforesaid list it could be seen that Items A to J were only arising out of tea business totalling to ₹ 14,02,968/- and accordingly to be treated as income from business. Since no details could be filed regarding the sundry receipt s before us, the same is considered as the income from other sources. Interest on income-tax refund could definitely be construed only as income from other sources. We di rect the Assessing Officer to re-compute ac cordingly. Accordingly, Ground No. 4 of the Revenue is partly allowed. 10. In the result, the appeal of the Revenue in ITA No. 1233/KOL/2009 is par ..... X X X X Extracts X X X X X X X X Extracts X X X X
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