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TMI Blog2015 (10) TMI 2178X X X X Extracts X X X X X X X X Extracts X X X X ..... countant, in my capacity as a Authorised Representative of M/s. Empire & Single Tea Ltd. (since merged with Apeejay Surrendra Corporate Services Pvt. Ltd.,) do hereby solemnly affirm an oath and declare as follows : 1) That Mr. Sudipto Dey newly engaged Executive Officer of Taxation department of Apeejay Group of Companies met me on 20th May 2010 for the first time and sought for legal advice on adverse inferences contained in Appeal No.143/CC-III/CIT(A)CI/07-08 dated 26.02.2008. 2)That I retained a copy of the said appeal order till 29.05.2010 for study before giving opinion on the point. 3)That on 29.05.2010 when the said Executive Officer attended again I made requisition of certain relevant papers and documents before conveying final opinion. 4)That the documents requisitioned were made available to me on 07.06.2010 on the ground that these were lying at tea garden at Assam. 5)That after scrutiny of relevant papers and documents and the appeal order I formed opinion to contest the adverse appeal order and drafted grounds of appeal for approval of the appellant before finalization. 6)That delay from 16.06.2010 to the actual date of filing u/s 253 is for procedural ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee had duly remitted the entire EPF dues before the due date of filing the return of income. Respectfully following the decision of the Hon'ble Apex Court as stated (supra), we allow the appeal of the assessee. Accordingly, Ground No. 1 raised by the assessee is allowed. 6. The second issue to be decided in the appeal of the assessee is as to whether the ld. CIT(Appeals) is correct in disallowing the Foreign Exchange loss of Rs. 11,00,000/ 6.1. Brief facts 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 55,00,000 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- 11) issued by the Institute of Chartered Accountants of India (ICAI) by the assessee-company. The assessee incurred a Notional Exchange Loss of Rs. 11,00,000/- on s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ECB loan agreement, 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 facts of the case. Based on this, it could logically be concluded that any exchange fluctuation arising out of the restatement of the said loan at the end of the year, be it gain or loss, would also fall on revenue account and hence, automatically comes under the ambit of taxation if it is a gain and allowable as an expenditure if it is a loss. This issue is squarely covered by the decision of the Hon'ble Supreme Court in the case of CIT -vs.- Woodward Governor India P. Ltd. reported in 312 ITR 254 (SC) , wherein the questions raised before their Lordships were as under:- "(i) Whether, on the facts and circumstances of the case and in law, the additional liability arising on account of fluctuation in the rate of exchange in respect of loans taken for revenue purposes could be allowed as deduction under section 37(1) in the year of fluctuation in the rate of exchange or whether the same could only be allowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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 the circumstances of a particular case, cover an amount which is really a "loss" even though the said amount has not gone out from the pocket of the assessee. 14. In the case of M.P. Financial Corporation v. CIT reported in 165 ITR 765 the Madhya Pradesh High Court has held that the expression "expenditure" as used in Section 37 may, in the circumstances of a particular case, cover an amount which is a "loss" even though the said amount has not gone out from the pocket of the assessee. This view of the Madhya Pradesh High Court has been approved by this Court in the case of Madras Industrial Investment Corporation Ltd. v. CIT reported in 225 ITR 802. According to the Law and Practice of Income Tax by Kanga and Palkhivala, Section 37(1) is a residuary section extending the allowance to items of business expenditure not covered by Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ealization. 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 in the shape of appreciated value of goods remaining unsold at the end of the accounting year and carried over to the following years account in a continuing business are not brought to the charge as a matter of practice, though, as stated above, loss due to fall in the price below cost is allowed even though such loss has not been realized actually. At this stage, we need to emphasise once again that the above system of commercial accounting can be superseded or modified by legislative enactment. This is where Section 145(2) comes into play. Under that section, the Central Government is empowered to notify from time to time the Accounting Standards to be followed by any class of assessees or in respect of any class of income. Accordingly, under Section 209 of the Companies Act, mercantile system of accounting is made mandatory for com ..... X X X X Extracts X X X X X X X X Extracts X X X X
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