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Empire & Single Tea Ltd (Since Merged With Apeejay Surrendra Corporate Services Pvt Ltd) Versus DCIT, Central Circle-III, Kolkata

Addition 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 .....

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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 tax .....

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at:- Items A to F [Sale of gunny bag/drums,Bazaar Rent,Road Roller Hire Charges,Land Acquisition by ONGC,Land Acquisition by Montu Nag and Hire charges of Machinery to Apeejay Tea Ltd.] were only arising out of business income and accordingly to be treated as income from business. As regards Items G to J,[Post Office Rent, Car Insurance Claim, Miscellaneous Receipt and Hire Charges of vehicle for election duty] they are to be treated as income from other sources. We direct the Assessing Officer .....

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ed u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the 'Act'). 2. Shri. Manish Tiwari, FCA, the Learned AR argued on behalf of the assessee. Shri. D.Banerjee, JCIT, the Learned DR argued on behalf of the revenue. 3. It is seen that the appeal for the assessee has been delayed by 66 days. The ld. AR filed an affidavit before us explaining the reasons for condonation of delay. The affidavit is reproduced below :- "I, Sri Manish Tiwari son of Late S.D.Tiwari by faith .....

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7-08 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 .....

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on petition is accepted and delay for 66 days is condoned. The ld. DR fairly conceded to the condonation petition. Hence the appeal is admitted. 4. The first issue to be decided in this appeal of the assessee is whether the ld. CIT(Appeals) is correct in deleting the addition made towards employees' contribution to Provident Fund (E.P.F.) amounting to ₹ 69,706/- which was remitted beyond the due date prescribed under the P.F. Act but before the due date of filing the return of income u .....

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ces of the case, the action of Ld. CIT(A) to confirm addition of ₹ 69,706/- representing Employee's contribution to P.F. for May'2004 is opposed to his own finding in similar situation relevant to assessment year 2006-07. " 4.2 The ld. A.R. argued that the date of remittances of EPF is mentioned in pages 9- 10 of the assessment order and argued that the issue is covered in favour of the assessee by the decision of the Hon'ble Apex Court in the case of Vinay Cement Limited .....

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e 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. 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 i .....

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ccount. 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 ₹ 11,00,000/- on such restatement in view of the increase in liability payable on the loan account. This is worked out as under:- ECB Value as on 31.03.2005 [55 .....

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ment basis and not on mere restatement. The assessee pleaded that the provisions of section 43A per se are not applicable to the facts of the case as no asset was acquired out of ECB loan availed by the assessee as admittedly the said loan was availed for general working capital business purposes only. But this explanation before the Assessing Officer did not hold water. Aggrieved, the assessee preferred appeal before the ld. CIT(Appeals), who upheld the decision of the Assessing Officer. Aggrie .....

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of the ECB loan agreement. He further argued that since the ECB loan was utilized on revenue account and no fixed assets 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 .....

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ot 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 In .....

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i) Whether, the assessee is entitled to adjust the actual cost of imported assets acquired in foreign currency on account of fluctuation in the rate of exchange at each balance sheet date, pending actual payment of the varied liability?" Their Lordships had categorically held that since the loan was borrowed for general business purposes i.e. on Revenue Account, any loss arising out of restatement at the end of the year would be squarely allowable under section 37(1) of the Act. The relevan .....

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as sought to be argued that the increase in liability at any point of time prior to the date of payment cannot be said to have gone irretrievably as it can always come back. According to the learned counsel, in the case of increase in liability due to foreign exchange fluctuations, if there is a revaluation of the rupee vis-vis foreign exchange at or prior to the point of payment, then there would be no question of money having gone irretrievably and consequently, the requirement of "expend .....

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t 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" .....

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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 .....

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of Section 145. That section recognizes the rights of a trader to adopt either the cash system or the mercantile system of accounting. The quantum of allowances permitted to be deducted under diverse heads under Sections 30 to 43C from the income, profits and gains of a business would differ according to the system adopted. This is made clear by defining the word "paid" in Section 43(2), which is used in several Sections 30 to 43C, as meaning actually paid or incurred according to the .....

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at they are unreliable. One more aspect needs to be highlighted. Under Section 28(i), one needs to decide the profits and gains of any business which is carried on by the assessee during the previous year. Therefore, one has to take into account stock-in-trade for determination of 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 .....

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ted 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 in the shape of .....

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e 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 companies. In other words, accounting standard which is continuously adopted by an assessee can be superseded or modified by Legislative intervention. However, but for suc .....

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ssessee on account of the exchange difference as on the date of the balance sheet is an item of expenditure under Section 37(1) of the 1961 Act". In view of the aforesaid judgment of the Hon'ble Apex Court, we hold that the sum of ₹ 11,00,000/- being the exchange loss would be allowed as deduction under section 37(1) of the Act for the assessment year 2005-06. Accordingly, Ground No. 2 raised by the assessee is allowed 7. The third issue to be decided in this appeal is as to wheth .....

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