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2017 (1) TMI 1139 - ITAT MUMBAI

2017 (1) TMI 1139 - ITAT MUMBAI - [2017] 55 ITR (Trib) 198 - Denial of loss on account of realization of export proceeds - Held that:- Short realization of export proceeds to the extent of ₹ 49,64,937/-, took place in next year but it related to export receivable for the instant year, and at the time of finalization of accounts for the instant year, the actual figure was available, and therefore, assessee made no mistake in considering it for the purposes of arriving at the taxable income. .....

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real income for the instant year could only be deduced after deduction of such loss. Therefore, considering the entirety of facts and circumstances, in our view, the CIT(A) made no mistake in allowing the claim of the assessee, which we hereby affirm.- Decided against revenue - Disallowance of foreign travel expenses and foreign exchange purchased for use in foreign travel - Held that:- Assessing Officer could not enter into shoes of the assessee while examining the claim of expenses and not .....

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- only. No reason to interfere with above finding of the CIT(A) - Decided against revenue - Disallowance of interest expenditure under section 36(1)(iii) - Held that:- Relevant discussion in the assessment order reveals that as per the Assessing Officer assessee is paying interest on capital raised from the partners also and, therefore, even if the methodology laid down by the CIT(A) in assessment year 2008-09 is to be allowed, the funds to the extent of partnerís capital cannot be treated a .....

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g Officer shall carry out the aforesaid exercise after providing the assessee a reasonable opportunity of being heard. Thus, on this aspect Revenue succeeds for statistical purposes. - ITA No.2502/Mum/2014 - Dated:- 20-1-2017 - SHRI G.S.PANNU, ACCOUNTANT MEMBER AND SHRI RAMLAL NEGI, JUDICIAL MEMBER For The Appellant : Shri A.Ramachandran For The Respondent : Shri Jignesh A.Shah ORDER PER G.S.PANNU,A.M: The captioned appeal filed by the assessee pertaining to assessment year 2009-10 is directed a .....

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09 regarding the Sundry Debtors as per AS-II was a gain of ₹ 1.14 crores.?" Ground no. 2 "Whether on the facts and circumstances of the case and in law, the Ld. CIT (A) has erred in allowing the claim of loss of ₹ 49.64 lacs, when what was valued was an asset in the Balance Sheet viz. Sundry Debtors and valuation of which had increased by ₹ 1.14 crores.? " Ground no. 3 "Whether on the facts and circumstances of the case and in law, the Ld. CIT (A) has erred .....

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accordance with the principles of "Prudence" as contained in AS-I ?". Ground no. 5 " Whether on the facts and circumstances of the case and in law, the Ld. CIT (A) has erred in allowing disallowance of foreign travel expenses of ₹ 3.88 lacs even though the assessee had visited countries wherein IHI business connection of clients was found. ?" Ground no. 6 : "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in restricting .....

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ting to the action of the Assessing Officer in denying a loss of ₹ 49,64,937/- claimed by the assessee on account of realization of export proceeds. 4. In brief, the relevant facts are that the respondent assessee is a partnership firm engaged in the business of dealing in cut & polished diamonds and precious & semi precious stones. In the course of assessment proceedings, it was noticed that assessee had claimed a loss of ₹ 49,64,937/- on account of realization of export pro .....

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ear and, therefore, such loss could not be allowed while computing the income for the instant assessment year. 4.1 In appeal before CIT(A), assessee assailed the order of the Assessing Officer on varied grounds. The CIT(A) has reproduced the elaborate submissions made by the assessee and has thereafter, held that the impugned loss was allowable considering the principles prudence. The CIT(A) noted that Assessing Officer did not doubt the amount short realized from the debtors amounting to ₹ .....

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ny had estimated the import entitlement benefits and recognized in its books of account as income accrued the estimated amount, in the year in which the exports were made. The import entitlements were not utilized since no imports were effected during that year. The Counsel for the company arguing that though the company had accounted for the income, it had not in fact arisen. The Counsel quoted the Expert Advisory Opinion of the ICAI which has time and again opined that one of the major conside .....

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ncession of duty in the year when the entitlements were accounted for in the books, thereby vindicating the Principle of Prudence. 2.4.13 The Mumbai Tribunal in the case Voltas Limited vs. DCIT, 64 ITD 232 ruled that whilst working out profits, all expected losses had to be accounted for in order to determine the real income of the company. It therefore allowed a claim made of deduction for warranty provisions. It held that since the income for which the projected expenditure had to be incurred .....

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of prudence and when a particular claim is known to have crystallized, the principle of prudence must hold precedence. Even the UK SSAP 2 explicitly says that where there is an apparent conflict between the Accruals concept and the concept of Prudence, the latter prevails. Similarly, even as per Indian AS-9, revenue is recognized only when measurability and collectability are reasonably certain. 2.4.15 In view of the Principle of Accountancy considered by the Hon'ble Supreme Court in the ple .....

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und No.1 is allowed. 4.2 Against such decision of the CIT(A), Revenue is in appeal before us. Before us, the Ld. Departmental Representative has primarily reiterated the stand of the Assessing Officer in support of the case of the Revenue. The singular point which has been emphasized by the Ld. Departmental Representative is that the said loss could not be said to have accrued as on 31/03/2009, since as on that date the corresponding export receivables were not actually realized, and that such r .....

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d out that it is a well accepted principle of accountancy that provision should be made for all known liabilities and losses even though the amount may not be determined with certainty and represents only a best estimate in the light of available information. In this context, Ld. Representative for the assessee pointed out that so far as the reasonableness of the loss is concerned, there is no dispute that it has been suffered on account of actual short realization of export proceeds. The Ld. Re .....

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spute relates to the income chargeable under the head profits and gains of business or profession ; which is liable to be computed in accordance with the methodology prescribed in section 145(1) of the Act i.e. either in terms of cash or mercantile system of accounting regularly employed by the assessee. Sub-section (2) of section 145 empowers the Central Government to notify Accounting Standards for any class of assessees or in respect of any class of income. In the present case, assessee firm .....

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he principle of prudence, which has been emphasized in the Accounting Standard -1 notified under section 145(2) of the Act also. The principle of prudence seeks to ensure that provision ought to be made for all known liabilities and losses even though there may remain some uncertainty with its determination. So however, it has to be appreciated that what the principle of prudence signifies is that the probable losses should be immediately recognized. In the present context, the stand of the asse .....

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, assessee is justified in determination of such loss on the basis of actual figures which were available while assessing its income in the instant assessment year. In the case of U.B.S. Publishers and Distributors (supra), which has been relied upon before us, the issue relates to the assessment year 1967-68 (previous year ending on 31/05/1966). In the assessment proceedings, it was found that assessee therein had claimed an expenditure by way of purchases of a sum of ₹ 6,39,124/- represe .....

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period. The claim of the Assessing Officer was that since assessee was maintaining its accounts on mercantile system, the liability on account of devaluation of the Indian currency could not be said to have accrued during the accounting period ending on 31/5/1966 as devaluation took place after the end of the accounting period. The Tribunal allowed the claim of the assessee holding that though devaluation of Indian currency took place after the end of the previous year, but assessee was justifi .....

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wable deduction in assessment year 1967-68 itself. The parity of reasoning laid down by the Hon'ble Allahabad High Court is squarely applicable in the present case also. In the present case, short realization of export proceeds to the extent of ₹ 49,64,937/-, took place in next year but it related to export receivable for the instant year, and at the time of finalization of accounts for the instant year, the actual figure was available, and therefore, assessee made no mistake in consid .....

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overed by a sum of ₹ 49,64,937/-and, therefore, the real income for the instant year could only be deduced after deduction of such loss. Therefore, considering the entirety of facts and circumstances, in our view, the CIT(A) made no mistake in allowing the claim of the assessee, which we hereby affirm. Thus, in so far as Grounds of appeal No.1 to 4 are concerned, the same are dismissed. 5. The Grounds of appeal No.5 & 6 relate to the action of the Assessing Officer in disallowing the e .....

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, the discussion in paras 4 & 5 of the assessment order reveal that disallowance of ₹ 3,88,167/- out of foreign travel expenses have been made on the ground that it pertained to the visit of partners to such countries where assessee has not done any business. The disallowance of ₹ 3.00 lacs out of the foreign exchange purchased for use in foreign travel was made by the Assessing Officer on the ground that no details were filed to indicate how the foreign exchange was utilized dur .....

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h regard to the disallowance out of foreign exchange purchased for foreign travel, in the absence of details, the CIT(A) has found it fit to restrict the disallowance to ₹ 50,000/- only. 5.2 Having heard the rival parties, we find no reason to interfere with above finding of the CIT(A) as no cogent reasoning has been brought out by the Ld. Departmental Representative before us. As a consequence, the finding of the CIT(A) is hereby affirmed and the Revenue fails on this aspect also. 6. The .....

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usiness transaction with the said concern during the year and that assessee was otherwise incurring interest expenditure on borrowings even on the capital raised from the partners. Before the Assessing Officer assessee contended that the said advance was given in assessment year 2008- 09, which could not be adjusted against the labour bills nor could be recovered and in that assessment year proportionate interest of ₹ 8,07,763/- was disallowed by the Assessing Officer which has since been .....

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a that the disallowance be worked out on the basis of the methodology laid down by the CIT(A) in assessment year 2008-09 and which has been accepted by the Department. 6.2 Before us, Ld. Representative for the assessee pointed out that the order of the CIT(A) for assessment year 2008-09 is placed in the Paper Book at pages 42 to 44 and pointed out that the calculation of proportionate interest disallowable was made after considering the availability of non-interest bearing funds. In this manner .....

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