TMI Blog2018 (11) TMI 994X X X X Extracts X X X X X X X X Extracts X X X X ..... to be categorized as revenue expenditure. Disallowance of loss on account of Exchange Rate Fluctuations - Held that:- We reject the submission of the Appellant in these appeals that the increase in liability on account of the fluctuation in the rate of foreign exchange remaining on the last day of the financial year is notional or contingent and, therefore, cannot be allowed as a deduction. Disallowance paid to United Bank of India - Held that:- CIT(A) allowed this expenditure on the ground that this annual payment is towards trusteeship fees to the trustees of debenture holder i.e. United Bank of India and is not an expense on issue of debentures and also for the reason that this payment has been allowed in both the earlier and later Assessment Years as well. D/R, could not controvert this factual finding of the ld. CIT(A). Under these circumstances, we uphold this finding of the ld. CIT(A) and dismiss this ground of the revenue. Disallowance of land development charge - Held that:- CIT-A correctly deleted this disallowance on the ground that this expenditure is for the green belt being maintained by the assessee and has been allowed by Assessing Officer in earlier an lat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out of exchange rate fluctuation merely on the basis of earlier year's order, without checking the facts related to the claims and also without considering the fact that in tax matters res judicata is not applicable. 6. That on the fact and in the circumstances of the case CIT(A) erred in allowing expenses of ₹ 36,60,000/- despite the fact that its nature was explained as Share/debenture issue expenses before the AO and as annual trusteeship fees before the CIT(A). 7. That on the fact and in the circumstances of the case order of the CIT(A) is erroneous in allowing expenses of ₹ 36,60,000/- without referring the issue back to the AO for verification of the true nature of the expenses, thereby violating provisions of Rule 46A of I T Rules. 8. That on the fact and in the circumstances of the case order of the CIT(A) is erroneous in allowing expenses of ₹ 14,60,000/-, despite the fact that the assessee in its reference before the CIT(A) at para 3.8(a) contended that sufficient opportunity was not provided for explanation of the nature of expenditure. 9. That on the fact and in the circumstances of the case order of the CIT(A) is erroneous i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee by relying on the judgment of the Hon ble Apex Court in the case of LH Sugar Factory Oil Mills Pvt. Ltd. vs. CIT (1980) 125 ITR 0293, wherein such expenditure was held to be categorized as revenue expenditure. 2.2. We find no infirmity in the findings of the ld. CIT(A) and uphold the same. Hence Ground No. 1 2 of the revenue are dismissed. 3. Ground No. 3 is regarding disallowance of ₹ 15.46 Crores being amortization expenses. We find that the issue is covered in favour of the assessee by the decision of the Kolkata A Bench of the Tribunal in the assessee s own case for the Assessment Year 2005-06; in ITA Nos. 581 587/Kol/2009, wherein it was held as follows:- 13. The next issue raised in ground no 5 6 by the assessee in this appeal is that Ld. CIT(A) has erred in confirming the order of A.O by disallowing the deferred revenue expenses for ₹ 15.46 crores. 14. Before coming to the specific issue let us understand the background of the case. The assessee has incurred several expenses prior to the commencement of commercial production from the assessment year 1985-86 to 2001-02. The commercial production started w.e.f. 01/08/2001. Expens ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee also submitted that these deferred revenue expenditure pertains to the assessment years starting from AY 1985-86 to 2001-02. However, the AO has disregarded the claim of the assessee by considering that the amount of amortized expenses and its allowability needs to be determined as per the provisions of the Act. There is no provision under the Act for claiming the deferred revenue expenditure. All the deferred revenue expenditures are revenue in nature and should have been claimed in the year of its incurrence. Accordingly, the A.O. has disallowed the deferred revenue expenditure and added to the total income of the assessee. 15. Aggrieved, assessee preferred an appeal before the Ld. CIT(A). Before Ld. CIT(A) assessee has claimed the deferred revenue expenditure as per the Guidance Note issued by ICAI on expenditure incurred during construction period. The assessee has amortized this deferred revenue expenditure amounting to ₹ 805.65 million for a period over five years after the commencement of commercial production on 01.08.2001. The same has been allowed by the A.O. in earlier years. Ld. AR claimed that if this deferred revenue expenses cannot be claimed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deferred revenue expenditure in the act and assessee can claim the deduction of the amount incurred before the commencement of commercial production over a number of years. Hon'ble Supreme Court in case of Madras Industrial Investment Corporation Limited vs. CIT [1997] 225 ITR 802 (SC) has also upheld the principle of deferred revenue expenses. The ld. AR also pleaded that the deferred revenue expenses can also be allowed to be capitalized under section 32 of the Act. 17. From the aforesaid discussion, we find that the assessee has incurred expenses prior to the commencement of business and classified as deferred revenue expenditure. The assessee started claiming those expenses after the commencement of business 1/5th over the period of 5 years. However, the lower authorities disallowed the same on the ground that there is no provision under the Act to claim the deferred revenue expenses. From the facts of the case we observe that the AO is not skeptical about the genuineness of the expenses incurred. The whole amount of ₹ 154.64 million has been incurred in connection of business prior to the commencement of commercial production. Any expense incurred in co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ropriate, stationery and printing, rent, rates and taxes, postage and telegrams, travel and conveyance etc. (d) Appropriate insurance charges. (e) Appropriate expenditures on maintenance and operation of vehicles. (f) Appropriate expenditures in connection with temporary structures and service facilities built or acquired specially for the purpose of construction (see paragraphs 9.4 and 9.5 of this Note). (g) Preliminary project expenditure to the extent to which it is capitalized as part of the construction cost (see paragraph 3 of this Note). (h) Financial expenses including interest and other similar charges (see paragraph 4 of the Note). (i) Depreciation on fixed assets as well as on temporary structure and other facilities used during the period of construction (see paragraph 9.4 and 9.5 of this Note). (j) Expenses on test runs (see paragraph 11 of this Note). (k) Expenses on land grading and leveling (see paragraph 96 of this Note). Taking a consistent view by the decision of Hon'ble Supreme Court and reliance in the aforesaid guidance note we reverse the orders of authorities below. Hence, this ground of the assessee is allowe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mount has been paid. Accordingly the learned CIT(A) has deleted the addition made by the AO by observing as under:- the appellant's contention in this regard is found to be acceptable, since the AR of the assessee vide his letter dt. 15.01.2009 has confirmed that the sundry creditors under this account were on revenue account and not on capital account. Since, it is submitted that such exchange fluctuation has arisen on account of normal business transactions of material procurement etc., it is an allowable deduction u/s. 37(1). I agree with the contention of the appellant and hence this ground is allowed. Being aggrieved by this order of Ld. CIT(A) Revenue is in appeal before us. 30. We have heard rival contentions and perused the materials available on record. Before us Ld. DR vehemently supported the order of AO and on the other hand the learned AR relied on the order of Ld CIT(A) and filed a paper book which running from pages 1 to 97. From the aforesaid discussion, we find that the AO treated the difference arising on account of foreign exchange in the value of sundry creditors as notional loss and contingent liability which the assessee has not incurred so it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om other sources shall, subject to the provisions of sub-section (2), be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee. (2) The Central Government may notify in the Official Gazette from time to time accounting standards to be followed by any class of assessees or in respect of any class of income. (3) Where the Assessing Officer is not satisfied about the correctness or completeness of the accounts of the assessee, or where the method of accounting provided in sub-section (1) or accounting standards as notified under sub-section (2), have not been regularly followed by the assessee, the Assessing Officer may make an assessment in the manner provided in section 144 . 31. We also find support from the decision of Hon'ble Delhi High Court in the case of CIT vs Woodward Governor India Private Limited [2007] 294 ITR 451 (Del) where it was held that:- We affirm the decision of the Income-tax Appellate Tribunal in Oil and natural Gas Corporation Ltd. V. Deputy CIT (Asstt .) [2003] 261 ITR (AT) 1 (Delhi) which rightly follows the settled position as explained in the judgment of the Hon' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee has claimed net freight expenses incurred in connection with domestic, export of the goods and freight on stock transfer. The assessee has also recovered part of the freight charges from the customers incurred in connection with the sales. However the AO observed that expenses incurred on freight was more than the recovery made by the assessee from the customers. The AO also found that the claim of the assessee towards such freight expenses was also disallowed in the AYs 2003-04 and 2004-05, so the AO accordingly disallowed the claim of the assessee for freight expenses and added to the total income of the assessee. 34. Aggrieved, assessee is in appeal preferred an appeal to Ld CIT(A) where it was demonstrated that when the goods are sold to customers on delivery basis then the assessee recovers freight charges from the customers as per the agreement but in some of the cases the freight charges are not recovered in full due to the competition in the market. Besides, assessee recovered the freight charges from the customers as per the agreed amount but on many occasions the assessee had borne more amount of freight charges over and above the amount agreed due to damage ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emently supported the order of AO and left the issue to the discretion of the Bench whereas Ld AR relied the order of Ld CIT(A). From the aforesaid rival materials, we find that the AO has disallowed the freight expenses on the ground that assessee has made short recovery from the customers and similar addition was made in the earlier assessment year. However, the AO has not disputed the quantum of expenses incurred by the assessee on freight. From the submission of Ld. AR we find that out of the total disallowance made by the AO towards freight expenses, a sum of ₹ 86,59,000/- was incurred on the stock transfer by the assessee from the factory to the depots. In our view, the question of disallowance of freight expenses in connection with the stock transfer does not arise. This freight expense has direct connection with the business of the assessee. For other freight expenses, the reason given by the AO for the disallowance is not tenable as the AO has not pointed out any reasonable reasons for the same. There is no doubt that the assessee had made short recovery from the customers but the reasons for the same were duly explained by the assessee. Accordingly the Ld. CIT(A) ha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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