TMI Blog2021 (3) TMI 1072X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of CIT vs. D.CHETAN CO. [ 2016 (10) TMI 629 - BOMBAY HIGH COURT] . As carefully gone through the entire record and the case of the assessee is that the loss is on account of the restatement of debtors and creditors, book liability etc., which was incurred on account of the forward contracts which includes both realized and unrealized losses. The details of gain and loss on account of the fluctuations of foreign exchange were filed before the assessing officer. However, the assessing officer merely relying upon Instruction No.3/2010 issued by the Central Board of Direct Taxes concluded that it is a notional loss and has to be treated as a speculative loss in terms of Section 43(5) of the Act. Assessing officer did not dispute the fact that the loss incurred by the respondent assessee is in the ordinary course of its business and therefore, would fall within the exceptions provided in the proviso to Section 43(5) of the Act. Therefore, the judgment delivered in the case of D.Chethan and Co., (supra) squarely covers the present case. As held that the assessing officer has not given a finding that the transaction entered into by the assesseee was a speculative in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bunal has allowed the appeal in part. 5. The draft assessment order was passed on 28.3.2013 inter alia proposing;- a) reduction of the deduction claimed under Section 10B/10AA of the Act on the ground that: (i) The assesse is not entitled to claim deduction in respect of turnover relatable to onsite development of software sub-contracted by it to its Associate Enterprises ( the AEs for short); (ii) The expenses incurred by the assessee in foreign currency having been incurred for providing technical services should be excluded from export turnover. (b) disallowance of depreciation claimed by the assessee at 60% on switches and routers on the ground that they are not parts and accessories of computers; and (c) disallowance of foreign exchange loss claimed by the assessee as a deduction on account of fluctuation in foreign exchange in respect forward contracts. 6. The disallowances proposed by the assessing officer were confirmed by the Disputes Resolution Panel vide directions dated 30.12.2013 and finally the assessing officer has passed a final order incorporating the directions of the Dispute Resolution Panel on 30.3.2014. The assessee being agg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red in setting aside the recomputation of section 10B deduction by following the decision of this Hon ble High Court in the case of CIT v/s Tata Elxsi and even when the recomputation done by the assessing authority is in accordance with the provisions of the Act. 8. It is submitted that the Tribunal erred in setting aside the disallowance of depreciation @ 60% on switches and routers amounting to ₹ 98,11,575/- by following the decision of Delhi High Court. 9. It is submitted that the Tribunal erred in setting aside the disallowance of foreign exchange loss on forward contract of ₹ 26,31,35,000/- by following the decision of Bombay High Court in the case of CIT v/s. D.Chethan and Co., in ITA No.278/14 dated 1.10.2016 by allowing the foreign exchange loss as business loss even when the assessee camouflaged the forward contract loss i.e., marked to market loss as well as hedge loss, in the guise of exchange rate fluctuation and the loss is required to be treated as speculative as per the provisions of section 43(5) of the Act. 8. This Court has admitted the appeal on the following substantial questions of law : 1. Whether the Tribunal on the facts a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, we find that the higher rate of depreciation was allowed both by the Commissioner of Income Tax (Appeals) ( CIT(A) ) and the Tribunal. In fact, the Tribunal in its impugned order has observed as under :- The issue involved in this appeal is covered by the decision of Coordinate Bench of the Tribunal as discussed below:- In the case of ITO vs. Samiran Majumdar (2006) 98 ITD 119 (Kol.), Income-tax Appellate Tribunal, Kolkata Bench B , has taken a view that the printer and scanner are integral part of the computer system and are to be treated as computer for the purpose of allowing higher rate of depreciation, i.e., 60%. 3.2 The Income tax Appellate Tribunal, Delhi F Bench in the case of Expeditors International (India) (P) Ltd. Vs. CIT reported in (2008) 118 TTJ 652 (Delhi) has held that peripherals such as printer, scanners, NT Server, etc. form integral part of the computer and the same, therefore, are eligible for depreciation at the rate of 60% as applicable to a computer. 4. Respectfully following the aforesaid decisions of the Coordinate Bench, we uphold the order of the learned Commissioner of Income tax (Appeals) in allowing the depreciation a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to claim that such a loss is not allowable thereunder. 7. The impugned order of the Tribunal has, while upholding the finding of the CIT (Appeals), independently come to the conclusion that the transaction entered into by the Respondent assessee is not in the nature of speculative activities. Further the hedging transactions were entered into so as to cover variation in foreign exchange rate which would impact its business of import and export of diamonds. These concurrent finding of facts are not shown to be perverse in any manner. In fact, the Assessing Officer also in the Assessment Order does not find that the transaction entered into by the Respondent assessee was speculative in nature. It further holds that at no point of time did Revenue challenge the assertion of the Respondent assessee that the activity of entering into forward contract was in the regular course of its business only to safeguard against the loss on account of foreign exchange variation. Even before the Tribunal, we find that there was no submission recorded on behalf of the Revenue that the Respondent assessee should be called upon to explain the nature of its transactions. Thus, the submission now b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowed the issue in favour of the assesseee by merely relying upon the judgment delivered in the case of M/s Kotak Mahendra Bank Ltd. 16. This Court has carefully gone through the entire record and the case of the assessee is that the loss is on account of the restatement of debtors and creditors, book liability etc., which was incurred on account of the forward contracts which includes both realized and unrealized losses. The details of gain and loss on account of the fluctuations of foreign exchange were filed before the assessing officer. However, the assessing officer merely relying upon Instruction No.3/2010 issued by the Central Board of Direct Taxes concluded that it is a notional loss and has to be treated as a speculative loss in terms of Section 43(5) of the Act. 17. It is pertinent to note that the assessing officer did not dispute the fact that the loss incurred by the respondent assessee is in the ordinary course of its business and therefore, would fall within the exceptions provided in the proviso to Section 43(5) of the Act. Therefore, the judgment delivered in the case of D.Chethan and Co., (supra) squarely covers the present case. 18. The Bombay High C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 (1987) 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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