TMI Blog2022 (2) TMI 284X X X X Extracts X X X X X X X X Extracts X X X X ..... ort the case of the revenue. Hence, we are of the view that the assessee has failed to bring any material to show that these materials got deteriorated by 31.3.2002 itself. The condition for invoking AS-4 is that there should exist a contingency as on the Balance Sheet date and the result of contingency, if known before the finalization of balance sheet, then the loss arising there from should be accounted for. In the instant case, it is not shown that the write off was related to the contingency that existed as on 31.3.2002. On the contrary, in the facts of the present case, there cannot be any contingency with regard to the raw material or finished goods. We therefore, based on our discussions made above, are in agreement with the stand taken by the CIT(A) in disallowing the claim of inventory in the assessment year 2002-03. Foreign exchange fluctuation loss disallowance - HELD THAT:- In the written submissions made before Ld CIT(A), the assessee has stated that the exchange difference does not pertain to any capital items. This fact was not disputed before us. Hence the loss arising on restatement of outstanding liabilities is on revenue items and the same is allowable a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exchange loss 2. Erred in not appreciating the fact that foreign exchange loss (arising either on account of payment to trade creditors or year-end restatement of their balances) is revenue in nature and thereby not deciding the issue himself but giving directions to the leaned AO to examine the nature of loss whether revenue or capital in nature Initiating Penalty proceedings u/s.271(1)(c) 3. Erred in upholding the action of the AO in initiating the penalty u/s.271(1)(c) The assessee has also raised an additional ground ( Ground no,.4) before us with respect to claim towards advance write off Excise duty on exports of ₹ 1,20,16,395 The assessing officer (Learned AO) and the Commissioner of Income Tax (Appeals) (Learned CIT (A)) has erred in law and on facts in not granting deduction in respect of amount paid towards excise duty on exports of INR 1,20,16,395 in AY 2002-03 after having denied the appellant s claim for the same in AY 2007-08 The Learned AO and Learned CIT(A), has erred in law and on facts in not appreciating the fact that the appellant was eligible for deduction in respect of amount paid towards excise dut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Administrative Expenses disallowed by the TPO 4,77,19,005 Add Leasehold improvement 50,48,684 Add Inventory written off 12,54,31,371 Add Loss on account of foreign exchange variation 68,40,528 18,50,39,588 Total income (-)73,79,892 Rounded off (-)73,79,890 6. Aggrieved by the order of the DCIT, the assessee filed appeal before the CIT(A). 7. The CIT(A) partially allowed the appeal of the assessee by confirming following additions made by the AO:- i) Disallowance of inventory written off - ₹ 12,54,31,371/- ii) Foreign exchange fluctuation loss ₹ 68,40,528/- 8. Now the assessee is before us aggrieved by the order of the CIT (A) for confirming the AO s above mentioned disallowances of inventory wri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 The assessing officer after considering the submissions of the assessee held that (i) How the stock which was lying with the converters was written off by the officials of the parent company of the assessee if they have not been able to inspect the same (ii) Why a provision debited to the profit and loss account should be allowed under the Income Tax Act (iii) The loss of stock lying with converter which is to be allowed as a bad debt has to be established to have become bad and also actually write it off from the books during the year (iv) The date of which the converter became bankrupt is not furnished by the assessee but mentioned the year as 2002 (v) The actual write off details of the dead stock of raw materials of ₹ 2,60,08,063 with Litaka Pharmaceuticals which was destroyed was not furnished by the assessee (vi) All evidences which have been filed indicate that if at all this inventory was to be written off it should have been written off in the financial year 2002-03 (AY 2003-04) (vii) The amounts debited in the books as of 31.03.2002 is not more than a mere provision and hence the deduction cannot be allowed for inven ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with Converters, the assessee reiterated the submissions made before the AO. 9.6 The CIT(A), however, was not convinced with the contentions of the assessee and accordingly confirmed the disallowance made by the AO. The CIT(A), in his order, has made the following observations on the submissions made by the assessee:- On examination of these Inventory Disposal Authorization sheets, it appears that the stock has not been disposed of till 24.10.2002. Moreover the sheets do not indicate in any manner that the inventory written off was to be disposed off as on 31.03.2002. Inventory Disposal Authorization indicates an authorization to dispose. A power to authorize necessarily includes the power not to authorize. Therefore, even if it were considered that there was due authorization to dispose of inventory as on 24.10.2002, there could not have been an authorization to dispose of the inventory items by a prior date of 31.03,2002. Another aspect of the matter is that the appellant has stated that the goods had become useless and gave foul smell. Such determination could only be with a prospective date. It is not conceivable as to how on 24.10.2002 it could be determined that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only in the succeeding year. He submitted that the assessee has not brought any material on record to show that the materials became obsolete as on 31.3.2002 itself. The Ld D.R submitted that the assessee had submitted a letter dated 08-08- 2008 obtained from by the ACIT Central Excise Bengaluru II division before the AO in order to support its submission that the Dominion group has closed its business in 2002 itself. In the above said letter, it was mentioned that the Dominion group of companies have operated upto November, 2001 only. With regard to this letter, the Ld D.R submitted that the above said letter was obtained only in 2008 and it does not support the case of the assessee that the raw materials lying with Dominion group became obsolete as on 31.3.2002. The Ld. DR also submitted that, without prejudice, even if the claim of the assessee had to be accepted, then the same requires examination only in the financial year 2002-03 relevant to AY 2003-04. 12. We have heard rival submissions and perused the record. The key point for consideration here is Whether the claim for inventory write-off made by the assessee in the books of accounts as 31.03.2002 can be allowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the claim of inventory in the assessment year 2002-03. 13. The next issue relates to the claim of Loss arising on account of foreign exchange fluctuation. 13.1. During the year under consideration, then assessee has claimed a sum of ₹ 68,40,528/- on account of foreign exchange fluctuation loss. The AO noticed that, out of the above said claim, a sum ₹ 44,00,768/- pertained to realized loss and the balance amount of ₹ 24,39,760/- related to the loss arising on account of restatement of liabilities as at the year end. The assessee submitted the ledger account of the foreign exchange loss with a bifurcation between realized and unrealized exchange loss. However, the AO disallowed entire claim of ₹ 68,40,528/- holding that the exchange fluctuation loss can be claimed as deduction only on actual incurring of loss at the time of payment. 13.2 The CIT (A) relied on the judgment of the Hon ble Supreme Court inthe case of CIT Vs. Woodward Governors India Pvt. Ltd., (2009) 312 ITR 254 (SC) and directed the AO to allow loss actually incurred during the year and disallow only unrealized loss arising on account of restatement of liabilities. 13.3 Bef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsistently follows a system of accounting by which the fluctuation in foreign exchange currency is duly accounted for at the end of the accounting year, the same cannot be said to be notional and it cannot be said that the assessee could claim the fluctuation loss or gain only in the year when the loan was actually repaid. The Tribunal held that the loss was not a notional loss and was to be allowed as deduction. The Tribunal also referred to the AS-2 of the Institute of Chartered Accountants of India (the assessee in the present case follows such an accounting standard). In view of the above the loss on account of foreign exchange claimed by the assessee deserves to be allowed. The 5th ground of appeal is accordingly allowed. In the written submissions made before Ld CIT(A), the assessee has stated that the exchange difference does not pertain to any capital items. This fact was not disputed before us. Hence the loss arising on restatement of outstanding liabilities is on revenue items and the same is allowable as deduction as per the decision rendered by the co-ordinate bench in the assessee s own case in an earlier year, referred supra. Accordingly, we set aside the order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rious levels and currently a writ petition has been filed before the Bombay High Court, which is pending for disposal. The assessee, in view of the litigation on duty drawback, wrote off an amount of ₹ 1,20,16,395/- out of the above said amount during the financial year relevant to AY 2007-08 and claimed the same as a deduction in the computation of income of the said assessment year. The deduction claimed in the AY 2007-08 was disallowed by the AO and the same was also upheld by both the CIT(A) and the ITAT Bangalore Bench in IT(TP)A No.924/Bang/2012). 14.3. Accordingly, the Ld A.R submitted that the assessee did not claim deduction of excise duty payment in AY 2002-03 and its claim made in AY 2007-08 was also rejected. In effect, the excise duty paid by the assessee has not been allowed and it has caused great prejudice to the assessee. He submitted that the assessee did not claim the excise duty payment in AY 2002-03, even though it is allowable as deduction, only for the reason that it is eligible for duty draw back. In view of the developments that happened subsequently, the assessee is praying for deduction of the excise duty paid by it to the extent of ₹ 1,2 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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