TMI Blog1991 (12) TMI 83X X X X Extracts X X X X X X X X Extracts X X X X ..... laid down in this scheme, the exporter could obtain advance licence for the import of raw material dutyfree. The imports made against such licences and the exports, with reference to which such advance licences were issued, were noted in a pass book called DEEC Book. The value of the licence issued under the scheme was debited to REP entitlement and the licence holder was eligible for import replenishment licence as admissible from the balance value. During the previous year relevant to the assessment year under appeal, the appellant had exported certain quantities of goods manufactured by them against which they were entitled to import 36,674.705 kgs. of fibre. No portion of this quantity was actually imported during the year. In the accounts for the relevant year, the appellant company calculated that if 36,674.705 kgs. of fibre were imported, it would be entitled to exemption from customs duty otherwise chargeable amounting to Rs. 31,75,231. This amount was taken to the credit of profit loss account by reducing the material consumption account and the corresponding debit was raised to the material import entitlement account which appeared on the assets side of the balance-she ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or supply of intermediate products, and (3) special imprest licences. In the present case, it is the licences of the first category, namely, advance licences, to which the appellant was entitled. The licence issued under this scheme to a manufacturer/exporter was to be subject to actual user conditions. The purpose and the scope of the three categories of licences was explained in para-2 of the scheme, sub-clause (1) of which dealing with advance licences read as follows : " (1) Advance licences are issued to registered exporters for import of exempt materials specified in Annexure 1 to the Department of Revenue Notification No. GSR dated 5-4-1982 (Annexure 1 to this appendix) and the resultant products have to be exported outside the country. " Para-4 dealt with the eligibility for securing licences under this scheme and clause (2) of para-4 provided as follows : " (2) A registered manufacturer-exporter who is engaged in actual production and export during the preceding three financial years will be eligible to claim licences under this Scheme based on his average past export performance during the preceding three financial years. This facility may also be extended to Export ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the committed subsequent export of the finished goods. However, the exporter is permitted to commence the export of the goods manufactured from 'import duty paid'/'locally purchased' raw materials even before obtaining the Advance Licence, in which case the exporter should mention the File Number of his Advance Licence application on all the export documents. The exporter is then entitled to obtain credit in the Export side of the Advance Licence Pass Book, called the DEEC Book producing the documents of the goods exported. In cases where the export is made, but due to some reasons the applicant fails to obtain the Advance Licence--the benefit of the duty exemption will not arise and the question of entitlement to credit in DEEC Book also does not arise. (iv) The benefit of the export under the Advance Licence scheme can be quantified in terms of the estimated value of saving in import duty in importing the raw materials. (ii) It is possible to consider the 'Estimated future duty benefit' as an incentive and treat it in the accounts as 'Other Income' just as cash incentives and duty draw-back and also can the amount appear as Amount recoverable in cash or in kind or for va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat it is not proper to defer a portion of the cost of locally purchased raw materials by accounting the difference between consumption of raw materials at the local price and the international duty-free price. Finally, our attention was drawn to the order of E-Bench of the Tribunal for the assessment year 1971-72 in the case of Amar Dye Chem Ltd. [RA No. 336 (Bom.) of 1981 arising out of ITA No. 3897 (Bom.) of 1974-75, dated 19-8-1981], where the Tribunal had declined to refer the following question which, according to the counsel, raised a similar issue : " Whether on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the expenditure of Rs. 15,50,543 on Import Entitlements should be allowed as a deduction in determining the profits of the business and that the value of the same need not form part of the value of raw materials or closing stock ? " In this context, our pointed attention was drawn to para 2 of the aforementioned order. It would appear that the assessee used to acquire or purchase import entitlements from exporters who were allotted such entitlements against the exports and used to show the value hereon in the purchase o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td. v. CIT [1983] 142 ITR 170. According to the CIT (Appeals), the value of such right has to be accounted for on mercantile basis unless it is shown that the right was a contingent right and not a right in praesenti. The CIT(Appeals) has further observed that the duty exemption valuation of Rs. 31,75,231 is related to the exports actually made during the previous year and, therefore, the right to import goods duty-free arose not later than the making of the exports and the value of such right is, as held by the Bombay High Court in the case cited above, to be accounted for as business income which should be taxed on accrual basis in the year in which the exports are made. While rebutting these observations, it was argued by the appellant's counsel that the appellant was not at a contingent stage but at a stage prior to the contingent stage. Distinguishing the facts in Metal Rolling Works (P.) Ltd.'s case, it was pointed out that in that case the import entitlements were obtained by the assessee directly in the course of business and the value of the same constituted profits and gains of business within the meaning of section 28(iv) and, therefore, the amounts realised by the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany had, as a consistent practice, valued its goods in process and finished products exclusively at cost of raw materials excluding overhead expenses. The ITO held that there was no justification to recognise a practice of valuing stock otherwise than in accordance with the well recognised principle of accounting which required the stock to be valued at cost or market price whichever was lower. He, therefore, calculated the value of opening and closing stock by adding overhead expenses. The AAC confirmed the order. The Tribunal held that there was no evidence to show that the goods in stock deteriorated in value and that there was no justification for excluding the overhead expenditure. The High Court, on a reference, reversed the decision of the Tribunal and, on appeal to the Supreme Court, the Supreme Court, inter alia, held that the question to be determined by the Assessing Officer in exercise of his powers under section 145 is whether or not income can properly be deduced from the accounts maintained by the assessee even if the accounts are correct and complete to the satisfaction of the Officer and the income has been computed in accordance with the method regularly employ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one for imports and the other for exports. Since no imports were effected during the year, there was no question of issuing Duty Exemption Certificate. What the appellant had accounted for in its books was a future duty benefit which it would get in respect of imports of fibre if and when such imports were to be effected. Then again, the materials imported against licences under the scheme were to be utilised for the manufacture of the resultant products specified in the Duty Exemption Entitlement Certificate and clause 30 of the Scheme provided that such materials shall not be loaned, sold or transferred, disposed of otherwise under any circumstances. In the present case, the appellant had acquired advance licences on two occasions in respect of two instances of exports referred to above on 29-10-1984 and 23-3-1985 and had applied for further licences in respect of cloth exported and yarn exported ; but the benefit by way of Duty Exemption in respect of advances, which are received or due to be received by the assessee, had not accrued to the assessee because no imports had been effected. The contingency on which such benefit could be said to have accrued was the import of the fib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gn exchange contracts entered into by it which were not settled on the close of the accounting period ended December 31, 1967. As the contracts were in different foreign currencies, the loss or profit arising on outstanding contracts was estimated based on the rate of exchange as on the closing day. In view of the devaluation of Sterling in November 1967, the loss arising on account of outstanding foreign exchange amounted to Rs. 9,20,125. The assessee-bank made provision for this in its accounts on the ground that this amount had to be provided for before ascertaining the profit. The ITO estimated the loss as purely anticipated and unascertained. The AAC reversed the order which was confirmed by the Tribunal. The Madras High Court, on these facts, held that only the actual loss incurred can be deducted but not any probable or possible loss. As there was no settlement of the outstanding contracts, the amount claimed could only be considered to be notional or anticipated loss and such notional or anticipated loss could not be allowed as a deduction. The same principle on a parity of reasoning would apply to the taxability of anticipated profit or concession in excise duty which the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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