2014 (10) TMI 211 - ITAT MUMBAI

Deductibility of the sums paid to banks/financial institutions by the assessee-company as guarantor – Interest on loan - Held that:- The denial of the claim in respect of the sums advanced by the assessee-company as a guarantor towards one time settlement, as well as the interest thereon, as not deductible as business expenditure either u/s.36 or 37(1) of the Act is upheld - With regard to the principal sum, the AO has without prejudice, also stated that the amount actually paid during the year is below that being claimed, so that the claim would have to be limited thereto - the company also states of the interest disallowed being notional qua which again there is no finding by the first appellate authority, nor any argument in its respect assumed before us, finding mention only in the written statement which the assessee was asked to furnish at the conclusion of the hearing, so as to capsule the gist of the arguments - The claim is factual and, in any case, the rule of law is to obtain - If and to the extent the interest is notional and not actually incurred, no disallowance in its respect could obtain - The matter to this limited extent is, remitted back to the AO for adjudication – Decided partly in favour of assessee.

Pre-operative expenses incurred for expansion of manufacturing facilities disallowed – Held that:- The expenditure is toward enlargement of the capital structure of the firm is not in doubt, the enhancement or improvement in fact being both in quantitative and qualitative terms inasmuch as the programme under implementation is for both expansion and diversification - the expenditure results, along with other expenditure, in creation or bringing into existence fixed assets – the profit making apparatus, to be deployed in business, is again not in doubt, having been in fact allocated by the assessee toward the relevant assets – following the decision in Assam Bengal Cement Company Limited Versus Commissioner Of Income-Tax, West Bengal [1954 (11) TMI 2 - SUPREME Court] - Chapter XIV-A of the Act provides for a procedure to avoid repetitive appeals - The plea in any case cannot be conditional, or made alternatively, concern as it does a rule of judicial precedence - the interest expenditure to be capital expenditure though allowable u/s.36(1)(iii), only the revenue expenditure could be allowed u/s.37(1), which is even otherwise trite law – Decided in favour of assessee.

Addition on inflation in purchases – Held that:- In applying the test of commercial expediency for determining whether an expenditure is wholly or exclusively laid out for the purpose of business, reasonableness of the expenditure has to be adjudged from the point of view of the businessman and not of the Revenue - the assessee being a bulk purchaser should presumably be able to bargain a lower rate - the issue is factually indeterminate – thus, the matter is remitted back to the AO for fresh adjudication – Decided in favour of assessee.

Foreign exchange loss incurred and claimed made through debit to the profit and loss – Held that:- The purchase of the raw material stood completed on the delivery of the relevant goods to the assessee as per the relevant contract/s. Any subsequent increase (or decrease) in the corresponding purchase liability, would be independent of the purchase cost, which gets crystallized on the date of purchase, i.e., on it being completed - The premise is clear that the exchange fluctuation is ordinarily not factored into the cost of purchase in-as-much as the same does not add value to the goods, since purchased, and neither in bringing them to their present location and condition - the liability incurred on purchase is a trade liability, so that any increase therein would be only revenue expenditure, deductible u/s. 37(1) – Decided in favour of assessee.

Modvat attributable to the closing stock – Held that:- The opening stock was directed by the FAA to be valued at inclusive of excise duty, even as the closing stock for the immediately preceding year was not, and which found acceptance throughout - it was not concerned with the correctness (or otherwise) of the method (of valuation) adopted for determining the cost price, observing that that was not an issue at any stage of the proceedings, nor dealt with by the tribunal - further clarifying that for the year for which s.145A is applicable, the same would necessarily have to be in terms of the non obstante provision, which would apply equally to all the elements/determinants of the trading profit – the matter is to be remitted back to the AO for fresh adjudication – Decided in favour of assessee.