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TMI Blog2007 (11) TMI 452X X X X Extracts X X X X X X X X Extracts X X X X ..... he Assessing Officer to allow deduction of expatriate costs by holding that accrual of liability is not dependent on RBI's permission to remit the sum abroad by not appreciating the fact that under the mercantile system of accounting, the liability for expenses accrues only on the date when the agreement by virtue of which the liability has arisen, is approved by RBI. 2. directing the Assessing Officer to compute the deduction admissible under section 80HHE before setting off the brought forward unabsorbed business losses for computing the profits of the business by not appreciating that the brought forward losses/unabsorbed depreciation under section 72 have to be reduced from income for calculating the deduction under section 80HHE read ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asis of terms of agreement referred to above. During the course of assessment proceedings the Assessing Officer noticed that the assessee had filed an application with RBI for approval of agreement and remittance to the US based Company. The requisite approval was received after expiry of the previous year relevant to assessment year under consideration. The Assessing Officer disallowed the claim of the assessee on the ground that since the approval of agreement was not received during the previous year, no liability under a valid contract arose. He placed reliance on the decision of Hon'ble Supreme Court in the case of Non Such Tea Estates Ltd. v. CIT [1975] 98 ITR 189. 3. On appeal ld. CIT(A) after examining the facts of the case with re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f section 326 of Companies Act, 1956 which contained an absolute prohibition against the appointment or re-appointment of a Managing Agent before approval of the Central Government was obtained. The assessee's liability to pay the remuneration of the Managing Agents arose only when the Government conveyed its approval and not prior to that date. In the case before us approval of the agreement was not a precondition by the Reserve Bank of India. The permission of RBI to remit the funds as per the agreement was required. The liability accrued for the services rendered by the employees of EDS Global Inc. USA. The assessee's case is squarely covered by the decision of Hon'ble Supreme Court in the case of Bharat Earth Movers (supra) wherein it h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e provisions of section 80AB did not cover sections 80HHC and 80HHE. The reliance was placed on the decision of Bombay High Court in the case of CIT v. Shirke Construction Equipments Ltd. [2000] 246 ITR 429 and decision of ITAT in the case of Asstt. CIT v. Mysore Exports Ltd. [1995] 55 ITD 263 (Bang.). However, the Assessing Officer relying on the decision of Delhi High Court in the case of CIT v. Chemical & Metallurgical Design Co. Ltd. [2001] 114 Taxman 463 (FB) held that the provisions of section 80AB control the provision of section 80HHE of the Act. The brought forward losses, therefore, were to be set off first gainst the business profit of the current year and thereafter the deduction under section 80HHE was to be determined. On appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the current year so as to determine the gross total income of the assessee. Since the Hon'ble Supreme Court in the case of IPCA Labratories Ltd. (supra) has held that provisions of section 80AB control the provision of section 80HHC and, therefore, the deduction under section 80HHC will be in respect of income which is included in gross total income. In other words the income computed after set off of brought forward business losses. The provisions of section 80HHE are also covered under the heading "C - Deductions in respect of certain incomes" of Chapter VI-A, the decision of Hon'ble Supreme Court will be applicable in respect of deduction under section 80HHE also. Accordingly, it is held that the deduction under section 80HHE will be a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the amounts specified in clauses (a) to (f), if any, amount referred to in these clauses is debited to P&L Account. The Assessing Officer has treated the provision for bad and doubtful debts as contingent liability under clause (c) of Explanation to section 115JA. Hon'ble Supreme Court in the case of Apollo Tyres Ltd. v. CIT [2002] 255 ITR 273 had held that Assessing Officer had no power to tinker with the profits computed as per provisions of Companies Act unless the amount specified in clauses (a) to (f) of Explanation to section 115JA was debited to P&L account prepared in accordance with Companies Act. The Assessing Officer has added the amount of provision for bad and doubtful debt under clause (c) of the Explanation treati ..... X X X X Extracts X X X X X X X X Extracts X X X X
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