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TMI Blog2012 (6) TMI 513X X X X Extracts X X X X X X X X Extracts X X X X ..... penditure. Loss incurred on discontinuation of assignment for installation of software system - business loss or capital loss - Held that:- Since aforesaid expenditure has been incurred for installation of software system (ERP) which was discontinued due to commercial expediency as going on ahead with such system may not be in line with the company’s requirement, therefore, the loss incurred by the assessee is allowable as a business loss. Export incentives - Revenue contended the same to be shown as separate income rather reducing it from cost of purchases of materials - Held that:- CIT(A) has rightly observed that consumption of raw material and packing has been increased by the provisions of export incentives of Rs.(13,142,053). Thus, deduction u/s 80IB stands reduced accordingly and AO has erred in treating the aforesaid expenses as income. In absence of any contrary finding, order of CIT(A) is upheld. Foreign exchange rate difference loss on account of conversion of CC limit to FCNRB (DL) working capital loan - business loss or capital loss - Held that:- Foreign currency exchange loss relates to the working capital loan and thus, allowable as business loss. Dis-al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he PLA account to the extent of the Cenvat/Vat credit was still available in the Cenvat/VAT Register shall be added to the Cenvat/Vat set off/utilized during the year as above. iii) VAT is payable at the time of sales and not on closing stock of finished goods. iv) The addition on account of duty following the provisions of section 145A is principally called for. No adjustment in the opening stock is possible as held in the case of Melmould Corporation V/s CIT 202 ITR 789 (Bom). Besides, tax provisions u/s 145A came into effect from 1.4.1998, AY 2007-08 can t be said to be transitional year. Hence the judgement of Mahavir Aluminium Ltd 297 ITR 77 (Del) shall not apply. v) In view of the aforesaid directions, no separate addition in respect of the amount of Rs.1,13,19,681/- as called for . vi) The AO is directed to verify these facts and figures and make addition as per aforesaid directions. 8. At the time of hearing, the Ld. Counsel for the assessee after referring to pages 195, 33, 67, 69 of the assessee s paper book and the relevant pages of statement of facts filed before the Ld. CIT(A) to show that the working given by the assessee as per section 145A of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been observed by the A.O. that the said additions are not covered by the appellate order of the earlier years. We further find that the Ld. CIT(A) while deleting the addition of Rs.1,13,19,681/- has directed the A.O. to verify the facts and figures and make addition as per aforesaid directions. 13. Section 145A was inserted by the Finance (No.2) Act, 1998 with effect from 1.4.1999. It provides that the valuation of purchase and sale of goods and inventory for the purposes of determining the income chargeable under the head Profits and gains of business or profession shall be in accordance with the method of accounting regularly employed by the assessee and further adjusted to include the amount of any tax, duty, cess etc. paid or incurred by the assessee to bring the goods to the place of its location as on the date of valuation. According to the prescription of this section, which is applicable to the year under consideration, the amount of tax, duty, cess etc. is liable to be included in the value of purchases, sales, opening and closing stock. It is not appropriate to include the closing Modvat in the figure of closing stock without modifying the figures of purchases, sales ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, since the interest has been assessed under the head as income from other sources, therefore, following the decision of the Tribunal in assessee s own case (supra), the assessee is entitled to deduction of interest paid on borrowed funds. He, therefore, submits that to this extent the relief may be allowed to the assessee. 18. On the other hand, the Ld. DR supports the order of the AO and the Ld. CIT(A). 19. We have carefully considered the submissions of the rival parties and perused the material available on record. We find merit in the plea of the Ld. Counsel for the assessee that since the interest income has been assessed under the head income from other sources, therefore, the assessee is entitled to the deductions u/ 57(iii) of the Act in view of the decision of the Tribunal in the assessee s own case (supra), wherein vide paragraph 9, it has been held as under : 9. We have carefully considered the submissions of the rival parties and perused the material available on record. We find that the facts are not in dispute inasmuch as it is also not in dispute that the FDRs were made out of borrowed funds. According to the AO since borrowal is for the purpose of assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herefore, partly allowed for statistical purposes. 23. Ground No.5 is against the sustenance of disallowance of software expenses Rs.1,23,749/-. Ground No.6 is against the sustenance of disallowance of business loss on discontinuation of assignment for installation of software system Rs.5,00,000/- as capital loss and Ground No.7 is against the disallowance of website expenses Rs.80,000/-. 24. The brief facts of the above issues are that the AO noted that the assessee has claimed Rs.6,23,749/- as software expenses which includes Rs.5,00,000/- for ERP and software advances and initial study report which was never acquired by the assessee and Rs.80,000/- for website development. The AO after considering the details filed by the assessee and the claim of the assessee that the software purchased has short useful life, hence, they are allowable as Revenue expenditure, however, treated all these expenses as capital expenditure and made net disallowance of Rs.6,42,624/- (Rs.5,00,000/- + Rs.2,03,749 depreciation at the rate of 30% Rs.61,125/-). On appeal, the Ld. CIT(A) following the decisions in (a) CIT V/s Aravalli Construction P.Ltd. (2003) 259 ITR 30 (Raj) , (b) CIT V/s Elecon E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st the Revenue. 31. Respectfully following the above decisions we are of the view that the software expenditure incurred by the assessee are revenue in nature and hence the same are allowable as business expenditure and the Ld. CIT(A) was not justified in sustaining the disallowance made by the AO. 32. As regard the sustenance of disallowance of business loss of Rs.5,00,000/- we find that the claim of the assessee that the payment of Rs.5,00,000/- was made to Techsol Information Technology Pvt.Ltd for installation of software system (ERP). After initial study report, the assessee thought to discontinue the said assignment as the same may not be in line with the company s requirement and technically fit, hence the said loss was incurred in the course of carrying of business and the same is allowable as business deduction or in the alternative, as business loss. Since the above expenditure has been incurred by the assessee for installation of software system (ERP) which was discontinued due to commercial expediency as going on ahead with such system may not be in line with the company s requirement, therefore, the loss incurred by the assessee is allowable as a business loss. 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rial cost rather than showing it as separate income. This income pertains to rebate on import duty similar to DEPB etc and allows the assessee to claim the same while importing material on the basis of Exports made by it. This income is separately assessed under section 28 and deduction u/s 80IB is not allowed in respect of the same as this income has not been derived from industrial undertaking even if it is incidental to Industrial Undertaking. 43. On appeal, the Ld. CIT(A) held that in the Grouping M in respect of Schedule M manufacturing and other expenses to the Schedule M forming part of the balance sheet as on 31.3.2007 and Profit and loss account for the period of 31.3.2007, the aforesaid export incentives has been reflected as under : Manufacturing and other Expenses Consumption of Raw material and Packing material Opening stock of raw material Add: Purchases 1,84,31,328 Add :Expenses for purchases 2,92,04,81,446 Total 2,94,13,38,583 Less : Rate of difference (3,02,74,416) Less: Qty. discount (Copper) 2,41,11,466 Less: Rate Dif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o relied on the decisions in (a) CIT V/s Woodward Governor India (P.) Ltd. (2009) 312 ITR 254 (SC) , and (b) Oil Natural Gas Corporation Ltd. V/s CIT (2010) 322 ITR 180 (SC) . 51. We have carefully considered the submissions of the rival parties and perused the material available on record. We find merit in the plea of the Ld. Counsel for the assessee. 52. In Woodward Governor India P. Ltd. (supra), it has been held that loss suffered by the assessee in respect of a revenue liability on account of exchange difference as on the date of the balance sheet is an item of expenditure allowance under section 37(1) in the year of accrual. 53. In Oil Natural Gas Corporation Ltd.(supra), it has been held that assessee having maintained accounts on mercantile system of accounting, loss claimed by the assessee on account of fluctuation in the rate of foreign exchange as on the date of balance sheet in respect of loans taken for revenue purposes is allowable as expenditure under s.37(1), notwithstanding the fact that the liability has not been actually discharged in the year in which the fluctuation in the rate of foreign exchange has occurred. 54. Respectfully following the above ..... X X X X Extracts X X X X X X X X Extracts X X X X
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