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TMI Blog2012 (10) TMI 223X X X X Extracts X X X X X X X X Extracts X X X X ..... und of appeal is directed against the disallowance of expenses on the ground that they were incurred to earn exempted income. The Assessing Officer has disallowed 10% of the exempted income by invoking section 14A of the Act. In page 2 of the assessment order he has accepted that the interest expenditure is not being disallowed by invoking the above section because the loan funds have not been utilized for making investments which yielded exempt income. The contention of the learned representative for the assessee before us is based on the recent judgment of the Hon'ble Bombay High Court in the case of Godrej & Boyce Mfg. Co. Ltd. vs. Deputy Commissioner of Income Tax, in Income Tax Appeal No. 626 of 2010 and Writ Petition No. 758 of 2010. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the period of the license and be responsible for the ordinary routine maintenance of the fittings and fixtures in the premises. Clause 4(f) provided that the assessee should deliver vacant and peaceful possession of the premises in good condition to the licensor on the expiry of the lease. The assessee incurred the expenditure during the relevant accounting year, which was disallowed by the Assessing Officer as capital in nature and his view was upheld by the CIT(A). The contention of the assessee before us is that the expenditure was incurred wholly and exclusively for the purpose of assessee's business and no enduring benefit had accrued to the assessee nor was any capital asset created. It was further contended that the expenditure was i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... letter dated 14th July 2004 written by Shalaka Sangh Co-operative Housing Society Limited. It is seen from this letter that the assessee handed over possession of the premises on 14th July 2004, which is acknowledged by the Housing Society. The expenditure has thus been incurred in terms of the leave and license agreement. Further, they are routine maintenance and repair expenses which the assessee would have had to incur in the normal carrying on of its business. The nature of the work shows that no additional space or capital advantage was derived by incurring the expenditure. We, therefore, hold that the expenditure is allowable as revenue expenditure. We direct accordingly and allow the second ground. 5. The third and last ground is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ewed it as a contingent liability which may or may not arise in future. According to him there is no room for allowing a contingent liability under the mercantile system of accounting under which only a liability in present time can be allowed. He referred to certain authorities in support of his view. As regards the guidelines issued by the Institute of Chartered Accountants of India, which were claimed to have been followed by the assessee, the Assessing Officer observed that the accounting entries cannot control or decide the allowability of the claim. In this view of the matter, he disallowed the provision. The disallowance having been upheld by the CIT(A) for substantially the same reasons, the assessee is in further appeal before the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k-to-Market Margin - Equity Index / Stock Futures Account", being anticipated loss, is adjusted in the Profit and Loss Account. (d) On final settlement or squaring-up of contracts for Equity Index / Stock Futures, the profit or loss is calculated as the difference between settlement / squaring-up price and contract price. Accordingly, debit or credit balance pertaining to the settled / squared-up contract in "Mark-to-Market Margin - Equity Index / Stock Futures Account" is recognized in the Profit and Loss Account." The aforesaid Note gives a fair picture of the nature of the provision. The provision in substance has been made to cover the anticipated loss in the derivates trading. There is no dispute that the assessee holds derivatives ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here a trader purchased and still holds goods which are fallen in value in which case though no loss has been realized nor it has occurred, nevertheless at the close of the year he is permitted to treat these goods as of their market value. This decision of the Supreme Court governs the facts of the present case. It is to the assessee's strength that the Institute of Chartered Accountants of India in its guidelines have also approved of the rule of prudence which really means that while anticipated losses can be taken note of while valuing the closing stock, anticipated profits cannot be recognized. The anticipated loss, in the light of the judgment of the Supreme Court cited above, cannot be treated as a contingent liability. 8. The lear ..... X X X X Extracts X X X X X X X X Extracts X X X X
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