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TMI Blog2015 (4) TMI 150X X X X Extracts X X X X X X X X Extracts X X X X ..... n years have since been lapsed, it would be gross injustice to the assessee, if we restore this issue to the file of AO for verification of the details. Considering the details and judicial decisions, we set aside the findings of the ld. CIT(A) and direct the AO to delete the addition of Rs. ₹ 2,66,59,853/- - Decided in favour of assessee. Disallowance of foreign exchange fluctuation treated it as capital loss - Held that:- The ratio laid down by the Hon’ble Supreme Court in the case of Sutlej Cotton Mills Ltd (1978 (9) TMI 1 - SUPREME Court) squarely apply on the facts of the present case, wherein held that “Where profit or loss arises to an assessee on account of appreciation or depreciation in value of foreign currency held by him, on conversion into another currency, such profit or loss would ordinarily be trading profit or loss if foreign currency is held by assessee on revenue account or as a trading asset or as part of circulating capital embarked in business. But, if on the other hand, the foreign currency is held as a capital asset or as fixed capital, such profit or loss would be of capital nature.” Thus we direct the AO to delete the addition - Decided in favou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... For the Respondent : Shri Jahangir D Mistry ORDER Per N. K. Billaiya (AM) These are the cross-appeals by the Revenue and the assessee against the very same order of the ld.CIT(A)-VI, Mumbai dated 27.2.2009 pertaining to the assessment year 2005-06. The Appeal No.4129/Mum/2008 is the appeal filed by the assessee against the order of ld. CIT(A)-V, Mumbai dated 17.1.2008. All these three appeals were heard together and are being disposed of by this common order, for the sake of convenience. I .T.A. No.2714/Mum/2009 (By assessee) 2. The assessee has raised three substantive grounds of appeal which relate to the disallowance of expenditure for purchase of license for windows of ₹ 30,000/. During the course of assessment proceedings, the AO noted that the assessee has claimed repairs and maintenance. It was also found that the assessee itself has disallowed a sum of ₹ 201,800/- treating as capital expenditure and claimed depreciation on it. It was explained that these expenditures were not incurred for the purchase of any kind capital assets and since not asset of enduring benefit has been acquired, these expenditures cannot be capitalized as capital as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 04-05 which has been debited once again claimed during the year under consideration i.e. assessment year 2005-06. The AO was of the opinion that the assessee is just taking a chance and claiming deduction though he is also aware that it cannot be allowed treating the entire expenditure as prior period expenses. The AO disallowed the same. Aggrieved, the assessee carried the matter before the ld.CIT(A) and reiterated what has been stated before the AO. After considering the facts and the submissions, the ld. CIT(A) observed that the assessee could not accurately identify the individual party-wise balances and accordingly the amount were reflected on aggregate debits in financial statement. The ld. CIT(A) further observed that such expenditure pertains to prior period expenditure and cannot be allowed as deduction in this year as the books of account of the assessee are audited and there is no mention in the audit report that there is any discrepancy in the accounting of expenditure. The ld.CIT(A) finally concluded by holding that prior period expenditure cannot be allowed in this year. The ld. CIT (A) was convinced that the AO was justified in disallowing the expenditure on the grou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ken of ₹ 3,33,42,922/- during the financial year under consideration. This interests includes interest of ₹ 2,66,59,853/- which has been treated as prior period expenditure. As a matter of fact, this amount of ₹ 2,66,59,853/- which relates to the financial transaction have been debited during the year under consideration has to be allowed during the year when it is discovered. This is in line with the Board circular No.35D(XLVII- 20)(F.No.10/48/65-IT(A-I) dated 24.11.1965. The Hon ble Supreme Court in the case of Associated Banking Corporation Of India Limited. vs CIT reported in 56 ITR 1(SC) has held that the loss by embezzlement must be deemed to have occurred when the assessee came to know about the embezzlement and realized that the amount embezzled could not be recovered . In another decision, the Hon ble Supreme Court in the case of Badridas Daga V/s CIT reported in 34 ITR 10) (SC) has held that the losses which have been suffered by the assessee as a result of misappropriation by an employee have (1) which was incidental to the carrying on the business and should therefore be deducted in computing the profit of the business. 10. It would not be out o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d upon the findings of revenue authorities. 16. Annexure 16 at page 200 of the paper book has carefully been perused by us which is a details of claim of foreign exchange fluctuation loss. A perusal of the same shows that the fluctuation are on account of revenue expenditure. There are also gain which have been noted while claiming loss of ₹ 1,43,000/-. We find force in the contention of the ld.counsel. The ratio laid down by the Hon ble Supreme Court in the case of Sutlej Cotton Mills Ltd(supra) squarely apply on the facts of the present case, wherein the Hon ble Supreme Court has held that Where profit or loss arises to an assessee on account of appreciation or depreciation in value of foreign currency held by him, on conversion into another currency, such profit or loss would ordinarily be trading profit or loss if foreign currency is held by assessee on revenue account or as a trading asset or as part of circulating capital embarked in business. But, if on the other hand, the foreign currency is held as a capital asset or as fixed capital, such profit or loss would be of capital nature. 6.5 Considering the facts of the case in the light of ratio laid down by the H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erein he has given categorical findings that the assessee has incurred expenditure on repair and maintenance and no new assets has been brought in to existence. As no distinguishing facts have been brought on record by the ld.DR, we do not find it necessary to interfere with the order of ld.CIT(A). Ground No.2, is therefore, dismissed. 24. Ground No.3 relates to deletion of addition of ₹ 1,19,42,804/- added back by the AO on account of advertisement expenditure. The AO noticed that an amount of ₹ 1,19,42,804/- has been allocated to the account of M/s Nicholas Piramal India Ltd (NPIL) on account of advertisement expenses for Saridon BME. It was explained by the assessee that TDS is done on these expenses by NPIL and therefore the assessee has not done TDS on these credits to NPIL. The AO was not convinced with this reply of the assessee and disallowed the entire sum of ₹ 1,19,42,804/-. 25. Before the ld. CIT(A), the assessee explained that NPIL incurred advertisement expenditure and the assessee reimbursed the same and hence NPIL has to deduct tax at source and if the assessee is required to make TDS it would amount to double taxations since, expenditure is s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ciated Banking Corporation Of India Limited (supra) and Badridas Daga (supra).Aggrieved by the decision of the ld. CIT(A), the Revenue is before us. 29. The ld. DR supported the order of AO. The ld.counsel for the assessee reiterated the same facts what has been submitted before the lower authorities. 30. We have perused the orders of authorities below. An identical issue on embezzlement and misappropriation of funds have been decided by us in assessee s appeal in ITA No.2714/Mum/2009 qua ground No.2 of that appeal, wherein we have followed the ratio laid down by the Hon ble Supreme Court, which has been followed by the ld. CIT(A) while deleting the present addition. We, therefore, do not find any reason to interfere with the findings of ld. CIT(A). Ground No.4 is dismissed. 31. The appeal filed by the revenue is, therefore, dismissed. I .T.A. No.4129/Mum/2008 (By Assessee) 32. Since we have deleted the entire addition made in assessment year 2005-06 amounting to ₹ 2,66,59,853/-, the issue raised by the assessee in this appeal become otiose. Accordingly, the appeal filed by the assessee dismissed as infructuous. 33. In the result, the appeal bearing ITA N ..... X X X X Extracts X X X X X X X X Extracts X X X X
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