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TMI Blog2015 (10) TMI 2178X X X X Extracts X X X X X X X X Extracts X X X X ..... es and not for acquisition of any fixed assets. Hence, we hold that the borrowings were utilized on Revenue Account and the provisions of section 43A of the Act were not applicable at all in the facts of the case. Based on this, it could logically be concluded that any exchange fluctuation arising out of the restatement of the said loan at the end of the year, be it gain or loss, would also fall on revenue account and hence, automatically comes under the ambit of taxation if it is a gain and allowable as an expenditure if it is a loss. This issue is squarely covered by the decision of the Hon'ble Supreme Court in the case of CIT vs.- Woodward Governor India P. Ltd. reported in (2009 (4) TMI 4 - SUPREME COURT) to hold that the sum being the exchange loss would be allowed as deduction under section 37(1) - Decided in favour of assessee. Miscellaneous receipts - income arose from tea business - business income or income from other sources - Held that:- Items A to F [Sale of gunny bag/drums,Bazaar Rent,Road Roller Hire Charges,Land Acquisition by ONGC,Land Acquisition by Montu Nag and Hire charges of Machinery to Apeejay Tea Ltd.] were only arising out of business income and ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of appeal for approval of the appellant before finalization. 6)That delay from 16.06.2010 to the actual date of filing u/s 253 is for procedural matters like typing, comparing, signature of the appellant, payment of fees etc. We are satisfied that the assessee has adduced cogent reasons and has been genuinely prevented in filing the appeal in time before us. Hence the reasons stated by the ld.AR in the condonation petition is accepted and delay for 66 days is condoned. The ld. DR fairly conceded to the condonation petition. Hence the appeal is admitted. 4. The first issue to be decided in this appeal of the assessee is whether the ld. CIT(Appeals) is correct in deleting the addition made towards employees' contribution to Provident Fund (E.P.F.) amounting to ₹ 69,706/- which was remitted beyond the due date prescribed under the P.F. Act but before the due date of filing the return of income under sect ion 139(1) of the Act. 4.1. The Assessing Officer disallowed the employees' contribution to P.F. under section 36(1)(va), read with section 2(24)(x) of the Act, in view of the fact that the same were not remitted within the due date prescribed under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Standard 11 (AS- 11) issued by the Institute of Chartered Accountants of India (ICAI) by the assessee-company. The assessee incurred a Notional Exchange Loss of ₹ 11,00,000/- on such restatement in view of the increase in liability payable on the loan account. This is worked out as under:- ECB Value as on 31.03.2005 [55,00,000 US $ @ 43.75] 24,06,25,000 ECB Value as on 31.03.2004 [55,00,000 US $ @ 43.55] 23,95,25,000 Exchange Loss on ECB as on 31.03.2005 11,00,000 6.2. The Assessing Officer disallowed the same as the exchange loss incurred thereon was notional in nature by invoking the provisions of section 43A of the Act, wherein pursuant to an Amendment brought with effect from 1st April, 2003, any exchange loss arising out of restatement could be allowed to be capitalised or allowed as deduction only on payment basis and not on mere restatement. The assessee pleaded that the provisions of section 43A per se are not applicable to the facts of the case as no asset was acquired out of ECB loan availed by the assessee as admittedly the said loan wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acts and circumstances of the case and in law, the additional liability arising on account of fluctuation in the rate of exchange in respect of loans taken for revenue purposes could be allowed as deduction under section 37(1) in the year of fluctuation in the rate of exchange or whether the same could only be allowed in the year of repayment of such loans? (ii) Whether, the assessee is entitled to adjust the actual cost of imported assets acquired in foreign currency on account of fluctuation in the rate of exchange at each balance sheet date, pending actual payment of the varied liability? Their Lordships had categorically held that since the loan was borrowed for general business purposes i.e. on Revenue Account, any loss arising out of restatement at the end of the year would be squarely allowable under section 37(1) of the Act. The relevant operative portion of the said Judgment is reproduced below:- 13. As stated above, one of the main arguments advanced by the learned Additional Solicitor General on behalf of the Department before us was that the word expenditure in Section 37(1) connotes what ispaid out and that which has gone irretrievably. In this conne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Pradesh High Court has been approved by this Court in the case of Madras Industrial Investment Corporation Ltd. v. CIT reported in 225 ITR 802. According to the Law and Practice of Income Tax by Kanga and Palkhivala, Section 37(1) is a residuary section extending the allowance to items of business expenditure not covered by Sections 30 to 36. This Section, according to the learned Author, covers cases of business expenditure only, and not of business losses which are, however, deductible on ordinary principles of commercial accounting. (see page 617 of the eighth edition). It is this principle which attracts the provisions of Section 145. That section recognizes the rights of a trader to adopt either the cash system or the mercantile system of accounting. The quantum of allowances permitted to be deducted under diverse heads under Sections 30 to 43C from the income, profits and gains of a business would differ according to the system adopted. This is made clear by defining the word paid in Section 43(2), which is used in several Sections 30 to 43C, as meaning actually paid or incurred according to the method of accounting upon the basis on which profits or gains are computed un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 145(2) comes into play. Under that section, the Central Government is empowered to notify from time to time the Accounting Standards to be followed by any class of assessees or in respect of any class of income. Accordingly, under Section 209 of the Companies Act, mercantile system of accounting is made mandatory for companies. In other words, accounting standard which is continuously adopted by an assessee can be superseded or modified by Legislative intervention. However, but for such intervention or in cases falling under Section 145(3), the method of accounting undertaken by the assessee continuously is supreme. In the present batch of cases, there is no finding given by the AO on the correctness or completeness of the accounts of the assessee. Equally, there is no finding given by the AO stating that the assessee has not complied with the accounting standards. 15. For the reasons given hereinabove, we hold that, in the present case, the loss suffered by the assessee on account of the exchange difference as on the date of the balance sheet is an item of expenditure under Section 37(1) of the 1961 Act . In view of the aforesaid judgment of the Hon'ble Apex ..... X X X X Extracts X X X X X X X X Extracts X X X X
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