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TMI Blog2017 (1) TMI 1139X X X X Extracts X X X X X X X X Extracts X X X X ..... ts and circumstances, in our view, the CIT(A) made no mistake in allowing the claim of the assessee, which we hereby affirm.- Decided against revenue Disallowance of foreign travel expenses and foreign exchange purchased for use in foreign travel - Held that:- Assessing Officer could not enter into shoes of the assessee while examining the claim of expenses and noted that the partners of the appellant firm had actually visited the countries concerned and in fact, subsequently substantial business was generated from such countries. CIT-A, therefore, correctly deleted the entire addition of foreign travel expenses on the ground that it related to the purposes of business. With regard to the disallowance out of foreign exchange purchased for foreign travel, in the absence of details, the CIT(A) has found it fit to restrict the disallowance to ₹ 50,000/- only. No reason to interfere with above finding of the CIT(A) - Decided against revenue Disallowance of interest expenditure under section 36(1)(iii) - Held that:- Relevant discussion in the assessment order reveals that as per the Assessing Officer assessee is paying interest on capital raised from the partners also and, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n infact such actual realisation was in the subsequent financial year. ? Ground no. 4 Whether on the facts and circumstances or the case and in law, the Ld. CIT(A) has erred in accepting the value of Sundry Debtors realised in a subsequent financial year and allowed as loss for AY 2009-10 as being in accordance with the principles of Prudence as contained in AS-I ? . Ground no. 5 Whether on the facts and circumstances of the case and in law, the Ld. CIT (A) has erred in allowing disallowance of foreign travel expenses of ₹ 3.88 lacs even though the assessee had visited countries wherein IHI business connection of clients was found. ? Ground no. 6 : Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in restricting disallowance of ₹ 3.0 lacs foreign exchange expenses to ₹ 50,000/- without appreciating the facts of the case Ground no. 7: Whether on the facts and circumstances of the case and in law, the Ld. CIT (A) has erred in restricting the disallowance under section.36(1)(iii) of the Income-tax Act 1961 to ₹ 1,88,955/- instead of ₹ 7,20,000/- made by the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the company arguing that though the company had accounted for the income, it had not in fact arisen. The Counsel quoted the Expert Advisory Opinion of the ICAI which has time and again opined that one of the major considerations governing the selection and application of accounting policies is Prudence, according to which profits are not anticipated but recognized only when realized in view of the uncertainty attached to future events. The Committee had therefore opined that no revenue should be recognized in respect of such import entitlements, till their utilization. On this reasoning the Tribunal held that no income had accrued to the company, as it had not received any tangible benefit in the form of 'Concession of duty in the year when the entitlements were accounted for in the books, thereby vindicating the Principle of Prudence. 2.4.13 The Mumbai Tribunal in the case Voltas Limited vs. DCIT, 64 ITD 232 ruled that whilst working out profits, all expected losses had to be accounted for in order to determine the real income of the company. It therefore allowed a claim made of deduction for warranty provisions. It held that since the income for which the projected expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce, which is an accepted concept even in Accounting Standard-1 notified by the Central Government under section 145(2) of the Act. It is pointed out that it is a well accepted principle of accountancy that provision should be made for all known liabilities and losses even though the amount may not be determined with certainty and represents only a best estimate in the light of available information. In this context, Ld. Representative for the assessee pointed out that so far as the reasonableness of the loss is concerned, there is no dispute that it has been suffered on account of actual short realization of export proceeds. The Ld. Representative for the assessee has placed reliance on the judgment of the Hon ble Allahabad High Court in the case of CIT vs. U.B.S. Publishers and Distributors, 147 ITR 144(All) 4.4 We have carefully considered the rival submissions. It is quite well understood that section -4 of the Act, charges income tax in respect of the total income of a previous year relevant to the concerned assessment year. Section -5 of the Act, prescribes the scope of total income and so far as we are concerned, the dispute relates to the income chargeable under the head ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purchases of a sum of ₹ 6,39,124/- representing additional liability towards foreign suppliers in respect of books imported on credit upto the end of 31/05/1966. The said additional claim was based on account of devaluation of Indian currency, which had taken place on 06/06/1966 i.e. after the close of the accounting year. Such a claim was disallowed on the ground that it did not pertain to the previous year ending 31/5/1966 and that the event of devaluation had taken place only on 06/06/1966, which was after the close of the accounting period. The claim of the Assessing Officer was that since assessee was maintaining its accounts on mercantile system, the liability on account of devaluation of the Indian currency could not be said to have accrued during the accounting period ending on 31/5/1966 as devaluation took place after the end of the accounting period. The Tribunal allowed the claim of the assessee holding that though devaluation of Indian currency took place after the end of the previous year, but assessee was justified in determining his liability on the basis of the actual figures available when accounts for that year were yet not finalized. The Hon ble Allhabad Hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt order reveal that disallowance of ₹ 3,88,167/- out of foreign travel expenses have been made on the ground that it pertained to the visit of partners to such countries where assessee has not done any business. The disallowance of ₹ 3.00 lacs out of the foreign exchange purchased for use in foreign travel was made by the Assessing Officer on the ground that no details were filed to indicate how the foreign exchange was utilized during the course of foreign travel. The CIT(A) has noticed that the Assessing Officer could not enter into shoes of the assessee while examining the claim of expenses and noted that the partners of the appellant firm had actually visited the countries concerned and in fact, subsequently substantial business was generated from such countries. He, therefore, deleted the entire addition of ₹ 3,88,167/- out of foreign travel expenses on the ground that it related to the purposes of business. With regard to the disallowance out of foreign exchange purchased for foreign travel, in the absence of details, the CIT(A) has found it fit to restrict the disallowance to ₹ 50,000/- only. 5.2 Having heard the rival parties, we find no reason t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Departmental Representative has referred to the discussion in the assessment order, which we have already adverted to in the earlier para, and the same is not being repeated for the sake of brevity. 6.4 We have carefully considered the rival submissions. The relevant discussion in the assessment order reveals that as per the Assessing Officer assessee is paying interest on capital raised from the partners also and, therefore, even if the methodology laid down by the CIT(A) in assessment year 2008-09 is to be allowed, the funds to the extent of partner s capital cannot be treated as an interest free fund, as assessee is paying interest on such funds. Be that as it may, the discussion by the CIT(A) is quite sketchy and is bereft of requisite details, therefore, we deem it fit and proper to set-aside the order of the CIT(A) and direct the Assessing Officer to recomputed the amount disallowable under section 36(1)(iii) of the Act bearing in mind the methodology approved by the CIT(A) in his order dated 02/08/2011 for assessment year 2008-09. Needless to say that the Assessing Officer shall carry out the aforesaid exercise after providing the assessee a reasonable opportunity of bei ..... X X X X Extracts X X X X X X X X Extracts X X X X
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