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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 ..... owing the claim of loss of Rs. 49.64 lacs, when what was valued was an asset in the Balance Sheet viz. Sundry Debtors and valuation of which had increased by Rs. 1.14 crores.? " Ground no. 3 "Whether on the facts and circumstances of the case and in law, the Ld. CIT (A) has erred in reducing the actual value realised between 01/04/09 to 07/09/09 of the Sundry Debtors from the valuation of the foreign exchange valuation gain of Rs. 1.14 crores on 31/03/09, when 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 Rs. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gainst exports could be treated as income accrued to the company in year in which the exports were made. The company had estimated the import entitlement benefits and recognized in its books of account as income accrued the estimated amount, in the year in which the exports were made. The import entitlements were not utilized since no imports were effected during that year. The Counsel for 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, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that such realization happened in the subsequent year and, therefore, it is only at the time of actual realization that said loss is liable to be accounted for. 4.3 On the other hand, Ld. Representative for the assessee vehemently defended the order of the CIT(A) and in particular contended that the claim of the assessee is fully supported by the principle of prudence, 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 ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e available while assessing its income in the instant assessment year. In the case of U.B.S. Publishers and Distributors (supra), which has been relied upon before us, the issue relates to the assessment year 1967-68 (previous year ending on 31/05/1966). In the assessment proceedings, it was found that assessee therein had claimed an expenditure by way of purchases of a sum of Rs. 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out of foreign travel expenses and retained only a disallowance of Rs. 50,000/- out of expenses incurred on foreign exchange purchased for use in foreign travel. Against such a decision of the CIT(A), Revenue is in appeal before us. 5.1 In the context of the aforesaid Grounds, the discussion in paras 4 & 5 of the assessment order reveal that disallowance of Rs. 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 Rs. 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 Rs. 3,88,167/- out of foreign travel expenses o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of proportionate interest disallowable was made after considering the availability of non-interest bearing funds. In this manner the part relief allowed by the CIT(A), as per discussion in paras 2.4.19 to 2.4.21, is sought to be defended. 6.3 On the other hand, Ld. 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) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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