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TMI Blog2017 (10) TMI 587X X X X Extracts X X X X X X X X Extracts X X X X ..... nature in foreign travelling expenses. In our opinion, if expenditure has not been incurred wholly and exclusive for the purpose of business then said disallowance could be made under section 37(1) of the Act. Since the Ld. CIT-(A) has sustained the disallowance without taking into account objection of the assessee and verifying the factual claim of the assessee that no expenses of personal nature were incurred, we feel it appropriate to restore the issue to the file of Ld. CIT(A) to decide the issue-in dispute after taking into consideration objections of the assessee. The assessee shall be afforded adequate opportunity of being heard. - ITA No. 6060/Del/2014 - - - Dated:- 6-10-2017 - SH. AMIT SHUKLA, JUDICIAL MEMBER AND SH. O.P. KANT, ACCOUNTANT MEMBER For The Appellant : None For The Respondent : Sh. R.C. Danday, Sr.DR ORDER PER O.P. KANT, A.M.: This appeal by the assessee is directed against order dated 09/09/2014 of the Commissioner of Income-tax( Appeals)-VI, New Delhi [ in short the CIT-(A)] for assessment year 2010-11 raising following grounds of appeal: On the facts and in the circumstances of the case and in law, the CIT (A) incorre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under: 4.1 I have carefully considered the submission of the appellant. I have also gone through the relevant orders passed in this case. 4.1.1.In this case, during the course of regular assessment, the AO observed that the assessee company is following exclusive method for valuation of closing stock i.e. excise duty has been excluded from the valuation of closing stock. To verify the claim the AO asked the appellant company to furnish Details of excise duty component in closing stock. The appellant was requested to submit the computation of closing stock in accordance with inclusive method as prescribed by Section 145A of the I.T. Act, 1961. In response, the assessee submitted as below: Valuation of closing as given in Balance if exclusive of Tax, Cenvat etc. ICAO has introduced revised accounting standard As-2 which is mandatory w.e.f 01.04.1999. This standard closely follows IAS-2. As per AS-2 of ICAI, inventories are assets (a) held in ordinary course of business (b) in the process of production for such sale or (c) in the form of material or supplies to be consumed in the production or in the rendering of services. Inventory is classified as (i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stock. 4.1.2. Section 145 of the i.T. Act, 1956 provides that Profit and Gains of Business or Profession shall be computed in accordance with either cash or mercantile system of accounting, as regularly employed by the assessee. In CIT Vs. Me Millan Co(1958) 33ITR 182 (SC), it was held that the choice of method of accounting lies with the assessee, but the assessee must show that they have followed the method regularly for their own purposes. Therefore, the accrual or arising of income is generally dependent on the method of accounting employed by the assessee. In cash system of accounting, the accrual or arising of the income is independent of its receipt. So long as the amount is due to the assessee, the system of accounting would envisage the amount being treated as having accrual to the assessee (Refer CIT Vs. Planters Co. Pvt. Ltd. (1980) 123 ITR 648 (Mad). In the mercantile system of accounting, the profit or loss at the end of the accounting period is not based on the difference between what was actually received and what was actually paid out, but on the difference between the right to receive and the liability to pay. Therefore, even under the mercantile system, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The CBDT has issued a Notification No. 5.0.69(E), dated 25 January, 1996 and notified the following accounting standards to be followed by all the assesses, following the mercantile system of accounting: * Relating to disclosure of accounting policies (AS 1) * Relating to disclosure of prior period and extraordinary items and changes in accounting policies (AS2) These two accounting standards were similar to the corresponding standards issued by ICAI i.e. AS1 AS 5, respectively. 4.1.6. Further Accounting Standard (AS) 2, issued by ICAI relates to Valuation of Inventories. A primary issue in accounting for inventories is the determination of the value at which inventories are carried in the financial statements until the related revenues are recognized. This standard deals with the determination of such value, including the ascertainment of cost of inventories and any write down thereof to net realizable value. As per this A.S., net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion the estimated costs necessary to make the sale. Further, it states that Inventories are usually written ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reasonable, therefore, this ground of appeal is dismissed. 3.4 Aggrieved, the assessee is in appeal before the Tribunal, raising the grounds as reproduced above. 4. Before us, the Ld. Sr. DR supported the order of the lower authorities and submitted that additions/disallowance might be upheld. 5. We have heard the submission of Ld. Sr. DR and perused the relevant material on record. The ground No. (a) raised by the assessee being general in nature, we are not required to adjudicate upon. In ground Nos. (b) to (d), the assessee has challenged addition of excise duty to the closing stock. In our opinion, the assessee has not followed the provision of section 145A of the Act, which provides that valuation of purchase and sale of goods and inventory should be adjusted to include the amount of any tax, duty, cess or fee actually paid or incurred by the assessee. In the submission before the Ld. CIT-(A), the assessee has accepted this fact, however, the assessee submitted that for the purpose of balance sheet as per the Companies Act, inventory should be valued exclusive of excise duty, if assessee is entitled to get Cenvat credit of duty paid on inputs. The assessee further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned CIT-(A), the assessee pleaded that the finding of the Assessing Officer on the issue in dispute was not correct as the copy of foreign travelling expenses does not reveal any expenditure of personal nature. The assessee also submitted that no disallowance could be made in the hand of the company and Assessing Officer, if so desires, could treat such expenses as perquisite in the hand of the directors. 7.2 We find that the Ld. CIT-(A) has not considered the objection of the assessee that there were no expenditure of personal nature in foreign travelling expenses. In our opinion, if expenditure has not been incurred wholly and exclusive for the purpose of business then said disallowance could be made under section 37(1) of the Act. Since the Ld. CIT-(A) has sustained the disallowance without taking into account objection of the assessee and verifying the factual claim of the assessee that no expenses of personal nature were incurred, we feel it appropriate to restore the issue to the file of Ld. CIT(A) to decide the issue-in dispute after taking into consideration objections of the assessee. The assessee shall be afforded adequate opportunity of being heard. 8. In the ..... 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