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TMI Blog2019 (10) TMI 761X X X X Extracts X X X X X X X X Extracts X X X X ..... so with wives and minor children, merely because the assessee says so, it cannot be assumed that the accompaniment of wife and minor children of the directors, management trainees and overseas employees was due to commercial expediency. It is not the case of the assessee that the directors or other employees of the company have declared in their returns of income the foreign travel is a perquisite. We are of the considered opinion that the foreign travel expenses in respect of the wives, minor children and others fail the test of commercial expediency and there are no valid reasons to interfere with the findings of the authorities below on the disallowance of the foreign travel expense relatable to the wives and minor children of the directors, management trainees and overseas employees of the assessee company. We therefore dismiss ground No. 2 of assessee s appeal. X X X X Extracts X X X X X X X X Extracts X X X X ..... preference to the judgment of Hon'ble Apex Court to disallow the claim of loss. 4. Further, Ld. Assessing Officer allowed the foreign travel expenses of the Directors of the assessee-company but has rejected the foreign travel expenses of their wife's and minor son observing that the foreign travel of the directors of the assessee was for business purpose, but the foreign travel of their family members accompanying the directors was not for business purposes. 5. Learned Assessing Officer, therefore, made an addition of ₹ 8,95,40,121/- on account of MTM losses on account of foreign exchange fluctuation and ₹ 17,09,423/- on account of disallowance of foreign travel expenses incurred in respect of the family members of the directors. Learned Assessing Officer also made an addition of ₹ 83,967/-on account of cessation of liability. 6. Challenging the assessment order making these additions, assessee preferred an appeal before the Ld. CIT(A). Ld. CIT(A) by way of impugned order, by placing reliance on CBDT instruction dated 23.03.2010, held that that where companies make adjustment through trading and P&L account by valuing financial instruments at market rate, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owned and possessed by the company. While referring to the findings of the Ld. CIT(A) in the impugned order, she submitted that in cases where no sale of settlement had actually taken place and the loss on marked to market basis has resulted in reduction of book profit, such notional loss would be contingent in nature and cannot be allowed to be set off against the taxable income. She also heavily relied upon the observations of the Ld. CIT(A) that the assessee had also claimed forward contract forex loss on the basis of Marked to market methodology adopted for various contracts for forward loss of foreign currency which it was expecting from exports proceeds made by it and it affects change in foreign exchange rates on all assets receivable/payable in foreign currency and, therefore, was claimed by the assessee is notional loss and cannot be allowed as expense. She also submitted that the CBDT had issued the instructions after the decision of the Hon'ble Apex Court in the case of Woodward Governor of India Ltd (supra). 9. We have gone through the record. In this case, the pending forward contracts were restated on the basis of the foreign exchange rate, and since there is no dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tional loss was decided against the department on the ground that in case of export and import business hedging of risk in foreign exchange is a normal course of business activity and such loss need to be allowed. 12. In PCIT vs International Gold Company ltd. (supra),the question that had fallen for consideration was whether the loss from foreign exchange contract is a notional or contingent in nature. Hon'ble Bombay High Court referred to instruction No.03/2010 dt: 23.03.2010 to confirm that such loss is business loss allowable under the Act and held that CBDT circular/instruction has no applicability. 13. On a careful consideration of the facts involved in this case, we are of the considered opinion that the decision in the case of Woodward Governor P Ltd (supra) and ONGC vs CIT (supra) are applicable, and the line of judicial view is that the Revenue cannot be permitted to contend that there is a CBDT instruction No. 03/2010 dated 23/3/2010 to the contrary. No CBDT circular or instruction can be contrary to the decision of the Hon'ble Apex Court, even subsequent to the decision of the Hon'ble Apex Court. We, therefore, accept the contention of the assessee and hold that the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure should qualify for deduction as contemplated by section 37(1) of the Act, one of the requirements of the provision is that the expenditure must have been laid out wholly and exclusively for the purpose of business. Hence, it is for the assessee who claims deduction of the expenditure under sub-section to satisfy the department of the purpose for which the amount was spent. In view of the provisions of section 40A(2) of the Act, so far as a company is concerned, it is open to the taxing authorities to go into the reasonableness of the expenses also. 17. He submitted that the Assessing Officer is also entitled to be satisfied as to the commercial necessity of spending that amount. In other words, there must be nexus between the expenditure and the business purpose; that the capacity in which the assessee spends will also be relevant; that the purpose must be for the purpose of business, i.e., the expenditure must be incurred for carrying on of the business and the assessee should have incurred it in his capacity as a person carrying on the business; that the term 'wholly' refers to the quantum of the expenditure and 'exclusively' refers to the motive, obj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t that not only the wives of the directors, but the minor children and some other persons whose relationship between the directors of the employees is explained for example Matilde Francis, Sumitra Balani, Mohammad Mustafa etc. had also travelled and such expenditure is also included in the claim made by the assessee. Besides these people, some overseas employees also travelled with their wives. Even before us also the assessee failed to explain what the commercial expediency was involved in this travel by such people and what business purpose that was served by the travel of minor children of the directors or management trainees or the overseas employees and their wives. 22. In CIT v. Alfa Laval (I) Ltd 282 ITR 445 (Bom) it was held as under: "4. ……..It is not in dispute that the expenses as a fact were incurred. The amount of expenses incurred is not in doubt. The expenses must stand to the test of commercial expediency. The test of commercial expediency cannot be reduced in the shape of a ritualistic formula, nor can it be put in a watertight compartment so as to be confined in a straitjacket formula. All that law requires is that the expenditure should not be i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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