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TMI Blog2011 (6) TMI 1017X X X X Extracts X X X X X X X X Extracts X X X X ..... acts and circumstances of the case the order of the Ld. CIT(A) is bad in law. ii) Whether on the facts and circumstances of the case, the Ld. CIT(A) has erred in deleting the addition of Rs.8,25,000/- made by the A.O. on account of disallowance of exchange fluctuation loss booked by the assessee on revaluation of debtors. iii) Whether on the facts and circumstances of the case, the Ld. CIT(A) has erred in holding that the loss suffered by the assessee on revaluation of debtors on account of exchange rate difference as on the date of balance sheet is an item of expenditure allowable u/s 37(1) of the Act. iv) That the order of the Ld. CIT(A) be vacated and that of the A.O. be restored. v) Appellant craves leave to amend or add any or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sset only when the increase liability is actually paid. The AO was of the viewe that though the amendment in section 43A is applicable to capital assets, the same logic apply to the trading assets also and the loss on revaluation was allowable on actual realization of proceeds and not on accrual basis notionally. The AO disallowed the loss in revaluation of debtors, did not allow the enhanced claim of deduction u/s 80HHC on the profit increased by the above addition and also did not accede to the request of the assessee for allowing deduction u/s 80HHC on the export proceeds realized after 31.10.2004. On appeal, the Ld. CIT(A), deleted the disallowance of exchange fluctuation loss on revaluation of debtors. Aggrieved by the order of the CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssue, in question, in greater detail, after appreciation of the evidences and material on record, as also the legal and factual position of the case. Needless to say that the impugned appellate order is well reasoned and based on the cogent and credible material and facts of the case. However, it would pertinent to reproduce only the relevant part of the decision of the CIT(A), for the purpose of proper appreciation of the same: "6.2. I have gone through the judicial rulings relied on by the ld. Counsel for the appellant. In the case of Bharat Earth Movers Vs. CIT (245 ITR 428) the Hon'ble Suprme Court has held that if a business liability has definitely arisen in the accounting year, the deduction should be allowed although the liability ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me, the accountancy standards prescribed by the ICAI have to be followed and applied. In the context of the revenue account cases, the increase in liability on account of the fluctuation in the rate of foreign exchange prevailing on the last day of the financial year is not a notional or contingent liability but ascertained liability and is required to be allowed as a deduction in terms of Section 37 of the Act. 6.3. It is a matter of record that the appellant has been following mercantile system of accounting on regular basis from year to year. The loss has been claimed on revaluation of debtors on account of foreign exchange fluctuation by applying the foreign exchange rate as on the date of balance sheet by following the prescribed acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the provisions of law and prescribed accounting standards. A perusal of the order under appeal reveals that the AO has allowed the deduction of loss of Rs.6,01,603/- on sales realization holding it to be the money actually received during the year on account of sales. However, the loss so allowed was not actually on realization but on account of foreign exchange fluctuation in respect of balance lying in the EEFC account in foreign currency as on 31.03.2004. The actual loss was Rs.6,15,704/- as submitted by the appellant instead of RS.6,01,636/- mentioned by the AO in the order. Hence, the loss on account of foreign exchange fluctuation in respect of debtors and balance in the EEFC account were claimed by the appellant by applying the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of said liability at the closing rate has to be recognized in the P & L a/c for the reporting period.' The relevant part of the said judgment is reproduced hereunder: "Business expenditure - year of allowability - Additional liability due to exchange rate fluctuation - Expression "expenditure" as used in Section 37 may, in the circumstances of a particular case, cover an amount which is really a 'loss" even though the said amount has not gone out from the pocket of the assessee - Word "paid" in section 43(2) means actually paid or incurred according to the method of accounting on the basis of which profits and gains are computed under section 28/29 - Sec. 37(1) has to be read with section 26, 29 & 145(1) - There is no finding of the AO ..... X X X X Extracts X X X X X X X X Extracts X X X X
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