Section 37(1) – Loss on account of export proceeds realised short in subsequent year allowed as deduction in current year.

7.  ACIT vs. Allied
Gems Corporation (Bombay)

Members: G.S. Pannu (A. M.) and Ram Lal Negi (J. M.)

ITA No.: 2502/Mum/2014

A.Y.: 2009-10. Date
of Order : 20^th January, 2017

Counsel for Revenue / Assessee:  A. Ramachandran / Jignesh A. Shah

FACTS

The assessee was engaged in the business of dealing in cut
and polished diamonds and precious and semi precious stones. During the course
of assessment proceedings, the AO noticed that assessee had claimed a loss of
Rs. 49.64 lakh on account of short realisation of export proceeds, which was
outstanding as on 31.03.2009.  According
to the AO, though the said loss pertained to export proceeds receivable as on
31.03.2009, but the actual realiation of the export proceeds took place in the
subsequent financial year, corresponding to assessment year 2010-11.  Hence, such loss could not be allowed. 

On appeal, the CIT(A) noted that the AO did not doubt the
amount short realied from the debtors. 
Therefore, relying on the decision of the Mumbai Tribunal in the case Voltas
Limited vs. DCIT, 64 ITD 232, he agreed with the assessee that applying the
principle of prudence, claim for was allowable.

Before the Tribunal, the revenue contended that the said loss
had not accrued as on 31.03.2009, since as on that date, the corresponding
export receivables were not actually realised, and that such realization
happened in the subsequent year and, therefore, it was only at the time of
actual realisation that said loss could be accounted for allowed.

HELD

The Tribunal noted that the
assessee was maintaining its accounts on mercantile system and that the Revenue
also did not dispute the short realisation from debtors of Rs. 49.64
lakhs.  Therefore, referring to the
principle of prudence as emphasised in the Accounting Standard -1 notified u/s.
145(2), it agreed with the assessee that though the export proceeds was
realised in the subsequent period, the loss could be accounted for in the
instant year itself, applying the principle of prudence. The Tribunal also
referred to a decision of the Allahabad high court in the case of CIT vs.
U.B.S. Publishers and Distributors (147 ITR 144).  In the said case, the issue related to the
A.Y. 1967-68 (previous year ending on 31.05.1966). In the assessment
proceedings, it was found that assessee therein had claimed expenditure by way
of purchases of a sum of Rs. 6.39 lakh representing additional liability
towards foreign suppliers in respect of books imported on credit up to 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.  According to the
High Court, since the actual figure of loss on account of devaluation was
available when the accounts for 31.05.1966 ending were finalised, the same was
an allowable deduction in assessment year 1967-68 itself.  Applying the ratio of the said decision, the
Tribunal dismissed the appeal of the revenue.