M/s. Sivagami Holdings Private Limited, CHENNAI V. ACIT, CHENNAI

ITA 1076/CHNY/2012

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 7764 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-07-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 17-05-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: DR S MOHARANA
• Assessee Lawyers: S THYAGARAJAN
• Section: 37(1); 145; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B B ENCH C HENN AI BEFORE DR .O.K.NARAYANAN, VICE PRESIDENT AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER .. ITA NO. 1076 /MDS./ 20 12 ASSESSMENT YEAR: 200 7 - 2008 M/S.SIVAGAMI HOLDINGS PVT. LTD., 202, ANNA SALAI , CHENNAI 600 002. VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE VI(3), INCOME TAX OFFICE, CHENNAI 600 034. PAN AAECS 3279 A (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI S.T HYAGARAJAN, FC A RESPONDENT BY : DR.S.MOHARANA, CI T DR DATE OF HEARING : 23 .0 7 .12 DATE OF PRONOUNCEMENT : 25 .0 7 .12 O R D E R PER DR .O.K.NARAYANAN, VICE PRESIDENT : THIS APPEAL IS FILED BY THE ASSESSEE. THE RELEVANT ASSESSMENT YEAR IS 2007 - 08. THE APPEAL IS DIRECTED AGAINST THE REVISION ORDER PASSED BY THE COMMISSIONER OF INCOME TAX, CHENNAI. THE REVISION ORDER UNDER SECTION 263 OF THE INCOME TAX ACT HAS BEEN PASSED IN THE PRESENT CASE THROUGH PROCEEDINGS DATED 26.03.2012. ITA . 1076 /MDS/ 12 2 2. ON PE RUSAL OF THE RECORDS OF THE CASE, THE COMMISSIONER OF INCOME TAX FOUND THAT THE ASSESSEE HAS ADDED A SUM OF ` 2,66,80,649/ - TO ITS FOREIGN EXCHANGE FLUCTUATION RESERVE (FFR). THE COMMISSIONER OF INCOME TAX REFERRING TO THE JUDGEMENT OF THE HON BLE SUPREM E COURT IN THE CASE OF M/S.WOODWARD GOVERNOR INDIA PRIVATE LIMITED VS. CIT IN 312 ITR 254 HELD THAT ANY ADDITION MADE BY WAY OF FOREIGN EXCHANGE F LUCTUATION IS TO BE TREATED AS R EVENUE RECEIPT AND SHOULD BE SHOWN IN THE PROFIT AND LOSS ACCOUNT. THE COMMIS SIONER OF INCOME TAX FOUND THAT THIS ISSUE WAS NOT REFLECTED IN THE ASSESSMENT ORDER AND THE ASSESSING AUTHORITY HAS N OT APPLIED HIS MIND ON THE ISSUE AND AS SUCH THE ASSESSMENT ORDER PASSED BY THE ASSESSING AUTHORITY AS FAR AS THE ISSUE IS CONCERNED, IS E RRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE. ACCORDINGLY, THE ASSESSMENT ORDER WAS SET ASIDE WITH A DIRECTION TO THE ASSESSING OFFICER TO VERIFY THE DETAILS OF THE ADDITION MADE TO FOREIGN EXCHANGE FLUCTUATION RESERVE AND BRING THE SAME TO TA X. 3. IT IS AGAINST THE ABOVE THAT THE ASSESSEE HAS COME IN APPEAL BEFORE US. ITA . 1076 /MDS/ 12 3 4. THE GROUNDS RAISED BY THE ASSESSEE IN THIS APPEAL READ AS BELOW: - 1. THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX, CHENNAI III UNDER SECTION 263 OF THE INCOME TAX ACT,1961 IN C.NO.3033/III/2011 - 12 DATED 26.03.2012, DIRECTING THE ASSESSING OFFICER TO PASS A REVISED ASSESSMENT ORDER, BEING CONTRARY TO FACTS AND CIRCUMSTANCES OF THE CASE, INSUPPORTABLE IN LAW AND DEVOID OF JURISDICTION, IS LIABLE TO BE CANCELLED I N LIMINE. 2. SINCE THE ASSESSMENT ORDER COVERED BY THE REVISIONAL PROCEEDINGS UNDER SECTION263 IS NOT ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE THE LEARNED COMMISSIONER OUGHT TO HAVE APPRECIATED THAT HIS EXERCISE WAS WITHO UT JURISDICTION. 3. THE ORDER OF THE LEARNED COMM ISSIONER OF INCOME TAX, SEEKING TO RESTORE THE ASSESSMENT ORDER TO THE ASSESSING OFFICER FOR RE - EXAMINATION OF AN ISSUE WHICH WAS ALREADY EXAMINED BY HIM, IS ERRONEOUS AND NOT JUSTIFIED IN LAW. 4. IN AS MUCH AS THE DECISION CITED BY THE LEARNED COMMISSIONER OF INCOME TAX IN THE CASE OF CIT VS. M/S.WOODWARD GOVERNOR INDIA PRIVATE LIMITED SUBSEQUENT TO WHICH THERE HAVE BEEN REVISIONS TO THE ACCOUNTING STANDARD 11, DEALING WITH RECOGNITION OF EXCHANGE DIFFER ENCES ON FOREIGN CURRENCY TRANSACTIONS, IN THE YEAR 2003, WHICH ALONE COULD BE APPLIED FOR PERIODS COMMENCING ON OR AFTER 01.4.2004, THE LEARNED COMMISSIONER OUGHT NOT TO HAVE COME TO THE ERRONEOUS ITA . 1076 /MDS/ 12 4 CONCLUSION ON THE FACTS AND CIRCUMSTANCES OF THE APPELLANT S CASE. 5. WITHOUT PREJUDICE TO THE ABOVE, THE INTERPRETATION OF THE LEARNED COMMISSIONER OF INCOME TAX THAT THE CASE DECISION CITED BY HIM AND REFERRED TO SUPRA SUPPORTS HIS VIEW IS CLEARLY CONTRARY TO THE VIEWS OF THE HON BLE JUDGES IN THE CASE. MATT ER OF FACTLY, THE CASE ONLY AFFIRMINGLY STATES THE FOLLOWING PROPOSITIONS, AMONGST OTHERS, WHICH ARE ACTUALLY IN FAVOUR OF THE APPELLANT: A. THE PROVISIONS OF THE ACCOUNTING STANDARDS 11 ARE MANDATORY. B. CONSISTENCY OF THE ACCOUNTING PRINCIPLES ARE PAR AMOUNT AS IN THE WORDS OF THE HON BLE JUDGES ACCOUNTS REGULARLY MAINTAINED IN THE COURSE OF BUSINESS ARE TO BE TAKEN AS CORRECT UNLESS THERE ARE STRONG AND SUFFICIENT REASONS TO INDICATE THAT THEY ARE UNRELIABLE . C. THE DECISION IS BROADLY APPLICABLE ON LY UNDER THESE TWO CATEGORIES. FIRSTLY, IT IS CONCERNED WITH THE EXCHANGE DIFFERENCES ARISING IN FOREIGN EXCHANGE TRANSACTIONS ON REVENUE ITEMS AND SECONDLY, CONCERNING THE ASSESSEE INCURRING LIABILITY ON CAPITAL ACCOUNT. D. THE INTERPRETATION OF A PARTIC ULAR SUM AS REVENUE INCOME OR AS EXPENDITURE COULD ONLY BE ASCERTAINED BY AN HOMOGENEOUS READING OF SECTIONS 28(1), 29, 37(1) AND 145OF THE ACT. 6. THE LEARNED COMMISSIONER OF INCOME TAX ERRED IN NOT CORRECTLY APPRECIATING THE PROVISIONS OF SECTION 145 ITA . 1076 /MDS/ 12 5 OF THE ACT, WHICH PROVIDES THAT THE PROFIT AND GAINS OF BUSINESS SHALL BE, SUBJECT TO THE PROVISIONS OF SUB - SECTION 2, COMPUTED IN ACCORDANCE WITH EITHER CASH OR MERCANTILE SY STEM OF A CCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE. SUB SECTION 2 STATES THAT T HE CENTRAL GOVERNMENT MAY FROM TIME TO TIME NOTIFY IN THE OFFICIAL GAZETTE OF THE ACCOUNTING STANDARDS TO BE MANDATORILY FOLLOWED BY ANY CLASS OF ASSESSEES TO WHOM SUCH ACCOUNTING STANDARDS APPLY. ACCOUNTING STANDARDS WHICH IS CONTINUOUSLY ADOPTED BY AN ASSESSEE CAN BE SUPERSEDED OR MODIFIED BY LEGISLATIVE INTERVENTION. BUT FOR SUCH INTERVENTIONS THE METHOD OF ACCOUNTING UNDERTAKEN BY THE ASSESSEE CONTINUOUSLY IS SUPREME. 7. WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED COMMISSIONER OF INCOME TAX HAS FAILE D TO TAKE COGNIZANCE OF THE NOTIFICATION ISSUED BY THE MINISTRY OF COMPANY AFFAIRS DATED 31.03.2009, WHICH PROVIDED AN OPTION TO ENTERPRISES IN RELATION TO FOREIGN EXCHANGE DIFFERENCE IN RESPECT OF LONG TERMS MONETARY ITEMS TO ACCUMULATE THE EXCHANGE DIFFE RENCES IN A FOREIGN CURRENCY TRANSLATION RESERVE ACCOUNT. 5. W E HEARD SHRI S.THYAGARAJAN, LEARNED CHARTERED ACCOUNTANT APPEARING FOR THE ASSESSEE AND DR. S.MOHARANA , L D. COMMISSIONER OF INCOME TAX(APPEALS) APPEARING FOR THE REVENUE. ITA . 1076 /MDS/ 12 6 6. IT IS THE CAS E OF ASSESSEE THAT THE ADJUSTMENT IN THE RESERVE HAS BEEN MADE IN VIEW OF ACCOUNTING STANDARD - 11, WHICH IS MANDATORILY TO BE FOLLOWED BY THE ASSESSEE IN F INALIZING ITS ACCOUNTS. IT IS THE CASE OF THE L EARNED CHARTERED ACCOUNTANT THAT IT IS NECESSARY FOR T HE DISCLOSURE PURPOSE TO ACCOUNT FOR THE EXCHANGE RATE FLUCTUATION IN THE BALANCE SHEET BY ADJUSTING THE RESERVE AMOUNT FOR THE PURPOSE. B UT THE COMMISSIONER ARGUES IN THE LIGHT OF THE JUDGEMENT OF HON BLE SUPREME COURT IN THE CASE OF M/S.WOODWARD GOVER NOR INDIA PRIVATE LIMITED VS. CIT IN 312 ITR 254 THAT FOREIGN EXCHANGE RATE FL UCTUATION GAINS ARISING OUT OF R EVENUE ITEMS MUST BE TREATED AS PART OF INCOME OF THE ASSESSEE. 7. AFTER HEARING BOTH SIDES, WE FIND THAT THIS ISSUE HA S NOT BEEN DISCUSSED BY T HE ASSE SSING AUTHORITY IN HIS ORDER. THE L EARNED CHARTERED ACCOUNTANT HAS VEHEMENTLY ARGUED THAT THE PART ICULARS RELATING TO THE ABOVE WERE FILED BEFORE THE ASSESSING OFFICER AND SO, I T IS NOT POSSIBLE TO HOLD THAT THO SE PARTICULARS WERE NOT EXAMINED BY THE ASSESSING OFFICER , ONLY FOR THE REASONS THAT THE ISSUE IS NOT DISCUSSED BY THE ASSESSING OFFICER IN HIS ORDER. IN SUPPORT OF THE PROPOSITION, THE L EARNED CHARTERED ACCOUNTANT HAS RELIED ON THE JUDGEMENT OF THE HON BLE B OMBAY ITA . 1076 /MDS/ 12 7 HIGH COURT IN THE CASE O F COMMISSIONER OF INCOME TAX VS. GABRIEL INDIA LTD. IN 203 ITR 108. 8. ACCOUNTING STANDARD S - 11 MANDATES THAT THE ASSESSEE SHOULD MAINTAIN FOREIGN EXCHANGE FLUCTUATION RESERVE WHEREVER NECESSARY AND TRANSMIT THE EXCHANGE FLUCTUATION GAINS OR LOSSES TO THA T RESERVE. THIS IS NECESSARY FOR A TRUE AND FAIR DISCLOSURE OF THE STATE OF AFFAIRS OF AN ASSESSEE AS ON THE BALANCE SHEET DATE AND NECESSITATED AS THE ASS ESSEE RE - STATES OF ITS ASSETS OF THE FOREIGN BRANCH IN TERMS OF INDIAN RUPEE . 9. BUT, IT IS ALSO N ECESSARY TO EXAMINE THE TAX IMPLICATIONS OF THIS DISCLOSURE EXERCISE. ASSESSEE IS BASICALLY AN INVESTMENT COMPANY. THE ASSESSEE IS INVESTING IN ALL SORTS OF PORTFOLIOS. IT IS NECESSARY, THEREFORE TO EXAMINE THE COMPONENTS OF THE ASSETS AND HOLDINGS RE - ST ATED BY THE ASSESSEE IN TERMS OF INDIAN RUPEE SO AS TO SEE WHETHER ANY R EVENUE ITEM IS RE - STATED AND IF SO, WHETHER THE GAINS WOULD BE EXIGIBLE TO TAX. THE LEARNED CHARTERED ACCOUNTANT HAS STATED THAT THE DECISION RELIED ON BY THE COMMISSIONER OF INCOME TAX IS DISTINGUISHABLE AS THE FACTS OF THE ASSESSEE S CASE ARE DIFFERENT . B UT THE PROBLEM IS THAT THE ASSESSING AUTHORITY HAS NOT AT ALL DISCUSSED ANYTHING IN HIS ORDER ITA . 1076 /MDS/ 12 8 ON THIS IMPORTANT ISSUE. THEREFORE, IT IS NOT POSSIBLE TO HOLD AT PRESENT THAT WHETHE R THE ASSESSING AUTHORITY HAD IN FACT EXAMINED THIS ASPECT OF THE CASE AND FINALLY COME TO A CONCLUSION THAT ASSESSEE S CASE IS DIFFERENT FROM THE CASE CONSIDERED BY THE HON BLE SUPREME COURT. EVERYTHING REMAINS IN LOOSE ENDS. 10. THEREFORE, AS A MATTE R OF FACT, WE FIND THAT THE ASSESSMENT ORDER IS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE AS FAR AS THE ADDITION TO THE FOREIGN CURRENCY FLUCTUATION RESERVE ACCOUNT IS CONCERNED. ACCORDINGLY, WE HOLD THAT THE COMMISSIONER OF INCOME TAX IS JUSTIFIED IN PASSING THE IMPUGNED REVISION ORDER UNDER S ECTION 263 OF THE INCOME TAX ACT, 1961. 11. IN RESULT, THE APPEAL FILED BY ASSESSEE IS DISMISSED. ORDER PRONOUNCED ON WEDNESDAY THE 25 TH JULY , 2012. SD/ - SD/ - ( CHALLA NAGENDRA PRASAD ) ( DR.O.K.NARAYANAN ) JUDICIAL MEMBER VICE PRESIDENT CHENNAI, DATED 25 TH JULY , 2012 . K S SUNDARAM COPY TO: ASSESSEE / AO / CIT (A) / CIT / D.R. / GUARD FILE ITA . 1076 /MDS/ 12 9