DCIT, CC-XVI, KOLKATA, Kolkata V. South Asian Petrochem Ltd, Kolkata

ITA 1222/KOL/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 1802 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 11 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-05-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2006-2007
• Appeal Filed On: 28-05-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A K SINHA J
• Assessee Lawyers: D S DAMLE
• Keywords: Capital asset; Additional evidence; Capital receipt
• Section: 143(3); 115JB; 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH A KOLKATA BEFORE SHRI N.V.VASUDEVAN, JUDICIAL MEMBER AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER ITA NO. 1222 / KOL / 2014 ASSESSMENT YEAR :2006-07 DCIT, CENTRAL CIRCLE- XVI, AAYAKAR BHAWAN, POORVA, 110, SHANTIPALLY, 4 TH FLOOR, KOLKATA-107 V/S . SOUTH ASIAN PETROCHEM LTD. DHUNSERI HOUSE, 4A, WOODBURN PARK, KOLKATA- 700 020 [ PAN NO.AADCS 8049 M ] /APPELLANT .. / RESPONDENT ITA NO.1223 - 1224/KOL/2014 ASSESSMENT YEAR:2007-08 & 2009-10 DCIT, CENTRAL CIRCLE- XVI, AAYAKAR BHAWAN, POORVA, 110, SHANTIPALLY, 4 TH FLOOR, KOLKATA-107 V/S . DHUNSERI PETROCHEM & TEA LTD. ( SUCCESSOR ON AMALGAMATION OF SOUTH ASIAN PETROCHEM LTD .) DHUNSERI HOUSE, 4A, WOODBURN PARK, KOLKATA-20 /APPELLANT .. / RESPONDENT /BY ASSESSEE SHRI D.S. DAMLE, FCA /BY REVENUE SHRI A.K. SINHA, JCIT-DR /DATE OF HEARING 16-02-2017 ! /DATE OF PRONOUNCEMENT 03-05-2017 / O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:- ITA NO.1222-1224/KOL/2014 A.Y. 06-07 TO 07-08 & 09 -10 DCIT,CC-XVI KOL. VS. SAP LTD. PAGE 2 THESE THREE APPEALS BY THE REVENUE ARE DIRECTED A GAINST THE DIFFERENT ORDERS OF COMMISSIONER OF INCOME TAX (APPEALS)-II, KOLKATA OF DIFFERENT DATED 28.03.2014 & 13.03.2014. ASSESSMENTS WERE FRA MED BY DCIT, CENTRAL CIRCLE-XVI, KOLKATA U/S 143(3) OF THE INCOME TAX AC T, 1961 (HEREINAFTER REFERRED TO AS THE ACT) VIDE THEIR ORDERS DATED 3 1.12.2009 & 29.09.2011 FOR ASSESSMENT YEARS 2006-07, 2007-08 & 2009-10 RESPECT IVELY. SHRI A.K. SINHA, LD. DEPARTMENTAL REPRESENTATIVE RE PRESENTED ON BEHALF OF REVENUE AND SHRI D.S. DAMLE, LD. AUTHORIZED REPRESE NTATIVE APPEARED ON BEHALF OF ASSESSEE. 2. ALL THE APPEALS ARE HEARD TOGETHER AND ARE BEING DISPOSED OF BY WAY OF CONSOLIDATE ORDER FOR THE SAKE OF CONVENIENCE. WE FIRST TAKE UP THE APPEAL OF REVENUE IN ITA NO.12 22/KOL/2014 RELATING TO A.Y. 06-07 . 3. THE REVENUE HAS RAISED PER ITS GROUNDS AS UNDER :- 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) IS NOT JUSTIFIED IN TREATING THE SALES TAX REMISSION RECEIVED AS CAPITAL RECEIPT. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) IS NOT JUSTIFIED IN TREATING THE INCENTIVE R ECEIVED AS CAPITAL RECEIPT WHEN THE SAME WAS NOT USED FOR ACQUIRING ANY CAPITA L ASSET. 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) IS NOT JUSTIFIED IN TREATING THE INCENTIVE R ECEIVED AS CAPITAL RECEIPT BY NOT APPRECIATING THAT THE DECISION OF THE APEX COUR T IN THE CASE OF SAHNEY STEEL & PRESS WORKS LTD V-CIT [1997] 228 ITR 253 O N THE SAME ISSUE. 4. THAT THE DEPARTMENT CRAVES LEAVE TO ADD, MODIFY OR ALTER ANY OF THE GROUNDS OF APPEAL AND/OR ADDUCE ADDITIONAL EVIDENCE AT THE TIME OF HEARING OF THE CASE. 4. THE SOLITARY ISSUE RAISED BY THE REVENUE IN ALL THE GROUNDS OF THIS APPEAL IS WHETHER THE LD. CIT(A) WAS JUSTIFIED IN H OLDING THAT THE SUBSIDY RECEIVED IS A CAPITAL RECEIPT AFTER IGNORING THE FA CT THAT NO CAPITAL ASSET WAS ACQUIRED AND THE PRINCIPLES LAID DOWN BY THE HON'BL E APEX COURT IN THE CASE OF SAHNEY STEEL AND PRESS WORKS LTD VS. CIT (1997) REPORTED IN 228 ITR 253 ON THE SAME ISSUE. ITA NO.1222-1224/KOL/2014 A.Y. 06-07 TO 07-08 & 09 -10 DCIT,CC-XVI KOL. VS. SAP LTD. PAGE 3 5. THE FACTS IN BRIEF ARE THAT THE ASSESSEE, A LIMI TED COMPANY, IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF PET RES INS. THE ASSESSEE IN THE YEAR UNDER CONSIDERATION HAS RECEIVED INCENTIVE OF RS. 15,13,56,924/- FROM THE GOVERNMENT OF WEST BENGAL IN THE FORM OF REMISS ION OF SALES TAX UNDER THE WEST BENGAL INCENTIVE SCHEMES 1999. THE ASSESSE E HAS SHOWN THE INCENTIVE AS INCOME IN ITS PROFIT AND LOSS ACCOUNT. THE ASSESSMENT WAS FRAMED U/S 143(3) OF THE ACT AT THE RETURNED INCOME OF THE ASSESSEE. HOWEVER, THE ASSESSEE BEFORE THE LD CIT(A) HAS CHAL LENGED THE TAXABILITY OF INCENTIVE INCOME ON THE GROUND THAT THE AFORESAID I NCENTIVE IS NOT TAXABLE BEING CAPITAL IN NATURE. THE ASSESSEE BY MISTAKE HA S OFFERED THE SAME TO THE TAX BUT THE AO SHOULD HAVE EXCLUDED THE SAME FROM T HE TAXABLE INCOME. THUS, THE ISSUE OF TAXABILITY OF IMPUGNED INCENTIVE INCOME WAS FIRST TIME RAISED BEFORE THE LD CIT(A). 6. THE ASSESSEE BEFORE THE LD CIT(A) SUBMITTED THAT THE OBJECT OF THE SCHEME WAS TO PROMOTE THE NEW INDUSTRIES IN THE STA TE OF WEST BENGAL. THE IMPUGNED INCENTIVE WAS NOT CONNECTED WITH THE OPERA TIONS OF THE BUSINESS AND IT WAS SOLELY PROVIDED FOR SETTING UP OF NEW IN DUSTRIAL PROJECT OR UNDERTAKING FOR MAJOR EXPANSION IN THE EXISTING IND USTRIAL UNDERTAKING. THE INCENTIVE WAS GRANTED BY THE GOVERNMENT OF THE WEST BENGAL IN THE FORM OF DEFERMENT / REMISSION OF SALES TAX. THE INCENTIVE W AS LINKED WITH THE CAPITAL INVESTMENT AND SUBJECT TO THE MAXIMUM CEILING OF IN CENTIVE. 7. THE ASSESSEE, IN THE INSTANT CASE HAS ESTABLISHE D A NEW UNIT IN HALDIA, JL 126 BASUDEVPUR, DISTRICT MIDNAPORE, KO LKATA AND ACCORDINGLY THE ASSESSEE WAS GRANTED ELIGIBILITY CERTIFICATE TO AVA IL THE INCENTIVE ISSUED UNDER THE WEST BENGAL INCENTIVE SCHEME 1999 BEARING NO. I NC(99)/EC-3(B) DATED 24 TH DECEMBER 1999. THE RELEVANT EXTRACT OF THE LETTER IS REPRODUCED BELOW:- WE ARE SENDING HEREWITH ELIGIBILITY CERTIFICATE IS SUED UNDER THE W.B. INCENTIVE SCHEME, 1999 BEARING NO. INCOME(99)/EC-3( B) DATED 24 TH DECEMBER 1999 FOR THE FOLLOWING INCENTIVES:- ITA NO.1222-1224/KOL/2014 A.Y. 06-07 TO 07-08 & 09 -10 DCIT,CC-XVI KOL. VS. SAP LTD. PAGE 4 A) REMISSION OF SALES TAX: REMISSION OF SALES TAX O N SALE OF FINISHED GOODS DUE FOR PAYMENT BY IT FOR A PERIOD OF 9 ((NINE) YEA RS SUBJECT TO THE CEILING OF 100% OF THE GROSS VALUE OF THE FIXED CAPITAL ASSETS OF THE APPROVED PROJECT OR RS.75 CRORES WHICHEVER IS LESS, AS PER CLAUSE 1 0.1.1(II), 10.1.5 AND 10.1.7 OF THE SCHEME THE ASSESSEE HAS ALSO CHALLENGED THE TAXABILITY OF INCENTIVE UNDER THE PROVISIONS OF MINIMUM ALTERNATE TAX (MAT FOR SHORT) ON THE GROUND THAT A RECEIPT WHICH IS NOT THE INCOME AT ALL THEN THE QUESTION OF CHARGING THE TAX EITHER UNDER NORMAL PROVISIONS OR MAT PROVISIONS DOES NOT ARISE. THE OBJECT UNDER THE MAT PROVISIONS IS TO BRING OUT THE TRUE WORKING RESULTS OF THE ASSESSEE AND THEREF ORE IN CASE ON HAND IF CAPITAL RECEIPTS ARE TREATED AS INCOME THEN THE PURPOSE OF THE MAT SHALL BE DEFEATED. THE ASSESSEE TO SUPPORT ITS CONTENTIONS HAS RELIED ON V ARIOUS JUDGMENTS OF HONBLE COURTS AND CBDT CIRCULAR NO. 495 DATED 22.9.1987. T HE LD CIT(A) ALSO CALLED REMAND REPORT FROM THE AO WHO DID NOT DISPUTE ON TH E FACTS OF THE CASE BUT DENIED THE BENEFIT BY OBSERVING THAT THE CLAIM WAS NOT MAD E IN THE INCOME TAX RETURN BY THE ASSESSEE. THEREFORE, THE CLAIM OF THE ASSESSEE TO E XCLUDE THE AFORESAID CAPITAL RECEIPTS FROM THE TOTAL INCOME CANNOT BE ENTERTAINE D. 7.1 THE LD. CIT(A) DURING THE APPELLATE PROCEEDINGS AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE OBSERVED THAT THE MAIN OBJECT OF THE SCHEME WAS SETTING UP OF NEW INDUSTRIAL UNITS OR EXPANSION OF EXISTING UNITS. THE CHARACTER OF THE SUBSIDY WHETHER IT IS ON REVENUE ACCOUNT OR CAPITAL IN NATURE NEEDS TO BE DECIDED ON THE BASIS OF THE OBJECTS FOR WHICH IT WAS GIVEN. TH US THE IMPUGNED CAPITAL RECEIPT IS NEITHER TAXABLE UNDER THE NORMAL PROVISIONS OF THE ACT NOR UNDER THE MAT PROVISIONS OF THE ACT. THE LD. CIT(A) FOR HOLDING SO HAS RELIE D ON VARIOUS JUDGMENTS OF HONBLE COURTS. ACCORDINGLY, THE LD CIT(A) DIRECTED THE AO TO DELETE THE ADDITION OF SUBSIDY AMOUNT UNDER THE NORMAL COMPUTATION OF INCOME AND M AT PROVISIONS OF THE ACT BY HOLDING IT AS CAPITAL IN NATURE WHICH IS NOT CHARGE ABLE TO TAX. THE REVENUE, BEING AGGRIEVED, IS IN APPEAL BEFORE U S. 8. THE LD. DR BEFORE US VEHEMENTLY SUPPORTED THE ORDER OF AO WHEREAS THE LD. AR REITERATED THE SUBMISSIONS AS MADE BEFORE THE LD CIT(A) AND RELIED IN THE ORDER OF LD CIT(A). ITA NO.1222-1224/KOL/2014 A.Y. 06-07 TO 07-08 & 09 -10 DCIT,CC-XVI KOL. VS. SAP LTD. PAGE 5 9. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTUAL MATRIX OF THE CASE AS ALSO THE A PPLICABLE LEGAL POSITION. THE ISSUE IN THE INSTANT CASE RELATES TO THE TAXABILITY OF SU BSIDY RECEIVED BY THE ASSESSEE FROM THE GOVERNMENT OF THE WEST BENGAL. THERE IS NO DISP UTE WITH REGARD TO THE FACTS OF THE CASE OF WHICH HAVE BEEN ELABORATED IN THE FOREG OING PARAGRAPHS AND THEREFORE THE SAME ARE NOT REPEATED FOR THE SAKE OF BREVITY. THE ISSUE BEFORE US FOR OUR ADJUDICATION IS WHETHER THE IMPUGNED SUBSIDY RECEIV ED BY THE ASSESSEE IS REVENUE IN NATURE OR CAPITAL IN NATURE . IF IT IS REVENUE IN NATURE THEN IT IS LIABLE TO BE TAXED AND IN CASE IT IS CAPITAL IN NATURE THEN IT IS NOT TAXABLE UNDER THE PROVISIONS OF ACT. AT THIS JUNCTURE, WE FIND IMPORTANT TO HIGHLIGHT THE O BJECTS OF WEST BENGAL INCENTIVE SCHEME 1999, THE PREAMBLE OF THE SCHEME READS AS UN DER: WHEREAS THE GOVERNOR IS OF THE OPINION THAT IT IS NECESSARY AND EXPEDIENT TO EXTEND INCENTIVE FOR THE PROMOTION OF PROMOTION OF INDUSTRIES IN THIS STATE CLAUSE 4 OF THE SAID SCHEME FURTHER LAYS DOWN THE A PPLICABILITY OF THE SCHEME WHICH READ AS FOLLOWS:- THE 1999 SCHEME SHALL GENERALLY BE APPLICABLE TO A LL LARGE, MEDIUM, COTTAGE AND SMALL-SCALE PROJECTS AND TOURISM UNITS IN LARGE /MEDIUM SECTOR TO BE SET UP AND ALSO EXPANSION PROJECTS OF EXISTING UNITS ON OR AFTER 1 ST APRIL 1999 IN THE PRIVATE SECTOR, CO-OPERATIVE SECTOR, JOINT SECTOR A S ALSO COMPANIES / UNDERTAKINGS OWNED AND MANAGED BY STATEMENT GOVERNM ENT. A PLAIN LOOK AT THE ABOVE SCHEME MAKES IT CLEAR THA T THE INCENTIVE WAS BEING PROVIDED BY THE GOVERNMENT OF WEST BENGAL TO PROMOT E THE INDUSTRIES. THE IMPUGNED INCENTIVE HAS NOTHING TO DO WITH THE OPERA TIONAL COST OF THE COMPANY. SIMILARLY THE MANNER IN WHICH THE SUBSIDY WAS COMPU TED HAS NO ROLE IN DECIDING THE NATURE OF THE SUBSIDY. THE ASSESSEE IN THE INSTANT CASE HAS ESTABLISHED A NEW INDUSTRIAL UNDERTAKING FOR THE MANUFACTURE OF BOTTLE GRADE POLYESTER CHIPS WITH A CAPACITY OF 140000 TONNES . THEREFORE THE SUBSIDY WAS GIVEN TO ASSESSEE FOR THE ESTABLISHMENT OF NEW INDUSTRIAL UNIT. THE HON'BLE J URISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. RASOI LIMITED REPORTED IN 335 ITR 438 (CAL) HAS HELD THAT THE SAL ES TAX INCENTIVE GRANTED BY THE WEST BENGAL GOVERNMENT TO THE ASSESSEE WITH THE OBJECT TO A PROVIDE INCENTIVE TO SET UP NEW INDUSTRIAL UNDERT AKING OR SUBSTANTIAL EXPANSION OF THE EXISTING UNDERTAKINGS WAS CAPITAL RECEIPT AND N OT REVENUE IN NATURE. THE RELEVANT EXTRACT OF THE JUDGMENT IS EXTRACTED BELOW:- ITA NO.1222-1224/KOL/2014 A.Y. 06-07 TO 07-08 & 09 -10 DCIT,CC-XVI KOL. VS. SAP LTD. PAGE 6 FROM THE OBJECTS AND THE REASONS OF THE SCHEME OF I NDUSTRIAL PROMOTION AS WELL AS THE ENTITLEMENT AS INDICATED IN S. 3 THEREO F IT IS CLEAR THAT THE GOVERNMENT HAS DECIDED TO GRANT THE SUBSIDY BY WAY OF FINANCIAL ASSISTANCE TO TIDE OVER THE PERIOD OF CRISIS FOR PROMOTION OF THE INDUSTRIES MENTIONED IN THE SCHEME WHICH HAVE THE MANUFACTURING UNITS IN WEST B ENGAL AND WHICH ARE IN NEED OF FINANCIAL ASSISTANCE FOR EXPANSION OF THEIR CAPACITIES, MODERNIZATION, AND IMPROVING THEIR MARKETING CAPABILITIES AND SUCH SUBSIDY FOR THE FINANCIAL YEAR IN QUESTION WAS ONLY FOR THAT YEAR AND WAS EQU IVALENT TO NINETY PER CENTUM OF THE AMOUNT OF SALES-TAX PAID BY THE INDUS TRY CONCERNED, FOR ANY QUARTER UNDER THE SALES-TAX ACT IN RESPECT OF SALES OF SUCH GOODS. THE OBJECT OF THE SUBSIDY IS FOR EXPANSION OF THEIR CAPACITIES , MODERNIZATION, AND IMPROVING THEIR MARKETING CAPABILITIES AND THUS, TH OSE ARE FOR THE ASSISTANCE ON CAPITAL ACCOUNT. SIMILARLY, MERELY BECAUSE THE A MOUNT OF SUBSIDY WAS EQUIVALENT TO 90 PER CENT OF THE SALES-TAX PAID BY THE BENEFICIARY DOES NOT IMPLY THAT THE SAME WAS IN THE FORM OF REFUND OF SA LES-TAX PAID. IT IS THE QUALITY OF THE PAYMENT THAT IS DECISIVE OF THE CHARACTER OF THE PAYMENT AND NOT THE METHOD OF THE PAYMENT OR ITS MEASURE, AND MAKES IT FALL WITHIN CAPITAL OR REVENUE. THUS, THE AMOUNT PAID AS SUBSIDY WAS REALL Y CAPITAL IN NATURE.CIT VS. PONNI SUGARS & CHEMICALS LTD. & ORS. (2008) 219 CTR (SC) 105 : (2008) 13 DTR (SC) 1 : (2008) 306 ITR 392 (SC) RELIED ON; SENAIRAM DOONGARMALL VS. CIT AIR 1961 SC 1579 APPLIED; CIT VS. ABHISHEK INDUSTRIES LTD. (2006) 205 CTR (P&H) 304 : (2006) 156 TAXMAN 257 (P&H) DISTINGUISHED. SUBSIDY RECEIVED BY ASSESSEE FROM THE STATE GOVERNM ENT UNDER A SCHEME OF INDUSTRIAL PROMOTION WHICH WAS MEANT TO PROVIDE FIN ANCIAL ASSISTANCE TO SPECIFIED INDUSTRIES FOR EXPANSION OF CAPACITIES, M ODERNIZATION AND IMPROVING THEIR MARKETING CAPABILITIES IS CAPITAL RECEIPT THO UGH THE AMOUNT OF SUBSIDY IS EQUIVALENT TO 90 PER CENT OF THE SALES-TAX PAID BY THE BENEFICIARY. 9.1 THE ABOVE JUDGEMENT WAS DELIVERED BY THE HO NBLE HIGH COURT OF CALCUTTA AFTER HAVING RELIANCE IN THE JUDGEMENT OF HONBLE S UPREME COURT IN THE CASE OF CIT VS PONNI SUGARS AND CHEMICALS LIMITED REPORTED IN 306 ITR 392 (SC) WHEREIN IT WAS HELD AS UNDER:- THE CHARACTER OF THE RECEIPT IN THE HANDS OF THE A SSESSEE HAS TO BE DETERMINED WITH RESPECT TO THE PURPOSE FOR WHICH TH E SUBSIDY IS GIVEN. IN OTHER WORDS, IN SUCH CASES, ONE HAS TO APPLY THE PURPOSE TEST. IF THE OBJECT OF THE SUBSIDY SCHEME WAS TO ENABLE THE ASSESSEE TO RUN TH E BUSINESS MORE PROFITABLY THEN THE RECEIPT IS ON REVENUE ACCOUNT. ON THE OTHER HAND, IF THE OBJECT OF THE ASSISTANCE UNDER THE SUBSIDY SCHEME W AS TO ENABLE THE ASSESSEE TO SET UP A NEW UNIT OR TO EXPAND THE EXIS TING UNIT THEN THE RECEIPT OF THE SUBSIDY WAS ON CAPITAL ACCOUNT. THEREFORE, IT I S THE OBJECT FOR WHICH THE SUBSIDY/ASSISTANCE IS GIVEN WHICH DETERMINES THE NA TURE OF THE INCENTIVE SUBSIDY. THE FORM OR THE MECHANISM THROUGH WHICH TH E SUBSIDY IS GIVEN IS IRRELEVANT. IN THE PRESENT CASE, RECEIPT OF THE SUB SIDY WAS CAPITAL IN NATURE AS THE ASSESSEE WAS OBLIGED TO UTILIZE THE SUBSIDY ONL Y FOR REPAYMENT OF TERM LOANS UNDERTAKEN BY THE ASSESSEE FOR SETTING UP NEW UNITS/EXPANSION OF EXISTING BUSINESS. KEEPING IN MIND THE OBJECT BEHIN D THE PAYMENT OF THE INCENTIVE SUBSIDY SUCH PAYMENT RECEIVED BY THE ASSE SSEE UNDER THE SCHEME ITA NO.1222-1224/KOL/2014 A.Y. 06-07 TO 07-08 & 09 -10 DCIT,CC-XVI KOL. VS. SAP LTD. PAGE 7 WAS NOT IN THE COURSE OF A TRADE BUT WAS OF CAPITAL NATURE. SAHNEY STEEL & PRESS WORKS LTD. & ORS. VS. CIT (1997) 142 CTR (SC) 261 : (1997) 228 ITR 253 (SC) AND SEAHAM HARBOUR DOCK CO. VS. CROOK (193 1) 16 TAX CASES 333 (HL) APPLIED. THE CASE LAW I.E. SAHNEY STEEL & PRESS WORKS LTD VS. CIT REPORTED IN 228 ITR 253 RELIED BY THE LD CIT(A) IS DISTINGUISHABLE FROM THE INSTANT FACTS OF THE CASE. IN THAT CASE THE SUBSIDY WAS PROVIDED TO ASSIST/ ENABLE THE ASSESSEE IN CARRYING ON ITS T RADE OR BUSINESS IN MORE PROFITABLE MANNER. THE SUBSIDY WAS PROVIDED ONLY AFTER THE SET UP OF INDUSTRY. PAYMENTS WERE NOT BEING MADE IN THE FORM OF SUBSIDY FOR THE PURPOSE OF SETTING UP OF THE INDUSTRIES. SIMILARLY THE KOLKATA TRIBUNAL IN THE CASE OF DCIT VS TEESTA AGRO INDUSTRIES LTD . IN ITA NO. 1237, 1053, 1753/KOL/2010 VIDE ORDER DATED 07.01.2011 HAS OBSERVED THAT THE SUBSIDY GIVEN IN THE FORM OF THE REMISSION OF S ALES-TAX UNDER THE WEST BENGAL STATE INCENTIVE SCHEME 1999 IS IN THE NATURE OF CAP ITAL RECEIPT AND THEREFORE NOT ASSESSABLE TO INCOME TAX. IN VIEW OF ABOVE, WE ARE OF THE OPINION THAT THE IMPUGNED SUBSIDY IS CAPITAL IN NATURE AND THEREFORE NOT LIAB LE TO TAX. SIMPLY THE ASSESSEE HAS INADVERTENTLY OFFERED THE SAME TO TAX DOES NOT MEAN THE CAPITAL RECEIPT HAS BECOME TAXABLE. 9.2 SIMILARLY THE IMPUGNED RECEIPT OF SUBSIDY WILL NOT BE TAXABLE BEING CAPITAL IN NATURE UNDER THE PROVISIONS OF MAT. UNDER THE AC T, INCOME IS CHARGEABLE TO TAX WHEN IT COMES WITHIN THE DEFINITION OF INCOME AS SP ECIFIED U/S 2(24) OF THE ACT. THE HONBLE SUPREME COURT IN THE CASE OF PADMARAJE R KADAMBANDE VS CIT REPORTED IN 195 ITR 877 (SC) HAS HELD THAT CAPITAL RECEIPTS ARE NOT INCOME WITHIN THE MEANING OF SECTION 2(24) OF THE ACT AND HENCE NOT CHARGEABLE T O TAX. WHEN A RECEIPT CANNOT BE BROUGHT TO TAX UNDER THE COMPUTATION OF INCOME UNDE R THE NORMAL PROVISIONS AS WELL AS UNDER THE DEEMING PROVISIONS OF THE ACT, THEN SU CH RECEIPT IS OUT OF THE PURVIEW OF THE PROVISIONS OF SECTION 115JB OF THE ACT. WE FIND THE DECISIONS IN SUPPORT OF THIS PROPOSITION THAT A CAPITAL RECEIPT WHICH IS NOT CHA RGEABLE TO TAX UNDER ANY PROVISIONS OF THE ACT WOULD NOT BE LIABLE FOR BOOK PROFITS TAX U/S 115JB OF THE ACT WHICH WAS RENDERED AFTER CONSIDERING THE DECISIONS OF HYDERAB AD SPECIAL BENCH IN RAIN COMMODITIES RAIN COMMODITIES LTD VS DCIT , 41 DTR 449, AND THE DECISION OF HON'BLE APEX COURT IN APOLLO TYRES LTD. VS. CIT (2002) REPORTED IN 255 ITR 273 (SC). THE HONBLE KOLKATA TRIBUNAL ALSO IN THE CASE OF BINANI INDUSTRIES LTD., VS DCIT IN ITA NO.1222-1224/KOL/2014 A.Y. 06-07 TO 07-08 & 09 -10 DCIT,CC-XVI KOL. VS. SAP LTD. PAGE 8 ITA NO.144/KOL/2013 A.Y 2009-10 VIDE ORDER DATED 02-03-2016 HAS ALLOWE D THE ISSUE IN FAVOUR OF ASSESSEE AS DETAILED UNDER : THE ISSUE IN THE ABOVE CASE WAS RAISED AS UNDER : THE LAST ISSUE TO BE DECIDED IN THIS APPEAL IS AS TO WHETHER, THE FORFEITURE OF SHARE WARRANTS AMOUNTING TO RS. 12,65,75,000/-, BEING A CAPITAL RECEIPT, WOULD BE LIABLE FOR TAXATION U/S 115JB OF THE ACT J UST BECAUSE IT HAS BEEN CREDITED IN THE PROFIT AND LOSS ACCOUNT AS AN EXTRA ORDINARY ITEM, IN THE FACTS AND CIRCUMSTANCES OF THE CASE. THE RELEVANT OPERATIVE PORTION OF THE ORDER READS A S UNDER : 28. IN VIEW OF THE FOREGOING DISCUSSIONS, WE FIND MERIT IN THE CONTENTIONS OF THE ASSESSEE THAT THE PROFIT ARISING ON TRANSFER OF CAPITAL ASSET TO ITS WHOLLY OWNED INDIAN SUBSIDIARY COMPANY IS LIABLE TO BE EXC LUDED FROM THE NET PROFIT., I.E., THE NET PROFIT DISCLOSED IN THE PROFIT AND LO SS ACCOUNT SHOULD BE REDUCED BY THE AMOUNT OF PROFIT ARISING ON TRANSFER OF CAPI TAL ASSET AND THE AMOUNT SO ARRIVED AT SHALL BE TAKEN AS ' NET PROFIT AS SHOWN IN THE PROFIT AND LOSS ACCOUNT ' FOR THE PURPOSE OF COMPUTATION OF BOOK PROFIT UND ER EXPLANATION 1 TO SEC. 115JB OF THE ACT. ALTERNATIVELY, SINCE THE SAI D PROFIT DOES NOT FALL UNDER THE DEFINITION OF ' INCOME ' AT ALL AND SINCE IT DOES NOT ENTER INTO THE COMPUTATION PROVISIONS AT ALL, THERE IS NO QUESTION OF INCLUDING THE SAME IN THE BOOK PROFIT AS PER THE SCHEME OF THE PROVISIONS OF SEC. 115JB OF THE ACT. ACCORDINGLY, WE SET ASIDE THE ORDER PASSED BY LD CI T(A) ON THIS ISSUE AND DIRECT THE AO TO EXCLUDE THE ABOVE SAID PROFIT FROM THE COMPUTATION OF ' BOOK PROFIT ' FOR THE REASONS DISCUSSED ABOVE. IN THE INSTANT CASE, THE ASSESSEE ALSO HAS DULY DIS CLOSED THE FACT OF FORFEITURE OF SHARE WARRANTS AMOUNTING TO RS. 12,65,75,000/- I N ITS NOTES ON ACCOUNTS VIDE NOTE NO. 6 TO SCHEDULE 11 OF FINANCIAL STATEME NTS FOR THE YEAR ENDED 31.3.2009. HENCE RESPECTFULLY FOLLOWING THE AFORESA ID DECISION OF THE MUMBAI TRIBUNAL, THE PROFIT AND LOSS ACCOUNT PREPARED IN A CCORDANCE WITH PART II AND III OF SCHEDULE VI OF COMPANIES ACT 1956, INCLUDES NOTES ON ACCOUNTS THEREON AND ACCORDINGLY IN ORDER TO DETERMINE THE REAL PROF IT OF THE ASSESSEE AS LAID DOWN BY THE HON'BLE APEX COURT IN THE CASE OF INDO RAMA SYNTHETICS (I) LTD VS CIT REPORTED IN (2011) 330 ITR 363 (SC), ADJUSTMENT NE ED TO BE MADE TO THE DISCLOSURES MADE IN THE NOTES ON ACCOUNTS FORMI NG PART OF THE PROFIT AND LOSS ACCOUNT OF THE ASSESSEE AND THE PROFITS ARRIVE D AFTER SUCH ADJUSTMENT , SHOULD BE CONSIDERED FOR THE PURPOSE OF COMPUTATION OF BOOK PROFITS U/S 115JB OF THE ACT AND THEREAFTER, THE LEARNED AO HAS TO MAKE ADJUSTMENTS FOR ADDITIONS / DELETIONS CONTEMPLATED IN EXPLANATION T O SECTION 115JB OF THE ACT. IN VIEW OF THE AFORESAID FACTS AND RESPECTFULLY FOL LOWING THE VARIOUS JUDICIAL PRECEDENTS RELIED UPON HEREINABOVE, WE FIND NO INFI RMITY IN THE ORDER PASSED BY THE LD CIT(A) IN THIS REGARD AND ACCORDINGLY WE UPHOLD THE SAME. THE GROUND RAISED BY THE REVENUE IS DISMISSED. ITA NO.1222-1224/KOL/2014 A.Y. 06-07 TO 07-08 & 09 -10 DCIT,CC-XVI KOL. VS. SAP LTD. PAGE 9 10. IN THE RESULT, REVENUES APPEAL IS DISMISSED. COMING TO REVENUES APPEAL IN ITA NO.1223/KOL/2014 FOR A.Y 07-08 . 11. SINCE COMMON GROUNDS ARE INVOLVED IN THI S APPEAL OF REVENUE AND BOTH THE PARTIES ARE AGREED WHATEVER VIEW TAKEN IN THE APPEA L OF REVENUE IN ITA NO.1222/KOL/2014 MAY BE TAKEN IN THIS APPEAL ALSO. WE HOLD ACCORDINGLY. 12. IN THE RESULT, REVENUES APPEAL IS DISMISSED. COMING TO REVENUES APPEAL IN ITA 1224/KOL/2014 FOR A.Y. 09-10 . 13. THE REVENUE HAS RAISED PER ITS GROUNDS AS UNDER :- 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) IS NOT JUSTIFIED IN DELETING THE NOTIONAL MARKET T O MARKET FOREIGN EXCHANGE LOSS. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) IS NOT JUSTIFIED IN DELETING THE MARKET TO MARKET FOREIGN EXCHANGE LOSS, WHEN THE SAME WAS NOT CRYSTALISED DURING THE YEAR UNDER CONSIDERATION. 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) IS NOT JUSTIFIED IN DELETING THE NOTIONAL MARKED T O MARKET FOREIGN EXCHANGE LOSS BY NOT CONSIDERING CBDTS INSTRUCT NO. 3/2010 DATED 23.03.2010. 4. THAT THE DEPARTMENT CRAVES LEAVE TO ADD, MODIFY OR ALTER ANY OF THE GROUNDS OF APPEAL AND/OR ADDUCE ADDITIONAL EVIDENCE AT THE TIME OF HEARING OF THE CASE. 14. ONLY ISSUE RAISED BY REVENUE IN THIS APPEAL IS THAT LD. CIT(A) ERRED IN DELETING THE ADDITION MADE BY THE ASSESSING OFFICER FOR 84.51 LAKH ON ACCOUNT OF UNEXPIRED FOREIGN CURRENCY FORWARD CONT RACT ON MARKED TO MARKET (MTM FOR SHORT) BASIS. 15. THE ASSESSEE IN THE YEAR UNDER CONSIDERATION HA S DEBITED ITS PROFIT AND LOSS A/C BY 4909.67 LAKH WHICH WAS INCLUSIVE OF LOSS ON ACCOUN T OF MTM TO THE EXTENT OF 84.51 LAKH. THE AFORESAID LOSS WAS CLAIMED BY ASSE SSEE IN RESPECT TO THOSE CONTRACTS WHICH WERE NOT EXPIRED O N THE BALANCE-SHEET DATE. THUS, THE AO WAS OF THE VIEW THAT THE LOSS CLAIMED BY ASSESSEE IS A NOTIONAL LOSS AND HAS NO BEARING IN THE AMOUNT OF PROFIT SHO WN BY THE ASSESSEE. ACCORDINGLY, THE AO CALLED UPON THE ASSESSEE TO EXP LAIN THE AFORESAID LOSS OF ITA NO.1222-1224/KOL/2014 A.Y. 06-07 TO 07-08 & 09 -10 DCIT,CC-XVI KOL. VS. SAP LTD. PAGE 10 84.51 LAKH ON ACCOUNT OF MTM BASIS. IN COMPLIANCE THERETO, THE ASSESSEE SUBMITTED THAT CERTAIN CONTRACTS WERE ENTERED IN CO NNECTION WITH FOREIGN CURRENCY FORWARD CONTRACTS FOR THE BUSINESS PURPOSE S AND ON THE DATE OF BALANCE-SHEET THESE WERE VALUED WHERE LOSS OF 85.51 LAKHS WAS IDENTIFIED, THOUGH THESE CONTRACTS WERE NOT MATURED ON THE BALA NCE-SHEET DATE. HOWEVER, THE AO DISREGARDED THE CONTENTION OF THE A SSESSEE BY HOLDING THAT THE LIABILITY IN RESPECT OF UNEXPIRED CONTRACTS HAS NOT BEEN CRYSTALLIZED ON THE BALANCE-SHEET DATE AND THEREFORE THE AFORESAID LOSS IS NOTIONAL LOSS IN NATURE. THUS, THE AO DISALLOWED THE LOSS OF 84.51 LAKH AND ADDED TO THE TOTAL INCOME OF ASSESSEE. 16. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE LD. CIT(A). THE ASSESSEE BEFORE LD. CIT(A) SUBMITTED THAT THE LOSS WAS CLAIMED IN PURSUANCE TO THE PROVISION OF ACCOUNTING STANDARD-11 ISSUED B Y THE ICAI. THE ACCOUNTING STANDARD ISSUED BY THE ICAI MANDATES TO RECORD THE LOSS ARISING OUT OF UNEXPIRED FOREX CONTRACTS ON THE BALANCE-SHE ET DATE. FURTHER, ASSESSEE RELIED ON SEVERAL JUDICIAL PRONOUNCEMENTS IN SUPPORT OF ITS CLAIM. LD. CIT(A) AFTER CONSIDERING THE SUBMISSION OF THE ASSE SSEE HAS DELETED THE ADDITION MADE BY THE AO BY OBSERVING AS UNDER:- 7. I HAVE CONSIDERED THE SUBMISSION OF THE APPELLAN T AND PERUSED THE ASSESSMENT ORDER. I HAVE ALSO GONE THROUGH THE JUDI CIAL DECISIONS RELIED UPON BY THE AO AS WELL AS THE REMAND REPORT, REJOINDER T HEREOF AND INSTRUCTION NO. 3/2010 DATED 23.03.2010. THE FACTS OF THE CASE HAVE ALREADY BEEN DISCUSSED AS ABOVE AND IT IS OBSERVED THAT THERE IS NO DISPUT E ON THE FACTS THAT THE APPELLANT COMPANY HAD ENTERED INTO THE FOREIGN CURR ENCY FORWARD CONTRACTS FOR THE PURPOSE OF HEDGING BEING AN EXPORTER OF FINISHE D GOODS. THE UNDERLYING ASSETS WERE THE TRADE RECEIVABLES. THUS, THE TRANSA CTIONS IN FOREIGN CURRENCY WERE CARRIED OUT BY THE COMPANY FOR THE PURPOSE OF ITS BUSINESS. FURTHER, THERE IS NO DISPUTE ON THE FACT THAT THE APPELLANT COMPANY REGULARLY FOLLOWED THE MERCANTILE SYSTEM OF ACCOUNTING AND FOR THE PUR POSE OF RECORDING TRANSACTIONS IN FOREIGN CURRENCY IT HAS FOLLOWED AC COUNTING STANDARD-11. THE SAME SYSTEM OF ACCOUNTING HAD BEEN FOLLOWED BY THE APPELLANT COMPANY CONSISTENTLY YEAR AFTER YEAR AND ACCEPTED BY THE AO . NOWHERE, THE AO HAS DOUBTED THE CORRECTNESS OF THE ACCOUNTING SYSTEM AN D ACCOUNTING STANDARD FOLLOWED BY THE COMPANY. IN THE YEAR UNDER CONSIDER ATION THE APPELLANT HAS CLAIMED LOSS OF RS.84.51 LACS BEING MARKED TO MARKET LOSS. THE UNEXPIRED FORWARD CONTRACTS AT THE YEAR END WERE RE-ALINGNED BY THE APPELLANT ON THE BASIS OF CURRENCY RATE AS ON THE LAST DAY OF THE FI NANCIAL YEAR/. THIS WAS DONE BY THE APPELLANT AS PER AS-11 WHICH IS A RECOGNIZED AND JUDICIALLY ACCEPTED ACCOUNTING STANDARD. AS PER THE ACCOUNTING SYSTEM T HE GAIN IN THE EXPIRED ITA NO.1222-1224/KOL/2014 A.Y. 06-07 TO 07-08 & 09 -10 DCIT,CC-XVI KOL. VS. SAP LTD. PAGE 11 CONTRACT IS CREDITED TO THE PROFIT AND LOSS ACCOUNT AS INCOME AND SIMILARLY THE LOSS IS DEBITED TO THE PROFIT AND LOSS ACCOUNT. IT IS TRUE THAT THE LOSS/GAIN IS ON THE UNEXPIRED CONTRACTS WHICH ARE TO BE MATURED/SET TLED IN THE NEXT FINANCIAL YEAR. BUT, IN VIEW OF THE MERCANTILE SYSTEM OF ACCO UNTING AND THE ACCOUNTING STANDARD, AS-11, SUCH GAIN OR LOSS HAS TO BE RECOGN IZED IN THE PROFIT AND LOSS ACCOUNT A ON THE LAST DAY OF THE FINANCIAL YEAR. TH US, SUCH LOSS OR GAIN CANNOT BE TREATED AS NOTIONAL/. ACCORDINGLY, THE APPELLANT CLAIMED MTM LOSS OF RS.84.51 LACS IN THE YEAR UNDER CONSIDERATION AND D EBITED TO THE PROFIT AND LOSS ACCOUNT. ON SAME UN-EXPIRED FORWARD CONTRACTS ON WHICH LOSS OF RS.84.51 LACS CLAIMED IN THE YEAR UNDER APPEAL WERE MATURED/SETTLED IN FY 2009-10 RELEVANT TO AY 2010-11 WHEREIN THE APPELLAN T COMPANY DECLARED THE GAIN AND CREDITED TO THE PROFIT AND LOSS ACCOUNT. S UCH GAIN WAS ASSESSED TO TAX BY THE AO IN AY 2010-11. THE CONTENTION O THE A O IN THE REMAND REPORT THAT IF AT ALL, THE APPELLANT MAY HAVE GRIEVANCE IN AY 2010-11 AS THE GAIN WAS BROUGHT TO TAX AND NOT IN THE YEAR UNDER APPEAL FOR DISALLOWANCE OF LOSS; IS NOT ACCEPTABLE. THE APPELLANT HAD GIVEN THE REFERENCE O F AY 2010-11 TO PROVE ITS POINT THAT SAME SYSTEM OF ACCOUNTING IS FOLLOWED BY THE COMPANY REGULARLY AND IF THERE IS GAIN ON MTM TRANSACTIONS, THAT IS C REDITED TO THE PROFIT AND LOSS ACCOUNT AND IF THERE IS LOSS, IT WAS DEBITED. THUS, THE AO CANNOT TAKE DIVERGENT VIEW IN TWO DIFFERENT ASSESSMENT YEARS AS SESSING THE GAIN AND DISALLOWING THE LOSS TREATING THE SAME AS NOTIONAL. IN ANY CASE, I AM OF THE OPINION THAT THE CLAIM OF THE APPELLANT COMPANY OF MTM LOSS IS FULLY COVERED IN ITS FAVOUR BY THE DECISION OF THE HON'BLE SUPREME C OURT IN THE CASE OF WOODWARD GOVERNOR INDIA LTD. (SUPRA) WHICH THE AO U NSUCCESSFULLY TRIED TO DISTINGUISHED IN THE ASSESSMENT ORDER. THE SAME DEC ISION WAS RELIED UPON BY THE APPELLANT IN THE COURSE OF APPELLATE PROCEEDING S WITH DETAILED SUBMISSION BUT IN THE REMAND REPORT THE AO DID NOT MENTION THA T AS HOW THE SAID DECISION IS NOT APPLICABLE TO THE FACTS OF THE APPELLANTS C ASE. THE APES CLAIM IS ALSO SUPPORTED BY ANOTHER DECISION OF THE APEX COURT ON THE SIMILAR ISSUE IN THE CASE OF OIL & NATURAL GAS CORPORATION LTD. (SUPRA) AND THE DECISION OF KARNATAKA HIGH CURT IN THE CASE OF MOTORLA INDIA (P ) LTD. (SUPRA). THE DECISION OF THE SPECIAL BENCH OF ITAT, MUMBAI IN THE CASE OF BANK OF BAHARAIN & KUWAIT (SUPRA) ALSO SUPPORTS THE ACTION AND CLAIM O F THE APPELLANT COMPANY WITH REFERENCE TO MTM LOSS OF RS.84.51 LACS. THE AO HAS RELIED ON THE INSTRUCTION NO.3/2010 DATED 23.03.2010. THE SAID CI RCULAR HAS BEEN CONSIDERED BY THE ITAT, DELHI, IN A RECENT DECISION IN THE CASE OF BECHTAL INDIA (P) LTD [2013] 33 TAXMANN.COM 213 WHEREIN CLA IM OF MTM LOSS WAS ALLOWED AS DEDUCTION. IN VIEW OF ABOVE FACTS AND RE SPECTFULLY FOLLOWING THE DECISIONS OF THE HON'BLE SUPREME COURT, HIGH COURT AND ITAT AS DISCUSSED ABOVE IT IS HELD THAT THE AO WAS NOT JUSTIFIED IN D ISALLOWING THE MTM LOSS OF RS.84.51 LACS. HE IS DIRECTED TO ALLOW THE CLAIM OF THE APPELLANT COMPANY. THE GROUND NO. 1 TO 3 ARE ALLOWED. THE REVENUE, BEING AGGRIEVED, IS IN APPEAL BEFORE U S. ITA NO.1222-1224/KOL/2014 A.Y. 06-07 TO 07-08 & 09 -10 DCIT,CC-XVI KOL. VS. SAP LTD. PAGE 12 17. BEFORE US LD. DR VEHEMENTLY SUPPORTED THE ORDER OF AO WHEREAS THE LD AR RELIED ON THE ORDER OF LD CIT(A) AND FILED A PAP ER BOOK WHICH RUNNING FROM PAGES 1 TO 97. 18. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. FROM THE AFORESAID DISCUSSION, WE FIND THAT THE AO TREATED THE LOSS ARISING ON ACCOUNT OF FORWARD CONTRACTS IN FOREIGN CURRENCY WHICH HAS NOT BEEN SETTLED IN THE YEAR UNDER CONSIDERATION AS NOTIONAL LOSS. HOWEVER THE LD. CIT(A) ALLOWED SUCH LOSS HAVING RELIANCE ON JUDGMEN T OF THE HONBLE DELHI HIGH COURT IN THE CASE CIT VS WOODWARD GOVERNOR INDIA LTD. REPORTED IN 294 ITR 451. IN REJOINDER LD. DR STATED THAT THE SAID J UDGMENT OF THE HON'BLE DELHI HIGH COURT WAS DELIVERED MUCH EARLIER WHEREAS THE I NSTRUCTION NO. 3/2010 WAS ISSUED DATED 23.03.2010. THUS THE INSTRUCTION I SSUED BY THE CBDT WAS NOT CONSIDERED BY THE HON'BLE DELHI HIGH COURT. HOW EVER, WE FIND THAT THE INSTRUCTIONS ISSUED BY THE CBDT ARE NOT BINDING ON THE COURTS. SO THERE IS NO VALUE IN THE ARGUMENT OF THE LD. DR. HOWEVER, WE DI SAGREE WITH THE VIEW OF THE AO ON THE GROUND THAT THE ADJUSTMENT WAS MADE BY TH E ASSESSEE IN TERMS OF AS 11 ISSUED BY ICAI AND IN PURSUANCE OF MERCANTILE SYSTEM OF ACCOUNTING AS NOTIFIED U/S 145 OF THE ACT. THE RELEVANT EXTRACT O F ACCOUNTING STANDARD 11 IS REPRODUCED BELOW:- 3.6 THE ACCOUNTING STANDARDS (A) 11, THE EFFECTS OF CHANGES IN FOREIGN EXCHANGE RATES (REVISED 2003), ISSUED BY THE COUNCI L OF THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA, COMES INTO EFFECT I N RESPECT OF ACCOUNTING PERIODS COMMENCING ON OR AFTER 1-4-2004. RELEVANT E XTRACT OF THE ACCOUNTING STANDARD IS REPRODUCED AS FOLLOWS:- 9. A FOREIGN CURRENCY TRANSACTIONS SHOULD BE RECOR DED ON INITIAL RECOGNITION IN THE REPORTING CURRENCY, BY APPLYING TO THE FOREIGN CURRENCY AMOUNT THE EXCHANGE RATE BETWEEN THE REPOR TING CURRENCY AND THE FOREIGN CURRENCY AT THE DATE OF THE TRANSAC TIONS. 10 11 (A) AT EACH BALANCE SHEET DATE FOREIGN CURRENCY MONETARY ITEMS SHOULD BE REPORTED USING THE CLOSING RATE. HOWEVER, IN CERTAIN CIRCUMSTANCES, THE CLOSING RATE MAY NOT REFLECT WIT H REASONABLE ACCURACY THE AMOUNT IN REPORTING CURRENCY THAT IS L IKELY TO BE REALIZED FROM, OR REQUIRED TO DISBURSE, A FOREIGN CURRENCY M ONETARY ITEM AT THE BALANCE SHEET DATE, E.G. WHERE THERE ARE RESTRICTIO NS ON REMITTANCES OR ITA NO.1222-1224/KOL/2014 A.Y. 06-07 TO 07-08 & 09 -10 DCIT,CC-XVI KOL. VS. SAP LTD. PAGE 13 WHERE THE CLOSING RATE IS UNREALISTIC AND IT IS NOT POSSIBLE TO EFFECT AN EXCHANGE OF CURRENCIES AT THAT RATE AT THE BALANCE SHEET DATE. IN SUCH CIRCUMSTANCES, THE RELEVANT MONETARY ITEM SHOULD B REPORTED IN THE REPORTING CURRENCY AT THE AMOUNT WHICH IS LIKELY TO BE REALIZED FROM, OR REQUIRED TO DISBURSE, SUCH ITEM AT THE BALANCE SHEE T DATE: 11(B). 11(C) 12. CASH RECEIVABLES AND PAYABLES ARE EXAMPLES OF M ONETARY ITEMS. 13. EXCHANGE DIFFERENCES ARISING ON THE SETTLEMENT OF MONETARY ITEMS OR ON REPORTING AN ENTERPRISES MONETARY ITEMS AT R ATES DIFFERENT FROM THOSE AT WHICH THEY WERE INITIALLY RECORDED DURING THE PERIOD, OR REPORTED IN PREVIOUS FINANCIAL STATEMENTS, SHOULD B E RECOGNIZED AS INCOME OR AS EXPENSES IN THE PERIOD IN WHICH THEY A RISE 19. AT THIS JUNCTURE WE ALSO WISH TO REPRODUCE THE PROVISIONS OF SECTION 145 OF THE ACT WHICH READS AS UNDER:- 3.4 AS PER SECTION 145 OF THE ACT, (1) INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION OR I NCOME FROM OTHER SOURCES SHALL, SUBJECT TO THE PROVISIONS OF SUB-SECTION (2) , BE COMPUTED IN ACCORDANCE WITH EITHER CASH OR MERCANTILE SYSTEM OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE. (2) THE CENTRAL GOVERNMENT MAY NOTIFY IN THE OFFICI AL GAZETTE FROM TIME TO TIME ACCOUNTING STANDARDS TO BE FOLLOWED BY ANY CLA SS OF ASSESSEES OR IN RESPECT OF ANY CLASS OF INCOME. (3) WHERE THE ASSESSING OFFICER IS NOT SATISFIED AB OUT THE CORRECTNESS OR COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE, OR WH ERE THE METHOD OF ACCOUNTING PROVIDED IN SUB-SECTION (1) OR ACCOUNTIN G STANDARDS AS NOTIFIED UNDER SUB-SECTION (2), HAVE NOT BEEN REGULARLY FOLL OWED BY THE ASSESSEE, THE ASSESSING OFFICER MAY MAKE AN ASSESSMENT IN THE MAN NER PROVIDED IN SECTION 144. 20. WE ALSO FIND SUPPORT FROM THE DECISION OF HONB LE DELHI HIGH COURT IN THE CASE OF CIT VS WOODWARD GOVERNOR INDIA PRIVATE LIMITED [2007] 294 ITR 451 (DEL) WHERE IT WAS HELD THAT:- WE AFFIRM THE DECISION OF THE INCOME-TAX APPELLATE TRIBUNAL IN OIL AND NATURAL GAS CORPORATION LTD. V. DEPUTY CIT (ASSTT.) [2003] 261 ITR (AT) 1 (DELHI) WHICH RIGHTLY FOLLOWS THE SETTLED POSITION AS EXPLA INED IN THE JUDGMENT OF THE HON'BLE SUPREME COURT WHICH WE HAVE REFERRED TO. WE , THEREFORE, REJECT THE SUBMISSION OF THE APPELLANT IN THESE APPEALS THAT T HE INCREASE IN LIABILITY ON ACCOUNT OF THE FLUCTUATION IN THE RATE OF FOREIGN E XCHANGE REMAINING ON THE LAST ITA NO.1222-1224/KOL/2014 A.Y. 06-07 TO 07-08 & 09 -10 DCIT,CC-XVI KOL. VS. SAP LTD. PAGE 14 DAY OF THE FINANCIAL YEAR IS NOTIONAL OR CONTINGENT AND, THEREFORE, CANNOT BE ALLOWED AS A DEDUCTION. FROM THE AFORESAID DISCUSSION WE FIND NO REASON TO INTERFERE IN THE ORDER OF LD CIT(A) AND ACCORDINGLY WE UPHOLD. HENCE THIS GROUND OF REVENUES APPEAL IS DISMISSED. 21. IN THE RESULT, APPEALS OF REVENUE STAND DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT 03/ 05/2017 SD/- SD/- (#$) () (N.V.VASUDEVAN) (WASEEM AHMED) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) KOLKATA, *DKP, SR.P.S &'(- 03 / 05 /201 7 / COPY OF ORDER FORWARDED TO:- 1. /ASSESSEE-SOUTH ASIAN PETROCHEM LTD. DHUNSERI HOUSE , 4A, WOODBURN PARK, KOLKATA-2 0 2. /REVENUE-DCIT, CC-XVI, AAYAKAR BHAWA, POORVA, 110, SHANTIPALLY, 4 TH FL. KOL-107 3.'0'12 3 / CONCERNED CIT KOLKATA 4. 3- / CIT (A) KOLKATA 5.6 78$$12, 12!, / DR, ITAT, KOLKATA 6.8;<=> / GUARD FILE. BY ORDER/ , /TRUE COPY/ /' 12!,