ACIT, New Delhi V. M/s. L&T SUCG Joint Venture, New Delhi

ITA 1224/DEL/2013

• Counselvise Citation: 122420114 RSA 2013
• Duration Of Justice: 2 year(s) 3 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-06-2015
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 28-04-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 04-03-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: P DAM KANUNJNA
• Keywords: Opportunity of being heard

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: D NEW DELHI BEFORE SMT DIVA SINGH, JUDICIAL MEMBER AND SH. T .S. KAPOO R, ACCOUNTANT MEMBER I.T.A .NO. - 1224 /DEL/201 3 (ASSESSMENT YEAR - 200 9 - 10 ) ACIT, CIRCLE - 38(1), ROOM NO. - 2202, 22 ND FLOOR, DR.S.P.MUKHERJEE CIVIC CENTRE, NEW DELHI . (A PPELLANT) VS L&T SUCG JOINT VENTURE, 211, OKHLA INDUSTRIAL ESTATE PHASE - III, NEW DELHI. PAN - AAAAL2298Q (RESPONDENT) APPELLANT BY SH.P.DAM KANUNJNA, SR. DR RESPONDENT BY SH.ROHIT GARG, CA ORDER PER DIVA SINGH, JM THE PRESENT APPEAL HAS BEEN FILED BY THE REVENUE ASSAILING THE CORRECTNESS OF THE ORDER DATED 21.12.2012 OF CIT(A) - VIII, NEW DELHI PE RTAINING TO 200 9 - 10 ASSESSMENT YEAR ON THE FOLLOWING GROUNDS: - 1. IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.1,52,29,559/ - BY MERELY ACCEPTING THE SUBMISSIONS OF THE ASSESSEE WITHO UT MAKING ANY VERIFICATION AS TO HOW THE VENDOR BALANCES AND BANK ADVANCES ARE ON REVENUE ACCOUNT. 2. THE APPELLANT CRAVES LEAVE TO ADD, AMEND OR MODIFY THE GROUND OF APPEAL BEFORE OR DURING THE COURSE OF THE APPEAL. 2. THE RELEVANT FACTS OF THE CASE ARE TH AT THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF DESIGN & CONSTRUCTION OF TUNNEL BETWEEN INDIRA GANDHI INTERNATIONAL AIRPORT STATION AND DWARKA SECTOR - 21 DECLARED AN INCOME OF RS.5,55,19,860/ - . THE RETURN WAS PICKED UP FOR SCRUTINY WHEREIN THE ASSESSEE WAS REQUIRED TO EXPLAIN THE LOSS CLAIMED UNDER HEAD OTHER INCOME WHEREIN CONSIDERING THE REPLY OF THE ASSESSEE ADD ITION BY WAY OF A DISALLOWANCE WA S MADE ON THE FOLLOWING FACTS: - DATE OF HEARING 10 .0 6 .2015 DATE OF PRONOUNCEMENT 16 .0 6 .2015 I.T.A .NO. - 1224/DEL/2013 PAGE 2 OF 5 3. ON PERUSAL OF THE PROFIT & LOSS ACCOUNT IT WAS NOTICED THAT THE ASSESSEE HAS CLAIMED A LOSS UNDER THE HEAD OTHER INCOME. THE ASSESSEE WAS ASKED TO FURNISH THE DETAILS VIDE ORDER SHEET ENTRY DATED 28.11.2011. THE ASSESSEE VIDE LETTER DATED 02.12.2011 SUBMITTED AS BELOW: - DETAILS OF OTHER INCOME OTHER INCOME OF RS.(1,51,83,210/ - ) INCLUDES, INTEREST ON BANK DEPOSITS OF RS.34,74,963/ - AND AN EXCHANGE LOSS OF RS.1,86M58,173/ - , THE DETAILS ARE ENCLOSED AS ANNEXURE - I : - S.NO. LOSS GAIN LOSS REMARKS 1. - 62.143 (62,143) GAIN ON PAYMENT OF VENDOR 2. - 14,54,840 (14,54,840) GAIN ON PAYMENT OF VENDOR 3. - 38,72,202 (38,72,202) GAIN ON PAYMENT OF VENDOR 4. - 7,50,891 (7,50,891) GAIN ON PAYMENT OF VENDOR 5. - 70,57,205 (70,57,205) GAIN ON PAYMENT OF VENDOR 6. - 76,77,901 (76,77,901) GAIN ON PAYMENT OF VENDOR 7. - 5,22,492 (5,22,492) GAIN ON PAYMENT OF VENDOR 8. - 8,23,388 (8,23,388) GAIN ON PAYMENT OF VENDOR 9. 5,03,315 - 5,03,315 LOSS ON PAYMENT OF VENDOR 10. 3,53,63,444 - 3,53,63,444 RECTIFICATION OF RECEIPTS IN EURO 11. - 40,99,041 (40,99,041) REINSTATEMENT AS ON 31 ST MARCH 2009 OF EURO BANK ACCOUNT 12. 56,01,303 - 56,01,303 REINSTATEMENT AS ON 31 ST MARCH 2009 OF EURO BANK ACCOUNT 13. 32,97,731 - 32,97,731 REINSTATEMENT AS ON 31 ST MARCH 2009 OF EURO BANK ACCOUNT 14. 1,04,29,566 - 1,04,29,566 REINSTATEMENT AS ON 31 ST MARCH 2009 OF VENDOR BALANCE 15. - 46,42,916 (46,42,916) GAIN ON SALE OF 500,000 EURO 16. - 55,74,167 (55,74,167) GAIN ON SALE OF 500,000 EURO 5,51,95,359 3,65,37,186 1,86,58,173 (EMPHASIS PROVIDED BY THE BENCH) 3. IN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY, THE ACTION WAS ASSAILED BY THE ASSESSEE. T HE CIT(A) C ONSIDERING THE REPLY OF THE ASSESSEE AND RELYING I.T.A .NO. - 1224/DEL/2013 PAGE 3 OF 5 UPON THE JUDGEMENT OF THE APEX COURT IN THE CASE OF CIT, DELHI VS WOODWARD GOVERNOR INDIA PVT. LTD. AND O RS. AND THE DECISION OF THE SPECIAL BENCH IN THE CASE OF ONGC LTD. VS. DCIT 83 ITD 151 (DELHI) PROCEEDED TO ALLOW RELIEF TO THE ASSESSEE. 4. AGGRIEVED BY WHICH THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 5. THE LD. SR. DR INVITING ATTENTION TO THE AS SESSMENT ORDER AND THE IMPUGNED ORDER SUBMITTED THAT THE SUBMISSIONS OF THE ASSESSEE HAVE BEEN ACCEPTED WITHOUT ANY VERIFICATION AS TO HOW THE VENDOR BALANCES AND BANK ADVANCES ARE ON THE REVENUE ACCOUNT. INVITING ATTENTION TO THE GROUND RAISED IT WAS SUB MITTED THAT HIS WAS THE SPECIFIC GRIEVANCE OF THE REVENUE. THE LD AR APPEARING ON BEHALF OF THE ASSESSEE ON A PERUSAL OF THE MATERIAL AVAILABLE ON RECORD STATED THAT HE HAS NO OBJECTION IF THE ISSUE IS VERIFIED AT THE STAGE OF THE AO OR THE CIT(A) HOWEVER , ON FACTS RELIANCE WAS PLACED UPON THE IMPUGNED ORDER. 5.1. IN REPLY, THE LD. SR. DR SUBMITTED THAT IN THE PECULIAR FACTS, THE VERIFICATION MAY BE DONE AT THE HANDS OF THE AO. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RE CORD. THE RELEVANT FINDING ARRIVED AT BY THE CIT(A) IS REPRODUCED HEREUNDER FOR READY - REFERENCE: - I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLANT, THE FINDINGS OF THE AO AND THE FACTS ON RECORD. THE APPELLANT IS REGULARLY FOLLOWING THE MERCANTILE SYST EM OF ACCOUNTING. THE TREATMENT IN THE ACCOUNT OF FOREIGN EXCHANGE PAYABLE HAD BEEN DETERMINED ACCORDING TO THE AS - IL. AS PER THE STATED POLICY THE REVENUE TRANSACTIONS IN FOREIGN CURRENCY ARE GENERALLY RECORDED AT THE EXCHANGE RATE PREVAILING AT THE TIME OF TRANSACTION AND THE FOREIGN CURRENCY ASSETS AND LIABILITIES OTHER THAN COVERED BY FORWARD EXCHANGE CONTRACT ARE RESTATED INTO RUPEES AT THE RATE OF EXCHANGE PREVAILING ON THE BALANCE SHEET DATE. THE POLICY FOR ACCOUNTING THE FOREIGN EXCHANGE FLUCTUATION IS CONSISTENT AND IS BEING FOLLOWED FROM YEAR TO YEAR. THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS WOODWARD GOVERNOR INDIA LTD. 223 CTR 7 HAS BEEN AFFIRMED THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS WOODWARD GOVERNOR PVT. LTD. 210 CTR (DELHI). THE OPERATIVE PART AFFIRMED IS AS UNDER : 'IT IS IMPORTANT TO NOTE THAT FOREIGN CURRENCY NOTES, BALANCE IN BANK ACCOUNTS DENOMINATED IN A FOREIGN CURRENCY, AND RECEIVABLES / PAYABLES AND LOANS DENOMINATED IN A FOREIGN CURRENCY AS WELL AS SUNDRY CREDITORS ARE A MONETARY ITEMS I.T.A .NO. - 1224/DEL/2013 PAGE 4 OF 5 WHICH HAVE TO BE V ALUED AT THE CLOSING RATE UNDER AS - II. UNDER PARA 5, A TRANSACTION IN A FOREIGN CURRENCY AMOUNT THE EXCHANGE RATE BETWEEN THE REPORTING CURRENCY AND THE FOREIGN CURRENCY AT THE DATE OF THE TRANSACTION. THIS IS KNOWN AS RECORDING OF TRANSACTION ON INITIAL R ECOGNITION. PARA 7 OF AS - 11 DEALS WITH REPORTING OF THE EFFECTS OF CHANGES IN EXCHANGE RATES SUBSEQUENT TO INITIAL RECOGNITION. PARA 7(A) INTER ALIA STATES THAT ON EACH BALANCE SHEET MONETARY ITEMS, ENUMERATED ABOVE, DENOMINATED IN A FOREIGN CURRENCY SHOUL D BE REPORTED USING THE CLOSING RATE. IN CASE OF REVENUE ITEMS FALLING UNDER SECTION 37(1), PARA 9 OF AS - I 1 WHICH DEALS WITH RECOGNITION OF EXCHANGE DIFFERENCES, NEED TO BE CONSIDERED. UNDER THAT PARA, EXCHANGE DIFFERENCES ARISING ON FOREIGN CURRENCY TRAN SACTIONS HAVE TO BE RECOGNIZED AS INCOME OR AN EXPENSE IN THE PERIOD IN WHICH THEY ARISE, EXCEPT AS STATED IN PARA 10 AND PARA 11 WHICH DEALS WITH EXCHANGE DIFFERENCES ARISING ON REPAYMENT OF LIABILITIES INCURRED FOR THE PURPOSE OF ACQUIRING FIXED ASSETS, WHICH TOPIC FALLS UNDER SECTION 43A. PARA 9 OF AS - II RECOGNIZES EXCHANGE DIFFERENCES AS INCOME OR EXPENSE. IN CASES WHERE, E.G. THE RATE OF DOLLAR RISES VIS - A - VIS THE INDIAN RUPEES, THERE IS AN EXPENSE DURING THAT PERIOD. THE IMPORTANT POINT TO BE NOTED IS THAT AS - II STIPULATES EFFECT OF CHANGES IN EXCHANGE RATE VIS - A - VIS MONETARY ITEMS DENOMINATED IN A FOREIGN CURRENCY TO BE TAKEN INTO ACCOUNT FOR GIVING ACCOUNTING TREATMENT ON THE BALANCE SHEET DATE. THEREFORE, AN ENTERPRISE HAS TO REPORT THE OUTSTANDING LIABILITY RELATING TO IMPORT OF RAW MATERIAL USING CLOSING RATE OF EXCHANGE. ANY DIFFERENCE, LOSS OR GAIN, ARISING ON CONVERSION OF THE SAID LIABILITY AT THE CLOSING RATE, SHOULD BE RECOGNIZED IN THE P&L ALE FOR THE REPORTING PERIOD CIT VS WOODWARD GOVERNO R INDIA (PVT.) LTD. & OTHERS (2007) 210 CTR (DEL) 354 'AFFIRMED. ' THE HON'BLE ITAT SPL. BENCH (DELHI) IN THE CASE OF ONGC LTD. VS DCIT 83 ITD 151 DELHI HAS OBSERVED AS UNDER: 'BEFORE CONCLUDING WE WOULD LIKE TO POINT OUT THAT THE ASSESSEE'S CLAIM FOR L OSS ARISING AS A RESULT OF FLUCTUATION IN FOREIGN EXCHANGE RATES ON THE CLOSING DAY OF THE YEAR HAS BEEN DISALLOWED BY THE AO, INTER ALIA, ON THE GROUND THAT THIS LIABILITY WAS CONTINGENT LIABILITY AND THE LOSS WAS NOTIONAL ONE. THE MAIN INGREDIENT OF A CO NTINGENT LIABILITY IS THAT IT DEPENDS UPON HOPING OF CERTAIN EVENT. WE ARE OF THE CONSIDERED OPINION THAT IN THE CASE OF ASSESSEE, THE 'EVENT' I.E. THE CHANGE IN THE VALUE OF FOREIGN CURRENCY HAS ALREADY TAKEN PLACE IN THE CURRENT YEAR. THEREFORE, THE LOSS INCURRED BY THE ASSESSEE IS A FATE ACCOMPLI AND NOT A NOTIONAL ONE.' AFTER CAREFUL CONSIDERATION OF THE FACTS OF THE CASE AND THE DECISIONS OF THE HON'BLE SUPREME COURT AND IT AT SPL. BENCH, DELHI DISCUSSED ABOVE THE ONLY CONCLUSION WHICH CAN BE DRAWN I S THAT THE APPELLANT'S CLAIM OF LOSS ON ACCOUNT OF FLUCTUATION IN FOREIGN CURRENCY RATE IS ALLOWABLE. THE APPELLANT IS REGULARLY FOLLOWING THE MERCANTILE SYSTEMS OF ACCOUNTING AND FOLLOWING THE I.T.A .NO. - 1224/DEL/2013 PAGE 5 OF 5 ACCOUNTING STANDARDS. THE LOSSES CLAIMED ARE ON THE REVENUE AC COUNT. IN VIEW OF THE ABOVE, THE LOSSES CLAIMED BY THE APPELLANT ON ACCOUNT OF RESTATEMENT OF FOREIGN EXCHANGE LIABILITY ON THE BALANCE SHEET DATE ARE AN ALLOWABLE EXPENDITURE. THE DISALLOWANCE MADE BY THE AO IS DELETED. 6.1. CONSIDERING THE ABOVE FINDIN G, IN THE LIGHT OF THE SUBMISSIONS ADVANCED W HERE ADMITTEDLY NO VERIFICATION ON FACTS HAS BEEN DONE BY THE LD. CIT(A) ACCEPTING THE ARGUMENTS OF THE LD. SR. DR, WE DEEM IT APPROPRIATE TO RESTORE THE ISSUE BACK TO THE FILE O F THE AO WITH THE DIRECTION TO VE RIFY THE CLAIM OF THE ASSESSEE FROM THE VENDOR BALANCES AND BANK ADVANCES WHICH HAS NOT BEEN DONE BY THE CIT(A) . THE AO IS DIRECTED TO CONSIDER THE FACTS AND DECIDE THE ISSUE BY WAY OF A SPEAKING ORDER IN ACCORDANCE WITH LAW AFTER GIVING THE ASSESSEE A R EASONABLE OPPORTUNITY OF BEING HEARD. ACCORDINGLY, THE DEPARTMENTAL GROUND IS ALLOWED FOR STATISTICAL PURPOSES AS PER THE PRONOUNCEMENT MADE IN THE OPEN COURT AT THE TIME OF HEARING. 7. IN THE RESULT, THE APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL P URPOSES. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 1 6 T H OF JUNE 2015. S D / - S D / - (T.S.KAPOOR) (DIVA SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 1 6 / 06/2015 *AMIT KUMAR* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI