DCIT, CIR-12, KOLKATA, Kolkata V. M/s Usha Martin Telematics Ltd., Kolkata

ITA 1312/KOL/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 1557 (ITAT-KOLKATA)
• Duration Of Justice: 3 year(s) 1 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-07-2017
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 22-05-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 09-06-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: S M TAUHEED
• Assessee Lawyers: AKASH MANSINKA

Judgement Text

1 ITA NO.1312/KOL/2014 USHA MARTIN TELEMATICS LTD., AY 2007-08 , C , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH: KOL KATA () BEFORE .., /AND . , ) [BEFORE SHRI A. T. VARKEY, JM & SHRI M. BALAGANESH , AM] I.T.A. NO. 1312/KOL/2014 ASSESSMENT YEAR: 2007-08 DEPUTY COMMISSIONER OF INCOME-TAX CIRCLE-12, KOLKATA. VS. M/S. USHA MARTIN TELEMATICS LTD. (PAN: AAACU3054D) APPELLANT RESPONDENT DATE OF HEARING 24.05.2017 DATE OF PRONOUNCEMENT 12.07.2017 FOR THE APPELLANT SHRI S. M. TAUHEED, JCIT, SR. DR FOR THE RESPONDENT SHRI AKASH MANSINKA, AR ORDER PER SHRI A.T.VARKEY, JM THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF LD. CIT(A)-XII, KOLKATA DATED 26.03.2014 FOR AY 2007-08. 2. THE MAIN GRIEVANCE OF THE REVENUE IS AGAINST THE ACTION OF THE LD. CIT(A) DELETING THE ADDITION OF RS.5,84,16,000/- WHICH WAS ADDED BY THE AO UNDER THE HEAD FOREIGN GAIN WHEREIN THE AO TREATED THE CAPITAL GAIN ON FOREIGN EXCHANGE AS REVENUE RECEIPT WHEREAS THE LD. CIT(A) TREATED THE FOREIGN GAIN AS CAPITAL IN N ATURE. 3. BRIEF FACTS OF THE CASE ARE THAT DURING THE COUR SE OF THE ASSESSMENT PROCEEDINGS, THE AO REQUIRED THE ASSESSEE TO EXPLAIN AS TO WHY THE A DDITION OF THE GAIN ON ACCOUNT OF FLUCTUATION IN THE RATE OF FOREIGN EXCHANGE OF RS.5 ,84,16,000/- BE TREATED AS REVENUE RECEIPT AND ADDED BACK AS THE TOTAL INCOME OF THE ASSESSEE. THE ASSESSEE SUBMITTED THAT THE FOREIGN EXCHANGE GAIN APPEARING IN THE FINANCIAL STATEMENT OF THE ASSESSEE IS IN RESPECT OF 2 ITA NO.1312/KOL/2014 USHA MARTIN TELEMATICS LTD., AY 2007-08 RESTATEMENT OF INTEREST FREE LOAN OF US $ 50000000 TAKEN FROM ASIAN TELECOMMUNICATIONS INVESTMENT (MAURITIUS) LIMITED (ATIML). ACCORDING TO THE ASSESSEE, THE SAID LOAN WAS UTILIZED FOR MAKING STRATEGIC INVESTMENT. THE ASSE SSEE SUBMITTED BEFORE THE AO THAT IN TERMS OF ACCOUNTING STANDARD AS11 AT THE END OF EVE RY YEAR, THE ASSESSEE WERE REQUIRED TO CONVERT THE ORIGINAL AMOUNT OF THE SAID FOREIGN CUR RENCY LOAN OF US$ 5,00,00,000 INTO RUPEES AT THE EXCHANGE RATE PREVAILING AT THE YEAR END AND IN CASE OF ADVERSE FLUCTUATION IN EXCHANGE RATE RESULTING IN THE INCREASE IN THE LOAN AMOUNT IN RUPEES, THE ASSESSEE WAS REQUIRED TO INCREASE THE RUPEE VALUE OF THE LOAN IN ITS BOOKS OF ACCOUNTS AND DEBIT SUCH DIFFERENCE ON ACCOUNT OF EXCHANGE DIFFERENCE TO ITS PROFIT AND LOSS ACCOUNT. CONVERSELY, IN CASE OF FAVOURABLE EXCHANGE RATE FLUCTUATION RESULT ING IN REDUCTION OF THE AMOUNT OF THE LOAN IN RUPEES, THE ASSESSEE WAS REQUIRED TO REDUCE THE RUPEE VALUE OF THE LOAN IN ITS BOOKS OF ACCOUNTS AND CREDIT THE EXCHANGE DIFFERENCE TO ITS PROFIT AND LOSS ACCOUNT. IT WAS ALSO BROUGHT TO THE NOTICE OF THE AO THAT SUCH INCREASE OR DECREASE IN THE RUPEE VALUE OF THE LOAN AT THE YEAR END DUE TO EXCHANGE RATE FLUCTUATION WA S ENTIRELY NOTIONAL AND DID NOT REPRESENT ANY REAL LOSS OR GAIN. THE ASSESSEE CONTENDED THAT THIS EXERCISE HAS TO BE COMPLIED BY THE ASSESSEE AS REQUIRED BY AS 11 ISSUED BY THE INSTITU TE OF CHARTERED ACCOUNTANTS OF INDIA AND AS PER THE PRESCRIPTION OF THE CENTRAL GOVT. BY THE COMPANIES (ACCOUNTING STANDARD) RULES, 2006 FOR THE PURPOSE OF SECTION 2(11) OF THE COMPAN IES ACT, 1956. IT WAS CONTENDED THAT EVEN THOUGH WHILE COMPLYING WITH AS11 THE INCREASE OR DECREASE IN THE LOAN AMOUNT TAKES PLACE IN THE BOOKS OF ACCOUNT AND DEBITING AND CRED ITING ITS P&L ACCOUNT BECAUSE OF THE EXCHANGE DIFFERENCE WHILE COMPUTING ITS TAXABLE INC OME, THE ASSESSEE DID NOT TREAT SUCH EXCHANGE DIFFERENCE AS EXPENDITURE OR INCOME. THERE FORE, THE ASSESSEE SUBMITTED THAT THE NOTIONAL EXCHANGE GAIN OF RS.5,84,16,000/- CREDITED IN BOOK PROFIT AND LOAN ACCOUNT WAS IN RESPECT OF THE SAID LOAN OBTAINED AND BECAUSE OF TH E STATUTORY REQUIREMENT IT WAS DONE SO. HOWEVER, THERE WAS NO REAL INCOME BUT IT WAS FULLY NOTIONAL. HOWEVER, THE AO DID NOT ACCEPT THE ASSESSEES CONTENTION AND WAS PLEASED TO TREAT THE SAID AMOUNT AS GAIN ON THE REVENUE ACCOUNT AND MADE THE ADDITION. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A) WHO WAS PLEASED TO ALLOW THE APPEAL OF ASSESSEE AND DIRECTED TO DELETE THE SAID AMOUNT. AGGRIEVED THE REVENUE IS BEFORE US. 3 ITA NO.1312/KOL/2014 USHA MARTIN TELEMATICS LTD., AY 2007-08 4. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH FACTS AND CIRCUMSTANCES OF THE CASE. WE NOTE THAT A SIMILAR ISSUE AROSE IN THE CA SE OF THE ASSESSEE IN AY 2004-05. IN THAT AY ALSO THE AO MADE AN ADDITION OF RS.13,90,00,000/ - ON ACCOUNT OF FOREIGN EXCHANGE GAIN. IN APPEAL FOR THAT ASSESSMENT YEAR, THE LD. C IT(A) WAS PLEASED TO DIRECT DELETION OF THE ADDITION TAKING NOTE THAT IT WAS ONLY NOTIONAL GAI N AND NO REAL INCOME ACCRUED. THE REVENUE CHALLENGED THE DECISION BEFORE THE TRIBUNAL IN ITA NO. 838/KOL/2009 WHEREIN THE TRIBUNAL REVERSED THE ORDER OF THE LD. CIT(A) BY MA KING CERTAIN OBSERVATION AS UNDER: HAVING HEARD THE RIVAL SUBMISSIONS, WE ARE OF THE VIEW THAT THERE IS MERIT IN THE SUBMISSIONS OF THE LD DR, SINCE THE PROPOSITION CANVASSED BY LD . DR IS SUPPORTED BY THE DECISION OF ITAT KOLKATA AND DECISION OF HONBLE SUPREME COURT , AS REFERRED ABOVE. AS HAS BEEN POINTED OUT BY LD DR THAT ONCE THE UTILIZATION OF BORROWINGS AR E HELD TO BE ON REVENUE ACCOUNT AND MERCANTILE SYSTEM FOLLOWED, THEN THE RESULTANT EXCH ANGE GAIN OR LOSS AT THE END OF THE YEAR DUE TO RESTATEMENT OF FOREIGN CURRENCY LOAN WOULD AUTOM ATICALLY TAKE THE REVENUE RECEIPT/EXPENDITURE AS THE CASE MAY BE. ACCORDINGLY , WE ALLOW THE APPEAL FILED BY THE REVENUE ON THIS ISSUE. HOWEVER, WE FIND IN THE ORDER OF THE LD CIT (A) THAT THE ASSESSEE HAD INCURRED EXCHANGE LOSS OF RS. 18,000,000/- FOR THE ASSESSMEN T YEAR 2005-06 BUT NOT CLAIMED AS DEDUCTION TREATING IT NOTIONAL IN NATURE IN LINE WI TH THE CONSISTENT STAND TAKEN BY THE ASSESSEE. IN THIS REGARD, WE DEEM IT FIT AND APPROPRIATE IN T HE INTEREST OF JUSTICE, TO GIVE DIRECTION TO THE LEARNED AO TO GRANT DEDUCTION OF EXCHANGE LOSS IN T HE SUBSEQUENT ASSESSMENT YEARS TO BE IN CONSONANCE WITH OUR FINDINGS HEREINABOVE. OTHERWISE , IT WOULD ONLY RESULT IN REVENUE TRYING TO BLOW HOT AND COLD SIMULTANEOUSLY. ACCORDINGLY, T HE GROUND RAISED BY THE REVENUE IS ALLOWED SUBJECT TO THE DIRECTION GIVEN ABOVE. 5. WE NOTE THAT THE AMOUNT IN QUESTION IS THE SAME BORROWED AMOUNT IN AY 2004-05 AND THE FACTS OF AY 2004-05 ARE PERMEATING IN THIS RELEVANT ASSESSMENT YEAR 2007-08. SINCE THE FACTS ARE THE SAME AND THERE IS NO CHANGE IN LA W, WE RESPECTFULLY FOLLOWING THE ORDER OF THE COORDINATE BENCH IN ASSESSEES OWN CASE FIND ME RIT IN THE CONTENTION OF THE REVENUE AND SINCE THE UTILISATION OF BORROWINGS ARE HELD TO BE ON REVENUE ACCOUNT, THE RESULTANT EXCHANGE GAIN OR LOSS AT THE END OF THE YEAR DUE TO RESTATEM ENT OF FOREIGN CURRENCY LOAN WOULD AUTOMATICALLY TAKE THE CHARACTER OF REVENUE RECEIPT OR THE EXPENDITURE, AS THE CASE MAY BE. THE LD. AR FAIRLY CONCEDED THAT THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2004-05 WAS AGAINST THE ASSESSEE AND HE COULD NOT P OINT OUT AS TO WHETHER THERE IS ANY 4 ITA NO.1312/KOL/2014 USHA MARTIN TELEMATICS LTD., AY 2007-08 CHANGE OF FACTS OR LAW WHICH CAN PERSUADE AS TO TAK E A DIFFERENT VIEW. THEREFORE, WE ALLOW THE APPEAL OF THE REVENUE BY FOLLOWING THE ORDER OF THE TRIBUNAL IN AY 2004-05. 6. IN THE RESULT, APPEAL OF REVENUE IS ALLOWED. ORDER IS PRONOUNCED IN THE OPEN COURT ON 12.07.2017 SD/- SD/- (M. BALAGANESH) (ABY. T. VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 12TH JULY, 2017 JD.(SR.P.S.) COPY OF THE ORDER FORWARDED TO: 1 . APPELLANT DCIT, CIRCLE-12, KOLKATA. 2 RESPONDENT M/S. USHA MARTIN TELEMATICS LTD., 8 TH FLOOR, RDB BOULEVARD, PLOT K-1, BLOCK EP & GP, SECTOR-V, SALT LAKE CITY., KOLKATA- 700 091. 3 . THE CIT(A), KOLKATA 4. 5. CIT , KOLKATA DR, KOLKATA BENCHES, KOLKATA / TRUE COPY, BY ORDER, SR. PVT. SECRETARY