Diamines and Chemicals Limited, Baroda V. The Income Tax Officer, Ward-1(1)(2), Baroda

ITA 1414/AHD/2017

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 4977 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 11 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-05-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2009-2010
• Appeal Filed On: 09-06-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: O P SHARMA
• Keywords: Business expenditure; Rule of consistency
• Section: 143(3); 37(1); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD BEFORE SHRI MAHAVIR PRASAD, JUDICIAL MEMBER AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER ./ITA NO.1414/AHD/2017 ( / ASSESSMENT YEAR : 2009-10) DIAMINES & CHEMICALS LTD. PLOT NO.12, PCC AREA PETROCHEMICALS, BARODA-391 346 / VS. THE INCOME TAX OFFICER WARD-1(1)(2) BARODA ./ ./ PAN/GIR NO. : AAACD 5356 R ( / APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : SHRI SANJAY R. SHAH, AR / RESPONDENT BY : SHRI O.P. SHARMA, CIT-DR / DATE OF HEARING 12/03/2019 !'# / DATE OF PRONOUNCEMENT 14 /05/2019 / O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER: THE CAPTIONED APPEAL HAS BEEN FILED AT THE INSTANCE OF THE ASSESSEE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)1, BARODA [CIT(A) IN SHORT] VIDE APPEAL NO.CAB-1/64/20 15-16 DATED 09/03/2017 ARISING IN THE ASSESSMENT ORDER PASSED UNDER S.143(3) R.W.S.263 OF THE INCOME TAX ACT, 1961(HEREINAFTER R EFERRED TO AS 'THE ACT') DATED 19/03/2015 RELEVANT TO ASSESSMENT YEA R (AY) 2009-10. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF AP PEAL:- YOUR APPELLANT BEING AGGRIEVED BY THE ORDER DATED 9 MARCH 2017 PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-1, BARODA, [CIT(A)] PREFERS AN APPEAL AGAINST THE SAME ON THE FOLLOWING GROUNDS, WHICH ARE WITHOUT PREJUDICE TO EACH OTHER: ITA NO.1414/AHD/2017 DIAMINES & CHEMICALS LTD. VS. ITO ASS T.YEAR 2009-10 - 2 - 1. THE LEARNED CIT(A) GROSSLY ERRED IN LAW AND ON FAC TS IN CONFIRMING DISALLOWANCE OF RS.2,01,70,542 MADE BY L EARNED AO ON THE BASIS OF INCORRECT PERCEPTION THAT HONBLE ITAT HAS UPHELD THE DIRECTION OF CIT WHILE HONBLE ITAT WAS ONLY ADJUDI CATING ON THE VALIDITY OF THE JURISDICTION OF CIT TO REVISE THE O RDER, UNDER SECTION 263 OF THE INCOME-TAX ACT, 1961 (THE ACT) IN RESP ECT OF THE ORDER PASSED BY THE LEARNED AO UNDER SECTION 143(3) OF TH E ACT. 2. THE LEARNED CIT(A) ERRED IN LAW AND FACTS IN CONFI RMING DISALLOWANCE OF THE FOREIGN EXCHANGE LOSS OF RS.2,0 1,70,542 SUFFERED BY THE APPELLANT AND DEBITED TO PROFIT & L OSS ACCOUNT. IT IS SUBMITTED THAT THE SAME BEING BUSINESS EXPENDITURE SHOULD BE ALLOWED TO BE DEDUCTED. 2.1 THE LEARNED CIT(A) FAILED TO APPRECIATE THA T THE AMOUNT OF FOREIGN EXCHANGE LOSS IN CONNECTION WITH OUTSTANDING LIABIL ITY OF USD 15,00,000 TOWARDS DOW CHEMICALS PACIFIC LIMITED (D OW) WAS ONLY RS.1,73,70,000 INSTEAD OF RS.2,50,58,516 AND RS.2,0 1,70,542 DISALLOWED BY THE LEARNED AO AND UPHELD BY THE LEAR NED CIT(A), RESPECTIVELY. 2.2. THE LEARNED CIT(A) AND THE LEARNED AO ERRED IN LAW AND ON FACTS IN NOT CONSIDERING THE DETAILED SUBMISSION/WRITTEN-SUB MISSIONS AND DOCUMENTS FURNISHED BY THE APPELLANT. 3. THE LEARNED CIT(A) ALSO ERRED IN LAW AND FACTS I N HOLDING THAT THE LEARNED AO'S OBSERVATION WAS CORRECT THAT THE ADVAN CE RECEIVED WAS DOW WAS NEVER A LIABILITY AND WAS PRIMARILY A CONSI DERATION FOR ALL THE SIGNATORIES OF AGREEMENT TO WAIVE THEIR CLAIM O N DOW. 3.1. THE LEARNED ASSESSING OFFICER AS WELL AS LEAR NED CIT(A) FAILED TO APPRECIATE THAT SUCH LIABILITY CONTINUED FROM EARLI ER ASSESSMENT YEARS AND EVERY FOREIGN EXCHANGE FLUCTUATION GAIN IN THAT RESPECT WAS OFFERED TO TAX BY THE APPELLANT IN THE ASSESSMENT Y EARS WHENEVER THERE WAS SUCH GAINS DUE TO FAVOURABLE FOREIGN EXCHANGE F LUCTUATION. SIMILARLY, FOREIGN EXCHANGE LOSES ALSO IN RESPECT O F THE VERY SAME LIABILITY WERE ALLOWED AS DEDUCTION IN THE EARLIER YEARS WHEREVER SUCH LOSS AROSE DUE TO ADVERSE EXCHANGE FLUCTUATION IN R ESPECT OF VERY SAME LIABILITY. UNDER THE CIRCUMSTANCES EVEN ON GROUND OF RULE OF CONSISTENCY SUCH LOSS SHOULD HAVE BEEN ALLOWED TO T HE ASSESSMENT PROCEEDINGS. IT IS SUBMITTED TO BE SO HELD NOW. 3.2. THE LEARNED AO AS WELL AS LEARNED CIT(A) FAIL ED TO APPRECIATE THAT LIABILITY WAS ALREADY CONSIDERED AS GENUINE LIABILI TY FROM THE EARLIER ASSESSMENT YEARS WHEN SUCH LIABILITY AROSE AND IN T HE YEAR UNDER ITA NO.1414/AHD/2017 DIAMINES & CHEMICALS LTD. VS. ITO ASS T.YEAR 2009-10 - 3 - CONSIDERATION, WHAT THE APPELLANT WAS CLAIMING WAS ONLY THE INCREMENTAL LOSS DUE TO ADVERSE FOREIGN E4XCHANGE F LUCTUATION IN RESPECT OF THE SAME. IT IS SUBMITTED THAT IT BE SO HELD NOW. 4. WITHOUT PREJUDICE TO ANY OF THE EARLIER GROUNDS , THE LEARNED CIT(A) ERRED IN NOT GRANTING DIRECTION TO DELETE THE REMIS SION OF SUCH OUTSTANDING LIABILITY FROM THE INCOME OF ASSESSMENT YEAR 2010-11 IN WHICH SUCH REMISSION WAS OFFERED BY THE APPELLANT A S INCOME. IT IS SUBMITTED THAT IT BE SO HELD NOW AND IF SUCH DISALL OWANCE IS CONFIRMED APPROPRIATE DIRECTION BE GIVEN TO DELETE THE REMISS ION OFFERED TO TAX IN ASSESSMENT YEAR 2010-11. THE APPELLANT CRAVES LEAVE TO ADD TO ADD/OR TO ALTE R, AMEND, RESCIND, MODIFY THE GROUNDS HEREIN ABOVE OR PRODUCE DOCUMENTS BEFOR E OR AT THE TIME OF HEARING OF THIS APPEAL. THE INTERCONNECTED ISSUE RAISED BY THE ASSESSEE IS THAT THE LD. CIT (A) ERRED IN PARTLY CONFIRMING THE ADDITION MADE BY THE AO AMOUNTING TO RS. 2,01,70,542/- ON ACCOUNT OF FOREIGN EXCHANGE LO SS. 2. THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS A LIMITED COMPANY AND ENGAGED IN THE BUSINESS OF MANUFACTURING OF SPECIAL TY CHEMICALS. THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION CLAIME D FOREIGN EXCHANGE LOSS FOR A SUM OF RS. 2,74,18,861/- IN ITS PROFIT A ND LOSS ACCOUNT. 2.1. OUT OF THE AFORESAID FOREIGN EXCHANGE LOSS , A LOSS AMOUNTING TO RS. 2,52,58,516/- WAS CLAIMED ON ACCOUNT OF REINSTA TEMENT OF ADVANCES RECEIVED FROM CUSTOMERS. 2.2. THE ASSESSEE FURTHER SUBMITTED THAT MAJOR FO REIGN EXCHANGE LOSS WAS ATTRIBUTABLE ON THE ADVANCES RECEIVED FROM DOW CHEMICALS PACIFIC ITA NO.1414/AHD/2017 DIAMINES & CHEMICALS LTD. VS. ITO ASS T.YEAR 2009-10 - 4 - LIMITED (IN SHORT DOW). AS PER THE ASSESSEE, THE IM PUGNED ADVANCE REPRESENTS CONCERNING THE LONG TERM CONTRACTS ENTER ED WITH DOW FOR THE SUPPLY OF THE PRODUCTS. 2.3. THE ASSESSEE ALSO CLAIMED THAT IT HAD ACCOUN TED FOREIGN EXCHANGE GAINS/LOSSES ON ACCOUNT OF RECEIVABLES/PAYABLES IN FOREIGN CURRENCY ON A REGULAR BASIS (I.E., CONSISTENTLY YEAR AFTER YEAR) TO GIVE THE EFFECT OF CHANGE IN THE FOREIGN EXCHANGE RATE AS PROVIDED IN AS-11 ISSUED BY THE ICAI WHICH IS MANDATORY UNDER THE COMPANIES ACT, 19 56. 2.4. THE ASSESSEE ALSO RELIED UPON THE OPINION OF EXPERT ADVISORY COMMITTEE OF THE ICAI ON THE ISSUE OF REINSTATEMENT OF THE CLOSING BALANCE ON ACCOUNT OF ADVANCES IN FOREIGN CURRENCY TO BE ADJUSTED AT THE YEAREND AGAINST THE FUTURE EXPORT OF THE GOODS. 2.5. THE ASSESSEE ALSO CLAIMED THAT THE ADVANCES A BOVE FROM DOW HAD BEEN WRITTEN BACK INCLUDING THE EFFECT OF FOREIGN E XCHANGE LOSS AND THE SAME WAS OFFERED TO TAX IN F.Y.2009-10 CORRESPONDIN G TO ASSESSMENT YEAR 2010-11. THE ASSESSEE IN SUPPORT OF ITS CLAIM FILED THE COPY OF THE RETURN OF INCOME ALONG WITH RELEVANT EXTRACTS OF PR OFIT & LOSS ACCOUNT FOR THE F.Y. 2009-10 (A.Y.2010-11). 2.6. HOWEVER, THE AO WAS OF THE VIEW THAT THE AMO UNT AS CLAIMED AS THE ADVANCE WAS NO LONGER PAYABLE BY THE ASSESSEE TO DO W. THERE WAS ALSO NO SUPPLY OF THE GOODS BY THE ASSESSEE TO DOW AGAIN ST SUCH ADVANCE. AS SUCH THE AMOUNT OF THE ADVANCE WAS WAIVED OFF BY DO W AND THEREFORE ITA NO.1414/AHD/2017 DIAMINES & CHEMICALS LTD. VS. ITO ASS T.YEAR 2009-10 - 5 - SUCH ADVANCE CANNOT BE TREATED AS A LIABILITY. ACCO RDINGLY, THE AO DISALLOWED THE CLAIM OF FOREIGN EXCHANGE LOSS AMOUN TING TO RS. 2,52,58,516/- U/S 37(1) OF THE ACT AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT (A). 3. THE ASSESSEE BEFORE THE LD. CIT (A) REITERATED THE SUBMISSION AS MADE BEFORE THE AO. HOWEVER, THE ASSESSEE FURTHER S UBMITTED THAT PRIOR TO THE AGREEMENT (DATED 8-6-2000) FOR THE RECEIPT O F SUCH ADVANCE IT HAD PURCHASED THE CRUDE PIPERAZINE AMINE MIX FROM DOW A ND SOLD PIPERAZINE ANHYDROUS TO IT. THESE COMMERCIAL ARRANG EMENTS WERE GOVERNED BY THE MEMORANDUM OF UNDERSTANDING (IN SHO RT MOU) DATED 17-02-1999. HOWEVER, DUE TO FINANCIAL DISTRESS, IT WAS UNABLE TO FULFILL THE CONDITIONS OF MOU. THEREFORE IT ENTERED INTO AN AGREEMENT TO CONTINUE THE BUSINESS WITH DOW AND RECEIVED AN ADVA NCE FOR A SUM OF USD 15,00,000/- ONLY IN PURSUANCE TO THE AGREEMENT DATED 8-6-2009. THE ASSESSEE IN SUPPORT OF ITS CLAIM FILED THE COPY OF THE AGREEMENT WITH DOW. 3.1. THE ASSESSEE FURTHER SUBMITTED THAT SUBSEQU ENTLY DOW DISCONTINUED ITS ETHYL AMINES BUSINESS. ACCORDINGLY , DOW DID NOT ENTER INTO ANY COMMERCIAL TRADING ARRANGEMENT WITH IT. AS SUCH THE ASSESSEE WAS IN DILEMMA WHETHER THE SAID ADVANCE COULD BE FO RFEITED AND RECOGNIZED AS REVENUE UNDER THE GIVEN SITUATION. BU T IT DID NOT DO SO. THEREFORE IT CLAIMED THE FOREIGN EXCHANGE GAIN/LOSS ON THE SAID ADVANCES ITA NO.1414/AHD/2017 DIAMINES & CHEMICALS LTD. VS. ITO ASS T.YEAR 2009-10 - 6 - IN ACCORDANCE WITH ACCOUNTING STANDARD 11 AS ISSUED BY ICAI AND NOTIFIED BY THE CENTRAL GOVERNMENT. 3.2. THE ASSESSEE ALSO SUBMITTED THAT THE ABOVE AMOUNT WAS SHOWN AS ADVANCE IN ITS BOOKS CONSISTENTLY FROM THE P.Y. 200 0-01 TILL THE F.Y.2009-10 CORRESPONDING TO AY 2010-11 WHEN IT HAD BEEN RECOGNIZED AS INCOME AND OFFERED THE SAID ADVANCES/ FOREX GAIN /LOSS TO TAX AS INCOME. 3.3. HOWEVER, THE LD. CIT (A) OBSERVED THAT THE A SSESSEE RECEIVED ADVANCE AMOUNTING TO RS. USD 15,00,000/- FROM DOW T O SUPPLY THE PIPERAZINE ANHYDROUS. HOWEVER, ALL THE TRANSACTION FOR THE SUPPLY HAD BEEN COMPLETED UP TO 30-06-2001. THUS THE ADVANCE R ECEIVED OF USD 15,00,000/- WAS ON ACCOUNT OF SALE OF GOODS AND THE REFORE THERE WAS NO LIABILITY TO REPAY THE SAME TO DOW. 3.4. THE LD. CIT (A) IN VIEW OF THE ABOVE NOTED THAT THERE WAS NO LIABILITY EXISTING TO REPAY TO DOW AS ON 31-03-2009 AND THEREFORE ASSESSEE IS NOT ELIGIBLE TO CLAIM THE FOREIGN EXCHA NGE FLUCTUATION LOSS IN ITS BOOKS OF ACCOUNT ON SUCH ADVANCES OF DOW. 3.5. THE LD. CIT (A) FURTHER OBSERVED THAT THE F OREX LOSS CLAIMED BY THE ASSESSEE ON THE SAID SUM WAS LIMITED TO RS. 2,01,70 ,542/- ONLY AND BALANCE AMOUNT WAS RELATED TO OTHER CONTRACTS. THE LD. CIT (A) ACCORDINGLY CONFIRMED THE ORDER OF THE AO AND DISAL LOWED ONLY THE LOSS ITA NO.1414/AHD/2017 DIAMINES & CHEMICALS LTD. VS. ITO ASS T.YEAR 2009-10 - 7 - RELATED TO THE ADVANCES RECEIVED FROM DOW AMOUNTING TO RS. 2,01,70,542.00 ONLY. BEING AGGRIEVED BY ORDER OF THE LD. CIT (A), THE AS SESSEE IS IN APPEAL BEFORE US. 4. THE LD. AR BEFORE US FILED A PAPER BOOK RUN NING FROM PAGES 1 TO 298 AND SUBMITTED THAT THE ASSESSEE ENTERED INTO A LONG TERM CONTRACTS WITH A COMPANY NAMELY DOW FOR THE SUPPLY OF THE PRO DUCTS. THE ASSESSEE WAS ALREADY DOING COMMERCIAL TRANSACTION. ACCORDINGLY THE DOW PROVIDED ADVANCES OF USD 15,00,000/- TO THE ASS ESSEE TO CONTINUE THE CONTRACTS. THE ASSESSEE ACCORDINGLY TREATED THE SAID ADVANCES AS REVENUE IN NATURE AND CLAIMED EFFECT OF FOREIGN EXC HANGE GAIN/LOSS ON IT. 4.1. THE LD. AR FOR THE ASSESSEE IN SUPPORT OF H IS CLAIM DREW OUR ATTENTION ON PAGES 92 TO 109 OF THE PB WHERE THE CO PY OF THE AGREEMENT WAS PLACED. 4.2. THE LD. AR FOR THE ASSESSEE ALSO CLAIMED TH AT IT WAS BOOKING CONSISTENTLY FOREIGN EXCHANGE GAINS/LOSSES SINCE BE GINNING (I.E. F.Y. 2000-01) ON THE SAID ADVANCES AND THE SAME WAS ACCE PTED BY THE REVENUE. 4.3. THE LD. AR ALSO FILED THE FINANCIAL STATEM ENTS TO JUSTIFY THAT THE ASSESSEE HAS RECOGNIZED THE INCOME AND OFFERED TO T AX THE AFORESAID ADVANCES INCLUDING THE EFFECT OF FOREIGN EXCHANGE F LUCTUATION. ITA NO.1414/AHD/2017 DIAMINES & CHEMICALS LTD. VS. ITO ASS T.YEAR 2009-10 - 8 - 5. THE LD. DR ON THE CONTRARY BEFORE US SUBMITTED THAT THE ADVANCES SHOWN BY THE ASSESSEE WAS NOT REFUNDABLE. THEREFORE THE FOREX LOSS IN RELATION TO SUCH ADVANCE CANNOT BE ALLOWED AS DEDUC TION. THE LD. DR VEHEMENTLY SUPPORTED THE AUTHORITIES BELOW. 6. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE ISSUE IN THE INSTANT CASE IS THAT THE ASSESSEE HAS CLAIMED TO HAVE RECEIVED TRADE ADVANCE S OF 15 MILLION FROM M/S DOW IN THE FY 2000-01 AGAINST THE SUPPLY OF THE GOODS. BUT THE ASSESSEE FAILED TO MAKE THE SUPPLY OF THE GOODS AS M/S DOW DISCONTINUED ITS BUSINESS IN THE SAID ACTIVITY/PRODUCTS. HOWEVER THE ASSESSEE IN ITS BOOKS OF ACCOUNTS HAS SHOWN SUCH ADVANCES AS TRADIN G LIABILITY TILL THE YEAR UNDER CONSIDERATION SINCE THE YEAR IN WHICH IT WAS OBTAINED. AS THE LIABILITY WAS PAYABLE IN FOREIGN CURRENCY, THEREFOR E THE ASSESSEE WAS REINSTATING SUCH AMOUNT OF LIABILITY EVERY YEAR IN ITS BALANCE SHEET AS PER THE CONVERSION RATE PREVAILING DURING THE RELEVANT PERIOD. ACCORDINGLY THE ASSESSEE IN THE YEAR CONSIDERATION HAS SHOWN A LOSS ON ACCOUNT OF FLUCTUATION IN THE FOREIGN CURRENCY IN RELATION TO SUCH TRADING LIABILITY WHICH WAS CLAIMED AS REVENUE EXPENSES. HOWEVER, THE AO WAS OF THE VIEW THAT SUCH TRADING LIABILITY WAS NOT PAYABLE TO M/S DOW AND THEREFORE THE FOREIGN CURRENCY LOAN IN RELATION TO SUCH ADVANCE CANNOT BE ALLOWED AS DEDUCTION. ACCORDINGLY THE AO MADE THE D ISALLOWANCE OF SUCH FOREIGN CURRENCY FLUCTUATION LOSS WHICH WAS SU BSEQUENTLY CONFIRMED BY THE LEARNED CIT (A). ITA NO.1414/AHD/2017 DIAMINES & CHEMICALS LTD. VS. ITO ASS T.YEAR 2009-10 - 9 - 6.1. ON PERUSAL OF THE BALANCE SHEET FILED BY T HE ASSESSEE AS ON 31 ST MARCH 2009, WE NOTE THAT THE LIABILITY OF $15 MILLI ON CLAIMED AS ADVANCE, WAS REFLECTING THEREIN WHICH WAS NOT DISTURBED BY T HE AUTHORITIES BELOW. THUS THE QUESTION ARISES WHETHER THE ASSESSEE CAN C LAIM THE DEDUCTION ON ACCOUNT OF FLUCTUATION IN THE FOREIGN CURRENCY LOSS IN RELATION TO SUCH ADVANCES WHICH HAS BEEN ACCEPTED BY THE REVENUE. IN THIS REGARD, WE NOTE THAT THE AUTHORITIES BELOW HAS TAKEN CONTRADIC TORY STAND MEANING THEREBY THE REVENUE ON ONE HAND HAS ACCEPTED THE LI ABILITY SHOWN BY THE ASSESSEE AS DISCUSSED ABOVE AND ON THE OTHER HAND T HE FOREX LOSSES IN RELATION TO SUCH TRADING LIABILITY WAS NOT ALLOWED AS DEDUCTION. IN OUR CONSIDERED VIEW ONCE THE REVENUE HAS ACCEPTED TRADI NG LIABILITY SHOWN BY THE ASSESSEE, THEN THE REVENUE CANNOT MAKE THE D ISALLOWANCE OF THE CORRESPONDING LOSS IN RELATION TO SUCH ADVANCE BEIN G A TRADING ASSET. 6.2. IN ADDITION TO THE ABOVE, WE ALSO NOTE THAT THE ASSESSEE HAS BEEN SHOWING SUCH ADVANCE IN ITS ACCOUNTS SINCE BEGINNIN G WHICH WAS ACCEPTED TILL THE IMMEDIATE PRECEDING ASSESSMENT YE AR. AS SUCH WE NOTE THAT THERE WAS NO CHANGE IN THE FACTS AND CIRCUMSTA NCES OF THE CASE IN THE YEAR UNDER CONSIDERATION, THEREFORE IN OUR CONSIDER ED VIEW THE ASSESSEE IS ENTITLED FOR THE DEDUCTION OF SUCH FOREX LOSS ON AC COUNT OF PRINCIPLES OF CONSISTENCY. IT IS BECAUSE TILL THE IMMEDIATE PRECE DING ASSESSMENT YEAR THE REVENUE HAS ACCEPTED ALL THE LOSSES AND GAINS Q UA TO THE IMPUGNED ADVANCE SHOWN BY THE ASSESSEE. THEREFORE WE ARE OF THE VIEW THAT THE ASSESSEE IS ENTITLED FOR THE DEDUCTION ON THE BASIS OF PRINCIPLE OF CONSISTENCY. ITA NO.1414/AHD/2017 DIAMINES & CHEMICALS LTD. VS. ITO ASS T.YEAR 2009-10 - 10 - 6.3 WE FURTHER NOTE THAT, THE ASSESSEE IN THE SU BSEQUENT ASSESSMENT YEAR HAS OFFERED THE AMOUNT OF TRADING ADVANCE AS INCOME INCLUDING THE EFFECT OF FOREX LOSSES AND GAIN. THIS FACT HAS NOT BEEN DO UBTED AND DISPUTED BY THE AUTHORITIES BELOW. THEREFORE WE ARE OF THE VIEW THAT ANY ADDITION ON ACCOUNT OF SUCH LOSS IN THE YEAR UNDER CONSIDERATIO N WILL LEAD TO THE DOUBLE ADDITION TO THE INCOME OF THE ASSESSEE WHICH IS CONTRARY TO THE PROVISIONS OF LAW. 6.4. IN VIEW OF THE ABOVE, WE HOLD THAT THE ASS ESSEE IS ENTITLED FOR DEDUCTION ON ACCOUNT OF FOREX LOSS IN RELATION TO S UCH TRADE ADVANCE. IN THIS REGARD WE FIND SUPPORT AND GUIDANCE FROM THE J UDGMENT OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. WOODWARD GOVER NOR INDIA (PVT) LTD. REPORTED IN 312 ITR 254 WHEREIN IT WAS HELD AS UNDER: AS-11 DEALS WITH GIVING OF ACCOUNTING TREATMENT FOR THE EFFECTS OF CHANGES IN FOREIGN EXCHANGE RATES. IN CASE OF THE REVENUE ITEM S FALLING UNDER SECTION 37(1), PARA 9 OF AS-11, WHICH DEALS WITH RECOGNITIO N OF EXCHANGE DIFFERENCES, NEEDS TO BE CONSIDERED. UNDER THIS PARA, EXCHANGE D IFFERENCES ARISING ON FOREIGN CURRENCY TRANSACTIONS HAVE TO BE RECOGNIZED AS INCOME OR AS EXPENSE IN THE PERIOD IN WHICH THEY ARISE. THE IMPORTANT PO INT TO BE NOTED IS THAT AS- 11 STIPULATES EFFECT OF CHANGES IN EXCHANGE RATE VI S-A-VIS MONETARY ITEMS DENOMINATED IN A FOREIGN CURRENCY TO BE TAKEN INTO ACCOUNT FOR GIVING ACCOUNTING TREATMENT ON THE BALANCE SHEET DATE. THE REFORE, AN ENTERPRISE HAS TO REPORT THE OUTSTANDING LIABILITY RELATING TO IMP ORT OF RAW MATERIALS USING CLOSING RATE OF EXCHANGE. ANY DIFFERENCE, LOSS OR G AIN ARISING ON CONVERSION OF THE SAID LIABILITY AT THE CLOSING RATE, SHOULD BE R ECOGNIZED IN THE PROFIT AND LOSS ACCOUNT FOR THE REPORTING PERIOD. 6.5. IN VIEW OF THE ABOVE, THERE REMAINS NO AMBIG UITY THAT THE ASSESSEE IS ENTITLED FOR THE FOREX LOSS IN THE GIVEN FACTS A ND CIRCUMSTANCE AS IT IS ARISING IN THE COURSE OF ITS BUSINESS. THEREFORE WE REVERSE THE ORDER OF THE ITA NO.1414/AHD/2017 DIAMINES & CHEMICALS LTD. VS. ITO ASS T.YEAR 2009-10 - 11 - LEARNED CIT (A) AND DIRECT THE AO TO DELETE THE ADD ITION MADE BY HIM. HENCE THE GROUND OF APPEAL OF THE ASSESSEE IS ALLOW ED. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. THIS ORDER PRONOUNCED IN OPEN COURT ON 14/05/2019 SD/- SD/- (MAHAVIR PRASAD) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED 14/05/2019 &.., .(.. / T.C. NAIR, SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. )*+ , / CONCERNED CIT 4. , ( ) / THE CIT(A)-1, VADODARA 5. /01 ((*+ , *+# , ) / DR, ITAT, AHMEDABAD 6. 145 6 / GUARD FILE. / BY ORDER, / ( //TRUE COPY// // / ( DY./ASSTT.REGISTRAR) $%, / ITAT, AHMEDABAD 1. DATE OF DICTATION 02.5.2019 (WORD PROCESSED BY HO NBLE AM IN HIS COMPUTER BY DRAGON) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER.. 02.5.2019 3. OTHER MEMBER 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S.14.5.19 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 14.5.19 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER