DCIT (IT) 3(3)(1), MUMBAI V. NIKO (NELPIO ) LTD, MUMBAI

ITA 1499/MUM/2016

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 6972 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 2 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-05-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 17-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAM TIWARI
• Assessee Lawyers: RAKESH MOHAN
• Keywords: Business income
• Section: 143(3)

Judgement Text

IN THE INC OME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI BEFORE SHRI SANDEEP GOSAIN, J M & SHRI N. K. PRADHAN, A M ./ I.T.A. NO . 1499 /MUM/2016 ( / ASSESSMENT YEAR: 2011 - 12 ) DCIT (IT) - 3 (3) (1 ) , MUMBAI PIN - / VS. M/S NIKO ( NELPIO) LTD. 407 - 411/311 OBEROI CHAMBER II, PLOT NO. 645/646, NEW LINK ROAD, ANDHERI(WEST) MUMBAI - 400053 . ./ ./ PAN NO. AA CCN4402A ( / APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : SHRI RAM TIWARI , DR / RESPONDENTBY : SHRI RAKESH MOHAN AND SHRI NIRAVPODDAR , AR / DATE OF HEARING : 24 .04 .1 8 / DATE OF PRONOUNCEMENT : 23.05.18 / O R D E R PER SANDEEP GOSAIN, J UDICIAL MEMBER : THE P RESENT APPE AL FILED BY THE REVENUE IS AGAINST THE ORDER OF LD. CIT (APPEAL) 57, MUMBAI DATED 28.12 .15 F OR AY 20 11 - 12. 2 I.T.A. NO. 1499 /MUM/201 6 M/S NIKO (NELPIO) LTD. 2. THE B RIEF FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY NIKO (NELPIO) LIMITED IS A COMPANY INCORPORATED IN THE CAYMANISLANDS AND IS A TAX RESIDENT OF CYPRUS.IT ENTERED INTO A JOINT VENTURE PROJECT FOREXPLORATION AND DEVELOPMENT OF AN OIL AND GAS FIELD IN INDIA. THIS JOINT VENTURE HAD BEEN ENTERED INTO BY THE ASSESSEE COMPANY WITH RELIANCE INDUSTRIES LTD. (RIL) HAVING 90% PARTICIPATING INTERE ST AND THE APPELLANT COMPANY HOLDING THE BALANCE 10% OF THE PARTICIPATING INTEREST. THE RETURN OF INCOME FOR AY 2011 - 12 DECLARING TOTAL AT RS. NIL (AFTER ADJUSTING BROUGHT FORWARD LOSSES) UNDER NORMAL PROVISIONS AND DECLARING INCOME OF RS 83,40,833/ - U/S 1 15JB WAS FILED BY THE ASSESSEE FOREIGN COMPANY ON 30.11.11. THE RETURN WAS PROCESSED U/S 143(1) OF THE I.T ACT. THEREAFTER, THE CASE OF ASSESSEE WAS SELECTED FOR SCRUTINY AND AFTER SERVING STATUTORY NOTICES AND SEEKING REPLY OF THE ASSESSEE , ORDER OF ASSE SSMENT U/S 143(3) R.W.S. 144C OF I.T ACT WAS PASSED BY THE AO ON 16.04.14 THEREBY HOLDING THAT THE FOREIGN EXCHANGE GAIN EARNED BY THE ASSESSEE DOES NOT FORM PART OF THE BUSINESS ACTIVITIES CARRIED OUT BY THE ASSESSEE DURING THE YEAR AND THUS IN THIS WAY, T HE SAME WAS NOT CONSIDERED AS BUSINESS INCOME. 3 I.T.A. NO. 1499 /MUM/201 6 M/S NIKO (NELPIO) LTD. AGGRIE VED BY THE ORDER OF AO, ASSESSEE PREFERRED APPEAL BEFORE LD. CIT(A) AND LD. CIT(A) AFTER CONSIDERING THE CASE OF BOTH THE PARTIES , PARTLY ALLOWED THE APPEAL OF THE ASSESSEE AND DELETED THE ADDITIONS. NOW BEFORE US, THE REVENUE HAS PREFERRED THE PRESENT APPEAL BY RAISING THE ABOVE GROUNDS. 3. THE SOLITARY GROUND RAISED BY THE REVENUE RELATES TO CHA LLENGING THE ORDER OF LD. CIT(A) IN TREATING THE INCOME OF RS. 1,33,11,676 AS BUSINESS INCOME IGNORING THE FACT THAT ASSESSEE HAS EARNED FOREIGN EXCHANGE GAIN OF RS. 1,33,11,676 / - , WHICH DO NOT FORM PART OF BUSINESS ACTIVITIES CARRIED OUT BY THE ASSESSEE DURING THE YEAR AND HENCE THE SAME CANNOT BE CONSIDERED AS BUSINESS INCOME. 4. WE HAVE HEARD COUNSELS FOR BOTH THE PARTIES AT LENGTH AND WE HAVE ALSO PERUSED THE MATERIAL PLACED ON RECORD AS WELL AS THE ORDERS PASSED BY REVENUE AUTHORITIES. BEFORE WE DECIDE THE MERITS OF THE CASE, IT IS NECESSARY TO EVALUATE THE ORDERS PASSED BY LD. CIT(A). THE LD. CIT(A) HA S 4 I.T.A. NO. 1499 /MUM/201 6 M/S NIKO (NELPIO) LTD. DEALT WITH THE ABOVE GROUNDS RAISED BY THE REVENUE IN PARA NO. 7 OF ITS ORDER. THE OPERATIVE PORTION OF THE ORDER OF LD. CIT(A) IS CONTAINED IN SUB - PARA NO. 3.4 OF ITS ORDER AND THE SAME IS REPRODUCED BELOW: - 3.4 DECISION: AS REGARDS FOREIGN EXCHANGE GAINS, THE PRODUCTION SHARING CONTRACT COVERS THAT ISSUE. IN PARA 1.6.2 OF THE GENERAL PROVISIONS UNDER SECTION 1 OF THE ACCOUNTING PROCEDURE UNDER THE PRODUCTION SHARING CONTRACT IT IS SPECIFIED THAT ANY REALIZED OR UNREALIZED GAINS OR LOSSES FROM THE EXCHANGE OF CURRENCY IN RESPECT OF PETROLEUM OPERATIONS SHALL BE CREDITED OR CHARGED TO THE ACCOUNTS. IT HAS BEEN SO SPECIFIED BECAUSE UNDER THE PRODUCTION SHARING CONTRACT THE ACCOUNTS ARE REQUIRED TO BE MAINTAINED IN BOTH US DOLL ARS AND INDIAN RUPEES WHILE EXPENSES IN INDIA HAVE TO BE MADE IN INDIAN RUPEES. SALE OF PETROLEUM PRODUCTS IS TO BE ACCOUNTED IN US DOLLARS. THIS WOULD LEAD TO FREQUENT TRANSACTION OF CURRENCY FOR ACCOUNTING PURPOSES. ACCORDINGLY, THE GAINS OR LOSS ON ACCO UNT OF SUCH FOREIGN EXCHANGE FLUCTUATION/ TRANSLATION IS PERMITTED BY THE PRODUCTION SHARING CONTRACT TO BE RECOGNISED IN THE ACCOUNTS PREPARED THERE UNDER. IT IS ALSO SEEN THAT THE APEX COURT IN THE ENRON CASE (305 ITR 75) HAD 5 I.T.A. NO. 1499 /MUM/201 6 M/S NIKO (NELPIO) LTD. SPECIFICALLY ALLOWED THE FOR EIGN EXCHANGE LOSSES AND GAINS TO BE TAKEN INTO ACCOUNT WHILE PREPARING THE FINANCIAL STATEMENTS OF THE BUSINESS. KEEPING IN MIND THESE RELEVANT FACTS, TAXATION OF FOREIGN EXCHANGE GAIN UNDER THE HEAD OTHER SOURCES WAS NOT REQUIRED TO BE MADE IN THE FACTS OF THE PRESENT CASE. THEREFORE, ON THIS ISSUE, I FOLLOW THE STAND CIT(A) IN THE NIKO (NECO) LTD.'S CASE IN AY 2008 - 09 AND AY 2009 - 10 AND HENCE THE APPEAL FILED BY THE APPELLANT COMPANY ON THIS ACCOUNT IS HEREBY ALLOWED. AFTER HAVING GONE THROUGH THE FACTS OF THE PRESENT CASE AS WELL AS CONSIDERING THE ORDERS PASSED BY REVENUE AUTHORITIES AND SUBMISSIONS MADE BY BOTH THE PARTIES, WE FIND THAT LD. CIT(A) HAS RIGHTLY APPRECIATED THE FACTS OF THE PRESENT CASE AND COME TO THE CONCLUSION THAT THE TAXATION OF FOREIGN EXCHANGE GAIN UNDER THE HEAD OTHER SOURCES WAS NOT REQUIRED TO BE MADE . WHILE DOING SO, LD. CIT(A) HAS CORRECTLY APPRECIATED THE PRODUCTION SHARING CONTRACT WHICH COVERS THIS ISSUE IN PARA NO. 1.6.2 OF THE GENERAL PROVISIONS U/S 1 OF THE ACCOUNTING PROCEDURE UNDER THE PRODUCTION SHARING CONTRACT, WHEREIN IT IS SPECIFIED THAT ANY REALIZED OR UNREALIZED GAINS OR LOSSES FROM THE EXCHANGE OF CURRENCY IN RESPECT OF PETROLEUM OPERATIONS SHALL BE CREDITED OR 6 I.T.A. NO. 1499 /MUM/201 6 M/S NIKO (NELPIO) LTD. CHARGED TO THE ACCOUNTS. LD. CIT(A) HAS ALSO CONSIDERED THE TERMS OF THE PRODUCTION SHARING CONTRACT WHEREIN, IT WAS SPECIFIED THAT THE ACCOUNTS ARE REQUIRED TO BE MAINTAINED IN BOTH US DOLLARS AND INDIAN RUPEES, WHILE EXPENSES IN INDIA HAVE TO BE MADE IN INDIAN RUPEES. SINCE THE SALE OF PETROLEUM PRODUCTS IS TO BE ACCOUNTED IN US DOLLAR AND THAT LEAD TO FREQUENT TRANSACTION OF CURRENCY FOR ACCOUNTING PURPOSES. ACCORDINGLY, THE GAINS OR LOSS ON ACCOUNT OF SUCH FOREIGN EXCHANGE FLUCTUATION/ TRANSLATION WAS PERMITTED BY PR ODUCTION SHARING CONTRACT TO BE RECOGNIZED IN THE ACCOUNTS PREPARED THERE UNDER. WE FURTHER NOTICE THAT WHILE REACHING TO THE ABOVE CONCLUSION, LD. CIT(A) HAS CORRECTLY RELIED UPON THE JUDGMENT OF HONBLE APEX COURT IN THE CASE OF ENRON (305 ITR 75), WHEREIN HONBLE SUPREME COURT HAS SPECIFICALLY ALLOWED THE FOREIGN EXCHANGE LOSSES AND GAINS TO BE TAKEN INTO ACCOUNT WHILE PREPARING THE FINANCIAL STATEMENTS OF THE BUSINESS. APART FROM ABOVE, LD. CIT(A) IN ASSESSEES OWN CASE FOR AY 2008 - 09 AND AY 2009 - 10 HAD ALLOWED THE SAID GROUND BY HOLDING THE FOREIGN EXCHANGE GAIN AS BUSINESS INCOME. MOREOVER, N O NEW FACTS OR CONTRARY JUDGMENTS HAVE BEEN BROUGHT ON RECORD BEFORE US I N ORDER TO CONTROVERT OR REBUT THE 7 I.T.A. NO. 1499 /MUM/201 6 M/S NIKO (NELPIO) LTD. FINDINGS SO RECORDED BY LD . CIT(A). THEREFORE, THERE ARE NO REASON S FOR US TO INTERFERE INTO OR DEVIATE FROM THE FINDINGS RECORDED BY THE LD.CIT(A). HENCE , WE ARE OF THE CONSIDERED VIEW THAT THE FINDINGS SO RECORDED BY THE LD. CIT (A) ARE JUDICIOUS AND ARE WE LL REASONED. RESULTANTLY, THIS GROUND RAISED BY THE REVENUE STANDS DISMISSED . 5 . IN THE NET RESULT, THE APPEAL FILED BY THE REVENUE STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD MAY , 2018 SD/ - SD/ - ( N. K. PRADHAN ) (SANDEEP GOSAIN) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI ; DATED : 23 . 05 .201 8 SR.PS . DHANANJAY / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT - CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD F I LE / BY ORDER, . / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI