ACIT Gurgaon Circle, V. Kampsax India (P) Ltd,

ITA 1581/DEL/2008

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 2172 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 7 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-12-2009
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 03-12-2009
• Assessment Year: 2004-2005
• Appeal Filed On: 25-04-2008
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: AJIT KUMAR SINGH
• Keywords: Depreciation
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D : NEW DELHI BEFORE SHRI R.C.SHARMA, AM AND SHRI GEORGE MATHAN, JM ITA NOS.1581/DEL/2008 & 1582/DEL/2008 ASSESSMENT YEARS : 2004-05 & 2003-04 ASSTT.COMMISSIONER OF INCOME TAX, GURGAON CIRCLE, GURGAON. VS. M/S KAMPSAX INDIA PVT.LTD., 809, UDYOG VIHAR, PHASE-V, GURGAON. PAN NO.AAACK0921H. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI AJIT KUMAR SINGH, SR.DR. RESPONDENT BY : SHRI RANJAN CHOPRA, CA. ORDER PER R.C.SHARMA, AM : THESE ARE THE APPEALS FILED BY THE REVENUE AGAINST THE ORDER OF CIT(A) FOR THE AY 2003-04 & 2004-05, IN THE MATTER OF ORDER PA SSED U/S 143(3) OF THE IT ACT. 2. THE ONLY GRIEVANCE OF THE REVENUE IN BOTH THE YE ARS RELATES TO ALLOWING CLAIM OF DEDUCTION ON ACCOUNT OF EXCHANGE FLUCTUATI ON LOSS. 3. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PER USED. DURING THE YEARS UNDER CONSIDERATION, THE AO DISALLOWED THE FOREIGN EXCHANGE FLUCTUATION LOSS ON THE PLEA OF SAME BEING NOTIONAL LOSS INCURRED DURIN G THE YEAR, THE DETAILS OF WHICH ARE AS UNDER:- S.NO. PARTICULARS AMOUNT RS. ((-) GAIN (+) LOSS) 1 REVALIDATION OF IFU LOAN BEFORE HEDGING WITH ICICI (APRIL 1, 2003 MARCH 1, 2004) 6,734,000 ITA-1581 & 1582/D/2008 2 2 SWAP COST OF IFU LOAN FOR THE PERIOD MARCH (MARCH 1, 2004 MARCH 31, 2004) 16,654 3 SWAP COST OF INTEREST ON IFU LOAN FOR THE PERIOD MARCH (MARCH 1, 2004 MARCH 31, 2004) 110,132 4 REVALIDATION OF CREDITORS AS ON 31.03.2004 -18,77 4 5 REVALIDATION OF DEBTORS AS ON 31.03.2004 223,904 6 EXCHANGE FLUCTUATION GAIN ON INWARD/OUTWARD REMITTANCES DURING 01.04.2003 TO 31.03.2004 -1,275,022 TOTAL 5,790,894 4. THE LOSS SO DISALLOWED BY THE AO WAS ALLOWED BY THE CIT(A) AFTER OBSERVING THAT ANY LOSS ACCRUING DUE TO REVALIDATIO N OF EXCHANGE FLUCTUATION WOULD BE A REVENUE EXPENSE. THEREAFTER, BY RELYING ON TH E DECISION OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF WOODWARD G OVERNOR INDIA LTD. 210 CTR 344, THE CIT(A) DIRECTED THE AO TO ALLOW THE EX CHANGE FLUCTUATION LOSS. AGGRIEVED BY THE ORDER OF CIT(A) IN BOTH THE YEARS, THE REVENUE IS IN FURTHER APPEAL BEFORE US. 5. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND FOU ND FROM THE RECORD THAT LOSS WAS ARISING ON ACCOUNT OF LOAN TAKEN BY THE AS SESSEE IN FOREIGN CURRENCY AND DUE TO INCREASE IN VALUE OF FOREIGN CURRENCY, THE A SSESSEE WAS REQUIRED TO PAY MORE THAN WHAT WAS BOOKED ON THE DATE OF ENTERING INTO T HE TRANSACTION. THE LOAN SO TAKEN WAS UTILIZED PARTLY FOR WORKING CAPITAL AND P ARTLY FOR ACQUIRING FIXED ASSETS. THE LOAN WHICH WAS ATTRIBUTABLE TO FIXED ASSETS WAS CAPITALIZED AND THE LOAN WHICH WAS TAKEN FOR WORKING CAPITAL WAS TREATED IN REVENU E ACCOUNT. DUE TO EXCHANGE FLUCTUATION, THE LOSS ATTRIBUTABLE FOR THE LOAN TAK EN FOR ACQUIRING FIXED ASSETS WAS DEBITED TO THE FIXED ASSETS ACCOUNT AND ONLY THE CL AIM FOR DEPRECIATION ON ENHANCED VALUE WAS TAKEN BY THE ASSESSEE. HOWEVER, ONLY IN RESPECT OF EXCHANGE ITA-1581 & 1582/D/2008 3 FLUCTUATION PERTAINING TO THE LOAN TAKEN FOR WORKIN G CAPITAL WAS DEBITED IN THE PROFIT & LOSS ACCOUNT AND CLAIMED AS EXPENSE. AFTE R DISCUSSING THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE AND ACCRUAL OF LIABILITY IN RESPECT OF EXPENDITURE, THE CIT(A) APPLIED THE PROPOSITION OF LAW LAID DOWN BY THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF WOODWARD G OVERNOR INDIA LTD. (SUPRA) WHICH WAS SUBSEQUENTLY AFFIRMED BY THE HON'BLE SUPR EME COURT AND REPORTED AT 21 DTR 106 AND ALLOWED THE CLAIM. SIMILAR ISSUE HA S BEEN DEALT WITH BY THE ITAT DELHI BENCH IN THE CASE OF MARUTI UDYOG LTD. 101 TTJ 760 AND ITAT SPECIAL BENCH IN THE CASE OF ONGC 83 ITD 151. THERE IS N O DISPUTE TO THE FACT THAT LOAN UTILIZED FOR WORKING CAPITAL PERTAINS TO THE REVENU E ACCOUNT, THEREFORE ANY APPRECIATION OR DEPRECIATION AND CONSEQUENTLY PROFI T OR GAIN ON ACCOUNT OF SUCH FLUCTUATION OF FOREIGN CURRENCY IS TO BE TAKEN INTO PROFIT & LOSS ACCOUNT EITHER AS AN INCOME OR AS A LOSS. THE ASSESSEE HAS ALSO TAKEN I NTO ACCOUNT PROFIT ARISING ON REVALIDATION OF CREDITORS AS ON 31.3.2004 AMOUNTING TO RS.18,774/- AND ALSO GAIN ON INWARD/OUTWARD REMITTANCES AMOUNTING TO RS.12,75 ,022/-. AFTER ACCOUNTING FOR THESE TWO INCOMES, THE NET RESULTANT LOSS AMOUNTING TO RS.57,90,894/- WAS CLAIMED AS EXCHANGE LOSS DURING AY 2004-05 AND RS.37,70,267 /- DURING AY 2003-04. THE LOSS ARISING DUE TO FLUCTUATION IN FOREIGN CURRENCY RATE WAS NOT A NOTIONAL LIABILITY BUT WAS A CRYSTALLIZED LIABILITY, THEREFORE SAME CA NNOT BE DISALLOWED AS EXPENDITURE, SINCE IT PERTAINS TO REVENUE ACCOUNT. RESPECTFULLY FOLLOWING THE PROPOSITION OF LAW LAID DOWN IN THE CASE OF WOODWAR D GOVERNOR INDIA LTD. BY THE HON'BLE SUPREME COURT, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A) FOR DELETING THE DISALLOWANCE MADE ON ACCOUNT OF EXCHAN GE FLUCTUATION LOSS. 6. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE A RE DISMISSED. DECISION PRONOUNCED IN THE OPEN COURT ON 18 TH DECEMBER, 2009. SD/- SD/- (GEORGE MATHAN) (R.C.SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 18.12.2009. VK. ITA-1581 & 1582/D/2008 4 COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT DEPUTY REGISTRAR