ISAGRO (ASIA) AGROCHEMICALS P. LTD, MUMBAI V. DCIT CIR 8(2), MUMBAI

ITA 180/MUM/2012

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 8341 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 7 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-08-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 25-06-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 09-01-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation
• Section: 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH I, MUMBAI BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER AND DR. S.T.M. PAVALAN, JUDICIAL MEMBER ITA NO. 180/MUM/2012 ASSESSMENT YEAR: 2007-08 M/S. ISAGRO ASIA (AGROCHEMICALS) PVT. LTD. C/O. SHANKARLAL JAIN & ASSOCIATES, 12, ENGINEER BUILDING, 265, PRINCESS STREET MUMBAI- 400 002 PAN: AAACI 8431 C VS. DCIT CIRCLE 8(2) MUMBAI (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI S.L. JAIN REVENUE BY : SHRI RAVINDER SINDHU DATE OF HEARING : 25.06.2014 DATE OF PRONOUNCEMENT : 22.08.2014 O R D E R PER DR. S.T.M. PAVALAN, JM: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF THE LD.CIT(A)-19, MUMBAI DATED 22.11.2011 FOR THE ASSES SMENT YEAR 2007-08. 2. IN THIS APPEAL, THE ASSESSEE HAS RAISED SIX GROU NDS, ALL RELATING TO THE SINGLE ISSUE OF ALLOWABILITY OF FOREIGN EXCHANGE LOSS INCU RRED BY THE ASSESSEE. 3. BRIEFLY STATED, DURING THE ASSESSMENT PROCEEDING , THE AO, ON PERUSAL OF THE CASH FLOW STATEMENT FOR THE YEAR ENDED ON 31.03.200 7 NOTICED THAT THE ASSESSEE HAS INCURRED AN UNREALIZED FOREIGN EXCHANGE LOSS OF RS. 1,31,80,000/- DURING THE YEAR UNDER CONSIDERATION. ACCORDINGLY, THE ASSESSEE WAS ASKED TO EXPLAIN WHY THE UNREALIZED FOREIGN EXCHANGE LOSS SHOULD NOT BE DISA LLOWED. IN RESPONSE, THE ASSESSEE COMPANY DID NOT COME FORWARD WITH ANY SUBM ISSION AND ACCORDINGLY THE AO CONCLUDED THAT THE UNREALIZED FOREIGN EXCHANGE L OSS WAS NOT A PERMISSIBLE DEDUCTION UNDER THE PROVISION OF INCOME TAX ACT. AC CORDINGLY, THE AO DISALLOWED THE CLAIM AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. ON APPEAL BEFORE THE LD.CIT(A), THE ASSESSEE RELIED ON THE DECISIONS OF THE HONBLE APEX COURT IN THE ITA NO. 180/MUM/2012 M/S. ISAGRO ASIA (AGROCHEMICALS) PVT. LTD. ASSESSMENT YEAR: 2007-08 2 CASES OF CIT VS. WOODWARD GOVERNOR INDIA PVT. LTD. 312 ITR 2 54 (SC) AND ONGC VS. CIT 322 ITR 180(SC) AND PRAYED THAT THE LOSS BEING A EXPENDITURE WAS A LLOWABLE DEDUCTION WHILE COMPUTING THE INCOME U/S 37 OF THE INCOME-TAX ACT. HOWEVER, THE LD.CIT(A) REJECTED THE CONTENTIONS OF THE ASSESSEE AND CONCLUDED THAT THE ASSESSEE HAS RAISED ECB IN 2003-04 FOR EXPANSION OF ITS PANO LI PLANT AND IT COULD NOT BE SHOWN THAT ANY COMPONENT BORROWINGS WAS UTILIZED TOWARDS ANY REVENUE ITEMS. THUS, THE LD.CIT(A) HELD THAT THE UNREALIZED FOREIGN EXCHANGE LOSS HAD RESULTED ON CAPITAL ACCOUNT IN VIEW OF THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF WOODWARD GOVERNOR INDIA PVT. LTD.(SUPRA) AND THEREBY CONFIRMED THE DISALLOWANCE MADE BY THE AO. HOWEVER, WHILE DECIDING SO, THE LD.CIT(A) DIREC TED THE AO TO VERIFY THE THE MISTAKE IN COMPUTATION OF THE UNREALIZED FOREIGN EX CHANGE LOSS WHICH WAS ACTUALLY RS.125.06 LAKHS AND NOT RS.131.8 LAKHS. RESULTANTLY , THE DISALLOWANCE OF RS.125.06 LAKHS WAS CONFIRMED BY THE LD.CIT(A). AGGRIEVED BY THE IMPUGNED DECISION, THE ASSESSEE IS IN APPEAL BEFORE US. 4. HAVING HEARD BOTH THE SIDES AND PERUSED THE MATE RIAL ON RECORD IT IS THE CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE IS THAT THE ECB BORROWINGS ARE ON GENERAL ACCOUNT OF EXPANSION OF THREE EXISTING INDU STRIAL UNIT AND HENCE, THE ECB BORROWINGS ARE NOT ON CAPITAL ACCOUNT. FURTHER, FOR EIGN EXCHANGE LOSS IS TO BE DETERMINED AS PER THE PROVISION OF ACCOUNTING STAND ARD 11 READ WITH STANDARD 16 WHICH PROVIDES THAT FOREIGN EXCHANGE LOSS TO THE EXTENT OF DIFFERENCE BETWEEN INTEREST PAYABLE ON BORROWINGS MADE IN FOREIGN CURR ENCY AND INTEREST PAYABLE IN INDIA SHALL BE TREATED AS BORROWING COST AND NOT AS FOREIGN EXCHANGE LOSS. WITHOUT PREJUDICE, THE COUNSEL FOR THE ASSESSEE SUBMITTED T HAT THE FOREIGN EXCHANGE LOSS IS NOT ON CAPITAL ACCOUNT AND IF THE SAME IS TREATED A S CAPITAL ACCOUNT THE ASSESSEE IS ENTITLED FOR DEPRECIATION ON THE FOREIGN EXCHANGE L OSS. ALSO, IT IS THE SUBMISSION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT FOREIGN E XCHANGE LOSS OF RS.125.06 LAKHS CONSIST OF LOSS OF REPAYMENT OF TWO ECBS OF RS.84.6 9 LAKHS AND REINSTATEMENT OF ONE ECBS OF RS.32.30 LAKHS THEREFORE, THE LOSS OF ECBS ONLY OF RS.116.98 LAKHS AND BALANCE LOSS IN ON ACCOUNT OF ASSESSEES TRANSACTIO N OF EXPORT AND IMPORT. FURTHER, OUR ATTENTION HAS BEEN DRAWN TO THE DETAILS OF ECBS LOANS AND ITS PURPOSES BY REFERRING TO VARIOUS PAGES IN THE PAPER BOOK WHICH FORM PART OF THE RECORD. ON THE OTHER HAND, THE LD.DR HAS HEAVILY RELIED ON THE DEC ISION OF THE LD.CIT(A) IN SUPPORT ITA NO. 180/MUM/2012 M/S. ISAGRO ASIA (AGROCHEMICALS) PVT. LTD. ASSESSMENT YEAR: 2007-08 3 OF THE REVENUES CASE. AFTER PERUSING THE RIVAL CON TENTIONS OF BOTH THE SIDES, IT IS PERTINENT TO MENTION THAT DURING THE ASSESSMENT YEA R 2009-10, THE ASSESSEE COMPANY HAS CLAIMED FOREIGN EXCHANGE LOSS OF RS.97, 86,680/- WHICH CONSIST OF LOSS OF REINSTATEMENT OF OUTSTANDING LIABILITY ON ACCOUN T OF ECB LOANS IN FOREIGN CURRENCY AND THE SAME HAS BEEN ACCEPTED BY THE DEPARTMENT. I T IS ALSO PERTINENT TO MENTION THAT DURING THE PREVIOUS AYS FROM 2001-02 TO 2006-0 7, THE DEPARTMENT HAS ACCEPTED THE GAIN OFFERED BY THE ASSESSEE AS INCOME ON ACCOU NT OF SIMILAR FOREIGN EXCHANGE FLUCTUATION. WHEN THE FACTS ARE BEING, WE DO NOT FI ND ANY JUSTIFICATION ON THE PART OF THE AUTHORITIES BELOW TO DISALLOW THE LOSS CLAIMED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. IN VIEW OF THAT MATTER, THE AO IS DIRECTED TO VERIFY THE CORRECT COMPUTATION AND ALLOW THE CLAIM OF THE ASSESSEE ACC ORDINGLY. 5. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS TREATED AS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 2 2TH DAY OF AUGUST, 2014. SD/- SD/- (N.K. BILLAIYA) (DR. S.T.M. PAVALAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 22.08.2014 *SRIVASTAVA COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR I BENCH //TRUE COPY// BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.