ACIT 17(2), MUMBAI V. BALKRISHNA H MODY (HUF), MUMBAI

ITA 1805/MUM/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 84378 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-12-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 09-12-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 06-03-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIVEK BATRA
• Assessee Lawyers: VIPUL K MODY; NITO H JOSHI
• Keywords: Cost of acquisition; Revenue expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH B, MUMBAI BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER ITA NO. 1805/MUM/2013 ASSESSMENT YEAR: 2009-10 ACIT-17(2) MUMBIA VS. M/S. BALKRISHNA H. MODY (HUF) PROP. M/S. MODY PLASTICS, 12, 3 RD FLOOR, 254, JONETTE, JAME JAMSHED ROAD, MATUNGA CR, MUMBAI-19 PAN: AAAHB 0706 N (APPELLANT) (RESPON DENT) REVENUE BY : SHRI VIVEK BATRA ASSESSE E BY : SHRI NITO H JOSHI & VIPUL K. MODY DATE OF HEARING : 09 . 12 . 2014 DATE OF ORDER : 09 . 12 .2014 O R D E R PER AMIT SHUKLA, JM: THIS APPEAL HAS BEEN PREFERRED BY THE REVENUE AGA INST ORDER DATED 20.12.2012, PASSED BY THE LD.CIT(A) -29 , MUMBAI, FOR THE QUANTUM OF ASSESSMENT PASSED U/S 143(3), FOR THE A. Y. 2009-10, MAINLY ON THE FOLLOWING GROUND OF APPEAL:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE O F LOSS CLAIMED ON ACCOUNT OF FOREIGN EXCHANGE RATE DIFFERENCE AMOU NTING TO RS.61,84,290/- WITHOUT APPRECIATING THE FACT THAT T HE SAME WAS CONTINGENT AND NOTIONAL AND WAS ALLOWABLE ONLY AT T HE TIME OF MAKING THE ACTUAL PAYMENT IN ACCORDANCE WITH AMENDE D PROVISIONS OF SECTION 43A OF THE I.T. ACT, 1961 ITA NO. 1805/MUM/2013 M/S. BALKRISHNA H. MODY (HUF) ASSESSMENT YEAR: 2009-10 2 2. THE ASSESSEE IS A PROPRIETOR OF M/S. MODY PLASTI CS WHICH IS ENGAGED IN THE BUSINESS OF IMPORT AND TRADING IN PO LYMER AND PLASTIC RAW MATERIALS. THE ASSESSEE HAS DEBITED RS.61,84,29 0/- IN THE P/L ACCOUNT AS A FOREIGN EXCHANGE LOSS. THIS LOSS HAS B EEN INCURRED ON IMPORT OF GOODS MADE IN U.S. DOLLARS, WHEN AT THE T IME OF PAYMENT, THE VALUE OF THE RUPEE GOT FURTHER DEVALUED, IT RESULTE D INTO FOREIGN EXCHANGE LOSS. THIS LOSS WAS OVER AND ABOVE THE PUR CHASE COST ALREADY DEBITED BASED ON THE INVOICE VALUE. THE ASSESSING O FFICER DISALLOWED THE SAID LOSS HOLDING THAT IT IS PURELY A NOTIONAL LOSS AS THE ASSESSEE HAS ALREADY DEBITED THE PURCHASE COST BASED ON INVOICE RAISED AND THERE IS NO RATIONALE FOR AGAIN DEBITING THE FOREX LOSS ON T HE DATE OF PAYMENT AND CLAIMING THIS LOSS. HE HELD THAT SAME INVOICE V ALUE CANNOT BE DEBITED TWICE, ONCE AT THE TIME OF PURCHASE AND THE N AGAIN AS FOREX LOSS. THUS HE DISALLOWED THE LOSS ON THE FOREIGN EX CHANGE. 3. BEFORE THE LD. CIT(A), THE ASSESSEE MADE VERY DE TAILED SUBMISSIONS ABOUT THE NATURE OF ITS BUSINESS AND HO W THE LOSS HAS BEEN INCURRED DUE TO FOREIGN EXCHANGE FLUCTUATION AT THE TIME OF MAKING PAYMENT ON ACCOUNT OF PURCHASE OR IMPORT OF GOODS. THE SAID SUBMISSIONS HAVE BEEN INCORPORATED FROM PAGES 2 TO 4 OF THE APPELLATE ORDER. THE LD. CIT(A) HELD THAT FOREIGN EXCHANGE FL UCTUATION IS A REGULAR NORMAL BUSINESS PHENOMENA OCCURRING IN ALL THE CASE S OF IMPORTS AND EXPORTS. WHENEVER THE ASSESSEE HAS BOOKED THE ORDER THEN ON THAT DATE THE PURCHASE AMOUNTS IS DEBITED IN THE PURCHASE REG ISTER ON THE RATE OF DOLLAR PREVALENT AT THAT TIME. SUBSEQUENT WHEN THE PAYMENT IS MADE, THEN RATE OF DOLLAR OF THAT DAY IS TO BE TAKEN INTO ACCOUNT. THIS SITUATION MADE RESULT INTO GAIN OR LOSS ON EVERY TRANSACTION. HE ALSO ANALYZED CERTAIN PURCHASES MADE BY THE ASSESSEE, WHICH HAS R ESULTED INTO LOSS ITA NO. 1805/MUM/2013 M/S. BALKRISHNA H. MODY (HUF) ASSESSMENT YEAR: 2009-10 3 AND GAIN. HE ALSO NOTED THAT ASSESSEE HAD SHOWN EXC HANGE RATE FLUCTUATION LOSSES AND GAINS IN DIFFERENT YEARS. DU RING THE RELEVANT YEAR, THE GROSS EXCHANGE RATE FLUCTUATION LOSS WAS RS.1,0 6,93,511/- AND GAIN WAS RS.45,09,221/-, WHICH RESULTED INTO NET LOSS OF RS.61,84,290/-. SUCH LOSS HE HELD THAT, WAS REVENUE EXPENDITURE AS IT HA S INCURRED DURING THE COURSE OF BUSINESS ONLY. HE FURTHER HELD THAT, AOS CONTENTION THAT THE EXPENDITURE HAVE BEEN DEBITED TWICE IS NOT CORRECT AS THE ASSESSEE ONLY DEBITS ONCE WHEN THE PURCHASE INVOICE IS RAISED, I. E., WHEN THE ORDER IS BOOKED. ONLY CORRESPONDING GAIN OR LOSS IN FOREIGN EXCHANGE IS CREDITED OR DEBITED IN THE BOOKS. ACCORDINGLY HE ALLOWED THE LOSS AS BUSINESS LOSS. 4. BEFORE US, LD. DR STRONGLY RELIED UPON ORDER OF THE AO, WHEREAS LEARNED COUNSEL SUBMITTED THAT, FIRSTLY, IN THE GROUND OF APPEAL THE DEPARTMENT HAS ADMITTED THAT THE LOSS ON ACCOUNT OF FOREIGN EXCHANGE RATE DIFFERENCE WAS CONTINGENT AND ALLOWABLE ONLY A T THE TIME OF ACTUAL PAYMENT, WHICH IN FACT IN THE ASSESSEES CASE, LOSS HAS BEEN INCURRED ON ACTUAL PAYMENT AND SECONDLY, THE PROVISION OF SECTION 43A IS NOT APPLICABLE AT ALL AS THE SAME IS FOR THE PURPOSE OF ACQUIRING ANY ASSET. HERE IN THIS CASE THE ASSESSEE IS IN THE BUSINESS O F IMPORTING RAW MATERIALS AND GOODS FOR TRADING IN INDIA. SHE HAS N OT ACQUIRED ANY ASSET. FURTHER THE LOSS INCURRED IS REVENUE ONLY, AS HELD BY THE LD. CIT(A). 5. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND ON P ERUSAL OF THE ORDER OF THE AO AS WELL AS LD. CIT(A), WE FIND THAT THERE IS NO DISPUTE WITH REGARD TO THE FACT THAT ASSESSEE HAD MADE PURCHASES FROM THE FOREIGN BUYERS FOR THE PURPOSE OF ITS TRADING BUSINESS. THE GOODS ARE IMPORTED AND INVOICES ARE RAISED IN TERMS OF U.S. DOLLARS. A T THE TIME OF INVOICES RAISED BY THE PARTIES THE ASSESSEES DEBITS THE PUR CHASES IN THE BOOKS ITA NO. 1805/MUM/2013 M/S. BALKRISHNA H. MODY (HUF) ASSESSMENT YEAR: 2009-10 4 AND WHEN OF PAYMENT IS MADE AND AT THAT TIME IF THE RE IS ANY GAIN OR LOSS ON ACCOUNT OF FLUCTUATION IN FOREIGN EXCHANGE RATE, THE SAME IS CREDITED OR DEBITED IN THE BOOKS. IF SUCH A GAIN OR LOSS HAS ARISEN ON ACCOUNT OF NORMAL COURSE OF BUSINESS, THEN IT IS NO THING BUT REVENUE IN NATURE, THAT IS THE RECEIPT IS REVENUE AND ALSO THE EXPENDITURE IS REVENUE. THE FINDING OF THE LD. CIT(A) IS NOT ONLY CORRECT IN LAW BUT ALSO ON FACTS AND ACCORDINGLY THE SAME IS AFFIRMED. 6. IN THE RESULT GROUND RAISED BY THE REVENUE IS DISMISSED AND THE APPEAL FILED BY THE REVENUE IS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 09 DAY D ECEMBER, 2014. SD/- SD/- (N.K. BILLAIYA) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 09.12.2014 *SRIVASTAVA COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR B BENCH //TRUE COPY// BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.