The DCIT, Circle-8, Ahmedabad V. M/s. SAL Steel Ltd., Ahmedabad

ITA 2013/AHD/2013

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 9462 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 5 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-01-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 18-01-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 29-07-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: CO NO AHD IN ITA NO A
• Keywords: Principle of natural justice
• Section: 143(3)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD , , BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER SL. NOS. ITA NO(S) ASSESSMENT YEAR (S) APPEAL(S) /CO BY APPELLANT VS. RESPONDENT APPELLANT RESPONDENT 1. 2013/AHD/2013 2009-10 DY.CIT CIRCLE-8 AHMEDABAD M/S.SAL STEEL LTD. 5/1, SHREEJI HOUSE 5 TH FLOOR B/H. MJ LIBRARY ASHRAM ROAD AHMEDABAD PAN:AAHCS 8284 J 2. 2014/AHD/2013 2010-11 -DO-REVENUE -DO-ASSESSEE 3. CO NO.6/AHD/14 (IN ITA NO. 2013/A/13) 2009-10 BY ASSESSEE BY REVENUE 4. CO NO.7/AHD/14 (IN ITA NO. 2014/A/13) 2010-11 BY ASSESSEE BY REVENUE REVENUE BY : MR.PRASOON KABRA, SR.DR ASSESSEE BY : SHRI ANIL R.SHAH WITH MS.KINJAL SHAH !' / DATE OF HEARING 11/01/2017 #$%&!' / DATE OF PRONOUNCEMENT 18/01/2017 / O R D E R PER BENCH : THE REVENUE HAS PREFERRED APPEAL RELEVANT TO ASS ESSMENT YEARS (AYS) 2009-10 AND 2010-11 AGAINST THE SEPARATE ORD ERS OF THE COMMISSIONER OF INCOME TAX (APPEALS)-XIV AHMEDABAD DATED IT A NOS.2013 & 2014/AHD/2013 (BY REVENUE). DY.CIT VS. SAL STEEL LTD. CO NOS.6 & 7/AHD/2014 (BY ASSESSEE) ASST.YEARS 2009-10 & 2010-11 - 2 - 06/05/2013 AND 09/05/2013. THE ASSESSEE HAS ALSO F ILED CROSS OBJECTIONS IN THE AFORESAID APPEALS OF THE REVENUE. SINCE THE ISSUES INVOLVED ARE COMMON RELATING TO THE SAME ASSESSEE, WE CONSIDER THE EXPEDIENT DISPOSE OF ALL FOUR APPEALS BY A COMMON O RDER. ITA NO.2013/AHD/2013 FOR AY 2009-10 REVENUES APP EAL AND CO NO.6/AHD/2014 FOR AY 2009-10 CROSS OBJECT ION BY ASSESSEE. 2. THE REVENUE HAS RAISED FOLLOWING SUBSTANTIVE G ROUNDS:- 1) THE LD.COMMISSIONER OF INCOME-TAX (APPEALS)-XIV, A HMEDABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISAL LOWANCE OF RS.36,51,099/- MADE ON ACCOUNT OF FOREIGN FLUCTUATI ON LOSS. 2) THE LD.COMMISSIONER OF INCOME-TAX (APPEALS)-XIV, AH MEDABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDIT ION OF RS.42,79,397/- MADE ON ACCOUNT OF INTEREST EXPENSES . 2.1. LIKEWISE, THE ASSESSEE HAS RAISED FOLLOWING GR OUNDS IN ITS CROSS OBJECTION:- 1. THE APPEAL FILED BY THE DEPARTMENT IS BAD IN LAW AND VOID AND INFRUCTUOUS SINCE THE TOTAL INCOME OF THE APPELLANT FOR THE YEAR UNDER APPEAL IS NIL AND NO TAX PAYABLE AND THEREFORE, THE APPEAL TO HON. TRIBUNAL REQUIRES TO BE DISMISSED. 2. WITHOUT PREJUDICE, IT IS SUBMITTED BY YOUR APPELLAN T THAT THE CIT(A) HAS RIGHTLY HELD ON FACTS OF THE CASE AND PROVISION OF LAW THAT FOREIGN EXCHANGE FLUCTUATION LOSS OF RS.36,51,099/- WAS INCURRED DURING THE COURSE OF BUSINESS AND THEREFORE, WAS AL LOWABLE AS A LOSS IN COMPUTING THE TOTAL INCOME. IT A NOS.2013 & 2014/AHD/2013 (BY REVENUE). DY.CIT VS. SAL STEEL LTD. CO NOS.6 & 7/AHD/2014 (BY ASSESSEE) ASST.YEARS 2009-10 & 2010-11 - 3 - 3. CIT(A) ALSO HELD IN FACTS OF THE CASE AND PROVISION OF LAW INTEREST OF RS.42,79,397/- WAS ALLOWABLE EXPENDITURE IN COMPUTI NG THE TOTAL INCOME. 3. FACTS APROPOS TO GROUND NO.1 OF THE REVENUES AP PEAL ARE THAT THE ASSESSEE-COMPANY IS ENGAGED IN THE BUSINESS OF MANU FACTURING AND TRADING OF STEEL & IRON PRODUCTS. IN THE COURSE OF ASSESSMENT PROCEEDINGS UNDER SECTION 143(2) OF THE INCOME TAX ACT, 1961 (H EREINAFTER REFERRED TO AS 'THE ACT'), IT WAS NOTICED BY THE ASSESSING OFFI CER (AO) THAT THE ASSESSEE-COMPANY HAD CLAIMED FOREIGN EXCHANGE LOSS OF RS.196.93 LACS. THE AO HELD THAT FOREIGN EXCHANGE FLUCTUATIO N LOSS AMOUNTING TO RS.36,51,099/- WAS NOTIONAL LOSS AND NOT ACTUAL LOS S ON THE GROUND THAT FORWARD CONTRACT IN RESPECT OF IMPUGNED LOSS WERE O UTSTANDING AS ON 31/03/2009 AND REMAINED UNSETTLED AND THEREFORE LOS S WAS NOT CRYSTALLIZED AS ON 31/03/2009. THE CIT(A) AFTER EX AMINING THE ISSUE THREADBARE ACCEPTED THE CLAIM OF THE ASSESSEE PLACI NG RELIANCE UPON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. WOODWARD GOVERNOR INDIA (P) LTD. REPORTED AT (2009) 312 ITR 254. 4. THE RELEVANT PARA DEALING WITH THE ISSUE BY THE CIT(A) IS REPRODUCED HEREUNDER:- 2.2. THE AR OF THE APPELLANT HAS SUBMITTED HIS PAR A-WISE WRITTEN SUBMISSION ON ASSESSING OFFICER'S FINDINGS, WHICH I S REPRODUCED AS UNDER: 23/03/2013 IT A NOS.2013 & 2014/AHD/2013 (BY REVENUE). DY.CIT VS. SAL STEEL LTD. CO NOS.6 & 7/AHD/2014 (BY ASSESSEE) ASST.YEARS 2009-10 & 2010-11 - 4 - WHILE DISALLOWING THE AMOUNT IN QUESTION, THE AO HA S OBSERVED THAT: (I) THE AMOUNT IS A NOTIONAL LOSS AND NOT AN ACTUAL LOSS, (II) THE SAME IS NOT COVERED BY FORWARDED CON TRACTS/HEDGING, (II) LOSS UNDER QUESTION RECOGNIZED IN ACCORDANCE - WITH THE ACCOUNTING STANDARD-11 (AS-11) ISSUED BY ICAI IS NOT ACCEPTABL E, (IV) THE LOSS IS NOT AN ACTUAL LOSS BUT A PROV ISIONAL LOSS, (V) THE LOSS HAS NOT BEEN CRYSTALLIZED AS ON 31-3-09 AND AS PER INSTRUCTION NO.3, 2010 DATED 23-3-10, BECAUSE NO S ETTLEMENT - WAS ACTUALLY MADE, THE LOSS IS A NOTIONAL LOSS AND NOT ALLOWABLE AS A DEDUCTION U/S.37(1). WE RESPECTFULLY SUBMIT THAT ALL THE OBSERVATIONS OF THE AO REPRODUCED ABOVE FOR DISALLOWING THE LOSS ARE ERRON EOUS, NOT APPLICABLE TO THE FACTS OF OUR CASE AND NOT SUPPORT ED BY JUDICIAL PRONOUNCEMENTS. WE INVITE YOUR HONOUR'S KIND ATTENTION TO LETTER DA TED 18-7-2011 (PAGES 3 TO 4) LETTER DATED 21/10/11 (PAGES 5 TO 5) AND LETTER DT. 26/11/11 (PAGES 6 TO 28)GIVING DETAILS OF THE LOSS UNDER DISPUTES. WE ALSO INVITE YOUR HONOURS KIND ATTENTION TO NOTE NO.3 OF SCHEDULE-19 FORMING PART OF OUR BALANCE SHEET WHICH INCLUDES THE COMPONENT OF LOSS IN QUESTION AND WHICH IS REPR ODUCED FOR YOUR READY REFERENCE AS FOLLOWS: FOREIGN CURRENCY EXPOSURE AT THE YEAR END NOT HEDGE D BY DERIVATIVE INSTRUMENTS. IT A NOS.2013 & 2014/AHD/2013 (BY REVENUE). DY.CIT VS. SAL STEEL LTD. CO NOS.6 & 7/AHD/2014 (BY ASSESSEE) ASST.YEARS 2009-10 & 2010-11 - 5 - A) THE COMPANY HAS NOT ENTERED INTO ANY FORWARD C ONTRACTS TO OFFSET FOREIGN CURRENCY RISKS ARISING FROM THE AMOU NTS DENOMINATED IN CURRENCIES OTHER THAN THE INDIAN RUP EE. B) FOREIGN CURRENCY EXPOSURE AT THE YEAR END NOT HEDGED BY DERIVATIVE INSTRUCTIONS. AS AT 31 ST MARCH 2009 PAYABLE AGAINST IMPORT OF GOODS AND SERVICES RUPEES 178012 93 US DOLLAR 3493 87 AS MAY BE VERIFIED FROM WORKING AND NOTES FORMING P ART OF THE BALANCE SHEET, WE FIRSTLY SUBMIT THAT THIS IS NOT A LOSS CO VERED BY TRANSACTIONS OF HEDGING OF DERIVATIVE INSTRUMENTS AND HENCE, INSTRU CTIONS OF CBDT VIDE NO3 OF 2010 DATED 23-3-10 IS NOT APPLICABLE TO THE FACT OF OUR CASE. WE FURTHER STATE THAT THE INSTRUCTIONS UNDER REFERENCE ARE NOT RELEVANT ALSO BECAUSE OF THE FACT THAT THEY ARE CONTRARY TO THE R ULING OF HON. APEX COURT AND OTHER HON. COURTS AND BECAUSE IT TAKES AW AY THE DISCRETION OF THE AO AND HENCE, THE SAME IS ULTRA VIRUS AND NO T BINDING EVEN UPON THE AO. ON THE CONTRARY, SINCE WE ARE A LIMITED COMPANY WE ARE OBLIGE TO PREPARE OUR ACCOUNTS UNDER MERCANTILE SYSTEM OF ACC OUNTANCY AND ACCOUNTING STANDARD INCLUDING AS-11 ANNOUNCED BY IC AI ARE MANDATORY. AS PER AS-11 (PAGES 29 TO 46), WE HAVE T O RECOGNIZE LOSS ARISING ON ACCOUNT OF EXCHANGE RATE FLUCTUATION AS ON 31 ST OF EACH FINANCIAL YEAR. THIS LOSS IS AN ASCERTAINED, ACCRUED AND QUANTIFIED LOSS/LIABILITY AS ON 31 ST MARCH 2009 IN OUR CASE AS EXCHANGE RATE AS ON 31-3- 09 IS ALREADY ANNOUNCED. THEREFORE, IN MAKING PROVISIONS OF THE L OSS, THERE IS NO CONTINGENCY OF AN EVENT TO HAPPEN OR NOT HAPPEN AT A FUTURISTIC DATE. IT A NOS.2013 & 2014/AHD/2013 (BY REVENUE). DY.CIT VS. SAL STEEL LTD. CO NOS.6 & 7/AHD/2014 (BY ASSESSEE) ASST.YEARS 2009-10 & 2010-11 - 6 - THE AMOUNT IN QUESTION IS NOT A NOTIONAL LOSS BECAU SE AS PER THE CLEAR ACCOUNTING PRINCIPLES AND MANDATORY ACCOUNTING STAN DARDS OF CAI, LOSS HAS ACCRUED AND QUANTIFIED AND IT IS MANDATORY TO P ROVIDE FOR THE LOSS IN ORDER TO REFLECT TRUE AND FAIR PROFIT &LOSS AND BAL ANCE SHEET. WE REFER TO AND RELY UPON THE DECISION OF HON. SUPR EME COURT ON THE PRINCIPLES OF ACCOUNTING OF A LIABILITY IN THE CASE OF METAL BOX COMPANY OF INDIA VS. THEIR WORKMAN REPORTED IN 73 ITR PAGE 53 WHICH READS AS FOLLOWS: 'IN THE CASE OF AN ASSESSEE MAINTAINING HIS ACCOUNT S ON MERCANTILE SYSTEM, A LIABILITY ALREADY ACCRUED, THO UGH TO BE DISCHARGED AT A FUTURE DATE, -WOULD BE A PROPER DED UCTION WHILE WORKING OUT THE PROFITS AND GAINS OF HIS BUSINESS, REGARD BEING HAD TO THE ACCEPTED PRINCIPLES OF COMMERCIAL PRACTI CE AND ACCOUNTANCY. IT IS NOT AS IF SUCH DEDUCTION IS PERM ISSIBLE ONLY IN CASE OF AMOUNTS ACTUALLY EXPENDED OR PAID. JUST AS ACTUAL RECEIPTS AS -WELL AS THOSE ACCRUED DUE ARE BROUGHT IN FOR INCOME- TAX ASSESSMENT, SO ALSO LIABILITIES ACCRUED DUE WOU LD BE TAKEN INTO ACCOUNT WHILE WORKING OUT THE PROFITS AND GAIN S OF THE BUSINESS.' WE ALSO RELY UPON THE DECISION OF HON. MADRAS HIGH COURT IN THE CASE OF CIT VS. INDIAN OVERSEAS BANK REPORTED IN 151ITR PAGE 446 AND DECISION OF HON. DELHI HIGH COURT IN THE CASE OF CI T VS. WOODWARD GOVERNORS REPORTED IN 210 CTR PAGE 354. THE DECISIO N OF WOODWARD GOVERNORS (SUPRA) DELHI HIGH COURT IS AFFIRMED BY HON. APEX COURT IN A RECENT DECISION REPORTED IN 312 ITR PAGE 254. WE ALSO ENCLOSE FOR YOUR KIND CONSIDERATION TWO ART ICLES (PAGES 47 TO 61) ON THE ABOVE SUBJECT WHICH HAS MADE A DETAILED ANALYSES OF THE ISSUE INVOLVED AND BASED UPON THE JUDICIAL PRONOUNC EMENTS ON IMPLICATION AND APPLICABILITY OF ACCOUNTING STANDAR D OF ICAI AND INSTRUCTIONS OF HON. CBDT AND HAS COME TO A CONCLUS ION THAT FOREIGN EXCHANGE FLUCTUATION LOSS IS ALLOWABLE AS A DEDUCTI ON U/S.37(L). IT A NOS.2013 & 2014/AHD/2013 (BY REVENUE). DY.CIT VS. SAL STEEL LTD. CO NOS.6 & 7/AHD/2014 (BY ASSESSEE) ASST.YEARS 2009-10 & 2010-11 - 7 - WE ALSO BRING TO YOUR KIND NOTICE THAT IT IS NOT TH E CASE THAT EVERY YEAR, THERE IS A LOSS ON ACCOUNT OF FOREIGN ACCOUNTING FL UCTUATION. FOREIGN EXCHANGE FLUCTUATION SWING ON OTHER SIDE RESULTING INTO A PROFIT OR A LOSS AS THE CASE MAY BE. IN OUR OWN CASE, IN THE EARLIER ASSESSMENT YEAR I.E. A. Y. 08-09 THERE WAS A GAIN ON FOREIGN EXCHANGE FL UCTUATION WHICH WAS RECOGNIZED AS AN OUR INCOME, REFLECTED IN THE PROFI T & LOSS ACCOUNT AND INCLUDED IN COMPUTATION OF TAXABLE INCOME ON WHICH WE HAVE PAID TAX FOR A. Y. 08-09. THIS CAN BE VERIFIED FROM COMPUTAT ION OF INCOME FOR A. Y. 08-09 ENCLOSED, (PAGES 68 TO 70. ) WE THEREFORE STATE THAT IF GAIN ARISING FROM FOREIGN EXCHANGE FLUCTUATION IS TAXED AS OUR INCOME AS PER ORDER U/S. 143(3) FOR A.Y.08-09 (PAGES 71 TO 74), O N THE SAME PRINCIPLES, LOSS ARISING ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUA TION HAS TO BE ALLOWED AS A DEDUCTION. WE LASTLY STATE THAT THE LOSS IN QUESTION HAS OCCUR RED IN THE TRANSACTIONS WITH GULF TRIANGLE MINING. FROM COPIES OF ACCOUNTS ENCLOSED ( PAGES 62 TO65), IT MAY BE VERIFIED THAT IN A. Y.2008-09, THE RE -WAS A GAIN - WHICH IS OFFERED AS INCOME AND IT IS ACCORDINGLY TA XED. FURTHER, WE HAVE ULTIMATELY WRITTEN OFF THE AMOUNT PAYABLE T O THE ABOVE PARTY WHICH IS CREDITED TO PROFIT & LOSS ACCOUNT AN D TAXED AS OUR INCOME U/S.41(1). THE LOSS DISALLOWED IN A.Y.09 -10 HAS THEREFORE, RESULTED IN DOUBLE TAXATION WHICH IS AGA INST THE PRINCIPLES OF EQUITY AND NATURAL JUSTICE. WE THEREFORE REQUEST YOUR HONOUR TO ALLOW THE DEDUC TION OF FOREIGN EXCHANGE FLUCTUATION LOSS AND OBLIGE. 19/04/2013 'IN SUPPORT OF OUR CONTENTION THAT FOREIGN EXCHANGE FLUCTUATION LOSS IS AN ACCRUED, ASCERTAINED AND QUANTIFIED LOSS , WE HAVE RELIED UPON THE DECISION OF HON'BLE SUPREME COURT IN THE CASE O F CIT VS. WOODWARD GOVERNORS REPORTED IN, 312ITR, PAGE 254. IT A NOS.2013 & 2014/AHD/2013 (BY REVENUE). DY.CIT VS. SAL STEEL LTD. CO NOS.6 & 7/AHD/2014 (BY ASSESSEE) ASST.YEARS 2009-10 & 2010-11 - 8 - WE RESPECTFULLY SUBMIT THAT THE FACTS OF OUR CASE A RE DIRECTLY APPLICABLE TO THE FACTS OF THE CASE OF WOODWARD GOV ERNORS AND WE FULFILL CONDITIONS NO.1 TO 6 LAID DOWN BY HON'BLE S .C. IN THE CASE OF WOODWARD GOVERNORS. WE HAVE ALREADY NARRATED FACTS OF OUR CASE IN OUR L ETTER DATED 23-3-2013. WE HOWEVER, CO-RELATE OUR FACTS WITH CON DITIONS NO.1 TO 6 LAID DOWN BY HON'BLE S.C. IN THE CASE OF WOODWARD G OVERNORS AS FOLLOWS:- CONDITION NO.1 WHETHER THE SYSTEM OF ACCOUNTING FOLLOWED BY THE ASSESSEE IS MERCANTILE SYSTEM, WHICH BRINGS INTO DE BIT THE EXPENDITURE AMOUNT FOR WHICH A LEGAL LIABILITY HAS BEEN INCURRE D BEFORE IT IS ACTUALLY DISBURSED AND BRINGS INTO CREDIT WHAT IS DUE, IMMED IATELY IT BECOMES DUE AND BEFORE IT IS ACTUALLY RECEIVED. OUR FACTS. IT IS MANDATORY FOR US TO FOLLOW MERCANTILE SYSTEM OF ACCOUNTING AND WE DEBIT EXPENDITURE FOR THE AMOUNT OF LEGAL LIABILITY INCURRED BEFORE IT IS ACTUALLY DISBURSED AND ALSO WE CREDIT WHAT IS DUE I MMEDIATELY WHEN IT BECOMES DUE AND BEFORE IT IS ACTUALLY RECEIVED. CONDITION NO. 2. WHETHER THE SAME SYSTEM IS FOLLOWE D Y THE ASSESSEE FROM THE VERY BEGINNING AND IF THERE WAS A CHANGE I N THE SYSTEM, WHETHER THE CHANGE WAS BONA FIDE; OUR FACTS. WE FOLLOW THE ABOVE MERCANTILE SYSTEM OF ACCOUNTING SINCE THE INCEPTION OF OUR COMPANY ON YEAR TO YEAR BASIS AND THERE IS NO CHANGE IN THE SYSTEM EFFECTED DURING THE YEAR UNDER CONSID ERATION. CONDITION NO.3. WHETHER THE ASSESSEE HAS GIVEN THE SAME TREATMENT TO LOSSES CLAIMED TO HAVE ACCRUED AND TO THE GAINS THAT MAY ACCRUE TO IT; IT A NOS.2013 & 2014/AHD/2013 (BY REVENUE). DY.CIT VS. SAL STEEL LTD. CO NOS.6 & 7/AHD/2014 (BY ASSESSEE) ASST.YEARS 2009-10 & 2010-11 - 9 - OUR FACTS. WE HAVE GIVEN THE SAME TREATMENT TO THE LOSSES WHIC H HAVE ACCRUED AND ALSO THE GAINS WHICH HAVE ACCRUED AS OUR INCOME. WE HAVE DEMONSTRATED THIS FACT IN PARAGRAPH 12 & 13 OF LETT ER DATED 23-3-2013 SUPPORTED BY OUR ENCLOSURES MARKED PAGES 62 TO 65, 68 TO 70 AND 71 TO 74 OF THE PAPER BOOK FILED ALONG WITH LETTER DATED 23-3-2013. CONDITION NO. 4. WHETHER THE ASSESSEE AS BEEN CONSISTENT AND DEFINITE IN MAKING ENTRIES IN THE ACCOUNT BOOKS IN RESPECT OF LOSSES AND GAINS. OUR FACTS. WE HAVE BEEN CONSISTENT AND DEFINITE IN MAKING ENTR IES IN THE ACCOUNT BOOKS IN RESPECT OF LOSSES AS WELL AS GAINS WHICH I S ONCE AGAIN DEMONSTRATED VIDE PARAGRAPH 12 & 13 OF OUR LETTER D ATED 23-3-2013 AND PARTICULARLY PAGES 62 TO 65, 68 TO 70 AND 71 TO 74 OF THE PAPER BOOK FILED ALONGWITH LETTER DT.23/3/'13. CONDITION NO. 5. WHETHER THE METHOD ADOPTED BY THE ASSESSEE FOR MAKING ENTRIES IN THE BOOKS BOTH IN RESPECT OF LOSS ES AND GAINS IS AS PER NATIONALLY ACCEPTED ACCOUNTING STANDARDS; OUR FACTS. THE METHOD ADOPTED BY US FOR MAKING ENTRIES IN THE BOOKS BOTH IN RESPECT OF LOSSES AND GAINS IS AS PER NATIONALLY AC CEPTED ACCOUNTING STANDARD VIZ. ACCOUNTING STANDARD-11 ANNOUNCED BY T HE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA. WE HAVE DEMONSTRATE D THIS VIDE PARAGRAPH 7 OF OUR LETTER DATED 23-3-2013 AND PARTI CULARLY PAGES 29 TO 36 FILED ALONGWITH OUR LETTER DATED 23-3-2013. IT A NOS.2013 & 2014/AHD/2013 (BY REVENUE). DY.CIT VS. SAL STEEL LTD. CO NOS.6 & 7/AHD/2014 (BY ASSESSEE) ASST.YEARS 2009-10 & 2010-11 - 10 - CONDITION NO. 6 WHETHER THE SYSTEM ADOPTED BY THE ASSESSEE IS FAIR AND REASONABLY OR IS ADOPTED ONLY WITH A VIEW TO RE DUCING THE INCIDENCE OF TAXATION. OUR FACTS THE SYSTEM ADOPTED BY US IS FAIR AND REASONABLE AND IT IS NOT ONLY WITH A VIEW TO REDUCING THE INCIDENCE OF TAXATION BECAUSE WE HAVE NOT ONLY ACCOUNTED FOR FOREIGN EXCHANGE FLUCTUATION LOSS BUT WE HAVE ALSO ACCOUNTED FOR FOREIGN EXCHANGE GAIN AND RECOGNISED THE SAME AS OUR INCOME ON YEAR TO YEAR BASIS AS MAY BE APPLICABLE. IN THE LIGHT OF THE ABOVE CIRCUMSTANCES AND PARTICU LARLY BECAUSE WE FULFILL CONDITIONS NO.1 TO 6 LAID DOWN BY HON'BLE S UPREME COURT IN THE CASE OF WOODWARD GOVERNORS, CLAIM FOR FOREIGN EXCHA NGE FLUCTUATION LOSS IS CORRECTLY MADE BY US AND THE SAME IS WRONGL Y DISALLOWED BY THE A.O.' 2.3 DECISION: I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE A ND THE SUBMISSION MADE BY AR OF THE APPELLANT. AS PER RATI O LAID DOWN BY HON'BLE SUPREME COURT IN THE CASE OF CIT VS. WOODWA RD GOVERNERS [312 ITR 254], THE APPELLANT WAS ASKED TO SUBMIT AS TO WHETHER THE CONDITIONS STIPULATED THEREIN ARE SATISFIED OR NOT. THE PERUSAL OF SUBMISSION DATED 19/04/2013 INDICATES THAT ALL THE SIX CONDITIONS ARE FULFILLED. THE APPELLANT IS FOLLOWING THIS ACCOUNTI NG PRINCIPLE OVER A PERIOD OF TIME. THIS IS NOT THE NEW ISSUE, THE PRIN CIPLE OF CONSISTENCY REQUIRED TO BE FOLLOWED AS HAS BEEN HELD IN VARIOUS BELOW MENTIONED CASE LAWS: (I) DCIT VS. SULABH INTERNATIONAL SOCIAL SERVICE ORGANISATION [350ITR189(PATNA)] (II) CIT VS. RANGANATHAR & CO. [316 ITR 252 (MAD)] IT A NOS.2013 & 2014/AHD/2013 (BY REVENUE). DY.CIT VS. SAL STEEL LTD. CO NOS.6 & 7/AHD/2014 (BY ASSESSEE) ASST.YEARS 2009-10 & 2010-11 - 11 - (III) GOPAL PUROHIT VS. JT. CIT [334 TTR 308 (SC] IN VIEW OF FACTS OF THE CASE AND CASE LAWS QUOTED A BOVE, THE CLAIM FOR FOREIGN EXCHANGE FLUCTUATION LOSS IS DECIDED TO BE ALLOWABLE. IN VIEW OF THE ABOVE FACTS, THE GROUND OF APPEAL IS ALLOWED. 5. AGGRIEVED BY THE ORDER OF THE CIT(A), THE AO FIL ED AN APPEAL BEFORE THE TRIBUNAL. 6. THE LD.DR FOR THE AO MR.PRASOON KABRA, SUBMITT ED THAT THE FOREIGN EXCHANGE FLUCTUATION LOSS IN DISPUTE IS IN THE NATURE OF NOTIONAL LOSS AND NOT AN ACTUAL LOSS PER SE . HE THEREAFTER SUBMITTED THE LOSS HAS NOT CRYSTALLIZED BECAUSE NO SETTLEMENT OF THE CONTRACT HAS ACTUALLY TAKEN PLACE DURING THE FINANCIAL YEAR RELEVANT TO ASSESSMENT YEAR 2009-10. HE ACCORDINGLY SUBMITTED THAT THE AO WAS JUSTIFIED IN MAKING THE DISALLOWANCE AS PER ASS ESSMENT ORDER. 7. THE LD.AR FOR THE ASSESSEE MR.ANIL R. SHAH, ON T HE OTHER HAND, PLACED RELIANCE ON THE ORDER OF THE CIT(A) AND POIN TED OUT THAT IN THE EARLIER ASSESSMENT YEAR 2007-08, THE ASSESSEE HAD E ARNED INCOME FROM SIMILAR FOREIGN EXCHANGE FLUCTUATION TO THE TUNE OF RS.156.42 LACS WHICH WAS ACCEPTED BY THE REVENUE AS SUCH. IN THIS YEAR, ALTHOUGH THE CONTRACT IN RESPECT OF SOME OF THE LOSSES HAVE NOT EXPIRED, THE LOSS IS ACTUALLY INFLICTED UPON THE ASSESSEE WITH THE EFFLUX OF TIME . HE THEREFORE IT A NOS.2013 & 2014/AHD/2013 (BY REVENUE). DY.CIT VS. SAL STEEL LTD. CO NOS.6 & 7/AHD/2014 (BY ASSESSEE) ASST.YEARS 2009-10 & 2010-11 - 12 - SUBMITTED THAT THE LOSS CLAIMED IS PERFECTLY JUSTIF IED AND NO INTERFERENCE WITH THE ORDER OF THE CIT(A) IS CALLED FOR. 8. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS AND THE ORDERS OF THE AUTHORITIES BELOW. THE AO HAS DISALLOWED FO REIGN EXCHANGE FLUCTUATION LOSS RELATABLE TO CONTRACTS WHICH REMAI NED UNSETTLED AND UNEXPIRED TILL THE END OF THE RELEVANT FINANCIAL YE AR. WE HAVE GONE THROUGH THE ORDER OF THE CIT(A) AND DO NOT FIND ANY ERROR IN THE CONCLUSION THEREON BY THE FIRST APPELLATE AUTHORITY . WE CONCUR WITH THE VIEW TAKEN BY THE CIT(A) PLACING THE RELIANCE UPON THE DECISION IN THE CASE OF CIT VS. WOODWARD GOVERNOR INDIA (P) LTD. (S UPRA) WHICH CLINCHES THE ISSUE. WE ALSO SIMULTANEOUSLY NOTE TH AT GAINS ON THE SIMILAR TRANSACTIONS WERE RETURNED IN THE EARLIER AY 2007-0 8 WHICH HAS BEEN MERRILY ACCEPTED BY THE REVENUE. THEREFORE, THE DE PARTMENT OUGHT NOT TO HAVE TAKEN A DIFFERENT STAND IN SIMILAR CIRCUMST ANCES IN THE SUBSEQUENT YEAR. WHILE MARK TO MARKET (MTM) REFERS TO LOSSE S COMPUTED AS ON A PARTICULAR DATE WITH REFERENCE TO PREVAILING EXCHAN GE RATES IN RESPECT OF CONTRACTS THAT HAVE NOT MATURED AND ARE OPEN CONTRA CTS, SUCH LOSS ARE REQUIRED TO BE TAKEN COGNIZANCE OF. WE CONCUR WITH THE VIEW OF THE CIT(A) THAT THE LOSS INCURRED IS A REAL LOSS AND NO T MERE A NOTIONAL LOSS OF PROVISIONAL NATURE. IN THE ULTIMATE ANALYSIS IN THE CONTEXT, THERE IS NO REVENUE EFFECT AND ONLY CONCERNS THE TIMING OF TAXA TION OF LOSS/PROFIT. ACCORDINGLY, WE DECLINE TO INTERFERE WITH THE ORDER OF THE CIT(A). IT A NOS.2013 & 2014/AHD/2013 (BY REVENUE). DY.CIT VS. SAL STEEL LTD. CO NOS.6 & 7/AHD/2014 (BY ASSESSEE) ASST.YEARS 2009-10 & 2010-11 - 13 - 9. GROUND NO.1 IS THUS DISMISSED. 10. SECOND GROUND OF THE REVENUE APPEAL RELATES TO ADDITION OF RS.42,79,397/- MADE BY THE AO ON ACCOUNT OF THE INT EREST EXPENSES. THE AO NOTICED THAT THE ASSESSEE HAD GIVEN ADVANCE TO C ERTAIN PARTIES; NAMELY MAHAVIR ENTERPRISE AND MAHAVIR ALLOYS FOR RAW-MATER IAL AMOUNTING TO RS.3.5 CRORES AND 35 LAKHS RESPECTIVELY. HOWEVER, IN THE OPINION OF THE AO, THE BUSINESS EXPEDIENCY FOR SUCH ADVANCES HAVE NOT BEEN ESTABLISHED. ACCORDINGLY, HE TREATED THE ADVANCE G IVEN BY THE ASSESSEE AS NON-BUSINESS PURPOSE AND INVOKED THE PROVISIONS OF SECTION 36(1)(III) OF THE ACT. HE ACCORDINGLY WORKED OUT THE DISALLOWANC E ON THE AFORESAID ADVANCES FOR A SUM OF RS.42,79,397/- APPLYING INTER EST @ 12% P.A. THEREON OUT OF INTEREST LOSSES INCURRED. 11. IN THE FIRST APPEAL, THE CIT(A) HOWEVER GRANT ED RELIEF TO THE ASSESSEE ON PERUSAL OF FACTS AS NOTED IN PARAGRAPH NO.3 OF T HE CIT(A)S ORDER. 12. IN THE SECOND APPEAL BEFORE US, THE LD.DR FOR T HE AO, RELIED UPON THE ORDER OF THE REVENUE. 13. THE LD.AR, ON THE OTHER HAND, AT THE OUTSET, RE FERRED TO PAGE NO.14 OF THE PAPER-BOOK AND SUBMITTED THAT INTEREST-FREE FUNDS INCLUDING OWN IT A NOS.2013 & 2014/AHD/2013 (BY REVENUE). DY.CIT VS. SAL STEEL LTD. CO NOS.6 & 7/AHD/2014 (BY ASSESSEE) ASST.YEARS 2009-10 & 2010-11 - 14 - CAPITAL AT THE DISPOSAL OF THE ASSESSEE STANDS AT R S.17583.35 LAKHS. AS AGAINST THIS, INTEREST-FREE ADVANCE IN DISPUTE IS T O THE EXTENT OF RS.385.00 LAKHS. THEREFORE, IT IS SELF-EVIDENT THAT THE ASSE SSEE IS HAVING INTEREST-FREE FUNDS AT ITS DISPOSAL FAR IN EXCESS OF INTEREST-FRE E ADVANCES. THEREFORE, THERE IS NO JUSTIFICATION FOR THE AO TO RESORT TO SECTION 36(1)(III) IN VIEW OF LONG LINE OF PRECEDENTS ON THE ISSUE. 14. ON CAREFUL CONSIDERATION OF THE FACTS, WE DO NO T FIND ANY INFIRMITY IN THE ACTION OF THE CIT(A) IN DELETING THE DISALLO WANCE OF INTEREST. WITH THE ASSISTANCE OF THE LD.AR, WE NOTE THAT THE INTER EST-FREE OWN FUNDS IS FAR MORE IN EXCESS VIS--VIS INTEREST-FREE ADVANCE. IN THESE FACTS, IT IS DIFFICULT TO DRAW PRESUMPTION ADVERSE TO THE ASSESS EE. WE THEREFORE DECLINE TO INTERFERE WITH THE ORDER OF THE CIT(A) I N RESPECT OF GROUND NO.2 AS WELL. ACCORDINGLY, THE APPEAL OF THE REVEN UE IS DISMISSED. ASSESSEES CO NO.6/AHD/2014 FOR AY 2009-10 15. AS MENTIONED EARLIER, THE ASSESSEE HAS ALSO FIL ED MEMORANDUM OF CROSS OBJECTION IN REVENUES APPEAL IN ITA NO.2013/ AHD/2013 FOR AY 2009-10. 15.1. WE NOTE THAT THE GROUNDS RAISED BY THE ASSESS EE ARE MERELY TO SUPPORT IN THE ORDER OF THE CIT(A). IT A NOS.2013 & 2014/AHD/2013 (BY REVENUE). DY.CIT VS. SAL STEEL LTD. CO NOS.6 & 7/AHD/2014 (BY ASSESSEE) ASST.YEARS 2009-10 & 2010-11 - 15 - 16. SINCE THE APPEAL OF THE REVENUE STANDS DISMISSE D, THE CROSS OBJECTION OF THE ASSESSEE IS ALSO RENDERED INFRUCTU OUS AND DOES NOT CALL FOR ANY SPECIFIC ADJUDICATION. RESULTANTLY, THE CR OSS OBJECTION OF THE ASSESSEE IS DISMISSED AS INFRUCTUOUS. ITA NO.2014/AHD/2013 FOR AY 2010-11 REVENUES APP EAL AND CO NO.7/AHD/2014 FOR AY 201011 CROSS OBJEC TION BY ASSESSEE. 17. THE RELEVANT GROUNDS OF APPEAL RAISED BY THE RE VENUE READ AS UNDER:- 1) THE LD.COMMISSIONER OF INCOME-TAX (APPEALS)-XIV, A HMEDABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISAL LOWANCE OF RS.46,26,000/- MADE ON ACCOUNT OF INTEREST EXPENSES . 2) THE LD.COMMISSIONER OF INCOME-TAX (APPEALS)-XIV, AH MEDABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDIT ION OF RS.12,71,143/- MADE ON ACCOUNT OF EMPLOYEES CONTRIB UTION TO PROVIDENT FUND / ESIC. 17.1. LIKEWISE, THE ASSESSEE HAS RAISED FOLLOWING G ROUNDS IN ITS CROSS OBJECTION:- 1. CIT(A) ALSO HAS HELD IN FACTS OF THE CASE AND PROVISION OF LAW INTEREST OF RS.46,26,000/- WAS ALLOWABLE EXPENDITUR E IN COMPUTING THE TOTAL INCOME. YOUR APPELLANT HAD ITS OWN CAPITAL AND INTEREST FEE FUNDS AVAILABLE FOR INTEREST FREE ADVANCE AND THAT THE RESPONDENT HAD P ROVED THE NEXUS BETWEEN INTEREST FREE FUNDS AND LOAN GIVEN WAS FOR BUSINESS PURPOSE AND IT A NOS.2013 & 2014/AHD/2013 (BY REVENUE). DY.CIT VS. SAL STEEL LTD. CO NOS.6 & 7/AHD/2014 (BY ASSESSEE) ASST.YEARS 2009-10 & 2010-11 - 16 - DURING THE COURSE OF BUSINESS AND THEREFORE NO DISA LLOWANCE IS CALLED FOR. 2. CIT(A) HAS RIGHTLY HELD THAT EMPLOYEES CONTRIB UTION TO PF, ESIC, ETC., OF RS.12,71,143/- WAS DEDUCTIBLE AS PER FACTS OF THE CASE AND PROVISION OF LAW AND THEREFORE, THIS GROUND OF APPE AL OF DEPARTMENT BE DISMISSED. 18. GROUND NO.1 IN REVENUES APPEAL IS IDENTICAL TO GROUND NO.2 OF REVENUES APPEAL IN AY 2009-10. FOR THE PARITY OF REASONING, GROUND NO.1 OF REVENUES APPEAL FOR AY 2010-11 IS DISMISSE D. 19. AS REGARDS GROUND NO.2 ASSAILING THE ACTION O F THE CIT(A) IN DELETING THE ADDITION MADE ON ACCOUNT OF EMPLOYEES CONTRIBUTION TO PF/ESIC, WE TAKE A NOTE OF THE FACT THAT THE PAYM ENT ON ACCOUNT OF EMPLOYEES CONTRIBUTION TO PF HAS BEEN ACTUALLY MAD E BEFORE THE DUE DATE OF FILING OF THE ALBEIT WITH SOME DELAY. THE CIT(A) AFTER TAKING NOTE OF THE LEGISLATIVE AMENDMENT AND JUDICIAL PRONOUNCE MENTS ON THE ISSUE ACCEPTED THE PLEA OF THE ASSESSEE AND REVERSED THE DISALLOWANCE MADE BY THE AO. 20. THE RELEVANT OPERATIVE PARA OF THE ORDER OF THE CIT(A) READS AS UNDER:- 3.3 DECISION : I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE A ND THE SUBMISSION MADE BY MADE BY AR OF THE APPELLANT. THE APPELLANT SUBMITTED THAT IT HAD SUFFICIENT INTERNAL NON - INT EREST BEARING FUNDS IT A NOS.2013 & 2014/AHD/2013 (BY REVENUE). DY.CIT VS. SAL STEEL LTD. CO NOS.6 & 7/AHD/2014 (BY ASSESSEE) ASST.YEARS 2009-10 & 2010-11 - 17 - AND THE ADVANCES TO MAHAVIR ALLOYS AND MAHAVIR ENTE RPRISES WERE FOR BUSINESS EXPEDIENCY, HENCE WERE EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. I HAVE PERUSED THE BANK STATEMENTS AND SE E THAT RS.35 LACS ADVANCED TO MAHAVIR ALLOYS ON 15-L-2009 WERE S OURCED OUT OF NON INTEREST BEARING BORROWINGS RECEIVED FROM SHAH ALLOYS LTD. FURTHER; IT IS SEEN THAT RS. 3 CRORE ADVANCED TO MA HAVIR ENTERPRISES ON 28-3-2008 WERE GIVEN OUT OF NON INTE REST BEARING BORROWINGS FROM SHAH ALLOYS LTD. ANOTHER RS.50 LACS ADVANCED TO MAHAVIR ENTERPRISE ON 2-4-2008 ONCE AGAIN SOURCED O UT OF NON INTEREST BEARING BORROWINGS FROM SHAH ALLOYS LTD. T HE RELEVANT EXTRACT FROM THE BANK STATEMENT ARE NOTEWORTHY AND THE SAME FROM BANK ACCOUNT NO. 0091033223 IS AS UNDER: TRANSACTION DATE DESCRIPTION CHEQUE NO. CR/DR TRANSACTION AMOUNT 28/03/2008 TR. TO MAHAVIR ENTERPRISE 336459 DR 1,55,00,000 / - 28/03/2008 TR. FROM SHAH ALLOYS - CR 1,00,00,000 / - 28/03/2008 TR. FROM SHAH ALLOYS - CR. 50,00,000 / - 28/03/2008 TR. TO MAHAVIR ENTERPRISE 336500 DR. 1,45,00,000 / - 28/03/2008 TR. FROM SHAH ALLOYS - CR. 1,00,00,000 / - 28/03/2008 TR. FROM SHAH ALLOYS - CR. 50,00,000/ - 02/04/2008 TR. FROM SHAH ALLOYS - CR. 50,00,000 / - IT A NOS.2013 & 2014/AHD/2013 (BY REVENUE). DY.CIT VS. SAL STEEL LTD. CO NOS.6 & 7/AHD/2014 (BY ASSESSEE) ASST.YEARS 2009-10 & 2010-11 - 18 - 02/04/2008 TR. TO MAHAVIR ENTERPRISE 336504 DR. 50,00,000 / - 15/01/2009 TR. FROM SHAH ALLOYS LTD. - CR. 35,00,000 / - 15/01/2009 TR. TO SHRI MAHAVIR ALLOYS [RTGS ACCOUNT) DR. 35,00,000 / - THE FUNDS RECEIVED FROM SHAH ALLOYS ARE INTEREST F REE AND THE CLAIM OF APPELLANT REMAINS UNCOTROVERTED. IN VI EW OF THESE FACTS, I AM CONVINCED THAT NO INTEREST - BEARING LO ANS ARE USED FOR ADVANCES EITHER TO MAHAVIR ALLOYS OR MAHAVIR ENTERP RISES. IN VIEW OF THIS, THE ARGUMENT OF AO FAILS AS THE NEXUS WHIC H WAS REQUIRED TO BE PROVED BY HIM IS MISSING. ON THE OTHER HAND, THE APPELLANT HAS BEEN INA POSITION TO PROVE DATE WISE INWARD AND OUTWARD ENTRIES THROUGH BANK STATEMENTS, HENCE, PROVED ITS CASE. THEREFORE, I AM IN AGREEMENT WITH THE APPELLANT AND DIRECT THE AO TO DELETE THE DISALLOWANCE. THE GROUND OF APPEAL IS ACCORDING LY ALLOWED. 21. WE FIND THAT THE CIT(A) IS RIGHT IN GRANTING RE LEIEF TO THE ASSESSEE IN AFORESAID TERMS. HENCE, WE DO NOT PROPOSE TO M AKE ANY FURTHER OBSERVATIONS IN THIS REGARD. WE DECLINE TO INTERF ERE WITH THE ORDER OF THE CIT(A). AS A RESULT, GROUND NO.2 OF REVENUES APPEA L IS ALSO DISMISSED. CROSS OBJECTION NO.7/AHD/2014 OF THE ASSESSEE 22. WE SHALL NOW ADVERT TO THE CROSS OBJECTION OF T HE ASSESSEE IN THE AFORESAID REVENUES APPEAL FOR AY 2010-11. IT A NOS.2013 & 2014/AHD/2013 (BY REVENUE). DY.CIT VS. SAL STEEL LTD. CO NOS.6 & 7/AHD/2014 (BY ASSESSEE) ASST.YEARS 2009-10 & 2010-11 - 19 - 22.1. WE NOTE THAT THIS CROSS OBJECTION OF THE ASSE SSEE MERELY SUPPORTS THE ORDER OF THE CIT(A) AND DOES NOT CALL FOR ANY S EPARATE ADJUDICATION. 22.2. SINCE THE REVENUES APPEAL FOR AY 2010-11 IS DISMISSED, THE AFORESAID CROSS OBJECTION FILED BY THE ASSESSEE IS ALSO RENDERED INFRUCTUOUS AND THE SAME IS DISMISSED AS SUCH. 23. IN THE COMBINED RESULT, REVENUES APPEALS AND C ROSS OBJECTIONS FILED BY THE ASSESSEE ARE DISMISSED. THIS ORDER PRONOUNCED IN OPEN COURT ON 18 / 01 /201 7 SD/- SD/- () ( ) (RAJPAL YADAV) ( PRADIP KUMAR KEDIA ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED 18/ 01 /2017 ,..,.../ T.C. NAIR, SR. PS ! ' / COPY OF THE ORDER FORWARDED TO : 1. ./0 / THE APPELLANT 2. 1/0 / THE RESPONDENT. 3. 234' 5' / CONCERNED CIT 4. 5' ( . ) / THE CIT(A)-XIV, AHMEDABAD 5. 678'34 , ..34& , .2 / DR, ITAT, AHMEDABAD 6. 8: / GUARD FILE. / BY ORDER, //TRUE COPY// / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD