Seoyon Ehwa Automotive India Pvt Ltd (Formerly known as Hanil Automotive India Pvt Ltd), Kancheepuram V. DCIT , CHENNAI

ITA 258/CHNY/2018

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 5985 (ITAT-CHENNAI)
• Duration Of Justice: 11 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-01-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2012-2013
• Appeal Filed On: 22-01-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SAILENDRA MAMIDI PRL
• Assessee Lawyers: V S JAYAKUMAR
• Section: 143(3)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH: CHENNAI , ! '!# $ , % & BEFORE SHRI GEORGE MATHAN, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER ! ./ ITA NO.258/CHNY/2018 ' /ASSESSMENT YEAR: 2012-13 M/S. SEOYON E-HWA AUTOMOTIVE PVT. LTD., (FORMERLY KNOWN AS HANIL AUTOMOTIVE INDIA PVT. LTD.), PLOT NO.A8, SIPCOT INDUSTRIAL PARK, IRUNGATTUKOTTAI, SRIPERUMBUDUR TK, KANCHIPURAM DIST., TAMIL NADU 602 117. VS. THE DY. COMMISSIONER OF INCOME TAX, COMPANY CIRCLE-2(2), CHENNAI-600 034. [PAN:AAGCS 4350J] ( ( /APPELLANT) ( )*( /RESPONDENT) ( + , / APPELLANT BY : SHRI V.S.JAYAKUMAR, ADVOCATE )*( + , /RESPONDENT BY : SHRI SAILENDRA MAMIDI, PRL. CIT - + .% /DATE OF HEARING : 01.01.2019 /0' + .% /DATE OF PRONOUNCEMENT : 07.01.2019 1 / O R D E R PER INTURI RAMA RAO, ACCOUNTANT MEMBER : THIS IS AN APPEAL FILED BY THE ASSESSEE DIRECTED AG AINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-15, CHENNAI ( CIT(A) FOR SHORT) DATED 31.10.2017 FOR THE ASSESSMENT YEAR (AY) 2012-13. 2. THE ASSESSEE RAISED THE FOLLOWING GROUNDS OF APP EAL: 1. HONORABLE COMMISSIONER OF INCOME TAX (APPEALS) F AILED TO NOTICE THAT THE APPELLANT WAS FOLLOWING MERCANTILE BASIS OF ACCOUNTING AND LOSS ON CONVERSION OF FOREIGN EXCHAN GE HAD TO BE ITA NO.258/CHNY/2018 (AY 2012-13) M/S. SEOYON EHWA AUTOMOTIVE PVT. LTD. :- 2 -: CONSIDERED UNDER ACCOUNTING STANDARD AS 11 WHICH WA S MANDATORILY TO BE FOLLOWED. 2. HONORABLE COMMISSIONER OF INCOME TAX (APPEALS) F AILED TO APPLY THE REFERRED JUDGEMENT PROPERLY, AND WAS WRONG TO H AVE DISMISSED THE SUBMISSION THAT LOSS ON FOREIGN EXCHANGE CONVER SION BE CONSIDERED UNDER SECTION 37. 3. THE ASSESSING OFFICER FAILED TO NOTICE THAT THE ACCOUNTING PRACTICE CONSISTENTLY FOLLOWED BY THE APPELLANT ALL THESE YE ARS. 4. THE ASSESSING OFFICER FAILED TO CONSIDER THAT SE CTION 43A FOR CAPITALISATION OF LOSS ON CONVERSION OF FOREIGN EXC HANGE APPLIED ONLY TO THE EXTENT OF PAYMENT MADE AND THE BALANCE TO BE CONSIDERED AS LOSS INCURRED IN THE COURSE OF BUSINE SS. 5. THE ASSESSING OFFICER FAILED TO NOTE THAT THE LO SS ON EXCHANGE HAS NO IMPACT ON COST OF ASSET, AND IT WAS ONLY A FINAN CIAL COMMITMENT. 6. ON THE ABOVE GROUNDS AND ON SUCH OTHER GROUNDS T HAT MAY BE ADVANCED AT THE TIME OF APPEAL THE DISALLOWANCES MA DE BE ALLOWED AS DEDUCTION. 3. THE BRIEF FACTS OF THE CASE ARE AS UNDER: THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING OF AUTOMOTIVE PLASTIC COMPONENTS. THE RETURN OF IN COME FOR THE AY 2012-13 WAS FILED ELECTRONICALLY ON 29.11.2012 DISCLOSING A TOTAL INCOME OF RS.86,49,236/- AGAINST THE SAID RETURN OF INCOME, T HE ASSESSMENT WAS COMPLETED BY THE DY. CIT, CORPORATE CIRCLE-2(2), CH ENNAI VIDE ORDER DATED 30.03.2016 PASSED U/S. 143(3) R/W. S. 92CA(3) OF TH E INCOME TAX ACT, 1961 (FOR SHORT THE ACT) AT A TOTAL INCOME OF RS. 84,3 8,71,960/-, WHILE DOING SO, THE AO DISALLOWED A SUM OF RS. 18,70,15,080/- INVOKING TO PROVISION OF S. 40(A)(I) OF THE ACT ON THE GROUND THAT THE APPELLANT HAD NOT DEDUCTED THE TAX AT SOURCE ON THE PAYMENTS MADE TO NON-RESIDENT FOREIGN COMPAN Y. THE AO ALSO DISALLOWED THE UNREALIZED LOSS ON FOREIGN LOANS AS BORROWED THE CAPITAL ITEMS ITA NO.258/CHNY/2018 (AY 2012-13) M/S. SEOYON EHWA AUTOMOTIVE PVT. LTD. :- 3 -: ON THE GROUND THAT THE FOREIGN EXCHANGE FLUCTUATION WAS NOT MATERIALIZED AND IT CAN BE CAPITALIZED ONLY IN THE YEAR OF ACTUAL PAYME NT OF THE LOAN AS PER PROVISION S. 43A OF THE ACT. 4. BEING AGGRIEVED, AN APPEAL WAS PREFERRED BEFORE THE LD.CIT(A) VIDE IMPUGNED ORDER CONFIRMED THE ACTION OF THE ASSESSIN G OFFICER (AO). THE ONLY ISSUE INVOLVED IN THE PRESENT APPEAL IS WHETHER THE ASSESSEE IS ENTITLED DEDUCTION IN RESPECT OF THE LOSS INCURRED ON ACCOUN T OF RESTATEMENT OF FOREIGN CURRENCY LOANS ON ACCOUNT OF FLUCTUATION IN THE RAT E OF EXCHANGE ON THE BALANCE SHEET DATA, NOTWITHSTANDING THE FACT THAT THE ACTUA L PAYMENT HAS NOT BEEN MADE. PRIOR TO THE AMENDMENT OF S. 43A OF THE ACT W.E.F. 01.04.2003 AND THE ASSESSEE IS ENTITLED TO ADJUST ACTUAL COST OF THE I MPORTED ASSETS ACQUIRED IN FOREIGN CURRENCY ON FLUCTUATION IN RATE OF EXCHANGE ON EACH BALANCE SHEET AS HELD BY HONBLE SUPREME COURT IN THE CASE OF CIT VS. WOODWARD GOVERNOR INDIA (P.) LTD. 179 TAXMAN 326 (SC) AND IN THE CASE OF OIL AND NATURAL GAS CORPORATION LTD. V. CIT 189 TAXMAN 292 . HOWEVER, THE PROVISION OF S. 43A OF THE ACT HAVE BEEN AMENDED TO PROVIDE THAT THE SUCH ADJUSTMENT IS POSSIBLE ONLY IN THE EVENT OF ACTUAL REPAYMENT OF THE FOREIG N CURRENCY LOAN. THERE IS NO DISPUTE THAT THERE IS NO ACTUAL PAYMENT OF LOAN. H OWEVER, THIS PRINCIPLE OF LAW CANNOT BE APPLIED TO THE ITEMS OF REVENUE NATURE. FROM THE PERUSAL OF THE ORDER OF THE ASSESSMENT ORDER, IT IS CLEAR THAT THE AO HAD APPLIED THE PROVISION OF S. 43A OF THE ACT WITHOUT LOOKING WHETHER FOREIG N CURRENCY LOANS /TRANSACTION ARE IN THE NATURE OF CAPITAL OR REVENUE. THEREFORE , WE REMIT THE MATTER BACK TO THE FILE OF AO TO VERIFY THE UNREALIZED FOREIGN EXC HANGE LOSS IN RESPECT OF ITA NO.258/CHNY/2018 (AY 2012-13) M/S. SEOYON EHWA AUTOMOTIVE PVT. LTD. :- 4 -: CAPITAL OR REVENUE OR NEW ITEMS AND TO ALLOW THE LO SS ATTRIBUTED TO THE REVENUE ITEMS AS A DEDUCTION. 6. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THE 07 TH DAY OF JANUARY, 2019 IN CHENNAI. SD/- SD/- ( ) (GEORGE MATHAN) /JUDICIAL MEMBER ( '!# $ ) (INTURI RAMA RAO) % /ACC OUNTANT MEMBER /CHENNAI, 2! /DATED: 07 TH JANUARY, 2019. EDN, SR. P.S 1 + ).34 54'. /COPY TO: 1. ( /APPELLANT 4. - 6. /CIT 2. )*( /RESPONDENT 5. 4 78 ). /DR 3. - 6. ( )/CIT(A) 6. 89 : /GF