ACIT, CHENNAI V. M/s. Nichias Industrial Products Pvt. Ltd., Sriperambudur

ITA 2754/CHNY/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 5595 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 3 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-12-2017
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 02-08-2017
• Assessment Year: 2012-2013
• Appeal Filed On: 23-09-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: N MADHAVAN
• Assessee Lawyers: S LAKSHMINARASIMHAN
• Keywords: Revenue expenditure

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI . , , BEFORE SHRI DUVVURU RL REDDY , JUDICIAL MEMBER AND SHRI S. JAYARAMAN, ACCOUNTANT MEMBER ./ I.T.A. NO. 2754/MDS/2016 / ASSESSMENT YEAR : 2012-13 ASSISTANT COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE -4(2), CHENNAI 600 034. VS. M/S. NICHIAS INDUSTRIAL PRODUCTS PVT. LTD., K 3/2. SIPCOT INDUSTRIAL PARK, PHASE II, MAMBAKAM VILLAGE, SRIPERUMBUDUR TALUK 602 105. [PAN: AACCN 3356M] ( / APPELLANT) ( / RESPONDENT) ' ( / APPELLANT BY : SHRI. N. MADHAVAN ADDL. CIT +,' ( / RESPONDENT BY : SHRI. S. LAKSHMINARASIMHAN, CA ( /DATE OF HEARING : 23.10.2017 ( /DATE OF PRONOUNCEMENT : 27.12.2017 /O R D E R PER S. JAYARAMAN, ACCOUNTANT MEMBER: THE REVENUE FILED THIS APPEAL AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-8, CHENNAI IN ITA NO. 22/20 15-16 DATED 30.06.2016 FOR ASSESSMENT YEAR 2012-13. :-2-: ITA NO. 2754/MDS/2016 2. M/S. NICHIAS INDUSTRIAL PRODUCTS PVT. LTD., THE ASSESSEE, IS CARRYING ON A BUSINESS OF MANUFACTURE AND SALE OF AUTOMOTIVE RELA TED GASKETS. IN THE ASSESSMENT MADE FOR ASSESSMENT YEAR 2012-13, THE AS SESSING OFFICER DISALLOWED RS. 1,38,44,368/- FOREX LOSS ON LOAN ACC OUNT FOR THE REASON THAT FOREX LOSS OF FOREX ACCOUNT HAVE BEEN WRONGLY DEBIT ED IN FOREX TRADING LOSS AND CLAIMED AS DEDUCTION. FURTHER, THE ASSESSING O FFICER ADDED RS. 1,65,43,531/- AS NON-OPERATING INCOME COMPROMISING FOREX LOSS ON LOAN RS. 1,38,44,367/-, THE OPENING BALANCE PROVISIONS RS. 7 ,63,502/- AND FOREZ LOSS ON LOANS WRONGLY TREATED AS FOREX TRADE LOSS RS. 19 ,35,662/-. AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A) AND THE CIT(A) ALLOWED THE APPEAL. 3. AGGRIEVED AGAINST THE CIT(A) ORDER, THE REVENUE FILED THIS APPEAL WITH THE FOLLOWING GROUNDS: 1. THE ORDER OF THE CIT(A) IS CONTRARY TO THE LAW AND FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE CIT(A) ERRED IN DELETING THE DISALLOWANCE OF RS. 1,38,44,368/- ON FOREX LOSS ON LOANS MADE BY THE AO. 2.1 THE CIT(A) ERRED IN NOT APPRECIATING THE FINDIN GS OF THE AO THAT THE ASSESSEE UTILIZED FOREIGN LOAN FOR PURCHASE OF CAPI TAL GOODS, AND HENCE FOREX LOSS ON LOANS IS A CAPITAL LOSS AND NOT LOSS ON TRA DE, HENCE IT IS NOT AN ALLOWABLE REVENUE EXPENDITURE IN THE P&L ACCOUNT. 2.2 HAVING REGARD TO THE HONBLE MADRAS HIGH COURT S DECISION IN THE CASE OF TUBE INVESTMENTS OF INDIA LTD VS JCIT (2014) 45 TAX MANN.COM 78, HONBLE PUNJAB AND HARYANA HIGH COURTS DECISION IN THE CAS E OF ATLAS CYCLE INDUSTRIES LTD. V CIT [2004] 270 ITR 108 (P & H) AND ITAT MUMB AI A SPECIAL BENCHS DECISION IN THE CASE OF POYSHA INDUSTRIAL CO. LTD., VS ITO (1983) 4 ITD 41(BOM) :-3-: ITA NO. 2754/MDS/2016 (SB), WHEREIN IT IS HELD ASSESSEE UTILISED FOREIGN LOAN FOR PURCHASE OF CAPITAL EQUIPMENT, AND HENCE THE LOSS INCURRED ON SAID LOAN DUE TO FLUCTUATION IN FOREIGN EXCHANGE RATE WAS TO BE REGARDED AS CAPITAL IN NATURE WHICH COULD NOT BE ALLOWED AS DEDUCTION, THE CIT(A) OUGHT TO HAVE U PHELD THE DISALLOWANCE ON FOREX LOSS ON LOANS MADE BY THE AO. 2.3 THE CIT(A) FAILED TO APPRECIATE THAT THE ASSESS EE HAS NOT PRODUCED ANY SUPPORTING MATERIAL ON ITS CLAIM THAT THE ENTIRE FO REX LOSS HAS BEEN A RESULT OF TRADING ACTIVITY AND WORKING CAPITAL REPAYMENT OF T HE ASSESSEE BEFORE THE AO AND HENCE THE SAME IS TREATED AS CAPITAL LOSS BY TH E AO. 3. THE CIT(A) ERRED IN ALLOWING THE CLAIM ON PROVIS ION FOR FOREX LSOSES AMOUNTING TO RS. 7,63,502/-. 3.1 THE CIT(A) FAILED TO APPRECIATE THE FACT THAT P ROVISION FOR LOSSES CREATED ON FOREIGN EXCHANGE CONTRACTS AS ON BALANCE SHEET D ATED DOES NOT CONSTITUTE AN ASCERTAINED LIABILITY AND THUS, DEDUCTION COULD NOT BE ALLOWED IN RESPECT OF SAME AS BUSINESS LOSS AS HELD BY THE ITAT, BANGALOR E B BENCH IN THE CASE OF SHANKARA INFRASTRUCTURE MATERIALS LTD. VS ACIT (201 5) 53 TAXMANN.COM 429 4. THE CIT(A) ERRED IN DELETING THE DISALLOWANCE OF RS. 19,35,662/- WITH REGARD TO WRONG POSTING OF ENTRIES MADE BY THE AO. 4.1 THE CIT(A) ERRED IN ALLOWING THE CONTENTION OF THE ASSESSEE THAT FOREX LOSS ON LOANS OF RS. 19,35,662/- HAVE BEEN WRONGLY DEBITED TO EXCHANGE GAIN/LOSSES (IMPORTS) AND HENCE THE SAME IS ALLOWAB LE AS REVENUE EXPENDITURE. 4.2 HAVING REGARD TO THE HONBLE HIGH COURT DECISIO NS AND HONBLE TRIBUNAL DECISIONS REFERRED IN GROUND NO. 2.2, THE CIT(A) OU GHT TO HAVE UPHELD THE DISALLOWANCE OF RS. 19,35,662/- ON FOREX LOSS ON LO ANS MADE BY THE AO. 5. FOR THESE AND OTHER GROUNDS THAT MAY BE ADDUCED AT THE TIME OF HEARING, IT IS PRAYED THAT THE ORDER OF THE LD. CIT (A) MAY BE SET ASIDE AND THAT OF THE ASSESSING OFFICER RESTORED. 4. THE DR CANVASSED THE CASE ON THE LINES OF THE AS SESSMENT ORDER AND ON THE GROUNDS OF APPEAL, SUPRA. PER CONTRA, THE AR SU BMITTED THAT THE REVENUE WRONGLY AVERRED THAT CIT(A) HAD ALLOWED THE CLAIM O N PROVISION FOR FOREX LOSSES AMOUNTING TO RS. 7,63,502. ACTUALLY, RS. 7,6 3,502 IS THE ENTRY RELATING :-4-: ITA NO. 2754/MDS/2016 TO PROVISIONAL PROFIT MADE ON 31-03-2011 I.E. FY 20 10-11 (AY 2011-12). THIS PROVISIONAL PROFIT ENTRY IS REVERSED IN THE BEGINNI NG OF FY 2011-12. THE RELEVANT LEDGER ENTRIES WERE PRODUCED BEFORE THE LE ARNED CIT{A) AND ACCEPTED AS GENUINE ENTRY. THE REVENUE HAS NOT UNDE RSTOOD THE ENTRIES RELATING TO RS. 19,35,662. THE ASSESSEE MAINTAINS S EPARATE LEDGER ACCOUNT RELATING TO (A) PROFIT/LOSS OF FOREX ON TRADE (IMPO RTS AND EXPORTS) AND (B) PROFIT / LOSS RELATING TO FOREIGN CURRENCY LOAN TRA NSACTIONS. HOWEVER, THE APPELLANT HAS NOT APPRECIATED THE FACT THAT BOTH TH ESE LOSSES ARE ACTUAL LOSSES AND NOT PROVISIONAL LOSSES. THE ONLY ERROR OF THE A SSESSEE WITH RESPECT TO RS. 19,35,662 WAS FOREX LOSSES ON LOANS WAS WRONGLY DEB ITED TO FOREX LOSSES ON TRADE (IMPORTS). BUT THE FACT REMAINS THAT THIS AMO UNT OF RS. 19,35,662 IS A GENUINE ACTUAL REVENUE LOSS WHICH HAS BEEN ACTUALLY INCURRED BY THE ASSESSEE. THE COMPLETE DETAILS OF THE BREAK UP OF RS. 19,35,6 62 TOGETHER WITH THE RELEVANT PAGES OF THE BANK STATEMENT WERE SHOWN THE LEARNED CIT(A), DISCUSSED BY HIM IN DETAIL IN THE APPELLATE ORDER. IN THE ENCLOSED TYPESET, A STATEMENT OF ACTUAL AND NOTIONAL EXCHANGE LOSS ON F OREX LOANS IS GIVEN IN PAGES 95 AND 96. OUT OF THIS, THE ITEMS MARKED 124, 121 TOTAL TO ACTUAL LOSS OF RS. 19,35,662 FOR WHICH EVIDENCES IN THE FORM OF (A) BANK DEBIT ADVICE (B) RELEVANT BANK STATEMENT PAGE (C) BOOK ENTRY PASSED IN THE BOOKS OF THE ASSESSEE ARE ENCLOSED IN NUTSHELL, THE ASSESSE HAS FOUR LEDGER ACCOUNTS RELATING TO PROFIT / LOSS ON FOREIGN EXCHANGE. THE BREAK UP OF ALL THE FOUR :-5-: ITA NO. 2754/MDS/2016 KINDS OF PROFIT/LOSSES ARE ENCLOSED IN THE STATEMEN TS HEREWITH. THE SUMMARIZED POSITION IS ACTUAL PROFIT / LOSS ON FOREX (TRADE) (-) 75,70, 776 ACTUAL PROFIT / LOSS ON FOREX (LOANS) (-) 1,54,8 5,150 NOTIONAL PROFIT / LOSS ON FOREX (TRADE) 12,8 1,816 NOTIONAL PROFIT / LOSS ON FOREX (LOANS) (-) 2,89, 011 (-) 2,20,63,121 OPENING BALANCE OF NOTIONAL PROFIT WRITTEN BACK (-) 7,63,502 ERROR IN ACCOUNTING ADMITTED (-) 6,960 TOTAL VALUE SHOWN IN PROFIT & LOSS STATEMENT (-) 2 ,28,33,583 THE AR DRAWN OUR ATTENTION TO THE AUDITED FINANCIAL STATEMENTS OF THE ASSESSEE ENCLOSED IN PAGES 127 TO 139. SCHEDULE 21 IN PAGE NO. 133 SHOWS THE FOREX LOSSES ACCOUNTED BY THE ASSESSEE, TOTALLI NG TO RS. 2,28,33,583. THE NOTIONAL PROFIT OF RS. 9,92,805 (1281816 - 289011) HAS BEEN EARNED, BUT ACTUALLY INCURRED LOSS ON FOREX IS RS. 2,30,55,926. THEREFORE THE QUESTION OF ANY NOTIONAL LOSS BEING DISALLOWED DOES NOT ARISE. THE FULL STATEMENT SHOWING ACTUAL LOSSES AS WELL AS PROOF OF THE SAME IN THE F ORM OF BANK STATEMENTS/ BANK ADVICES AND ENTRIES IN THE BOOKS OF ACCOUNTS O F THE ASSESSEE ARE ENCLOSED IN THE TYPESET AND SUBMITTED THAT THE CIT( A) HAS ON PROPER APPRECIATION ALLOWED THE APPEAL AND THE SAME MAY BE UPHELD. :-6-: ITA NO. 2754/MDS/2016 5. WE HEARD THE RIVAL CONTENTIONS. THE ASSESSING O FFICER HOLDS THAT THE FOREX LOSS ON LOAN ACCOUNT HAS BEEN WRONGLY DEBITED TO FOREX TRADE LOSS AND CLAIMED AS DEDUCTION, ON THE OTHER HAND, THE ASSESS EE CONTENDS THAT THE ENTIRE FOREX LOSS HAS BEEN A RESULT OF TRADING ACTI VITY AND WORKING CAPITAL RE- PAYMENT. IN SUPPORT OF ITS CONTENTION, THE ASSESSE E IS RELYING ON THE BANK SANCTION STATEMENT. WITH REGARD TO THE OTHER ADDITI ON, THE ASSESSEE PLEADS THAT IT HAS MAINTAINED TWO LEDGER ACCOUNTS FOR FORE IGN EXCHANGE TRADE LOSSES AND FOREIGN EXCHANGE LOSSES ON LOAN SEPARATELY AND BY AN ERROR THE FORMER ACCOUNT WAS DEBITED INSTEAD OF THE LATTER ACCOUNT, THOUGH BOTH THE ACCOUNTS ARE ONLY RELATING TO FOREIGN EXCHANGE LOSES ACTUALL Y INCURRED AND THEY WERE SEPARATED FOR ACCOUNTING REASONS I.E., TILL THE FIN ANCIAL YEAR 2010-11 UNDER THE OLD SCHEDULE-VI OF THE COMPANIES ACT, 1956, THE PRO FITS/LOSSES ON FOREIGN EXCHANGE WERE GROUPED TOGETHER UNDER ONE HEADING FO R DISCLOSURE IN THE PROFIT AND LOSS ACCOUNT. THE AMENDMENTS OF SCHEDUL E-VI MANDATED THAT FOREIGN EXCHANGE TRANSACTIONS ON TRADE ACCOUNT AND LOAN ACCOUNTS SHOULD BE DISCLOSED SEPARATELY FROM THE FINANCIAL YEAR 2011-1 2. THESE ERRORS IN POSTING OF ENTRIES INTO THE LEDGER ACCOUNTS OCCURRED WHILE SEPARATING THE ACCOUNTS INTO TWO PARTS AS PER THE NEW SCHEDULE VI. THUS, THE ISSUES ESSENTIALLY INVOLVE VERIFICATION OF FACTS WITH REFERENCE TO THE ACCOUNT S AND OTHER MATERIALS. IN THE FACTS AND CIRCUMSTANCES, WE DEEM IT FIT TO SET ASID E THE ORDER OF THE CIT(A) AND REMIT THE ISSUES BACK TO THE AO FOR FRESH EXAMI NATION AND PASSING A DUE :-7-: ITA NO. 2754/MDS/2016 ORDER IN ACCORDANCE WITH LAW, AFTER AFFORDING ADEQU ATE OPPORTUNITY TO THE ASSESSEE. THE REVENUES APPEAL IS TREATED AS ALLOW ED FOR STATISTICAL PURPOSES. 5. IN THE RESULT, THE REVENUES APPEAL IS TREATED A S ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON WEDNESDAY, THE 27 TH DAY OF DECEMBER, 2017 AT CHENNAI. SD/- ( . ' ) (DUVVURU RL REDDY) $ % /JUDICIAL MEMBER SD/- ( ) (S. JAYARAMAN) % /ACCOUNTANT MEMBER /CHENNAI, 1 /DATED: 27 TH DECEMBER, 2017 JPV ( +34 54 /COPY TO: 1. '/ APPELLANT 2. +,' /RESPONDENT 3. 6 ( )/CIT(A) 4. 6 /CIT 5. 4 + /DR 6. 9 /GF