Deep Industries Ltd., Ahmedabad V. The Dy. CIT, Circle-1(1)(2), Ahmedabad

ITA 2910/AHD/2017

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 9058 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-01-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 01-04-2020
• Assessment Year: 2014-2015
• Appeal Filed On: 26-12-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Rule of consistency; Revenue expenditure; Capital expenditure; Set aside
• Section: 143(3); 12A; 64; 37

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL , B BENCH, AHMEDABAD (CONDUCTED THROUGH VIRTUAL COURT AT AHMEDABAD) BEFORE SHRI MAHAVIR PRASAD, JUDICIAL MEMBER AND SHRI WASEEM AHMED , ACCOUNTANT MEMBER ./ ITA NO. 2910/AHD/2017 / ASSTT. YEAR: 2014 - 2015 DEEP INDUSTRIES LTD. , 12A & 14 , ABHISHREE CORPORATE PARK, AMBLI BOPAL ROAD , AMBLI, AHMEDABAD - 380058 . PAN : AAACD6915E VS. D .C.I.T , CIRCLE - 1(1) (2) , AHMEDABAD . (APPLICANT) ( RESPON D ENT ) ASSESSEE BY : SHRI SAKAR SHARMA , A.R REVENUE BY : SHRI VIRENDRA SINGH , SR .D. R / DATE OF HEARING : 03 / 12 / 2020 / DATE OF PRONOUNCEMENT: 04 / 01/2021 / O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER: THE CAPTIONED APPEAL HAS BEEN FILED AT THE INSTANCE OF THE ASSESSEE A GAINST THE ORDER OF THE LEARNED COMM ISSIONER OF INCOME TAX (APPEALS) - 1 , AHMEDABAD , DATED 18/10/2017 ARISING IN THE MATTER OF ASSESSMENT ORDER DATED 21/12/2016 PASSED UNDER S. 143(3) OF THE INCOME TAX ACT, 1961 ( HERE - IN - AFTER REFERRED TO AS 'THE ACT') RELEVANT TO THE ASSESSMENT YEAR 2014 - 20 15 . ITA NO.2910/AHD/2017 ASSTT. YEAR 2014 - 1 5 2 2. THE ONLY ISSUE RAISED BY THE A SSESSEE IS THAT THE LEARNED CIT(A) ERRED IN CONFIRMING THE ADDITION MADE BY THE AO FOR 6 4 , 16 , 539 / - UNDER SECTION 37( 1 ) OF THE ACT IN RESPECT OF FORWARD CONTRACT PREMIUM EXPENSES. 3. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE IN THE PRESENT CASE IS A LI MITED COMPANY AND ENGAGED IN THE BUSINESS OF GAS & AIR COMPRESSION ACTIVITIES. THE ASSESSEE IN THE YEAR UNDER CONSIDERATION HAS INCURRED AN EXPENSE OF 64 , 16 , 539.00 ON THE FORWARD CONTRACTS TO HEDGE THE INSTALMENTS OF TWO FOREIGN CURRENCY LOAN IN ORDER TO AVOID ANY LOSS ON ACCOUNT OF FOREIGN CURRENCY FLUCTUATION. IT WAS CONTENDED THAT T HE FOREIGN CURRENCY LOANS WERE OBTAINED BY TH E ASSESSEE TO ACQUIRE EQUIPMENT WHICH WERE USED FOR THE PURPOSE OF THE BUSINESS. 3.1 HOWEVER, THE AO DURING THE ASSESSMENT PROCEEDINGS FOUND THAT I. THE PREMIUM AMOUNT OF FORWARD CONTRACT DOES NOT REPRESENT FOREIGN EXCHANGE FLUCTUATION LOSS BUT IT IS IN THE NATURE OF THE PREMIUM PAID TO SECURE THE FOREIGN CURRENCY LOSS WHICH MAY ARISE AT THE TIME OF REPAYMENT OF INSTALMENT OF SUCH LOAN. AS SUCH THE AMO UNT OF REPAYMENT REPRESENTS THE PRINCIPAL AMOUNT OF THE LOAN AND NOT THE INTEREST COST ON SUCH BORROWING. II. FURTHERMORE, THE FOREIGN CURRENCY LOAN OBT AINED BY THE ASSESSEE WAS UTILIZ ED FOR MEETING THE CAPITAL EXPENDITURE. III. THE ACCOUNTING STANDARDS ISSUED B Y THE ICAI, AS - 11 THE EFFECTS OF CHANGES IN FOREIGN EXCHANGE RATES , MAY BE RELEVANT AND MANDATORY FOR MAINTAINING THE BOOKS OF ACCOUNTS UNDER THE COMPANIES ACT. BUT THE SAME IS NOT RELEVANT WHILE COMPUTING THE INCOME FOR THE PURPOSE OF THE TAXES. ITA NO.2910/AHD/2017 ASSTT. YEAR 2014 - 1 5 3 3.2 IN VIEW OF THE ABOVE THE AO WAS OF THE VIEW THAT SUCH AMOUNT OF PREMIUM PAID BY THE ASSESSEE TO SECURE THE AMOUNT OF INSTALMENT, REPRESENTING THE PRINCIPAL AMOUNT, OF THE FOREIGN CUR RENCY LOAN CANNOT BE ALLOWED AS DEDUCTION. THUS THE AO DISALLOWED THE SAME AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 4. AGGRIEVED ASSESSEE PREFERRED AN APPEAL TO THE LEARNED CIT (A). 4. 1 THE ASSESSEE BEFORE THE LEARNED CIT (A) SUBMITTED THAT IT HA S BEEN INCURRING THE EXPENSES ON THE FORWARD CONTRACTS FOR SECURING THE FOREIGN CURRENCY TRANSACTION CONSISTENTLY AS PER THE ACCOUNTING POLICY. 5. HOWEVER THE LEARNED CIT (A) REJECTED THE CONTENTION OF THE ASSESSEE AND CONFIRMED THE ORDER OF THE AO AFTER HAVING RELIANCE ON THE ORDER OF BANGALORE TRIBUNAL IN THE CASE OF ARCHIDPLY INDUSTRIAL LTD. VS DCIT IN ITA NO. 1079/BANG/2011 VIDE ORDER DATED 17 - 7 - 2012 . 6. BEING AGGRIEVED BY THE ORDER OF THE LEARNED CIT (A), THE ASSESSEE IS IN APPEAL BEFORE US. 7 . THE LEARNED AR BEFORE US FILED A PAPER BOOK RUNNING FROM PAGES 1 TO 49 AND SUBMITTED THAT THE PROVISIONS OF SECTION 43A OF THE ACT DOES NOT APPLY PREMIUM PAID BY THE ASSESSEE TO SECURE THE PAYMENT OF THE LIABILITY IN FOREIGN CURRENCY ON ACCOUNT OF EXCHANGE FLUCTUATION. 7 .1 THE LEARNED AR FURTHER SUB MITTED THAT THE SIMILAR CLAIM WAS ALLOWED BY THE REVENUE IN THE OWN CASE OF THE ASSESSEE IN THE EARLIER ASSESSMENT YEARS. 8 . ON THE OTHER HAND THE LD. DR VEHEMENTLY SUPPORTED THE ORDER OF THE AUTHORITIES BELOW . ITA NO.2910/AHD/2017 ASSTT. YEAR 2014 - 1 5 4 9 . WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIALS ON RECORD. THE PROVISIONS OF SECTION 43A OF THE ACT DEALS WITH THE ADJUSTMENT OF THE FLUCTUATION IN THE LIABILITY OF FOREIGN CURRENCY PERTAINING TO THE CAPITAL ASSETS ACQUIRED FROM OUTSIDE INDIA. THIS ADJUSTMENT ON ACCOUNT OF CHANGE IN THE RATE OF EXCHANGE IS MADE WITH RESPECT TO THE AMOUNT/LIABILITY ACTUALLY PAID DURING THE YEAR BY ADDING/DEDUCTING IN THE ACTUAL COST OF IMPORTE D ASSETS ACQUIRED IN FOREIGN CURRENCY. THIS ADJUSTMENT IN THE LIABILITY OF FOREIGN CURRENCY MAY RESULT LOSS OR GAIN TO THE ASSESSEE BUT THE SAME NEEDS TO BE ADJUSTED WITH THE CAPITAL ASSETS AS PER THE PROVISIONS OF SECTION 43A OF THE ACT. IN OTHER WORDS, S UCH LOSS ARISING TO THE ASSESSEE, IS NOT DEDUCTIBLE IN THE PROFIT & LOSS ACCOUNT. 9 .1 PROCEEDINGS FURTHER, WE FIND THAT THE ASSESSEE IN THE PRESENT CASE HAS SECURED SUCH LOSS WITH RESPECT TO THE LIABILITY IN FOREIGN CURRENCY WHICH MAY ARISE AT THE TIME OF PAYMENT BY WAY OF TAKING OF FORWARD CONTRACT. THE ASSESSEE TO SECURE THE LOSS ON ACCOUNT OF FOREIGN CURRENCY FLUCTUATION HAS TAKEN A FORWARD CONTRACT AND FOR WHICH IT HAS PAID THE PREMIUM WHICH WAS CLAIMED AS REVENUE EXPENDITURE. NOW THE QUESTION ARISES W HETHER SUCH PREMIUM PAID BY THE ASSESSEE TO SECURE THE FLUCTUATION IN THE FOREIGN CURRENCY IS SUBJECT MATTER OF THE PROVISIONS OF SECTION 43A OF THE ACT. IN OUR CONSIDERED VIEW THE PROVISIONS OF SECTION 43A OF THE ACT DEALS WITH THE LOSS/GAIN WITH RESPECT TO THE LIABILITY IN FOREIGN CURRENCY FOR THE ASSETS ACQUIRED FROM A COUNTRY OUTSIDE INDIA. IN OTHER WORDS, IT DOES NOT DEAL WITH RESPECT TO THE COST INCURRED BY THE ASSESSEE TO SECURE THE LOSS WHICH MAY ARISE AT THE TIME OF REPAYMENT ON ACCOUNT OF FLUCTUAT ION IN THE EXCHANGE RATE WITH RESPECT TO FOREIGN CURRENCY LIABILITY WHICH WAS RECORDED IN THE BOOKS OF THE ASSESSEE IN INDIAN CURRENCY. THUS ONCE THE PROVISIONS OF SECTION 43A OF THE ACT ARE NOT APPLICABLE ON THE DEDUCTION CLAIMED BY THE ASSESSEE IN THE GI VEN FACTS AND CIRCUMSTANCES, THERE CANNOT BE ANY DISALLOWANCE BY INVOKING THE PROVISIONS OF SECTION 43A OF THE ACT. 9.2 IT IS A VERY COMMON PRACTICE TO TAKE THE INSURANCE POLICIES FOR THE BUSINES S ASSETS BY THE BUSINESS ORGANIZ ATION TO PROVIDE SAFETY/SAF EGUARD FROM ANY UNSEEN LOSS. SUCH INSURANCE POLICIES ARE TAKEN FOR VARIOUS PURPOSES SUCH AS TO ENSURE THE ITA NO.2910/AHD/2017 ASSTT. YEAR 2014 - 1 5 5 ASSETS, STAFF OF THE ASSESSEE ETC WHICH DOES NOT RESULT ANY FIXED ASSETS COMING INTO EXISTENCE. FURTHERMORE SUCH INSURANCE POLICIES ARE TAKEN IN THE C OURSE AND FOR THE PURPOSE OF THE BUSINESS WHICH ARE ACCORDINGLY ALLOWABLE AS DEDUCTION UNDER SECTION 37 ( 1 ) OF THE ACT. NOW COMING TO THE CASE ON HAND, THE ASSESSEE INCURRED THE COST TO SECURE THE FOREIGN CURRENCY LIABILITY AGAINST THE EXCHANGE FLUCTUATION IS AKIN TO INSURANCE POLICIES. THEREFORE WE ARE OF THE VIEW THAT SUCH EXPENSES INCURRED BY THE AS SESSEE IN THE COURSE OF BUSINESS ARE ALLOWABL E AS DEDUCTION UNDER SECTION 37( 1 ) OF THE ACT. 9 .2 WE ALSO NOTE THAT THE ASSESSEE HAS CLAIMED SIMILAR EXPENSES IN T HE EARLIER YEARS WHICH WAS ALLOWED BY THE R EVENUE . A CCORDINGLY , WE ARE OF THE VIEW THAT THE ASSESSEE IS ALSO ENTITLED FOR ITS CLAIM BASED ON THE PRINCIPLE OF CONSISTENCY. 9 .3 ACCORDINGLY, WE ARE NOT IMPRESSED THE FINDING OF THE AUTHORITIES BELOW. FURTHERMORE, THE CASE LAW REFERRED BY THE LD. CIT - A IS DISTINGUISHABLE FROM THE FACTS OF THE PRESENT CASE IN TERMS O F THE REASONING, THE DECISION IN THE PRESENT CASE IS RENDERED. THUS WE SET ASIDE THE FINDING OF THE LEARNED CIT (A) AND DIRECT THE AO TO D EL ETE THE ADDITION MADE BY HIM. HENCE THE GROUNDS OF APPEAL OF THE ASSESSEE IS ALLOWED. 10 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. O RDER PRONOUNCED IN THE COURT ON 04 /01 / 2021 AT AHMEDABAD. SD/ - SD/ - (MAHAVIR PRASAD ) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER (TRUE COPY) A HMEDABAD; DATED 04 / 01/2021 M ANISH