BONGFIGLIOLI TRANSMISSIONS Pvt. Ltd., CHENNAI V. DCIT, CHENNAI

ITA 2997/CHNY/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 7657 (ITAT-CHENNAI)
• Duration Of Justice: 3 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-02-2017
• Appeal Filed By: Assessee
• Bench Allotted: C
• Assessment Year: 2011-2012
• Appeal Filed On: 24-10-2016
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH
• Assessee Lawyers: N SUNDAR; V PADMANABAN

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH: CHENNAI . . . , !'. . # $ % , ' () BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI D.S.SUNDER SINGH, ACCOUNTANT MEMBER ./ ITA NO.2997/MDS/2016 * +* /ASSESSMENT YEAR: 2011-12 M/S.BONFIGLIOLI TRANSMISSIONS PVT. LTD., PLOT AC7-AC11, SIDCO INDUSTRIAL ESTATE, THIRUMUDIVAKKAM, CHENNAI-600 044. [PAN: AABCB 1675 N] VS. DY. COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE-1(2), NUNGAMBAKKAM, CHENNAI-34 ( ,- /APPELLANT) ( ./,- /RESPONDENT) ,- 0 1 / APPELLANT BY : MR.N.SUNDAR, CA & MR.V.PADMANABAN, CA ./,- 0 1 /RESPONDENT BY : MR.A.V.SREEKANTH, JCIT # 0 2' /DATE OF HEARING : 12.01.2017 34+ 0 2' /DATE OF PRONOUNCEMENT : 22.02.2017 / O R D E R PER D.S.SUNDER SINGH, ACCOUNTANT MEMBER : THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER DATED 02.08.2016 OF COMMISSIONER OF INCOME TAX (APPEALS)- 1, CHENNAI, IN ITA NO.64/CIT(A)-1/2015-16 FOR THE AY 2011-12. 2.0 ALL THE GROUNDS OF THE APPEAL ARE RELATED TO THE D ISALLOWANCE OF 1,65,31,232/- RELATING TO FOREIGN EXCHANGE LOSS. T HE ASSESSEE FILED ITA NO.2997/MDS/2016 :- 2 -: RETURN OF INCOME DECLARING TOTAL INCOME OF 14,78,460/- AND THE ASSESSMENT WAS COMPLETED U/S.143(3) R/W SEC.92CA OF INCOME TAX ACT (IN SHORT THE ACT), ON TOTAL INCOME OF 1,80,09,692/- THE ASSESSING OFFICER (HEREINAFTER REFERRED TO AS AO) DISALLOWE D THE FOREIGN EXCHANGE LOSS STATING THAT THE PROVISION FOR LOSS/GAIN CREAT ED ON ACCOUNT OF RE- STATEMENT OF LIABILITY IS NOT ALLOWABLE BUSINESS LO SS. THE ASSESSE WENT ON APPEAL BEFORE THE LEARNED COMMISSIONER OF INCOME TA X (APPEALS) (HEREINAFTER REFERRED TO AS LD.CIT(A)) AND THE LD .CIT(A) CONFIRMED THE ADDITION MADE BY THE AO. FOR THE SAKE OF CONVIENIEN CE THE RELEVANT PARAGRAPH OF THE LD.CIT(A) IN PARA NOS.8 & 9 ARE EX TRACTED HEREUNDER: 8. IN THE CASE OF THE APPELLANT WHICH IS IN THE BUS INESS OF MANUFACTURING AND ASSEMBLING OF GEAR MOTORS AND GEAR BOXES. THE FOREX LOSS CLAIMED IS ON ACCOUNT OF ECB AND RESTATEMENT OF THE GAIN OR LOSS AT THE END OF THEYEAR IN TERMS OF THE PLEA THAT IT IS IN COMPLIANCE OF ACCOUNTING STANDARD (AS-11). IT IS THE APPELLANTS CASE THAT IT HAS BEEN REVERSING THE PROVISION CREATED BOTH ON REVENUE FIELD AS WELL AS CAPITAL FIELD MADE IN THE PRECEDING PREVIOUS YEAR, ON THE BEGINNING OF THE RELEVANT PRE VIOUS YEAR. THAT IT HAS EITHER INCURRED FOREX LOSS OR EARNED FOREX GAIN AS THE CASE MAY BE, DUE TO RESTATEMENT OF THE FOREIGN CURRENCY LIABILITY /CURRENT ASSET IN THE EARLIER YE ARS AND CLAIMED THE FOREX LOSS OR EXPENDITURE OR OFFERED IT AS INCOME AS THE CASE MAY BE DURING THOSE YEARS CONSISTENTLY. 9. BE THAT AS IT MAY, THE BORROWING THEREFORE WOULD BE IN THE NATURE OF A NON-INTEGRAL FOREIGN OPERATION IN VIEW OF THE AFORESAID. THE APP ELLANT COULD HAVE MOBILIZED ITS OWN FUNDS OR AVAILED SUCH FUNDS FROM ANY OTHER SOURCE. HAVING HELD SUCH THE LOSS OR GAINS FROM THE CHANGE IN CURRENCY RATE HAS TO BE CREDITED TO A RES ERVE ACCOUNT AND WOULD ONLY BE ELIGIBLE FOR DEDUCTION AS AN EXPENSE ON SETTLEMENT THEREOF. SUCH HAS BEEN THE VIEW HELD BY THE ITAT HYDERABAD BENCH IN M/S.M+W ZANDER (S) PTE LTD V. ADIT IN ITA NO.2095/HYD/2011 ORDER DATED 03.08.2012. ON THE FACTS OF THAT CASE, I T WAS FOUND THAT THE LOAN OBTAINED BY THE BRANCH WHICH WAS INDEPENDENTLY CONDUCTING ITS B USINESS ACTIVITIES FROM THE HEAD OFFICE WAS A NON-INTEGRAL FOREIGN OPERATION. THE FLUCTUATI ON IN THE RATE OF EXCHANGE CANNOT HAVE ITS INTEGRAL OPERATION. THE ENTIRE TRANSACTION IS N ON-INTEGRAL IN NATURE AND HENCE THE SAME IS TO BE TREATED AS PER PARA 24 OF AS-11. THE FLUCT UATIONS IN THE RATE OF EXCHANGE ON THE QUANTUM OF LOAN WOULD NOT AFFECT THE DAY TO DAY WOR KING OR THE PROFIT OF GIVEN YEAR. IT WOULD AFFECT ONLY ON RE-PAYMENT AT THE TIME OF SETT LEMENT. HENCE, THE GAIN OR LOSS IS TO BE ACCUMULATED IN THE RESERVE ACCOUNT UNTIL THE DATE O F SETTLEMENT WHEREUPON IT CAN BE CREDITED OR DEBITED IN THE P & L A/C. THE HONBLE T RIBUNAL WHILE ADJUDICATING IN THE MATTER HAD ALSO TAKEN INTO CONSIDERATION THE RELIANCE PLAC ED BY THE ASSESSEE ON THE RATIOS OF CIT V. DEMPO & CO. P LTD 206 ITR 291 (BOM.) AND CIT V. WOO DWARD GOVERNOR INDIA P LTD 312 ITR 254). HENCE, THE LOSS CLAIMED IS TO BE CARRIED FORW ARD IN THE FOREIGN CURRENCY TRANSLATION RESERVE ACCOUNT AND SQUARED UP AT THE TIME OF SETTL EMENT. IT WOULD SUFFICE TO SAY THAT THE CLAIM MADE BY THE APPELLANT CANNOT BE ALLOWED TILL THE TIME OF SETTLEMENT AND ACCORDINGLY THE DISALLOWANCE MADE BY THE AO IS CONFIRMED. THIS GROUND OF APPEAL IS DISMISSED. ITA NO.2997/MDS/2016 :- 3 -: 3.0 AGGRIEVED BY THE ORDER OF THE LD.CIT(A) THE ASSESS EE FILED APPEAL BEFORE US. THE LEARNED AUTHORIZED REPRESENTATIVE (H EREINAFTER REFERRED TO AS LD.AR) APPEARING FOR THE ASSESSEE ARGUED THAT BOTH THE LD.CIT(A) AND THE AO MISS-UNDERSTOOD THE FOREIGN EXCHANGE LOSS IN CURRED BY THE ASSESSE. THE LOWER AUTHORITIES WERE OF THE OPINION THAT THE RE-INSTATEMENT OF FOREIGN EXCHANGE LOSS WAS DUE TO THE EXTERNAL CO MMERCIAL BORROWINGS (IN SHORT ECB) BUT THE ASSESSEE HAS NEVER AVAILED THE ECB LOAN IN THE PAST AND IN THE PREVIOUS YEAR RELEVANT O THE AY UND ER CONSIDERATION. THE CASE LAW RELIED ON THE BY THE LD.CIT(A) RELATING TO HONBLE ITAT HYDERABAD BENCH IN M/S.M+W ZANDER(S) (P) LTD., VS. ADIT IN ITA NO.2095/HYD/2011 HAS NO APPLICATION IN THIS CASE. THE ASSESSEE IS REGULARLY RESTATED THE FOREIGN CURRENCY ASSET OR LI ABILITY AND ADMITTING THE INCOME OR LOSS IN THE RELEVANT AY AS PER THE SYSTEM OF ACCOUNT FOLLOWED BY THE ASSESSE. THE ASSESSE HAS ADMITTED NET GAIN OF 4,40,75,896/- DUE TO REINSTATEMENT OF FOREIGN EXCHANGE. ACCORDING TO TH E LD.AR, THE LOSS CLAIMED BY THE ASSESSE IN RE-INSTATEMENT OF FOREIGN EXCHANGE WAS AS PER THE ACCOUNT STANDARD-11 AND CONSISTENTLY FOLLOWED A ND ALLOWABLE DEDUCTION. ON THE OTHER HAND, THE LEARNED DEPARTME NTAL REPRESENTATIVE (HEREINAFTER REFERRED TO AS LD.DR) ARGUED THAT TH E SUBMISSIONS MADE BY THE LD.AR ARE NOT EMANATING FROM THE ORDERS OF THE LOWER AUTHORITIES. THE ASSESSE STATED THAT THE ASSESSEE HAS NOT TAKEN THE ECB LOAN AND REGULARLY ADMITTING THE INCOME OR LOSS ON FOREIGN CURRENCY AS SET OR LIABILITY IN THE RETURN OF INCOME. THESE FACTS NEED FURTHER VERIFIC ATION AND THE CASE SHOULD BE GO BACK TO THE AO FOR FURTHER VERIFICATIO N. ITA NO.2997/MDS/2016 :- 4 -: 4.0 WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MAT ERIAL PLACED ON RECORD. THE LD.CIT(A) DISMISSED THE APPEAL ON THE PREMISE THAT THE ASSESSEE HAD INCURRED FOREIGN EXCHANGE LOSS ON ACCO UNT OF ECB LOAN AND APPLIED THE DECISION OF CO-ORDINATE BENCH OF ITAT H YDERABAD IN ITA NO.2095/HYD/2011 AND HELD THAT THE CLAIM MADE BY T HE APPELLANT CANNOT BE ALLOWED TILL THE TIME OF SETTLEMENT OF THE ECB L OAN. AS PER THE FINANCIAL STATEMENT SUBMITTED BY THE ASSESSEE, THERE WAS NO E CB LOAN IN THE BALANCE SHEET WHICH FACT WAS NOT CONTROVERTED BY TH E LD.DR. AS PER THE TRADING AND P&L A/C, THE ASSESSE HAS DEBITED FOREIG N EXCHANGE LOSS OF 4.77 LAKHS AND A SUM OF RS. TO 1,65,31,250/- WAS THE DISALLOWANCE MADE BY AO. IN THE PAPER BOOK, THE ASSESSEE HAS FUR NISHED THE LEDGER COPIES OF FOREIGN CURRENCY (GAIN/LOSS) FOR THE PERI OD FROM 2008 TO 2013 SHOWING THE LOSS OR GAIN ON REINSTATEMENT OF FOREIG N EXCHANGE AND THERE WAS NO ECB LOAN. THE DETAILS FURNISHED BY THE ASSE SSE AND THE FACTS REGARDING THE RE-STATEMENT OF FOREIGN EXCHANGE LOSS REQUIRED FURTHER VERIFICATION AT THE END OF THE FILE OF THE AO. THE REFORE, WE SET-ASIDE THE ORDERS OF THE LOWER AUTHORITIES AND REMIT THE MATTE R BACK TO THE AO TO EXAMINE THE ISSUE AFRESH IN THE LIGHT OF THE DISCUS SION MADE IN THIS ORDER AND DECIDE AFRESH ON MERITS. ITA NO.2997/MDS/2016 :- 5 -: 5.0 IN THE RESULT, THE APPEAL OF THE ASSESSE IS ALLOWED FOR STATISTICAL PURPOSES . ORDER PRONOUNCED IN THE OPEN COURT ON 22 ND FEBRUARY, 2017, AT CHENNAI. SD/- SD/- ( . . . ) (N.R.S. GANESAN) /JUDICIAL MEMBER ( !' . . # $ % ) (D.S.SUNDER SINGH) ' /ACCOUNTANT MEMBER /CHENNAI, 5 /DATED: 22 ND FEBRUARY, 2017. TLN 0 .2$6 76+2 /COPY TO: 1. ,- /APPELLANT 4. # 82 /CIT 2. ./ ,- /RESPONDENT 5. 69 .2 /DR 3. # 82 ( ) /CIT(A) 6. '* < /GF