M/s. National Buildings Construction Corporation Ltd., New Delhi V. ACIT, New Delhi

ITA 3179/DEL/2016

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 7075 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 10 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-04-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 01-06-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P V GUPTA
• Keywords: Capital asset; Business expenditure; Bad and doubtful debts; Difference of opinion; Change of opinion; Reassessment proceedings
• Section: 250; 147; 148; 28

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL, DELHI BENCH A, NEW DELHI BEFORE : SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI L.P. SAHU, ACCOUNTANT MEMBER ITA NO.3179/DEL/2016 ASSESSMENT YEAR: 2008-09 NATIONAL BUILDING CONSTRUCTION CORPORATION LTD., NBCC HOUSE, LODHI ROAD, NEW DELHI(PAN- AAACN3053B) (APPELLANT) VS. ACIT, CIRCLE 13(1), NEW DELHI (RESPONDENT) APPELLANT BY SH. VED JAIN, ADVOCATE RESPONDENT BY SH. P.V. GUPTA, SR. DR ORDER PER L.P. SAHU, A.M.: THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER DATED 22.03.2016 OF LD. CIT(A)-20, NEW DELHI FOR THE ASSESSMENT YEAR 2008-09 ON THE FOLLOWING GROUNDS : 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ORDER PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) [CIT(A)] IS BAD BOTH IN THE EYES OF LAW AND ON FACTS. 2(I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, T HE LEARNED CIT(A) HAS ERRED BOTH ON FACTS AND IN LAW IN CONFIRMING THE OR DER OF THE AO REJECTING THE CONTENTION OF THE ASSESSEE THAT REOPENING THE ASSES SMENT UNDER SECTION 147 OF THE ACT, WITHOUT COMPLYING WITH THE STATUTORY CO NDITIONS AND THE PROCEDURE PRESCRIBED UNDER THE LAW, IS BAD AND LIAB LE TO BE QUASHED. DATE OF HEARING 25.04.2019 DATE OF PRONOUNCEMENT 30.04.2019 ITA NO. 3179/DEL/2016 2 (II). ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS ERRED BOTH ON FACTS AND IN LAW IN CONFIRMING THE OR DER OF THE AO REJECTING THE CONTENTION OF THE ASSESSEE THAT THE REASON RECORDED FOR REOPENING OF THE ASSESSMENT ARE BAD IN LAW, AND AS SUCH THE REOPENIN G OF THE ASSESSMENT IS ILLEGAL AND LIABLE TO BE QUASHED. 3(I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, T HE REASSESSMENT PROCEEDINGS INITIATED BY THE AO AND UPHELD BY THE L EARNED CIT(A) ARE BAD IN THE EYES OF LAW, AS THE REASONS RECORDED FOR THE IS SUE OF NOTICE UNDER SECTION 148 ARE BASED MERELY ON CHANGE OF OPINION. (II) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, T HE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN UPHOLDING THE REASSESS MENT PROCEEDINGS, DESPITE THE FACT THAT THERE HAS BEEN NO OMISSION ON THE PAR T OF THE ASSESSEE IN DISCLOSING FULLY AND TRULY ALL MATERIAL FACTS NECES SARY FOR THE ASSESSMENT. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, LEAR NED CIT(A) HAS ERRED, BOTH ON FACTS AND IN LAW IN UPHOLDING THE REASSESSM ENT ORDER, DESPITE THE FACT THAT IN THE ABSENCE OF ISSUANCE OF NOTICE UNDER SEC TION 143(2) OF THE ACT, THE REASSESSMENT PROCEEDINGS SHOULD BE HELD AS VOID AB INITIO AND THE REASSESSMENT ORDER OUGHT TO HAVE BEEN QUASHED. 5. (I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS ERRED, BOTH ON FACTS AND IN LAW IN CONFIRMING THE D ISALLOWANCE OF FOREIGN EXCHANGE LOSS OF RS.480.31 LACS. (II) THAT THE LEARNED CIT(A) HAS ERRED, BOTH ON FACTS AND IN LAW IN CONFIRMING THE ABOVE DISALLOWANCE MADE BY THE AO BY INVOKING THE PROVISIONS OF SECTION 43A DESPITE THE FACT THAT THE SAID SECTION IS NOT APPLICABLE TO THE FACTS IN ASSESSEES CASE. 6. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS FURTHER ERRED, BOTH ON FACTS AND IN LAW, IN CONFIRM ING THE ABOVE ADDITION BY REFERRING TO THE PROVISIONS OF SECTION 36 OF THE AC T, DESPITE THE FACT THAT THE BAD DEBTS HAVING BEEN ALLOWED BY THE AO, AND THE EX CHANGE RATE FLUCTUATION BEING A PART OF THE BAD DEBTS, THE SAME COULD NOT H AVE BEEN DISALLOWED. ITA NO. 3179/DEL/2016 3 2. GROUND NO. 1 IS GENERAL IN NATURE AND BY WAY OF GROUND NOS. 2 TO 4, THE ASSESSEE HAS CHALLENGED THE VALIDITY OF PROCEEDING INITIATED WITHOUT PROPER ASSUMPTION OF JURISDICTION U/S. 147, ON THE PREMISE OF (I) REASSESSMENT ORDER HAVING BEEN PASSED WITHOUT FOLLOWING THE STATUTORY CONDITIONS OF SECTION 147; (II) THE REASONS RECORDED BEING BAD IN LAW; (III) RE-ASS ESSMENT HAVING BEEN MADE ON CHANGE OF OPINION WITHOUT POINTING OUT THE FAILURE OF ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR ASSESSEE AND (IV) ABSENCE OF ISSUANCE OF NOTICE U/S. 143(2) BEFORE COMPLETING THE ASSESSMENT . DURING THE COURSE OF HEARING, THE LD. COUNSEL FOR THE ASSESSEE DID NOT M AKE ANY ARGUMENTS ON THE AFORESAID LEGAL ASPECTS OF THE CASE, AS CHALLENGED IN THE GROUNDS OF APPEAL. WE, THEREFORE, DO NOT FIND ANY MERITS IN ABOVE GROUNDS NOS. 2 TO 4 OF APPEAL. 3. ADVERTING TO THE MERIT OF ADDITION, WE FIND THA T THE ASSESSEE HAS CHALLENGED THE CONFIRMATION OF DISALLOWANCE OF FOREIGN EXCHANG E LOSS OF RS.480.31 LACS. IN THIS RESPECT THE LD. COUNSEL FOR THE ASSESSEE HAS F ILED A WRITTEN SYNOPSIS WHICH READS AS UNDER : MERIT 20. DURING THE YEAR UNDER CONSIDERATION, ASSESSEE H AD WRITTEN OFF DEBTORS TO THE TUNE OF RS. 4,417.08 LAKHS WHICH INCLUDED RS . 4,110.43 LAKHS ON ACCOUNT OF FOREIGN SUNDRY DEBTORS OF LIBYAN AND IRAQI PROJE CTS. THE GOVERNMENT OF LIBYA AND IRAQ WERE CUSTOMERS OF THE ASSESSEE COMPA NY AND THE INCOME EARNED ON ACCOUNT OF THESE PROJECTS HAD BEEN BOOKED IN THE PAST YEARS AND ALREADY OFFERED TO TAX. 21. THE AMOUNT OF RS. 4110.43 LAKHS WAS DUE FROM SUC H SUNDRY DEBTORS BUT COULD NOT BE RECOVERED DUE TO WAR AND DUE TO THE US SANCTIONS, ACCORDINGLY, THE SAME WERE WRITTEN OFF ON 31.03.2008 AFTER OBTAI NING APPROVAL OF THE BOARD OF DIRECTORS. THE FOREIGN CURRENCY LOSS OF RS. 480.31 LAKHS AROSE BECAUSE OF REVALUATION OF THE SUNDRY DEBTORS WHICH WERE WRITTEN OFF ON ITA NO. 3179/DEL/2016 4 31.03.2008. THE REVALUATION WAS MADE IN ACCORDANCE W ITH AS-11 WHICH THE ASSESSEE HAS BEEN CONSISTENTLY FOLLOWING. 22. LD. AO MADE THE ADDITION ALLEGING THAT THE FORE IGN CURRENCY FLUCTUATION LOSS SUFFERED BY THE ASSESSEE MERELY ON REVALUATION AND NOT DUE TO ACTUAL TRANSACTION IS NOT ADMISSIBLE AS DEDUCTION. THIS HAS BEEN DISCUSSED IN PARA 6.3 PAGE 6 OF THE ASSESSMENT ORDER. 23. AGGRIEVED BY THE ORDER OF ID. AO, ASSESSEE PRE FERRED AN APPEAL BEFORE ID. CIT(A). HOWEVER, THE APPEAL OF THE ASSESSEE WAS DISMISSED. 24. IN THIS REGARD, IT IS SUBMITTED THAT A SIMILAR ADDITION WAS MADE U/S 147 IN THE IMMEDIATELY PRECEDING YEAR I.E. AY 2007-08 I N THE CASE OF THE ASSESSEE. THE SAID ADDITION WAS DELETED BY THE HONBLE ITAT VID E ITS ORDER DATED 31.10.2017 IN ITA NO 4846/DEL/2014. RELEVANT EXTRAC T OF THE JUDGMENT IS AS UNDER: 10. IN RESPECT OF FOREIGN EXCHANGE FLUCTUATION LOS S, THE ASSESSEE HAS DEBITED ? 4235.48 LACS AS A FOREIGN EXCHANGE FLUCTU ATION LOSS ON YEAR TO YEAR BASIS AS PER ACCOUNTING POLICY FOLLOWED BY THE CORPORATION. THE FOREIGN EXCHANGE LOSSES WERE IN RESPECT OF FOREIGN CONSTRUCTION PROJECTS UNDERTAKEN BY THE ASSESSEE WHICH WERE RECOVERABLE F ROM THE CUSTOMERS AT THE YEAR END AS ON 31.03.2007. THIS AMOUNT WHICH WAS TO BE RECEIVED IN FOREIGN CURRENCY IS REQUIRED TO BE REIN STATED IN INDIAN CURRENCY AS ON THE DATE OF BALANCE SHEET IN TERMS O F ACCOUNTING STANDARD ISSUED BY ICAI. THEREFORE, THERE WAS LOSS O N THE BALANCE SHEET WHICH HAS BEEN DEBITED BY THE ASSESSEE INTO PROFIT AND LOSS ACCOUNT. THESE ASPECTS WERE EXAMINED BY THE ASSESSING OFFICER DURING THE COURSE OF ORIGINAL ASSESSMENT PROCEEDINGS U/S. 143(3). THE ASSESSEE HAD FURNISHED ITS REPLY IN TERMS OF QUESTIONNAIRE AT SL . NO. 28 DATED 18.09.2009. THE ASSESSEE HAD SUBMITTED REPLY WHICH I S PLACED AT PAPER BOOK PAGE 80 TO 82 ALONG WITH ANNEXURE-17. ALL THE DETAILS WERE FILED BY THE ASSESSEE IN THE REASSESSMENT PROCEEDINGS AS WELL AS BEFORE THE ID. CIT(A). IN THE ORIGINAL ASSESSMENT PROCEEDINGS, THIS ISSUE HAS ALREADY BEEN EXAMINED BY THE ASSESSING OFFICER. THER EFORE, THE SAME SHOULD NOT BE DISALLOWED AGAIN ON REASSESSMENT PROC EEDINGS. THE ASSESSEE HAS BEEN ADOPTING SAME METHOD OF ACCOUNTIN G WITH RESPECT TO FOREIGN EXCHANGE FLUCTUATION GAIN/LOSSES AND THIS M ETHOD WAS ACCEPTED ITA NO. 3179/DEL/2016 5 BY THE ASSESSING OFFICER IN THE ORIGINAL ASSESSMENT PROCEEDINGS AND THEREFORE, THE ID. ASSESSING OFFICER WAS NOT JUSTIF IED TO CHANGE ITS VIEW ON THE NATURE OF ACCOUNTING ON THE SAME SET OF FACT S AND CIRCUMSTANCES OF THE CASE IN THE REASSESSMENT PROCEEDINGS. THERE I S NO ADVERSE FINDING FROM THE REVENUE SIDE ABOUT THE CORRECTNESS OR COMP LETENESS OF THE ACCOUNTS OF THE ASSESSEE. THE PROFITS AND GAINS OF B USINESS ARE ADMITTEDLY COMPUTED IN ACCORDANCE WITH THE GENERALL Y ACCEPTED ACCOUNTING PRACTICE AND GUIDELINES NOTIFIED. THE ASS ESSEE HAD INTER ALIA APPLIED AS 11 DEALING WITH EFFECTS OF THE CHANGES I N THE EXCHANGE RATE TO RECORD THE LOSSES INCURRED OWING TO FLUCTUATION IN THE FOREIGN EXCHANGE. AS 11 ENJOINS REPORTING OF MONETARY ITEMS DENOMINATED IN FOREIGN CURRENCY USING THE CLOSING RATE AT THE END OF THE ACCOUNTING YEAR. IT ALSO REQUIRES THAT ANY DIFFERENCE, LOSS OR GAIN, ARISING FROM SUCH CONVERSION OF THE LIABILITY AT THE CLOSING RATE SHO ULD BE RECOGNIZED IN THE PROFIT AND LOSS ACCOUNT FOR THE REPORTING PERIO D. SIMILARLY, CBDT NOTIFICATION ON INCOME COMPUTATION AND DISCLOSURE S TANDARDS ALSO, INTER ALIA, DEALS WITH RECOGNITION OF EXCHANGE DIFF ERENCES. THE NOTIFICATION ALSO SETS OUT THAT THE EXCHANGE DIFFER ENCE ARISING ON FOREIGN CURRENCY TRANSACTIONS HAVE TO BE RECOGNIZED AS INCOME OR BUSINESS EXPENSES IN THE PERIOD IN WHICH THEY ARISE SUBJECT TO EXCEPTION AS SET OUT IN SECTION 43A OF THE ACT OR RULE 115 OF THE INCOME-TAX RULES, 1962, AS THE CASE MAY BE. IN VIEW OF THE VARIOUS PR OVISIONS OF THE COMPANIES ACT AND THE IT ACT, IT WAS MANDATORY TO DR AW ACCOUNTS AS PER AS-11. THUS, THE LOSS RECOGNIZED ON ACCOUNT OF F OREIGN EXCHANGE FLUCTUATION AS PER NOTIFIED AS 11 IS AN ACCRUED AND SUBSISTING LIABILITY AND NOT MERELY A CONTINGENT OR A HYPOTHETICAL LIABI LITY. WE ACCORDINGLY OBSERVE THAT THE AO IS NOT JUSTIFIED TO DISALLOW TH E FOREIGN EXCHANGE FLUCTUATION LOSS IN THE INSTANT CASE. AS A RESULT, THE APPEAL OF THE ASSESSEE DESERVES TO BE PARTLY ALLOWED. 25. FURTHER, IT IS NOT THE CASE OF ID. AO OR ID. CI T(A) THAT THE FOREIGN EXCHANGE LOSS IS ON ACCOUNT OF PURCHASE OF CAPITAL ASSET. THE ID. AO AS WELL AS ID. CIT(A) HAS ACCEPTED THAT THE TRANSACTION PERTAIN S TO SALE OPERATIONS AND IS ON ACCOUNT OF REVALUATION OF DEBTORS. ACCORDINGLY, SECTION 43A IS ALSO NOT INVOKED. IN FACT, ID. CIT(A) HAS CLEARLY HELD AT PAR A 6.3.2 PAGE 17 OF ITS ORDER U/S 250 THAT SECTION 43A OF THE ACT IS NOT APPLICAB LE, ACCORDINGLY, NO ADDITION CAN BE MADE ON SUCH COUNT. ITA NO. 3179/DEL/2016 6 26. FURTHER, ID. CIT(A) HAS SUSTAINED THE ADDITION U /S 36(2) OF THE ACT. LD. CIT(A) HAS STATED THAT THE AMOUNT TO BE WRITTEN OFF AS BAD DEBT HAS TO BE FIRST TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE ASSESSEE OF THAT PREVIOUS YEAR OR ANY EARLIER PREVIOUS YEARS AND ONL Y THEN THE SAME CAN BE CLAIMED AS BAD DEBT. 27. THEREAFTER, ID. CIT(A) HELD THAT THE AMOUNT TAK EN INTO ACCOUNT WHILE COMPUTING THE INCOME OF RELEVANT PREVIOUS YEARS IS THE AMOUNT WRITTEN OFF AS BAD DEBT TO THE TUNE OF RS. 4110.43 LAKHS MINUS THE EXCHANGE RATE FLUCTUATIONS. THEREAFTER, ID. CIT(A) HELD THAT THE IM PACT OF EXCHANGE RATE FLUCTUATION INCLUDED IN 4110.43 LAKHS SHOULD BE SUB TRACTED AND DISALLOWED U/S 36(2) OF THE ACT. THIS HAS BEEN DISCUSSED AT PAR A 6.3.3 AT PAGE NO. 20 OF ITS ORDER. 28. IN THIS REGARD, IT IS SUBMITTED THAT ID. CIT(A) ERRED IN INVOKING THE PROVISION SECTION 36(2) OF THE ACT AND IN HOLDING T HAT THE INCOME IS NOT OFFERED TO TAX BEFORE. YOUR HONOR, THE EXCHANGE LOS S BOOKED ON ACCOUNT OF REVALUATION OF DEBTORS NATURALLY REDUCED THE CARRYI NG VALUE OF THE DEBTORS AND DID NOT INCREASE THE SAME. ACCORDINGLY, THE REV ALUED DEBTORS TO THE TUNE OF RS. 4110.43 LAKHS WHICH WERE WRITTEN OFF WERE AL READY OFFERED TO TAX BEFORE. 29. HAD THE ASSESSEE NOT RECOGNIZED FOR THE FLUCTUA TION LOSS IN ACCORDANCE WITH AS-11, THE TOTAL DEBTORS THAT WOULD HAVE BEEN WRITTEN OFF WOULD BE THE ORIGINAL CARRYING VALUE OF RS. 4,590.74 LAKHS (4,11 0.43 LAKHS + 480.31 LAKHS) WHICH IS THE AMOUNT THAT HAS BEEN OFFERED TO TAX. 30. FURTHER, IT IS NOT OUT OF PLACE TO MENTION THA T EVEN IN A CASE WHERE THERE IS A FLUCTUATION GAIN WHICH LEADS TO THE INCR EASE IN CARRYING VALUE OF DEBTOR, THE ENTIRE AMOUNT WOULD STILL BE ELIGIBLE T O BE CLAIMED AS BAD DEBTS AS THE FLUCTUATION GAIN IS ALSO OFFERED TO TAX AND ACC ORDINGLY THE ANY DEDUCTION CLAIMED ON ACCOUNT OF BAD DEBT IN RESPECT OF THE IN CREASED CARRYING VALUE IS NOT HIT BY SECTION 36(2) OF THE ACT. 24. IN VIEW OF THE ABOVE, IT IS PRAYED BEFORE YOUR HONOR THAT THE ADDITION MADE BE DELETED SINCE THE SAME IS BAD BOTH ON LAW A ND ON FACTS. ITA NO. 3179/DEL/2016 7 4. ON THE OTHER HAND, THE LD. DR RELIED ON THE ORDE RS OF THE AUTHORITIES BELOW AND URGED FOR THEIR SUSTENANCE. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HAV E GONE THROUGH THE ENTIRE MATERIAL ON RECORD AND WE FIND THAT THE ISSU E UNDER CONSIDERATION IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE D ECISION OF THE CO-ORDINATE BENCH IN THE CASE OF ASSESSEE ITSELF FOR IMMEDIATEL Y PRECEDING ASSESSMENT YEAR 2007-08 DATED 31.10.2017 IN ITA NO 4846/DEL/2014 . THE RELEVANT PORTION OF WHICH IS QUOTED BY THE LD. AR IN HIS WRITTEN SUBMIS SIONS. SINCE THERE IS NO CHANGE IN THE FACTS AND CIRCUMSTANCES, RESPECTFULLY FOLLOW ING THE ABOVE DECISION OF CO- ORDINATE BENCH, WE ARE NOT INCLINED IN SUPPORT THE CONCLUSION REACHED BY THE LD. CIT(A) ON THIS SCORE. ACCORDINGLY, THE IMPUGNED ADD ITION DESERVES TO BE DELETED. THE APPEAL OF THE ASSESSEE, THEREFORE, DESERVES TO BE ALLOWED ON MERITS OF ADDITION. 6. IN THE RESULT, THE APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH APRIL, 2019. SD/- SD/- (BHAVNESH SAINI) (L.P. SAHU) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 30.04.2019 *AKS*