TCS Textiles P. Ltd., Tiruppur V. DCIT, Tiruppur

ITA 456/CHNY/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 8076 (ITAT-CHENNAI)
• Duration Of Justice: 10 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-01-2017
• Appeal Filed By: Assessee
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 02-03-2016
• Court: TRIBUNAL
• Department Lawyers: SHIVA SRINIVAS
• Assessee Lawyers: S SWAMINATHANC A
• Keywords: Reopening of assessment; Capital asset; Reason to believe
• Section: 147

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : CHENNAI , ! ' . #$ % &' BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY , JUDICIAL MEMBER ./ I.T.A.NO.456/MDS./2016 / ASSESSMENT YEAR : 2008-09 M/S.TCS TEXTILES P. LTD ., NOW KNOWN AS GAJAANANDA JEWELLERY MAART P. LTD., 68, COLLEGE ROAD, TIRUPUR 641 602. VS. THE DCIT, CIRCLE-1, TIRUPUR. [PAN AABCT 7921 K ] ( () / APPELLANT) ( *+() /RESPONDENT) / APPELLANT BY : SHRI S.SWAMINATHAN,C.A /RESPONDENT BY : SHRI SHIVA SRINIVAS, JCIT D.R / DATE OF HEARING : 14 - 12 - 2016 / DATE OF PRONOUNCEMENT : 25 - 01 - 2017 , / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-3,COIMBAT ORE DATED 15.12.2015 PERTAINING TO ASSESSMENT YEAR 2008-08. 2. THE FIRST GROUND IN THIS APPEAL IS WITH REGARD TO REOPENING OF ASSESSMENT. ITA NO.456/16 :- 2 -: 3. THE FACTS OF THE ISSUE ARE THAT IN THIS CASE TH E ORIGINAL ASSESSMENT WAS COMPLETED U/S.143(3) OF THE ACT ON 3 1.12.2013. SUBSEQUENTLY, IT WAS FOUND BY THE AO THAT FOR THE F INANCIAL YEAR 2007- 08 RELEVANT TO ASSESSMENT YEAR 2008-09. THE ASSESS EE HAS CLAIMED ` 1,94,93,000/- AS EXCHANGE FLUCTUATION OF FOREIGN E XCHANGE LOSS. THE ASSESSEE HAS REINSTATED THE WIND MILL TERM LOAN LIA BILITY AS ON THE BALANCE SHEET DATE AND THE NOTIONAL LOSS IS CLAIMED AS EXPENDITURE UNDER THE HEAD EXCHANGES FLUCTUATION ON FOREX LOAN . AS PER THE INSTRUCTION IN 3/2010 OF THE CBDT DATED 23.03.2010, ANY SUCH LOSS BEING A NOTIONAL LOSS THA HAD BEEN NOT INCLUDED DUR ING THE CURRENT YEAR, THE SAME IS NOT ALLOWABLE U/S.37 OF THE ACT. THE RELEVANT PORTION OF THE INSTRUCTION IS REPRODUCED BELOW:- WHEN COMPANIES MADE SUCH AN ADJUSTMENT THROUGH THE IR TRADING OR PROFIT/LOSS ACCOUNT, THEY BOOK A CORRESPONDING LOSS I.E. (THE DIFFERENCE BETWEEN THE PURCHASE PRICE AND THE VALUE AS ON THE VALUATION DATE) IN THEIR ACCOUNTS. THIS LOSS IS A NOTIONAL LOSS AS NO SALE /CONCLUSION/SETTLEMENT OF CONTRACT HAS TAKEN P LACE AND THE ASSET CONTINUES TO BE OWNED BY THE COMPANY. IN CASE WHERE NO SALE OR SETTLEMENT HAS ACTUALLY TA KEN PLACE AND THE LOSS AS MARKED TO MARKET BASIS HAS RESULTED IN REDUCTION OF BOOK PROFIT, SUCH NOTIONAL LOSS WOULD BE CONTINGENT IN N ATURE AND CANNOT BE ALLOWED TO BE SET OFF AGAINST THE TAXABLE INCOME . THE SAME SHOULD THEREFORE BE ADDED BACK FOR THE PURPOSE OF C OMPUTING THE TAXABLE INCOME OF ASSESSEE. HENCE, THERE WAS REASON TO BELIEVE THAT THERE WAS F AILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY AL L MATERIAL FACTS ITA NO.456/16 :- 3 -: NECESSARY FOR THE ASSESSMENT FOR THE RELEVANT TO A SSESSMENT YEAR AND THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSES SMENT WITHIN THE MEANING OF SEC 147 FOR THE PERIOD RELEVANT TO T HE ASSESSMENT YEAR 2008-09. CONSEQUENTLY, NOTICE U/S.148 WAS ISSUED TO THE ASSE SSEE ON 28.03.2013 AND SERVED ON 02.04.2013. IN RESPONSE T O IT, THE ASSESSEE FILED REPLY O 30.04.2013 REQUESTING TO TRE AT THE RETURN FILED ON 27.04.2013 AS IN COMPLIANCE TO THE NOTICE U/S.14 8. SUBSEQUENTLY, THE CASE WAS TAKEN UP FOR SCRUTINY AN D NOTICE U/S.143(2) WAS ISSUED ON 18.08.2014. HENCE, THE AO DISALLOWED THE CLAIM OF THE ASSESSEE FOR THE REINSTATEMENT LOSS OF ` 2,54,94,330/-. AGGRIEVED, THE ASSESSEE CARRIED THE APPEAL BEFORE THE LD.CIT(A). ON APPEAL, LD.CIT( A) OBSERVED THAT REOPENING IS VALID IN LAW. AGAINST THIS THE ASSESSE E IS IN APPEAL BEFORE US. ONCE AGAIN, THE ASSESSEE CHALLENGED THE REOPENI NG OF ASSESSMENT BEFORE US. 4. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. ACCORDING TO LD.A.R, THE REASON FOR REOPENI NG OF ASSESSMENT IS ONLY DUE TO CBDT INSTRUCTION IN 3/10 DATED 23.03.20 10 AND CBDT CIRCULAR CANNOT CONSTITUTE AS VALID REASON FOR REOP ENING OF ASSESSMENT . ON THE OTHER HAND, LD.D.R SUBMITTED THAT THE AO F OUND THAT THERE IS EXCESS CLAIM OF LOSS TOWARDS FOREIGN EXCHANGE FLUCT UATION ON FOREX LOAN, SUBSEQUENT TO THE ASSESSMENT FOR ASSESSMENT YEAR 2009-10 AND ITA NO.456/16 :- 4 -: ON THAT BASIS, HE REOPENED THE PRESENT ASSESSMENT AND FOR THAT PURPOSE, HE MENTIONED THAT CBDT INSTRUCTION CITED S UPRA IS ALSO SUPPORTED THE VIEW OF THE AO. IN OUR OPINION, THE AO FOUND THAT THE ASSESSEE HAS CLAIMED EXCESS LOSS IN RESPECT OF EXCH ANGE FLUCTUATION ON FOREIGN LOAN AND THIS CANNOT BE ALLOWED AS AN REVEN UE EXPENDITURE. HENCE, HE REOPENED THE ASSESSMENT. FURTHER, MERE PR ODUCTION OF BOOKS OF ACCOUNTS OR OTHER EVIDENCES FROM WHICH MAT ERIAL EVIDENCE COULD WITH DUE DILIGENCE HAVE BEEN DISCOVERED BY TH E AO WILL NOT NECESSARILY AMOUNT TO DISCLOSURE OF FULLY AND TRULY ALL MATERIAL FACTS BY THE ASSESSEE. MORE SO, LD.A.R IS NOT ABLE TO SHOW T HAT WHAT KIND OF MATERIAL HE HAS SUPPLIED TO THE AO AT THE TIME OF O RIGINAL ASSESSMENT, WHICH WAS COMPLETED U/S.143(3) OF THE ACT OR ANY OT HER QUERIES RAISED BY THE AO ON THIS ISSUE. BEING SO, WE ARE NOT IN A GREEMENT WITH THE ARGUMENT OF THE LD.A.R. ACCORDINGLY, WE HOLD THAT T HERE IS A REASON TO BELIEVE THAT THE INCOME ESCAPED FROM THE ASSESSMENT WHILE ISSUING NOTICE U/S.148 OF THE ACT BY THE AO. ACCORDINGLY, W E UPHOLD THE REOPENING OF ASSESSMENT FOR THIS ASSESSMENT YEAR. 5. THE NEXT ISSUE RAISED BY THE ASSESSEE IS WITH R EGARD TO DISALLOWANCE OF FOREIGN EXCHANGE FLUCTUATION ARISIN G ON REINSTATEMENT OF FOREIGN CURRENCY LOAN AT A YEAR END AND EXCHANGE FLUCTUATION LOSS ARISING ON ACTUAL REPAYMENT OF FOREIGN CURRENCY LOA N. ITA NO.456/16 :- 5 -: 6. AFTER HEARING BOTH THE PARTIES, WE ARE OF THE O PINION THAT THIS ISSUE WAS SQUARELY COVERED BY THE EARLIER ORDER OF TRIBUNAL IN ASSESSEE'S OWN CASE IN M.P. NO.35/MDS./2015 (ITA NO.1646/MDS./2013) DATED 25.06.2013 WHEREIN THE TRI BUNAL DECIDED THE ISSUE AGAINST THE ASSESSEE BY OBSERVING HEREUND ER:- 3. ON PERUSING THE ORDER OF THE TRIBUNAL, WE FIND THAT IN PARA 12.4 AS CITED BY THE LD. A.R INADVERTENTLY IT WAS MENTIO NED THAT THE ASSESSEE HAD ACQUIRED AN ASSET FROM A COUNTRY OUTSI DE INDIA FOR THE PURPOSE OF ITS BUSINESS OR PROFESSION BASED ON WHI CH THE BENCH HAD COME TO THE CONCLUSION THAT SECTION-43A OF THE ACT WOULD BE ATTRACTED. EVEN THOUGH IT IS A MISTAKE APPARENT ON RECORD BECAUSE AS CONTENDED BY THE LD. A.R AND CONCEDED BY THE LD. D. R THAT THE ASSET IS NOT ACQUIRED FROM OUTSIDE INDIA BUT ONLY LOAN IS RECEIVED FROM OUTSIDE INDIA FOR THE PURPOSE OF ACQUIRING THE ASSE T IN INDIA, THE SCOPE OF THE DECISION CANNOT BE ALTERED BECAUSE THE SAME ANALOGY IN OUR VIEW IS APPROPRIATE CONSIDERING THE PROVISIONS OF THE ACT EVEN WHEN THE ASSET IS PURCHASED WITHIN INDIA FOR WHICH THE LOAN IS OBTAINED FROM ABROAD. ACCORDINGLY THE REVENUE IS R IGHT IN ITS REALM FOR CAPITALIZING THE ACTUAL LOSS ON REPAYMENT OF LO AN IN FOREIGN CURRENCY OF `1,36,00,000/- BECAUSE THE LOAN IS UTIL IZED FOR THE ACQUISITION OF THE ASSET AND THE FOREIGN EXCHANGE F LUCTUATION HAS A DIRECT BEARING ON THE COST OF THE ASSET. FURTHER, THE REVENUE HAS DISALLOWED THE FOREIGN CURRENCY FLUCTUATION NOTIONA L LOSS OF `6,37,00,000/- BECAUSE THE SAME HAS NOT CRYSTALLIZE D TO THE ASSESSEE. IN OUR ORDER WE WERE ALSO IN AGREEMENT TO THIS VIEW OF THE REVENUE, HOWEVER, THE LD. A.R. HAD MADE A PRAYER THAT A DIRE CTION MAY BE GIVEN TO THE LD. ASSESSING OFFICER TO ELIMINATE THE GAIN ON ACCOUNT OF FOREIGN CURRENCY FLUCTUATION ON THE LOAN TAKEN FOR THE PURCHASE OF THE ASSET IN THE SUBSEQUENT YEARS WHICH HAVE BEEN OFFER ED AS INCOME IN THAT RELEVANT YEARS. SINCE WE HAVE HELD THAT THE N OTIONAL LOSS HAS TO BE DISREGARDED WHILE COMPUTING THE INCOME OF THE AS SESSEE THE SAME ANALOGY ALSO APPLIES WITH RESPECT TO THE GAINS ARIS ING OUT OF FOREIGN ITA NO.456/16 :- 6 -: CURRENCY FLUCTUATION WHILE COMPUTING THE INCOME OF THE ASSESSEE. THEREFORE IN THE INTEREST OF JUSTICE AND TO MAKE OU R DECISION CLEAR WE HEREBY DIRECT THE LD. ASSESSING OFFICER TO RE-COMPU TE THE INCOME OF THE ASSESSEE BY APPLYING THE ABOVE RATIO IN ALL THE RELEVANT ASSESSMENT YEARS AND RECTIFY THE ORDERS HOWEVER COM PLYING WITH THE PROVISIONS OF SECTION 150 OF THE ACT. WE FURTHER MA KE IT CLEAR THAT THE DECISIONS CITED BY THE LD.A.R (SUPRA) ARE NOT APPLI CABLE TO THE FACTS OF THE CASE BEFORE US. FURTHER IN PARA NO.12.2 OF THE ORDER AT PAGE 36 IN THE FIRST LINE PURCHASE OF CAPITAL LOSS STAND COR RECTED AS PURCHASE OF CAPITAL ASSET . 4. IN THE RESULT, THE MISCELLANEOUS PETITION FILED BY THE ASSESSEE IS PARTLY ALLOWED. ACCORDINGLY, THIS GROUND RAISED BY THE ASSESSEE STA NDS DISMISSED. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DI SMISSED. ORDER PRONOUNCED ON 25 TH JANUARY, 2017, AT CHENNAI. SD/ - SD/ - ! ' # . $ %& ' ( DUVVURU RL REDDY ) ) % / JUDICIAL MEMBER ( ) (CHANDRA POOJARI) / ACCOUNTANT MEMBER () / CHENNAI *+ / DATED: 25 TH JANUARY, 2017. K S SUNDARAM +,-- ./-0/ / COPY TO: - 1 . / APPELLANT 3. - 1-!' / CIT(A) 5. /23- 4 / DR 2. / RESPONDENT 4. - 1 / CIT 6. 3&-5 / GF