ADDL CIT RG 17(2), MUMBAI V. ALOKA EXPORTS, MUMBAI

ITA 4771/MUM/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 83610 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 1 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-08-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 14-08-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 18-07-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PITAMBAR DAS
• Assessee Lawyers: VIMAL PUNMIA
• Keywords: Depreciation; Additional evidence
• Section: 133(6); 37(1)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI BEFORE S/SHRI B.R.BASKARAN (AM) AND VIVEK VARMA, (JM) .. , , ./I.T.A. NO.4771/MUM/2012 ( / ASSESSMENT YEAR : 2009-10) ASSTT. COMMISSIONER OF INCOME TAX-17(2), ROOM NO.217, PIRAMAL CHAMBERS, MUMBAI-400012. / VS. M/S ALOKA EXPORTS, 324, WADALA UDYOG BHAVAN, NAIGAON CROSS-ROAD, WADALA, MUMBAI-4000312 ( ! / APPELLANT) .. ( '# ! / RESPONDENT) ./ $% ./PAN/GIR NO. :AAAFA3423B ! & / APPELLANT BY : SHRI PITAMBAR DAS '# ! ' & /RESPONDENT BY : SHRI VIMAL PUNMIA ( ) ' *+ / DATE OF HEARING : 14.8.2014 ,- ' *+ /DATE OF PRONOUNCEMENT : 27.8.2014 / O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: THE APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 11.04.2012 PASSED BY LD CIT(A)-29, MUMBAI AND IT RE LATES TO THE ASSESSMENT YEAR 2009-10. 2. THE REVENUE IS IN APPEAL BEFORE US IN RESPEC T OF THE FOLLOWING ISSUES:- (A) DISALLOWANCE OF FOREIGN EXCHANGE FLUCTUATION. (B) DISALLOWANCE OF UNCONFIRMED EXPENSES. ITA 4771/MUM/2012 2 3. THE FACTS RELATING TO THE ISSUES, CITED ABOV E, ARE STATED IN BRIEF. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURE AND EXPORT OF READYMADE GARMENTS, IMITATION JEWELLERY, HANDICRAFTS ETC. TH E AO NOTICED THAT THE ASSESSEE CLAIMED DEDUCTION OF EXPENSES RELATING TO FOREIGN E XCHANGE RATE DIFFERENCE AS DETAILED BELOW:- EXCHANGE RATE DIFFERENT RELATING TO PACKING CREDIT LOAN - 87,34,774 AGENCY COMMISSION - 3,86,321 EEFC A/C - 2,52,364 TERM LOAN - 1,45,29,213 ---------------- 2,39,02,673 ========= THOUGH THE ASSESSEE HAS AVAILED TERM LOAN IN FOREIG N CURRENCY FOR PURCHASING PLANT AND MACHINERY, YET THE AO HIMSELF HAS ACCEPTE D THE FACT, IN PAGE 3 OF THE ASSESSMENT ORDER, THAT THE ASSESSEE DID NOT UTILIZE THE TERM LOAN FOR THAT PURPOSE AND THE ASSESSEE HAD ALREADY BEEN SET UP. DURING THE COURSE OF HEARING ALSO, WHEN A SPECIFIC QUESTION WAS PUT TO L D A.R IN THIS REGARD, THE LD A.R SUBMITTED THAT THE ASSESSEE HAD USED THE TERM L OAN ONLY FOR WORKING CAPITAL PURPOSES. IN THIS CONNECTION, HE SUBMITTED THAT TH E ASSESSEE HAD FURNISHED ALL THE RELEVANT DETAILS IN THE PAPER BOOK. AT THE YEA R END, THE ASSESSEE WORKED OUT THE FOREIGN EXCHANGE DIFFERENCE AND CLAIMED THE LOS S ARISING THEREON AS DEDUCTION. THE AO NOTICED THAT THE EEFC ACCOUNT IS MAINTAINED IN FOREIGN CURRENCY AND ACCORDINGLY HELD THAT THE ASSESSEE COU LD NOT HAVE INCURRED LOSS ON ACCOUNT OF FOREIGN EXCHANGE DIFFERENCE. THE ASSESS EE EXPLAINED BEFORE THE AO ABOUT THE METHOD OF ACCOUNTING OF FOREIGN EXCHANGE LOSS/GAIN. HOWEVER, THE ASSESSING OFFICER TOOK THE VIEW THAT THE LOSS ACCOU NTED BY THE ASSESSEE IS AGAINST THE ACCOUNTING PRINCIPLES. ACCORDINGLY HE DISALLO WED THE FOREIGN EXCHANGE ITA 4771/MUM/2012 3 DIFFERENCE LOSS CLAIMED BY THE ASSESSEE. THE AO, D URING THE COURSE OF ASSESSMENT PROCEEDINGS, ISSUED SUMMONS U/S 133(6) O F THE ACT TO VARIOUS PERSONS, TO WHOM THE ASSESSEE HAD MADE PAYMENTS IN CONNECTION WITH THE EXPENDITURE INCURRED BY IT. HOWEVER, THE ASSESSEE DID NOT RECEIVE ANY REPLY FROM THE FOLLOWING PARTIES:- 1) AUTO HANGER INDIA P LTD, MUMBAI 52,48,487 2) ANAND FABRICATORS P LTD 32,94,099 3) MANOJ ENGINEERING, MUMBAI 10,67,893 4) ANAND SYSTEMS ENGG P LTD 6,85,167 5) S B TEXTILES, MUMBAI 1,40,000 6) SHRADDHA SHRIKANT PUNYARTHI 3,66,000 7) SUREKHA TEXTILES 1,83,000 8) MAHADEV TEXTILES 2,83,000 9) SOMNATH & SONS 1,60,782 --------------- 1,14,28,428 ========= HENCE, THE AO DISALLOWED THE ABOVE SAID AMOUNT OF R S.1,14,28,428/- U/S 37 OF THE ACT ON ACCOUNT OF NON RECEIPT OF CONFIRMATION F ROM THE ABOVE SAID PARTIES. 4. THE LD CIT(A) DELETED THE DISALLOWANCE OF LOS S ARISING ON FOREIGN EXCHANGE DIFFERENCE BY FOLLOWING THE DECISIONS RENDERED BY H ONBLE SUPREME COURT IN THE FOLLOWING CASES:- (A) SUTLEJ COTTON MILLS LTD VS. CIT (116 ITR 1)(S C) (B) CIT VS. WOODWARD GOVERNOR INDIA PVT LTD (312 ITR 254). WITH REGRD TO THE DISALLOWANCE OF RS.1,14,28,428/-, THE ASSESSEE SUBMITTED RELEVANT DETAILS BEFORE THE LD CIT(A) AND THE FIRST APPELLATE AUTHORITY NOTICED THAT MOST OF THE DETAILS WERE FOUND SUBMITTED BEFOR E THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS. THE LD CIT(A) DISCUSSED ABOUT HIS POWER IN TERMS OF SEC. 250(4) OF THE ACT AND, BY PLACING RELIANCE ON CERTAIN JUDICIAL DECISIONS, HELD THAT HIS POWER IS NOT WHITTLED DOWN BY RULE 4 6A OF THE ACT. FROM THE ITA 4771/MUM/2012 4 DETAILS FURNISHED, THE LD CIT(A) NOTICED THAT THE A BOVE SAID AMOUNT OF RS.1,14,28,428/- CONSISTED OF:- (A) ACQUISITION OF CAR, PLANT & MACHINERY 1,11,70,491 (B) REPAIRS TO PLANT & MACHINERY 2,57,937 THE LD CIT(A) FURTHER NOTICED THAT THE ASSESSING HA S ACCEPTED THE GENUINENESS OF PURCHASE OF CAR AND PLANT & MACHINERY AND ACCORD INGLY ALLOWED DEPRECIATION ON CAR AND PLANT & MACHINERY. THE LD CIT(A) ALSO E XAMINED THE BILLS/VOUCHERS RELATING TO THE ABOVE SAID PAYMENTS AND ACCORDINGLY DELETED THE DISALLOWANCE. AGGRIEVED, THE REVENUE HAS FILED THIS APPEAL BEFORE US. 5. WE HAVE HEARD THE PARTIES AND PERUSED THE RE CORD. THE LD D.R SUBMITTED THAT THE LD CIT(A) HAS ADMITTED ADDITIONAL EVIDENCE S AND DID NOT AFFORD OPPORTUNITY TO THE AO TO EXAMINE THE DOCUMENTS. AC CORDINGLY HE SUBMITTED THAT THE LD CIT(A) HAS VIOLATED THE PROVISIONS OF RULE 4 6A OF THE INCOME TAX RULES, 1961. HOWEVER, THE LD A.R SUBMITTED THAT THE LD CI T(A) HAD HIMSELF CALLED FOR THE DETAILS, WHICH HE IS OTHERWISE ENTITLED TO DO S O, AND BY DULY CONSIDERING THEM HAS DELETED BOTH THE DISALLOWANCES. ON A PERUSAL O F THE ORDER OF LD CIT(A), THE LD CIT(A) HAS STATED THAT MOST OF THE DETAILS CONSI DERED BY HIM WERE AVAILABLE BEFORE THE AO. FURTHER, IT IS SEEN THAT THE LD CIT (A) HAS INDEPENDENTLY EXAMINED THE EVIDENCES BY EXERCISING HIS CO-TERMINU S POWER. HENCE, IN OUR VIEW, THERE IS NO VIOLATION OF RULE 46A OF THE INCO ME TAX RULES, 1962. 6. WITH REGARD TO THE LOSS ARISING ON ACCOUNT O F FOREIGN EXCHANGE DIFFERENCE, THE LD D.R ADMITTED THAT THE LOSS RELATING TO WORKI NG CAPITAL LOAN AND EXPENSES ARE ALLOWABLE AS DEDUCTION. HOWEVER, HE SUBMITTED THAT THE ASSESSEE HAD ALSO CLAIMED FOREIGN EXCHANGE DIFFERENCE LOSS RELATING T O TERM LOAN ALSO AND THE LD ITA 4771/MUM/2012 5 CIT(A) WAS NOT JUSTIFIED IN ALLOWING THE SAME. ON THE CONTRARY, THE LD A.R SUBMITTED THAT THE ASSESSEE HAS BEEN CONSISTENTLY F OLLOWING THE SAME METHODOLOGY SINCE PAST SEVERAL YEARS FOR ACCOUNTING THE EXCHANGE DIFFERENCE GAIN/LOSS. HE FURTHER SUBMITTED THAT THE FOREIGN E XCHANGE DIFFERENCE GAIN HAS BEEN OFFERED AND ASSESSED AS INCOME IN THE ASSESSEE S HANDS IN THE EARLIER YEARS. HE FURTHER SUBMITTED THAT THE TERM LOAN WAS ALSO UTILIZED FOR WORKING CAPITAL PURPOSES ONLY. ACCORDINGLY, HE SUBMITTED T HAT THE LD CIT(A) WAS JUSTIFIED IN DELETING THE DISALLOWANCE MADE BY THE AO. 7. THOUGH THE LD D.R HAS CONTENDED THAT THE FO REIGN EXCHANGE DIFFERENCE LOSS RELATING TO TERM LOAN HAS BEEN ALLOWED AS DEDU CTION, YET WE HAVE ALREADY NOTICED THAT THE ASSESSEE HAS UTILIZED THE SAID TER M LOAN ONLY FOR WORKING CAPITAL PURPOSES. THE AO HAS ALSO RECORDED A FINDING THAT THE TERM LOAN WAS NOT USED FOR PURCHASE OF PLANT AND MACHINERY. THE LD A.R AL SO SUBMITTED THAT THE MANNER OF USE OF TERM LOAN CAN BE APPRECIATED BY EX AMINING THE RELEVANT BANK ACCOUNT. IN THIS REGARD, HE INVITED OUR ATTENTION TO THE BANK ACCOUNT COPY AND POINTED OUT THAT THE PAYMENTS FROM THE SAID BANK AC COUNT HAVE BEEN MADE FOR PURCHASE OF MATERIALS ONLY. THUS, IT IS SEEN THAT THE ASSESSEE HAS USED ALL THE LOANS FOR WORKING CAPITAL PURPOSES. THE RECOGNITIO N OF GAINS OR LOSS ARISING ON FOREIGN EXCHANGE DIFFERENCE IS ACCEPTED BY THE HON BLE SUPREME COURT IN THE CASE OF WOODWARD GOVERNOR CASE, REFERRED SUPRA. HE NCE, THE AO WAS NOT JUSTIFIED IN HOLDING THAT THE FOREIGN EXCHANGE LOSS IS A NOTIONAL LOSS. SINCE THE FOREIGN EXCHANGE DIFFERENCE LOSS ACCOUNTED FOR BY T HE ASSESSEE RELATES TO THE EXPENSES AND WORKING CAPITAL LOAN, IN OUR VIEW, THE LD CIT(A) WAS JUSTIFIED IN DELETING THE SAID DISALLOWANCE. ITA 4771/MUM/2012 6 8. THE NEXT ISSUE RELATES TO THE DISALLOWANCE O F EXPENSES DUE TO NON-RECEIPT OF CONFIRMATION LETTERS FROM SOME OF THE PARTIES. THE LD CIT(A) HAS NOTICED THAT, OUT OF THE DISALLOWANCE OF RS.1,14,28,428/-, A SUM OF RS.1,11,70,491/- RELATES TO THE PURCHASE OF CAR AND PLANT & MACHINERY. THE LD CIT(A) HAS GIVEN A FINDING THAT THE ASSESSING OFFICER HAS ALLOWED DEPRECIATION THE ABOVE SAID ASSETS. HENCE, THE ASSESSEE WOULD NOT HAVE CLAIMED THE ABO VE SAID AMOUNT AS DEDUCTION U/S 37(1) OF THE ACT. HENCE, THE AO WAS NOT CORRECT IN LAW IN DISALLOWING THE ABOVE SAID CLAIM U/S 37(1) OF THE A CT, SINCE THE QUESTION OF DISALLOWANCE WOULD NOT ARISE IN RESPECT OF THIS AMO UNT. HENCE, THE LD CIT(A) WAS JUSTIFIED IN DELETING THE DISALLOWANCE RELATING TO THE PURCHASE OF ASSETS. WITH REGARD TO THE BALANCE AMOUNT OF RS.2,57,937/- RELATING TO MACHINERY REPAIRS. SINCE THE PURCHASE OF MACHINERY WAS ACCEP TED, IN OUR VIEW, THE LD CIT(A) WAS JUSTIFIED IN DELETING THE REPAIR EXPENSE S ALSO AFTER EXAMINING THE RELEVANT BILLS AND VOUCHERS. ACCORDINGLY, WE UPHOL D HIS ORDER ON THIS ISSUE ALSO. 9. IN THE RESULT, THE APPEAL FILED BY THE REVE NUE IS DISMISSED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 27TH AUG , 2014. ,- ( . / 0 27TH AUG, 2014 - ' 1) 2 SD SD ( / VIVEK VARMA) ( . . / B.R. BASKARAN ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER ( ) MUMBAI: 27TH AUG,2014. . . ./ SRL , SR. PS ITA 4771/MUM/2012 7 !'#$% &%'# / COPY OF THE ORDER FORWARDED TO : 1. ! / THE APPELLANT 2. '# ! / THE RESPONDENT. 3. ( 4* ( ) / THE CIT(A)- CONCERNED 4. ( 4* / CIT CONCERNED 5. 51 '* 6 , + 6 , ( ) / DR, ITAT, MUMBAI CONCERNED 6. 17 8) / GUARD FILE. 9 ( / BY ORDER, TRUE COPY : $ (ASSTT. REGISTRAR) + 6 , ( ) /ITAT, MUMBAI