Perfetti India Ltd., V. Addl. CIT, Spl. Range-15,

ITA 4976/DEL/2002

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 4039 (ITAT-DELHI)
• Duration Of Justice: 8 year(s) 4 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-05-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 27-04-2011
• Assessment Year: 1998-1999
• Appeal Filed On: 30-12-2002
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANUSHA KHURANA
• Assessee Lawyers: AJAY VOHRA MS SHIKHA SHARMA
• Keywords: Depreciation; Rule of consistency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : A NEW DELHI BEFORE SHRI G.E. VEERABHADRAPPA, VICE PRESIDENT AND SHRI RAJPAL YADAV, JUDICIAL MEMBER I.T.A NO. 4976/DEL/02 ASSTT. YEAR : 1998-99 M/S. PERFETTI INDIA LTD. A-10, GREEN PARK, NEW DELHI. VS. ACIT, SPECIAL RANGE-15, NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI AJAY VOHRA, MS. SHIKHA SHARMA , ADVOCATE RESPONDENT BY: MS. ANUSHA KHURANA, SR.DR ORDER PER RAJPAL YADAV : JM THE ASSESSEE IS IN APPEAL BEFORE US AGAINST THE ORD ER OF LD. CIT(A) DATED 31 ST OCTOBER,2002 PASSED FOR ASSTT. YEAR 1998-99. THE APPEAL OF THE ASSESSEE WAS DECIDED BY THE TRIBUNAL VIDE ITS ORDER DATED 22 ND APRIL, 2004. ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE ITA NO. 4976/DEL/02 ASSTT. YEAR 1998-99 2 THE HONBLE HIGH COURT VIDE ITA NO. 650/2004. HON BLE HIGH COURT HAS DISMISSED THE APPEAL OF ASSESSEE VIDE ORDER DAT ED 6.12.2004. THE ASSESSEE HAD FILED MISCELLANEOUS APPLICATION BE ARING NUMBER 133/D/2005. THIS MISCELLANEOUS APPLICATION WAS ALSO DISMISSED BY THE TRIBUNAL VIDE ITS ORDER DATED 15 TH JUNE, 2005. THE ASSESSEE HAD FILED A SLP BEFORE THE HONBLE SUPREME COURT CHALLE NGING THE ORDERS OF THE TRIBUNAL AS WELL AS OF THE HONBLE HIGH COUR T. HONBLE SUPREME COURT HAS SET ASIDE THE ORDERS OF THE HONBLE HIGH COURT AS WELL AS OF THE TRIBUNAL AND REMITTED THE ISSUE BACK TO THE TRI BUNAL FOR DECIDING THE ISSUE DENOVO. THE ORDER PASSED BY THE HONBLE S UPREME COURT ON 2 ND DECEMBER, 2010 IN CIVIL APPEAL NO. 10219 OF 2010 R EAD AS UNDER HEARD LEARNED COUNSEL ON BOTH SIDES. LEAVE GRANTED. HAVING EXAMINED THE FACTS AND CIRCUMSTANCES OF THE CASE, WHICH PERTAINS TO ASSESSMENT YEAR 1998-1999, AND PARTICUL ARLY IN THE LIGHT OF THE ORDERS PASSED FOR THE EARLIER ASSESSMENT YEARS 1996 -97 AND 1997-98 AS ALSO HAVING REGARD TO THE ASSESSMENT ORDERS PASSED IN THE FOLLOWING YEAR [1999-2000] AND IN VIEW OF THE JUDGMENT OF THIS COU RT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. WOODWARD GOVERNOR IN DIA PRIVATE LIMITED, REPORTED IN [2009] 312 ITR 254, WE ARE OF THE VIEW THAT THE INCOME TAX APPELLATE TRIBUNAL [TRIBUNAL, FOR SHORT] WAS WRONG IN REFUSING TO RECTIFY ITS OWN ORDER UNDER SECTION 254(2) OF THE INCOME T AX ACT, 1961, PARTICULARLY WHEN IT HAS FAILED TO APPRECIATE THAT, IN ANY EVENT, THE EXPENDITURE COULD HAVE FALLEN ON THE CAPITAL ACCOUN T, WHICH WAS SPECIFICALLY PLEADED BY THE ASSESSEE AS AN ALTERNAT E SUBMISSION. [SEE PAGE 73 OF THE SLP PAPER BOOK] FOR THE AFORE-STATED REASONS, THE IMPUGNED JUDGMENT OF THE HIGH COURT IS SET ASIDE AND THE MATTER IS REMITTED TO TH E TRIBUNAL. WE DIRECT THE TRIBUNAL TO DECIDE THE MATTER DE NOVO IN ACCORDANCE WITH THE LAW LAID DOWN ITA NO. 4976/DEL/02 ASSTT. YEAR 1998-99 3 BY THIS COURT IN THE CASE OF WOODWARD GOVERNOR INDI A PRIVATE LIMITED [SUPRA] AS WELL AS ON THE MERITS OF THIS CASE. THE CIVIL APPEAL IS, ACCORDINGLY, ALLOWED. NO ORDER AS TO COSTS 2. THE SOLITARY ISSUE REQUIRED TO BE ADJUDICATED BY US IS WHETHER ASSESSEE IS ENTITLED FOR A DEDUCTION OF ` 38,30,000/- REPRESENTING THE LOSS INCURRED BY THE ASSESSEE ON ACCOUNT OF FLUCTUA TION IN THE FOREIGN EXCHANGE RATES IN RESPECT OF OUTSTANDING FOREIGN CU RRENCY LOAN OBTAINED AND UTILISED EXCLUSIVELY FOR WORKING CAPIT AL PURPOSE. 3. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT IT H AS RAISED A LOAN OF 1 MILLION US $ FROM PERFETTI SPA ITALY IN AUGUS T, 1995. DURING THE YEAR UNDER APPEAL, THERE WAS AN INCREASE IN THE LIA BILITY IN RESPECT OF THE LOAN BECAUSE OF FLUCTUATION IN THE FOREIGN EXCH ANGE RATE DUE TO WHICH THE ASSESSEE WAS LIABLE TO INCREASE THE LOSS OF ` 38,30,000/-. IN THE COURSE OF ASSTT. PROCEEDING, THE ASSESSEE BROUG HT THESE FACTS TO THE NOTICE OF AO AND CONTENDED THAT SINCE THE LOAN AMOUNT FORMS PART OF THE CIRCULATING CAPITAL OF THE ASSESSEE, EXCHANG E LOSS IS IN NATURE OF REVENUE AND ALLOWABLE. THIS CLAIM WAS DISALLOWED TO THE ASSESSEE AND APPEAL TO THE LD. CIT(A) DID NOT BRING ANY RELI EF. LD. COUNSEL FOR THE ASSESSEE AT THE VERY OUTSET, CONTENDED THAT ON ACCOUNT OF EXCHANGE RATE FLUCTUATION, THE LOSS SUFFERED BY THE ASSESSEE WAS ITA NO. 4976/DEL/02 ASSTT. YEAR 1998-99 4 ALLOWED BY THE AO HIMSELF IN ASSTT. YEAR 1996-97. H E POINTED OUT THAT THOUGH AO HAS NOT MADE ELABORATE DISCUSSION ON THE ISSUE BUT HE HAS ACCEPTED THE COMPUTATION MADE BY THE ASSESSEE O N THIS ISSUE IN A SCRUTINY ASSESSMENT. IN ASSTT. YEAR 1997-98, A SI MILAR LOSS OF ` 25,98,166/- OCCURRED TO THE ASSESSEE BUT IT WAS DIS ALLOWED BY THE AO IN A SCRUTINY ASSESSMENT. THE DISPUTE TRAVELLED TO THE LD. CIT(A) AND LD. CIT(A)DELETED THE DISALLOWANCE. THE REVENUE CHA LLENGED THE ORDER OF LD. CIT(A) BEFORE THE TRIBUNAL IN ITA NO. 4688/2002. THE TRIBUNAL WHILE FOLLOWING THE SPECIAL BENCH DECISION IN THE CASE OF OIL AND NATURAL GAS CORPORATION LTD. REPORTED IN 83 ITD 159 UPHELD THE ORDER OF LD. CIT(A). THE REVENUE CHALLENGED THE ORD ER OF THE TRIBUNAL BEFORE THE HONBLE DELHI HIGH COURT IN ITA NO. 1014 /2007 AND THE APPEAL OF THE REVENUE WAS DISMISSED. HE FURTHER CON TENDED THAT IN ASSTT. YEAR 1999-2000 AGAIN ASSESSEE CLAIMED A DEDU CTION OF ` 27,40,000/- ON THIS ACCOUNT. THIS WAS DISALLOWED TO THE ASSESSEE AND THE MATTER TRAVELLED TO THE TRIBUNAL IN ITA NO. 176 5/D/2003. THE TRIBUNAL FOLLOWING THE ORDER OF THE SPECIAL BENCH I N THE CASE OF ONGC ALLOWED THE CLAIM OF ASSESSEE. ON THE STRENGTH OF THESE DETAILS, HE SUBMITTED THAT IN THIS YEAR ALSO IT WAS A REVENUE L OSS. IT WAS DISALLOWED TO THE ASSESSEE BY THE LD. AO AS WELL AS LD. CIT(A) ON THE ITA NO. 4976/DEL/02 ASSTT. YEAR 1998-99 5 GROUND THAT IT IS A NOTIONAL LOSS. THE TRIBUNAL CO NFIRMED THE DISALLOWANCE ON THE GROUND THAT ASSESSEE FAILED TO PRODUCE EVIDENCE EXHIBITING THE UTILIZATION OF THE LOAN FOR WORKING CAPITAL. HE POINTED OUT THAT THERE IS NO CHANGE IN THE FACTS AND CIRCUMSTAN CES. LOAN WAS TAKEN IN 1995. IT WAS CONSIDERED BY THE AO IN EARLI ER YEARS AS WELL AS SUBSEQUENT YEARS THAT IT WAS UTILISED FOR THE PURPO SE OF WORKING CAPITAL. IT BECAME PART OF CIRCULATING CAPITAL OF T HE ASSESSEE. IT IS ESTABLISHED THAT A LOSS OCCURRED TO THE ASSESSEE ON ACCOUNT OF EXCHANGE RATE FLUCTUATION AND SUCH LOSS IS IN THE R EVENUE ACCOUNT THEN IT IS ALLOWABLE AS HELD BY THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. WOODWORD GOVERNOR INDIA PRIVATE LTD. REP ORTED IN 312 ITR 254. ALTERNATIVELY, HE CONTENDED THAT IF IT IS NOT ALLOWABLE AS A REVENUE DEDUCTION THEN DEPRECIATION ON THIS AMOUNT BE GRAN TED BY INCLUDING IT IN THE CAPITAL OF THE ASSESSEE. LD. DR ON THE OTHER HAND RELIED UPON THE ORDER OF LD. CIT(A). SHE POINTED OUT THAT FACTU ALLY ASSESSEE FAILED TO PROVE THE UTILIZATION OF THE LOAN IN THIS YEAR. THEREFORE, IT CANNOT BE SAID THAT IT IS A REVENUE LOSS TO THE ASSESSEE. 4. WE HAVE DULY CONSIDERED THE RIVAL CONTENTION AND GONE THROUGH THE RECORD CAREFULLY. THE ASSESSEE HAS PLACED ON RE CORD COPIES OF THE ASSTT. ORDER AS WELL AS TRIBUNALS ORDER IN ASSTT. YEAR 1997-98 AND ITA NO. 4976/DEL/02 ASSTT. YEAR 1998-99 6 1999-2000. HE HAS PLACED ON RECORD ALL THE DETAILS IN A TABULAR FORM ON PAGES 93-94 OF THE PAPER BOOK. IN THESE DETAILS, IT HAS BEEN HIGHLIGHTED BY THE ASSESSEE THAT IN ASSTT. YEAR 199 6-97 A LOSS ON ACCOUNT OF FLUCTUATION IN EXCHANGE RATE WAS ACCRUED AT ` 32,20,000/-. IT WAS ALLOWED BY THE AO. IN 1997-98, IT WAS ` 14,20,000/-. IT WAS DISALLOWED BY THE AO BUT ALLOWED BY THE LD. CIT(A). THIS VIEW HAS BEEN UPHELD UPTO THE HONBLE HIGH COURT. IN ASSTT. YEAR 1999-00 ` 27,40,000/- WAS CLAIMED BY THE ASSESSEE. IT WAS DIS ALLOWED BY THE AO AND LD. CIT(A) BUT ALLOWED BY THE TRIBUNAL. THE LOAN WAS TAKEN IN 1995. ITS CHARACTER WAS ASCERTAIN AS A WORKING CAP ITAL IN ASSTT. YEAR 1996-97 BY THE AO HIMSELF. ACCORDING TO THE ASSESSE E, IT HAS BECOME PART OF CIRCULATING CAPITAL. CONSIDERING ALL THESE ASPECTS AND PRINCIPLE OF CONSISTENCY PROPOUNDED BY THE HONBLE SUPREME CO URT IN THE CASE OF RADHA SWAMI SATSAND VS. ITO REPORTED IN 193 ITR 321, WE ARE OF THE OPINION THAT LOSS SUFFERED BY THE ASSESSEE ON A CCOUNT OF EXCHANGE RATE FLUCTUATION IS ALLOWABLE EXPENDITURE IN THIS YEAR ALSO. THE ASSESSEE MAY NOT BE ABLE TO PRODUCE EVIDENCE OF THE UTILISATION OF THE CAPITAL BEFORE THE AO BUT FROM THE ORDERS OF THE AO IN EARLIER YEARS AND IN SUBSEQUENT YEARS IMPLIEDLY, IT IS ASCE RTAINABLE THAT IT IS USED FOR THE WORKING CAPITAL WHICH IS IN A REVENUE ACCOUNT. ITA NO. 4976/DEL/02 ASSTT. YEAR 1998-99 7 RESPECTFULLY FOLLOWING THE DECISION OF HONBLE SUP REME COURT IN THE CASE OF CIT VS. WOODWORD GOVERNOR INDIA PRIVATE LTD . AND THE PAST HISTORY OF THE DISPUTE ON THIS ISSUE, WE ALLOW THIS GROUND OF APPEAL AND DELETE THE DISALLOWANCE. THIS IS THE ONLY ISSUE REM ITTED BEFORE US FOR OUR ADJUDICATION. 5. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED ON THIS ISSUE. ORDER PRONOUNCED IN THE OPEN COURT ON 6 TH MAY, 2011. SD/- SD/- [G.E.VEERABHADRAPPA] [RAJPAL YADAV] VICE PRESIDENT JUDICIAL MEMBER DATED: 6 TH MAY, 2011 VEENA COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, DEPUTY REGISTRAR, ITAT, DELHI BEN CHES