KEDAARA CAPITAL ADVISORS LLP, MUMBAI V. ASSISTANT COMMISSIONER OF INCOME TAX 17(2), MUMBAI

ITA 525/MUM/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 8094 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-03-2019
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: H
• Assessment Year: 2013-2014
• Appeal Filed On: 25-01-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Section: 143(3); 37(1)

Judgement Text

1 ITA 525/MUM/2018 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH H, MUMBAI BEFORE SHRI C.N. PRASAD (JUDICIAL MEMBER) AND SHRI G MANJUNATHA (ACCOUNTANT MEMBER) ITA NO.525/MUM/2018 (ASSESSMENT YEAR : 2013-14) KEDARAA CAPITAL ADVISORS LLP 38 TH FLOOR, SUNSHINE TOWER, SENAPATI BAPAT MARG, PAREL, MUMBAI-400 013 PAN : AALFK6892M VS ACIT-17(2), MUMBAI APPELLANT RESPONDEDNT APPELLANT BY SHRI FENIL BHATT RESPONDENT BY SHRI MANOJ KUMAR SINGH DATE OF HEARING 20-03-2019 DATE OF PRONOUNCEMENT 29-03-2019 O R D E R PER G MANJUNATHA, AM : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST ORDER OF THE CIT(A)- 28, MUMBAI DATED 09-10-2017 AND IT PERTAINS TO AY 2 013-14. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN NOT ALLOWING THE APPELLANT A DEDUCTION OF INR 15,36 ,659 IN RESPECT OF FOREIGN EXCHANGE LOSS ARISING ON ACCOUNT OF RESTATEMENT OF LIABILITY. THE APPELLANT PRAYS THAT THE FOREIGN EXCHANGE LOSS OF INR 15,36,659 BE ALLOWED. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN Y ' DISALLOWING THE ENTIRE MEMBERSHIP FEES OF INR 7,8 8,926 AND ALLOWING A DEDUCTION OF 10% OF THE MEMBERSHIP FEES EACH YEAR OVER A PERIOD OF 10 Y EARS. 2 ITA 525/MUM/2018 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS ENGAGED IN THE BUSINESS OF ADVISORY SERVICES, FILED ITS RETURN OF INCOME FOR AY 2013-14 ON 27- 09-2013 DECLARING TOTAL INCOME AT RS.70,27,104. TH E CASE WAS SELECTED FOR SCRUTINY AND THE ASSESSMENT HAS BEEN COMPLETED U/S 143(3) OF THE I.T. ACT, 1961 ON 05-03-2016 DETERMINING TOTAL INCOME AT RS.1 ,11,18,530 BY MAKING VARIOUS ADDITIONS INCLUDING FOREIGN EXCHANGE LOSS A ND DISALLOWANCE OF MEMBERSHIP AND SUBSCRIPTION FEES. WHILE COMPLETING THE ASSESSMENT, THE AO HAS DISALLOWED FOREIGN EXCHANGE LOSS ON THE GROUND THAT LOSS CLAIMED BY THE ASSESSEE ON ACCOUNT OF RE-STATEMENT OF EXISTING LIA BILITY IS A NOTIONAL LOSS WHICH IS NOT CRYSTALLISED DURING THE YEAR UNDER CONSIDERA TION, THEREFORE, THE SAME CANNOT BE ALLOWED AS DEDUCTION. 3. AGGRIEVED BY THE ASSESSMENT ORDER, ASSESSEE PREF ERRED APPEAL BEFORE THE CIT(A). BEFORE THE CIT(A), ASSESSEE HAS SUBMIT TED THAT WHEN AN EXISTING LIABILITY IN THE BOOKS OF ACCOUNT HAS BEEN RE-STATE D BY TAKING INTO ACCOUNT CLOSING RATE OF CURRENCY TO ADJUST THE DIFFERENCE I S ON ACCOUNT OF REVENUE WHICH CAN BE ALLOWED AS DEDUCTION EVEN THOUGH SUCH LIABIL ITY HAS NOT BEEN PAID DURING THE RELEVANT PERIOD. THE ASSESSEE HAS RELIE D UPON CERTAIN JUDICIAL PRECEDENTS INCLUDING THE DECISION OF HONBLE SUPREM E COURT IN THE CASE OF WOODWARD GOVERNORS INDIA PVT LTD VS CIT 312 ITR 540 (SC). THE LD.CIT(A), AFTER CONSIDERING SUBMISSIONS OF THE ASSESSEE AND ALSO ON ANALYSIS OF PROVISIONS OF 3 ITA 525/MUM/2018 SECTION 43A, WHICH DEALS WITH SPECIAL PROVISIONS CO NSEQUENTIAL TO CHANGE IN RATE OF EXCHANGE OF CURRENCY, HELD THAT LOSS RELATE D TO FOREIGN CURRENCY TRANSACTIONS REMAINED UNSETTLED AT THE END OF THE Y EAR OR RESTATED AT THE YEAR END, CANNOT BE CONSIDERED AS ASCERTAINED LIABILITY DEDUCTIBLE U/S 37(1) OF THE INCOME-TAX ACT, 1961. THE LD.CIT(A) FURTHER OBSERV ED THAT THE ISSUE IS NOT EVEN OF AN EXPENSE, BUT IT IS ON RECEIPT SIDE, THEREFORE , THE CLAIM OF LOSS IS BEING MADE WAS NOT A LOSS BUT A NOTIONAL REDUCTION IN INC OME WHICH IS BEING CLAIMED AS A DEDUCTION. THEREFORE, HE OPINED THAT THERE IS NO ERROR IN THE FINDING RECORDED BY THE AO WHILE DISALLOWING FOREIGN EXCHAN GE LOSS. ACCORDINGLY, THE LD.CIT(A) CONFIRMED ADDITION MADE BY THE AO. AGGRI EVED BY THE ORDER OF LD.CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US. 4. THE LD.AR FOR THE ASSESSEE SUBMITTED THAT THE LD .CIT(A) WAS ERRED IN NOT CONSIDERING THE LOSS INCURRED ON FOREIGN CURRENCY W HEN EXISTING LIABILITY HAS BEEN RE-STATED BY TAKING INTO ACCOUNT RATE DIFFEREN CE AT THE END OF YEAR IS ON ACCOUNT OF REVENUE, BECAUSE THE ASSESSEE HAS RECEIV ED ADVANCE ADVISORY FEES WHICH HAS BEEN ADJUSTED AGAINST SERVICES RENDERED I N THE SUBSEQUENT YEAR. ONCE THE LIABILITY IS ON ACCOUNT OF REVENUE, THE SA ME NEEDS TO BE ADJUSTED TO THE CLOSING RATE OF CURRENCY, WHETHER OR NOT SUCH L IABILITY HAS BEEN PAID DURING THE RELEVANT FINANCIAL YEAR. IN THIS CASE, THE ASS ESSEE HAS RE-STATED ITS LIABILITY AS ON THE DATE OF BALANCE-SHEET BY TAKING INTO ACCO UNT YEAR-END RATE WHICH 4 ITA 525/MUM/2018 CANNOT BE CONSIDERED AS UNASCERTAINED LIABILITY MER ELY BECAUSE THERE IS NO PAYMENT OR SETTLEMENT OF ACCOUNT FOR THE YEAR UNDER CONSIDERATION. IN THIS REGARD, HE RELIED UPON THE DECISION OF HONBLE SUPR EME COURT IN THE CASE OF WOODWARD GOVERNORS INDIA PVT LTD VS CIT (SUPRA). T HE LD.AR HAS ALSO RELIED UPON THE DECISION OF HONBLE BOMBAY HIGH COURT IN T HE CASE OF VASANTRAM MEHTA & CO LTD VS JCIT (2015) 62 TAXMAN.COM 102 (BO M). 5. THE LD.DR, ON THE OTHER HAND, STRONGLY SUPPORTED THE ORDER OF THE LOWER AUTHORITIES. 6. WE HAVE HEARD BOTH THE PARTIES, PERUSED MATERIAL S AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. THE ASSESSEE CLAIMS TO HAVE RE-STATED ITS EXISTING LIABILITY TOWARDS ADVANCE AD VISORY FEES BY TAKING INTO ACCOUNT YEAR-END RATE OF FOREIGN CURRENCY TO MAKE P ROVISION OFRS.15,36,659 TOWARDS FOREIGN EXCHANGE LOSS. THE AO DISALLOWED F OREIGN EXCHANGE LOSS CLAIMED BY THE ASSESSEE ON THE GROUND THAT FOREIGN EXCHANGE LOSS ON THE VALUE OF PAYMENTS TO BE MADE HAS ONLY BEEN RE-STATED BY T HE ASSESSEE AS ON 31-03- 2013 AND, THEREFORE, IT IS A NOTIONAL LOSS WHICH CA NNOT BE CONSIDERED AS ASCERTAINED LIABILITY ON ACCOUNT OF PERFORMANCE OR FOR CANCELLATION OF CONTRACT TO ALLOW DEDUCTION. WE FIND THAT THE ASSESSEE HAS RECEIVED ADVANCE ADVISORY FEES FOR RENDERING CERTAIN SERVICES TO ITS CLIENTS ON THE FUTURE DATE. ACCORDING TO THE ASSESSEE, THE SERVICES HAVE NOT BEEN RENDERE D DURING THE YEAR UNDER 5 ITA 525/MUM/2018 CONSIDERATION AND THE SAME HAVE BEEN RENDERED IN TH E SUBSEQUENT FINANCIAL YEAR. THE ASSESSEE HAS RE-STATED ITS LIABILITY AS ON THE BALANCE-SHEET DATE BY TAKING INTO ACCOUNT YEAR-END RATE OF CURRENCY AND M ARKED ITS LIABILITY TO MATCH WITH THE RATE OF CURRENCY AT THE END OF THE YEAR WI THOUT THERE BEING ANY PERFORMANCE OR CANCELLATION OF CONTRACT. ADMITTEDLY , THE PERFORMANCE FOR SERVICES RENDERED DURING THE NEXT FINANCIAL YEAR. IT IS NOT A CASE OF THE ASSESSEE THAT THE CONTRACT HAS BEEN EITHER PERFORME D OR CANCELLED DURING THE YEAR. UNLESS TRANSACTION GOT CRYSTALLISED EITHER B Y PERFORMANCE AND / OR CANCELLATION OF CONTRACT, MERELY FOR RE-STATEMENT O F EXISTING LIABILITY ON ACCOUNT OF ADVANCE RECEIVED FOR ADVISORY SERVICES, LOSS INC URRED ON ACCOUNT OF FLUCTUATION IN FOREIGN EXCHANGE RATE CANNOT BE ALLO WED AS DEDUCTION. 7. COMING TO THE CASE LAWS RELIED UPON BY THE ASSES SEE. THE ASSESSEE HAS RELIED UPON THE DECISION OF HONBLE SUPREME COURT I N THE CASE OF WOODWARD GOVERNORS VS CIT (SUPRA). WE FIND THAT ISSUE BEFOR E THE HONBLE SUPREME COURT IN THE ABOVE CASE IS WHEN THE LIABILITY IS CRYSTALL ISED ON ACCOUNT OF PERFORMANCE AND / OR CANCELLATION OF CONTRACT, LOSS INCURRED ON FOREIGN EXCHANGE RATE NEEDS TO BE ALLOWED AS DEDUCTION EVEN THOUGH PAYMENTS FOR SUCH LIABILITY HAS BEEN MADE IN SUBSEQUENT PERIOD. THE ASSESSEE ALSO RELIE D UPON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF VASANTRAM MEHTA & CO PVT LTD VS JCIT (SUPRA). WE FIND THAT THE HONBLE BOMBAY HIGH COURT BY FOLLOWING THE 6 ITA 525/MUM/2018 DECISION OF HONBLE SUPREME COURT IN THE CASE OF WO ODWARD GOVERNORS VS CIT (SUPRA) HELD THAT REVENUE LOSS IS NOT BE POSTPONED TO A FUTURE DATE WHEN THE TRANSACTION GETS CRYSTALLISED EITHER BY PERFORMANCE AND / OR CANCELLATION OF THE CONTRACT. IN THIS CASE, ON PERUSAL OF FACTS, WE FI ND THAT THE LIABILITY IS NOT CRYSTALLISED EITHER BY PERFORMANCE AND / OR CANCELL ATION OF THE CONTRACT. AS PER THE ASSESSEES ADMISSION, IT HAS RE-STATED ITS EXIS TING LIABILITY TOWARDS ADVANCE ADVISORY FEES RECEIPTS FOR WHICH NECESSARY SERVICES HAVE BEEN RENDERED IN SUBSEQUENT FINANCIAL YEAR WHICH CANNOT BE HELD THAT PERFORMANCE OF A CONTRACT HAS BEEN EXECUTED DURING THE YEAR UNDER CONSIDERATI ON. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THE CASE LAWS RELIED UPON BY THE ASSESSEE ARE NOT APPLICABLE. IN THIS VIEW OF THE MATTER AND ALSO CO NSIDERING FACTS OF THIS CASE, WE ARE OF THE CONSIDERED VIEW THAT THE AO WAS RIGHT IN DISALLOWING FOREIGN EXCHANGE LOSS INCURRED ON RE-STATEMENT OF LIABILITY AS ON BALANCE-SHEET DATE. THE LD.CIT(A), AFTER CONSIDERING RELEVANT FACTS, HA S RIGHTLY CONFIRMED ADDITION MADE BY THE AO. HENCE, WE ARE INCLINED TO UPHOLD T HE FINDINGS OF LD.CIT(A) AND REJECT GROUND TAKEN BY THE ASSESSEE. 8. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATIO N IS DISALLOWANCE OF MEMBERSHIP FEES AMOUNTING TO RS.7,88,926. THE LD.A R FOR THE ASSESSEE SUBMITTED THAT HE DID NOT WANT TO PRESS GROUND. HE NCE, THE SAME HAS BEEN DISMISSED, AS NOT PRESSED. 7 ITA 525/MUM/2018 9. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS D ISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 29 -03-2019 . SD/- SD/- (C.N. PRASAD) (G MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT : MARCH, 2019 PK/- COPY TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR /TRUE COPY/ BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI