AMIT K. DESAI, MUMBAI V. ITO 11(2)(1), MUMBAI

ITA 6051/MUM/2010

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 1378 (ITAT-MUMBAI)
• Duration Of Justice: 6 year(s) 8 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-04-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 28-07-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 05-08-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: BEENA SANTOSH
• Assessee Lawyers: P J PARDIWALA
• Keywords: Depreciation; Opportunity of being heard; Revenue expenditure; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A, MUMBAI BEFORE SHRI G.S.PANNU, ACCOUNTANT MEMBER AND SHRI RAM LAL NEGI, JUDICIAL MEMBER ITA NO.473/MUM/2010 (AY. 2002-03) ITA NO.6617/MUM/2008 (AY. 2003-04) ITA NO.4249/MUM/2009 (AY. 2004-05) ITA NO. 6051/MUM/2010(A.Y.2006-07) MR.AMIT K. DESAI, JEHANGIR BUILDING, 133 MG ROAD, MUMBAI 400 001 PAN: AAQPD 1916Q ...... APPELLANT VS. THE ACIT 11(2),/ITO 11(2)(1), MUMBAI . .... RESPONDE NT APPELLANT BY : S/SHRI P.J.PARDI WALA & NITESH JOSHI RESPONDENT BY : MS. BEENA SANTOS H DATE OF HEARING : 10/02/2017 DATE OF PRONOUNCEMENT : 07/04/2017 ORDER PER G.S.PANNU,A.M: THE CAPTIONED ARE FOUR APPEALS BY THE ASSESSEE PE RTAINING TO ASSESSMENT YEARS 2002-03, 2003-04, 2004-05 AND 2006-07 AND INV OLVE CERTAIN COMMON ISSUES, THEREFORE, THEY HAVE BEEN CLUBBED AND HEARD TOGETHE R FOR THE SAKE OF CONVENIENCE AND BREVITY. 2. THE APPELLANT BEFORE US IS AN INDIVIDUAL, WHO IS AN ADVOCATE BY PROFESSION. ONE COMMON ISSUE WHICH IS INVOLVED IN ALL THESE AP PEALS RELATES TO THE TREATMENT OF FOREIGN EXCHANGE VARIATION LOSS/INCOME CLAIMED B Y THE ASSESSEE. THE RELEVANT 2 ITA NO.473/MUM/2010 (AY. 2002-03) ITA NO.6617/MUM/2008 (AY. 2003-04) ITA NO.4249/MUM/2009 (AY. 2004-05) ITA NO. 6051/MUM/2010(A.Y.2006-07) FACTS ARE THAT ASSESSEE IS FOLLOWING CASH SYSTEM OF ACCOUNTING AND IN THE INCOME & EXPENDITURE ACCOUNT HE HAD CLAIMED FOREIGN EXCHANGE LOSS, SO FAR AS IT PERTAINS ASSESSMENT YEARS 2003-04 AND 2004-05. THE SAID FOR EIGN EXCHANGE LOSS WAS ON ACCOUNT OF THE FOREIGN EXCHANGE LYING IN EEFC ACCOU NT MAINTAINED BY THE ASSESSEE. THE ASSESSEE HAD EXPLAINED BEFORE THE LO WER AUTHORITIES THAT THE CREDITS IN THE SAID ACCOUNT ARE ON ACCOUNT OF PROFE SSIONAL FEE RECEIVED AND THE BALANCE OF THE MONIES KEPT IN FOREIGN EXCHANGE AT T HE CLOSE OF THE YEAR IS CONVERTED INTO INDIAN RUPEES AT THE PREVAILING RATE OF EXCHANGE AND THE RESULTANT LOSS HAS BEEN CLAIMED AS A DEDUCTION. THE ASSESSIN G OFFICER CONSIDERED THE AFORESAID LOSS ON ACCOUNT OF VARIATION IN FOREIGN E XCHANGE AS A NOTIONAL DIMINUTION IN THE VALUE OF THE FOREIGN EXCHANGE LYI NG IN THE EEFC ACCOUNT. ACCORDINGLY, THE ASSESSING OFFICER HELD THAT THE SA ID NOTIONAL LOSS WAS NOT ALLOWABLE AS A DEDUCTION. IN ASSESSMENT YEAR 2003- 04, THE ASSESSING OFFICER HAS DISALLOWED A LOSS OF RS.2,68,679/- ON THIS ACCOUNT AND IN ASSESSMENT YEAR 2004- 05 ALSO SIMILAR SITUATION PREVAILED AND ACCORDINGLY , THE ASSESSING OFFICER HAD DISALLOWED A SUM OF RS.19,04,576/-. 2.1 IN SO FAR ASSESSMENT YEARS 2002-03 AND 2006-07 ARE CONCERNED, THE ASSESSEE ACCORDED SAME TREATMENT, BUT INSTEAD OF LOSS THERE WAS A GAIN OF RS.2,27,874/- AND RS.1,53,514/- RESPECTIVELY. IN A SSESSMENT YEARS 2003-04 AND 2004-05, THE STAND OF THE ASSESSEE WAS THAT THE TRE ATMENT OF CONSIDERING THE AFORESAID LOSS AS PART OF INCOME & EXPENDITURE ACCO UNT WAS A CONSISTENT POLICY AND THAT SINCE IN THE EARLIER ASSESSMENT YEAR 2002- 03, SUCH SYSTEM HAS BEEN ACCEPTED, INASMUCH AS, THE INCOME ON EXCHANGE VARIA TION HAS BEEN ASSESSED, THEREFORE, SIMILAR TREATMENT SHOULD BE ACCORDED TO THE LOSS ON ACCOUNT OF EXCHANGE VARIATION. THE CIT(A) HAS ALSO AFFIRMED T HE STAND OF THE ASSESSING 3 ITA NO.473/MUM/2010 (AY. 2002-03) ITA NO.6617/MUM/2008 (AY. 2003-04) ITA NO.4249/MUM/2009 (AY. 2004-05) ITA NO. 6051/MUM/2010(A.Y.2006-07) OFFICER, INASMUCH AS, ACCORDING TO HIM THE IMPUGNED LOSS WAS NOTIONAL IN NATURE, ACCORDINGLY, ASSESSEE IS IN APPEAL BEFORE US FOR AS SESSMENT YEARS 2003-04 AND 2004-05. IN ASSESSMENT YEARS 2002-03 AND 2006-07 A LSO, THE ASSESSEE IS IN APPEAL, INASMUCH AS, THE RESULTANT GAIN ON FOREIGN EXCHANGE CONVERSION HAS BEEN ASSESSED TO TAX. 3. IN THE ABOVE BACKGROUND, THE LD. REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THOUGH THE ASSESSEE WAS FOLLOWING CASH SYS TEM OF ACCOUNTING, BUT IN THE INITIAL ASSESSMENT YEAR 2002-03, THE IMPUGNED INCOM E WAS OFFERED AND ASSESSED TO TAX AND, THEREFORE, IN THE SUBSEQUENT TWO YEARS, WHEN THERE IS A LOSS ON CONVERSION OF THE BALANCE LYING IN THE EEFC ACCOUN T, SIMILAR TREATMENT OUGHT TO HAVE BEEN ACCORDED BY THE ASSESSING OFFICER. IN SO FAR AS THE NATURE OF THE LOSS IS CONCERNED, THE LD. REPRESENTATIVE FOR THE ASSESSEE QUITE CLEARLY REFERRED TO THE DECISION OF OUR CO-ORDINATE BENCH IN THE CASE OF SM T. ASHA BHOSALE IN ITA NO.2552/MUM/2010, ASSESSMENT YEAR 2004-05, WHEREIN SIMILAR LOSS SUFFERED ON ACCOUNT OF EXCHANGE RATE DIFFERENCE HAS BEEN HELD T O BE A NOTIONAL LOSS. SO HOWEVER, THE LD. REPRESENTATIVE FOR THE ASSESSEE PO INTED OUT THAT WHAT IS OF ESSENCE IS TO MAINTAIN CONSISTENCY AND FOR THAT MAT TER EITHER THE REVENUE OUGHT TO HAVE ALLOWED THE LOSS IN ASSESSMENT YEARS 2003-0 4 AND 2004-05 FOLLOWING THEIR STAND OF ASSESSING THE INCOME IN ASSESSMENT YEARS 2 002-03 AND 2006-07 OR ELSE, IF THE LOSS/GAIN IS TO BE ASSESSED ON ACTUAL REALIZAT ION BASIS, THE SAME PRINCIPLE SHOULD BE APPLICABLE IN ALL THE FOUR CAPTIONED ASSE SSMENT YEARS. AT THIS POINT, LD. REPRESENTATIVE FOR THE ASSESSEE ALSO POINTED OUT TH AT SUBSEQUENTLY, THE EEFC ACCOUNT HAS BEEN CLOSED AND THE DISPUTE PERTAINS T O ONLY THE CAPTIONED FOUR ASSESSMENT YEARS. IN SUPPORT OF THE LATTER PROPOSI TION, THE LD. REPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT THE APPELLANT HAS RAISE D ADDITIONAL GROUNDS OF 4 ITA NO.473/MUM/2010 (AY. 2002-03) ITA NO.6617/MUM/2008 (AY. 2003-04) ITA NO.4249/MUM/2009 (AY. 2004-05) ITA NO. 6051/MUM/2010(A.Y.2006-07) APPEAL IN THE RESPECTIVE ASSESSMENT YEARS, CANVASSI NG THAT THE ACTUAL LOSS INCURRED ON CONVERSION OF FOREIGN CURRENCY INTO IND IAN RUPEES BE ALLOWED ON REALIZATION BASIS. 4. ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRESEN TATIVE HAS NOT DISPUTED THE FACTUAL MATRIX BROUGHT OUT BY THE LD. REPRESENT ATIVE FOR THE ASSESSEE TO POINT OUT THAT THE LOSS BEING NOTIONAL LOSS COULD NOT HAV E BEEN ALLOWED BY THE LOWER AUTHORITIES; AND, IN SO FAR AS, THE INCOME DECLARED BY THE ASSESSEE FOR THE TWO ASSESSMENT YEARS IS CONCERNED, IT IS SUBMITTED THAT THE ASSESSING OFFICER COULD NOT HAVE BROUGHT DOWN THE ADMITTED INCOME AND THE TAX LIABILITY OF THE ASSESSEE. 5. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS. AT THE OUTSET, WE MAY STATE THAT HAVING REGARD TO THE DECISION OF OUR CO- ORDINATE BENCH IN THE CASE OF SMT. ASHA BHOSALE (SUPRA),IN SO FAR AS, THE NATURE OF THE IMPUGNED LOSS IS CONCERNED, IT HAS TO BE CONSIDERED AS A NOTIONAL LO SS; AND, ASSESSEE IS FOLLOWING THE CASH SYSTEM OF ACCOUNTING, SUCH LOSS IS NOT AL LOWABLE. SO HOWEVER, IT IS ALSO STARKLY EVIDENT THAT THERE IS AN INCONSISTENCY IN T HE MANNER IN WHICH SIMILARLY PLACED TRANSACTIONS HAVE BEEN TREATED BY THE REVENU E IN THE CAPTIONED ASSESSMENT YEARS. IT CANNOT BE OVER EMPHASIZED TH AT IT IS IMPERATIVE TO ACCORD A UNIFORM TREATMENT TO SIMILARLY PLACED TRANSACTIONS IN DIFFERENT YEARS, MORE SO WHEN THE TAX RATES ARE SAME IN DIFFERENT YEARS. IN THIS BACKGROUND, WE HAVE CONSIDERED THE PLEA OF THE ASSESSEE FOR TAXING THE TRANSACTIONS ON ACTUAL REALIZATION BASIS. A SUMMARY OF THE CLAIM IN THE C APTIONED ASSESSMENT YEARS HAVE BEEN PLACED BEFORE US BY WAY OF THE FOLLOWING TABUL ATION:- 5 ITA NO.473/MUM/2010 (AY. 2002-03) ITA NO.6617/MUM/2008 (AY. 2003-04) ITA NO.4249/MUM/2009 (AY. 2004-05) ITA NO. 6051/MUM/2010(A.Y.2006-07) TYPE OF ACTUAL BASIS NOTIONAL BASIS INCOME INCOME FINANCIAL YEAR ASST.YEAR CURRENCY CASH BASIS AS PER BOOKS AS PER A O AS PER CIT(A) 2005-05 2005-06 2005-06 2005-06 2006-07 2006-07 2006-07 2006-07 EURO GBP USD AUS$ (4,46,534) (7,08,774) TOTAL (11,52,308) 1,53,514 1,53,514 1,53,514 2003-04 2003-04 2003-04 2003-04 2004-05 2004-05 2004-05 2004-05 EURO GBP USD AUS$ (6,01,994) TOTAL (6,01,994) (19,04,576) 0 0 2002-03 2002-03 2002-03 2002-03 2003-04 2003-04 2003-04 2003-04 EURO GBP USD AUS$ TOTAL 0 (2,68,679) 0 0 2001-02 2001-02 2001-02 2001-02 2002-03 2002-03 2002-03 2002-03 EURO GBP USD AUS$ TOTAL 0 2,27,874 0 2,27,874 GRAND TOTAL (17,54,302) (17,91,867) 1,53,514 3,81 ,388 5.1 THE AFORESAID TABULATION REVEALS THAT THE NET EFFECT OF WHAT HAS BEEN OFFERED BY THE ASSESSEE IN DIFFERENT YEARS IS A LOS S OF RS.17,91,867/-, WHEREAS ON ACTUAL REALIZATION BASIS SUCH LOSS COMES TO RS.17,5 4,302/-, WHICH IS QUITE PROXIMATE. BE THAT AS IT MAY, WE DEEM IT FIT AND P ROPER TO SET-ASIDE THE RESPECTIVE ORDERS OF THE CIT(A) FOR CAPTIONED FOUR ASSESSMENT YEARS AND DIRECT THE ASSESSING OFFICER TO CONSIDER THE CLAIM OF THE ASSE SSEE ON ACTUAL REALIZATION BASIS AND ACCORDINGLY REWORK THE TOTAL INCOME FOR EACH O F THE CAPTIONED YEAR. NEEDLESS TO MENTION, ON THIS ASPECT, THE ASSESSING OFFICER SHALL ALLOW THE ASSESSEE A REASONABLE OPPORTUNITY OF BEING HEARD AND THEREAF TER, HE SHALL RECOMPUTE THE TOTAL INCOME AS PER LAW. 6 ITA NO.473/MUM/2010 (AY. 2002-03) ITA NO.6617/MUM/2008 (AY. 2003-04) ITA NO.4249/MUM/2009 (AY. 2004-05) ITA NO. 6051/MUM/2010(A.Y.2006-07) 6. IN ASSESSMENT YEAR 2003-04, THE OTHER ISSUE RELA TES TO THE DENIAL OF THE CLAIM OF DEPRECATION AMOUNTING TO RS.2,11,819/- ON THE AUDIO SYSTEM. THE ASSESSING OFFICER NOTED THAT THE DEPRECIATION WAS C LAIMED ON A SINGLE ITEM OF AUDIO SYSTEM PURCHASED AT A COST OF RS.4,07,152/-. BEFORE THE ASSESSING OFFICER, ASSESSEE EXPLAINED THAT THE AUDIO SYSTEM WAS USED A LONG WITH T.V SCREEN, DVD AND COMPUTER AND THAT THE ENTIRE SYSTEMS WAS BEING USED FOR THE PURPOSES OF PROFESSION. THE ASSESSING OFFICER AND THEREAFTER, THE CIT(A) DENIED THE CLAIM OF DEPRECATION ON THE GROUND THAT IT WAS RELATED TO TH E USE OF AUDIO SYSTEM AND THAT THE SAME COULD NOT BE TREATED AS A BUSINESS ASSET. THE EMPHASIS OF THE REVENUE IS TO THE EFFECT THAT ON A STANDALONE BASIS, IT CANNOT BE SAID THE AUDIO SYSTEM WAS AN ASSET USED FOR THE PURPOSES OF THE PROFESSI ON. AGAINST THE DENIAL OF DEPRECATION, ASSESSEE IS IN APPEAL BEFORE US. 6.1 BEFORE US, THE LD. REPRESENTATIVE FOR THE ASSES SEE EXPLAINED THAT THE AUDIO SYSTEM WAS AN INTEGRAL PART OF VIDEO CONFERENCING SYSTEM COMPRISING OF COMPUTER, DVD PLAYER, TV SCREEN, SPEAKER, ETC. PURC HASED BY THE ASSESSEE FOR A TOTAL AMOUNT OF RS.8,47,277/-, WHICH WAS SPREAD OVE R TWO ASSESSMENT YEARS OF 2002-03 AND 2003-04. IN THIS CONTEXT, LD. REPRESEN TATIVE FOR THE ASSESSEE REFERRED TO PAGE -6 OF THE ASSESSMENT ORDER FOR A SSESSMENT YEAR 2002-03 TO POINT OUT THAT OTHER ITEMS VIZ. T.V SCREEN, DVD, CO MPUTER, ETC. WERE PURCHASED AND IN THE ASSESSMENT YEAR 2003-04, THE CORRESPOND ING AUDIO SYSTEM WAS PURCHASED. IT WAS, THEREFORE, CONTENDED THAT THERE WAS NO JUSTIFICATION FOR DISALLOWANCE OF DEPRECIATION. 6.2 ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRESE NTATIVE HAS MERELY REITERATED THE STAND OF THE ASSESSING OFFICER, WHIC H WE HAVE ALREADY NOTED IN EARLIER PARA AND THE SAME IS NOT BEING REPEATED FOR THE SAKE OF BREVITY. 7 ITA NO.473/MUM/2010 (AY. 2002-03) ITA NO.6617/MUM/2008 (AY. 2003-04) ITA NO.4249/MUM/2009 (AY. 2004-05) ITA NO. 6051/MUM/2010(A.Y.2006-07) 6.3 WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS AND FIND THAT THERE IS NO JUSTIFICATION FOR THE ASSESSING OFFICER TO DENY THE CLAIM OF DEPRECIATION. IT IS QUITE CLEAR THAT THE PURCHASE OF VIDEO CONFERENCIN G SYSTEM HAS BEEN STAGGERED OVER A PERIOD OF TWO YEARS AND TAKING A PRAGMATIC V IEW, WE FIND NO REASON TO DENY THE CLAIM OF DEPRECIATION. IN FACT, THE LD. REPRES ENTATIVE FOR THE ASSESSEE HAD POINTED OUT THAT FOR ASSESSMENT YEAR 2004-05 ONWARD S THERE WAS NO DISALLOWANCE OF DEPRECIATION AND RATHER THE SCREEN AND MONITOR W HICH WAS REPLACED WAS CLAIMED AS REVENUE EXPENDITURE, BUT THE CLAIM OF TH E ASSESSEE HAS BEEN RESTRICTED ONLY TO THE DEPRECIATION. IN FINAL ANALYSIS, IN OU R VIEW, THE CLAIM OF DEPRECIATION HAS BEEN DENIED BY THE ASSESSING OFFICER ON CONJECT URES AND SURMISES, AND IT IS HEREBY DIRECTED THAT DEPRECIATION BE ALLOWED AS PER LAW. THUS, ON THIS ASPECT ASSESSEE SUCCEEDS. 6.4 IN VIEW OF THE AFORESAID, THE APPEALS OF THE AS SESSEE FOR ASSESSMENT YEARS 2002-03, 2003-04 AND 2006-07 GET DISPOSED OFF AS TH ERE ARE NO OTHER GROUNDS OF APPEAL. HOWEVER, IN SO FAR AS, ASSESSMENT YEAR 200 4-05 IS CONCERNED, THE LAST ISSUE RELATES TO A DISALLOWANCE OF RS.3,64,800/-. IN THIS CONTEXT, THE RELEVANT FACTS ARE THAT DURING THE YEAR UNDER CONSIDERATION, ASSES SEE INCURRED AN EXPENDITURE OF RS.3,64,000/-ON ACCOUNT OF PURCHASE OF PHILIPS 42 PLASMA MONITOR AND PIXEL PLUS PLASMA E-BOX AND SUCH EXPENDITURE WAS CLAIMED AS RE PAIRS. ON BEING ASKED TO EXPLAIN, ASSESSEE POINTED OUT THAT THE MONITOR SC REEN OF THE FULL AUDIO SYSTEM GOT DAMAGED AND WAS REPLACED. SINCE MONITOR BY ITS ELF DID NOT FORM ANY NEW ASSET AS IT COULD NOT BE USED INDEPENDENTLY, THE EX PENDITURE WAS CLAIMED AS REVENUE EXPENDITURE. THE ASSESSING OFFICER AS WELL AS THE CIT(A) HAVE TREATED IT AS A CAPITAL EXPENDITURE. THE CIT(A) HAS FURTHER D IRECTED THAT DEPRECIATION BE 8 ITA NO.473/MUM/2010 (AY. 2002-03) ITA NO.6617/MUM/2008 (AY. 2003-04) ITA NO.4249/MUM/2009 (AY. 2004-05) ITA NO. 6051/MUM/2010(A.Y.2006-07) ALLOWED ON SUCH EXPENDITURE. NOT BEING SATISFIED W ITH THE ORDER OF THE CIT(A), ASSESSEE IS IN FURTHER APPEAL BEFORE US. 6.5 AFTER HEARING THE RIVAL STANDS, IN OUR CONSIDER ED OPINION, THE PLEA OF THE ASSESSEE FOR DEDUCTION OF THE EXPENDITURE AS REPAI RS CANNOT BE FAULTED, INASMUCH AS, MONITOR AND SCREEN ITSELF CANNOT BE FUNCTIONALL Y USED AND IS ESSENTIALLY A PART OF A LARGER SYSTEM. IN SUCH A SITUATION, IN OUR VI EW, IT WOULD BE IN THE FITNESS OF THINGS THAT THE IMPUGNED AMOUNT IS ALLOWED AS A REV ENUE EXPENDITURE. THUS, ON THIS ASPECT ALSO ASSESSEE SUCCEEDS. 7. IN THE RESULT, CAPTIONED APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED, AS ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 07/04/2017 SD/- SD/- (RAM LAL NEGI ) (G.S. PANNU) JUDICIAL MEMBER ACCOCUNTANT MEMBER MUMBAI, DATED 07/04/2017 VM , SR. PS COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT , 2. THE RESPONDENT. 3. THE CIT(A)- 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI