ACIT, Bangalore V. M/s. ITI Limited, Bangalore

ITA 775/BANG/2008

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 9473 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 3 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-09-2009
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 17-09-2009
• Assessment Year: 2002-2003
• Appeal Filed On: 02-06-2008
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: JASON P BOAZ
• Assessee Lawyers: DINESH P
• Keywords: Capital asset; Opportunity of being heard

Judgement Text

PAGE 1 OF 6 ITA NOS.775 & 776 /BANG/2009 1 THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH A BEFORE SHRI K K GUPTA, A.M. AND SHRI GEORGE GEORGE K., J.M ITA NOS.775 & 776/BANG/2008 [ASSESSMENT YEARS 2002-03 & 2003-04] THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-11(4), BANGALORE. - APPELLANT VS M/S ITI LIMITED, ITI BHAVAN, DOORAVANI NAGAR, BANGALORE-16. - RESPONDENT APPELLANT BY : SHRI JASON P BOAZ RESPONDENT BY : SHRI DINESH P. O R D E R PER BENCH : THESE ABOVE APPEALS FILED BY THE REVENUE EMANATES FROM THE CONSOLIDATED ORDER OF CIT(A)-I, DATED 31ST MARCH, 2008. THE CONCERNED ASST. YEARS ARE 2002-03 AND 200 3-04. 2. THE APPEALS WERE DISMISSED BY THE TRIBUNAL VIDE ORDER DATED 3/12/2008, FOR WANT OF SANCTION FROM TH E CABINET COMMITTEE ON DISPUTES. SUBSEQUENTLY, THE REVENUE RE CEIVED COD PERMISSION TO PURSUE THE APPEALS BEFORE THE ITAT ON ONE ISSUE, NAMELY, 'DISALLOWANCE OF CLAIM OF DEDUCTION OF PROVI SION FOR FOREIGN EXCHANGE FLUCTUATION' VIDE LETTER NO.COD/01 /2009 DATED 3/2/2009. THEREAFTER, REVENUE FILED M.P. FOR RESTORATION PAGE 2 OF 6 ITA NOS.775 & 776 /BANG/2009 2 OF THESE APPEALS AND THE SAME WERE RESTORED BY THE T RIBUNAL'S ORDER IN M.P. NO.12/09 DATED 27/4/2009. 3. THE ONLY SURVIVING EFFECTIVE GROUND RAISED IN BO TH THE APPEALS ARE IDENTICAL AND THE SAME IS REPRODUCE D BELOW:- 'THE LEARNED CIT(A) ERRED IN DIRECTING THE AO TO ALLOW THE CLAIM OF DEDUCTION OF PROVISION FOR FOREIGN EXCHANGE FLUCTUATION WITHOUT APPRECIATING THAT THE PROVISION WAS MADE FOR MEETING A CONTINGENT LIABILITY, WHICH IS NOT ALLOWABLE AS DEDUCTION AS PER THE PROVISIONS OF THE I T ACT, 1961'. 4. BRIEF FACTS IN RELATION TO THE ABOVE GROUND ARE AS BELOW:- FOR ASST. YEAR 2002-03, ASSESSEE HAD CLAIMED AN EXPENDITURE OF RS.1065 LAKHS ON ACCOUNT OF EXCHANGE VARIATION. THE ASSESSEE HAD FURNISHED BREAK-UP OF RS.1065 LAKH S AS FOLLOWS:- I) EXCHANGE VARIATION ON PAYMENTS MADE DURING THE YEAR 2001-02 RS.504.85 LAKHS. II) PROVISION MADE FOR EXCHANGE VARIATION ON THE DATE OF BALANCE SHEET RS/560.15 LAKHS. THE ASSESSING OFFICER WAS OF THE VIEW, THE LOSS OF RS.560.15 LAKHS IS ONLY A PROVISION AND SAME IS TO BE ADDED BA CK TO THE INCOME OF THE ASSESSEE AND ACCORDINGLY, HE COMPLETED THE ASSESSMENT. SIMILARLY, FOR ASST. YEAR 2003-04, THE ASSESSEE HAD PAGE 3 OF 6 ITA NOS.775 & 776 /BANG/2009 3 CLAIMED AN EXPENDITURE OF RS.3,48,00,000/- AS EXCHA NGE VARIATION. FROM THE BREAK-UP FURNISHED BY THE ASSE SSEE, THE AO WAS OF THE VIEW THAT A SUM OF RS.1,79,54,000/- OUT OF THE ABOVE SAID EXPENDITURE CLAIMED IS ONLY A PROVISION AND THE SAME IS TO BE REDUCED FROM THE LOSS RETURNED. THE ASSESSMENT WAS COMPLETED ACCORDINGLY. 5. BEING AGGRIEVED, THE ASSESSEE FILED APPEALS BEF ORE THE CIT(A). THE LEARNED CIT(A) ALLOWED THE APPEALS OF THE ASSESSEE. THE FINDING OF THE LEARNED CIT(A) IS REP RODUCED BELOW:- 'I HAVE CONSIDERED THE ASSESSMENT ORDER AND THE APPELLANT'S SUBMISSIONS. VARIATIONS IN FOREIGN EXCHANGE TAKE PLACE DUE TO SEVERAL FACTORS SUCH AS INTERNATIONAL TRADE AND THE BALANCE OF PAYMENTS BETWEEN THE TRADING COUNTRIES. PROVISIONS ARE MADE FOR MEETING CERTAIN EXIGENCIES, ONE OF WHICH IS THE LIKELIHOOD OF MAKING EXCESS PAYMENTS TO THE APPELLANT'S PARTIES IN FOREIGN COUNTRIES. VARIATIONS IN FOREIGN EXCHANGE RATES ARE NOT WITHIN THE CONTROL OF THE APPELLANT AND ITS TRADING PARTNERS. HENCE, MANUFACTURERS AND TRADERS ARE FORCED TO MAKE PROVISIONS TO MEET CONTRACTUAL OBLIGATIONS. THE CLAIM OF THE APPELLANT FOR MAKING PROVISION TO MEET SUCH CONTINGENCIES IS, THEREFORE, JUSTIFIED. THE AO IS, THEREFORE, DIRECTED TO ALLOW THE CLAIM FOR DEDUCTION OF PROVISION IN THIS REGARD'. PAGE 4 OF 6 ITA NOS.775 & 776 /BANG/2009 4 6. THE REVENUE BEING AGGRIEVED IS IN APPEAL BEFORE US. THE LEARNED DR SUBMITTED, CIT(A) HAS NOT GIVEN ANY R EASONING FOR ALLOWING THE APPEAL OF THE ASSESSEE. IT WAS SU BMITTED, THE CLAIM OF DEDUCTION OF PROVISION FOR FOREIGN EXCHANG E FLUCTUATION WAS ALLOWED WITHOUT APPRECIATING THAT THE PROVISION WAS FOR MEETING A CONTINGENT LIABILITY, WHICH IS NOT LEGALLY TENABLE. IT WAS FURTHER SUBMITTED THAT THE IMPACT OF AMENDMENT TO S ECTION 43A OF THE ACT WAS NOT CONSIDERED BY THE CIT(A) WHILE RE NDERING THE DECISION IN FAVOUR OF ASSESSEE. 7. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT EXCHANGE VARIATION, REPRESENTS CONVERSION DIFF ERENCE ON UPDATING THE CURRENT LIABILITIES PAYABLE IN FOREIGN EXCHANGE AT THE TIME OF EXCHANGE RULING ON THE DATE OF BALANCE SHEET. THIS HAS BEEN CHARGED TO PROFIT AND LOSS ACCOUNT, IT WAS SUBMITTED, IN ACCORDANCE WITH THE ACCOUNTING POLICY OF THE COMPANY. IT WAS CONTENDED BY THE LEARNED AR, SECTION 43A OF THE ACT DEALS WITH ACQUISITION OF ASSET, WHEREAS IN THE INSTANT CASE, EXPENDITURE INCURRED IN FOREIGN EXCHANGE IS ON REVENUE FRONT AN D HENCE, SECTION 43A OF THE ACT DOES NOT HAVE APPLICATION. THE COUNSEL ALSO RELIED ON THE SPECIAL BENCH DECISION IN THE CA SE OF OIL AND NATURAL GAS CORPORATION LTD. V DCIT 83 ITD 151 (DEL .) (SB) WHEREIN IT WAS HELD THAT CHANGE IN VALUE OF FOREIGN CURRENCY IN RELATION TO INDIAN CURRENCY, HAD ALREADY TAKEN PLACE IN THE CURRENT YEAR AND HENCE, LOSS INCURRED BY THE ASSESSEE ON ACCOUNT PAGE 5 OF 6 ITA NOS.775 & 776 /BANG/2009 5 OF FLUCTUATION OF FOREIGN CURRENCY RATE IS NOT NOTIO NAL AND IS AN ALLOWABLE DEDUCTION. THE LEARNED AR ALSO SUBMITTED A NOTE ON EXCHANGE VARIATION, WHICH HE RECEIVED FROM THE ASSE SSEE COMPANY. 8. WE HAVE HEARD RIVAL SUBMISSION AND PERUSED THE MATERIAL ON RECORD. THE AUTHORITIES BELOW HAVE NOT EXAMINED AS TO THE NATURE OF EXPENDITURE INCURRED BY THE ASSESSE E, WHETHER IT IS ON REVENUE FRONT OR FOR ACQUISITION OF A CAPI TAL ASSET. HAD THE EXPENDITURE BEEN INCURRED FOR ACQUISITION OF A CAPITAL ASSET, SECTION 43A OF THE ACT MANDATES THAT THE EXCHANGE V ARIATION HAS TO BE REDUCED OR ADDED TO THE COST OF THE ASSET AT THE TIME OF MAKING OF ACTUAL PAYMENT. IT WAS SUBMITTED BY THE LEARNED AR THAT THE ASSESSEE COMPANY WAS MAKING PROVISION FO R EXCHANGE VARIATION ON ACCOUNT OF PURCHASE OF RAW MATERIAL FR OM THE FOREIGN VENDORS AND IS CLAIMED AS AN REVENUE EXPEND ITURE. HOWEVER, EXCEPT FOR THE SUBMISSION OF THE COUNSEL, THERE IS NOTHING ON RECORD TO EXPLAIN THE NATURE OF EXPENDIT URE INCURRED IN FOREIGN CURRENCY, WHETHER THE SAME IS ON REVENUE ACCOUNT OR ON CAPITAL ACCOUNT. THEREFORE, IN THE INTEREST OF JUSTICE AND FOR A PROPER FINDING ON FACTS, WE REMIT THE MATTER BACK TO THE AO, FOR FRESH CONSIDERATION. THE ASSESSING OFFICER SHA LL PASS FRESH ORDERS AS EXPEDITIOUSLY AS POSSIBLE AFTER AFFORDING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. PAGE 6 OF 6 ITA NOS.775 & 776 /BANG/2009 6 9. IN THE RESULT, THE APPEALS FILED BY THE REVENUE ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSE. PRONOUNCED IN THE OPEN COURT ON 25TH SEPTEMBER, 200 9. SD/- SD/- (K K GUPTA) (GEORGE GEORGE K) ACCOUNTANT MEMBER JUDICIAL MEMBER BANGALORE, DATED:25/9/2009 COPY TO :- 1. THE ASSESSEE 2. THE REVENUE 3. THE CIT(A) CONCERNED. 4. THE CIT, CONCERNED. 5. THE DR 6. GF 7. GF, ITAT, DELHI BENCH BY ORDER MSP/18/9/ ASSISTANT REGISTRAR, ITAT, BANGALORE.