DCIT, CHENNAI V. M/s. Suraj Agro Products, CHENNAI

ITA 842/CHNY/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 64538 (ITAT-CHENNAI)
• Duration Of Justice: 6 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-11-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 07-11-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 16-04-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: R MEENAKSHISUNDARAM
• Keywords: Business expenditure
• Section: 80HHC

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI (BEFORE SHRI N.S.SAINI, ACCOUNTANT MEMBER AND SHRI S.S. GODARA, JUDICIAL MEMBER ) .. I.T.A. NO. 842/MDS/12 ASSESSMENT YEAR : 2008-09 DEPUTY COMMISSIONER OF INCOME TAX, BUSINESS CIRCLE II, CHENNAI 34. (APPELLANT) V. M/S.SURAJ AGRO PRODUCTS, NO.150,LUZ CHURCH ROAD, MYLAPORE, CHENNAI-4. PAN : AAHFS 9335 B (RESPONDENT) APPELLANT BY : SHRI GURU BASHYAM JCIT RESPONDENT BY : SHRI R.MEE NAKSHISUNDARAM ADVOCATE DATE OF HEARING : 07.11.12 DATE OF PRONOUNCEMENT : 08.11.12 O R D E R PER N.S.SAINI, ACCOUNTANT MEMBER : THIS IS AN APPEAL FILED BY THE REVENUE AGAINST TH E ORDER OF CIT(A)-VI, CHENNAI DATED 05.01.2012. ITA NO.842/MDS/12 2 2. THE DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT T HE SOLE ISSUE INVOLVED IN THE APPEAL OF REVENUE IS THAT THE CIT(A ) ERRED IN HOLDING THAT THE FOREIGN EXCHANGE FLUCTUATION LOSS ARISEN D UE TO TIME LAG IN TRANSFER FROM EEFC ACCOUNT TO CURRENT ACCOUNT OF TH E ASSESSEE FORMS PART OF BUSINESS LOSS. D.R. RELIED ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. SHAH ORIG INALS [2010] 327 ITR 19 AND SUBMITTED THAT IT WAS HELD BY THE H ONBLE BOMBAY HIGH COURT THAT EXCHANGE FLUCTUATION WHICH ARISE S UBSEQUENT TO THE TRANSACTION OF EXPORT, WHICH WAS NOT ON ACCOUNT OF DELAYED REALIZATION OF EXPORT PROCEEDS, BUT DUE TO THE DEPOSIT OF THE R ECEIPTS IN THE EEFC ACCOUNT, COULD NOT BE REGARDED AS PART OF THE PROF ITS DERIVED BY THE ASSESSEE FROM THE EXPORT OF GOODS OR MERCHANDISE. HE THEREFORE, ARGUED THAT THE A.O. HAD RIGHTLY DISALLOWED THE EXC HANGE FLUCTUATION LOSS OF RS.25,76,486/- CLAIMED BY THE ASSESSEE. 3. THE A.R ON THE OTHER HAND, RELIED ON THE DECISIO N OF THE THIRD MEMBER OF AHMEDABAD BENCH IN THE CASE OF ITO VS. B ANYAN CHEMICALS P. LTD IN 310 ITR (AT) 384 (AHD.) AND SU BMITTED THAT THE TRIBUNAL HAS HELD THAT THE INCOME WHICH ACCRUES TO THE ASSESSEE ITA NO.842/MDS/12 3 FROM AN ACTIVITY WHICH IS NOT DIRECTLY FROM THE CON DUCT OF THE BUSINESS OF THE COMPANY, MAY BE AN INCOME INCIDENTAL TO THE BUSINESS OF THE COMPANY, BUT THE SAME CANNOT BE HELD THE INCOME DER IVED FROM EOU (EXPORT ORIENTED UNIT). HE ARGUED THAT THE BENCH H AD HELD THAT THE BUSINESS HAS TO BE CONSIDERED AS WHOLE AND THE INCO ME CAN BE INCIDENTAL TO THE BUSINESS OF THE ASSESSEE. HE ARG UED THAT THE DECISION RELIED ON BY THE D.R, OF HONBLE BOMBAY HI GH COURT WAS DECIDING THE ISSUE OF ALLOWABILITY OF DEDUCTION UND ER SECTION 80HHC OF THE ACT, WHICH WAS NOT THE CASE HERE, IN THIS AP PEAL. HE SUBMITTED THAT IN THE INSTANT CASE, THE ISSUE WAS WHETHER EXC HANGE FLUCTUATION LOSS WAS A BUSINESS EXPENDITURE OF ASSESSEE AND ALL OWABLE DEDUCTION TO THE ASSESSEE OR WAS NOT A BUSINESS EXPENDITURE AS HELD BY THE A.O. HE SUPPORTED THE ORDER OF THE CIT (A) AND SUBMITTED THAT THE CIT(A) HAS RIGHTLY HELD THE LOSS FROM EXCH ANGE FLUCTUATION TO BE A BUSINESS LOSS OF THE ASSESSEE BY FOLLOWING THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. M/S.WO ODWORD GOVERNOR INDIA LTD. 312 ITR 254(SC). ITA NO.842/MDS/12 4 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF LOWER AUTHORITIES AND MATERIALS AVAILABLE ON RECORD . IN THE INSTANT CASE, THE ASSESSEE HAD CLAIMED DEDUCTION FOR FOREIG N EXCHANGE LOSS OF RS.25,76,486/- ON ACCOUNT OF CONVERSION OF FOREI GN CURRENCY FROM EEFC ACCOUNT TO CURRENT ACCOUNT OF THE ASSESSEE. T HE A.O DISALLOWED THE SAME ON THE GROUND THAT IT WAS NOT A BUSINESS EXPENDITURE OF THE ASSESSEE AS THE BUSINESS TRANSA CTION THAT HAS BEEN ENTERED INTO BY THE ASSESSEE FIRM REACHED FIN ALITY ON THE DATE ON WHICH THE FIRM REALIZED THE AMOUNT IN THE EEFC ACCOUNT AND THEREFORE, ANY SUBSEQUENT LOSS CANNOT BE ALLOWED AS BUSINESS EXPENDITURE. ON APPEAL, THE CIT(A) FOLLOWING THE D ECISION OF HONBLE SUPREME COURT IN THE CASE OF M/S.WOODWORD GOVERNOR INDIA LTD. (SUPRA) HELD THAT LOSSES INCURRED IN THE SECOND STA GE OF TRANSFER FROM EEFC ACCOUNT TO INDIAN CURRENCY THOUGH DO NOT EXTEN D THE BUSINESS TRANSACTION RELATING TO THE INVOICE FOR WHICH THE R EMITTANCES WERE MADE BUT THE LOSS SO INCURRED WAS IN THE COURSE OF BUSINESS BY THE ASSESSEE AND ACCORDINGLY, DELETED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. WE FIND THAT NO MATERIAL WAS BROUGHT ON RECORD BY THE DEPARTMENT TO SHOW THAT MONEY WHICH WAS KEPT IN THE EEFC ITA NO.842/MDS/12 5 ACCOUNT WAS NOT FOR THE BUSINESS PURPOSE OF THE ASS ESSEE AND DID NOT FORM THE PART OF BUSINESS ASSET OF THE ASSESSEE . MOREOVER THE CONTENTION OF THE ASSESSEE IS THAT THE MONEY WAS KE PT IN EEFC ACCOUNT TO MEET THE FUTURE FOREIGN EXCHANGE REPAYME NT OF BUSINESS OF THE ASSESSEE IS PLAUSIBLE ONE AND CANNOT BE REJ ECTED WITHOUT BRINGING MATERIAL TO THE CONTRARY ON RECORD. IN TH ESE CIRCUMSTANCES, THE LOSS IN QUESTION BEING ARISEN OUT OF BUSINESS A SSET AND BEING ARISEN DURING THE NORMAL COURSE OF BUSINESS, THE SA ME IS CLEARLY ALLOWABLE AS BUSINESS DEDUCTION TO THE ASSESSEE. WE , THEREFORE, CONFIRM THE ORDER OF THE CIT(A) AND DISMISS THE GRO UNDS OF APPEAL OF THE REVENUE. 5. IN THE RESULT, THE APPEAL OF REVENUE IS DISMISS ED. ORDER PRONOUNCED ON THURSDAY, THE 08 TH NOVEMBER, 2012 AT CHENNAI . SD/- SD/- (S.S.GODARA) (N.S.SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 08 TH NOVEMBER, 2012. K S SUNDARAM. COPY TO: ASSESSEE/AO/CIT (A)/CIT/D.R./GUARD FILE ITA NO.842/MDS/12 6