Madras High Court
The Commissioner Of Income Tax vs M/S.American Power Conversion(India) on 4 April, 2014
Author: Chitra Venkataraman
Bench: Chitra Venkataraman, T.S.Sivagnanam
IN THE HIGH COURT OF JUDICATURE AT MADRAS Dated :04.04.2014 Coram The Honourable Mrs.Justice CHITRA VENKATARAMAN and The Honourable Mr.Justice T.S.SIVAGNANAM Tax Case (Appeal) No.1373 of 2007 The Commissioner of Income Tax Tamil Nadu-I, Madras ... Appellant -vs- M/s.American Power Conversion(India) Pvt.Ltd., 187/3, 188/3, Jigani Industrial Area, Jigani Anekal Taluk Bangalore 562 106. ...Respondent Prayer: Tax Case Appeal filed under Section 260A of the Income Tax Act, 1961 against the order of the Income Tax Appellate Tribunal, Madras "A" Bench dated 28.02.2006 passed in I.T.A.No.1257/Mds/2005 for the assessment year 2000-01. For appellant : Mr.T.Ravikumar Standing Counsel for the Income Tax Department For Respondent : No appearance JUDGMENT
(The Judgment of the Court was made by CHITRA VENKATARAMAN.J.,) In spite of service of notice on the assessee as early as 10.12.2007, there is no representation on behalf of the assessee either in person or through the counsel. However, after hearing learned Standing Counsel for the Revenue and on going through the records placed before us, the present order is passed.
2. Revenue is on appeal as against the order passed by the Income Tax Appellate Tribunal and the Tax Case (Appeal) is admitted on the following substantial question of law:
"Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in setting aside the order of the Commissioner of Income Tax and hold that loss arising out of fluctuation in foreign exchange for restatement liabilities as at the end of the financial year is not the contingent liability is valid in law?"
3. The assessment year under consideration is 2000-01. The assessee is engaged in the business of manufacture and sale of UPS. The assessee effected sales both locally as well as in foreign market. After making adjustment in its return on inadmissible items, the assessee showed foreign exchange loss and furnished a note that the loss had arisen on account of the restatement of the outstanding balance as on the date of the balance sheet; on account of rate difference between rate prevailing on the day of actual purchase/sale and on the day of payment/realization. Thus, the assessee claimed that the loss thus shown on account of the restatement merited consideration. Since the claim of the assessee was accepted by the Assessing Officer, in exercise of power under Section 263 of the Income Tax Act, 1961, the Commissioner of Income Tax issued proceedings calling upon the assessee to show cause as to why the claim of foreign exchange loss of Rs.39,12,520/- being the difference arising out of restatement of creditors as on 31.03.2000 and Rs.7,52,312/- being restatement of ELB loan repayable taken for purchase of materials should not be raised since both the liabilities related to transaction of earlier years and were in the nature of contingent liability. Apart from this, there were other issues on the deduction under Section 80HHC of the Income Tax Act, 1961. The assessee submitted its objections. After hearing the assessee's contention that charging of the foreign exchange loss in profit and loss account was in accordance with the accounting standards, the Revisional Authority, rejected the contention by citing the judgment of the Apex Court reported in 227 ITR 172 [Alkali Chemicals and Fertilizers Ltd.] and thus confirmed the proposal to treat the loss as contingent liability.
4. Aggrieved by this, the assessee went on appeal before the Income Tax Appellate Tribunal, which allowed the appeal filed by the assessee and following the decision of the Special Bench of the Tribunal in the case of Oil and Natural Gas Corporation vs. Deputy CIT reported in 83 ITD 151 (Del) holding that the loss amount from the restatement of foreign liabilities on account of exchange fluctuation was not a contingent liability but an ascertained liability as on a particular date. The Tribunal held that the assessee had taken a loan in foregin currency and the liability was restated. Even if the assessee was following mercantile system of accounting, the "event", i.e.change in value of foreign currency in relation to Indian currency had taken place at the end of the financial year. Thus the claim was to be allowed as ascertained liability. The Tribunal accepted the assessee's case, but it however pointed out the argument of the assessee that in the past years, whenever the assessee has made profits on account of such restatement, the same was declared for taxation purposes. Since the profit and loss account were not available, the Tribunal set aside the order of the Commissioner of Income Tax (Appeals) and restored the matter back to the Assessing Officer to consider as to similar system was followed in the earlier year that the profits arising out of such restatement was subjected to tax.
5. Aggrieved by this, the present appeal by the Revenue.
6. In the decision reported in (2010) 322 ITR 180[SC) [Oil and Natural Gas Corporation Ltd., vs. Commissioner of Income Tax], the Apex court considered the issue as regards the adjustment to be made on account of the fluctuation of foreign exchange as on the last date of the accounting year. The Apex Court held that the assessee was entitled to adjust the actual cost of imported assets claimed in foreign currency on account of fluctuation in the rate of exchange at each of the relevant balance-sheet dates, pending actual payment of the liability under Section 43A. The Apex Court further held that the loss claimed on revenue account was allowable under Section 37(1) and that the assessee was entitled to adjust the actual cost acquired in foreign exchange in terms of Section 43A.
7. Extending the said decision to the facts of the case herein, the restatement of the liability itself came at the end of the accounting year on account of the foreign exchange rate fluctuation and thereby the assessee was stated to have been saddled with the loss arising out of the restatement of the liability. Following the decision of the Apex Court cited above on the admitted factual position that the restatement had come at the end of the accounting year and that the present liability itself was on account of the exchange fluctuation, we have no hesitation in rejecting the Revenue's appeal.
8. Learned Standing Counsel for the Revenue submitted that even though the Tribunal had remanded the matter yet, the observation made by the Tribunal would stand in the way of the Revenue considering the claim of the assessee. We do not find any necessity to delete any of the observation made by the Tribunal in the light of the decision of the Apex Court cited above.
9. In the circumstances, the Tax Case (Appeal) stands dismissed. No costs.
(C.V.,J) (T.S.S.,J)
04.04.2014
Index:Yes
Internet:Yes
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To
1. The Income Tax Officer
Company Ward I(1)
Chennai.
2. The Commissioner of Income Tax-I i/c
Chennai-34.
3. The Income Tax Appellate Tribunal, Chennai "A" Bench
CHITRA VENKATARAMAN, J.
and
T.S.SIVAGNANAM, J.
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Tax Case (Appeal) No.1373 of 2007
04.04.2014