Income Tax Appellate Tribunal - Delhi
Filatex India Ltd., New Delhi vs Department Of Income Tax
ITA NOS. 798-802/DEL/2010 &
I.T.A NOS. 963, 1931,1267-1269/DEL/2010
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH "B" NEW DELHI
BEFORE SHRI R.P. TOLANI, JUDICIAL MEMBER
AND
SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER
I.T.A. Nos. 798, 799, 800, 801 & 802/Del/2010
A.Yrs. : 2001-02, 2002-03, 2003-04, 2004-05 & 2005-06
M/s Filatex India Ltd., vs. DCIT, CIRCLE-11(1),
42, Community Centre, New Delhi
New Friends Colony,
New Delhi
(PAN: AAACF0027B)
AND
I.T.A. Nos. 963, 1267, 1268 & 1269/Del/2010
A.Yrs. 2003-04, 2004-05, 2005-06 & 2006-07
DCIT, CIR. 11(1), vs. M/s Filatex India Ltd.,
New Delhi 42, Community Centre,
CR Bldg., Room No. 312, New Friends Colony,
New Delhi - 110002 New Delhi
(Appellant) (Respondent)
Assessee by : Sh. Ashwani Kumar, CA
Department by : Dr. Sudha Kumari, C.I.T. (D.R.)
ORDER
PER BENCH These appeals by the assessee and revenue emanate out of orders of the Ld. Commissioner of Income Tax (A) for the concerned assessment years. Since the issues are connected and the appeals were heard together. These are being consolidated for the sake of convenience by this common order.
2. One common issue raised in the assessee appeal from asstt. years 2001-02 to 2005-06 pertains to addition as income from 1 ITA NOS. 798-802/DEL/2010 & I.T.A NOS. 963, 1931,1267-1269/DEL/2010 undisclosed sources representing suppression of sales on account of under valuation of sales of waste.
2.1 In this case the search and seizure activities were carried out at the office of the assessee company. During the course of search proceedings, it came up that a search by Excise Department has been carried out at the factory premises of the assessee company. During the course of search, it was found that the assessee has sold out the waste of @%` 5.5 per kg. whereas the actual sales price was ` 20/- per kg. Statement of Shri Sanjay Agrawal, GM (Marketing) was recorded during this search wherein he admitted that the waste yarn was being shown to be sold @ ` 5.50 per kg. where as reality it was sold for ` 20/- per kg. A show cause notice was issued by the Joint Director, DGCEI, Regional Unit, Pune wherein the differential value of sales was worked out at ` 91,81,006/- to F.Y. 2000-01 to 2004-05 as below:-
S.No. Financial Differential value on
year sale of waste (`)
1 2000-01 37,23,324/-
2 2001-02 17,88,990/-
3 2002-03 27,29,513/-
4 2003-04 31,71,944/-
5 2004-05 11,21,235/-
Total 91,84,006/-
91,84,006/-
2.2 It was further noted that assessee has filed a petition before the Central Excise Settlement Commission and had paid the duty on the differential value. In this regard, assessee was asked to explain why 2 ITA NOS. 798-802/DEL/2010 & I.T.A NOS. 963, 1931,1267-1269/DEL/2010 the differential value of sales of waste should be not brought to tax as suppression of sales. In response, assessee submitted that the excise duty has been paid to buy peace of mind and it has not under valued the sale of waste. However, the Assessing Officer was not convinced with the above. He observed that under valuation in sales of waste was detected by the Excise Department during the course of search by Intelligence Wing. The assessee has paid additional excise duty to the extent of ` 16,89,857/- on the under invoicing in the sale of waste to the extent of ` 91,84,006/-. This difference of ` 91,84,006/- was assessed and added as suppression of sales as below:-
S.No. Financial year Assessment Differential value on year sale of waste (`) 1 2000-01 2001-02 37,23,324/-
2 2001-02 2002-03 17,88,990/-
3 2002-03 2003-04 27,29,513/-
4 2003-04 2004-05 31,71,944/-
5 2004-05 2005-06 11,21,235/-
Total 91,84,006/-
91,84,006/-
3. Before the Ld. Commissioner of Income Tax (A) assessee submitted that the allegations of suppression of sales against the assessee was erroneous. It was submitted that certain documents were seized by the Excise authorities which allegedly indicated evasion of excise duty. That the assessee company with the primary objective to avoid prolonged litigation, continue its business unhindered, buy peace with the authorities, amicably resolve all differences and disputed, filed an application for settlement of its case 3 ITA NOS. 798-802/DEL/2010 & I.T.A NOS. 963, 1931,1267-1269/DEL/2010 with the Excise Settlement Commission, on 22.2.2007. The Settlement Commission accepted the application in terms of its order dated 18.2.2007. The assessee company paid excise duty of ` 143,73,644/-
on alleged sales aggregating ` 91,84,006/- during the income tax assessment years 2001-02 to 2005-06. It was submitted that the assessee company neither admitted nor in fact suppressed its sale, nor received any cash money, but in order to resolve disputes, it paid the excise duty as aforesaid. Thus, it was pleaded that merely because excise duty has been paid, it does not imply that the assessee company has in fact earned unaccounted income.
3.1 Further, it was without prejudice submitted that the alleged suppression of sales came to light in assessment year 2008-09, thus allegedly suppression of sales, if at all is to be treated as income without admitting the same be considered as income assessable in asstt. year 2008-09. However, Ld. Commissioner of Income Tax (A) did not accept the submissions. He held that according to assessee's own submission there was under valuation in the sale of waste and the same was detected by the Intelligence Wing of the Excise Department during the course of search. Accordingly, Ld. Commissioner of Income Tax (A) confirmed the action of the Assessing Officer.
4. Against the above order the assessee is in appeal before us.
5. We have heard the rival contentions in light of the material produced and precedent relied upon. We find that in this case under valuation in sale of waste was detected by the Intelligence Wing of the excise department during the course of search on 10.12.2003. Assessee has duly filed application before the Excise Settlement Commission. The assessee accepted that as per the assessee's own 4 ITA NOS. 798-802/DEL/2010 & I.T.A NOS. 963, 1931,1267-1269/DEL/2010 admission there was difference in the sales figure of waste amounting to ` 91,84,006/- pertaining to asstt. year 2001-02 to 2005-06. Assessee has accepted the order of the Settlement Commission in this regard and has duly paid excise duty of ` 143,73,644/- on the alleged sales amount of ` 91,84,006/- for the financial year 2001-02 to 2004-
05. In light of the above, we find that now the submission of the assessee is that it has accepted the verdict of Settlement Commission and the orders of the authorities in Excise Department only to buy peace of mind. This contention in our considered opinion, does not have any cogency. The submissions of the assessee that no addition in the income tax assessment can be made in this regard as nothing has been found by the income tax authorities in this regard is also not tenable. It was assessee's own admission before the excise department that it has suppressed the sales amounting to ` 91,84,006/- pertaining to asstt. year 2001-02 to 2005-06. Thus, we find that there is no infirmity in the orders of the authorities below in this regard. Hence, we affirm the order of the Ld. Commissioner of Income Tax (A) on this issue and decide the case against the assessee.
6. Another common issue raised in the Revenue appeals asstt. year 2003-04 to 2006-07 is that Ld. Commissioner of Income Tax (A) has erred in deleting the disallowance on account of foreign exchange fluctuation loss which remained included in the WDV in the plant and machinery which was covered under the provisions of sub-section 43A of the Act.
7. On this issue assessee has capitalized adverse impact on foreign exchange fluctuation, the same was included in the value of plant and machinery. The depreciation on the said amount was disallowed, as 5 ITA NOS. 798-802/DEL/2010 & I.T.A NOS. 963, 1931,1267-1269/DEL/2010 the Assessing Officer considered that this is notional loss. Hence, depreciation on this account was disallowed. The Assessing Officer relied upon the provisions of section 43A in this regard. In this regard, assessee has claimed that prior amendment to section 43A, it was permissible for the assessee to increase the value of asset by an amount due to loss suffered out of the foreign exchange fluctuation.
8. Before the Ld. Commissioner of Income Tax (A) assessee relied upon the decision of the Hon'ble Apex Court in the case of Arvind Mills Ltd. 193 ITR 255 and submitted as under:-
"So far as depreciation allowance is concerned the position is perhaps a little simpler because it is a recurrent claim. Under the definition contained under section 32 read with section 43(1) and (6) of Income Tax Act, the depreciation as to be allowed on thereof in earlier years, thus, where the cost of assets subsequently goes up because of devaluation, whatever might have been the position in the earlier year, it is always open to the assessee to insist, and for the income tax officer to agree, that the written down value in the year in which the increased liability has arisen should be taken on the basis of the increase cost minus depreciation earlier allowed on the basis of old cost C.I.T. vs. Woodward Governnor India (P) Ltd. (2007) 162 Taxman 60 Delhi, it was held in case where foreign currency is held on revenue accounts. Increase in liability on accounts of fluctuation in rate of foreign exchange prevailing on last day of financial year is not notional or contingent and therefore, can be allowed as deduction in term, of section 6 ITA NOS. 798-802/DEL/2010 & I.T.A NOS. 963, 1931,1267-1269/DEL/2010 37(1). The amendment to section 43A providing that amount by which liability is increased or reduced as a result of change in rate of exchange during any previous year after acquisition of such assets would be taken into account at time of making payment irrespective of method of accounting adopted by assessee is prospective prior to said amendment in the capital account cases where cost of assets has been either paid fully or in part prior to fluctuation in rate of foreign exchange, cost of assets would corresponding be permitted to be reworked for purpose of repayment or depreciation or investment allowance as the case may be with reference to rate prevailing on last days of financial year in which that fluctuation occurs."
9. Considering the above, Ld. Commissioner of Income Tax (A) held that he was of the opinion that before amendment to section 43A any loss suffered by the assessee on account of foreign exchange fluctuation has to be capitalized in the year of such fluctuations if the asstt. order is prior to asstt. year 2003-04. Accordingly, Ld. Commissioner of Income Tax (A) allowed the assessee appeal on this issue.
10. Against the above order the Revenue is in appeal before us.
11. We find that in this case there has been adverse impact of foreign exchange fluctuation on the cost of assets. The cost of assets went up because due to devaluation. Assessing Officer was of the opinion that provision of section 43A are applicable. Assessee has submitted before the Assessing Officer that prior to amendment to section 43A, it was permissible for the assessee to increase the value 7 ITA NOS. 798-802/DEL/2010 & I.T.A NOS. 963, 1931,1267-1269/DEL/2010 of asset by an amount due to loss suffered due to foreign exchange fluctuation. However, this plea was not accepted by the Assessing Officer. Upon assessee's appeal Ld. Commissioner of Income Tax (A) considered the issue. He observed that on this issue provision of section 43A prior to amendment is to be applied. He opined that before the amendment to section 43A any loss suffered by the assessee on account of foreign fluctuation has to be capitalized in the year of such fluctuation if the assessment order is prior to assessment year 2003-04.
11.1 We have carefully considered the submissions. We find that section 43A provides as under:-
"43A. Notwithstanding anything contained in any other provision of this Act, where an assessee has acquired any asset in any previous year from a country outside India for the purposes of his business or profession and, in consequence of a change in the rate of exchange during any previous year after the acquisition of such asset, there is an increase or reduction in the liability of the assessee as expressed in Indian currency (as compared to the liability existing at the time of acquisition of the asset) at the time of making payment--
(a) towards the whole or a part of the cost of the asset; or
(b) towards repayment of the whole or a part of the moneys borrowed by him from any person, directly or indirectly, in any foreign currency specifically for the purpose of acquiring the asset along with interest, if any, 8 ITA NOS. 798-802/DEL/2010 & I.T.A NOS. 963, 1931,1267-1269/DEL/2010 the amount by which the liability as aforesaid is so increased or reduced during such previous year and which is taken into account at the time of making the payment, irrespective of the method of accounting adopted by the assessee, shall be added to, or, as the case may be, deducted from--
(i) the actual cost of the asset as defined in clause (1) of section 43; or
(ii) the amount of expenditure of a capital nature referred to in clause (iv) of sub-section (1) of section 35; or
(iii) the amount of expenditure of a capital nature referred to in section 35A; or
(iv) the amount of expenditure of a capital nature referred to in clause (ix) of sub-section (1) of section 36; or
(v) the cost of acquisition of a capital asset (not being a capital asset referred to in section 50) for the purposes of section 48, and the amount arrived at after such addition or deduction shall be taken to be the actual cost of the asset or the amount of expenditure of a capital nature or, as the case may be, the cost of acquisition of the capital asset as aforesaid:
Provided that where an addition to or deduction from the actual cost or expenditure or cost of acquisition has been made under this section, as it stood immediately before its substitution by the Finance Act, 2002, on account of an increase or reduction in 9 ITA NOS. 798-802/DEL/2010 & I.T.A NOS. 963, 1931,1267-1269/DEL/2010 the liability as aforesaid, the amount to be added to, or, as the case may be, deducted under this section from, the actual cost or expenditure or cost of acquisition at the time of making the payment shall be so adjusted that the total amount added to, or, as the case may be, deducted from, the actual cost or expenditure or cost of acquisition, is equal to the increase or reduction in the aforesaid liability taken into account at the time of making payment."
11.2 We find that the above said section 43A was substituted by the Finance Act, 2002 w.e.f. 1.4.2003. Prior to its substitution section 43A read as under:-
"43A. Special provisions consequential to changes in rate of exchange of currency. -
(1) Notwithstanding anything contained in any other provision of this Act, where an assessee has acquired any asset from a country outside India for the purpose of his business or profession and, in consequence of a change in the rate of exchange at any time after the acquisition of such asset, there is an increase or reduction in the liability of the assessee as expressed in Indian currency for making payments towards the whole or a part of the cost of the asset or for repayment of the whole or a part of the moneys borrowed by him from any person, directly or indirectly, in any foreign currency specifically for the purpose of acquiring the asset (being in either case the liability existing immediately before the date on which the change 10 ITA NOS. 798-802/DEL/2010 & I.T.A NOS. 963, 1931,1267-1269/DEL/2010 in the rate of exchange takes effect), the amount by which the liability aforesaid is so increased or reduced during the previous year shall be added to, or, as the case may be, deducted from, the actual cost of the asset as defined in clause (1) of section 43 or the amount of expenditure of a capital nature referred to in clause (iv) of sub-section (1) of section 35 or in section 35A or in clause (ix) of sub-section (1) of section 36, or in the case of a capital asset (not being a capital asset referred to in section 50), the cost of acquisition thereof for the purposes of section 48, and the amount arrived at after such addition or deduction shall be taken to be the actual cost of the asset or the amount of expenditure of a capital nature or, as the case may be, the cost of acquisition of the capital asset as aforesaid."
11.3 Upon careful consideration, we find ourselves in agreement with the Ld. Commissioner of Income Tax (A) that before the amendment to section 43A any loss suffered by assessee on account of foreign exchange fluctuation has to be capitalized in the year of such fluctuations if the asstt. order is prior to asstt. year 2003-04. The amendment to section 43A has rightly been considered as prospective in nature. Accordingly, we do not find any infirmity in the order of the Ld. Commissioner of Income Tax (A). hence, we uphold the same.
12. In the result, the revenue appeals on this issue stand dismissed.
11ITA NOS. 798-802/DEL/2010 & I.T.A NOS. 963, 1931,1267-1269/DEL/2010
13. Another issue raised in the assessee's appeal for assessment year 2004-05 is that Ld. Commissioner of Income Tax (A) erred was not justified in upholding the action of the Assessing Officer in not allowing set off of ` 4,17,94,000/- being unabsorbed depreciation on the ground that no adjustment is possible in view of business losses being NIL.
14. On this issue Assessing Officer has rejected the assessee's claim for allowing setting off of ` 4,17,94,000/- being unabsorbed depreciation.
15. Upon assessee's appeal Ld. Commissioner of Income Tax (A) observed that in view of the decision of the ITAT, Mumbai in the case of Metmine Investment & Trading Pvt. Ltd. vs. I.T.O., the assessee was not entitled for set off of unabsorbed depreciation. Hence, Ld. Commissioner of Income Tax (A) held that the set off of unabsorbed depreciation to the extent of ` 417.94 lacas was not granted to the assessee.
16. Against the above order the assessee is in appeal before us.
17. Ld. Counsel of the assessee fairly conceded that this issue is to be decided against the assessee.
12ITA NOS. 798-802/DEL/2010 & I.T.A NOS. 963, 1931,1267-1269/DEL/2010
18. Upon careful consideration, we uphold the order of the Ld. Commissioner of Income Tax (A) and decide the issue against the assessee.
19. In the result, all the appeals filed by the assessee and revenue stand dismissed.
Order pronounced in the Open Court on 15/2/2013.
Sd/- Sd/-
[R.P. TOLANI] [SHAMIM YAHYA]
JUDICIAL MEMBER ACCOUNTANT MEMBER
Date:- 15/2/2013
SRBHATNAGAR
Copy forwarded to: -
1. Appellant 2. Respondent 3. CIT 4. CIT (A)
5. DR, ITAT
TRUE COPY
By Order,
Assistant Registrar,
ITAT, Delhi Benches
13
ITA NOS. 798-802/DEL/2010 &
I.T.A NOS. 963, 1931,1267-1269/DEL/2010
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