Income Tax Appellate Tribunal - Jaipur
Gillete India Ltd., Alwar vs Department Of Income Tax on 17 July, 2015
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IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR
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BEFORE: SHRI R.P. TOLANI, JM & SHRI T.R. MEENA, AM
vk;dj vihy la-@ITA Nos. 15 to 17/JP/2013
fu/kZkj.k o"kZ@Assessment Year : 1993-94, 94-95 & 95-96.
Assistant Commissioner of cuke M/s. Gillette India Ltd.,
Income Tax, Circle-2, Vs. SPA-65A, Industrial Area,
Alwar. Bhiwadi, Alwar.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No. AAACI 3924 J
vihykFkhZ@Appellant izR;FkhZ@Respondent
jktLo dh vksj ls@ Revenue by : Smt. Neena Jeph (JCIT)
fu/kZkfjrh dh vksj ls@ Assessee by : Shri P.C. Parwal (C.A.)
lquokbZ dh rkjh[k@ Date of Hearing : 04.06.2015.
?kks"k.kk dh rkjh[k@ Date of Pronouncement : 17.7.2015
vkns'k@ ORDER
PER SHRI T.R. MEENA, A.M.
All these appeals filed by the Revenue are emanating from the order of ld. CIT (A), Alwar dated 15.10.2012 for the A.Ys. 1993-94, 94-95 and 95-96. Since common ground is raised in all these appeals, the same are disposed off by this order. The ground raised in respective appeal is as under :-
ITA NO. 15/JP/2013 :
" That the ld. CIT (A), Alwar has erred in law as well as on the facts and circumstances of the case in directing the assessing officer to allow the exchange loss of Rs. 55,88,368/- incurred on export of goods of US $3,41,380/- without appreciating the facts of the case."2
ITA NOs. 15 to 17/JP/2013 A.Y.93-94 to 95-96.
M/s. Gillette India Pvt. Ltd., Bhiwadi, Alwar.
ITA NO. 16/JP/2013 :
" That the ld. CIT (A), Alwar has erred in law as well as on the facts and circumstances of the case in directing the assessing officer to allow the exchange loss of Rs. 89,77,386/- incurred on export of goods of US $ 5,43,504/- without appreciating the facts of the case."
ITA NO. 17/JP/2013 :
" 1. That the ld. CIT (A), Alwar has erred in law as well as on the facts of the case in directing the assessing officer to allow the exchange loss incurred on remittance of outstanding advance of US $ 37,81,155.42 without appreciating the facts of the case.
2. That the ld. CIT (A), Alwar has erred in law as well as on the facts of the case in directing the assessing officer to allow the exchange loss of Rs. 45,17,084/- incurred on export of goods of US $ 2,72,376.00 without appreciating the facts of the case."
2. Briefly stated the facts are that the assessee received export advance of US $36,00,000 as per agreement dt. 23.09.1987 and US $71,00,000 as per agreement dt.
31.08.1988 from M/s Gillette UK Ltd. The date-wise export advance received by the assessee is as under:-
Date of receipt Amount in US $ Converted in Rate Agreement of foreign Indian Rupees Applied export advance 14.09.1987 13,00,000 1,68,83,116.90 12.987 1st 16.09.1987 13,00,000 1,68,83,116.88 12.987 1st 17.09.1987 10,00,000 1,29,70,168.60 12.970 1st 22.10.1988 45,00,000 6,65,68,047.00 14.793 2nd 28.11.1988 26,00,000 3,73,48,927.00 14.365 2nd 2.1. In the returns the exchange loss was claimed on accrual basis in different A.Y.'s as under:-3
ITA NOs. 15 to 17/JP/2013 A.Y.93-94 to 95-96. M/s. Gillette India Pvt. Ltd., Bhiwadi, Alwar.
A.Y. Working of loss Remarks 91-92 Rs.4,19,42,259/- Not provided in the books but raised during the course of assessment. AO while passing the order rejected the claim. The Hon'ble ITAT confirmed the action of the AO.
92-93 Rs.7,36,22,000/- As above 93-94 Rs.2,06,31,512/- Assessee claimed in the books Rs.3,57,68,238/-.
During the course of assessment, the assessee reduced to Rs.2,06,31,512/- vide letter dt. 26.02.1996. The AO disallowed the entire claim of Rs.3,57,68,238/-.
94-95 Rs.8,27,070/-
95-96 Rs.1,77,058/-
96-97 Rs.95,58,911/-
2.2 The foreign exchange repaid or adjusted against exports in terms of US $ is as under:-
A.Y. Repaid Exported Total Comments
89-90 Nil 10,40,424 10,40,424 Foreign exchange
(period fluctuation loss on accrual
1.7.87 to basis not revalued foreign
31.3.89) currency export advance
21 months as on closing date not
provided in the books and
also not claimed in
computation of income
90-91 Nil 10,39,928 10,39,928 As above
(1.4.89 to
31.3.90)
12 months
91-92 Nil 3,61,600 3,61,600 Foreign exchange
fluctuation loss not
provide in the books as
well as not claimed in the
computation. But during
the course of assessment
proceedings, assessee
claimed the same on
revaluation of outstanding
export advance as on
31.03.89, 31.3.90 and
4
ITA NOs. 15 to 17/JP/2013 A.Y.93-94 to 95-96.
M/s. Gillette India Pvt. Ltd., Bhiwadi, Alwar.
31.3.91 Rs.4,19,42,259/-
92-93 Nil 2,07,012 2,07,012 Foreign exchange
fluctuation loss claimed in
the computation of
income to the extent of
Rs.2,88,91,067/- but not
provided in the books.
93-94 7,50,000 3,41,380 10,91,380 Foreign exchange
fluctuation loss
Rs.3,57,68,238/- being
1/3rd of Rs.10,73,04,713/-
and in the computation of
income but later on
revised and reduced to
the extent of
Rs.2,06,31,512/-
94-95 Nil 5,43,504 5,43,504
95-96 29,42,315 2,72,376 32,14,591
96-97 28,33,821 3,67,640 32,01,461
Total 65,26,136 41,73,864 1,07,00,000
2.3 The foreign exchange loss claimed on accrual basis in 91-92 and 92-93 was disallowed by Hon'ble ITAT by holding it to be a notional loss. However, in A.Y. 93- 94, Hon'ble ITAT in ITA No. 1683/JP/96 dt. 25.08.2006 directed to allow the loss as per Para 16 to 21 of its order reproduced hereunder:-
"16. We have given thoughtful consideration to the rival arguments and perused the material available on record. The assessee company entered into two supply agreement with M/s. Gillette U. K. Ltd. and received the advance in U.S. Dollars as under:
Description Date of agreement Amount received US $ For sale and supply of 23.9.87 36,00,000/-
150MM blades during
the period of 3 years
beginning with 01.09.87
For sale and supply of 31.8.88 71,00,000/-
safety razor blades and
other products
17. Against the first export advance of US$ 36,00,000/-, the assessee exported goods of US$ 22,96,352/- upto 10.5.90 (10,40,424 + 10,39,928 + 2,16,000 - P.B. 5 ITA NOs. 15 to 17/JP/2013 A.Y.93-94 to 95-96.
M/s. Gillette India Pvt. Ltd., Bhiwadi, Alwar.
50 and 28). As per the first agreement the supply price was agreed in US$. Thus against this agreement an amount of US$ 13,03,648/- remained with the assessee. To refund this amount, the assessee approached RBI vide letter dated 13.7.1992 (P.B. 28-30). In this letter the detailed reasons, which necessitated to refund the said amount were narrated, as mentioned herein. RBI after considering the reasons permitted vide its letter dated 6.12.1992 to refund the export advance of US$ 13,03,648/- out of which US$ 7,50,000/- was paid on 21.2.1992 and US$ 5,53,648/- was paid on 22.4.94.
18. Against the second export advance of US$ 71,00,000/-, the assessee supplied goods of US$ 3,52,612/- upto 31.3.1992 and US$ 3,41,380/- during the year. As on 18.1.1994 the total supply against this agreement was effected for US$ 12,37,496/-. On 27.1.1994, it moved an application to RBI to permit it to remit the balance export advance out of the proceeds of sales from M/s. Petersburg Product International, Russia (paper book page 33-35). The reasons for refund of the export advance is contained in this letter. After consideration of the reasons, the RBI permitted to remit this amount out of the export proceeds received from M/s. Petersburg Product International, Russia on 18.4.1994 (P.B. 36).
19. From the facts discussed above and available on record, we find that during the year under consideration, RBI permitted to refund the export advance only in respect of the first supply agreement. The contention of the AO and the Ld. D/R that the loss has been incurred on account of own violation by intentional breach of contract as the assessee has sufficient goods to export has no relevance in as much as during the year under consideration, the RBI after considering the reasons permitted to remit the export advance. Moreover, it appears to be convincing logic that in order to mitigate a heavier loss, the impugned loss on account of foreign exchange difference was incurred. In AY 1991-92 and 1992-93, this Bench of ITAT has held that claim of loss is notional and the liability has not arisen in those years as in those years neither there was any permission to remit back the export advance nor there was any actual remittance. On account of change in factual matrix and significant developments during the year, the grounds of disallowance of the impugned loss in A Y 1991-92 and 1992-93 do not survive during the year under consideration. There is no dispute that amount was received as an export advance i.e. towards the revenue generation activity of the assessee. This Bench in assessee's own case for A Y 1998-99 in ITA No. 273/JP/2003 dated 9.6.2006 after considering the principles laid down for allowing a business loss as explained at page 1436 to 1439 of the commentary of Chaturvedi and Pitthisaria, 5th edition and the decision of Special Bench in case of ONGC Vs. DCIT 261 ITR page 1 (AT) has held that loss arising to the assessee as a result of fluctuation in foreign exchange rate on the closing day of the year is a loss incurred by the assessee and the same loss is not a loss which can be called as a notional loss. In view of the above discussion, the AO is directed to allow foreign exchange fluctuation loss on accrual 6 ITA NOs. 15 to 17/JP/2013 A.Y.93-94 to 95-96.
M/s. Gillette India Pvt. Ltd., Bhiwadi, Alwar.
basis in respect of US$ 13,03,648/-, the liability of which crystallized during the year on permission of the RBI.
20. In respect of the claim of foreign exchange fluctuation loss in respect of second agreement, we find that application seeking permission to remit the outstanding export advance as on 18.1.1994 was moved on 27.1.1994 and the permission to remit the same was given by the RBI on 18.4.1994. The exchange loss in respect of this advance can, therefore, be considered only in A Y 1995-96 and not in the year under consideration on the same logic and basis as discussed above. However, during the year, assessee has exported goods of US 3,41,380/- against the said advance. The AO is directed to examine whether the loss on account of such exports actually effected by assessee during the year at committed price stand allowed elsewhere under any other head. If not, the actual loss may be allowed after verification.
21. Thus, in brief the notional loss should not be allowed and the same deserves to be allowed only when it crystallizes, but on account of it factual developments and differentiation, we direct to grant relief to the assessee by considering the year of RBI permission for refunding back the export advance as the year of accrual of liability as against the assessee's claim of notionally revaluing the liability every year. This would affect the year of allowability in the manner that the amount of actual allowance may be higher or lower in a particular year but the overall deduction shall not exceed the over claim, if all the years taken together."
2.4. In pursuance to these directions, the AO in A.Y. 93-94 allowed the exchange loss on account of remittance of foreign export advance out of the first agreement which crystallize during the relevant A.Y. on RBI permission but did not allow the exchange loss with reference to export of goods of US $3,41,380 against the second export advance by holding that it was only a notional claim. In A.Y. 94-95, the AO did not allow the exchange loss with reference to export of goods of US $5,43,504. In A.Y. 95- 96, the AO allowed the exchange loss on account of remittance of foreign export advance in respect of US $14,41,332.58 as against assessee's claim of allowing the exchange loss with reference to the remittance of US $52,22,488 which crystallized 7 ITA NOs. 15 to 17/JP/2013 A.Y.93-94 to 95-96.
M/s. Gillette India Pvt. Ltd., Bhiwadi, Alwar.
during the year on permission of RBI dt. 18.04.1994 for the reason that no evidence of remittance of US $37,81,155 out of the realization of export sales proceeds from PPI, Russia was furnished. Further, the exchange loss on export of goods of US $2,72,376 was not allowed on the ground that it is a notional loss.
3. The Ld. CIT(A) has allowed the claim of exchange loss on export of goods in all the three years and also allowed the exchange loss on remittance of US $37,81,155 out of the realization of export sales proceeds from PPI, Russia but at the same did not allow the exchange loss with reference to remittance of US $14,41,332.58 allowed by the AO for the reason that RBI permission for the same was issued on 25.03.1996 which fall in A.Y. 96-97. The relevant finding of CIT(A) in Para 4.3, 5.3 and 6.3 of his order is reproduced as under:-
4.3(ii) "As regards the second ground, it is the submission of the appellant that there is an actual and real exchange loss of Rs.5588369/- since the obligation to export the goods, against the advanced received of USD 341380 in October/November 1988, has inflated in rupee terms from rupees 4996438/- to Rs. 105848061/- because of the devaluation of Indian Currency. The Hon'ble ITAT have directed the AO to examine whether the loss on account of exports of goods of USD 341380, made during AY 93-94 at committed prices, against the advance given as per second agreement stand allowed elsewhere under any other head and if not, the actual loss may be allowed after verification.
The Hon'ble ITAT in para 20 of their order have observed a under:
"In respect of the claim of foreign exchange fluctuation loss in respect of second agreement, we find that application seeking permission to remit the outstanding export advance as on 18.01.94 was moved on 27.01.94 and the permission to remit the same was given by the RBI on 18.04.94. The exchange loss in respect of this advance, can, therefore, be considered only in A.Y. 1995-96 and not in the year under consideration on the same logic and the basis as discussed above. However, during the 8 ITA NOs. 15 to 17/JP/2013 A.Y.93-94 to 95-96.
M/s. Gillette India Pvt. Ltd., Bhiwadi, Alwar.
year the assessee have exported goods of USD 341380 against the said advance. The AO is directed to examine whether the loss on account of such exports actually effected by assessee during the year at committed price stand allowed elsewhere under any other head. If not, the actual loss may be allowed after verification." The appellant has made export of USD 185380 on 02.1.93 and UDS 156000 on 18.03.93. The AO has not allowed the exchange loss on these exports on the ground that it was only a notional claim. I find that this action of the AO is not in accordance with the direction of the Hon'ble ITAT Jaipur.
From the permission given by the RBI dated 18.04.94, it is observed that in the said letter permission has been given to remit the export proceeds received from M/s Petersburg Products International (PPI) - Russia to M/s Gillette UK towards export advance for USD 5.9 million (approx). I find that although the export made on 02.01.93 and 18.03.93 are against adjustment of advance of USD 71 lacs as per second agreement made in November 1988, the exchange loss arising on these actual export transactions are to be allowed in AY 1993-94 as these amounts are not covered by the permission of RBI given on 18.04.94 with respect to the balance outstanding of USD 5.9 million (approx) i.e. USD 58,62,504 as on 18.01.94. The AO has not given any finding that these amounts have been allowed elsewhere under any other head. Considering the entire facts and circumstances of the case, I am of the considered opinion that the exchange loss with respect to the exports made on 02.01.93 and 18.03.93 should be allowed on actual basis in A.Y. 1993-94.
The AR has worked this loss at Rs. 5588368/-. Accordingly, the AO is directed to allow the exchange loss claimed at Rs. 5588368/- after verifying the working of the loss with respect to the conversion rates applied. This ground is allowed."
"5.3. I have considered the AOs order and the submissions made by the AR of the appellant. The AO has disallowed the exchange loss of Rs. 827072/- since the same was claimed on notional basis. In view of the order of the Hon'ble ITAT Jaipur dated 25.08.2006, this action of the AO is upheld. I find that the following exports during the AY 94-95 have been made by the appellant on or before 18.01.94 i.e. USD 214656 on 26.05.93, USD 159120 on 15.04.93 and USD 169728 on 18.01.94. In view of my decision given above in Para 4.3(ii), it is held that the exchange loss with respect to the above said exports amounting to USD 543504/- is to be allowed during AY 94-95. This exchange loss has been worked out at Rs. 8977386/- by the appellant. This AO is directed to allow this loss after 9 ITA NOs. 15 to 17/JP/2013 A.Y.93-94 to 95-96.
M/s. Gillette India Pvt. Ltd., Bhiwadi, Alwar.
verifying the working of the loss with respect to the conversion rates applied. This ground is allowed.
6.3. I have considered the AOs order and the submissions made by the AR of the appellant. The Hon'ble ITAT in Para 20 of their order dated 25.08.2006 for AY 93-94 have observed that "in respect of the claim of foreign exchange fluctuation loss in respect of second agreement, we find that application seeking permission to remit the outstanding export advance as on 18.01.94 was moved on 27.01.94 and the permission to remit the same was given by the RBI on 18.04.94. The exchange loss in respect of this advance, can, therefore, be considered only in A.Y. 1995- 96 and not in the year under consideration on the same logic and the basis as discussed above. It has further been observed in Para 21 that "We direct to grant relief to the assessee by considering the year of RBI permission for refunding back the export advance as the year of accrual of liability as against the assessee's claim of notionally revaluing the liability every year".
I find that the AO has allowed exchange loss on USD 1441332.58 which was outstanding as on 31.03.1995 which is contrary to the direction of the Hon'ble ITAT. The RBI has issued permission for remittance of US $1441332.58 on 25.03.96 therefore the exchange loss arising on remittance of this amount would arise in 96-97. Accordingly, the AO is direct to delete the exchange loss of Rs. 24301588/- allowed in A.Y. 95-
96. The RBI has issued permission to the appellant on 18.04.94 to remit the export proceeds received from M/s PPI Russia to M/s Gillette UK towards adjustment of their outstanding export advance for US $ 59 lacs after realizing the sale proceeds from the Russian buyer. The appellant has furnished a certificate dated 18.01.96 from Kumar Anoop and Company Chartered Accountants according to which total export Sales of USD 5658667.42 was made by the appellant to Gillette India Ltd and PPI Russia against the advance of USD 71 Lacs. From the summary of export sales against agreement and the submission made by the appellant in Para 6.2 above it is noted that the total sales to PPI in USD 3781155.42. Since the permission was given by the RBI on 18.04.94 to remit the outstanding advance to Gillette UK Ltd, out of export sales realization from PPI, Russia, it is held that the exchange loss arising from the remittance of outstanding advance was crystallized on 18.04.94 with 10 ITA NOs. 15 to 17/JP/2013 A.Y.93-94 to 95-96.
M/s. Gillette India Pvt. Ltd., Bhiwadi, Alwar.
respect to the above amount of USD 3781155.42. The AO is directed to allow the loss with respect to the above amount of USD 3781155.42 in AY 95-96 after verifying the conversion rates.
The appellant has claimed exchange loss on export of USD 272376 made on 11.01.95 in AY 95-96. Following my decision in pare 4.3(ii) above, the AO is directed to allow the exchange loss on this amount of USD 272376 claimed by the appellant at Rs 4517084/- after verifying the conversion rates. The ground of this appeal is partly allowed."
4. The Ld. DR reiterated the finding of the AO whereas the Ld. AR relied on the order of Ld. CIT(A) and also submitted that the Rajasthan High Court in assessee's own case for A.Y. 90-91 reported in 101 DTR 258 has held that foreign currency liability against the purchase of goods wherein the assessee has to shell out excess amount is in the nature of revenue expenditure and therefore allowable as an expenditure.
Therefore, on export of goods against the foreign exchange which is already received by the assessee in earlier years, the exchange difference on account of devolution of rupee between the time when the advance was received and the time when goods are exported is to be allowed as a revenue loss/expenditure.
5. We have considered the facts of the case and the rival contention of both the parties. We find that Hon'ble Rajasthan High Court in assessee's own case for A.Y. 90- 91 in Para 11 has held that under the mercantile system of accounting, the claim of a liability is required to be worked out at the close of the accounting year and in our view the assessee appellant had correctly claimed the said amount as a liability as there was fluctuation of exchange on account of Dollar vis-a-vis India Rupee. Exchange loss at the 11 ITA NOs. 15 to 17/JP/2013 A.Y.93-94 to 95-96.
M/s. Gillette India Pvt. Ltd., Bhiwadi, Alwar.
close of the financial year is allowable expenditure u/s 37(1) of the Act. In the case before the Hon'ble Rajasthan High Court, foreign exchange liability is against purchase of goods wherein it has been held that assessee has to shell out the excess amount, therefore, the said amount is allowable. The Hon'ble Rajasthan High Court has relied on the judgment of Hon'ble Apex Court in case of CIT Vs. Woodward Governor India Pvt. Ltd. 312 ITR 254. In the present case also, the export advance received by the assessee was a liability which was to be adjusted against the export of goods or by actual remittance on receipt of RBI permission. The Hon'ble ITAT in A.Y. 93-94, has given a direction to allow the exchange loss on the basis of the permission of RBI to remit the export advance and also to allow the exchange loss on account of exports actually effected by the assessee during the year if it is not allowed elsewhere. The AO has allowed the exchange loss on the basis of RBI permission for remittance but he has not allowed the exchange loss on account of exports actually effected without giving any finding that such loss has been allowed elsewhere by simply stating that it is a notional loss. The Ld. CIT(A) after considering the entire material on record has therefore rightly held that exchange loss on export of goods adjusted against the export advance is allowable to the assessee. Similarly, for A.Y. 95-96, the CIT(A) has rightly allowed the exchange loss on actual remittance of US $ 37,81,155 out of the sales proceeds from PPI, Russia as per the permission of RBI received on 18.09.94 and directed to allow the exchange loss with reference to the remittance of US $14,41,332.58 in A.Y. 96-97 on the basis of the permission issued by RBI on 25.03.96.
Therefore, the order of CIT(A) is upheld by dismissing the grounds of the department.
12ITA NOs. 15 to 17/JP/2013 A.Y.93-94 to 95-96.
M/s. Gillette India Pvt. Ltd., Bhiwadi, Alwar.
6. In the result, appeals of the revenue are dismissed.
Order pronounced in the open court on 17/7/15.
Sd/- Sd/-
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(R.P.Tolani) (T.R. Meena)
U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member
Tk;iqj@Jaipur
fnukad@Dated:- 17/7/2015
Das/
vkns'k dh izfrfyfi vxzsf'kr@Copy of the order forwarded to:
1. vihykFkhZ@The Appellant- ACIT Circle-2, Alwar.
2. izR;FkhZ@ The Respondent- M/s. Gillette India Ltd., Alwar.
3. vk;dj vk;qDr@ CIT
4. vk;dj vk;qDr¼vihy½@The CIT(A)
5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur
6. xkMZ QkbZy@ Guard File (ITA No. 15, 16 & 17/JP/2013) vkns'kkuqlkj@ By order, lgk;d iathdkj@Asst. Registrar 13 ITA NOs. 15 to 17/JP/2013 A.Y.93-94 to 95-96.
M/s. Gillette India Pvt. Ltd., Bhiwadi, Alwar.