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Assistant Commissioner of Income Tax Versus M/s. Gillette India Ltd.

2015 (8) TMI 125 - ITAT JAIPUR

Disallowance of exchange loss incurred on export of goods - CIT(A) directed AO to allow claim - Held that:- Hon'ble Rajasthan High Court in assessee's own case for A.Y. 90- 91 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. Exch .....

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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 .....

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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. - Decided in favour of assessee. - ITA Nos. 15 to 17/JP/2013 - Dated:- 17-7-2015 - R. P. T .....

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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 ₹ 55,88,368/- incurred on export of goods of US $3,41,380/- without appreciating the facts of the case." 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 ₹ 89,77,386/- incurred on export of goods of US $ 5,43 .....

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,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 of foreign export advance Amount in US $ Converted in Indian Rupees Rate Applied Agreement 14.09.1987 13,00,0 .....

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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 ₹ 3,57,68,238/-. During the course of assessment, the assessee reduced to ₹ 2,06,31,512/- vide letter dt. 26.02.1996. The AO disallowed the entire claim of ₹ 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 Comm .....

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dings, assessee claimed the same on revaluation of outstanding export advance as on 31.03.89, 31.3.90 and 31.3.91 ₹ 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 ₹ 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 ₹ 3,57,68,238/- being 1/3rd of ₹ 10,73,04,713/- and in the computation of income but later on revised and reduced t .....

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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 150MM blades during the period of 3 years beginning with 01.09.87 23.9.87 36,00,000/- For sale and supply of safety razor blades and other products 31.8.88 71,00,000/- 17. Against the first .....

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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 applica .....

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uring 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 tha .....

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s 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 Benc .....

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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 .....

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, 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 t .....

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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 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 .....

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e 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 ₹ 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 ₹ 105848061/- because of the devaluation of Indian Currency. The Hon'ble ITAT have .....

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on 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 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 s .....

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ion 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 .....

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al basis in A.Y. 1993-94. The AR has worked this loss at ₹ 5588368/-. Accordingly, the AO is directed to allow the exchange loss claimed at ₹ 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 ₹ 827072/- since the same was claimed on notional basis. In view of the ord .....

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₹ 8977386/- by the appellant. This AO is directed to allow this loss after 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 seeki .....

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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 .....

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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 .....

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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 exp .....

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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 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 l .....

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