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2015 (8) TMI 1156 - ITAT CHENNAI

2015 (8) TMI 1156 - ITAT CHENNAI - TMI - Loss on the loan borrowed in foreign currency due to exchange rate fluctuation - CIT(A) allowed claim as revenue loss - Held that:- This Tribunal after referring to the judgment of Apex Court in Sutlej Cotton Mills Ltd. (1978 (9) TMI 1 - SUPREME Court ), found that the CIT(Appeals) has taken a correct view. Apparently, the very same foreign exchange loan availed by the assessee from IDBI considered for the year under consideration also. Therefore, the obs .....

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, admittedly, the borrowed loan was used as a working capital / circulating capital. Therefore, the loss suffered by the assessee has to be allowed on the revenue account. Therefore, this Tribunal do not find any infirmity in the order of the CIT(Appeals) and accordingly, the same is confirmed. - Decided against revenue.

Computation of deduction under Section 80HHC - Held that:- Tribunal found that the Kerala High Court in Baby Marine (Eastern) Exports v. ACIT [2002 (4) TMI 19 - KERAL .....

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ating to loss of stock may be on the revenue account, it would form part of total turnover. However, the insurance claim in respect of loss of machinery has to be treated as capital account, therefore, that will not form part of total turnover. The break-up details with regard to loss on account of machinery and loss on account of stock are not available on record. Therefore, the orders of the lower authorities are set aside. The issue with regard to deduction under Section 80HHC of the Act is r .....

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t the profit was a negative figure, therefore, 90% of the export incentive should be considered for deduction under Section 80HHC of the Act. In view of the above, there is a confusion whether there was any profit on export or there was a loss. This Tribunal is of the considered opinion that the matter needs to be reconsidered by the Assessing Officer to find out whether there was any loss or profit in the business of the assessee. Accordingly, the orders of the lower authorities are set aside a .....

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is appeal of the Revenue is directed against the order of the Commissioner of Income Tax (Appeals)-VI, Chennai, dated 29.11.2013 and pertains to assessment year 1999-2000. 2. Shri S. Dasgupta, the Ld. Departmental Representative, submitted that the first ground of appeal is with regard to exchange fluctuation loss of ₹ 41,87,255/-. According to the Ld. D.R., the assessee has debited net exchange fluctuation loss of ₹ 62,19,090/- in the Profit & Loss account for the year ending 31 .....

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loss. According to the Ld. D.R., irrespective of the utilization of the loan, the fact is that what was received by the assessee as loan is a capital receipt, therefore, the loss due to foreign exchange fluctuation cannot be allowed as revenue loss. The Ld. D.R. placed his reliance on the judgment of Calcutta High Court in Bestobell (I) Ltd. v. CIT (1979) 117 ITR 789 and submitted that Calcutta High Court, on identical circumstances, found that the loss on account of devaluation of Rupee is a c .....

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ity. Hence, it cannot be allowed to be deducted while computing the taxable income. Referring to the order of the CIT(Appeals), the Ld. D.R. submitted that the CIT(Appeals) followed the order of this Tribunal in assessee's own case for assessment years 1998-99 and 2000-01 and allowed the claim of the assessee. Referring to the order of this Tribunal in the assessee's own case for assessment years 1998-99 & 2000-01in I.T.A. Nos.1395 & 1396/Mds/2006 dated 19.11.2007, the Ld. D.R. s .....

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al issue in the assessee's own case for assessment years 1998-99 & 2000- 01. According to the Ld. counsel, the exchange fluctuation would go to reduce or increase the liability in the revenue account. Therefore, the same would qualify as business expenditure to be allowed under Section 37 of the Income-tax Act, 1961 (in short 'the Act') even if the liability had not been discharged in the concerned previous year. According to the Ld. counsel, the liability arose from the contract .....

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y due to foreign exchange fluctuation as per the exchange rate prevailing on the last date of the financial year is to be allowed as deduction and cannot be construed as notional or contingent. The Ld.counsel further submitted that this Tribunal placed its reliance on the judgment of Delhi High Court in CIT v. Woodward governor India P. Ltd. (2007) 294 ITR 451 and also on the judgment of Apex Court in Sutlej Cotton Mills Ltd. v. CIT (1979) 116 ITR 1. 4. We have considered the rival submissions o .....

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e taken and not in between. As rightly submitted by the Ld.counsel, this Tribunal examined an identical issue in assessee's own case for assessment years 1998-99 and 2000-01 and confirmed similar order of the CIT(Appeals). 5. We have carefully gone through the judgment of Apex Court in Sutlej Cotton Mills Ltd. (supra). In the case before the Apex Court, the assessee-company having its Head Office in Calcutta, had its cotton mill in West Pakistan. The textile mill was a prosperous unit and th .....

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evaluation of Indian rupee, the rate of exchange was changed to 100 Pakistani rupees being equal to 144 Indian rupees. The rate of exchange was also again altered when Pakistani rupee was devalued on 8th August, 1955. In those circumstances, the Apex Court considered whether the assessee suffered a loss on the remittance of ₹ 25 lakhs and ₹ 12,50,000/- in Pakistani currency from West Pakistan. These two amounts admittedly arose out of Pakistan profit for the assessment year 1954-55 a .....

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Thus, the assessee had suffered a loss of ₹ 11 lakhs in one case and ₹ 5,50,000/- in another case due to devaluation of Pakistani currency. In those circumstances, the Apex Court by placing its reliance in the earlier judgment in CIT v. Tata Locomotive and Engineering Co. Ltd. (1966) 60 ITR 405, found that if the loss was resulting from depreciation of foreign currency, which is embarked or adventured in the business and is a part of circulating capital, it would be a trading loss. .....

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sing from depreciation would be a capital loss. After referring to various case laws on the subject, the Apex Court ultimately observed as follows: The law may, therefore, now be taken to be well settled that where profit or loss arises to an assessee on account of appreciation or depreciation in the value of foreign currency held by it, on conversion into another currency, such profit or loss would ordinarily be trading profit or loss if the foreign currency is held by the assessee on revenue a .....

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al or of circulating capital embarked and adventured in the business in West Pakistan. If these two amounts were employed in the business in West Pakistan and formed part of the circulating capital of that business, the loss of ₹ 11 lakhs and ₹ 5,50,000 resulting to the assessee on remission of those two amounts to India, on account of alteration in the rate of exchange, would be a trading loss, but if, instead, these two amounts were held on capital account and were part of fixed ca .....

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nding on this question, but both the parties agreed before us that their attention was not directed to this aspect of the matter when the case was heard before the revenue authorities and the Tribunal and hence it would be desirable that the matter should go back to the Tribunal with a direction to the Tribunal either to take additional evidence itself or to direct the ITO to take additional evidence and make a report to it, on the question whether the sums of ₹ 25 lakhs and ₹ 12,50, .....

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unal after referring to the judgment of Apex Court in Sutlej Cotton Mills Ltd. (supra), found that the CIT(Appeals) has taken a correct view. Apparently, the very same foreign exchange loan availed by the assessee from IDBI considered for the year under consideration also. Therefore, the observation of the Assessing Officer that irrespective of utilization of the borrowed funds, the loss cannot be allowed may not be justified. In view of the judgment of the Apex Court in Sutlej Cotton Mills Ltd. .....

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ibunal do not find any infirmity in the order of the CIT(Appeals) and accordingly, the same is confirmed. 6. The next ground of the appeal is with regard to computation of deduction under Section 80HHC of the Act. 7. Shri S. Dasgupta, the Ld. Departmental Representative, submitted that while computing deduction under Section 80HHC of the Act, the assessee has not deducted 90% of the miscellaneous receipt of ₹ 4,65,802/- from the profit of the business. According to the Ld. D.R., this sum o .....

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ived by the assessee from New India Assurance Company towards insurance claim for loss of stock due to fire accident in the factory and also machinery break down. The Ld. D.R. submitted that these insurance claims are like brokerage or commission, therefore, 90% has to be excluded in case it was taken as business profit. 8. On the contrary, Shri S. Sridhar, the Ld.counsel for the assessee, submitted that an identical issue was considered by the Tribunal for the assessment years 1998-99 and 2000- .....

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n account of loss of stock and loss of machinery due to fire accident. The insurance claim relating to loss of stock may be on the revenue account, it would form part of total turnover. However, the insurance claim in respect of loss of machinery has to be treated as capital account, therefore, that will not form part of total turnover. The break-up details with regard to loss on account of machinery and loss on account of stock are not available on record. Therefore, the orders of the lower aut .....

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ing the foreign exchange gain. 10. Shri S. Dasgupta, the Ld. Departmental Representative, submitted that the exchange loss claimed by the assessee on account of import and export of finished goods and exchange loss on account of forward contract was on the revenue field. However, while computing deduction under Section 80HHC of the Act, the assessee has not added the negative figure of profit of business to the export incentive figure. The assessee explained before the Assessing Officer that the .....

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