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Deputy Commissioner of Income Tax Versus Givo Ltd. C/o Vinod Kumar Bindal & Co

2016 (1) TMI 901 - ITAT DELHI

Disallowance of loss of foreign Exchange Fluctuation loss - CIT(A) deleted the addition - Held that:- The issue in dispute is squarely covered by the decision of the Hon'ble Supreme Court in the case of Wood world Governor India Pvt. Ltd., reported in (2009 (4) TMI 4 - SUPREME COURT) wherein it has been held that increase in liability on revenue account due to foreign exchange fluctuation as per the exchange rate prevailing as on the last day of the financial year was neither notional or a conti .....

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e in favor of the appellant stating that the Learned First Appellate Authority is not justified in confirming the disallowance of depreciation. The assessee has capitalized the security deposit by treating it at par with the customs duty. It has waited for 8 long years and when realized that follow up action with the customs department would be a futile exercise only then took a decision of capitalizing this amount on the value of the assets. In case in subsequent years assessee was able to get .....

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appeal has been filed by the Revenue, arising from the order dated 15.02.2013 passed by the ld.CIT(A)-VIII, New Delhi for the assessment year 2006-07, on the following grounds:- "1. On the facts and circumstances of the case and in law, the ld.CIT(A) has erred in deleting disallowance of loss of foreign Exchange Fluctuation loss of ₹ 28,45,070/- which is contrary to the instruction No.3/2010 dated 23rd March, 2010 issued by CBDT. 2. On the facts and circumstances of the case and in l .....

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.nil, on 30.11.2006. The same was processed u/s 143(1) and was selected for scrutiny. The assessee company is engaged in the business of manufacturing, trading and job work of men's suits, jackets and trousers. During the course of assessment proceedings, the assessee had produced books of account which have been test-checked. During the assessment proceedings, the ld. AO observed that the assessee had taken a foreign currency loan (ECB) of USD 3 million for three years towards working capit .....

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l loss on account of foreign exchange fluctuation. The ld. AO further observed that for allowance of the loss on account of foreign exchange fluctuation to be considered for deduction, the loss must actually be suffered in the relevant previous year and actual suffering would arise only at the time of remittances and not before. The ld. AO relied upon the decisions of Indian Overseas Bank, reported in 246 ITR 206 (Mad.) and the Hon'ble Supreme Court decision in the case of Karam Chand Thapar .....

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same year for the purpose for which it was taken. The assessee submitted that the devaluation losses were duly declared in the respective Profit & Loss Account of the relevant financial years and, the losses were claimed u/s 37(1) of the Act, in the respective assessment years which were accepted by the department in the assessments made u/s 143(3) for the assessment years 1998-99 and 1999-2000. The assessee also submitted that the said issue has been decided by the ITAT vide its order date .....

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the gain as income on revenue account and not allowing the expense by considering the same on capital account. In view of the above facts, it is clear that the ECB loan was utilized for revenue purposes in the year of receipt as well as remain utilized for in working capital items as on 31/3/2006. Thus, the devaluation loss was in the nature of revenue loss since the ECB funds had been fully utilized for meeting the working capital requirements. Therefore, the same is fully allowable u/s 37(1) .....

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n. Ltd. Vs DCIT (2002) 83 ITD 151 (Del.) (SB). I have considered the submissions of the appellant, the findings of the AO and the facts on record. Perusal of the facts on record show that the appellant is regularly following the mercantile basis of accounting and the treatment in the accounts of foreign exchange transactions is according to the Accounting Standards. As per the stated policy the revenue transactions in foreign currency are generally recorded at the exchange rate prevailing at the .....

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odward Governor Pvt. Ltd. 210 CTR (Delhi). The operative part affirmed is as under: "It is important to note that foreign currency notes, balance in bank accounts denominated in a foreign currency, and receivables / payables and loans denominated in a foreign currency as well as sundry creditors are a monetary items which have to be valued at the closing rate under AS-ll. Under para 5, a transaction in a foreign currency amount the exchange rate between the reporting currency and the foreig .....

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e differences, need to be considered. Under that para, exchange differences arising on foreign currency transactions have to be recognized as income or an expense in the period in which they arise, except as stated in para 10 and para 11 which deals with exchange differences arising on repayment of liabilities incurred for the purpose of acquiring fixed assets, which topic falls under section 43A. Para 9 of AS-ll recognizes exchange differences as income or expense. In cases where, e.g. the rate .....

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sion of the said liability at the closing rate, should be recognized in the P&L a/c for the reporting period CIT Vs Woodward Governor India (Pvt.) Ltd & Others (2007) 210 CTR (Del) 354 "affirmed." The Hon'ble ITAT Spl. Bench (Delhi) in the case of ONGC Ltd. Vs DCIT 83 ITD 151 Delhi has observed as under: "Before concluding we would like to point out that the assessee's claim for loss arising as a result of fluctuation in foreign exchange rates on the closing day of .....

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one." After careful consideration of the facts of the case and the decisions of the Hon'ble Supreme Court and ITAT Spl. Bench, Delhi discussed above the only conclusion which can be drawn is that the appellant's claim of loss on account of fluctuation in foreign currency rate is allowable. The appellant is regularly following the mercantile system of accounting and following the accounting standards. The losses claimed are on the revenue account a fact which has not been disputed e .....

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eld that increase in liability on revenue account due to foreign exchange fluctuation as per the exchange rate prevailing as on the last day of the financial year was neither notional or a contingent liability and the same, there was allowable as a deduction. We do not find any infirmity in the order passed by the ld.CIT(A). We, therefore, dismiss this ground of appeal. 5. Coming to Ground No.2, during the course of assessment proceedings, the ld.AO observed that the assessee had paid customs du .....

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f instant assessment year, the assessee had submitted during the assessment proceedings that, the said amount has been included in the WDV of the plant and machinery and claimed depreciation on the same. The assessment has still not been finalized by the Customs Department. Accordingly, the ld. AO disallowed the depreciation claimed on the same by the assessee during the relevant year amounting to ₹ 1,43,448/-. Aggrieved by the order passed by the ld. AO, the assessee went in appeal before .....

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the Ld.CIT(A) that, the current position under customs law is that the goods can only be moved, out after paying the assessed customs duty. Therefore, the issue is lying dormant with the said authorities who are not inclined to take it up since their revenue is more than adequately covered by the said security deposit. It was submitted by the assessee before the ld.CIT(A) that a personnel was specially deputed by the assessee to get the matter settled with the Customs Department, which did not .....

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ent year 2003-04 and 2004-05. The ld.CIT(A) held as under:- I have considered the submissions of the appellant, the findings of the AO and the facts on record. Perusal of the facts on record show that the Hon'ble ITAT in the appellant's own case from A. Y. 2003-04 & 2004-05 on identical facts has decided the issue in favor of the appellant by making the following observations: "Para No. 14. With the assistance of learned representatives, we have gone through the records carefull .....

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