2022 (1) TMI 415
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....T(A)/learned AO erred disallowing foreign exchange loss of INR 79,27,497 stating that it is notional in nature without appreciating the fact that the foreign exchange loss is derived on revenue and same has arisen on account of restatement at the year end in accordance with statutory guidelines. On the facts and in the circumstances of the case and in law, the learned CIT(A)/learned AO erred in disallowing the foreign exchange loss of INR 79,27,497, ignoring the various judicial precedents relied during the course of assessment and appellate proceedings. On the facts and in the circumstances of the case and in law, the learned CIT(A)/learned AO erred in bringing the foreign exchange loss under the ambit of section 43A of the Act, without appreciating the fact that foreign exchange loss is revenue in nature. Notwithstanding the above, on the facts and the circumstances of the case and in law, the learned CIT(A) erred in confirming the action of the learned AO in considering INR 79,27,497 as the foreign exchange loss on account of restatement of EEFC account, whereas the actual amount on account of unrealized foreign exchange difference was a gain of INR 24,30,000 which can be ....
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....the appellant cannot be accepted. The disallowance of foreign exchange loss of Rs. 79,27,497/- made by the AO is confirmed. The ground of appeal is dismissed." 2.3. Aggrieved by the order of the CIT(A), the assessee has raised this issue before the Tribunal. The learned AR reiterated the submissions made before the Income Tax Authorities. 2.4. The learned Departmental Representative strongly supported the orders of the Assessing Officer and the CIT(A). 2.5. We have heard rival submissions and perused the material on record. The restatement of EEFC account as on 31.03.2012 is in accordance with foreign exchange management regulation 2015. The EEFC account is an account maintained in foreign currency by foreign exchange earners. The assessee had followed account standard -11, which requires that foreign currency monetary item should be reported using the closing rate at each balance sheet date. Accordingly, the resultant gain on account of such restatement in the case of assessee was credited to the profit and loss account. Further, the transaction in EEFC account undertaken during the year are trading in nature in order to facilitate to regular business operation of the company. ....
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....et as aforesaid:" 2.7. It is clear from the above provision that section 43A of the I.T. Act applies where an assessee acquires an asset in a previous year. The EEFC account was maintained by the assessee to facilitate regular business operation and not for acquiring any asset. The Hon'ble Apex Court in the case of Oil and Natural Gas Corporation Limited v CIT reported in (2010) 322 ITR 180 (SC) had observed as under:- "10. Thus, the questions surviving for determination are: (i) that when the assessee maintained their accounts on mercantile system of accounting and there was no finding by the AO on the correctness or completeness of the account and that the assessee had complied with the accounting standards laid down by the Central Government, can the "loss" suffered by it on account of fluctuation in the rate of foreign exchange as on the date of balance-sheet be allowed as expenditure under s. 37(1) of the Act notwithstanding the fact that the liability had not been actually discharged in the year in which the fluctuation in the rate of foreign exchange had occurred, and (ii) whether on account of fluctuation in the rate of exchange at the end of the previous year, the a....
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....n account of fluctuation in the rate of foreign exchange as on the date of balance-sheet is allowable as expenditure under s. 37(1) of the Act." 2.8. Further, the ITAT Ahmedabad in the case of DCIT v. Shree Swati Texdyes Private Limited in ITA No. 2016/Ahd/2013 (order dated 11.04.2017) on identical facts, has observed as under:- 7. In ground no. 2, the assessee has raised the following grievance: The Ld. Commissioner of Income-tax (Appeals)-XIV, Ahmedabad has erred in law and on facts in deleting the addition of Rs. 1,15,37,454/- made on account of EEFC account, on account of forex loss claimed by Assessee when these were proved to be not pertaining to import payable or export receivable. 8. The assessee was maintaining a US Dollar denominated bank account, in the nature of EEFC (Exchange Earner's Foreign Currency) account, with Citibank. During the course of scrutiny assessment proceedings, the Assessing Officer noticed that the assessee has credited foreign exchange gain of Rs. 43,94,762, as on 31st March, the assessee has also debited foreign exchange loss of Rs. 28,24,686 on the same date. When the matter was probed further, it was explained by the assessee that the as....
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.... US Dollars into Indian rupees, at the point of time when the EEFC account was originally credited vis-à-vis the point of time when subsequent debit entry, or vice versa, is made. As a matter of fact, these entries, truly speaking, do not even represent losses but merely deal with corrections in the conversion rate with respect to the amounts utilized from EEFC account. These corrections are to be taken into account in computing the correct profits and losses. Be that as it may, whether these losses are treated as losses or corrections, the effect is the same- i.e. accounting for foreign exchange at the right rates. Quite interestingly, similar entries resulting in gains have been accepted by the Assessing Officer. These entries are admittedly in accordance with the Accounting Standards which are binding on the assessee. The method of accounting has been consistently followed by the assessee, it is fair and reasonable, and, as a result of the losses so booked, the accounts of the assessee show true and fair picture of the transactions. It is also noted that similar approach, when it resulted in net gains in subsequent assessment years i.e. 2011-12 and 2012-13, was accepted b....
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....finance lease rentals as being revenue in nature, in view of the fact that the majority of the economic life of the assets would be consumed by the assessee company? b. The CIT(A) erred in not considering that the expenses incurred towards assets which have enduring benefit should be treated as capital expenditure. c. The CIT(A) erred in treating the leased rentals expenses as revenue in nature and dismissing assessee's appeal only in view of contravention of provisions of section 194-I of the IT Act. d. For these and other grounds that may be urged at the time of hearing, it is prayed that the order of the CIT(A)) in so far as it relates to the above grounds may be reversed and that of the Assessing Officer may be restored. e. The appellant craves leave to add, alter, amend and/or delete any of the grounds mentioned above." 3.1. During the relevant assessment year, the assessee had paid a sum of Rs. 2,36,70,370 to M/s. First Lease Company India Limited towards equipment leasing. Out of Rs. 2,36,70,317, the principal repayment was Rs. 1,77,95,992, the interest and VAT aggregated to Rs. 58,74,325. The assessee had claimed Rs. 2,36,70,317 as a deduction. The A.O. in the ....
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....d on the grounds of appeal. 3.4. The learned AR, on the other hand, relied on the findings of the CIT(A) and the judgment of the Hon'ble Apex Court in the case of I.C.D.S. Ltd. v. CIT & Anr. reported in (2013) 350 ITR 527 (SC). 3.5. We have heard rival submissions and perused the material on record. On a query from the Bench, both the learned Counsels submitted that they are not aware of the proceedings subsequent to the assessment orders for assessment years 2010-2011, 2011-2012 and the appellate proceedings for assessment year 2007-2008 (wherein similar additions were made). 3.6. As per clause 4 of the agreement between the assessee and the First Leasing (lessor) the asset shall remain the exclusive property of the lessor (First Leasing) at all times. It further provides that the lessee at no time during the lease period can capitalize the assets in its books of account since the ownership of the asset lies with the lessor. Further, as per clause 19 of the said agreement, the assessee company (lessee) shall surrender the leased assets to First Leasing in good condition and working order on expiration of agreement. It is also mentioned that the lessee shall reimburse all th....