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Income Tax Appellate Tribunal, INDORE BENCH, INDORE
Before: HONBLE KUL BHARAT & HONBLE MANISH BORAD
which is arising out of the order u/s 143(3)/147 dated 26.8.2010 framed by ACIT-1(1), Ujjain.
2. As the issues raised in these appeals are common these were heard together and therefore are being disposed off by this common order for sake of convenience and brevity.
Briefly stated facts as culled out from the records are that the assessee is a limited company engaged in business. Income of Rs.14,72,41,630/- declared in the Income tax Return filed on 20.11.2003. Case picked up for scrutiny by issuance of notice u/s 143(2) of the Act. Assessment u/s 143(3) of the Act completed on 23.03.2006 after making disallowance u/s 40(a)(i) of the Act at Rs.5,02,417/- and disallowance of depreciation at Rs.1,07,676/-.
Income assessed at Rs.14,78,51,720/-. Subsequently Ld. A.O on Cummins Turbo Technologies Ltd C.O.No.24/Ind/18 observing that the assessee has wrongly claimed deduction for foreign exchange fluctuation loss at Rs.25,62,079/- which was brought to his knowledge on account of revenue audit objection, issued notice u/s 148 of the Act after duly recording the reasons.
Assessment u/s 143(3) r.w.s. 147 of the Act was completed on 27.8.2010 disallowing foreign exchange fluctuation loss of Rs.25,62,079/- and assessing the income at Rs.15,04,13,800/-.
Aggrieved assessee preferred appeal before Ld. CIT(A) challenging the reopening of the assessee’s case u/s 147 of the Act and also challenging the disallowance of foreign exchange fluctuation loss. Ld. CIT(A) dismissed the assessee’s ground challenging the reopening of the assessment and deleted the disallowance of foreign exchange fluctuation loss at Rs.25,62,079/-.
Aggrieved Revenue is now in appeal before the Tribunal against the deletion of disallowance and assessee has filed Cross Objection challenging the reopening as well as contending that the assessee’s case was covered by Circular of Central Board of Direct Taxes No.21/2015 dated 10.12.2015 as the tax effect was Rs.9,41,365/- which was less than the threshold limit of Rs.10 lakhs.
Cummins Turbo Technologies Ltd C.O.No.24/Ind/18 6. We first take up the revenue’s appeal raising following grounds;
“Whether on the facts and in the circumstances of the case, the Ld. CIT(A) was justified in deleting the addition of Rs.25,62,079/- on account of foreign exchange fluctuation loss. (Note – The issues are covered under the exception mentioned in para 8(c) of circular 21/2015 due to revenue audit objection) The appellant reserves his right to add, amend or alter the grounds of appeal on or before the date; the appeal is finally heard for disposal.”
7. Ld. Departmental Representative vehemently argued and supporting the orders of Ld. A.O whereas Ld. Counsel for the assessee supported the findings of Ld. CIT(A).
We have heard rival contentions and perused the records placed before us and find that the assessee being a domestic company is required to comply with the Accounting Standard 11 issued by the Institute of Chartered Accountants of India and at the year end foreign exchange loss/gain in respect of sales made in foreign currency taken for revenue purposes is debited/credited as the case may be. Ld. CIT(A) appreciating this fact deleted the disallowance observing as follows;
Ground No.2:- Through this ground of appeal the appellant has 4.2 challenged the addition of Rs.25,62,079/- on account of foreign exchange fluctuation loss. The appellant maintained accounts on mercantile system of 4 Cummins Turbo Technologies Ltd C.O.No.24/Ind/18 accounting, loss claimed by the appellant on account of fluctuation in the rate of foreign exchange as on the date of balance sheet in respect of sale made in foreign currency taken for revenue purposes is allowable as expenditure under s. 3 7( 1 ), notwithstanding the fact that the liability has not been actually discharged in the year in which the fluctuation in the rate of foreign exchange has occurred. This forex gain I loss is nothing but part of raw material cost or sales split to comply with the Accounting Standard 11 issued by the Institute of Chartered Accountants of India and there is no impact for this item over the volume of Profit or Loss of the company. This is merely booking of the differential amount of transaction under a separate head of account. The appellant in the A.Y.2002-03, the company had a gain of Rs.18,46,598/- which was offered to taxation. Also for the assessment year 2007-08 there was an exchange gain of Rs.3,35,97,558/- which again has been offered for taxation. As per normal business practices followed by the appellant such expenditure and claims are very common in day-to-day commercial operations. The aforementioned facts and justification for occurrence of foreign exchange fluctuation loss clearly states that it is a business expenditure and revenue in nature and hence squarely allowable for calculation of profit for tax purpose. Therefore, the addition made by the AO amounting to Rs.25,62,079/- is Deleted. Therefore the appeal on this ground is Allowed.”
9. The above detailed finding of Ld. CIT(A) has not been controverted by the Ld. Departmental Representative. We therefore in the given facts and circumstances of the case find no reason to interfere in the finding of Ld. CIT(A) deleting the disallowance of foreign exchange fluctuation loss of Rs.25,62,079/-. Accordingly Ground No.1 of the revenue is dismissed. 5 Cummins Turbo Technologies Ltd C.O.No.24/Ind/18 10. Now we take up the Cross Objection of the assessee wherein raising following grounds;
1. That on the facts and in the circumstances of the case and in law the Learned Commissioner of Income Tax Appeals, Ujjain has erred in dismissing the ground of reopening of assessment proceedings under section 148 of Income Tax Act.
That on the facts and under circumstances of the case and in law the appeal filed by the Department is barred by limitation of law and hence should not be admitted.
On the facts and in the circumstances of the case and in law the appeal filed by the department needs to be quashed in view that the gross tax demand of Rs. 9,41,365/- is less than the threshold limit of Rs. 10,00,000/- as per monetary limit prescribed under the guidelines issued by the Central Board of Direct Taxes Circular No. 211/2015 dt. 10.12.2015 for preferring second appeal to the Hon'ble Tribunal against the order of Learned Commissioner of Income Tax Appeals.
The respondent reserves right to add, amend or alter all or any of the grounds of this Cross Objection on or before the date of final hearing in the appeal.
All the above grounds are independent and not relevant to each other.”
At the outset the Ld. Counsel for the assessee requesting for not pressing Ground No.1 challenging the issuance of notice u/s 148 of the Act. We therefore dismiss Ground No.1 as not pressed.
Cummins Turbo Technologies Ltd C.O.No.24/Ind/18 12. Apropos Ground No.2 of the Cross Objection referred above, we find that the case of the assessee have been reopened on the basis of revenue audit objection indicating that foreign exchange fluctuation loss has been wrongly claimed. Such issues relating to the reopening of the revenue audit objection are covered under the exception clause mentioned in para 8(c) of the CBDT Circular No.21/2015 dated 10.12.2015 and therefore dismissing revenue’s appeal on account of low tax effect is not permissible in the given case.
Therefore we dismiss the assessee’s Ground No.2 of the assessee’s Cross Objection.
In the result the Cross Objection of the assessee is dismissed.
In the result the appeal of the revenue as well as the Cross Objection of the assessee stands dismissed.
The order pronounced in the open Court on 20.06.2019