PRINCIPAL COMMISSIONER OF INCOME TAX- 1, vs. M/S. ALBASTA WHOLESALE SERVICES LIMITED

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ITA/666/2019HC DelhiDLHC01029993201919 July 2019Bench: HON'BLE DR. JUSTICE S.MURALIDHAR,HON'BLE MR. JUSTICE TALWANT SINGH3 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that no substantial question of law arose from the impugned order of the ITAT. The Court noted that the Assessing Officer (AO) had disallowed the claim of Rs. 35,42,20,000/- as foreign exchange fluctuation loss without conducting any inquiry into the facts. The Assessee had advanced US $10 million as a loan and received back an amount which, when converted to Rupees, resulted in a difference of Rs. 35,42,20,000/- compared to the Rupee value of the original advance. The ITAT, in its order, had noted the Assessee's submission that US $10,01,50,000 was received, with US $1,50,000 offered as income and accepted by the AO. The remaining difference of Rs. 35,42,20,000/- was claimed as a loss due to foreign exchange fluctuation. The Court found that the CIT(A) and ITAT were correct in reversing the AO's disallowance, as the disallowance should have been preceded by an inquiry into the Assessee's claim. The appeal filed by the Revenue was accordingly dismissed.

What were the facts?

The Revenue (Principal Commissioner of Income Tax-1) appealed against an order dated February 4, 2019, passed by the ITAT in ITA No. 6546/Del/2015 for Assessment Year 2011-12. The appeal concerns the Assessee's (M/s. Albasta Wholesale Services Limited) claim of Rs. 35,42,20,000/- as foreign exchange fluctuation loss under Section 37 of the Income Tax Act. The Assessing Officer (AO) had disallowed this amount. The Assessee had advanced a loan of US $10 million to its US subsidiary in 2008 and realized Rs. 443,07,10,000/- upon its liquidation in 2010. The difference in Rupee value between the advance and realization, amounting to Rs. 35,42,20,000/-, was claimed as an exchange loss. The AO disallowed this claim without conducting an inquiry, despite the return being scrutinized under Section 143(3).

What were the issues?

1. Whether the Income Tax Appellate Tribunal (ITAT) erred in confirming the order of the Commissioner of Income Tax (Appeals) [CIT(A)] and allowing the Assessee's claim of Rs. 35,42,20,000/- as foreign exchange fluctuation loss under Section 37 of the Income Tax Act, 1961. Assessee's Contention (as noted by the Tribunal): The Assessee advanced US $10 million as a loan. Upon liquidation of the subsidiary, US $10,01,50,000 was received. An amount of US $1,50,000 was offered as income for the current AY and accepted by the AO. Due to fluctuation in the USD-INR exchange rate, the Assessee realized Rs. 443,07,10,000/-. The difference between the Rupee value of the US $10 million advanced in 2008 and received back in 2010, which was Rs. 35,42,20,000/-, was claimed as a loss on account of foreign exchange fluctuation. Revenue's Contention: The Revenue argued that the ITAT erred in confirming the CIT(A)'s order and allowing the foreign exchange fluctuation loss claim.

Which sections of the Income-tax Act were involved?

Section 37,Section 143(3)

AI-generated summary — verify with the full judgment below

ITA 666/2019

Page 1 of 3

$~38 * IN THE HIGH COURT OF DELHI AT NEW DELHI +

ITA 666/2019

PRINCIPAL COMMISSIONER OF INCOME TAX- 1 ..... Appellant

Through: Ms.Vibhooti Malhotra, Advocate.

versus

M/S. ALBASTA WHOLESALE SERVICES LIMITED ..... Respondent

Through: None.

CORAM: JUSTICE S.MURALIDHAR JUSTICE TALWANT SINGH

O R D E R %

19.07.2019

C.M.No.32144/2019 (Exemption) 1. Allowed, subject to all just exceptions. ITA 666/2019 2. This appeal has been filed by the Revenue against the order dated 4th February, 2019 passed by the ITAT in ITA No. 6546/Del/2015 for Assessment Year 2011-12.

3.

The short question urged by the Revenue is whether the Income Tax Appellate Tribunal (ITAT) erred in confirming the order of the Commissioner of Income Tax (Appeals) [‘CIT (A)’] and allowing the claim of the Assessee of Rs. 35,42,20,000/- as foreign exchange fluctuation loss

ITA 666/2019

Page 2 of 3

under Section 37 of the Act?

4.

Learned counsel for the Revenue has drawn the attention of the Court to the order dated 24th March, 2014 passed by the Assessing Officer under Section 143(3) of the Act setting out the case of the Assessee as regards the above loans. The Assessee has indicated the amount given by it as loan to its subsidiary in the United States of America (USA) and the amount realized on the liquidation of such subsidiary and claimed the difference therein as ‘exchange loss’. Without conducting any inquiry of the fact whether there was any loss on account of the fluctuation in the foreign exchange and rate of the US Dollar within the relevant time, the AO simply disallowed the above amount. This is despite the return being scrutinized under Section 143(3) of the Act.

5.

The disallowance could not have been without a preceding inquiry into the claim made by the Assessee. In fact the ITAT in its order noted the submission on behalf of the Assessee that as against US $ 10 million given as loan it received US$10,01,50,000 and US$ 1,50,000 was offered as income of the Assessee for the current AY which was accepted by the AO. However, due to fluctuation in the rate of $ vis-a-vis Rupee, the Assessee realized Rs. 443,07,10,000/-. The difference between the Rupee value of the 10 million US$ advanced in 2008 and received back in 2010 was Rs. 35,42,20,000/- (478,49,30,000 minus 443,07,10,000). This difference was claimed as loss on account of foreign exchange fluctuation. Therefore, the CIT and ITAT were right in reversing the above disallowance.

ITA 666/2019

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6.

No substantial question of law arises from the impugned order of the ITAT. The appeal is accordingly dismissed.

S. MURALIDHAR, J.

TALWANT SINGH, J. JULY 19, 2019 mr

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