DIEBOLD NIXDORF INDIA PRIVATE LIMITED (FORMERLY KNOWN AS DIEBOLD SYSTEMS PRIVATE LIMITED),MUMBAI vs. DCIT 9(3)(1), MUMBAI

Before us, learned counsel appearing for the assessee, though at the outset, conceded that the issue is no more res integra in view of the decision of Hon'ble Supreme Court in case of Checkmate Services Pvt Ltd Vs. CIT [2022] 143 taxmann.com 278 (SC), however, he submitted that the payment made by the assessee should be allowed as ‘business expense’ u/s. 37(1) of the Act. He submitted that allowability of claim u/s.37(1) of the Act has not been examined by the Hon'ble Supreme Court in case of Checkmate Services Pvt Ltd Vs. CIT (supra). He submitted, even if a particular expenditure is disallowed u/s. 36(1) of the Act, for violation of specific condition, however, such expenditure can be allowed u/s. 37(1) of the Act. In support, he relied upon the following decisions:

The learned Departmental Representative ('ld. DR' for short) submitted, once the issue has been settled by the Hon'ble Supreme Court, the assessee cannot subvert the process of law.

We have considered rival submissions and perused the materials on record. We have also applied our mind on the decision relied upon. Factually, there is no dispute that employees contribution towards PF & ESIC were not deposited in the respective accounts within the stipulated period provided u/s. 36(1)(va) of the Act read with the provisions contained in PF & ESIC Acts. Section 36(1)(va) of the Act very clearly provides that if employees contribution to PF & ESIC are not paid within the stipulated time period, such amount has to be treated as ‘income’ of the assessee u/s. 2(24)(x) of the Act. In fact, the issue is no more res integra in view of the ratio laid down by the Hon'ble Supreme Court in the case of Checkmate Services Pvt Ltd Vs. CIT (supra). Even, the assessee accepts the aforesaid position. However, the assessee has made an alternative claim that the payment can still be allowed as ‘business expense’ u/s. 37(1) of the Act. In our view, this claim of the assessee has to be rejected at the threshold in view of the position of law declared by the Hon'ble Supreme Court in the case of Checkmate Services Pvt Ltd Vs. CIT (supra).

In ground no. 2, the assessee has raised the issue of taxability of unrealized foreign exchange fluctuation gain amounting to Rs.9,67,06,326/-.

Briefly, the facts are, during the year under consideration, the assessee earned an amount of Rs.9,67,06,326/-, on account of revaluation of outstanding dues payable to its overseas sister concern due to fluctuation in the valuation of the foreign exchange. In the return of income filed for the assessment year under dispute, the assessee recognized such gain to be in the revenue side and offered it as ‘income’. Accepting such income offered by the assessee, the A.O. completed the assessment. As could be seen, in A.Ys. 2009-10, 2014-15 and 2016-17, the assessee incurred loss on account of fluctuation in rate of foreign exchange qua similar payments to be made to the overseas sister concern. However, the loss claimed by the assessee in the revenue side was not accepted by the A.O.

Against these assessment orders, the assessee has preferred appeals, challenging the disallowance of losses.

However, in the appeal filed before learned first appellate authority for the assessment year under dispute, the assessee raised an additional ground claiming that in case the department takes a stand that loss on account of fluctuation in foreign exchange rate is in the capital side, the gain on similar transaction cannot be treated as ‘revenue in nature’. Therefore, the foreign exchange fluctuation gain offered as ‘income’ in the impugned assessment year should be withdrawn. While considering assessee’s aforesaid claim, learned first appellate authority observe that since the assessee has not raised the issue through a revised return of income, it cannot be entertained.

Before us, learned counsel appearing for the assessee reiterated the stand taken before learned first appellate authority. Whereas, learned Departmental Representative ('ld.

Having considered rival submissions, we find, the assessee has consistently followed a Revenue recognition method, under which the gain/loss arising on account of foreign exchange fluctuation has been treated as ‘revenue in nature’. Therefore, wherever gain arose, the assessee offered it as ‘income’ and wherever there was loss, the assessee has claimed the loss. Following such revenue recognition principle, the assessee has offered the gain as ‘income’ in the impugned assessment year. Therefore, in our view, since the offer of gain as income is consistent with the accounting principle regularly followed by the assessee, claim of withdrawal of such income cannot be accepted. If assessee’s claim of foreign exchange fluctuation loss has not been accepted by the Revenue in some other assessment years, the issue has to be thrashed out in those assessment years and not here.

In ground no. 1, the assessee has challenged the disallowance of deduction claimed towards payment of employee’s contribution to PF & ESIC, amounting to Rs.2,78,27,748/- . This issue is identical to the issue raised in ground no. 1 of decided by us in the earlier part of the order. The decision taken therein would apply mutatis mutandis to this ground as well. Accordingly, ground is dismissed.

The A.O., however, did not entertain assessee’s claim, stating that such claim has not been made through a revised return of income. In this context, he relied upon the decision of the Hon'ble Supreme Court in case of Goetze (India) Ltd. vs. CIT [2006-TIOL- 198-SC-IT). In the first appellate proceedings also, learned first appellate authority endorsed the view of the A.O.

We have considered rival submissions and perused the materials on record. It is the say of the assessee that in the return of income, the assessee has inadvertently not claimed certain deduction which were required to be claimed. It is submitted, unless assessee’s claim is allowed it will amount to double disallowance. It is observed, the additional claim made by the assessee has been rejected only on the ground that such claim was not made through a revised return of income. In our considered opinion, the restriction imposed on the A.O. in entertaining an additional claim not made through revised return of income, does not apply to the appellate authorities. Therefore, learned first appellate authority should have examine the additional claim made by the assessee. Since, we have held that the assessee can make additional claim, which was not made in the return of income, assessee’s claim has to be verified factually by looking into the relevant facts and evidences. Such examination having not taken place before the Departmental Authorities, we are inclined to restore the issue to the A.O. for fresh adjudication after providing reasonable opportunity of being heard to assessee. These grounds are allowed for statistical purpose.

In the result, the appeal is partly allowed for statistical purposes.