DCIT, CIRCLE-8, , PUNE vs. POSCO INDIA PUNE PROCESSING CENTER PVT. LTD., PUNE

3. At the outset, Ld. Counsel for the assessee has not pressed the above common grounds raised in the Cross Objections for both the assessment years under consideration. Hence, the said grounds are dismissed as ‘Not pressed’. relating to A.Y. 2010-11 filed by the Revenue. Facts in brief are that the assessee is a company engaged in the business of manufacturing of various steel products relating to automobiles, electrical transformers and electrical motors. Income of Rs.9,83,10,170/- was declared in the and 1002/PUN/2024 and CO Nos.29 and 30/PUN/2024 Posco India Pune Processing Center Private Limited return filed for the A.Y. 2010-11 on 15.10.2010. The case was selected for scrutiny followed by issuance of notice u/s.148. In response to notice, the assessee through its submissions dated 12.04.2017 submitted that the return filed by the assessee company on 15.10.2010 may be treated as return filed in response to notice u/s.148. Ld. AO issued notice u/s.148 to the assessee requiring it furnish the reasons along with details for claiming deduction of Rs.5,23,00,000/- as foreign exchange gain in the computation to which the assessee furnished its submissions along with computation for the A.Y. 2009-10 to A.Y. 2013-14, the tabulation of which is extracted on page 4 of the assessment order. It was submitted before the AO that from A.Y. 2009-10 to 2013-14, net amount disallowed by the company on account of External Commercial Borrowings (ECB) towards Foreign Exchange Fluctuation loss of Rs.5,09,63,947/- and if the amount of gain of Rs.5.23 crore is again added back in the hands of assessee, the total disallowance on account of exchange gain/loss on ECB will be Rs.10,43,63,947/- which will be much more than the actual loss booked and claimed by the company and will result in double taxation of the same amount. However, the AO was not satisfied with the submissions made by the assessee company and made addition of said sum of Rs.5,23,00,000/- by observing as under :

“3.3 I have carefully perused by the submission made by the Authorized Representative to justify it claim of reduction of gain on foreign exchange loss from total income while computing the total taxable income. However, I am not inclined to accept the same for the following reasons. (1) The assessee company has directly reduced the gain on foreign exchange on account of ECB loan availed by the company during the FY 2008-09 relevant to AY 2009-10 for fixed-asset, stating that the same is worked out as on 31 March 2010 on the amount of loan outstanding at the end of year considering the value of one and 1002/PUN/2024 and CO Nos.29 and 30/PUN/2024 Posco India Pune Processing Center Private Limited US dollar in Indian rupees. However, no corresponding entries have been passed in the P & L Account by the assessee company. (2) Further the Authorized Representative has not given any comments regarding the working of foreign exchange gain / loss on account of restatement of ECB loan liability as on 31/03/2010. (3) Even in the computation of income no reasons were given by the company as how it is eligible of reducing an amount of Rs.5,23,00,000/-on account of foreign exchange gain. (4) The finance Act 2002 w.e.f 2003 has effected charge to Sec 43A, which provides for income/decrease in liability only for currency fluctuation at the time has been effected by the assessee company during the previous year relevant to the AY. In view of this the claim of the assessee for deduction on account of foreign exchange loss is not in accordance.

In view of the above facts, the explanation given by the Authorized Representative to justify its claim in not found to be prima-facie acceptable and therefore an addition of Rs.5,23,00,000/- is hereby made to the total income.”

“1. On the facts and in circumstances of the case and in law, the Id. CIT(A) has erred in deleting the addition made by the AO of Rs. Rs.5,23,00,000/- ignoring the provisions of Sec.43A which mandates that any addition or reduction in the liability of the assessee in respect of an asset acquired outside India, due to fluctuation in foreign exchange at the time of making payment, has to be accounted for in such previous year itself, irrespective of the method of accounting adopted by the assessee. and 1002/PUN/2024 and CO Nos.29 and 30/PUN/2024 Posco India Pune Processing Center Private Limited

2. On the facts and in circumstances of the case and in law, the Id. CIT(A) has erred in not appreciating that the assessee had worked out the consequent addition/reduction arising due to fluctuation in foreign exchange in the respective previous year and therefore, it was bound to account for such adjustment in its books as per Section 43A, irrespective of whether any actual repayment was effected during such previous year.

3. On the facts and in circumstances of the case and in law, the Id. CIT(A) has failed to appreciate that res-judicata is not applicable to the income tax proceedings and the AO is not precluded in taking the correct view as per law merely because the method followed by the assessee was not questioned in other assessment years and when such method was in contravention of the provisions of the Act.

4. The appellant craves leave to add to, amend, alter or omit any of the grounds of appeal raised hereinabove.”

7. Ld. Departmental Representative argued supporting the order of the Assessing Officer and on the other hand Ld. Counsel for the assessee apart from supporting the finding of ld.CIT(A) also referred to the written submissions filed before both the lower authorities stating that legitimate claim of Foreign Exchange Fluctuation loss/gain has been provided in the books on the ECB loans in terms of the Accounting Standards consistently followed by the assessee company which are mandatorily required to be complied while preparing the audited financial statements.

“Finding of ld.CIT(A) :

“8. Decision on Grounds of Appeal: During the appellate proceedings, Statement of Facts, Grounds of appeal, Assessment order and appellant's submission was carefully scrutinized by the under signed.

Ground 1: The Assessment order and appellants' submission was carefully gone through. During the appeal proceeding the appellant has submitted that the appellant company has entered into transaction with foreign group company for borrowing in form of External Commercial Borrowings (ECB) for purchase of fixed assets and at the end of the year could not repay the amount and restated the liability as on 31.03.2010. On restatement of the liability there was gain of Rs. 5,23,00,000/- due to change in rate of exchange of US dollar and the amount was credited to the profit and loss account as per accounting standard. During the calculation of taxable income the above amount was reduced. The company is constantly following this procedure from AY 2009-10 to AY 2013-14. Out of the above five AY's company has disallowed losses charged to profit and loss account in three years. The department had accepted this disallowance of exchange in loss in three years but for the AY under consideration the department has reversed the losses booked earlier and thus has resulted in double taxation of the same amount which was already disallowed by company in computing taxable income. The appellant has also stated the following in support of its claim which is reproduced as under :-

"1. Non deduction resulting in double taxation We would like to inform you that as per the above explanation, the assessee company has already disallowed the net foreign exchange loss on account of ECB loans of Rs.5,09,63,947. This is the actual loss booked by the company over the period from AY2009-10 to AY2013-14. In case the foreign exchange gain of Rs.5,23,00,000 is not reduced while calculating the taxable income, the total disallowance on account of foreign exchange gain or loss will be Rs. 10,43,63,947 and it will result in double taxation of the same amount

2. Inconsistent treatment by Department As already noted above the company is consistently following same treatment for foreign exchange gain or loss pertaining to ECB loan in calculating taxable income over the period. The income tax department has accepted the disallowance of foreign and 1002/PUN/2024 and CO Nos.29 and 30/PUN/2024 Posco India Pune Processing Center Private Limited exchange loss in AY 2009-10, which is immediately preceding assessment year and also in AY 2012-13. It has also accepted the allowance of gain in AY 2011-12 and AY 2013-14, but only in AY 2010-11 it has changed its stand, without giving any logical reason for the same. It is also pertinent to note that the facts have not changed at all in this case, which could have been one of the reasons for departing from the already accepted stand.

In support of our claim we rely on following judgments pronounced by various authorities:

Gopal Purohit Vs CIT reported in 20 DTR 0099- Wherein the honorable Bombay High Court has held - "Tribunal has correctly held that though the principle of res judicata is not attracted since each assessment year is separate in itself, there ought to be uniformity in treatment and consistency when the facts and circumstances are identical."

In this case income treated as investment in earlier years was treated as business in subsequent years whereas the facts and circumstances were the same and the tribunal accepted the position that though the principle of res-judicata is not attracted there ought to be uniformity in treatment and consistency when facts are identical.

The learned AO while passing order has given four different reasons for not allowing the claim of assessee company. We would like to submit as follows:

Our Submission The above observation of the AO is completely erroneous and baseless. Even a layman would be able to note that the company has offered a total of Rs. 21,96,11,494 being exchange gain as per schedule 12 "other income" of the audited financial Statements. Also schedule 3 "Unsecured Loans" makes it more than clear that company has not repaid any amount during the year and still the loan outstanding is reduced by Rs.5,23,00,000. Hence we would like to submit that the amount of Rs.5,23,00,000 is credited to P & L as other income and is reduced from unsecured loans. and 1002/PUN/2024 and CO Nos.29 and 30/PUN/2024 Posco India Pune Processing Center Private Limited

Our Submission The contention of AO that the AR has not submitted any comments on calculation of exchange gain is absolutely wrong. The assessing officer himself has reproduced the comments along with figures on exchange gain on page no.3 of the assessment order. Hence the reason that comments are not available for verification cannot be the one for disallowing the claim of assessee company.

Our Submission -The contention of the AO about not giving reasons for reducing the amount are not correct. The AO himself has reproduced calculations, comments and reasons based on which the assessee company has claimed said deduction. The AO has nowhere addressed and discussed the reasons forwarded by the assessee company in his assessment order.

Our Submission - Though the AO has correctly referred to Sec 43A of the Act, it seems that the AO has not correctly applied the provisions to the facts of the case. We would like to produce provisions of Sec 43A which read as under:

It is clear from the text highlighted above that exchange gain or loss is to be adjusted to the cost of the asset at the time of PAYMENT. If the exchange loss or gain on restatement is not adjusted in computing taxable income it will always result in either allowing same deduction on more than one occasions or offering same income to tax on two occasions. It is only to avoid this situation, the assessee company has reduced the above referred amount in computing taxable income. and 1002/PUN/2024 and CO Nos.29 and 30/PUN/2024 Posco India Pune Processing Center Private Limited The company has also recognised exchange loss at the time of repayment during AY 2013-14 of Rs.5.67 crores which is disallowed in calculating taxable income for that year. The same is adjusted to the cost of asset in AY 2013-14. This loss is calculated as difference between the exchange rate at the time of repayment and exchange rate when the loan was originally taken. The exchange gain or losses recognized in between these periods are hence to be adjusted in calculating taxable income. Hence it is clear that the company has treated exchange loss at the time of repayment as required by Sec 43A of the Act."

The appellants' contention was considered and it is opined that the appellant has consistently followed the accounting standards in all these years by effecting changes in foreign exchange and fluctuations by restating the value both in gain and loss. Appellants' submission is accepted. In view of the above the ground is noted as allowed.”

raised by the Revenue for A.Y. 2010-11 are dismissed. and 1002/PUN/2024 and CO Nos.29 and 30/PUN/2024 Posco India Pune Processing Center Private Limited

1. On the facts and in circumstances of the case and in law, the Id. CIT(A) has erred in deleting the addition made by the AO of Rs.4,15,70,964/- ignoring the fact that the assessee had failed to provide any sort of details relating to the provisions made on account of dimunition of value of stock and its subsequent reversal despite being asked by the AO to provide such details as is clear from para 3 of the assessment order. The Id. CIT(A) has given relief to the assessee purely based on its submissions, without verifying any relevant supporting details.

2. On the facts and in circumstances of the case and in law, the ld. CIT(A) has failed to appreciate that the assessee had solely relied on the auditors report in making the provision as well as reversing the same and refused to furnish the relevant details relating to the provision and its reversal citing the reason that the same was voluminous. It is common knowledge that valuation of stock is normally made by the auditors, solely relying on the values provided by the assessee itself and not based on any physical inspection and therefore, there was no valid justification for the assessee in not furnishing the details sought by the AO.

3. The appellant craves leave to add, amend, or alter any ground(s) of appeal at the time of hearing before the Hon'ble Tribunal.”

12. The only grievance of the Revenue is that ld.CIT(A) erred in allowing the claim of reducing the book profit by Rs.4,15,70,964/- on account of provision for slow moving inventory item.

“8. Decision on Grounds of Appeal: During the appellate proceedings, Statement of Facts, Grounds of appeal, Assessment order and appellant's submission was carefully scrutinized by the under signed.

Grounds 1 & 2: During the appeal proceedings the appellant has stated that in AY 2010-11 a provision for slow moving inventory amounting to Rs.4,23,52,470/- was made in its books of accounts and the value of closing inventory as of 31st March 2010 was brought to Rs.2,46,33,12,648/- from Rs.2,50,56,65,118/- i.e reduction of Rs.4,23,52,470/-, the company has added back this provision as it was a provision towards reduction in value of asset. Company has paid tax on this book profit amounting to Rs.8,14,70,943/- in AY 2010-11. For AY 2011-12 i.e. year under consideration, there was recalculation of provision and the company reduced the provision for slow moving inventory by Rs.4,15,70,964/-. It has increased the value of closing inventory from Rs.1,98,67,47,765/- to Rs.2,02,83,18,729/-due to the reduction in provision for slow moving inventory. As the company has reversed the provision for slow moving inventory to the tune of Rs.4,15,70,964 its profit has increased which was already offered to tax in AY 2010-11. Hence company has claimed deduction of the same in computing book profit for AY 2011-12. The stand of addition of the said amount in AY 2010-11 was accepted by the department even in the re- assessment proceedings. But when the provision was reversed the department not allowed the deduction of said amount. Hence it amounts to double taxation of the same amount once in AY 2010-11 and again in AY 2011-12.

It is noted that since the amount was already taxed under section 115JB during the preceding previous year, if not adjusted in calculation of book profit of the year under consideration, it will be taxed twice, once in AY 2010-11 and again in AY 2011-12. It is fundamental rule of the tax laws that no income can be subjected to tax twice unless otherwise expressly provided for in the tax laws. This is a general principle of tax and shall be followed unless there are specific provisions which require the income and 1002/PUN/2024 and CO Nos.29 and 30/PUN/2024 Posco India Pune Processing Center Private Limited to be taxed twice. It is also noted that the appellant company made provision in immediately preceding previous year i.e. AY 2010-11 and had disallowed such provision in that year's computation of income under normal provisions of the Act as well as provision of section 115JB. Such provision was later written back by the company in its books of accounts in AY 2011-12 and hence was forming part of "audited profit" as per profit & loss account of the company for AY 2011-12. As this amount was already taxed in AY 2010-11, the company deducted it in computing taxable income for AY 2011-12. Hence it is clear that the company has not claimed any expenditure on account of provision for slow moving inventory in AY 2011-12. Considering the elaborate submission, the claims of the appellant is accepted.”

Order pronounced on this 06th day of March, 2025.