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Income Tax Appellate Tribunal, HYDERABAD ‘B’ BENCH, HYDERABAD.
M/s.Sai Life Science Ltd., Hyderabad. PAN AAECS6143F …..Appellant. Vs. Asst. Commissioner of Income Tax, Central Circle 3(1), Hyderabad. …..Respondent. Appellant By : Shri V. Siva Kumar for Shri S. Rama Rao. Respondent By : Shri Rohit Majumdar. (D.R.) Date of Hearing : 19.05.2022. Date of Pronouncement : 31.05.2022. O R D E R Per Shri Rama Kanta Panda, A.M. : This appeal filed by the assessee is directed against the order dt.15.06.2020 of the learned Commissioner of Income Tax (Appeals)-10, Hyderabad relating to Assessment Year 2008-09.
There is a delay of 147 days in filing of this appeal by the assessee for which the assessee has filed an application
Affidavit. It is explained in the condnation application that the corporate office was closed due to Covid 19 and after reopening also most of the employees were working from home. Therefore, the order of the CIT (Appeals) could not reach the concerned person and remained with the receiving desk clerk of company unattended. Subsequently, it was traced and the consultant was approached for filing the appeal before the Tribunal. The Consultant office was also functioning partially due to covid 19 and was working with lesser staff for which there was a delay in filing of the appeal before the Tribunal. After hearing both the sides and after perusal of the contents of the condonation application along with an Affidavit filed by the assessee, the delay in filing of the appeal is condoned and appeal is admitted for hearing.
The facts of the case, in brief, are that the assessee is a company engaged in the business of export of pharma products as 100% EOU and filed its Return of Income on 30.09.2008 declaring total income of Rs.33,96,798.
Subsequently, a revised return was filed by the assessee declaring a total income of Rs.51,31,934.
3.1 During the course of assessment proceedings, the Assessing Officer noted from the details furnished by the assessee that the assessee company had entered into forward contract, options contracts and derivative contracts equivalent to Rs.1,13,12,44,375. The company recognized a notional loss on Mark to Market losses on the above contracts and made a provision of Rs.1,97,91,087 as exchange fluctuation loss for the forward contracts entered under the head “Gain/Loss on Exchange Fluctuation” in the P&L Account which was not added back to the Book Profit as per provisions of sub-clause (d) of Expln. (1) to Section 115JB of the Income Tax Act, 1961 (in short ‘the Act’). The provision for loss/expense is not for an ascertained liability but is a notional entry for loss. The Assessing Officer therefore made an addition of Rs.1,97,91,087 on account of provisional loss on the forward/option/derivative contracts.
Aggrieved the assessee filed an appeal before the CIT (Appeals) and furnished various details based on which the CIT (Appeals) called for a remand report from the Assessing Officer. After considering the remand report submitted by the Assessing Officer and rejoinder of the assessee to such remand report, the CIT (Appeals) upheld the action of the Assessing Officer by observing as under :
Aggrieved with such order of ld. CIT (Appeals), the assessee filed appeal before the Tribunal by making the following grounds :
“ 1. The learned (IT (Appeals) erred in fact and law in considering the amount of Rs.1,97,91,087/-Exchange Fluctuation loss on unexpired forward contracts as notional and unascertained liability and disallowing the same in computing Book profits under section 115JB of Income Tax Act in determining tax under Minimum alternate Tax ignoring the established position of law in this regard.
2. The learned ClT (Appeals) erred in fact and law by making disallowance of Rs.1,97,91,087/in computing the book profits under provisions of section 115JB being Exchange Fluctuation loss on unexpired forward contracts ignoring the fact that the exchange fluctuation loss entry is passed in the books of accounts pursuant to Accounting standard AS-11 under section 311 C of Companies Act 1956 mandatorily to be followed as per companies act and is an allowable expenses under Income tax Act.
3. The (IT (Appeals) erred in fact and law in not considering the fact that the amount of Rs.1,97,91,087/- being Exchange Fluctuation loss on unexpired forward contracts booked on 31st march of 2008 is reversed in the subsequent financial year 2008-09 as per the method of accounting regularly followed by the assessee company and as a result there is no loss of revenue to the Income Tax Department and as a result the amount of Rs.1,97,91,087/- has the effect of getting disallowed twice.
4. Any other ground/s may please be allowed at the time of hearing of appeal.”
We have heard the rival arguments made by both the sides, perused the orders of authorities below and the paper
book filed on behalf of the assessee. We have also considered the various decisions cited by the learned counsel for the assessee. We find the learned CIT (Appeals) rejected the arguments made by the assessee on the ground that the assessee was not clear as to what is the exact amount of MTM loss and the basis of the calculation of Rs.97,91,087. The assessee was also unable to explain the loss suffered by it on the basis of each contract. It is the submission of the learned counsel for the assessee that the assessee had filed detailed submission furnishing contract- wise loss or profit and that the learned CIT (Appeals) failed to consider the same. From the various details filed by the assessee in the paper book, we find the assessee has filed the following details before the lower authorities which have not been properly appreciated by them.
“ i) Statement showing loss on forward contracts & options contract. ii) Abstract of forward contract fo the year ended on 31st March, 2008. iii) Profit and loss account and Balance Sheet for the year ended 31st March, 2009.
Schedules forming part of P&L account for the year ended 31.03.2009. v) Summary of forex loss for the FY 2008-09 & Ledger statements for the period from 1.4.2008 to 31.3.2009. vi) Ledger extract of Exchange Fluctuation – SBI for the period from 1.4.2008 to 31.3.2009. vii) Ledger extract of Dollar Fluctuation for the period from 1.4.2008 to 31.3.2009. viii) Ledger extract of Exchange Fluctuation (Transaction) for the period from 1.4.2008 to 31.3.2009. ix) Ledger extract of Exchange Fluctuation (Transaction) of Unit-1 & 2 Division B. x) Ledger extract of Exchange Transaction – Unit - 3 for the period from 1.4.2008 to 31.3.2009. xi) Ledger extract of Exchange Transaction – Unit - 4 for the period from 1.4.2008 to 31.3.2009. xii) Ledger extract of Unit – 1 & 2, Division – A. xiii) Ledger extract of Exchange Fluctuation (Transaction) of Unit – 3. ix) Ledger extract of Exchange Fluctuation (Transaction) of Unit – 4. x) Ledger extract of Dollar Fluctuation of Unit – 5 for the period from 1.4.2008 to 31.3.2009.”
On a pointed query raised by the Bench as to whether the assessee has explained the activities carried on by the assessee are related to or linked with the business or not, the learned counsel for the assessee submitted that given an opportunity, the assessee is in a position to substantiate
Assessing Officer that the activities carried out by the assessee are related to the business of the assessee. Since the lower authorities in the instant case have not appreciated the facts of the case properly as per the details filed by the assessee, therefore, considering the totality of the facts of the case and in the interest of justice we deem it proper to remit the issue to the file of Assessing Officer with a direction to adjudicate the issue afresh and in accordance with law after giving due opportunity of being heard to the assessee. We hold and direct accordingly. The grounds raised by the assessee are allowed for statistical purpose.
In the result, the appeal of the assessee is allowed for statistical purposes.
Order pronounced in the open court on 31st May, 2022.