DCIT (IT) 3(3)(1), MUMBAI vs. NIKO (NELPIO ) LTD, MUMBAI
In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.
What did the Tribunal hold?
The Tribunal upheld the CIT(A)'s order, confirming that the foreign exchange loss was correctly treated as a business loss. This was based on the Production Sharing Contract allowing such recognition and the precedent set by the Supreme Court in the Enron case.
What were the facts?
The Assessing Officer appealed the CIT(A)'s decision to treat a foreign exchange loss of Rs. 1,84,75,894/- as a business loss. The CIT(A) had followed a previous order which allowed such treatment based on a Production Sharing Contract and Supreme Court precedent.
What were the issues?
Whether foreign exchange loss arising from petroleum operations, as per a Production Sharing Contract, can be treated as a business loss.
AI-generated summary — verify with the full judgment below
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- CIT v. Enron Oil & Gas India Ltd.22 citing305 ITR 75 · 2008 · SC · Read judgment
Income Tax Appellate Tribunal, MUMBAI “I” BENCH, MUMBAI
By way of this appeal, the Assessing Officer has challenged correctness of the order dated 15.05.2018 passed by the learned CIT(A)-57, Mumbai for the assessment year 2014-15.
Grievances raised by the Assessing Officer are as follows:
On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in treating the loss of Rs.1,84,75,894/- as Business loss ignoring the fact that assessee has earned foreign exchange loss of Rs.1,8475,894/- which doesn't form part of the business activities carried out by the assessee during the year and hence the same cannot be considered as business loss.
Assessment Year: 2014-15 Page 2 of 4
2. The Appellant prays that the order of the Ld. CIT(Appeals) on the above grounds be set aside and that of the Assessing Officer be restored.
None appeared on behalf of the assessee, but we have heard the ld. DR and duly considered the facts available on record in light of the applicable position.
We find that in the impugned order, the ld. CIT(A) has merely followed his predecessors order for the Assessment Year 2011-12, which has now been confirmed by a Co-ordinate Bench of this Tribunal vide order dated 23.05.2018, wherein the tribunal has inter alia observed as under:
4. We have heard counsels for both the parties at length and we have also perused the material placed on record as well as the orders passed by revenue authorities. Before we decide the merits of the case, it is necessary to evaluate the orders passed by Ld. CIT(A). The Ld. CIT(A) has dealt with the above grounds raised by the revenue in para no.7 of its order. The operative portion of the order of Ld. CIT(A) is contained in sub-para no. 3.4 of its order and the same is reproduced below:- 3.4 Decision: As regards foreign exchange gains, the Production Sharing Contract covers that issue. In para 1.6.2 of the general provisions under section 1 of the accounting procedure under the Production Sharing Contract it is specified that any realized or unrealized gains or losses from the exchange of currency in respect of petroleum operations shall be credited or charged to the accounts. It has been so specified because under the Production Sharing Contract the accounts are required to be maintained in both US dollars and Indian rupees while expenses in India have to he made in Indian rupees. Sale of petroleum products is to be accounted in US dollars. This would lead to frequent transaction of currency for accounting purposes. Accordingly, the gains or loss on account of such foreign exchange fluctuation/ translation is permitted by the Production Sharing Contract to be recognised in the accounts prepared there under. It is also seen that the Apex Court in the Enron case (305 ITR 75) had specifically allowed the foreign exchange losses and gains to be taken into account while preparing the financial statements of the business. Keeping in mind these relevant facts, taxation of foreign exchange gain under the head other sources was not required to be made in the facts of the present case. Therefore, on this issue, I follow the stand CIT(A) in the Niko (Neco) Ltd. 's case in AY 2008-09 and AY 2009-10 and hence the appeal filed by the appellant company on this account is hereby allowed. After having gone through the facts of the present case as well as considering the orders passed by revenue authorities and submissions made by both the parties, we find that Ld. CIT(A) has rightly appreciated the facts of the present case and come to the conclusion that the taxation of foreign exchange gain under the head 'other sources' was not required to be made. While doing so, Ld. CIT(A) has correctly appreciated the production sharing contract which covers this issue in para no. 1.6.2 of the general provisions u/s 1 of the accounting procedure under the Production Sharing Contract, wherein it is specified that any realized or unrealized gains or losses from the exchange of currency in respect of petroleum operations shall be credited or charged to the accounts. Ld. CIT(A) has also considered the terms of the Production Sharing Contract wherein, it was specified that the accounts are required to be maintained in both US dollars and Indian rupees, while expenses in India have to be made in Indian rupees. Since the sale of petroleum products is to be accounted in US
Assessment Year: 2014-15 Page 3 of 4 dollar and that lead to frequent transaction of currency for accounting purposes. Accordingly, the gains or loss on account of such foreign exchange fluctuation/ translation was permitted by Production Sharing Contract to be recognized in the accounts prepared there under. We further notice that while reaching to the above conclusion, Ld. CIT(A) has correctly relied upon the judgment of Hon'ble Apex Court in the case of Enron (305 ITR 75), wherein Hon'ble Supreme Court has specifically allowed the foreign exchange losses and gains to be taken into account while preparing the financial statements of the business. Apart from above, Ld. C1T(A) in assessee's own case for AY 2008-09 and AY 2009-10 had allowed the said ground by holding the foreign exchange gain as business income. Moreover, no new facts or contrary judgments have been brought on record before us in order to controvert or rebut the findings so recorded by Ld. CIT(A). Therefore, there are no reasons for us to interfere into or deviate from the findings recorded by the Ld.CIT(A). Hence, we are of the considered view that the findings so recorded by the Ld. CIT (A) are judicious and are well reasoned. Resultantly, this ground raised by the revenue stands dismissed.
5. In the net result, the appeal filed by the revenue stands dismissed.
In view of the above, we see no reasons to interfere in the matter. We accordingly confirm the order of the ld. CIT(A) and decline to interfere in the matter.
In the result, the appeal filed by the Revenue stands dismissed. Pronounced in the open court today on the 30th day of January, 2020.
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