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Income Tax Appellate Tribunal, “C” BENCH : BANGALORE
Date of hearing : 26.10.2017 Date of Pronouncement : 27.10.2017 O R D E R Per Shri A.K. Garodia, Accountant Member This is an assessee’s appeal directed against the order of CIT (A) – 7, Bengaluru dated 26.08.2016 for Assessment Year 2013 – 14. 2. The grounds raised by the assessee are as under:- “The Appellant submits as under:
1. Order bad in law The orders passed by Commissioner of Income-tax (Appeals)-7 ['the CIT(A)'] under section 250 of the Act, in so far as it is against the Appellant, is bad in law.
2. Erroneous treatment of the foreign exchange fluctuation gain as 'revenue receipt' a) The CIT(A) erred in confirming the assessment order, which was bad on facts and in law. b) The CIT(A) erred in not holding that the foreign exchange fluctuation gain realised by the Appellant is capital receipt, not chargeable to tax. c) The CIT(A) erred in not holding that the gains on realisation are not taxable in the absence of business/ commercial operations during Page 2 of 5 the year of realisation. d) The CIT(A) erred in considering the accounting entry/accounting norms for determining taxability. e) Without prejudice to our contention that the foreign exchange gains was capital receipt in nature and not taxable and after having brought to tax the foreign exchange gain of Rs13,175,930, the CIT (A) erred in not directing the AO to grant a deduction for the expenses incurred by the Appellant.
Taxability of the gain under section 115JB of the Act a) The CIT(A) erred in not holding that provision of section 115JB of the Act are not applicable to the Appellant.
Relief The Appellant prays that the CIT (A) be directed to grant all such relief arising from the preceding grounds as also all relief consequential thereto. The Appellant craves leave to add to or alter, by deletion, substitution or otherwise, the above grounds of appeal
, at any time before or during the hearing of the appeal. The Appellant submits that the above grounds are independent and without prejudice to one another.”
3. Regarding Ground No. 1, Learned AR of the assessee submitted that this is a general ground and no adjudication is called for. Regarding Ground No. 2, he placed reliance on a judgment of Hon’ble apex court rendered in the case of CIT vs. Canara Bank Ltd. as reported in 63 ITR 328. Regarding ground no. 3, he submitted that since the assessee company is under liquidation, it is not required to prepare P & L Account as per Schedule – VI of The Companies Act and therefore, section 115 JB is not applicable Learned DR of the revenue supported the order of CIT (A).
4. We have considered the rival submissions. We examine the facts in the case of CIT vs. Canara Bank Ltd. (Supra) to determine the applicability of this judgment in the present case. In that case, the assessee bank opened one branch in Karachi on 15.11.1946. After the partition of India, the currencies of India & Pakistan continued to be at par until there was devaluation of Indian rupees on 18.09.1949. Pakistan did not devalue its currency and till 27.02.1951, the exchange ratio between the two currencies was not determined. In the light of these and various other facts, the tribunal in that case concluded that the amount lying in Pakistan was a “blocked” and “sterlised” balance and the assessee was unable to deal with that amount or use it because the permission to remit the money to India was not being granted because of difficulties in currency situation. On the basis of these facts, Hon’ble apex court held that the money changed its character of ‘stock in trade’ when it was blocked and sterlised and therefore, increment in its value owing to exchange fluctuation must be treated as capital receipt. In the present case, this is not a claim of the assessee that the amount lying in EEFC account was blocked for any reason and therefore, in the facts of the present case, this judgment is not applicable.
In the present case, the judgment of Hon’ble apex court rendered in the case of CIT vs. woodward Governor India Pvt. Ltd., 312 ITR 254 is applicable. As per this judgment, the bank balance in foreign currency has to valued in Indian Currency on the Balance Sheet Date and accounting treatment is to be given to the difference and the same is revenue item except liability to acquire fixed assets for which the effect will go to increase or decrease the value of the relevant asset as the case may be. In the present case, the difference brought to tax is already realized and not a mere valuation difference on the Balance Sheet Date. Hence, on this issue, we decline to interfere in the order of CIT (A).
Ground No. 2 is rejected.
Regarding ground no. 3, we find that as per the provisions of section 11JB (2), every assessee being a company shall for the purpose of this section is required to prepare its P & L Account in accordance with Part II & II of Schedule VI to The Companies Act, 1956. As per Explanation (1) to section 115 JB, Book Profit means the profit shown in the P & L Account prepared under subsection 115 JB (2) after certain addition/ reduction as prescribed therein. As per sub section (1) of section 115JB, if tax payable as per normal provisions is less than 18.5% of the book profit of a company assessee, than such assessee has to pay tax @ 18.5% of Book Profit. There is no such provision that if a company is not required to prepare its P & L Account in accordance with Part II & II of Schedule VI to The Companies Act, 1956, than such company is not required to pay tax @ 18.5% of Book Profit. In fact, the provisions of sub section (2) of section 115 JB suggests that every company shall for the purpose of this section is required to prepare its P & L Account in accordance with Part II & II of Schedule VI to The Companies Act, 1956. In our considered opinion, these provisions of sub section (2) of section 115 JB are to address this situation where a company assessee is not required to prepare its P & L Account in accordance with Part II & II of The Companies Act, 1956 by prescribing that every company assessee for the purpose of this section is required to prepare its P & L Account in accordance with Part II & II of Schedule VI to The Companies Act, 1956. Hence, we hold that it is immaterial that the present assessee company is not required under The Companies Act, 1956 to prepare its P & L Account in accordance with Part II & II of The Companies Act, 1956 because the company is under liquidation. As prescribed in sub section (2) of section 115JB, the present assessee is also required to prepare its P & L
Page 5 of 5 Account in accordance with Part II & II of Schedule VI to The Companies Act, 1956 and has to pay tax as per the provisions of sub section (1) of section 115 JB. Ground No. 3 is also rejected. 6. In the result, the appeal filed by the assessee is dismissed . Order pronounced in the open court on the date mentioned on the caption page.