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Income Tax Appellate Tribunal, MUMBAI BENCH “A”, MUMBAI
Before: SHRI G.S.PANNU & SHRI RAM LAL NEGI
ORDER PER G.S.PANNU,A.M:
The captioned are four appeals by the assessee pertaining to assessment years 2002-03, 2003-04, 2004-05 and 2006-07 and involve certain common issues, therefore, they have been clubbed and heard together for the sake of convenience and brevity.
The appellant before us is an individual, who is an Advocate by profession. One common issue which is involved in all these appeals relates to the treatment of foreign exchange variation loss/income claimed by the assessee. The relevant
(AY. 2002-03) (AY. 2003-04) ITA No.4249/Mum/2009 (AY. 2004-05) ITA No. 6051/Mum/2010(A.Y.2006-07) facts are that assessee is following cash system of accounting and in the Income & Expenditure Account he had claimed foreign exchange loss, so far as it pertains assessment years 2003-04 and 2004-05. The said foreign exchange loss was on account of the foreign exchange lying in EEFC account maintained by the assessee. The assessee had explained before the lower authorities that the credits in the said account are on account of professional fee received and the balance of the monies kept in foreign exchange at the close of the year is converted into Indian rupees at the prevailing rate of exchange and the resultant loss has been claimed as a deduction. The Assessing Officer considered the aforesaid loss on account of variation in foreign exchange as a notional diminution in the value of the foreign exchange lying in the EEFC account. Accordingly, the Assessing Officer held that the said notional loss was not allowable as a deduction. In assessment year 2003-04, the Assessing Officer has disallowed a loss of Rs.2,68,679/- on this account and in assessment year 2004- 05 also similar situation prevailed and accordingly, the Assessing Officer had disallowed a sum of Rs.19,04,576/-.
2.1 In so far assessment years 2002-03 and 2006-07 are concerned, the assessee accorded same treatment, but instead of loss there was a gain of Rs.2,27,874/- and Rs.1,53,514/- respectively. In assessment years 2003-04 and 2004-05, the stand of the assessee was that the treatment of considering the aforesaid loss as part of Income & Expenditure Account was a consistent policy and that since in the earlier assessment year 2002-03, such system has been accepted, inasmuch as, the income on exchange variation has been assessed, therefore, similar treatment should be accorded to the loss on account of exchange variation. The CIT(A) has also affirmed the stand of the Assessing
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Officer, inasmuch as, according to him the impugned loss was notional in nature, accordingly, assessee is in appeal before us for assessment years 2003-04 and 2004-05. In assessment years 2002-03 and 2006-07 also, the assessee is in appeal, inasmuch as, the resultant gain on foreign exchange conversion has been assessed to tax.
In the above background, the Ld. Representative for the assessee pointed out that though the assessee was following cash system of accounting, but in the initial assessment year 2002-03, the impugned income was offered and assessed to tax and, therefore, in the subsequent two years, when there is a loss on conversion of the balance lying in the EEFC account, similar treatment ought to have been accorded by the Assessing Officer. In so far as the nature of the loss is concerned, the Ld. Representative for the assessee quite clearly referred to the decision of our Co-ordinate Bench in the case of Smt. Asha Bhosale in assessment year 2004-05, wherein similar loss suffered on account of exchange rate difference has been held to be a notional loss. So however, the Ld. Representative for the assessee pointed out that what is of essence is to maintain consistency and for that matter either the Revenue ought to have allowed the loss in assessment years 2003-04 and 2004-05 following their stand of assessing the income in assessment years 2002-03 and 2006-07 or else, if the loss/gain is to be assessed on actual realization basis, the same principle should be applicable in all the four captioned assessment years. At this point, Ld. Representative for the assessee also pointed out that subsequently, the EEFC account has been closed and the dispute pertains to only the captioned four assessment years. In support of the latter proposition, the Ld. Representative for the assessee submitted that the appellant has raised Additional Grounds of (AY. 2002-03) (AY. 2003-04) ITA No.4249/Mum/2009 (AY. 2004-05) ITA No. 6051/Mum/2010(A.Y.2006-07)
appeal in the respective assessment years, canvassing that the actual loss incurred on conversion of foreign currency into Indian rupees be allowed on realization basis.
On the other hand, the Ld. Departmental Representative has not disputed the factual matrix brought out by the Ld. Representative for the assessee to point out that the loss being notional loss could not have been allowed by the lower authorities; and, in so far as, the income declared by the assessee for the two assessment years is concerned, it is submitted that the Assessing Officer could not have brought down the admitted income and the tax liability of the assessee.
We have carefully considered the rival submissions. At the outset, we may state that having regard to the decision of our Co-ordinate Bench in the case of Smt. Asha Bhosale (Supra),in so far as, the nature of the impugned loss is concerned, it has to be considered as a notional loss; and, assessee is following the cash system of accounting, such loss is not allowable. So however, it is also starkly evident that there is an inconsistency in the manner in which similarly placed transactions have been treated by the Revenue in the captioned assessment years. It cannot be over emphasized that it is imperative to accord a uniform treatment to similarly placed transactions in different years, more so when the tax rates are same in different years. In this background, we have considered the plea of the assessee for taxing the transactions on actual realization basis. A summary of the claim in the captioned assessment years have been placed before us by way of the following tabulation:-
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Type of Actual Basis Notional Basis Income Income Financial Asst.Year currency Cash basis As per books As per AO As per CIT(A) Year 2005-05 2006-07 EURO 2005-06 2006-07 GBP (4,46,534) 2005-06 2006-07 USD (7,08,774) 2005-06 2006-07 AUS$ Total (11,52,308) 1,53,514 1,53,514 1,53,514 2003-04 2004-05 EURO 2003-04 2004-05 GBP 2003-04 2004-05 USD (6,01,994) 2003-04 2004-05 AUS$ Total (6,01,994) (19,04,576) 0 0 2002-03 2003-04 EURO 2002-03 2003-04 GBP 2002-03 2003-04 USD 2002-03 2003-04 AUS$ Total 0 (2,68,679) 0 0 2001-02 2002-03 EURO 2001-02 2002-03 GBP 2001-02 2002-03 USD 2001-02 2002-03 AUS$ Total 0 2,27,874 0 2,27,874 Grand Total (17,54,302) (17,91,867) 1,53,514 3,81,388 5.1 The aforesaid tabulation reveals that the net effect of what has been offered by the assessee in different years is a loss of Rs.17,91,867/-, whereas on actual realization basis such loss comes to Rs.17,54,302/-, which is quite proximate. Be that as it may, we deem it fit and proper to set-aside the respective orders of the CIT(A) for captioned four assessment years and direct the Assessing Officer to consider the claim of the assessee on actual realization basis and accordingly rework the total income for each of the captioned year. Needless to mention, on this aspect, the Assessing Officer shall allow the assessee a reasonable opportunity of being heard and thereafter, he shall recompute the total income as per law.
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In assessment year 2003-04, the other issue relates to the denial of the claim of deprecation amounting to Rs.2,11,819/- on the audio system. The Assessing Officer noted that the depreciation was claimed on a single item of audio system purchased at a cost of Rs.4,07,152/-. Before the Assessing Officer, assessee explained that the audio system was used along with T.V screen, DVD and computer and that the entire systems was being used for the purposes of profession. The Assessing Officer and thereafter, the CIT(A) denied the claim of deprecation on the ground that it was related to the use of audio system and that the same could not be treated as a business asset. The emphasis of the Revenue is to the effect that on a standalone basis, it cannot be said the audio system was an asset used for the purposes of the profession. Against the denial of deprecation, assessee is in appeal before us.
6.1 Before us, the Ld. Representative for the assessee explained that the audio system was an integral part of video conferencing system comprising of computer, DVD player, TV screen, speaker, etc. purchased by the assessee for a total amount of Rs.8,47,277/-, which was spread over two assessment years of 2002-03 and 2003-04. In this context, Ld. Representative for the assessee referred to page -6 of the assessment order for assessment year 2002-03 to point out that other items viz. T.V screen, DVD, computer, etc. were purchased and in the assessment year 2003-04, the corresponding audio system was purchased. It was, therefore, contended that there was no justification for disallowance of depreciation.
6.2 On the other hand, the Ld. Departmental Representative has merely reiterated the stand of the Assessing Officer, which we have already noted in earlier para and the same is not being repeated for the sake of brevity.
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6.3 We have carefully considered the rival submissions and find that there is no justification for the Assessing Officer to deny the claim of depreciation. It is quite clear that the purchase of video conferencing system has been staggered over a period of two years and taking a pragmatic view, we find no reason to deny the claim of depreciation. In fact, the Ld. Representative for the assessee had pointed out that for assessment year 2004-05 onwards there was no disallowance of depreciation and rather the screen and monitor which was replaced was claimed as revenue expenditure, but the claim of the assessee has been restricted only to the depreciation. In final analysis, in our view, the claim of depreciation has been denied by the Assessing Officer on conjectures and surmises, and it is hereby directed that depreciation be allowed as per law. Thus, on this aspect assessee succeeds.
6.4 In view of the aforesaid, the appeals of the assessee for assessment years 2002-03, 2003-04 and 2006-07 get disposed off as there are no other Grounds of appeal
. However, in so far as, assessment year 2004-05 is concerned, the last issue relates to a disallowance of Rs.3,64,800/-. In this context, the relevant facts are that during the year under consideration, assessee incurred an expenditure of Rs.3,64,000/-on account of purchase of Philips
42. Plasma Monitor and Pixel Plus Plasma E-box and such expenditure was claimed as repairs. On being asked to explain, assessee pointed out that the monitor screen of the full audio system got damaged and was replaced. Since monitor by itself did not form any new asset as it could not be used independently, the expenditure was claimed as revenue expenditure. The Assessing Officer as well as the CIT(A) have treated it as a capital expenditure. The CIT(A) has further directed that depreciation be (AY. 2002-03) (AY. 2003-04) ITA No.4249/Mum/2009 (AY. 2004-05) ITA No. 6051/Mum/2010(A.Y.2006-07) allowed on such expenditure. Not being satisfied with the order of the CIT(A), assessee is in further appeal before us.
6.5 After hearing the rival stands, in our considered opinion, the plea of the assessee for deduction of the expenditure as repairs cannot be faulted, inasmuch as, monitor and screen itself cannot be functionally used and is essentially a part of a larger system. In such a situation, in our view, it would be in the fitness of things that the impugned amount is allowed as a revenue expenditure. Thus, on this aspect also assessee succeeds.
In the result, captioned appeals of the assessee are partly allowed, as above.