MILTONS P.LTD,MUMBAI vs. ASST CIT CIR 6(3), MUMBAI

Order u/s.254(1)of the Income-tax Act,1961(Act) लेखा लेखा सद"य लेखा लेखा सद"य सद"य राजे"" सद"य राजे"" राजे"" केकेकेके अनुसार राजे"" अनुसार अनुसार PER RAJENDRA, AM- अनुसार Challenging the order dated 27/02/2015 of the CIT (A)-13,Mumbai, the assessee has filed the present appeal.Assessee-company,engaged in the business of manufacturing and exporting of ready-to-wear garments,filed its return of income on 20/09/2009,declaring Loss of Rs.3.98 crores.The Assessing Officer (AO) completed the assessment on 23.12.2011 u/s.143 (3) of the Act,determining its income at Rs. (-)1.27 crores.During the course of hearing before us, the Authorized Representative (AR) of the assessee stated that Ground No.2 to 4 should be treated as not pressed.Hence,same stand dismissed. 2.Effective ground of appeal is about disallowance of foreign exchange loss of Rs.2.20 crores.During the assessment proceedings,the AO found that the assessee had debited an amount of Rs.2,20,94,804/- towards foreign exchange loss i.e. exchange loss due to ECB loan, that the assessee had shown the loss as outstanding as on 31.3.2009.He observed that the assessee had merely booked foreign exchange loss, that it was only notional loss, that no transaction was carried out with the party who had advanced the loan, that the liability had not been repaid during the year under appeal, that assessee had reduced the tax liability in its books of account, though no actual transaction had taken place.He issued a show cause notice to the assessee asking it as to why the foreign exchange loss should not be disallowed. After considering the submissions of the assessee,dated 21.12.201,the AO held that the foreign exchange loss had been shown in the books on a notional basis, that it had paid the difference due to foreign exchange fluctuation, that liability arising out of foreign exchange 2307/M/15(09-10)- Milton’s Pvt.Ltd.

fluctuation was a contingent liability that same had not crystallized during the year.Finally, he made an addition of Rs.2.20 crores to the total income of the assessee. 3.Aggrieved by the order of the AO, assessee preferred an appeal before the First Appellate Authority (FAA).Before him,it was argued that loan was taken for the purpose of working capital of the company,that it was utilised for production of readymade garments, that in the notes forming part of accounts it was mentioned that loan was taken for working capital and that gain/losses were to be taken to the P&L account, that as on 1.4.2008 outstanding loan was USD 22,49,980 (Rs.9.10 crores), that assessee was following the method mentioned in the AS-II with regard to foreign exchange gains/loss, that on 31.3.2009 the closing balance was USD 11.31 crores,that the difference of Rs.2.20 crores was debited to the P&L account, that it was not a contingent liability, that in earlier years method of accounting adopted by the assessee was accepted by the department.The assessee relied upon the case of Woodward Governor India Pvt.Ltd.(312ITR254);Oil and Natural Gas Corpn. Ltd.(322ITR 180); Moto - rola India Pvt.Ltd.(112taxmann.com136). After considering the submission of the assessee and the assessment order,the FAA held that there was no actual foreign exchange transaction during the year, that the impugned transaction in nature of foreign currency loan had taken place few years back, that no payments were made by the assessee during the year under appeal,that no actual transaction had taken place nor any payment was made, referring to the case laws referred to by assessee the FAA held that the Hon'ble Supreme Court in the case of Woodward Governor India Pvt. Ltd. (312ITR254); Oil and Natural Gas Corpn. (supra), have dealt with Section 43A w.e.f. 1.4.2003, that as per amended provisions payment was a pre-condition for allowance of any expenditure, that under the unamended Section 43A actual payment was not a condition for making necessary adjustment in carrying cost of the fixed assets acquired in foreign currency, that loan transaction was capital in nature, that the loss was incidental to capital transaction and was not allowble .Finally, he upheld the order of the AO.