JCIT, SPECIAL RANGE, PANAJI vs. M/S WALLACE PHARMACEUTICALS PVT. LTD, PANAJI

“The order of CIT(A), Panaji-1 is bad in law ignoring the facts and findings of the Assessing Officer.

Whether on facts of the case, the CIT(A), Panaji-1 was justified in deleting the addition made on account of foreign exchange fluctuation loss when the loss was arrived at by the assessee was notional in nature. 3. Whether on facts of the case, the CIT(A), Panaji-1 was correct in coming to a conclusion that the difference in loan taken and loan repaid by applying the rate of exchange at the yearend represented foreign exchange fluctuation loss and not notional loss. 4. Whether on facts of the case, the CIT(A), Panaji-1 was correct in allowing deduction u/s 37(1) of the act on so called foreign exchange fluctuation loss when in reality the notional loss arrived at does not represent any expenditure as per section 37(1) of the Act. 5. Whether on facts of the case, the CIT(A), Panaji-1 erred in relying on the decision of Hon'ble Supreme Court in the case of CIT Vs Woodward Governor India Pvt. Ltd (2009) 312 ITR 254 (SC) to state that fluctuation in the rate of exchange with respect to loans taken for revenue purpose 3 ITA.No.289 & 290/PAN./2019 was allowable as deduction u/s 37(1) in the year of fluctuation overlooking the fact that the assessee had only reworked out the difference in loan taken and loan repaid by applying the rate of exchange at the yearend which was notional in nature and didn't represent any fluctuation losses. 6. The appellant craves to amend or alter any grounds of appeal or add the same, if deemed necessary.”

We have given our thoughtful consideration to the vehement rival submissions against and in support of the CIT(A)'s findings deleting the impugned disallowance. We make it clear first of all that the question as to whether such gains or losses, involving foreign exchange already stand settled in hon’ble apex court’s landmark decision in CIT vs. Woodward Governor India P. Ltd., [2009] 312 ITR 254 (SC). This is indeed coupled with the fact that the relevant Accounting standard AS-11 has also issued necessary clarification that such differences ought to be recognized as income or expenditure, as the case may be, in revenue account. We also take note of the fact that there is no discussion in the Assessing Officer’s corresponding findings in his assessment order 27.12.2011 that the assessee’s transactions in fact, had been taken in capital than in revenue account so as to be treated as capital expenditure as per CBDT’s instruction no.3/2010 dated 23.03.2010. It rather emerges that the assessee had worked-out it’s various losses relating to inventory only in current account followed by it’s 9 ITA.No.289 & 290/PAN./2019 supportive evidence issued by the “Bank of Baroda’s [cash credit] sanction letter”. Faced with the situation, we hardly see any merit in the Revenue’s stand seeking to revive the Assessing Officer’s impugned action disallowing the assessee’s foreign exchange losses of Rs.5,08,39,412/-. The CIT(A)'s findings extracted in preceding paragraphs stand upheld therefore. The Revenue fails in its first and former appeal ITA.No.289/PAN./2019.

The outcome would be hardly any different in Revenue’s latter appeal ITA.No.290/PAN./2019 involving sec.271(1)(c) penalty issue of Rs.3,05,91,000/- for assessment year 2014-2015 wherein the CIT(A)'s has reversed the Assessing Officer’s action as under :

Suffice to say, there could be hardly any dispute between the parties that the impugned penalty of Rs.3,05,91,000/- is based on the assessee’s survey declaration only without having any corresponding supportive material found or seized by the departmental authorities. Faced with the situation, we are of the view that even the CBDT’s landmark circulars issued on 10.03.20023 and 15.12.2014 have settled the issue that mere admission hardly carry any significance. Learned DR could not produce any material found or seized during the course of survey which can 12 ITA.No.289 & 290/PAN./2019 substantiate the Revenue’s claim that the assessee had concealed or furnished inaccurate particulars of it’s income.

Apart from the above detailed discussion, we also wish to quote hon’ble apex court’s landmark decision in CIT vs., Reliance Petro Products [2010] 322 ITR 158 (SC) wherein their lordships’ have settled the law that each and every disallowance/addition does not lead to automatic levy of penalty. We thus find no reason to reverse the CIT(A)'s action deleting the impugned penalty. This Revenue’s latter appeal ITA.No.290/PAN./2019 is rejected therefore.

To sum-up, both these Revenue’s appeals ITA.Nos.289 & 290/PAN./2019 are dismissed in above terms. A copy of this common order be placed in the respective case files. Order pronounced in the Open Court on 18.07.2023.