2014 (6) TMI 293 - HC - Income Tax

Disallowance of loss of foreign exchange fluctuation Held that - The Tribunal was rightly of the view that the increase or decrease in the value of the foreign loan would also be taken into account to modify the figure of actual loan in the year in which the increase or decrease in the loan arises on account of fluctuation in the rate of exchange the assessee is entitled to the deduction of the foreign exchange loss as claimed by the assessee - the assessee has offered the income arising out of the money lent as its business profit - The case of the assessee is that the money was advanced to a sister concern which has in fact been supplying 97% of its raw material - It was as such an advance made for the purpose of running the business more profitably the finding of the learned Tribunal was not challenged Relying upon CIT Versus M/s Woodward Governor India P. Ltd. & M/s Honda Siel Power Products Ltd. 2009 (4) TMI 4 - SUPREME COURT - Closing stock is also an asset there was no merit in the contentions of Revenue Decided against Revenue. Value of consideration of sale of shares Held that - Tribunal was of the view that in the absence of anything to show that the assessee has received anything more than what is disclosed in respect of the shares sold to its related concerns, no addition can be made to such value for the purpose of computing capital gains Following CIT Versus George Henderson & Co. Ltd. 1967 (4) TMI 18 - SUPREME Court - when the legislature wanted to make a departure a specific provision was introduced - Reference in this regard can be made to Section 50C - the AO was wrong in taking the view that the capital gain has to be assessed not on the basis of the consideration actually received but on the basis of the consideration receivable based on market rate Decided against Revenue.

Summary

Issues:
1. Disallowance of loss on account of foreign exchange fluctuation as business expenditure
2. Disallowance on account of foreign exchange fluctuation following a specific judgment
3. Consideration received for shares sold in computing capital gain
4. Legality and correctness of the Tribunal's order

Issue 1 - Disallowance of loss on account of foreign exchange fluctuation:
The assessing officer disallowed the loss on account of foreign exchange fluctuation, stating it was contingent in nature and not allowable as a deduction. The CIT upheld this view, stating it resulted in capital appreciation or depreciation and was not a revenue loss. However, the Tribunal reversed this decision, citing the Woodward Governor India case. The Tribunal held that the loss should be allowed as a deduction, modifying the actual cost in the year of fluctuation. The High Court agreed with the Tribunal, emphasizing the loan was given for business purposes, and the judgment applied to assets as well as liabilities.

Issue 2 - Disallowance on account of foreign exchange fluctuation following a specific judgment:
The CIT disallowed the loss based on the assessing officer's view that fluctuation in loan value was not a revenue loss. However, the Tribunal reversed this decision, applying the Woodward Governor India judgment. The High Court upheld the Tribunal's decision, emphasizing the loan was given for business purposes, and the judgment applied to both assets and liabilities.

Issue 3 - Consideration received for shares sold in computing capital gain:
The assessing officer made additions to capital gains, alleging underreported consideration for shares sold. The CIT deleted the addition, stating the actual consideration received should be taken for computing capital gains. The Tribunal upheld this decision, citing Supreme Court judgments. The High Court affirmed the Tribunal's decision, stating that capital gains must be computed based on actual consideration received, not market value.

Issue 4 - Legality and correctness of the Tribunal's order:
The High Court addressed the general question of the order's legality. It affirmed the Tribunal's decisions on all issues, emphasizing the application of relevant judgments and principles. The Court dismissed the appeal, stating the Tribunal's views were supported by legal precedents and correctly applied in the case.