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2015 (8) TMI 125 - AT - Income TaxDisallowance of exchange loss incurred on export of goods - CIT(A) directed AO to allow claim - Held that - Hon ble Rajasthan High Court in assessee s own case for A.Y. 90- 91 has held that under the mercantile system of accounting, the claim of a liability is required to be worked out at the close of the accounting year and in our view the assessee appellant had correctly claimed the said amount as a liability as there was fluctuation of exchange on account of Dollar vis-a-vis India Rupee. Exchange loss at the close of the financial year is allowable expenditure u/s 37(1) of the Act. In the case before the Hon ble Rajasthan High Court, foreign exchange liability is against purchase of goods wherein it has been held that assessee has to shell out the excess amount, therefore, the said amount is allowable. The Hon ble Rajasthan High Court has relied on the judgment of Hon ble Apex Court in case of CIT Vs. Woodward Governor India Pvt. Ltd. 2009 (4) TMI 4 - SUPREME COURT . In the present case also, the export advance received by the assessee was a liability which was to be adjusted against the export of goods or by actual remittance on receipt of RBI permission. The Hon ble ITAT in A.Y. 93-94, has given a direction to allow the exchange loss on the basis of the permission of RBI to remit the export advance and also to allow the exchange loss on account of exports actually effected by the assessee during the year if it is not allowed elsewhere. The AO has allowed the exchange loss on the basis of RBI permission for remittance but he has not allowed the exchange loss on account of exports actually effected without giving any finding that such loss has been allowed elsewhere by simply stating that it is a notional loss. The Ld. CIT(A) after considering the entire material on record has therefore rightly held that exchange loss on export of goods adjusted against the export advance is allowable to the assessee. Similarly, for A.Y. 95-96, the CIT(A) has rightly allowed the exchange loss on actual remittance of US 37,81,155 out of the sales proceeds from PPI, Russia as per the permission of RBI received on 18.09.94 and directed to allow the exchange loss with reference to the remittance of US 14,41,332.58 in A.Y. 96-97 on the basis of the permission issued by RBI on 25.03.96. Therefore, the order of CIT(A) is upheld by dismissing the grounds of the department. - Decided in favour of assessee.
Issues Involved:
1. Allowance of exchange loss incurred on export of goods. 2. Allowance of exchange loss on remittance of outstanding advance. Detailed Analysis: Issue 1: Allowance of Exchange Loss Incurred on Export of Goods ITA NO. 15/JP/2013: The Revenue challenged the decision of the CIT(A), Alwar, which directed the assessing officer to allow the exchange loss of Rs. 55,88,368/- incurred on export of goods worth US $3,41,380/- without appreciating the facts of the case. The CIT(A) found that the exchange loss was actual and real, arising due to the devaluation of the Indian Rupee against the advanced received in US dollars. The ITAT upheld the CIT(A)'s decision, directing the AO to allow the exchange loss after verifying the conversion rates applied. The ITAT noted that the loss should be allowed as it was not covered under any other head. ITA NO. 16/JP/2013: The Revenue contended the CIT(A)'s decision to allow the exchange loss of Rs. 89,77,386/- incurred on export of goods worth US $5,43,504/-. The CIT(A) allowed the exchange loss on the grounds that the loss was actual and not notional. The ITAT upheld this decision, directing the AO to allow the loss after verifying the conversion rates. ITA NO. 17/JP/2013: The Revenue argued against the CIT(A)'s decision to allow the exchange loss of Rs. 45,17,084/- incurred on export of goods worth US $2,72,376/-. The CIT(A) allowed the exchange loss following the same rationale as in previous years, considering it an actual loss due to currency devaluation. The ITAT upheld the CIT(A)'s decision, directing the AO to allow the exchange loss after verifying the conversion rates. Issue 2: Allowance of Exchange Loss on Remittance of Outstanding Advance ITA NO. 17/JP/2013: The Revenue opposed the CIT(A)'s decision to allow the exchange loss incurred on remittance of outstanding advance of US $37,81,155.42. The CIT(A) allowed the exchange loss on the remittance of US $37,81,155 out of the realization of export sales proceeds from PPI, Russia, based on the RBI's permission received on 18.04.1994. The CIT(A) did not allow the exchange loss with reference to the remittance of US $14,41,332.58, as the RBI's permission for this amount was issued on 25.03.1996, which falls in A.Y. 96-97. The ITAT upheld the CIT(A)'s decision, stating that the exchange loss on remittance should be allowed based on the RBI's permission date. Conclusion: The ITAT dismissed the appeals of the Revenue, upholding the CIT(A)'s decisions to allow the exchange losses incurred on export of goods and on remittance of outstanding advances, based on actual losses due to currency devaluation and RBI permissions. The ITAT emphasized that such losses should be allowed as they are actual and not notional, aligning with the principles laid down in previous judgments and the mercantile system of accounting.
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