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2015 (8) TMI 1156 - AT - Income TaxLoss on the loan borrowed in foreign currency due to exchange rate fluctuation - CIT(A) allowed claim as revenue loss - Held that - This Tribunal after referring to the judgment of Apex Court in Sutlej Cotton Mills Ltd. (1978 (9) TMI 1 - SUPREME Court ), found that the CIT(Appeals) has taken a correct view. Apparently, the very same foreign exchange loan availed by the assessee from IDBI considered for the year under consideration also. Therefore, the observation of the Assessing Officer that irrespective of utilization of the borrowed funds, the loss cannot be allowed may not be justified. In view of the judgment of Sutlej Cotton Mills Ltd. (supra), if the foreign currency was held by the assessee on conversion into another currency, ordinarily it has to be treated as trading profit or loss in case the foreign currency is held on the revenue account or as a trading asset or as a part of circulating capital embarked in the business. In this case, admittedly, the borrowed loan was used as a working capital / circulating capital. Therefore, the loss suffered by the assessee has to be allowed on the revenue account. Therefore, this Tribunal do not find any infirmity in the order of the CIT(Appeals) and accordingly, the same is confirmed. - Decided against revenue. Computation of deduction under Section 80HHC - Held that - Tribunal found that the Kerala High Court in Baby Marine (Eastern) Exports v. ACIT 2002 (4) TMI 19 - KERALA High Court held that premium or service charge was part of the price settled by the assessee for sale of its merchandise. Therefore, it is neither brokerage nor commission. The Tribunal accepted the claim of the assessee since no contrary decision was brought to its notice. In the case before us, it is not the premium or service charges paid by the assessee, it is a case of insurance claim received on account of loss of stock and loss of machinery due to fire accident. The insurance claim relating to loss of stock may be on the revenue account, it would form part of total turnover. However, the insurance claim in respect of loss of machinery has to be treated as capital account, therefore, that will not form part of total turnover. The break-up details with regard to loss on account of machinery and loss on account of stock are not available on record. Therefore, the orders of the lower authorities are set aside. The issue with regard to deduction under Section 80HHC of the Act is remitted back to the file of the Assessing Officer. The Assessing Officer shall re-examine the issue and find out the actual insurance claim for loss of machinery and loss of stock and thereafter decide the issue in accordance with law after giving a reasonable opportunity to the assessee. Computation of deduction under Section 80HHC of the Act without reducing the foreign exchange gain - Held that - The assessment order says that the assessee explained before the Assessing Officer that the profit was a negative figure, therefore, 90% of the export incentive should be considered for deduction under Section 80HHC of the Act. In view of the above, there is a confusion whether there was any profit on export or there was a loss. This Tribunal is of the considered opinion that the matter needs to be reconsidered by the Assessing Officer to find out whether there was any loss or profit in the business of the assessee. Accordingly, the orders of the lower authorities are set aside and the issue is remitted back to the file of the Assessing Officer. The Assessing Officer shall reconsider the issue afresh in the light of the material that may be provided by the assessee, in accordance with law, after giving reasonable opportunity to the assessee.
Issues Involved:
1. Exchange fluctuation loss. 2. Computation of deduction under Section 80HHC regarding miscellaneous receipts. 3. Computation of deduction under Section 80HHC regarding foreign exchange gain. Issue 1: Exchange Fluctuation Loss The first issue concerns the exchange fluctuation loss of Rs. 41,87,255/-. The Revenue argued that the loss from foreign currency loan fluctuation should be treated as a capital loss, not a revenue loss, citing the Calcutta High Court judgment in Bestobell (I) Ltd. v. CIT. The Department contended that the liability from exchange rate fluctuation is contingent and should not be deducted while computing taxable income. The CIT(Appeals) had allowed the claim based on the Tribunal's earlier order for the assessee's assessment years 1998-99 and 2000-01, which the Revenue had appealed to the High Court. The assessee argued that the fluctuation affects the revenue account and qualifies as business expenditure under Section 37 of the Income-tax Act, 1961, even if the liability is discharged in a future year. The Tribunal, referencing its previous decision and the judgments in CIT v. Woodward Governor India P. Ltd. and Sutlej Cotton Mills Ltd. v. CIT, reiterated that if foreign currency is held on revenue account or as circulating capital, the loss due to depreciation should be considered a trading loss. Since the loan was used as working capital, the Tribunal confirmed the CIT(Appeals) decision to allow the loss as a revenue expense. Issue 2: Computation of Deduction under Section 80HHC - Miscellaneous Receipts The second issue focused on the deduction under Section 80HHC, specifically whether 90% of the miscellaneous receipt of Rs. 4,65,802/- should be deducted from the profit of the business. The Revenue argued that this amount, received from insurance claims for stock loss due to fire and machinery breakdown, should be excluded from the business profit calculation. The assessee referenced a previous Tribunal decision and the Kerala High Court ruling in Baby Marine (Eastern) Exports v. ACIT, which held that certain receipts are part of the price settled for merchandise sales. However, the Tribunal noted the need to distinguish between insurance claims for stock (revenue account) and machinery (capital account). The Tribunal remitted the issue back to the Assessing Officer to segregate the claims and re-examine the deduction in accordance with the law. Issue 3: Computation of Deduction under Section 80HHC - Foreign Exchange Gain The third issue pertained to the computation of deduction under Section 80HHC, specifically the treatment of foreign exchange gain. The Revenue claimed that the assessee did not correctly add the negative business profit figure to the export incentive figure for deduction purposes, arguing that the net exchange fluctuation rate was used incorrectly. The assessee contended that the profit from exchange rate fluctuation on export should be eligible for deduction under Section 80HHC. However, the Tribunal identified a discrepancy between the assessee's claim of profit and the assessment order's indication of a negative profit figure. The Tribunal remitted the issue back to the Assessing Officer to clarify whether there was a profit or loss and to reconsider the deduction in accordance with the law. Conclusion The appeal of the Revenue was partly allowed for statistical purposes, with specific issues remitted back to the Assessing Officer for further examination and clarification. The Tribunal confirmed the CIT(Appeals) decision on the exchange fluctuation loss and directed a re-examination of the Section 80HHC deductions related to miscellaneous receipts and foreign exchange gain.
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