2017 (10) TMI 641 - HC - Income Tax

Entitlement to adopt AS-31 issued by ICAI - institute revised its instructions and issued AS-31, making it mandatory only with effect from the financial year 2011-2012 and the assessee adopted AS-31 for the assessment year 2008-2009, which, according to the Assessing Officer, resulted in loss of revenue - Held that - Despite our specific query as to whether there was any statutory prohibition preventing the assessee from adopting AS-31 for the assessment year 2008-2009, the revenue was unable to show us any such statutory bar. In other words, it is evident from the submissions made by the revenue itself that the assessee was legally entitled to adopt AS-31 for the assessment year 2008-2009. If that be so, the Assessing Officer could not have faulted the assessee for having adopted AS-31 for the assessment year 2008-2009 and maintained its account on that basis. The revenue has no case that if AS-31 was validly adopted by the assessee, the assessee could not have been allowed deduction towards loss under derivative contracts of ₹ 63,73,179. Therefore, the conclusion is irresistible that the assessee was legally entitled to adopt AS-31 for the assessment year 2008-2009 and on such adoption, the assessee was entitled to the deduction as well. If that be so, the Tribunal was fully justified in its conclusion that the Assessing Officer was not justified in making the impugned disallowance of ₹ 63,73,179. Therefore, we do not find any illegality in the order of the Tribunal.

Summary

Issues:
1. Revenue's appeal against the order of the Income Tax Appellate Tribunal concerning the assessment year 2008-2009.
2. Validity of the adoption of AS-31 for the assessment year 2008-2009.
3. Justification of the Tribunal's decision to delete the disallowed amount under Loss on forward contracts.

Analysis:

1. The appeal by the revenue challenged the order of the Income Tax Appellate Tribunal regarding the assessment year 2008-2009. The Assessing Officer had made additions to the income of the assessee, a subsidiary company of M/s Olam Investments Ltd., Mauritius, including disallowing a specific amount under derivatives contract. The Dispute Resolution Panel and the Joint Commissioner of Income Tax upheld these additions. However, the Tribunal set aside the disallowance of the amount in question, leading to the revenue's appeal.

2. The court examined the validity of the adoption of AS-31 by the assessee for the assessment year 2008-2009. The assessee had adopted AS-31, which the Assessing Officer believed led to a loss of revenue and subsequently made the disallowance. The court noted that the Institute of Chartered Accountants of India had issued AS-31, mandatory from the financial year 2011-2012. Despite this, the assessee chose to adopt AS-31 for the assessment year in question. The court found that there was no statutory prohibition preventing the assessee from adopting AS-31 for that year. Therefore, the court concluded that the assessee was legally entitled to adopt AS-31 for the assessment year 2008-2009 and maintain its accounts accordingly.

3. The Tribunal's decision to delete the disallowed amount under Loss on forward contracts was also scrutinized. The court determined that since the assessee was legally entitled to adopt AS-31 for the relevant assessment year, they were also entitled to the deduction under derivative contracts. Consequently, the Tribunal's decision to set aside the disallowance was deemed justified. The court found no illegality in the Tribunal's order and answered the questions of law in favor of the assessee, dismissing the appeal by the revenue.