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TMI Blog2000 (7) TMI 218X X X X Extracts X X X X X X X X Extracts X X X X ..... rt and accounts for that period the assessee had mentioned that due to steep devaluation of Indian rupees vis-a-vis US dollar during this year the company had to make a provision of Rs. 98.65 lacs (net) as against Rs. 42.55 lacs in the preceding year towards 'foreign exchange loss' as liability in foreign currency for purchase of zinc in the year 1988. The CIT Meerut noted that Assessing Officer allowed the said claim of the assessee which he was of the opinion erroneous and treated as prejudicial to the interest of Revenue. He issued show cause notice to the assessee as to why action under section 263 should not be taken on the facts of this case. The assessee filed reply and it was submitted that loss of the assessee was liable to be allowed as assessee was maintaining accounts on mercantile basis. The liability to pay the foreign suppliers due to the outstanding balance in respect of goods purchased by the assessee was revenue expenditure that is why it was an allowable liability. Zinc was purchased in 1988 and question was whether additional liability of Rs. 98,65,051 incurred by the assessee due to foreign exchange fluctuation arose in the year 1988 or arose during the account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arwal, advocate, reiterated the same submissions and pointed out that CIT, Meerut was not justified to pass the impugned order as Assessing Officer had rightly allowed the claim of the assessee. In order to appreciate the stand of assessee the learned counsel invited our attention to chart filed along with the paper book which contains the details of expenses relating to purchase of zinc from assessment years 1988-89 to 1994-95. It was submitted that in assessment year 1989-90 cost of goods debited was Rs. 2,70,99,347 along with interest of Rs. 12,19,470.Saleprice credited to P & L A/c was Rs. 3,85,87 288 and profit was declared at Rs. 42,81,022. In assessment year 1990-9l the assessee claimed foreign exchange fluctuation loss of Rs. 42,49,845 which was allowed by the Assessing Officer and identical claim in assessment year 1991-92 to the extent of Rs. 42,54,624 was allowed. In the year under consideration the Assessing Officer following the earlier year's order allowed the claim which is subject matter of order recorded by the Commissioner but findings of the CIT are not in consonance with the factual position. The learned counsel submitted at CIT rightly observed that assessee wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer then the CIT had no jurisdiction to exercise his revisional power under section 263. The learned counsel had referred to the decision of Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83 in which Their Lordships after discussing the scope of power of Commissioner under section 263 of the Act concluded that when an ITO adopted one of the course permissible in law and it has resulted in loss of revenue or where two views are possible and ITO has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order, prejudicial to the interest of Revenue unless the view taken by the ITO is unsustainable in law. On the basis of this ratio the contention is that Commissioner had wrongly exercised his power under section 263 and order is to be quashed. 5. The learned D.R. as against it, placed reliance on the order of Commissioner and placing reliance on the decision of Hon'ble Supreme Court in the case of Sutlej Cotton Mills Ltd. argued that it was no doubt trading liability but it can be claimed in the year of payment. Further, the learned D.R. submitted that principle of res indicata is not applicable to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f that transaction. The cost of the goods remained to be paid and due to fluctuations of foreign exchange rate of Indian rupees vis-a-vis US dollar the assessee claimed Rs. 22,49,854 as foreign exchange fluctuation loss which was allowed in assessment year 1990-91 and such claim for Rs. 42,54,624 was further allowed in assessment year 1991-92 by the Assessing Officer. Nothing has come on record as to whether the Department has initiated any proceeding against those orders or not. Not only this in assessment year 1994-95 the assessee claimed such loss to the extent of Rs. 8,41,918 and Department has allowed the claim. The CIT, Meerut has also noted in the impugned order that assessee was following mercantile system of accounting and further admitted that the unpaid price of zinc purchased by the assessee was a trading liability and amount due was an allowable expenditure along with the fluctuation loss. The only point which had been made basis for passing the impugned order by the CIT is that such loss is allowable only in the year when assessee is remitting the unpaid price of the zinc along with the amount of foreign exchange fluctuation loss. In this connection we may refer to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccount of appreciation of depreciation in the value of foreign currency held by it, such profit or loss would ordinarily be trading profit or loss if the foreign currency held by the assessee was on revenue account or as a trading asset. The Hon'ble Calcutta High Court in the case of International Combustion (I) (P.) Ltd. had also allowed such loss on devaluation of Indian rupee. No doubt that was a case in respect of purchase of plant & machinery but ratio was the same and Their Lordships of Calcutta High Court held that additional liability incurred by the assessee due to the devaluation of Indian rupee was an admissible deduction in computing its profit in the year under consideration. 9. From the consideration of the above case laws as well as the stand of the Department in the case of the assessee in the preceding years as well as in assessment year 1994-95 where such claim of the assessee stands allowed, the question arises as to whether Commissioner can invoke the jurisdiction under section 263 of the Act because action of the Assessing Officer in allowing the claim of the assessee is having support of the case laws referred to above including the decision of the Tribunal i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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