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TMI Blog2006 (3) TMI 222X X X X Extracts X X X X X X X X Extracts X X X X ..... tract are capital receipt or revenue receipts ? If it is capital receipt, whether the same should be reduced from the cost of plant and machinery in connection with which the forward contract was entered into?" 3. After considering facts and circumstances of the case, the Special Bench held that gain arising from cancellation of forward cover contract was a capital receipt and not liable to tax and should be reduced from the cost of machinery in relation to which foreign contracts were entered into. 4. In the miscellaneous application, the Revenue has stated that connected question relating to deductibility of roll over charges was also required to be considered, as roll over charges cannot have a character different from forward cover contracts and, therefore, if the amount received on cancellation of forward cover contract was of a capital nature, so was the roll over charges. In not deciding above question, according to the Revenue, the Special Bench committed a mistake apparent from the record. In this connection, it has been emphasized that aforesaid fact relating to treatment given to roll over charges by the AO and the CIT(A) was specifically brought to the notice of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Special Bench. In this connection, Shri Sharma placed reliance on the decision of the Gauhati High Court in CIT vs. Highway Construction Co. (P) Ltd. (1996) 131 CTR (Gau) 310: (1996) 217 ITR 234 (Gau). (ii) Even if it was assumed that there was a mistake in holding that roll over charges were revenue expenditure, the said mistake was committed not by the Special Bench but by the AO. He read out relevant portion of the - assessment order where roll over charges were treated as revenue expenses. The Tribunal therefore, had no jurisdiction to carry any rectification. (iii) It was submitted that order of Special Bench was passed under s. 255(3) of the IT Act. The Tribunal, according to Shri Sharma, could rectify a mistake apparent from record under s. 254(2) of the IT Act and said section covers only orders passed under s. 254(1) of the Act. Sec. 255(3) is not covered by provision of s. 254(2) of the IT Act. It was, accordingly, submitted that the Tribunal has no power to rectify the mistake. (iv) Lastly, it was submitted that a highly controversial and debatable point was now being raised by the Revenue in the miscellaneous application which could hardly be called a mistake ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s held in earlier part of this order." 9. On appeal, the CIT(A) agreed with the view of the AO and confirmed the assessment with following observations on the point raised now in the miscellaneous application: "Another very vital aspect of the case is that though the roll over charges have got to be capitalized being the direct cost of plant and machinery as per the Accounting Standards and the appellant-company did, in fact, capitalize these in its accounts by debiting the amounts to the plant and machinery account. However, when it came to taxation, the company did make a claim that these were revenue expenses and should be allowed as such. Though the AO did not accept the claim in the earlier year, it Was allowed by him during the year under appeal. The roll over charges represent the difference between the forward rate and the spot rate of the currency on the day the contracts are rolled over. If these are claimed as revenue expenses, the profits on cancellation of covers could not be treated otherwise by the appellant-company. On the other hand, the appellant-company has debited roll over charges and credited the profits on cancellation of contracts relating to the liabili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd position should have been made clear as to who and at what stages the said closely connected issue was to be considered and decided. In not taking any note of the submissions made by the Revenue, the Tribunal did commit a mistake apparent from record. The issue raised by the Revenue cannot be treated to be totally foreign to the question raised before the Special Bench. We, therefore, find no force in the first submission made by Shri Anoop Sharma. 12. The second submission of Shri Sharma that mistake, if any, was committed by the AO and not by the Tribunal, is also devoid of any substance. The AO, as noted earlier, had treated gains from cancellation of contract as a revenue receipt and, therefore, expenditure like roll over charges was also treated as revenue expenditure. This question was required to be considered by the Tribunal. However, no finding was recorded on the plea raised by the Revenue on the above claim. The said order was confirmed. It is only Special Bench of the Tribunal, which took a view contrary to the one taken by the Revenue authorities, and, therefore, it was imperative that reference should have been made to the connected issue. The order of the AO had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld also consider the allowability of the roll over charges since it is related and linked to the issue of assessment of the gains as a revenue/capital receipt. In this connection, our attention was drawn to the written submissions filed on 3rd March, 2004 wherein the following prayer was made: 'In view of the facts and circumstances as narrated above, the points for determination has to include, inter alia, that in case the receipt of Rs. 11.06 crores is held to be capital receipt, whether the related rolled over charges of Rs. 2,30,67,615 would still be allowable as revenue expense as the. basis, on which AO allowed the same, would stand reversed. It is a related and linked issue and may require adjudication depending upon the way main issue is decided............. The roll over charges of Rs. 2,30,67,615 allowed by the AO as the same was held to be paid in the course of earning taxable profit would also be required to be treated as capital expenditure and added to the cost of the asset.' In our opinion, this issue relating to the deductibility of roll over charges is intimately connected with the question of taxability of the gains, as rightly held by the IT authorities. H ..... X X X X Extracts X X X X X X X X Extracts X X X X
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