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TMI Blog2015 (2) TMI 808X X X X Extracts X X X X X X X X Extracts X X X X ..... into credit before it is actually received. It also brings into debit an expenditure for which a legal liability has been incurred before it is actually disbursed. As in the original assessment order, against the loss of ₹ 1.44 crores under the normal computation, the assessment was framed on book profit of ₹ 2.89 crores under section 115JA of the Act. Even if, therefore, expenditure of ₹ 116.86 lakhs is disallowed, there would be no resultant change in the petitioner's tax liability since the petitioner has already paid much higher tax. - Reopening quashed - Decided in favor of assessee. - SPECIAL CIVIL APPLICATION NO. 12552 of 2002 - - - Dated:- 23-4-2014 - MR. AKIL KURESHI AND MS SONIA GOKANI, JJ. FOR T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he annual report of 1997-98, India Gelatine and Chemicals Ltd. the term 'liability' incurred in foreign currency for acquisition of fixed assets has been translated at the year and the exchange rate and the resultant deficit amounting to ₹ 116.86 lakhs was charged to the revenue account. The allowance of this expenditure under the revenue account is not to be allowed in view of the clarification made by the Ministry of Law. The Ministry of Law clarified in October, 1984, that exchange loss arrived at on the basis of fluctuation in the rate of exchange and not backed by actual remittance cannot be allowed as deduction in com puting the total income under the Income-tax Act. As the expenditure of ₹ 116.86 lakhs debit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer is incorrect in view of the decision of the Supreme Court in the case of CIT v. Woodward Governor India P. Ltd. reported in [2009] 312 ITR 254 (SC) and in the case of Oil and Natural Gas Corporation Ltd. v. CIT reported in [2010] 322 ITR 180 (SC). 3.1. The second contention of the petitioner is that even if the addition proposed by the Assessing Officer is sustained, it would make no difference to the ultimate tax liability of the assessee since on the computation of book profit under section 115JA of the Act, the assessee had paid tax on much higher income of ₹ 2.89 crores. 3.2. We may recall that under the normal computation the assessee had declared a loss of ₹ 1.44 crores (rounded off). Even if the disallowance of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and the loss computed was without actual remittances. In this context, the Supreme Court in case of Woodward Governor India P. Ltd. (supra) held that the loss suffered by the assessee on account of fluctuation in the rate of foreign exchange as on the date of the balance-sheet is an item of expenditure under section 37(1) of the Act and further that under the mercantile system of accounting, what is due is brought into credit before it is actually received. It also brings into debit an expenditure for which a legal liability has been incurred before it is actually disbursed. This decision was latter followed and reiterated in the case of Oil and Natural Gas Corporation Ltd. (supra) by the Supreme Court as can be seen from the following di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied liability. 7. Coming to the second contention of the petitioner, we may recall that in the original assessment order, against the loss of ₹ 1.44 crores under the normal computation, the assessment was framed on book profit of ₹ 2.89 crores under section 115JA of the Act. Even if, therefore, expenditure of ₹ 116.86 lakhs is disallowed, there would be no resultant change in the petitioner's tax liability since the petitioner has already paid much higher tax. In somewhat similar situation, this court in case of PKM Advisory Services P. Ltd. (supra), observed as under (page 587 of 339 ITR) : Having regard to the submissions advanced by the learned advo cates for the respective parties and consi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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