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TMI Blog2019 (4) TMI 765X X X X Extracts X X X X X X X X Extracts X X X X ..... the CIT(A) as well as the AO has not taken into account the decision of the Apex Court in case of Indian Cements Ltd. [1965 (12) TMI 22 - SUPREME COURT] wherein it was held that the nature of expenditure being capital or revenue does not depend on the purpose for which foreign currency loan was obtained or on nature of ultimate utilization of loan amount - as per the accounting policy AS-11 (2003), the assessee is entitled to claim such foreign currency fluctuation loan as an allowable expenditure u/s 37 (1) - CIT(A) was incorrect in disallowing the foreign exchange fluctuation loss of by treating it as capital in nature. - Decided in favour of assessee Disallowance of claim of Leave Encashment on provision basis - Addition u/s 43B - HELD THAT:- Leave Encashment under no circumstance can be called as a statutory liability/payment so as to invoke the provision of Section 43B as it is for the benefit of employees which accrues in lieu of the un-availed leave during the tenure of one’s service in the organization. The ratio set out in case of Exide Industries Ltd. [2007 (6) TMI 175 - CALCUTTA HIGH COURT] is applicable in the present case as in that decision it was held that leave ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t : Ms. Alka Arren, AR ORDER PER SUCHITRA KAMBLE, JM These two appeals are filed by the assessee and the Revenue against the order dated 4/7/2014 passed by CIT(A)-XVII, New Delhi for Assessment Year 2008-09. 2. The grounds of appeal are as under:- ITA No. 5634/DEL/2014 1.0 That on the facts and in the circumstances of the case, the Ld. Commissioner of Income Tax (Appeals) [here-in-after referred to as Ld. CIT (Appeals)] was not justified and grossly erred in confirming the disallowance of Foreign Exchange Fluctuation loss amounting to ₹ 30.88.634 /- -treating it to be capital in nature in computing total income under the provisions of the Act other than Sec. 115JB. 2.0 That on the facts and in the circumstances of the case, the Ld. CIT(Appeals) was not justified and grossly erred in confirming the disallowance of leave encashment claimed on provision basis amounting to ₹ 4,66,803/- in computing total income under the provisions of the Act other than Sec. 115JB. 3.0 That on the facts and in the circumstances of the case, the Ld. CIT(Appeals) was not justified and grossly erred in confirming the addition of Foreign Exchange Fluctua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) to the profit and loss account on account of foreign exchange fluctuation loss which was disallowed contending that this loss is on account of change in the method of accounting. Therefore, the Assessing Officer considered the same for the purposes of books profits u/s 115JB. 5. Being aggrieved by the assessment order, the assessee filed appeal before the CIT(A). The CIT(A) partly allowed the appeal of the assessee. 6. The Ld. AR submitted that during the year, the Company had debited foreign exchange fluctuation loss of ₹ 18,11,419/- (Net) in Schedule 17 of the Annual Accounts. The detailed break up of amount debited to profit and loss account and its treatment in computation total income is as under:- Sl. No. Particulars Amount (in Rs.) Treatment in Computation of Total Income Order u/s 143(3) 1. Foreign Exchange fluctuation loss - on account of Interest received from RIDO 3,17,476 Claimed as revenue expenditure Allowed 2. Foreign Exchange fluctuation loss - on account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of CIT vs. Woodward Governor India (P) Ltd (2009) 312 ITR 254 (SC) would not be applicable in the given case as the judgment in that case pertained to liabilities (i.e. loan received) and not assets (i.e. loan given). Further, the Ld. AR relied upon the decision of Tribunal in case of ETP International Limited vs. CIT (ITAT 6506/Mum/2011) wherein it was held that foreign exchange loss on loan to subsidiary company for the purpose of business is an allowable expenditure. In this connection, the Ld. AR submitted that the assessee had debited foreign exchange loss to the tune of ₹ 5,36,613/- on account of restatement of the outstanding from Hongua International towards purchase of capital assets. Provision of Section 43A specifically deals with the taxability of Foreign exchange loss. One of the conditions for applicability of Section 43A is actual payment. Since no payment was made during the year, the provision of Section 43A is not applicable. The assessee has claimed such foreign exchange loss as an allowable expenditure u/s 37(1) in accordance with the principle laid down by the Hon'ble Apex court in case of India Cements Limited vs. CIT (1966) 60 ITR 52 (SC) wherein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l in M/s MFAR Hotels Resorts Ltd vs. ACIT (ITA 63/Coch/2015) wherein the Tribunal held that foreign exchange fluctuation loss should be allowed as revenue expenditure in view of the amended AS -11 (2003). 8. The Ld. DR submitted that as regards Ground No.1 of the assessee s appeal, the Assessing Officer rightly disallowed Foreign Exchange Fluctuation loss of ₹ 30,88,634/- treating the same as capital in nature. The Ld. DR relied upon the Hon'ble Supreme Court decision in case of Woodward Governor India (P) Ltd. (supra). The Ld. DR relied upon the Assessment Order and the order of the CIT(A). The Ld. DR submitted that the disallowance is a capital nature and no transaction has been entered during the year by the assessee. 9. We have heard both the parties and perused all the relevant material available on record. It is pertinent to note that during the year, the Company had debited foreign exchange fluctuation loss of ₹ 18,11,419/- (Net) in Schedule 17 of the Annual Accounts. The assessee earned interest @ 12% p.a. on the loan given to Russia Indian Drilling Oil (RIDO) and interest so earned was treated as income in the books, as evident from schedule 18 of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... covered by the decision of the Jurisdictional Tribunal in the case of DCIT vs. Indraprastha Gas Ltd. (ITA No. 5875/Del/2011) wherein leave encashment has been allowed on provision basis. Further, Hon'ble Kerala High Court in the case of CIT vs. Hindustan Latex Ltd. (ITA No. 64 of 2012) has held that section 43B(f) which allows deduction for leave encashment only on payment basis is ultra vires. Provision for leave encashment is an ascertained liability since it is determined on the basis of actuarial valuation. The Ld. AR relied upon the decision of Apex Court in case of Bharat Earth Movers vs. CIT (2000) 245 ITR 428 (SC) wherein it was held that if a business liability has arisen in the accounting year, the deduction should be allowed although the liability may have to be quantified and discharged at a future date. It should also be capable of being estimated with reasonable certainty though the actual quantification may not be possible. If these requirements are satisfied the liability is not a contingent one. It does not make any difference if the future date on which the liability shall have to be discharged is not certain. The Hon'ble Apex Court vide its interim order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 115JB to make addition on account of expenditure towards foreign exchange fluctuation loss, the addition made by the Assessing Officer is erroneous. The Ld. AR relied upon the decision of Apex Court in the case of Apollo Typres Ltd. vs. CIT (2002) 255 ITR 273 (SC). The Ld. AR also relied upon the decision in the case of 1TO vs. Max Well Dyes Chemicals (P) Ltd. (2005) 2 SOT 461 (Mum.) wherein the Tribunal has held that the Assessing Officer does not have jurisdiction to rescrutinize the P L A/c once it is certified by the statutory auditors of a company and that he can make only those adjustments which are permitted by Explanation to section 115JA(2). Similar view has been taken in the case of ITO vs. Orson Trading (P) Ltd. (2005) 2 SOT 503 (Mum). 14. As regards Ground No. 3 of the assessee s appeal, the Ld. DR submitted that the Assessing Officer has rightly considered ₹ 30,88,634/- as book profits u/s 115 JB because there is a change in the method of accounting and loss is capital nature. The Ld. DR relied upon the Assessment Order and the order of the CIT(A). 15. We have heard both the parties and perused all the relevant material available on record. The contentio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... extraction of mineral oil. For claim of depreciation u/s 32, the following two conditions needs to be satisfied: The assets must be owned by the assessee, The assets must be used for the purposes of business or profession. In the instant case of the assessee, both the conditions are duly satisfied since the oil rigs being plant of 'specific category' are owned by the assessee and further it is used in drilling operations for the purpose of exploration extraction of mineral oil in the field of mineral oil concerns. The assessee claimed depreciation @ 60% on Oil rigs which has been used for drilling operations in the oil field of mineral oil concerns as per entry at Part A-III-(8) (xii) of New Appendix I, applicable from Assessment Year 2006-07 onwards. The same is evident from Annexure B to the Tax Audit Report for relevant assessment year. The Ld. AR relied upon the decision of Hon'ble jurisdictional High Court in the case of CIT vs. HLS India Ltd. (2011) 335 ITR 292. Further, the Special Leave Petition filed by revenue against the decision of the Hon ble Delhi High Court in case of HLS India Ltd (Supra) has been dismissed by the Hon'ble Apex Co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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