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TMI Blog2021 (12) TMI 409X X X X Extracts X X X X X X X X Extracts X X X X ..... DS is not acceptable while treating the provision made for the Assessment Year 2009-10. The subject expenditure does not satisfy the provision of Section 40(a)(ia) - A mere provision of expenditure is not allowable as expenditure inasmuch as the assessee has not suffered actual expenditure on account of the said commission payable to the agents. The conclusion and reasoning of the Assessing Officer was affirmed by the CIT (Appeals). The Tribunal independently examined the tenability of the deduction, considered every facet of the explanation given by the assessee and whether it merits acceptance as an expenditure for the subject Assessment Year. Assessee could be given liberty to prove actual payment made in favour of commission agents in any subsequent year before the Assessing Officer, place such proof of the expenditure incurred on account of commission paid to the agents and upon such details being furnished by the assessee, the Assessing Officer is required to pass revised assessment order in respect of such claims. With the above observation, question no.(c) is answered in favour of the Revenue and against the assessee. Interest component in the foreign exchange gain w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aterially impacted. Anyway, when the actual event has taken place, tax is stated to have been paid. The converse is that if the deduction is disallowed, the assessee would be called upon to pay tax on unrealised/notional capital gain; the treatment is as per the accounting standard, and the claim for deduction conforms with Section 43A of the Act. For the above reasons, we answer question no.(e) in favour of the assessee and against the Revenue. - ITA No. 249 of 2015 - - - Dated:- 26-8-2021 - Honourable Mr.Justice S.V.Bhatti And Honourable Mr.Justice Viju Abraham For the Appellant : Advs. Sri.Joseph Markose (Sr.), Sri.V.Abraham Markos, Sri.Abraham Joseph Markos, Sri.Binu Mathew, Sri.Isaac Thomas, Sri.Noby Thomas Cyriac, Sri.Tom Thomas Kakkuzhiyil For the Respondent : Adv Christopher Abraham, Income Tax Department JUDGMENT S.V. BHATTI, J. Heard learned Senior Counsel Mr Joseph Markos and learned Standing Counsel Mr Christopher Abraham for parties. 2. M/s. Apollo Tyres Ltd Kochi/Assessee is the appellant. The Assistant Commissioner of Income Tax, Circle-1, Ernakulam/Revenue is the respondent. 3. The assessee assails the order dated 21.11.2014 of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on agents for the sales made to STUs through them could not be quantified and that the commission payable to them is also negotiable. Since no payment as commission was made to the commission agents, tax at-source was not deducted. However, while making the payment, TDS could be effected. The provision made was also reversed in the subsequent year, actual commission payable to each party in respect of sales made through them to STUs was quantified, the tax was duly deducted at-source and deposited with the Department. 5.2 The Assessing Officer disallowed the provision made by the assessee towards commission payable to STU commission agents, amounting to ₹ 1,03,92,000/-. The reason assigned by the Assessing Officer is that the assessee did not deduct TDS from the amount payable to the commission agents. The ex post facto reversing of the entry and payment of commission in the subsequent year together with deduction of TDS is not acceptable while treating the provision made for the Assessment Year 2009-10. The subject expenditure does not satisfy the provision of Section 40(a)(ia) of the Act. A mere provision of expenditure is not allowable as expenditure inasmuch as the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers for which revenue was recognized for relevant year. So far as the decisions relied upon by the assessee are concerned, they are found to be distinguishable on facts and do not apply to the case of the assessee. Thus, the liabillity on account of expenses as well as the identity of the persons to whom it is payable is ascertained thought it was payable in future. However, in case of the assessee neither the exact amount payable nor to whom payable are ascertained. The ratio laid down in other cited cases are also on similar lines. In aforesaid view of matter, we fully agree with the findings of the DRP and hold that expenditure claimed is not allowable. (emphasis supplied) 6. Mr Joseph Markos appearing for the assessee tried to convince this Court to take a different view by the very same argument put forward by the assessee before the Tribunal and the Assessing Officer. We have two difficulties in appreciating the argument of the assessee to accept the provision made towards commission payable to the agents through whom sales have been affected in favour of STUs. Firstly, the liability arising on account of the expenditure for which a provision is made could not be cryst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s required to pass revised assessment order in respect of such claims. With the above observation, question no.(c) is answered in favour of the Revenue and against the assessee. 8. Substantial question no.(d) reads as follows: d) Whether on the facts and in the circumstances of the case and in the light of the decision of Special Bench in appellant's own case the Appellate Tribunal was right in holding that the interest component in the foreign exchange gain was a revenue receipt? 9. Senior Advocate Mr Joseph Markos, to enable the Court to appreciate the intricacy involved in the substantial question raised by the assessee, has prefaced his submission by inviting our attention to paragraph 31 of the Tribunal s order, which reads thus: 31. We have heard both the parties and perused the record. In our opinion, gain earned from cancellation of foreign exchange forward contracts which are connected with foreign loans raised for purchase of capital asset should be reduced from cost of plant and machinery to the extent of amount relating to the principal portion as held by the ITAT, Special Bench, Delhi in the assessee's own case (89 ITD 235). However, foreign e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. 10. The conclusion/finding in our view is erroneous: firstly that this Court in the decision reported in Apollo Tyres Ltd v. Assistant Commissioner of Income Tax (2019) 416 ITR 539 (Ker) , has recorded a finding that the gains on the cancellation of forward contracts are a capital receipt and not a revenue receipt. Such a finding has become final between the assessee and the Revenue. The underlined portion excerpted above is liable to be set aside for it treats the capital gain as revenue receipt. From the views taken by this Court, the receipt is treated as capital gain and this is accepted by the Tribunal. However, an unintended observation is resulting in contradictory findings. We affirm the substantial findings recorded in favour of the assessee in paragraph 31 of the order under appeal, and while affirming the said finding we set aside the following observation in the order of the Tribunal: However, foreign exchange fluctuation related to the interest portion is to be treated as revenue receipt which shall be brought to tax. Being so, this ground of the assessee is partly allowed. As indicated above, the question is answered in favour of the assessee and agai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount of ₹ 1,63,97,541/- at the computation stage and distinguished that there is difference between notional loss on capital account and the case relied on by the assessee deals with revenue loss. 12. Senior Advocate argues that the authorities under the Act and the Tribunal fell in patent error of fact and law in firstly understanding the difference of expression employed in Section 43A prior to amendment and after the amendment with effect from 01.04.2003. The judgments relied on by the assessee in Woodward Governor India P. Ltd . case and Oil and Natural Gas Corporation Ltd (ONGC) v. Commissioner of Income-Tax (2010) 322 ITR 180 (SC) shall not be understood as dealing only with revenue loss; the decision in Woodward Governor India P. Ltd . case the Supreme Court made it clear that after amendment the adjustment in actual cost is to be made only on actual payment, with reference to gain with Foreign Exchange implication on capital account. He refers to the following paragraphs in ONGC case to argue that the reported decisions of the Supreme Court deal with both, capital loss and revenue loss, on account of foreign exchange fluctuation and that adjustment in a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xed asset. 16. We are of the opinion that the decision of this court in Woodward's case [2009] 312 ITR 254 settles the second issue as well. We respectfully concur with the same and hold that all the assessment years in question being prior to the amendment in section 43A of the Act with effect from April 1, 2003 the assessee would be entitled to adjust the actual cost of the imported capital assets, acquired in foreign currency, on account of fluctuation in the rate of exchange at each of the relevant balance-sheet dates pending actual payment of the varied liability. (emphasis supplied) 12.1 He contends that the assessee at the first instance reduced the notional foreign exchange fluctuation gain against the miscellaneous expenses shown in Schedule IX: Manufacturing and other expenses. The result thereby is that the expenses that could be claimed by the assessee have come down and corresponding deduction is claimed in the computation of net income of the assessee. The said procedure conforms to the accounting standard-11 by referring to which the accounts of the assessee are finalised. The conclusions recorded by the Tribunal and the authorities ignored that the a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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