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TMI Blog2017 (1) TMI 1822X X X X Extracts X X X X X X X X Extracts X X X X ..... erred in law and on facts in deleting the disallowance of Rs. 36,51,099/- made on account of Foreign Fluctuation loss. 2) The Ld. Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad has erred in law and on facts in deleting the addition of Rs. 42,79,397/- made on account of interest expenses. 2.1. Likewise, the Assessee has raised following grounds in its Cross Objection:- 1. The appeal filed by the Department is bad in law and void and infructuous since the total income of the appellant for the year under appeal is Nil and no tax payable and therefore, the appeal to Hon. Tribunal requires to be dismissed. 2. Without prejudice, it is submitted by your appellant that the CIT(A) has rightly held on facts of the case and provision of law that Foreign Exchange Fluctuation Loss of Rs. 36,51,099/- was incurred during the course of business and therefore, was allowable as a loss in computing the total income. 3. CIT(A) also held in facts of the case and provision of law interest of Rs. 42,79,397/- was allowable expenditure in computing the total income. 3. Facts apropos to ground No.1 of the Revenue's appeal are that the assessee-company is engaged in the business of manufa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Company has not entered into any forward contracts to offset foreign currency risks arising from the amounts denominated in currencies other than the Indian Rupee. b) Foreign currency exposure at the year end not hedged by derivative instructions. As at 31st March 2009 Payable against import of goods and services Rupees 17801293 US Dollar &n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the business." We also rely upon the decision of Hon. Madras High Court in the case of CIT vs. Indian Overseas Bank reported in 151 ITR page 446 and decision of Hon. Delhi High Court in the case of CIT vs. Woodward Governors reported in 210 CTR page 354. The decision of Woodward Governors (Supra) Delhi High Court is affirmed by Hon. Apex Court in a recent decision reported in 312 ITR page 254. We also enclose for your kind consideration two articles (pages 47 to 61) on the above subject which has made a detailed analyses of the issue involved and based upon the judicial pronouncements on implication and applicability of Accounting Standard of ICAI and instructions of Hon. CBDT and has come to a conclusion that foreign exchange fluctuation loss is allowable as a deduction u/s. 37(l). We also bring to your kind notice that it is not the case that every year, there is a loss on account of foreign accounting fluctuation. Foreign exchange fluctuation swing on other side resulting into a profit or a loss as the case may be. In our own case, in the earlier assessment year i.e. A. Y. 08-09 there was a gain on foreign exchange fluctuation which was recognized as an our income, r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is due immediately when it becomes due and before it is actually received. CONDITION No. 2. Whether the same system is followed y the assessee from the very beginning and if there was a change in the system, whether the change was bona fide; OUR FACTS. We follow the above mercantile system of accounting since the inception of our Company on year to year basis and there is no change in the system effected during the year under consideration. CONDITION No. 3. Whether the assessee has given the same treatment to losses claimed to have accrued and to the gains that may accrue to it; OUR FACTS. We have given the same treatment to the losses which have accrued and also the gains which have accrued as our income. We have demonstrated this fact in paragraph 12 & 13 of letter dated 23-3-2013 supported by our enclosures marked pages 62 to 65, 68 to 70 and 71 to 74 of the paper book filed along with letter dated 23-3-2013. CONDITION No. 4. Whether the assessee as been consistent and definite in making entries in the account books in respect of losses and gains. OUR FACTS. We have been consistent and definite in making entries in the account books in respect of lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT [334 ITR 308 (SC] In view of facts of the case and case laws quoted above, the claim for foreign exchange fluctuation loss is decided to be allowable. In view of the above facts, the ground of appeal is allowed." 5. Aggrieved by the order of the CIT(A), the AO filed an appeal before the Tribunal. 6. The Ld.DR for the AO Mr.Prasoon Kabra, submitted that the Foreign Exchange Fluctuation loss in dispute is in the nature of notional loss and not an actual loss per se. He thereafter submitted the loss has not crystallized because no settlement of the contract has actually taken place during the Financial Year relevant to Assessment Year 2009-10. He accordingly submitted that the AO was justified in making the disallowance as per assessment order. 7. The Ld.AR for the Assessee Mr. Anil R. Shah, on the other hand, placed reliance on the order of the CIT(A) and pointed out that in the earlier assessment year 2007-08, the assessee had earned income from similar Foreign Exchange Fluctuation to the tune of Rs. 156.42 lacs which was accepted by the Revenue as such. In this year, although the contract in respect of some of the losses have not expired, the loss is actually inflicted u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f to the assessee on perusal of facts as noted in paragraph No.3 of the CIT(A)'s order. 12. In the second appeal before us, the Ld.DR for the AO, relied upon the order of the Revenue. 13. The Ld.AR, on the other hand, at the outset, referred to page No.14 of the paper-book and submitted that interest-free funds including own capital at the disposal of the assessee stands at Rs. 17583.35 lakhs. As against this, interest-free advance in dispute is to the extent of Rs. 385.00 lakhs. Therefore, it is self-evident that the assessee is having interest-free funds at its disposal far in excess of interest-free advances. Therefore, there is no justification for the AO to resort to section 36(1)(iii) in view of long line of precedents on the issue. 14. On careful consideration of the facts, we do not find any infirmity in the action of the CIT(A) in deleting the disallowance of interest. With the assistance of the Ld.AR, we note that the interest-free own funds is far more in excess vis-à-vis interest-free advance. In these facts, it is difficult to draw presumption adverse to the assessee. We therefore decline to interfere with the order of the CIT(A) in respect of ground No.2 as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filing of the albeit with some delay. The CIT(A) after taking note of the legislative amendment and judicial pronouncements on the issue accepted the plea of the assessee and reversed the disallowance made by the AO. 20. The relevant operative para of the order of the CIT(A) reads as under:- "3.3 Decision: I have carefully considered the facts of the case and the submission made by made by AR of the appellant. The appellant submitted that it had sufficient internal non-interest bearing funds and the advances to Mahavir Alloys and Mahavir Enterprises were for business expediency, hence were exclusively for the purpose of business. I have perused the bank statements and see that Rs. 35 lacs advanced to Mahavir Alloys on 15-l-2009 were sourced out of non interest bearing borrowings received from Shah Alloys Ltd. Further; it is seen that Rs. 3 crore advanced to Mahavir Enterprises on 28-3-2008 were given out of non interest bearing borrowings from Shah Alloys Ltd. Another Rs. 50 lacs advanced to Mahavir Enterprise on 2-4-2008 once again sourced out of non interest bearing borrowings from Shah Alloys Ltd. The relevant extract from the bank statement are noteworthy and the same fr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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