Jharkhand H.C : Loss on account of foreign exchange fluctuation can be allowed on basis of audited accounts and paper book

High Court Of Jharkhand

CIT VS. Timken India Ltd.

Section : 37(1)

Prakash Tatia, Cj. And Mrs. Jaya Roy, J.

Tax Appeal No. 16 Of 2008

September 14, 2012

JUDGMENT

1. Heard learned counsel for the parties.

The appeal though has been listed for hearing but it appears that no question of law has been formulated for admitting the appeal. However, in the memo of appeal the following questions of law have been framed :

“(a) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in deleting the disallowance of loss on foreign exchange difference amounting to Rs. 4,64,884, solely relying upon the observation in the annual audited account. In doing so, the hon’ble Income-tax Appellate Tribunal have erred in not recognizing that the assessee has failed to furnish details called for by the Assessing Officer in the course of the assessment proceedings. They failed to observe that there is no fetter on the powers of the Assessing Officer to require the assessee to justify the claim with reference to records, materials and evidence and that such power is inherent in the Assessing Officer in the scheme of the Act. In doing so, the hon’ble Income-tax Appellate Tribunal have erred in departing from the decision laid down in the case of Goodyear India Ltd. v. CIT [2000] 246 ITR 116 (Delhi)?

(b) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in holding that the assessee is entitled for deduction in respect of legal and professional charges to the extent claimed in the immediately preceding assessment year. By doing so, the hon’ble Income-tax Appellate Tribunal have ignored the settled legal position that the doctrine of res judicata is not applicable to the income-tax proceedings. Therefore, the hon’ble Income-tax Appellate Tribunal have overlooked the settled legal position laid out by the apex court in their decision in the case of Radhasoami Satsang v. CIT [1992] 193 ITR 321 (SC) and several other such decisions on the issue ?

(c) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in holding that the provision for bad and doubtful debt is not a provision in respect of an unascertained liability and, therefore, in the computation of book profit under section 115JA of the Income-tax Act the said provision cannot be added back in terms of clause (c) of the Explanation below sub-section (2) of the said section ?”

2. We have considered the submissions of the learned counsel for the parties and perused reason given by the Assessing Officer, the Commissioner of Income-tax (Appeals) as well as the Income-tax Appellate Tribunal “D” Bench, Kolkata.

3. It appears that before the Assessing Officer audited accounts were produced but, according to the learned counsel for the Revenue, in support of the audited accounts some vouchers were demanded by the Assessing Officer and those were not supplied. The Assessing Officer, therefore, disallowed the loss on account of foreign exchange difference amounting to Rs. 4,64,884 and in want of supporting documents disallowed the legal and professional charges amounting to Rs. 20,94,089. It is submitted that the Assessing Officer had jurisdiction to demand more documents than the audited accounts in a case of doubt and admittedly the respondent-assessee did not produce any supporting documents for the above two : (i) loss on account of foreign exchange difference amounting to Rs. 4,64,884, and (ii) expenditure incurred on account of professional and legal charges amounting to Rs. 20,94,089. It is also submitted that cogent reasons have been given by the Assessing Officer and the Commissioner of Income-tax (Appeals) with respect to the provision for the bad debts and that has been held to be no ascertained liability and, therefore, rightly added to the book of profit for the purpose of computing MAT under section 115JA.

4. Learned senior counsel for the respondent, Mr. Biren Poddar, vehemently submitted that there was no reason for disallowance of the loss on account of foreign exchange difference amounting to Rs. 4,64 884. The Tribunal, after looking the schedule 15 of the annual audited accounts wherein the said amount was specified as a foreign exchange loss relating to assets other than fixed assets and that has been recognised in the profit and loss account whereas such gain/loss relating to fixed assets are admissible in the capital account. At page 15 of the paper book in schedule 2 in the annual accounts, foreign exchange difference for the year has been shown as Rs. 4,64,884. Since it is the policy of the assessee to account for the loss/gain on account of the foreign exchange all assets other than fixed assets in the profit and loss account in view of the fact that annual accounts form part of the tax return of the assessee. The Tribunal opined that the lower authority was not correct in holding that the Assessing Officer failed to prove foreign exchange loss was on revenue account and, therefore, set aside the order passed by the appellate authority and the Assessing Officer and directed the Assessing Officer to delete Rs. 4,64,884 which was wrongly disallowed in the assessment order. Learned counsel has also relied upon the judgment in the case of CIT v. HCL Comnet Systems & Services Ltd. [2008] 305 ITR 409/174 Taxman 118 (SC).

5. We are of the considered opinion that before the lower authority the material was there and the Assessing Officer may not have satisfied himself from the audited accounts but at the same time, in the facts of this case, that was a reliable document as has been held by the Tribunal, therefore, it was the appreciation of the evidence by the Tribunal and drawing an inference on the basis of some material resulting into recording a finding of fact with respect to the loss on account of foreign exchange difference, therefore, it involves no question of law. Question No. 1, therefore, need not to be gone into further.

6. For disallowance on account of legal and professional charges amounting to Rs. 20,94,089, the assessee did not produce any supporting document like vouchers, etc., obviously obtained from such professionals to whom the assessee claimed that the assessee has paid the fee, etc. The assessee gave explanation that during the relevant period, the head quarters of the company was shifted from Kolkata to Jamshedpur and, therefore, these documents were not traceable. The assessee was continuously paying the professional charges and that fact has been taken note of by the Tribunal from the past years payment as well as subsequent years and allowed the claim to the extent of Rs. 17,25,080 on the basis of the expenditure claimed under the said head. The Tribunal also observed that looking to the size of the company, such amount could have been the expenditure. The Revenue has framed a question in the form that as though the Tribunal felt bound by the previous years professional fee payment so as to constitute it as res judicata. There is no question of its being a res judicata so as to bind the Assessing Officer, appellate authority or the Tribunal in tax matters so as to decide the matter according to the past transaction only. What is important is that all facts and circumstances in which the fact of the previous year payments has been considered and that can be said to be relevant, i.e., relevant and it cannot be said that the said consideration is absolutely impermissible. In certain facts and circumstances such can be one of the mode of ascertainment of the expenditure or benefit, etc., depending upon the facts of the case. Merely mentioning that since such amount was paid by the assessee against the head of the legal and professional charges in other years, does not mean that this was treated to be res judicata, it was used for quantification in want of exact and accurate particulars of the legal and professional charges, therefore, for the purpose of determination and quantification only this amount of previous year has been taken into account by the Tribunal which cannot be said to be impermissible at all.

7. In view of the above reasons we do not find any question of law involved in this appeal which is accordingly dismissed.

[Citation : 349 ITR 546]

Leave a Reply

Your email address will not be published. Required fields are marked *