Case Law Details
Shin-Etsu Polymers India P. Ltd. Vs DCIT (ITAT Chennai)
We have observed that the authorities below have commented while disallowing these foreign exchange losses on conversion of outstanding balance in foreign currency into Indian rupee on the date of Balance Sheet as at year end to be on account of outstanding unsecured loans which were not paid by the assessee till the end of the previous year, but there are no further detailed elaborations on the same by authorities below as to whether these unsecured loans were raised towards acquisition of capital assets or on account of working capital requirements . Further, there are no elaborations whether the assets so acquired were within India or from countries outside India. It is also observed from the audited financial statements filed by the assessee before tribunal ( which are placed in file), from Schedule 14 which deals with Related Parties transactions that the assessee has raised External Commercial Borrowings(ECB) from its associated company abroad namely Shin-Etsu Polymer Co. Limited situated in Japan. We have also observed from Schedule 14 that the assessee has acquired fixed assets from its associated companies abroad, namely Shin-Etsu Polymer Co. Limited situated in Japan , Shin-Etsu Polymer situated at Malyasia, Shin-Etsu Polymer situated at Mexico , Shin-Etsu Polymer Shanghai Company Limited situated at China and Shin-Etsu Polymer , Singapore Pte Ltd situated at Singapore. The authorities below has commented that the said exchange difference loss on conversion of foreign exchange balance outstanding as at year end into Indian Rupee to the tune of Rs. 1,04,60,000/- which stood disallowed was on account of unsecured loans remaining unpaid, but detailed findings are not there as to complete break up and reasoning of the disallowance vis-à-vis Section 37(1), 43A and other applicable provisions of the 1961 Act. At this stage, it is pertinent to mention that Section 43A of the 1961 Act was amended by Finance Act, 2002 w.e.f. 01.04.2003. We are concerned with ay: 2011-12 and hence amended provisions of Section 43A of the 1961 Act shall apply. The Hon’ble Supreme Court in the case of CIT v. Woodward Governor India Private Limited (2009) 312 ITR 254(SC) and Oil and Natural Gas Corporation Limited v. CIT reported in (2010) 322 ITR 180(SC) has noted that the provisions of Section 43A of the 1961 Act were amended by Finance Act, 2002 w.e.f. 01.04.2003 and it starts with a non-obstante clause and the provisions of amended Section 43 A of the 1961 Act are mandatory in nature. If that be so , the treatment of the foreign exchange loss has to be in accordance with statutory provision as are contained in Section 43 A of the 1961 Act provided the conditions as are contained in Section 43A of the 1961 Act are met. Once statutory provisions are available in the 1961 Act itself, then they are to be followed provided all the conditions as are contained in the provision are met. The Income-tax laws being fiscal laws are to be strictly construed and there is no equity in taxation. Thus, in my considered view, the matter is to be set aside to the file of the AO for fresh determination of the issue wherein the AO is directed to give detailed findings and decision. The AO shall pass speaking, detailed and reasoned order in set aside proceedings after considering entire factual matrix of the case .
FULL TEXT OF THE ITAT JUDGEMENT
This appeal filed by the assessee is directed against the order of the ld. Commissioner of Income Tax (Appeals) 16, Chennai dated 24.09.2018 relevant to the assessment year 2011-12. The only issue involved in this appeal is that the ld. CIT(A) erred in confirming the disallowance of foreign exchange fluctuation loss as notional loss.
2. Brief facts of the case are that the assessee filed its return of income for the assessment year 2011-12 on 29.11.2011 declaring total income of ₹. NIL/-. The return of income filed by the assessee was selected for scrutiny and notice under section 143(2) of the Income Tax Act, 1961 [“Act” in short] was issued and served on the assessee. Since the assessee company had international transactions exceeding ₹.15 crores with their Associate Enterprises, the case was referred to the Transfer Pricing Officer under section 92CA of the Act. Accordingly, the TPO issued show cause notice and after considering various facts and circumstances, the TPO has opined that
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