M/s Paramount Communications Ltd. Vs DCIT (ITAT Delhi)
Conclusion: Since AS-11 was mandatory and required to be followed in computing the income, therefore, assessee was entitled to claim depreciation on forex loss pertained to non-depreciable asset acquired in India as loss from income.
Held: Assessee had issued unsecured foreign currency convertible bonds of US$ 2,70,00,000/-. The entire proceeds were utilized in AY 2007-08 & 2008-09. As on 31.03.2009, the liability was in Rupee terms Rs.138,21,30,000/- whereas on 31.03.2008 it was Rs.1,08,00,00,000/-. Thus, the amount of Rs.30,21,30,000/-was the difference between the two figures. Out of the forex loss of Rs.30,21,30,000/-, Rs.3,21,04,023/- and Rs.l,84,67,407/- were not claimed as a deduction. Rs.12,65,54,992/- was the amount which pertained to acquisition of indigenous fixed assets. This was added to the cost of the assets by assessee and depreciation was claimed on this amount and this depreciation was claimed as an expense in the P & L A/c. The amount of Rs.12,50,03,577/-was claimed as loss from income. This loss as per assessee pertained to non depreciable assets. AO disallowed the loss of Rs.12,50,03,577/- (proportionate to non-depreciable assets) claimed as deduction for the reason that the loss pertained to capital assets (land) and was required to be capitalized in the value of such asset. Since, asset acquired was not depreciable, therefore, loss could not be allowed. It was held that assessee had prepared its accounts as per AS-11 which deal with effect of changes in foreign exchange rate and such difference was required to be recognized as income or expenditure. Following the decision of the Hon’ble Supreme Court in the case of CIT v Woodward Governor India P. Ltd., where it was held that AS-11 was mandatory and required to be followed in computing the income and the decision of the Hon’ble Delhi High Court in the case of CIT vs Virtual Soft Systems Ltd., holding that it was the duty of the AO to follow accounting standards and following the rule of consistency, the foreign exchange loss of Rs.12,50,33,577/- should be allowed as revenue expenditure.
FULL TEXT OF THE ORDER OF ITAT DELHI
ITA No.767/Del/2014 filed by the assessee is directed against the order dated 11.11.2013 of the learned CIT(A)-XVII, New Delhi, relating to Assessment Year 2009-10. ITA No.1378/Del/2017 filed by the assessee and ITA No.2288/Del/2017 filed by the Revenue are cross appeal and are directed against the order dated 30.01.2017 of the learned CIT(A)-7, New Delhi, relating to the Assessment Year 2010-11. For the sake of convenience these were heard together and are being disposed of by this common order.
ITA No.767/Del/2014
2. Facts of the case, in brief, are that the assessee is a company engaged in the business of manufacturing of Power Cable, Jelly Filled Telephone Cables & Optical Fibre Cables. Its finished products are supplied mainly to Government Departments, Railway, DOT/BSNL/MTNL/PSU, MNCs & Other Companies. It filed its return of income on 29.09.2009 declaring nil income. During the course of assessment proceedings, the AO observed that the assessee suffered a total forex loss of Rs.30,21,30,000/- during the year out of which Rs.15,71,07,600/- pertained to non-depreciable assets of Rs.59,43,53,142/- including investment of Rs.24,82,23,001/-. After excluding the amount of investment balance of Rs.34,61,30,141/- was in respect of following items
i. Land 6,17,61,000/-
ii. Land of KKR Phase-II 24,04,66,312/-
iii. Issue expenses 4,39,02,829/-
3. He observed that out of the above loss of Rs.15,71,07,600/-, a loss of Rs.12,50,03,577/- was deducted from the income in computation of income though it was not debited to P & L account thereby reducing the income/enhancing the loss by this amount. This loss of Rs.12,50,03,577/- relates to the above mentioned 03 non depreciable assets. According to the AO as per provisions of section 43A read with Rule 115 such loss is not allowable as a revenue expenditure but has to be capitalized in the value of assets. Reason for claiming such loss from the income has not been explained. He, therefore, asked the assessee to explain the reason for claiming such loss from the income.
4. The assessee, in response to the above filed the details vide letter dated 09.12.2011 which have been reproduced by the AO in the body of the assessment order and which reads as under:-
“Following allocations of foreign exchange variation was done in audited accounts as duly verified by statutory auditors.
