Venture Lighting India Vs ACIT / DCIT (ITAT Chennai)
ITAT noted that the assessee is consistently following a policy and method of accounting admitting foreign exchange gain or loss on year-on-year basis. The assessee before us filed complete chart from assessment year 2010-11 to 2016-17 as noted above. Before us, the ld. Senior DR could not contradict the chart placed before us. On query from the Bench in respect of treatment of gains in certain years by the Revenue, he could not contradict that it was accepted by the Revenue as part of total income of the assessee. Thus, this factual matrix remained uncontroverted and unchallenged.
In the course of hearing, a query was also raised before ld. Counsel of the assessee to demonstrate the accounting procedure adopted for the reversal of reinstatement of assets and liabilities as on 31st March of every year on account of exchange fluctuations, for which the ld. Counsel referred to the paper-book compilation submitted before us and demonstrated the accounting methodology adopted by the assessee for the same.
Hon’ble Supreme Court in the case of Woodward Governor India P. Ltd., held that the loss suffered by assessee on account of foreign exchange difference as on the date of balance sheet is an item of expenditure allowable u/s.37(1) of the Act. Further, it was held that the accounting method followed by an assessee continuously for a given period of time needs to be presumed to be correct till AO comes to conclusion for reasons to be given that said systems does not reflect true and correct profits. Hence, in the present case before us also the facts being identical,
ITAT follow the said SC judgment and allow the loss suffered by assessee on account of foreign exchange difference as on the date of balance sheet.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
The two appeals in ITA Nos. 2945 & 2946/Chny/2018 by the assessee are arising out of common order of learned Commissioner of Income Tax (Appeals)-11, Chennai in ITA Nos.112/16-17 & 160/17-18, dated 29.09.2018. The assessments were framed by the ACIT / DCIT, Corporate Circle 3(2), Chennai for the assessment years 2012-13 & 2014-15 u/s.143(3) & 143(3) r.w.s. 92CA(3) of the Income-tax Act, 1961 (hereinafter ‘the Act’), vide orders of different dates i.e. 01.03.2016 & 30.01.2018 respectively.
2. The only common issue in these two appeals of assessee is as regards to the order of CIT(A) confirming the action of AO in disallowing the claim of foreign exchange fluctuation loss to the extent of 3,15,16,252/- in assessment year 2012-13 and Rs.1,84,89,537/- in assessment year 2014-15. For this, assessee has raised various grounds in both the appeals but for the sake of brevity the same are not reproduced.
3. The facts and circumstances are identical in both the assessment years 2012-13 & 2014-15, hence we will take the facts for assessment year 2012-13 in ITA No.2945/Chny/2018 and will decide the issue which will apply mutatis mutandis to the other appeal for A.Y. 20 14-15 also. Brief facts are that the assessee is engaged in the business of manufacturing and sale of Metal Halide Lamps and exporting the same. The AO during the course of scrutiny assessment proceedings noticed that the assessee has claimed deduction / loss on account of difference between actual exchange amount and exchange amount accounted for in the financial year relevant to assessment year 20 12-13 amounting to Rs.3,15,16,252/-. The AO required the assessee to furnish the details of exchange gain as well as exchange loss. In response to the same, assessee filed a letter dated 18.02.2016 and contended that as and when exports are made, invoices are made and issued in foreign currency and accounted in Indian rupees by converting the foreign currency to Indian rupees on the prevailing market rate of exchange on the date of invoice. When the export proceeds were realized on a later date, the company receives slightly higher or lower amount vis-a-via the invoice value as recorded in the books of accounts as the export value. The assessee is follows mercantile system of accounting and in compliance to the Accounting Standard applicable, it translates all the assets and liabilities at the end of the year which are receivable or payable in foreign currency convertible into Indian Rupees at the prevailing conversion rate as on 31st March of every year. The debit or credit arising on account of said reinstatement fluctuations are accounted in the profit & loss account. If the exchange fluctuations arising due to reinstatement pertain to revenue account, the same is treated as business loss or business income depending upon the facts. In the present case, the ld. Counsel for the assessee stated that the assessee from the beginning is following the same method of accounting consistently in respect of accounting for the gain or loss arising due exchange fluctuations on reinstatement. The AO was not convinced with the reply of the assessee and thereby disallowed the claim of exchange fluctuation loss and added back to the returned income of the assessee. Aggrieved, assessee preferred appeal before the CIT(A).
5. The CIT(A) after considering submissions of the assessee confirmed the disallowance of exchange fluctuation loss claimed by assessee by observing in para 7 as under:-
“7. The submissions made by the assessee are considered. The assessee has been accounting for the gain in forex difference as on 3 1st of March in each of the years. This forex gain is accounted in the books of the assessee concern for book profit purposes. Subsequently, the assessee re-values the forex gain as on the date of filing of the return and makes a further correction to the forex gain admitted in the books of accounts. This practice followed by the assessee does not have any sanctity as per accounting policies. The method adopted is both incorrect and uncalled for. The assessee company is expected to close its books as on the last date of the FY. Any forex gain/loss received by it as on the last date of the FY should be accounted. The events subsequent to the end of the FY cannot be captured in the books. This amounts to claiming expenditure or showing income of the future year. This practice is incorrect and cannot be seconded. CBDT Instruction No.03/20 10 dated 23.03.2010 is also indicative in this regard. Considering the same, the disallowance of forex loss claimed of Rs.3,15,16,252/-, being reversal of forex gain admitted in the books of accounts, is sustained. The grounds of appeal are rejected.” Aggrieved, assessee is in appeal before the Tribunal.
6. At the outset, the ld. Counsel for the assessee filed a chart of foreign exchange / loss incurred on year-on-year basis and claimed that the assessee is following this method of accounting consistently. The relevant chart submitted before us reads as under:-
