Case Law Details

Case Name : CIT Central Vs M/S Jai Prakash Industries Pvt. Ltd. (Allahabad High Court)
Appeal Number : Income Tax Appeal No. 111 of 2008
Date of Judgement/Order : 30/03/2017
Related Assessment Year : 2003-04
Courts : All High Courts (3633) Allahabad High Court (190)

As could be seen from the computation reproduced by the AO in assessment order, this difference had arisen on the translation of the overseas account in the Head Office account at the end of the year on exchange rate prevalent on the last day of the accounting year. The AO in assessment year 1993- 94, had observed that this difference arose as it was in different accounts appearing in the books at the exchange rate prevailing on the first day of the accounting year were translated in Indian Rupees at the closing date. The difference was adjusted in the accounts of foreign currency translation difference. The amount of this difference was notional debit/credit and did not represent any loss or income for the purpose of computing the taxable income under the Income Tax Act. The entries on this account were made only for balancing the books. Therefore, this exercise was merely done on account of incorporating the trial balance appearing in the Iraqi branch in the Head Officer books in Indian currency. Since no actual gain accrued to the assessee, there was no question of taxing this amount.

Full Text of the High Court Judgment is as follows:-

1. Heard Sri Alok Mathur, for appellant and Sri Namit Sharma, Advocate, for respondents.

2. This appeal under Section 260A of Income Tax Act, 1961 (hereinafter referred to as “Act, 1961”) has been filed challenging the judgement and order dated 31.12.2007 passed by Income Tax Appellate Tribunal, Lucknow Bench ‘A’, Lucknow (hereinafter referred to as “Tribunal”) in Income Tax Appeal No. 416/Luc/2004, relating to Assessment Year 2003- 04.

3. Following substantial questions of law are formulated in this appeal:

“(i) Whether on fact and in the circumstances of the Income Tax Appellate Tribunal was right in dismissing the departmental appeal in respect of addition of Rs. 3,43,864.00 made on account of deprecation on Iraqi assets without appreciating the material brought on records and the facts of the case.

(ii) Whether on the facts and in the circumstances of the Income Tax Appellate Tribunal was right in dismissing the appeal of the department in respect of addition of Rs. 6,05,81,891.00 on account of deprecation of depreciation on temporary erections by holding that durable structures made of cement, bricks and steels and designed to last 10 to 15 years qualified as purely temporary structures eligible for depreciation @ 100% under the Income Tax Rules, 1962.

(iii) Whether on the facts and in the circumstances of the Income Tax Appellate Tribunal was right in dismissing the departmental appeal in respect of dis allowance of interest on borrowing amounting to Rs. 3,09,16,000.00 on account of dis allowance of interest on borrowing even though the assessee had given interest free advance to sister concerns and other for non business purposes.

(iv) Whether on the facts and in the circumstances of the Income Tax Appellate Tribunal was right in dismissing the departmental appeal in respect of addition of Rs. 79,58,63,603.00 lacs made on account of retention money without appreciating the facts of the case and the material brought on records.

(v) Whether on the facts and in the circumstances of the Income Tax Appellate Tribunal was right in dismissing the appeal of the department in respect of dis allowance of Rs. 25,27,000/on account of share issue expenses debited in P & L account, contrary to the decision of Honourable Supreme Court in the case of PIDC Ltd. Vs. CIT reported in 225 ITR 972.”

4. So far as question (i) is concerned, we find that there is a finding of fact recorded by Tribunal after noticing that Assessing Officer computed the foreign currency translation difference as income as per accounting principle and only on notional basis. In this regard, Tribunal has recorded its finding which reads as under:

“8. As could be seen from the computation reproduced by the AO in assessment order, this difference had arisen on the translation of the overseas account in the Head Office account at the end of the year on exchange rate prevalent on the last day of the accounting year. The AO in assessment year 1993- 94, had observed that this difference arose as it was in different accounts appearing in the books at the exchange rate prevailing on the first day of the accounting year were translated in Indian Rupees at the closing date. The difference was adjusted in the accounts of foreign currency translation difference. The amount of this difference was notional debit/credit and did not represent any loss or income for the purpose of computing the taxable income under the Income Tax Act. The entries on this account were made only for balancing the books. Therefore, this exercise was merely done on account of incorporating the trial balance appearing in the Iraqi branch in the Head Officer books in Indian currency. Since no actual gain accrued to the assessee, there was no question of taxing this amount. We, accordingly, confirm the order of the ld. CIT(A) following the precedent and in view of aforementioned discussion.”

5. The aforesaid finding having not been shown to be incorrect or contrary to record, we answer Question (i) against Revenue.

6. So far as Questions (ii) and (iv) are concerned, it is purely a question of fact and do not give rise to any substantial question of law, hence need not be answered.

7. So far as Question (iii) is concerned, counsel for parties states that it is squarely covered by judgement of this Court dated 24.01.2017 passed in Income Tax Appeal No. 87 of 2008 (Commissioner of Income Tax Vs. M/S Jai Prakash Industries Pvt. Ltd.) wherein similar question was answered against Revenue and in favour of Assessee.

8. For the reasons stated in our judgement dated 24.1.2017 passed in Income Tax Appeal No. 87 of 2008 (supra) Question (ii) is also answered against Revenue.

9. In respect of Question (v), Tribunal has clearly recorded a finding that issues of expenses is covered under Section 35D of Act, 1961 and, therefore, Assessee is entitled for dis allowance and we do not find anything wrong in the order of Tribunal. Question (v), therefore, is also answered against Revenue.

10. In the result, appeal fails and is dismissed accordingly.

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