2022 (12) TMI 587 - HC - Income Tax

High Court condones delay in appeal filing under Income Tax Act, upholds foreign exchange loss deduction.

Principal Commissioner of Income Tax 2, Kolkata Versus M/s. Kesoram Industries Limited

The High Court of Calcutta condoned a delay of 545 days in filing an appeal under Section 260A of the Income Tax Act, 1961, finding sufficient cause for ... Disallowance on account of foreign exchange fluctuation loss (mark to market) wherein the loss being provisions for future is notional in nature - Whether Tribunal in deleting the disallowance/addition made by the AO was perverse having regard to the evidence and materials on record ? - HELD THAT:- It is not disputed by the revenue that questions involved in this case were considered by this Court in the case of Principal Commissioner of Income Tax-1, Kolkata –vs.- M/s. Pricewaterhouse Coopers Pvt. Ltd [2021 (12) TMI 1400 - CALCUTTA HIGH COURT] as held that identical issue was considered in the case of Principal Commissioner of Income Tax vs. Suzlon Energy Ltd.[2018 (2) TMI 1789 - GUJARAT HIGH COURT] and the Court held that the decision of the Tribunal in so far as deleting the disallowance being notional loss on outstanding foreign derivative contracts was approved by holding that the decision is in-conformity with the decision of the Hon’ble Supreme Court in Woodward Governor India [P] Ltd. & Ors[2009 (4) TMI 4 - SUPREME COURT]. The revenue had filed a Special Leave Petition In the case of the same assessee, namely Suzlon Energy Limited, the Hon’ble Supreme Court in Principal Commissioner of Income Tax vs. Suzlon Energy Ltd.[2020 (1) TMI 1505 - SC ORDER] approved the decision of the High Court upholding the order of the Tribunal allowing the assessee’s claim of foreign exchange fluctuation loss on mark to market basis. In the light of the above, we find no grounds to interfere with the order passed by the Tribunal. Also see HINDUSTAN GUM AND CHEMICALS LTD. [2021 (1) TMI 1282 - CALCUTTA HIGH COURT] - Thus the appeal filed by the revenue is dismissed Issues:1. Condonation of delay in filing the appeal.2. Disallowance on account of foreign exchange fluctuation loss.3. Perversity of the Income Tax Appellate Tribunal's order.4. Applicability of CBDT instruction and its binding effect.5. Comparison with previous judgments on similar issues.Condonation of Delay:The High Court of Calcutta considered a delay of 545 days in filing an appeal under Section 260A of the Income Tax Act, 1961. The Court perused the affidavit supporting the condonation of delay petition and found sufficient cause for the delay. Consequently, the delay was condoned, and the application for condonation of delay was allowed.Disallowance on Account of Foreign Exchange Fluctuation Loss:The primary issue raised by the revenue was the disallowance of foreign exchange fluctuation loss by the Income Tax Appellate Tribunal. The Tribunal had deleted the disallowance, considering the loss as notional and contingent in nature. The revenue contended that the loss was not allowable as it was not a realized loss. However, the Tribunal, following the mercantile system of accounting, allowed the deduction as the loss had arisen in respect of forward contracts. The Court upheld the Tribunal's decision, emphasizing that the CBDT instruction could not override the Supreme Court's decision and that the Assessing Officer was not bound by such instructions.Perversity of Tribunal's Order:The revenue argued that the Tribunal's decision to delete the disallowance was perverse, considering the evidence on record. However, the Court found no error in the Tribunal's order, stating that the revenue's contention was solely based on the CBDT instruction, which could not override the Supreme Court's decision.Applicability of CBDT Instruction and Binding Effect:The Court highlighted that the CBDT instruction could not have a retrospective effect to negate the effect of a judgment. It emphasized that the Assessing Officer was an independent authority not bound by such instructions. The Court held that the CBDT instruction could not override the decision of the Supreme Court.Comparison with Previous Judgments:The Court referenced previous judgments, including the case of Suzlon Energy Ltd., where the Tribunal's decision on disallowance of notional loss was upheld by the High Court and subsequently by the Supreme Court. The Court found no grounds to interfere with the Tribunal's order based on the consistency of decisions on similar issues.In conclusion, the High Court dismissed the appeal filed by the revenue, answering the substantial questions of law against the revenue. The application for stay was also dismissed accordingly.