2013 (1) TMI 36

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.... Inter Company Management Charges Rs.1,43,87,079/- 3) Disallowance u/s 14A Rs.12,71,020/- Total Income Rs.30,68,65,407/- 3. Ld. CIT(A) dismissed the assessee's appeal. 4. Being aggrieved with the order of ld. CIT(A), the assessee is in appeal before us and has taken following grounds of appeal: -     1. "That the Commissioner of Income Tax (Appeals) erred on facts and in law in sustaining disallowance of loss on account of foreign exchange fluctuation of Rs.6,21,988/- holding the same to be a notional or unrealized loss not allowable as deduction.     1.1That the Commissioner of Income Tax (Appeals) erred on facts and in law in upholding that loss on account of foreign exchange fluctuation could only be allowed at the time of remittance.     2. That the Commissioner of Income Tax (Appeals) erred on facts and in law in upholding addition of Rs.1,43,87,079/- being payment towards Inter-company Management charges (ICM charges) to related concerns, viz., M/s Siegwerk (Asia Pacific) P. Ltd. (Rs.1,02,61,041), M/s Siegwerk Benelux NV (Rs.25,72,716) and M/s Siegwerk Drukfarben (Rs.15,53,321), holding the same to be deemed dividend cove....

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....n view all these in mind we request you again to allow these expenses as normal business expanses in the assessment year." 6. The AO did not accept the assessee's contention and disallowed the assessee's claim observing that the loss claimed was notional in nature and not actual loss. 7. Before ld. CIT(A), the assessee explained that in the body of assessment order the disallowance is of Rs.10,09,034/- but in the final computation it is taken as 6,21,988/-. The assessee explained that it is a net loss claimed in the profit and loss account. The assessee reiterated the submissions made before AO. Ld. CIT(A) dismissed the assessee's contention, inter-alia, observing that actual loss would arise only at the time of remittance and not before. At the time of hearing, ld. Counsel for the assessee submitted that this issue is now covered in favour of assessee by the decision of Hon'ble Supreme Court in the case of CIT vs. Woodward Governor India P. Ltd. (SC), 312 ITR 254. 8. We have considered the rival submissions and have perused the record of the case. We find that this issue is covered in favour of assessee in the case of Woodward Governor India (P) Ltd. (supra), wherein it has bee....

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....falls u/s 43A of the 191 Act. At this stage, we are concerned only with paragraph 9 which deals with revenue items. Paragraph 9 of AS- 11 recognises exchange differences as income or expense. In cases where, e.g., the rate of dollar rises vis-à-vis the Indian rupee, there is an expense during that period. The important point to be noted is that AS-11 stipulates effect of changes in exchange rate vis-à-vis monetary items denominated in a foreign currency to be taken into account for giving accounting treatment on the balance sheet date. Therefore, an enterprise has to report the outstanding liability relating to import of raw materials using the closing rate of exchange. Any difference, loss or gain, arising on conversion of the said liability at the closing rate, should be recognized in the profit and loss account for the reporting period." 9. Therefore, loss suffered by the assessee on account of fluctuation in the rate of foreign exchange, as on the date of the balance sheet, is an item of expenditure u/s 37(1) of the I.T. Act. 10. Respectfully following the decision of Hon'ble Supreme Court in the case of Woodward Governor India (P) Ltd. (supra), this ground is a....

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....ail server etc. The appellant has paid the foreign holding company at the basis of cost markup which is anything between 3 to 4%. The appellant has paid royalty to the holding company @ .5% which has been started from the asstt. year under review and the amount came to Rs.15,12,580/-. The payment which was disallowed by the AO was for services rendered and the ld. AO ignoring the claim of the appellant has disallowed the entire amount. The total net sale during the relevant period was Rs.117.00 crore and the purchase was Rs. 64.32 crore. The payment made by the appellant to the holding company for the reason of procuring the purchases and other IT services as stated above, HR services etc. iii) this amount will also not fall under deferred revenue expenditure as the services rendered was not in the form of capital but purely on Revenue basis. The agreement was entered upon between the appellant and the holding company on 01/01/08 and as per this agreement the service charges was reimbursed at cost + mark up of 3 to 4%." 15. Ld. CIT(A) dismissed the assessee's appeal, inter-alia, observing as under: -     "The ld. AO elaborately discussed the matter both on facts an....