TaxTMI 
TaxTMI 
2015 (8) TMI 125
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Rs. 89,77,386/- incurred on export of goods of US $ 5,43,504/- without appreciating the facts of the case." ITA NO. 17/JP/2013 : "1. That the ld. CIT (A), Alwar has erred in law as well as on the facts of the case in directing the assessing officer to allow the exchange loss incurred on remittance of outstanding advance of US $ 37,81,155.42 without appreciating the facts of the case. 2. That the ld. CIT (A), Alwar has erred in law as well as on the facts of the case in directing the assessing officer to allow the exchange loss of Rs. 45,17,084/- incurred on export of goods of US $ 2,72,376.00 without appreciating the facts of the case." 2. Briefly stated the facts are that the assessee received export advance of US $36,00,000 as per agreement dt. 23.09.1987 and US $71,00,000 as per agreement dt. 31.08.1988 from M/s Gillette UK Ltd. The date-wise export advance received by the assessee is as under:- Date of receipt of foreign export advance Amount in US $ Converted in Indian Rupees Rate Applied Agreement 14.09.1987 13,00,000 1,68,83,116.90 12.987 1st 16.09.1987 13,00,000 1,68,83,116.88 12.987 1st 17.09.1987 10,00,000 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....xchange loss claimed on accrual basis in 91-92 and 92-93 was disallowed by Hon'ble ITAT by holding it to be a notional loss. However, in A.Y. 93- 94, Hon'ble ITAT in ITA No. 1683/JP/96 dt. 25.08.2006 directed to allow the loss as per Para 16 to 21 of its order reproduced hereunder:- "16. We have given thoughtful consideration to the rival arguments and perused the material available on record. The assessee company entered into two supply agreement with M/s. Gillette U. K. Ltd. and received the advance in U.S. Dollars as under: Description Date of agreement Amount received US $ For sale and supply of 150MM blades during the period of 3 years beginning with 01.09.87 23.9.87 36,00,000/- For sale and supply of safety razor blades and other products 31.8.88 71,00,000/- 17. Against the first export advance of US$ 36,00,000/-, the assessee exported goods of US$ 22,96,352/- upto 10.5.90 (10,40,424 + 10,39,928 + 2,16,000 - P.B. 50 and 28). As per the first agreement the supply price was agreed in US$. Thus against this agreement an amount of US$ 13,03,648/- remained with the assessee. To refund this amount, the assessee approached RBI vide ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....for A Y 1998-99 in ITA No. 273/JP/2003 dated 9.6.2006 after considering the principles laid down for allowing a business loss as explained at page 1436 to 1439 of the commentary of Chaturvedi and Pitthisaria, 5th edition and the decision of Special Bench in case of ONGC Vs. DCIT 261 ITR page 1 (AT) has held that loss arising to the assessee as a result of fluctuation in foreign exchange rate on the closing day of the year is a loss incurred by the assessee and the same loss is not a loss which can be called as a notional loss. In view of the above discussion, the AO is directed to allow foreign exchange fluctuation loss on accrual basis in respect of US$ 13,03,648/-, the liability of which crystallized during the year on permission of the RBI. 20. In respect of the claim of foreign exchange fluctuation loss in respect of second agreement, we find that application seeking permission to remit the outstanding export advance as on 18.1.1994 was moved on 27.1.1994 and the permission to remit the same was given by the RBI on 18.4.1994. The exchange loss in respect of this advance can, therefore, be considered only in A Y 1995-96 and not in the year under consideration on the same logi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....erence to remittance of US $14,41,332.58 allowed by the AO for the reason that RBI permission for the same was issued on 25.03.1996 which fall in A.Y. 96-97. The relevant finding of CIT(A) in Para 4.3, 5.3 and 6.3 of his order is reproduced as under:- 4.3(ii) "As regards the second ground, it is the submission of the appellant that there is an actual and real exchange loss of Rs. 5588369/- since the obligation to export the goods, against the advanced received of USD 341380 in October/November 1988, has inflated in rupee terms from rupees 4996438/- to Rs. 105848061/- because of the devaluation of Indian Currency. The Hon'ble ITAT have directed the AO to examine whether the loss on account of exports of goods of USD 341380, made during AY 93-94 at committed prices, against the advance given as per second agreement stand allowed elsewhere under any other head and if not, the actual loss may be allowed after verification. The Hon'ble ITAT in para 20 of their order have observed a under: "In respect of the claim of foreign exchange fluctuation loss in respect of second agreement, we find that application seeking permission to remit the outstanding export advance as on 18.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....l basis. In view of the order of the Hon'ble ITAT Jaipur dated 25.08.2006, this action of the AO is upheld. I find that the following exports during the AY 94-95 have been made by the appellant on or before 18.01.94 i.e. USD 214656 on 26.05.93, USD 159120 on 15.04.93 and USD 169728 on 18.01.94. In view of my decision given above in Para 4.3(ii), it is held that the exchange loss with respect to the above said exports amounting to USD 543504/- is to be allowed during AY 94-95. This exchange loss has been worked out at Rs. 8977386/- by the appellant. This AO is directed to allow this loss after verifying the working of the loss with respect to the conversion rates applied. This ground is allowed. 6.3. I have considered the AOs order and the submissions made by the AR of the appellant. The Hon'ble ITAT in Para 20 of their order dated 25.08.2006 for AY 93-94 have observed that "in respect of the claim of foreign exchange fluctuation loss in respect of second agreement, we find that application seeking permission to remit the outstanding export advance as on 18.01.94 was moved on 27.01.94 and the permission to remit the same was given by the RBI on 18.04.94. The exchange loss....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... The Ld. DR reiterated the finding of the AO whereas the Ld. AR relied on the order of Ld. CIT(A) and also submitted that the Rajasthan High Court in assessee's own case for A.Y. 90-91 reported in 101 DTR 258 has held that foreign currency liability against the purchase of goods wherein the assessee has to shell out excess amount is in the nature of revenue expenditure and therefore allowable as an expenditure. Therefore, on export of goods against the foreign exchange which is already received by the assessee in earlier years, the exchange difference on account of devolution of rupee between the time when the advance was received and the time when goods are exported is to be allowed as a revenue loss/expenditure. 5. We have considered the facts of the case and the rival contention of both the parties. We find that Hon'ble Rajasthan High Court in assessee's own case for A.Y. 90- 91 in Para 11 has held that under the mercantile system of accounting, the claim of a liability is required to be worked out at the close of the accounting year and in our view the assessee appellant had correctly claimed the said amount as a liability as there was fluctuation of exchange on....