TaxTMI 
TaxTMI 
2019 (7) TMI 1783
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.... where proceedings u/s.263 do not stand to sustain if Principal Commissioner of Income-tax opts to take different view in the same matter. (4) On merits, the appellant submits that the learned Pr. CIT was misdirected to hold foreign currency fluctuation on loan as capital loss particularly when the resultant net foreign exchange loss of Rs. 2,21,32,403 was revenue in nature and was a justifiable claim. (5) The learned Pr. CIT was driven by extraneous consideration in not dropping the proceedings u/s.263. (6) The appellant craves leave to add, alter or vary any of the grounds of appeal." 3. The ld.Pr.CIT, Surat-1 perused the assessment record of the assessee and found that assessee company has debited an amount of Rs. 221.32 lakhs on account of exchange difference viz., on account of loss on revaluation of foreign currency loan and also found that the loss on account of in fluctuation in exchange represents calculated by the assessee on revaluation of foreign currency loan is in the capital nature. The said loss of Rs. 221.32 lakhs was therefore required to be capitalize instead of capitalizing the same. The assessee has claimed it as a revenue loss. Th....
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.... "May it please your Honours: (1) The Principal CIT had assumed jurisdiction primarily on account of Rs. 2,21,32,403 being loss on revaluation of foreign currency loan claimed by the assessee (Page No,45-46 of the paper book). (2) As was given during the course of assessment proceedings as well as 263 proceedings, the appellant gave complete profile of how it had claimed loss of Rs. 2,21,32,403 (Page No.42). The assessee claims that after verifying all the details, the AO had taken position to allow the claim and that the position so taken was not erroneous based on the following. a. Primarily, the net loss has four limbs; Table A Particulars Result Amount i Revaluation of outstanding Foreign currency loan as at 31-3- 2013 Gain 18,63,269 ii Revaluation of the value of forward contracts against the outstanding loan Loss (34,47,657) iii Amortization of premium on the position of the forward contract taken during the year (From the date of contract till 31-3-2013) Loss (1,55,13,014) iv Amortization of premium on the position of the forward contract Rolled ....
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....expenditure. Also, as per paragraph 38 of the Accenting Standard on "Effects of Changes in Foreign Exchange Rates", the Accounting Standard clearly requires that premium arising at the inception of the forward exchange contract should be amortized over the life of the contract. The relevant text of the stands is reproduced below. 38. A gain or loss on a forward exchange contract to which paragraph 36 does not apply should be computed by multiplying the foreign currency amount of the forward exchange contract by the difference between the forward rate available at the reporting date for the remaining maturity of the contract and the contracted forward rate (or the forward rate last used to measure a gain or loss on that contract for an earlier period). The gain or loss so computed should be recognized in the statement of profit and loss for the period. The premium or discount on the forward exchange contract is not recognized separately. The loss being exclusively being revenue in nature since it is to safeguard the potential loss is allowable as expenditure. That said, the position taken by the AO is not erroneous so as to invoke section 263. ....
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....tatement of profit and loss in the reporting period in which the exchange rates change. Any profit or loss arising on cancellation or renewal of such a forward exchange contract should be recognized as income or as expense for the period The loss being exclusively being revenue in nature since it is to safeguard the potential loss is allowable as expenditure. That said, the position taken by the AO is not erroneous so as to invoke section 263. That apart, the appellant relies on the decision of High Court of Bombay in case of Bombay in case of Citibank N.A. (66-taxmann.com 373) (page No.1 to 3) Chart A iv. Amortization of premium on the position of the forward contract Rolled over from the previous year (From the date of contract till 31-3-2013) The third limb one can find in the attached chart is a loss on premium amortization of Rs. 50,34,717 attributable to the F.Y.2012-13 in respect of forward contracts which had inception during F.Y.2011-12 and which rolled over and matured during F.Y.2012- 13, * On the analogy of what is discussed in clause iii. , the premium amortization is allowable as expenditure ....
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....person. No such reference has been brought in notice invoking section 263 (Page No.45 and 46 of the paper book) iv. Given the above, the amendment does not come to the rescue of the department. v. In paragraph 4) and 4.1), the DR has referred to the Supreme Court case in case of CIT V/s. Amitabh Bachchan. In that case, the ratio settled by the Hon'ble Supreme Court was on that incomplete investigation where inquiry was not completed would tantamount to an order being held as prejudicial to the interest of revenue. vi. In paragraph 5), the DR has quoted two cases of Rampayari Devi Saraogi and Tara Devi Agarwal where the Hon'ble Supreme Court have held that failure of the AO to make inquiries would render the assessment order erroneous. The DR has also quoted Gee Vee Enterprises Delhi High Court as well as Duggal & Co., Pushpa Devi and Smt. Rambha Devi where 263 would sustain if the AO had not made in inquiry. The DR has also cited Ramaswami Chetttiar where the AO had failed to make inquiry on particular item, and thus 263 could stand. vii. In case of the appellant, clearly, as stated in response to clause (a) in Table ....