2008 (1) TMI 319

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....the parties and perused the record. 3. Following are the substantial questions of law involved in these appeals: "In I. T. A. No. 74 of 2007: Whether the Income-tax Appellate Tribunal erred in law in upholding the decision of the Commissioner of Income-tax (Appeals) on the facts and circumstances of the case, in allowing foreign exchange loss of Rs. 11,58,44,887 under section 42 of the Income-tax Act, 1961, without appreciating the fact that the loss is only a book entry and no loss was incurred by the company/assessee? In I. T. A. No. 76 of 2007: Whether the Income-tax Appellate Tribunal erred in law in upholding the decision of the Commissioner of Income-tax (Appeals) on the facts and circumstances of the case, in allowing foreign exchange loss of Rs. 46,54,30,105 under section 42 of the Income-tax Act, 1961, without appreciating the fact that the loss is only a book entry and no loss was incurred by the company/assessee? In I. T. A. No. 77 of 2007: Whether the Income-tax Appellate Tribunal erred in law in upholding the decision of the Commissioner of Income-tax (Appeals) on the facts and circumstances of the case, in allowing foreign exchange loss of Rs. 38,63,38,980 unde....

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....-tax (Appeals), Dehradun (for brevity "the CIT(A)"), who registered the same as Appeal No. 21/DDN/CIT(A)-II/2004-05 against the order passed by the Assessing Officer in respect of the assessment year 1990-2000; Appeal No. 22/DDN/ GET(A) -11/2004-05 against the order passed by the Assessing Officer in respect of the assessment year 1998-99 and Appeal No. 51/DDN/CIT(A)-II/ 2004-05 against the order passed by the Assessing Officer in respect of the assessment year 2000-01. After hearing the parties, the Commissioner of Income-tax (Appeals), Dehradun, allowed all the three appeals, accepting the assessee-NRC's claim of foreign exchange loss, vide his order dated February 11, 2005, in the three appeals, mentioned above. Aggrieved by the same the Revenue filed Income-tax Appeal No. 1821 of 2005 against the order dated February 11, 2005, passed by the Commissioner of Income-tax (Appeals) in Appeal No. 21/DDN/CIT(A)-II/2004-05 in respect of the assessment year 1999-2000; Income-tax Appeal No. 1823 of 2005 against e order dated February 11, 2005, passed by the Commissioner of Income x (Appeals) in Appeal No. 51/DDN/CIT(A)-II/2004-05 in respect of the assessment year 1999-2000 and Income-tax....

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....ear in which commercial production is begun and for such succeeding year or years as may be specified in the agreement………. and such allowances shall be computed and made in the manner specified in the agreement, the other provisions of this Act being deemed for this purpose to have been modified to the extent necessary to give effect to the terms of the agreement. Explanation.— For the purposes of this section, 'mineral oil' includes petroleum and natural gas." 7. Now, we deem it proper to quote article 1.6.1 and 1.6.2 of the production sharing contract ("PSC") entered into between the parties, which provides accounting procedure. The same are being reproduced below: 1.6 Currency exchange rates 1.6.1 For translation purposes between United States dollars and Indian rupees or any other currency, the previous month's average of the daily means of the buying and selling rates of exchange as quoted by the State Bank of India (or any other financial body as may be mutually agreed between the parties) shall be used for the month in which the revenues, cost, expenditure, receipts or income are recorded. However, in the case of any single non-US dollar transaction in excess of....

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.... Ltd. [2008] 301 ITR 415 (Uttarakhand) (along with eight connected appeals). On that ground it is argued that the depreciation cannot be allowed unless there is actual loss to the assessee-NRC. We have gone through the aforesaid judgment and order passed by this court which interprets section 37 of the Income-tax Act, 1961, and in that case no repayment of loan claimed was found to have been made by the borrowing company in the relevant assessment year, and only in the account books it was shown as expenditure. In the case in hand, the facts are different and it is nobody's case that no expenditure had taken place in the relevant assessment years. The point of dispute is whether, on the expenditure made by the assessee-NRC, is it entitled to the further loss incurred by it on account of change in the foreign exchange rates, or not ? 10. Section 42 of the Income-tax Act, 1961, quoted above, contains a special provision whereby the expenditure incurred by the assessee-NRC in commercial production of mineral oil is to be depreciated in terms of the agreement mentioned therein. It is not the case of the parties that the agreement between the parties is not covered or it does not fulfi....