Bosch Rexroth (India) Ltd. (S) v. Assistant Commissioner Of Income Tax Opponent(S)

K.S Jhaveri, J.:— This appeal is preferred by the assessee against the judgment and order dated 31/3/2009 passed by the Income Tax Appellate Tribunal, Ahmedabad Bench “C”, in ITA No. 1981.Ahd/2003 for the Assessment Year 1991-92.

2. Following is the substantial question of law posed for our consideration in the present appeal:—

“Whether on the facts and in the circumstances of the case the Tribunal was right in law in holding that the assessee is not entitled to the deduction of liability of Rs. 13,21,992/- arising from adverse foreign exchange rate fluctuation between the rupee and German currency in the current Asstt. Year 1991-92?”

3. At the time of hearing of present appeal, learned advocate for the appellant submitted that the issue involved in the present appeal is covered by the decision of this Court in Tax Appeal No. 137 of 2002 dated 16/4/2014. In view of the observations made therein, he prayed to allow present appeal by reversing the impugned order of the Tribunal.

4. Learned counsel for the respondent submitted that the impugned order is just and proper and no error is committed by the Tribunal while passing the impugned order and prayed to dismiss the present appeal.

5. We have heard learned counsel appearing on both sides.

6. We have also perused the record and the impugned order. While deciding Tax Appeal No. 137 of 2002, this Court observed as under:—

“3. It is pointed out to us that the issue raised in the instant case is now covered by the decision of the Apex Court rendered in the case of Commissioner of Income-tax v. Woodward Governor India P. Ltd. reported in [2009] 312 ITR 254 (SC) where the Court has held that.

“Under the mercantile system of accounting what is due is brought into credit before it is actually received: it brings into debit an expenditure for which a legal liability has been incurred before] it is actually disbursed.

“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 under section 37(1) of the Income-tax Act, 1961.”

4. This decision is also followed later on by the Apex Court in the case of Oil and Natural Gas Corporation Ltd. v. Commissioner of Income-tax reported in [2010] 322 ITR 180 (SC) wherein it was held thus:—

12. Applying these factors on the facts of that case, it was held that the loss suffered by the assessee, maintaining accounts regularly on mercantile system and following accounting standards prescribed by the Institute of Chartered Accountants of India (ICAI), on account of fluctuation in the rate of foreign exchange as on the date of balance-sheet was an item of expenditure under Section 37(1) of the Act, notwithstanding that the liability had not been discharged in the year in which the fluctuation in the rate of foreign exchange occurred.

13. We are of the opinion that the ratio of the said decision, with which we are in respectful agreement, squarely applies to the facts at hand and, therefore, the loss claimed by the Assessee on account of fluctuation in the rate of foreign exchange as on the date of balance-sheet is allowable as expenditure under Section 37(1) of the Act.

14. On the question whether an assessee is entitled to adjust the actual cost of imported assets acquired in foreign currency on account of fluctuation in the rate of exchange at each balance-sheet date, pending actual payment of the varied liability with reference to unamended Section 43A of the Act, in Woodwards case (supra), the Court observed thus:

“…what triggers the adjustment in the actual cost of the assets, in terms of the unamended section 43A of the 1961 Act is the change in the rate of exchange subsequent to the acquisition of asset in foreign currency. The section mandates that at any time there is change in the rate of exchange, the same may be given effect to by way of adjustment of the carrying cost of the fixed assets acquired in foreign currency. But for section 43A which corresponds to paragraph 10 of AS-II such adjustment in the carrying amount of the fixed assets was not possible, particularly in the light of section 43(1). The unamended section 43A nowhere required as condition precedent for making necessary adjustment in the carrying amount of the fixed asset that there should be actual payment of the increased/decreased liability as a consequence of the exchange variation. The words used in the unamended section 43A were for making payment and not on payment which is now brought in by amendment to section 43A, vide the Finance Act, 2002.”

Resultantly, this Tax Appeal deserves to be allowed and is allowed answering the question in favour of the appellant holding the judgment and order of the Tribunal contrary to law. Resultantly, the same is disposed of.”

7. In view of above observations, in our view, the question posed for our consideration is required to be answered in favour of the assessee and against the revenue. Accordingly, it is held that the Tribunal has committed an error in holding that the assessee is not entitled to the deduction of liability of Rs. 13,21,992/- arising from adverse foreign exchange rate fluctuation between the rupee and German currency in the current Asstt. Year 1991-92. Accordingly, present appeal is allowed.