C/TAXAP/839/2019 ORDER IN HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 839 of 2019 PRINCIPAL COMMISSIONER OF INCOME TAX-4 Versus M/S FOREVER GEMS PVT. LTD. Appearance: MRS MAUNA M BHATT(174) for Appellant(s) No. 1 MR B S SOPARKAR(6851) for Opponent(s) No. 1 CORAM: HONOURABLE MR.JUSTICE J.B.PARDIWALA and HONOURABLE MR. JUSTICE BHARGAV D. KARIA Date : 20/01/2020 ORAL ORDER (PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA) 1 This Tax Appeal is filed under Section 260A of Income Tax Act, 1961 [for short, 'the Act, 1961') at instance of Revenue and is directed against order dated 26th June 2019 passed by Income Tax Appellate Tribunal, Ahmedabad Bench 'C' in ITA No.1798/Ahd/2017 for A.Y. 2013 14. 2 Revenue has proposed following question as substantial question of law: Whether Appellate Tribunal has erred in law and on facts by upholding decision of CIT(A) in deleting addition on account of disallowance of provision for import exchange difference of Rs.11,61,18,652/ incurred on unexpired contracts at end of accounting period? 3 assessee, which is private limited company, is engaged in Page 1 of 4 Downloaded on : Wed Jan 29 10:03:59 IST 2020 C/TAXAP/839/2019 ORDER business of imports, exports and manufacturing of Diamonds, Precious and Semi Precious Stones and other sources during year. assessee in year under consideration claimed provision for foreign exchange difference in respect of import of goods amounting to Rs.11,61,18,652/ . Assessing Officer disallowed claim of provision made by assessee firstly on ground that deduction for provision relating to import of goods on account of exchange fluctuation is available only on actual payment as per provisions of Section 43A of Act, 1961, and secondly, such provision on account of currency fluctuation is representing unascertained liabilities which is not allowable as deduction under Section 37(1) of Act. 4 Being dissatisfied with assessment order, assessee carried appeal before CIT (Appeals) to delete addition made by Assessing Officer. 5 Revenue carried matter before Tribunal. Tribunal, after considering submissions made before it as well as order passed by CIT(Appeals), confirmed order of deletion of addition by observing as under: 5 We have heard rival contentions of both parties and perused materials available on record. From preceding discussion, we note that assessee created provision in respect of revenue transactions. This fact can be verified from annual accounts of assessee which is available on pages 31 69 of paper book. There was no long term loan liability, and fixed assets were of negligible value. Therefore, provisions of section 43A of Act cannot be applied in present facts and circumstances as it deals with capital account transaction. Accordingly, we hold that AO erred in applying provisions of section 43A of Act. 5.1 next controversy arises whether impugned transaction is presenting unascertained liabilities. assessee created such provision in respect of current liabilities represented in foreign currency at end of financial i.e. 31st March 2013 based on rate of currency prevailing at relevant time. Therefore, we are of considered opinion that such liabilities cannot be treated as unascertained liabilities. Page 2 of 4 Downloaded on : Wed Jan 29 10:03:59 IST 2020 C/TAXAP/839/2019 ORDER 5.2 We also note that Hon'ble Apex Court involving identical facts and circumstances in case of CIT versus Woodward Governor India Private Ltd reported in 312 ITR 254 has held as under: 15 For reasons given hereinabove, we hold that, in present case, loss suffered by assessee on account of exchange differences as on date of balance sheet is item of expenditure under section 37(1) of 1961 Act. From above, it is clear that trading liability arising on account of currency fluctuation is ascertained liability, and therefore, it is eligible for deduction. 5.3 We also note that assessee has been adjusting books of accounts consistently on account of currency fluctuation, which has been accepted by Revenue in earlier years. Therefore, we are of view that assessee is also entitled to deduction of such provision as per principles of consistency. In view of above, we do not find any reason to interfere in finding of learned CIT(A). Hence, ground of appeal of Revenue is dismissed. 6 Thus, Tribunal concurring with order passed by CIT(Appeals) held that there was no long term loan liability, and fixed assets were of negligible value, and therefore, provisions of Section 43A of Act cannot be applied in present facts and circumstances as it deals with capital account transaction. Tribunal following decision of Supreme Court in CIT vs. Woodward Governor India Private Litd reported in 312 ITR 254 held that trading liability arising on account of currency fluctuation is ascertained liability, and therefore, it is eligible for deduction. 7 In view of findings of fact arrived at by both authorities, there is no infirmity in impugned order passed by Tribunal which is based upon facts emerging from record as well as application of decision of Supreme Court of India in aforesaid case. 8 In that view of matter, no question of law much less any Page 3 of 4 Downloaded on : Wed Jan 29 10:03:59 IST 2020 C/TAXAP/839/2019 ORDER substantial question of law arises from impugned order passed by Tribunal. This appeal is, therefore, dismissed. No order as to costs. (J. B. PARDIWALA, J) (BHARGAV D. KARIA, J) CHANDRESH Page 4 of 4 Downloaded on : Wed Jan 29 10:03:59 IST 2020 Principal Commissioner of Income-tax-4 v. Forever Gems Pvt. Ltd