The Commissioner of Income-tax, Bangalore / The Asst. Commissioner of Income-tax, Circle-11(5), Bangalore v. JSW Steel Limited (Formerly Known As Jindal Vijayanagar Steel Limited)
[Citation -2020-LL-0213-47]

Citation 2020-LL-0213-47
Appellant Name The Commissioner of Income-tax, Bangalore / The Asst. Commissioner of Income-tax, Circle-11(5), Bangalore
Respondent Name JSW Steel Limited (Formerly Known As Jindal Vijayanagar Steel Limited)
Court HIGH COURT OF KARNATAKA
Relevant Act Income-tax
Date of Order 13/02/2020
Assessment Year 2005-06
Judgment View Judgment
Keyword Tags purchase of plant and machinery • substantial question of law • foreign exchange liability • retrospective operation • deferred tax liability • retrospective effect • interest of justice • depreciation loss • expenses incurred • rate of exchange • liability to pay • revised return • book profits • advance tax
Bot Summary: The case of the assessee was selected for scrutiny and notice under Section 143(2) of the Act was issued to the assessee. The Assessing Officer by an order dated 31.12.2007 it was held that the assessee in the 4 Income Tax depreciation working has already adjusted an amount of Rs.64,29,52,121/- on account of foreign exchange gains as provided under Section 43A of the Act on payment basis and that the assessee had not made any payments and purchased the assets. The loss claimed by the assessee to the tune of Rs.39,78,92,211/- on account of settlement of forward contracts in the previous year, which was shown as loss while computing the taxable income of the assessee was disallowed by the Assessing Officer. Being aggrieved, the assessee as well as the revenue filed appeals before the Income Tax Appellate Tribunal. Learned counsel for the revenue while inviting the attention of this court to para 8 of the decision in the case of ELECON ENGINEERING COMPANY LTD., SUPRA submitted that under the unamended provision, an assessee was required to acquire an asset before the change in the rate of exchange and since, in the instant case, no actual cost has been incurred by the assessee therefore, the assessee was not entitled to the benefit to unamended provision. Section 43A as it is stood before the amendment required an assessee to revalue the foreign exchange liability at the end of every previous year and provide for the increase or decrease as a result of foreign exchange fluctuation. The assessee even under unamended provision is entitled to benefit of the loss claimed by the assessee to the tune of Rs.39.78,92,211/- on account of settlement of forward contracts in the previous year, which was shown as loss while computing the taxable income of the assessee.


IN HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS 13TH DAY OF FEBRUARY 2020 PRESENT HONBLE MR. JUSTICE ALOK ARADHE AND HONBLE MR. JUSTICE RAVI V. HOSMANI I.T.A. NO.384 OF 2010 BETWEEN: 1. COMMISSIONER OF INCOME-TAX C. R. BUILDING, QUEENS ROAD BANGALORE. 2. ASST. COMMISSIONER OF INCOME-TAX CIRCLE-11(5), C. R. BUILDING QUEENS ROAD, BANGALORE. APPELLANTS (By Sri. K. V. ARAVIND, ADV.) AND: M/S. JSW STEEL LIMITED (FORMERLY KNOWN AS JINDAL VIJAYANAGAR STEEL LIMITED) JINDAL MANSION, 51 DR. G. DESHMUKH MARG MUMBAI-400026. RESPONDENT (By Sri. A. SHANKAR, SENIOR COUNSEL FOR SRI. VENKATESH K. PANI, ADV.) 2 THIS I.T.A IS FILED UNDER SECTION 260-A OF I.T. ACT, 1961, ARISING OUT OF ORDER DATED 31/5/2010 PASSED IN ITA NO.924/BANG/2009, FOR ASSESSMENT YEAR 2005-06, PARYING TO FORMULATE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN. ALLOW APPEAL AND SET ASIDE ORDERS PASSED BY ITAT, BANGALORE IN ITA NO.924/BANG/2009 DATED 31/5/2010 AND CONFIRM ORDER OF APPELLATE COMMISSIONER CONFIRMING ORDER PASSED BY ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-11(5), BANGALORE, IN INTEREST OF JUSTICE AND EQUIYT. THIS I.T.A. COMING ON FOR HEARING, THIS DAY, ALOK ARADHE J., DELIVERED FOLLOWING: JUDGMENT This appeal which has been preferred under Section 260A of Income Tax Act, 1961 (hereinafter referred to as Act , for short) by revenue has been admitted by bench of this Court vide order dated 26.03.2012 on following substantial questions of law: (i) Whether tribunal was correct in holding that sum of Rs.39,78,92,211/- should be treated as depreciation loss as claimed by assessee as arising due to forward contracts as these contracts stood terminated during current assessment year and corresponding amount was deemed to be added to value of 3 assets even when these assets had not been acquired or payments made? (ii) Whether Tribunal was correct in proceeding to hold that no interest under Section 234B of Act can be levied on amount of tax payable under Section 115JB of Act as clause (h) to Explanation 1 to Section 115JB of Act was inserted with retrospective effect by Finance Act, 2008 which could not haven anticipated during current assessment year 2005-06 and consequently reading provision which was not within its jurisdiction? 2. Facts leading to filing of appeal briefly stated are that assessee is engaged in business of manufacturing and selling of pellets, hot/cold rolled coils, sheets, plates and slag cement. assessee filed it s return of income for assessment year 2005-06 on 29.10.2005 declaring NIL income. Thereafter, assessee filed revised return on 06.03.2007. case of assessee was selected for scrutiny and notice under Section 143(2) of Act was issued to assessee. Assessing Officer by order dated 31.12.2007 it was held that assessee in 4 Income Tax depreciation working has already adjusted amount of Rs.64,29,52,121/- on account of foreign exchange gains as provided under Section 43A of Act on payment basis and that assessee had not made any payments and purchased assets. It was further held that assessee had only entered into forward contracts with dealers for future purchase of plant and machinery at specified rate to safeguard its interest from future foreign exchange fluctuation. It was further held that provisions of Section 43A of Act do not apply to case of assessee. loss claimed by assessee to tune of Rs.39,78,92,211/- on account of settlement of forward contracts in previous year, which was shown as loss while computing taxable income of assessee was disallowed by Assessing Officer. 3. aforesaid order passed by Assessing Officer was upheld by Commissioner of Income Tax (Appeals) by order dated 10.07.2009. Being aggrieved, assessee as well as revenue filed appeals before Income Tax Appellate Tribunal (hereinafter referred to as 5 tribunal for short). Tribunal by order dated 31.05.2010 inter alia held that adjustment of liability has to be allowed even in case where payment was not actually made. It was further held that such adjustment can be made only in previous year, in which foreign account was settled by assessee. It was also held that case of assessee is squarely covered by decision of Supreme Court in case of ASSISTANT COMMISSIONER OF INCOME TAX VS. ELECON ENGINEER CO. LTD., (2010) 322 ITR 20. It was further held that even though Section 43A was incorporated in year 2002, however, dispute in this case pertains to Assessment Year 2004-05 and therefore, assessee had no occasion to add back deferred tax provision to compute book profits under Section 115JB of Act and assessee could not have paid advance tax retrospectively. It was also held that law does not command to do anything, which is impossible to do. Accordingly, it was held that Assessing Officer as well as Commissioner of Income Tax (Appeals) erred in allowing assessee to deduct Rs.25 Crores from computation of 6 book profits under Section 115JB of Act. Accordingly, order of Commissioner of Income Tax (Appeals) was reversed. Being aggrieved, revenue has filed this appeal. 4. Learned counsel for revenue while inviting attention of this court to para 8 of decision in case of ELECON ENGINEERING COMPANY LTD., SUPRA submitted that under unamended provision, assessee was required to acquire asset before change in rate of exchange and since, in instant case, no actual cost has been incurred by assessee therefore, assessee was not entitled to benefit to unamended provision. It is further submitted that Tribunal grossly erred in holding that case of assessee is covered by decision in case of ELECON ENGINEERING COMPANY LTD., SUPRA and in holding that amended provisions viz., Section 43A of Act apply to fact situation of case. It is further submitted that decision in case of ELECON ENGINEERING COMPANY LTD., SUPRA was rendered in peculiar facts of case. In this connection, our attention has been invited to para 11 of aforesaid 7 decision. It is further submitted that interest under Section 234B of Act was leviable on amount of tax as explanation (h) to Section 115JB was incorporated with effect from 01.04.2007. In support of his submissions, reliance has been placed on decision of Supreme Court in ASSISTANT COMMISSIONER OF INCOME TAX VS. ELECON ENGINEERING CO. LTD., (2010) 322 ITR 20 AND JOINT COMMISSIONER OF INCOME-TAX VS. ROLTA INDIA LTD., (2011) 330 ITR 470. 5. On other hand, learned counsel for assessee submitted that revenue has already adjusted amount of Rs.64,29,52,121/- on account of foreign exchange gains as per Section 43B of Act and entire material was produced before Assessing Officer with regard to expenses incurred by assessee. It is further submitted that irrespective of decision of Supreme Court in ELECON ENGINEERING COMPANY LTD., supra, assessee is entitled to succeed as in any case, amount of loss has to be treated as revenue expenditure. Our attention has been invited to para 6 of order passed by 8 Tribunal and it has been submitted that adjustments have to be allowed even in case where payment was not actually made. It is further submitted that aforesaid adjustments have to be made on basis of liability as on last date of previous year. It is also urged that assessee cannot be asked to pay advance tax with retrospective effect. In support of aforesaid submission, reliance has been placed on division bench decision of this court in COMMISSIONER OF INCOME TAX AND ANOTHER VS. JUPITER BIO-SCIENCE LTD. , AND COMMISSIONER OF INCOME-TAX AND ANOTHER VS. JUPITER BIO-SCIENCE LTD. , (2013) 352 ITR 113 (KARN) and STAR INDIA P. LTD. VS. COMMISSIONER OF CENTRAL EXCISE, (2006) 280 ITR 321 (SC). 6. We have considered submissions made by learned counsel for parties and have perused record. Section 43A as it is stood before amendment required assessee to revalue foreign exchange liability at end of every previous year and provide for increase or decrease as result of foreign exchange fluctuation. 9 aforesaid adjustment has to be made even in case where payment was not actually made and adjustments have to be made on basis of liability as on last day of previous year. By way of amendment in year 2002, requirement of making of payment was inserted. assessee even under unamended provision is entitled to benefit of loss claimed by assessee to tune of Rs.39.78,92,211/- on account of settlement of forward contracts in previous year, which was shown as loss while computing taxable income of assessee. We agree with view taken by Tribunal on this issue. Accordingly, first substantial question of law is answered against revenue and in favour of assessee. 7. Supreme Court in case of Star India P. Ltd., supra has held that liability to pay interest arising on default is in nature of quasi punishment and even though it is permissible for legislature to retrospectively legislate yet, such retrospectivity is normally not permissible to create offence retrospectively. It is true that assessee could not have paid advance tax in case of deferred tax liability 10 in respect of Assessment Year 2005-06, when amendment was brought into force in 2008. However, it is pertinent to mention here that clause (h) to second proviso to Section 115JB(2) of Act has been incorporated with effect from 01.04.2001. retrospective operation of aforesaid provision has not been challenged by assessee and therefore, aforesaid provision has to be given effect to. Tribunal clearly acceded to its jurisdiction in holding that no interest could be levied under Section 234B of Act. In result, second substantial question of law is answered in favour of revenue and against assessee. In view of preceding analysis, appeal is allowed in part. Sd/- JUDGE Sd/- JUDGE SS Commissioner of Income-tax, Bangalore / Asst. Commissioner of Income-tax, Circle-11(5), Bangalore v. JSW Steel Limited (Formerly Known As Jindal Vijayanagar Steel Limited)
Report Error