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16-11-2018, FIS GLOBAL BUSINESS, Section 43A, 147, 747, HIGH COURT OF DELHI
1. Issue notice. Sh. Sanjay Kumar, Advocate accepts notice. With parties’ consent, the writ petition was heard finally.
2. The assessee in its writ petition challenges a notice issued under Section 148 of the Income Tax Act (hereafter “the Act”) for Assessment Year 2011-12, complaining that the original return [which had declared `49,67,00,907/- and subsequently revised to `49,23,54,662/-] was assessed under scrutiny under Section 143(3) read with Section 144C of the Act on 31.12.2015, at ` 61,92,17,179/-. The impugned reassessment notice in this case was issued on 31.03.2018; subsequently, the Assessing Officer [hereafter referred to as “the AO”] furnished the “reasons for reopening the case.....” to the assessee. Those reasons inter alia states as follows :
“Reasons for reopening the case of M/s. FIS Global Business Solutions (India) Pvt. Ltd. (PAN-AAACH2815H) for the FY 2010-11 relevant to AY 2011-12:
1. Brief details of the Assessee:
The assessee company is engaged in the business of software development and outsourcing services. The assessee company filed its retum of income on 291 L2111 declaring total income at Rs. 49,67,00,970/-. Subsequently. the assessee company revised its return of income on 22.03.2013 declaring total income at Rs.49,23,54,6621-. The assessment u/s 143(3) was completed on 31.12.2015 at an income of Rs. 61,92,17,1791-.
2. Income escaping assessment:
An audit objection was received in this office in which it was stated that in the computation of income the assessee claimed and was allowed deduction of Rs.1,37,73,528/- on account of Forex gain on Certegy (Interest Income). Forex gain on interest income, being revenue nature was not an allowable deduction.
The issue is considered and on perusal of the assessment folder pertaining to2011-12 it was noticed that in the computation of income, the assessee has deducted Rs.,37,73,528/- on account of Forex gain on certegy. Further, of Rs. 1,37 ,73,52gl-. Rs. 1,40,50,4221- was an account of Foreign Exchange fluctuation gain on loan balance receivable from Certegy and Rs. 2,76,894/- was on account of Foreign Exchange fluctuation loss on Interest income on loan advanced to Certegy.
Foreign Exchange fluctuation loss of Rs. 2,76,8941- on Interest income on loan advanced to Certegy is an allowable expense being revenue in nature.
The issue of Foreign Exchange fluctuation gain of Rs.1,40,50.422/- on loan balance receivable from Certegy needs to be view in the light of applicable Accounting Standards issued by The Institute of Chartered Accountants of India (ICAI). In this respect it is imperative to note that Accounting Standard II titled 'Effects of Changes in Exchange Rates' acknowledges that forex gain is to be recorded as income. The relevant portion of the AS 11 issued by the ICAI which is applicable in this case is being reproduce below for the ready reference:
'Recognition of Exchange Diffrences
13. Exchange differences arising on the settlement of monetary items or on reporting enterprise's monetary items at rates different from those at which they were initially recorded during the period, or reported in previous financial statements, should be recognised as income or cts expenses in the period in which they arise, with the exception of exchange differences dealt with in accordance with paragraph 15.'
The aforesaid ASII was relied upon by the Hon'ble Supreme Court in Commissioner of Income Tax, Delhi vs. woodward Governer India pvt. Ltd. (2009) 13 SCC I;(2009) 312 ITR 254 (SC) I wherein the Hon'ble Court observed that under the said accounting standard "exchange differences arising on foreign currency transactions have to be recognised as income or as expense in the period in which they arise, except as stated in para 10 and para II which deals with exchange differences arising on the payment of liabilities incurred for" the purpose of acquiring fixed assets, which topic falls under section 43A of the 1961 Act!’
Further, the Hon'ble Supreme court in Sutlej cotton Mills Ltd. vs CIT [(1979) I 16 ITR 1 (SC)I observed as under:
'The law may, therefore, now be taken to be well settled that where profit or loss arises to an assessee on account