By Ajay R. Singh
Advocate
14. The Pr. CIT-10 vs. Hotel Leela Venture Ltd. [Income tax Appeal No.
1097 of 2017] Date of order: 5th November, 2019 (Bombay High Court)
DCIT (OSD)-8(2) vs. Hotel Leela Venture Ltd.; Date of order: 28th
July, 2016; [ITA No. 617/Mum/2014; A.Y.: 2009-10; Mum. ITAT]
Section 115JB of the Act – MAT – Forward foreign exchange contract
entered into by assessee could not be considered as contingent in nature as it
creates a continuing binding obligation on date of contract against assessee
The assessee is
a company engaged in the business of five star deluxe hotels. The AO made an
addition of Rs. 10,47,08,044 to the book profit on account of foreign currency
transaction difference.
Being aggrieved
by the order, the assessee filed an appeal to the CIT(A). The CIT(A) partly
allowed the appeal, deleting the addition on the ground that the liability was
not a contingent liability.
Aggrieved by
the order of the CIT(A), the Revenue filed an appeal to the Tribunal. The
Tribunal found that after considering various judicial pronouncements, the
CIT(A) reached the conclusion that the said liability is not contingent. As per
the CIT(A), a contingent liability depends purely on occurrence and
non-occurrence of an event, whereas if an event has already taken place, which
in the present case is of entering into a contract and undertaking of
obligation to meet the liability, and only the consequential effect of the same is to be determined, then it cannot
be said that it is in the nature of a contingent liability.
After applying
the proposition of law laid down by the Hon’ble Supreme Court in the cases of Woodward
Governor India and Bharat Earth Movers, the CIT(A)
recorded a finding to the effect that it was not a contingent liability. Accordingly,
the appeal of the Revenue was dismissed.
Being aggrieved
by the order of the ITAT, the Revenue filed an appeal to the High Court. The
Court held that the Tribunal and the CIT(A) had held that the forward foreign
exchange contract entered into by the assessee to buy or sell foreign currency
at an agreed price at a future date cannot be considered as contingent in
nature as it creates a continuing binding obligation on the date of the
contract against the assessee. The view taken by the Tribunal was correct, that
in the present case where an obligation was undertaken to meet a liability and
only the consequential effect was to be determined, it could not be said that
the amount in question was in the nature of contingent liability.
Further, the
Revenue sought to urge an additional question of law to the effect that the
Tribunal erred in not treating the amount of Rs. 10,47,08,044 as capital
expenditure for computation of book profit u/s 115JB of the Act when this
amount was treated by the AO and accepted by the assessee as a capital
expenditure.
The Court
observed that this point was not urged before the Tribunal nor had it found
reference in the present appeal memo. The appeal was filed before the Tribunal
on the sole ground of the amount in question being a contingent liability. In
view of such a single, focused approach before the Tribunal, the decision of
the Tribunal was restricted only to that ground.
The argument of
Revenue that there was only a mistake in choosing the words, that instead of
capital expenditure, the words contingent liability were used, cannot be
accepted because the reason for the amount being treated as contingent in
nature had also been specified in the said ground, stating that the loss was on
account of foreign exchange fluctuation. It is not permissible for the
appellant to urge the said question for the first time before the Court and
that, too, during the course of the oral arguments.
Accordingly,
the appeal was dismissed.
