What the courts have decided on section 43A, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.
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CIT v Woodward Governor India P Ltd
Supreme CourtHelps taxpayerNo later treatment found
I restated my foreign currency creditors at the closing rate and debited an unrealised loss. Can the AO throw it out as a contingent liability?
No. Under the mercantile system, the loss on restating foreign currency monetary items at the balance sheet date is an item of expenditure under s.37(1), and the word 'expenditure' is wide enough to cover a loss that has not gone out of the assessee's pocket. Section 43A is a separate regime that applies only to an asset acquired from a country outside India, and after its substitution by the Finance Act 2002 it operates only at the time of actual payment.
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Honda Siel Power Products Ltd v CIT
Supreme CourtHelps taxpayer
The Tribunal decided against me without dealing with a coordinate bench decision I had actually filed in the paper book. Can it recall that order under section 254(2), or is that a review it cannot do?
It can. The Supreme Court held that where a coordinate bench decision was placed before the Tribunal and the Tribunal overlooked it, the resulting order carries a manifest error and section 254(2) permits the Tribunal to set it right. The purpose of the sub-section is that no party, assessee or Department, should suffer because of a mistake by the Tribunal. That is atonement for the Tribunal's own error, not the exercise of an inherent power of review, and the High Court was wrong to strike the rectification down as a disguised review.
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IL&FS Tamilnadu Power Company v DCIT — a forward contract gain that cannot be adjusted on capital account must be taxed as revenue
ITATHelps departmentNo later treatment found
My client hedged a loan given to its foreign subsidiary and made a gain on the forward contract. It says the gain is capital. Will that hold?
It did not hold here. The Chennai Tribunal upheld the Commissioner (Appeals) and taxed a forward exchange contract gain of Rs.19,90,79,300 as revenue, reasoning that where the exchange fluctuation gain or loss cannot be adjusted on capital account — as it can be under s.43A where a capital asset is acquired from outside India — it must be treated as revenue and offered to tax, because there cannot be a situation in which the fluctuation gain or loss is adjusted neither on capital account nor on revenue account. The Tribunal reached that conclusion after considering, among other things, the ICDS notified on 29 September 2016 and operative from AY 2017-18.
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Statutory position — the Finance Act 2018 answer to Chamber of Tax Consultants: s.36(1)(xviii), s.40A(13), s.43AA, s.43CB, s.145A and s.145B
CBDT Circulars & InstructionsCuts both ways
The Delhi High Court struck down parts of the ICDS in 2017. Can I still rely on that for an AY 2017-18 assessment?
Only in part, and for most of what was struck down the answer is no. The Finance Act 2018 inserted s.36(1)(xviii), s.40A(13), s.43AA and s.43CB, and substituted new sections 145A and 145B, in every case with the words "shall be deemed to have been inserted" or "deemed to have been substituted" with effect from the 1st day of April 2017 — that is, retrospectively from AY 2017-18, the very first year in which the ICDS operated. What Parliament could not do by executive notification it did by statute, so the substance of the struck-down ICDS provisions now stands in the Act itself and the 2017 judgment no longer answers the point.
Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.
