S.C.Sen, J. - (1.) The petitioner, Hindustan Aluminium Corporation Ltd., has challenged a notice issued by the Commissioner of Income-tax (Central) dated December 1, 1977, under Section 263 of the Income-tax Act, 1961, for the assessment year 1973-74. The reasons for the issuance of the notice has been stated in the affidavit-in-opposition filed on behalf of the respondents. In that affidavit, it has been stated that in the course of assessment proceedings for the assessment year 1974-75, the petitioner-company claimed a sum of Rs. 13,59,794 as revenue expenditure. This liability arose on account of exchange rate difference in connection with the repayment of a foreign loan. The petitioner-company was requested to furnish details of break-up of the loan taken for payment on account of blocks, stores, spare parts together with break-up of exchange rate difference which led to the payment of the additional sum of Rs. 13,59,794 incurred by the petitioner-company for repayment of the foreign loan. It was stated by the petitioner-company that it was not possible for them to segregate this particular rate difference under the heads "Capital Equipment, Raw Material, Stores, Spare Parts".
(2.) It is the case of the respondents that the additional amount of liability incurred by the petitioner in repayment of the foreign loan was not admissible as revenue expenditure to the extent the loan related to purchase of capital assets. It has been stated on affidavit on behalf of the respondents that "It is not a case where the petitioner purchased raw materials from the foreign party on credit and the petitioner had to pay more towards the cost of such purchase due to exchange fluctuations in respect of the outstanding balance of purchase price payable to the foreign party in foreign currency. It is a case of the petitioner obtaining a loan from the foreign party which was utilised for purchasing various items. As far as the cost of those items are concerned, the payments were made in the year of purchase itself out of the borrowing and the cost of such acquisition became fixed once for all. Excess liabilities arising out of exchange fluctuations in respect of the loan instalments payable in the subsequent years is something different and cannot be treated as a trading loss of the year, irrespective of whether the loan amount was utilised for purchase of capital goods, or spare parts and stores, as such enhanced liability has nothing to do with the carrying on of the petitioners' business during the year. The petitioner-company was requested to furnish the details of the break-up of loan taken, i.e., which was utilised for blocks, spare parts, stores, etc., together with the break-up of exchange rate of difference of Rs. 19,27,347 incurred by them for the assessment year 1973-74 for repayment of the foreign loan. The petitioner-company did not furnish the same and it was again reminded but that also was not furnished. However, when the said details were called for, the petitioner-company, in their letter dated November 15/18, 1976, claimed that the exchange rate difference should be allowed as a revenue expenditure."
(3.) The Income-tax Officer had allowed the claim of revenue loss on account of exchange rate difference of Rs. 19,27,347 in the assessment year 1973-74. The Commissioner of Income-tax initiated proceedings under Section 263 in view of the fact that he was of the opinion that the order passed by the Income-tax Officer under Section 143(3) allowing the claim of the assessee of revenue loss on account of exchange fluctuation was erroneous and prejudicial to the interests of the Revenue.;