Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, MUMBAI BENCH “E” MUMBAI
Before: SHRI ABY T VARKEY & SHRI OM PRAKASH KANT
These cross appeals by the assessee and These cross appeals by the assessee and These cross appeals by the assessee and Revenue for assessment year 2008 assessment year 2008-09; 2009-10; 2012-13 and 2013 13 and 2013-14 are directed directed directed against against against separate separate separate orders orders orders passed passed passed by by by the the the learne learned learne Commissioner of Income Income-tax(Appeals)-1, Mumbai [in short 1, Mumbai [in short ‘the Ld. CIT(A)’]. As common issue ]. As common issue-in-dispute are involved in these appeals, dispute are involved in these appeals, therefore, same were hard together and disposed off by way of this same were hard together and disposed off by way of this same were hard together and disposed off by way of this consolidated order for convenience and avoid repetition of facts. consolidated order for convenience and avoid repetition of facts. consolidated order for convenience and avoid repetition of facts.
Firstly, we take up the cross appeals for assessment year Firstly, we take up the cross appeals for assessment year Firstly, we take up the cross appeals for assessment year 2008-09. The grounds 09. The grounds raised by the Revenue are reproduced as are reproduced as under:
Everest Industries Limited 3 718/M/2020, 7793, 7794/M/2020 & ITA Nos. 715, 718/M/2020, 7793, 7794/M/2020 & 1423, 1418, 654, 653/M/2020 1423, 1418, 654, 653/M/2020
1. Whether the CIT (A) erred on the facts and in the Whether the CIT (A) erred on the facts and in the Whether the CIT (A) erred on the facts and in the circumstances of the case and in law, in directing the circumstances of the case and in law, in directing the circumstances of the case and in law, in directing the A to exclude Sales Tax incentive, while computing the A to exclude Sales Tax incentive, while computing the A to exclude Sales Tax incentive, while computing the book profits /s 115JB of the Act, without book profits /s 115JB of the Act, without appreciating appreciating that they have not been specifically excluded in that they have not been specifically excluded in that they have not been specifically excluded in Explanation 1 to section 115JB of the Act. Explanation 1 to section 115JB of the Act. 2.
2. Whether the CIT (A) erred on the facts and in the 2. Whether the CIT (A) erred on the facts and in the 2. Whether the CIT (A) erred on the facts and in the circumstances of the case and in law, in directing the circumstances of the case and in law, in directing the circumstances of the case and in law, in directing the AO to exclude Sales Tax incentive, while computing the AO to exclude Sales Tax incentive, while computing the AO to exclude Sales Tax incentive, while computing the book profits /s 115B of the Act despite the fact that no book profits /s 115B of the Act despite the fact that no book profits /s 115B of the Act despite the fact that no adjustment adjustment adjustment other other other than than than the the the ones ones ones mentioned menti menti in Sec.115JB is permissible as held by the Supreme Sec.115JB is permissible as held by the Supreme Sec.115JB is permissible as held by the Supreme Court in the case of Apollo Tyres Ltd. (255 IT 273) Court in the case of Apollo Tyres Ltd. (255 IT 273) Court in the case of Apollo Tyres Ltd. (255 IT 273) 2.1 The grounds raised by the assessee grounds raised by the assessee are reproduced as under: reproduced as under:
1(a). That on the facts and in the circumstances of the That on the facts and in the circumstances of the That on the facts and in the circumstances of the case, the Ld. Commissioner o case, the Ld. Commissioner of Income Tax (Appeals) f Income Tax (Appeals) (here-in in-after referred to as 'Ld. CIT(Appeals)' was not after referred to as 'Ld. CIT(Appeals)' was not justified & grossly erred in confirming the action of the justified & grossly erred in confirming the action of the justified & grossly erred in confirming the action of the A.O. A.O. A.O. in in in initiating initiating initiating reassessment reassessment reassessment proceedings proceedings proceedings us us us 147/148 without appreciating the fact that the same 147/148 without appreciating the fact that the same 147/148 without appreciating the fact that the same has been done in ut has been done in utter disregard of the express ter disregard of the express provisions of the Act. provisions of the Act. 1(b). That on the facts and in the circumstances of the That on the facts and in the circumstances of the That on the facts and in the circumstances of the case, the Ld.CIT (Appeals) was not justified and rather case, the Ld.CIT (Appeals) was not justified and rather case, the Ld.CIT (Appeals) was not justified and rather grossly erred in not quashing the reassessment grossly erred in not quashing the reassessment grossly erred in not quashing the reassessment proceedings initiated beyond four years from the end of proceedings initiated beyond four years from proceedings initiated beyond four years from the relevant assessment year without appreciating the the relevant assessment year without appreciating the the relevant assessment year without appreciating the fact that there was no failure on the part of the fact that there was no failure on the part of the fact that there was no failure on the part of the appellant to disclose truly and fully all material facts appellant to disclose truly and fully all material facts appellant to disclose truly and fully all material facts necessary for completion of assessment. necessary for completion of assessment. 1(c). That on the facts and in the circumsta That on the facts and in the circumstances of the That on the facts and in the circumsta case, the Ld.CIT (Appeals) was not justified and rather case, the Ld.CIT (Appeals) was not justified and rather case, the Ld.CIT (Appeals) was not justified and rather grossly erred in notnot quashing the reassessment grossly erred in notnot quashing the reassessment grossly erred in notnot quashing the reassessment proceedings without appreciating the fact that there proceedings without appreciating the fact that there proceedings without appreciating the fact that there was fresh application of mind on the part of AO to the was fresh application of mind on the part of AO to the was fresh application of mind on the part of AO to the same set of facts as available same set of facts as available with him at the time of with him at the time of assessment and leading to mere change of opinion. assessment and leading to mere change of opinion. assessment and leading to mere change of opinion.
Everest Industries Limited 4 718/M/2020, 7793, 7794/M/2020 & ITA Nos. 715, 718/M/2020, 7793, 7794/M/2020 & 1423, 1418, 654, 653/M/2020 1423, 1418, 654, 653/M/2020
2. That the appellant craves leave to add, to amend, That the appellant craves leave to add, to amend, That the appellant craves leave to add, to amend, modify, rescind, supplement or alter any of the modify, rescind, supplement or alter any of the modify, rescind, supplement or alter any of the Grounds stated here Grounds stated here-in-above, either before or at the above, either before or at the time of hearing of this ap time of hearing of this appeal.
Briefly stated facts of the case are that the assessee filed stated facts of the case are that the assessee filed stated facts of the case are that the assessee filed return of income for the assessment year under consideration on return of income for the assessment year under consideration on return of income for the assessment year under consideration on 30/09/2009 declaring total loss of 30/09/2009 declaring total loss of ₹36,28,84,497/ 497/-under the regular provisions of the Income s of the Income-tax Act, 1961 (in short in short ‘the Act’), whereas declared book profit of whereas declared book profit of ₹7,68,23,521/- for the purpose of for the purpose of section 115JB of the section 115JB of the Act. The said return of income was revised on . The said return of income was revised on 31/03/2010 declaring loss at Rs.37,97,34, /03/2010 declaring loss at Rs.37,97,34,102/-under the normal under the normal provisions of the A Act and book profit at ₹ 2, 88 ,27, 2, 88 ,27, 166/-. Subsequently, the case of the assessee was selected for scrutiny Subsequently, the case of the assessee was selected Subsequently, the case of the assessee was selected and after consideration of the submission of the assessee and and after consideration of the submission of the assessee and after consideration of the submission of the assessee examination of the details, the Assessing Officer passed the examination of the details, the Assessing Officer pas examination of the details, the Assessing Officer pas assessment order under section 143(3) of the assessment order under section 143(3) of the Act on 23/12/2 ct on 23/12/2010 determining business loss at determining business loss at ₹19,97,80,218/- and long-term capital gain of ₹7,13,98, ,13,98,483/- under the regular provisions of the under the regular provisions of the Act, however book profit was accepted as returned by the assessee however book profit was accepted as returned by the assessee however book profit was accepted as returned by the assessee turn of income at rupees ₹2,88,27,166/ in revised return of income at rupees 2,88,27,166/-. On further appeal, the Ld. First appellate authority, allowed the claim of . First appellate authority, allowed the claim of ‘sales . First appellate authority, allowed the claim of tax incentive’ as capital receipt under the normal provisions of the as capital receipt under the normal provisions of the as capital receipt under the normal provisions of the Act including set off of business loss against long ct including set off of business loss against long ct including set off of business loss against long-term capital gains, which resulted int gains, which resulted into loss under normal provisions of the o loss under normal provisions of the Act at ₹18,21,26,459/- whereas book profit remained unchanged at whereas book profit remained unchanged at ₹2,88,27,166/-.
Everest Industries Limited 5 718/M/2020, 7793, 7794/M/2020 & ITA Nos. 715, 718/M/2020, 7793, 7794/M/2020 & 1423, 1418, 654, 653/M/2020 1423, 1418, 654, 653/M/2020 3.1 Subsequently, reassessment proceedings were initiated under Subsequently, reassessment proceedings were initiated under Subsequently, reassessment proceedings were initiated under section 147 of the Act Act by way of the issue of notice under section by way of the issue of notice under section 148 of the Act dated 27/01/2014. In the reassessment order ct dated 27/01/2014. In the reassessment order ct dated 27/01/2014. In the reassessment order passed under section 143(3) read with section 147 of the Act on passed under section 143(3) read with section 147 of the passed under section 143(3) read with section 147 of the 24/03/2015, the Assessing Officer determine 24/03/2015, the Assessing Officer determined total loss at ₹18,21,26,459 /- under the normal provisions of the under the normal provisions of the Act and also under the normal provisions of the denied exclusion of sion of sales tax incentive claimed by the assessee in claimed by the assessee in for the purpose of book profit and recomputed for the purpose of book profit and recomputed book profit at ₹8,25,71,890/- under the provisions of section 115 JB of the under the provisions of section 115 JB of the under the provisions of section 115 JB of the Act.
On further appeal, the Ld. CIT(A) upheld the validity of On further appeal, the Ld. CIT(A) upheld the validity of On further appeal, the Ld. CIT(A) upheld the validity of reassessment, however, allowed the relief on merit of the addition. , however, allowed the relief on merit of the addition. , however, allowed the relief on merit of the addition. Aggrieved, both the revenue and assessee are before the Income-tax Aggrieved, both the revenue and assessee are before the Aggrieved, both the revenue and assessee are before the Appellate Tribunal ( (in short ‘the Tribunal’) raising grounds as ) raising grounds as reproduced above.
The grounds raised by the The grounds raised by the Revenue relates to relates to finding of Ld. CIT(A) for excluding the CIT(A) for excluding the ‘sales tax incentive’ amount while computing the book profit under section 115 JB of the Act. computing the book profit under section 115 JB of the computing the book profit under section 115 JB of the
The briefly stated facts qua the issue in dispute The briefly stated facts qua the issue in dispute The briefly stated facts qua the issue in dispute are that case of the assessee was reopened on one of the ground of sales-tax of the assessee was reopened on one of the ground of s of the assessee was reopened on one of the ground of s exemption/incentive was wrongly reduced for the purpose o was wrongly reduced for the purpose of book profit under section 115 profit under section 115JB of the Act by the Assessing Officer by the Assessing Officer accepting it as a capital receipt. In the reassessment completed, the accepting it as a capital receipt. In the reassessment completed accepting it as a capital receipt. In the reassessment completed Assessing Officer observed that Assessing Officer observed that for the purpose of section115 section115JB(2),
Everest Industries Limited 6 718/M/2020, 7793, 7794/M/2020 & ITA Nos. 715, 718/M/2020, 7793, 7794/M/2020 & 1423, 1418, 654, 653/M/2020 1423, 1418, 654, 653/M/2020 every assessee being a company shall prepare its profit and loss every assessee being a company shall prepare its profit and loss every assessee being a company shall prepare its profit and loss account for the relevant previous year in accordance with the account for the relevant previous year in accordance with the account for the relevant previous year in accordance with the provisions of Part II and III of II and III of Schedule VI to the Companies VI to the Companies Act 1956. The first provisio to section 115JB . The first provisio to section 115JB of the Act, further provides , further provides that while preparing the annual accounts including the profit and that while preparing the annual accounts including the profit and that while preparing the annual accounts including the profit and loss account, the accounting policies, the accounting standard and loss account, the accounting policies, the accounting standard and loss account, the accounting policies, the accounting standard and method and rates adopted for calculating the depreciation shall be method and rates adopted for calculating the depreciation shall be method and rates adopted for calculating the depreciation shall be the same as adopted by the co the same as adopted by the company for the purpose of preparing mpany for the purpose of preparing such accounts including the profit and loss account and laid before such accounts including the profit and loss account and laid before such accounts including the profit and loss account and laid before the company at its annual general body meeting, to which the company at its annual general body meeting, to which the company at its annual general body meeting, to which permissible adjustment are to be made as mentioned in permissible adjustment are to be made as mentioned in permissible adjustment are to be made as mentioned in ‘Explanation-1’ to section 115 to section 115JB of the Act. According to the . According to the Assessing Officer, the item of capital receipt is not covered in the Assessing Officer, the item of capital receipt is not covered in the Assessing Officer, the item of capital receipt is not covered in the ‘Explanation-1’ to section 115 JB to section 115 JB of the Act. Thus, the assessee can the assessee can reduce the amount for the purpose of computation of the book reduce the amount for the purpose of computation of the book reduce the amount for the purpose of computation of the book profit as mentioned in profit as mentioned in ‘Explanation-1’ of section 115 n 115JB of the Act only and cannot reduce any other amount cannot reduce any other amount, even the capital receipt , even the capital receipt for the purpose of computing book profit under section 115 JB of for the purpose of computing book profit under section 115 JB of for the purpose of computing book profit under section 115 JB of the Act. The Ld. Assessing Officer referred to the decision of the Assessing Officer referred to the decision of the Assessing Officer referred to the decision of the Hon’ble Bombay High Court in the case of CIT Vs Veekay Lal CIT Vs Veekay Lal Hon’ble Bombay High Court Investment Co. Ltd 249 ITR 597 (Bom) Investment Co. Ltd 249 ITR 597 (Bom); Hon’ble Kerala High Hon’ble Kerala High Court in the case of NJ Jose and company Vs ACIT, 174 Taxman NJ Jose and company Vs ACIT, 174 Taxman NJ Jose and company Vs ACIT, 174 Taxman 141 (Kerala) ; decision of the in the case of Growth ; decision of the Tribunal in the case of Avenue Securities 126 ITD 179 ( Delhi Avenue Securities 126 ITD 179 ( Delhi-Trib); decision of the ; decision of the Everest Industries Limited 7 718/M/2020, 7793, 7794/M/2020 & ITA Nos. 715, 718/M/2020, 7793, 7794/M/2020 & 1423, 1418, 654, 653/M/2020 1423, 1418, 654, 653/M/2020 Tribunal in the case of DCIT Vs Bomb in the case of DCIT Vs Bombay Diamond Co. 32(1) ITCL ay Diamond Co. 32(1) ITCL 456 (Mum-ITAT) ; decision of the Special bench of pecial bench of Tribunal, Hyderabad in the case of Hyderabad in the case of Rain Commodities Vs DCIT 4 ITR (Trib.) Rain Commodities Vs DCIT 4 ITR (Trib.) 551 (Hyd-Trib-SB) and decision of ITAT in the case and decision of ITAT in the case of Sumer Builder 50 SOT 198 ( Builder 50 SOT 198 (Mumbai -Trib). He accordingly rejected the Trib). He accordingly rejected the claim of the assessee of reducing the amount of sales-tax incentive claim of the assessee of reducing the amount of sales claim of the assessee of reducing the amount of sales for the purpose of computation of the book profit. for the purpose of computation of the book profit.
On further appeal, the Ld. CIT(A) adjudicated the appeal on On further appeal, the Ld. CIT(A) adjudicated the appeal on On further appeal, the Ld. CIT(A) adjudicated the appeal on 03/12/2019, wherein allowed 3/12/2019, wherein allowed part relief to the assessee. relief to the assessee.
Before us, the Ld Ld. Departmental Representative Representative relied on the order of the Assessing order of the Assessing Officer and submitted that provisions of law and submitted that provisions of law do not permit for excluding the sale do not permit for excluding the sales incentive for the purpose of s incentive for the purpose of book profit from the profit computed as book profit from the profit computed as Part II and III of II and III of Schedule VI of Companies Act, 1956. The VI of Companies Act, 1956. The Ld. counsel of the assessee of the assessee, on the other hand, submitted submitted that identical issue in the case of that identical issue in the case of PCIT Vs Ankit Metal & Power Ltd (2019) 416 ITR 591 Ankit Metal & Power Ltd (2019) 416 ITR 591 has been dec has been decided in favour of the assessee favour of the assessee by Hon’ble Calcutta High Court by Hon’ble Calcutta High Court. He also relied on the decision of the relied on the decision of the Coordinate bench of the Bombay oordinate bench of the Bombay Tribunal in the case of case of Ambuja Cement Limited Vs Add CIT (LTU) Vs Add CIT (LTU) in in ITA No. 5883/Mum/2012 and Prism Cement Ltd Vs DCIT in Prism Cement Ltd Vs DCIT in ITA No. 804 and 805/Mum/2018 No. 804 and 805/Mum/2018.
We have heard rival submission of the party on the issue in We have heard rival submission of the party on the issue in We have heard rival submission of the party on the issue in dispute and perused d the relevant material on record. the relevant material on record. However, on Everest Industries Limited 8 718/M/2020, 7793, 7794/M/2020 & ITA Nos. 715, 718/M/2020, 7793, 7794/M/2020 & 1423, 1418, 654, 653/M/2020 1423, 1418, 654, 653/M/2020 perusal of the order of the Ld. CIT(A), we find that Ld. CIT(A) had perusal of the order of the Ld. CIT(A), we find that Ld. CIT(A) had perusal of the order of the Ld. CIT(A), we find that Ld. CIT(A) had adjudicated on the issue that sal adjudicated on the issue that sales-tax incentive received by the tax incentive received by the assessee under the assessee under the Aegis of New Packages Scheme Aegis of New Packages Scheme, 1993 was capital in nature. The issue of reduction of the same from the profit capital in nature. The issue of reduction of the same from the profit capital in nature. The issue of reduction of the same from the profit and loss account for the purpose of computation of the book profit and loss account for the purpose of computation of the book profit and loss account for the purpose of computation of the book profit has not been adjudicated by the Ld. CIT(A). has not been adjudicated by the Ld. CIT(A). But this being purely a But this being purely a legal issue and all facts hav legal issue and all facts having been reproduced by the Assessing produced by the Assessing Officer, we proceeded to adjudicate in view of no objection of both Officer, we proceeded to adjudicate in view of no objection of both Officer, we proceeded to adjudicate in view of no objection of both the parties.
The Hon’ble Calcutta High Court in the case of Ankit Metal & 9.1 The Hon’ble Calcutta High Court in the case of The Hon’ble Calcutta High Court in the case of Power Ltd (supra), has adjudicated the issue as under: has adjudicated the issue as under: has adjudicated the issue as under:
“27. In this case since we ha 27. In this case since we have already held that in ve already held that in relevant assessment year 2010 relevant assessment year 2010-11 the incentives 'Interest 11 the incentives 'Interest subsidy' and 'Power subsidy' is a 'capital receipt and does subsidy' and 'Power subsidy' is a 'capital receipt and does subsidy' and 'Power subsidy' is a 'capital receipt and does not fall within the definition of 'Income' under Section 2(24) not fall within the definition of 'Income' under Section 2(24) not fall within the definition of 'Income' under Section 2(24) of Income Tax Act, 1961 and when a receipt is not o of Income Tax Act, 1961 and when a receipt is not o of Income Tax Act, 1961 and when a receipt is not on in the character of income it cannot form part of the book profit character of income it cannot form part of the book profit character of income it cannot form part of the book profit under Section 115JB of the Act, 1961. In the case of under Section 115JB of the Act, 1961. In the case of under Section 115JB of the Act, 1961. In the case of AppolloTyres Lid. (supra) the income in question was AppolloTyres Lid. (supra) the income in question was AppolloTyres Lid. (supra) the income in question was taxable but was exempt under a specific provision of the Act taxable but was exempt under a specific provision of the Act taxable but was exempt under a specific provision of the Act as such it was to be as such it was to be included as a part of the book profit. included as a part of the book profit. But where a receipt is not in the nature of income at all it But where a receipt is not in the nature of income at all it But where a receipt is not in the nature of income at all it cannot be included in book profit for the purpose of cannot be included in book profit for the purpose of cannot be included in book profit for the purpose of computation under Section 115JB of the Income Tax Act, computation under Section 115JB of the Income Tax Act, computation under Section 115JB of the Income Tax Act, 1961. For the aforesaid reason, we hold that the 1961. For the aforesaid reason, we hold that the 1961. For the aforesaid reason, we hold that the interest and power subsidy under the schemes in question would and power subsidy under the schemes in question would and power subsidy under the schemes in question would have to be excluded while computing book profit under have to be excluded while computing book profit under have to be excluded while computing book profit under Section 115 JB of the Income Tax Act, 1961. Section 115 JB of the Income Tax Act, 1961.” 9.2 Further, the coordinate bench of the Further, the coordinate bench of the Tribunal Tribunal in the case of Ambuja cements Ltd (supra) a Ambuja cements Ltd (supra) after considering the decision of the fter considering the decision of the Everest Industries Limited 9 718/M/2020, 7793, 7794/M/2020 & ITA Nos. 715, 718/M/2020, 7793, 7794/M/2020 & 1423, 1418, 654, 653/M/2020 1423, 1418, 654, 653/M/2020 Hon’ble Bombay High Court in the case of Harinagar Sugar Mills ltd Hon’ble Bombay High Court in the case of Harinagar Sugar Mills ltd Hon’ble Bombay High Court in the case of Harinagar Sugar Mills ltd (supra) and decision of the Hon’ble Calcutta High Court in the case (supra) and decision of the Hon’ble Calcutta High Court in the case (supra) and decision of the Hon’ble Calcutta High Court in the case of Ankit Metals and power Ltd (supra), held as under: of Ankit Metals and power Ltd (supra), held as under: of Ankit Metals and power Ltd (supra), held as under:
“50. Ld. representatives fairly agree that the above issues are representatives fairly agree that the above issues are representatives fairly agree that the above issues are now covered, in favour of the assessee, by Hon'ble Calcutta now covered, in favour of the assessee, by Hon'ble Calcutta now covered, in favour of the assessee, by Hon'ble Calcutta High Court's judgment in the case of PCIT Vs Ankit metal & High Court's judgment in the case of PCIT Vs Ankit metal & High Court's judgment in the case of PCIT Vs Ankit metal & Power Lid 120197 416 ITR 591 (Call. by Hon 'ble jurisdictional Power Lid 120197 416 ITR 591 (Call. by Hon 'ble jurisdictional Power Lid 120197 416 ITR 591 (Call. by Hon 'ble jurisdictional High Court's judgm High Court's judgment in the case of CIT Vs Harinagar Sugar ent in the case of CIT Vs Harinagar Sugar Mills Lid [ITA No 1132 of 2014, dated 4* January 2017] and Mills Lid [ITA No 1132 of 2014, dated 4* January 2017] and Mills Lid [ITA No 1132 of 2014, dated 4* January 2017] and by a coordinate bench decision in the case of ACIT Vs JSW by a coordinate bench decision in the case of ACIT Vs JSW by a coordinate bench decision in the case of ACIT Vs JSW Steel Limited [(2019) 112 taxmann.com 55 (Mum)]. Learned Steel Limited [(2019) 112 taxmann.com 55 (Mum)]. Learned Steel Limited [(2019) 112 taxmann.com 55 (Mum)]. Learned Departmental Representative, however, re Departmental Representative, however, relied upon the stand lied upon the stand of the authorities below. of the authorities below.
We find that a coordinate bench of this Tribunal, in JSW We find that a coordinate bench of this Tribunal, in JSW We find that a coordinate bench of this Tribunal, in JSW Ltd's case (supra), has inter alia, Ltd's case (supra), has inter alia, observed as follows: observed as follows: 47. We further noted that Hon'ble Kolkata High Court, in 47. We further noted that Hon'ble Kolkata High Court, in 47. We further noted that Hon'ble Kolkata High Court, in the case of Pr. the case of Pr. CIT v. Ankit Metal & Power Lid. |20191 & Power Lid. |20191 109 taxmann.com 93/266 Taxman 237 Ltd. had 109 taxmann.com 93/266 Taxman 237 Ltd. had 109 taxmann.com 93/266 Taxman 237 Ltd. had considered an identical issue and after considering the considered an identical issue and after considering the considered an identical issue and after considering the decision of Hon'ble Supreme Court in the case of Apollo decision of Hon'ble Supreme Court in the case of Apollo decision of Hon'ble Supreme Court in the case of Apollo Tyres Lid. (supra) held that when a receipt is not in the Tyres Lid. (supra) held that when a receipt is not in the Tyres Lid. (supra) held that when a receipt is not in the character of income as character of income as defined under section 2(24) of defined under section 2(24) of the IT. Act, 1961, then it cannot form part of the book the IT. Act, 1961, then it cannot form part of the book the IT. Act, 1961, then it cannot form part of the book profit us 115JB of the IT. Act, 1961. The Hon'ble High profit us 115JB of the IT. Act, 1961. The Hon'ble High profit us 115JB of the IT. Act, 1961. The Hon'ble High court, further observed that sales tax subsidy received court, further observed that sales tax subsidy received court, further observed that sales tax subsidy received by the assessee is capital receipt and does not come by the assessee is capital receipt and does not come by the assessee is capital receipt and does not come within definition of income under section 2(24) of the IT. n definition of income under section 2(24) of the IT. n definition of income under section 2(24) of the IT. Act, 1961 and when, a receipt is not a in the nature of Act, 1961 and when, a receipt is not a in the nature of Act, 1961 and when, a receipt is not a in the nature of income, it cannot form part of book profit us 115JB of income, it cannot form part of book profit us 115JB of income, it cannot form part of book profit us 115JB of the IT. Act, 1961. The Court, further observed that the the IT. Act, 1961. The Court, further observed that the the IT. Act, 1961. The Court, further observed that the facts of case before the Hon'ble Su facts of case before the Hon'ble Supreme Court in the preme Court in the case of Apollo Tyres Ltd. (supra) were altogether case of Apollo Tyres Ltd. (supra) were altogether case of Apollo Tyres Ltd. (supra) were altogether difference, where the income in question was taxable, difference, where the income in question was taxable, difference, where the income in question was taxable, but was exempt under a specific provision of the Act, but was exempt under a specific provision of the Act, but was exempt under a specific provision of the Act, and as such it was to be included as a part of book and as such it was to be included as a part of book and as such it was to be included as a part of book profit, but where the recei profit, but where the receipt is not in the nature of pt is not in the nature of income at all, it cannot be included in book profit for the income at all, it cannot be included in book profit for the income at all, it cannot be included in book profit for the purpose of computation u/s 115JB of the I.T. Act, 1961. purpose of computation u/s 115JB of the I.T. Act, 1961. purpose of computation u/s 115JB of the I.T. Act, 1961.
Everest Industries Limited 10 718/M/2020, 7793, 7794/M/2020 & ITA Nos. 715, 718/M/2020, 7793, 7794/M/2020 & 1423, 1418, 654, 653/M/2020 1423, 1418, 654, 653/M/2020
We further noted that the ITAT special bench of 48. We further noted that the ITAT special bench of 48. We further noted that the ITAT special bench of Kolkata Tribunal, in the care of Sutlej Cotton mills Lad, Kolkata Tribunal, in the care of Sutlej Cotton mills Lad, Kolkata Tribunal, in the care of Sutlej Cotton mills Lad, v. Asset. CITIES 3EnS I ID 22 kaan, SEy, held that d Asset. CITIES 3EnS I ID 22 kaan, SEy, held that d Asset. CITIES 3EnS I ID 22 kaan, SEy, held that d particular receipt, which is admittedly not an income particular receipt, which is admittedly not an income particular receipt, which is admittedly not an income cannot be brought to tax under the deeming provisions cannot be brought to tax under the deeming provisions cannot be brought to tax under the deeming provisions of section 115J of the Act, as it defies the basic intention of section 115J of the Act, as it defies the basic intention of section 115J of the Act, as it defies the basic intention behind introduction of provisions of behind introduction of provisions of section 115JB of the section 115JB of the Act. The ITAT Jaipur bench, in case of Shree Cement Act. The ITAT Jaipur bench, in case of Shree Cement Act. The ITAT Jaipur bench, in case of Shree Cement Led. (supra) had considered an identical issue and held Led. (supra) had considered an identical issue and held Led. (supra) had considered an identical issue and held that incentives granted to the assessee is capital receipt that incentives granted to the assessee is capital receipt that incentives granted to the assessee is capital receipt and hence, cannot he part of book profit computed us and hence, cannot he part of book profit computed us and hence, cannot he part of book profit computed us 11SJB or the Ac 11SJB or the Acr. Similarly. the ITAT Kolkata Bench, in r. Similarly. the ITAT Kolkata Bench, in the case of Sipea India (P) Lid. v. De. CIT I2017 80 the case of Sipea India (P) Lid. v. De. CIT I2017 80 the case of Sipea India (P) Lid. v. De. CIT I2017 80 taxmann.com 87 (Trib.) had considered an identical taxmann.com 87 (Trib.) had considered an identical taxmann.com 87 (Trib.) had considered an identical issue and held that when, subsidy in question is not in issue and held that when, subsidy in question is not in issue and held that when, subsidy in question is not in the nature of income, it cannot be regarded as income the nature of income, it cannot be regarded as income the nature of income, it cannot be regarded as income even for the purpose of book profit u/s 115JB of the Act, ven for the purpose of book profit u/s 115JB of the Act, ven for the purpose of book profit u/s 115JB of the Act, though credited in the profit and loss account and have though credited in the profit and loss account and have though credited in the profit and loss account and have to be excluded for arriving at the book profit us 115JB of to be excluded for arriving at the book profit us 115JB of to be excluded for arriving at the book profit us 115JB of the Act. the Act.
49. Insofar as, case laws relied upon by the 49. Insofar as, case laws relied upon by the 49. Insofar as, case laws relied upon by the department, we find that all t department, we find that all those case laws have been hose case laws have been either considered by the Tribunal or Hich Court and either considered by the Tribunal or Hich Court and either considered by the Tribunal or Hich Court and came to conclusion that in those cases the capital came to conclusion that in those cases the capital came to conclusion that in those cases the capital receipt is in the nature of income, but by a specific receipt is in the nature of income, but by a specific receipt is in the nature of income, but by a specific provision, the same has been exempted and hence, the provision, the same has been exempted and hence, the provision, the same has been exempted and hence, the came to the conclusio came to the conclusion that, once particular receipt is n that, once particular receipt is routed through profit and loss account, then it should be routed through profit and loss account, then it should be routed through profit and loss account, then it should be part of book profit and cannot be excluded, while part of book profit and cannot be excluded, while part of book profit and cannot be excluded, while arriving at book profit u/s 115JB of the Act 1961. arriving at book profit u/s 115JB of the Act 1961. arriving at book profit u/s 115JB of the Act 1961. 50. In this view of the matter and considering the ratio 50. In this view of the matter and considering the ratio 50. In this view of the matter and considering the ratio of case laws discussed hereinabove, we are of the se laws discussed hereinabove, we are of the se laws discussed hereinabove, we are of the considered view that when a particular receipt is considered view that when a particular receipt is considered view that when a particular receipt is exempt from tax under the Income tax law, them the exempt from tax under the Income tax law, them the exempt from tax under the Income tax law, them the same cannot be considered for the purpose of same cannot be considered for the purpose of same cannot be considered for the purpose of computation of book profit w/s 115JB of the IT.Act computation of book profit w/s 115JB of the IT.Act computation of book profit w/s 115JB of the IT.Act 1961. Hence, w 1961. Hence, we direct the Ld. AO to exclude sales tax e direct the Ld. AO to exclude sales tax subsidy received by the assessee amounting to Rs. subsidy received by the assessee amounting to Rs. subsidy received by the assessee amounting to Rs. 36,15,49,828/ 36,15,49,828/- from book profits computed w/s 115JB from book profits computed w/s 115JB of the IT. Act, 1961. of the IT. Act, 1961.
Everest Industries Limited 11 718/M/2020, 7793, 7794/M/2020 & ITA Nos. 715, 718/M/2020, 7793, 7794/M/2020 & 1423, 1418, 654, 653/M/2020 1423, 1418, 654, 653/M/2020
52. We see no reasons to take any other view of the matter 52. We see no reasons to take any other view of the matter 52. We see no reasons to take any other view of the matter than the view so taken by the co than the view so taken by the coordinate bench. Respectfully ordinate bench. Respectfully following the same, we uphold the plea of the assessee and following the same, we uphold the plea of the assessee and following the same, we uphold the plea of the assessee and direct the Assessing Officer to exclude the sales tax incentive direct the Assessing Officer to exclude the sales tax incentive direct the Assessing Officer to exclude the sales tax incentive subsidy for computing book profit under section 115 JB of the subsidy for computing book profit under section 115 JB of the subsidy for computing book profit under section 115 JB of the Act. The assessee gets the relief accordin Act. The assessee gets the relief accordingly.” 9.3 The issue in the decisions cited by the Assessing officer is of The issue in the decisions cited by the Assessing officer is of The issue in the decisions cited by the Assessing officer is of capital income under the capital capital income under the capital gain, which is liable for tax but the which is liable for tax but the capital receipt in the case of the assessee has been held as not as capital receipt in the case of the assessee has been held as not as capital receipt in the case of the assessee has been held as not as part of income at all and not liable for ta part of income at all and not liable for tax in the decision in the in the decision in the case Ankit Metal and Powers ltd. (supra) , which has been followed case Ankit Metal and Powers ltd. (supra) , which has been followed case Ankit Metal and Powers ltd. (supra) , which has been followed in the case of Ambuja Cement Limited (supra) in the case of Ambuja Cement Limited (supra). The issue in dispute being squarely covered by the decision of the coordinate bench of being squarely covered by the decision of the coordinate bench of being squarely covered by the decision of the coordinate bench of the Tribunal (supra), the grou ribunal (supra), the grounds raised by the nds raised by the Revenue are accordingly dismissed. accordingly dismissed.
As far as grounds rais As far as grounds raised by the assessee are concerned concerned, which relates to challenging validity of the reassessment, we find that relates to challenging validity of the reassessment, we find that relates to challenging validity of the reassessment, we find that issue on merit has been decided in favour of the assessee and issue on merit has been decided in favour of the assessee and issue on merit has been decided in favour of the assessee and therefore adjudicating the issue on the validity of the reassessment e adjudicating the issue on the validity of the reassessment e adjudicating the issue on the validity of the reassessment has been rendered merely academic. Therefore, we are not has been rendered merely academic. Therefore has been rendered merely academic. Therefore adjudicating the grounds adjudicating the grounds raised by the assessee and same are left by the assessee and same are left open to the assessee open to the assessee to challenge in case the decision on merit is to challenge in case the decision on merit is reversed by the higher appellate authorit reversed by the higher appellate authorities. The ground The grounds of the appeal of the assessee assessee are accordingly dismissed as infructuous. accordingly dismissed as infructuous.
Everest Industries Limited 12 718/M/2020, 7793, 7794/M/2020 & ITA Nos. 715, 718/M/2020, 7793, 7794/M/2020 & 1423, 1418, 654, 653/M/2020 1423, 1418, 654, 653/M/2020
Now we take up the cross appeals for assessment year 2009 Now we take up the cross appeals for assessment year 2009 Now we take up the cross appeals for assessment year 2009- 10. The grounds raised by the assessee reproduced as under: raised by the assessee reproduced as under: raised by the assessee reproduced as under:
That on the facts and in the circumstances of the case, the That on the facts and in the circumstances of the case, the That on the facts and in the circumstances of the case, the Ld. Commissioner of Income Tax (Appeals) (here Ld. Commissioner of Income Tax (Appeals) (here Ld. Commissioner of Income Tax (Appeals) (here-in-after referred to as 'Ld. CIT(Appeals) was not justified &rather referred to as 'Ld. CIT(Appeals) was not justified &rather referred to as 'Ld. CIT(Appeals) was not justified &rather grossly erred in confirming disall grossly erred in confirming disallowance in respect of foreign owance in respect of foreign exchange fluctuation loss on reinstatement of CB loan as exchange fluctuation loss on reinstatement of CB loan as exchange fluctuation loss on reinstatement of CB loan as capital capital in in nature nature amounting amounting to to Rs.13,41,01,121/- Rs.13,41,01,121/ in computing total income computing total income under the normal provisions of the Act. under the normal provisions of the Act. 11.1 The grounds raised by the grounds raised by the Revenue reproduced as un reproduced as under:
1. (i) Whether the CIT (A) erred on the facts and in the Whether the CIT (A) erred on the facts and in the Whether the CIT (A) erred on the facts and in the circumstances of the case and in law, in deleting an amount of circumstances of the case and in law, in deleting an amount of circumstances of the case and in law, in deleting an amount of Rs. 5,83,36,300/ Rs. 5,83,36,300/- being disallowance of claim of sales tax being disallowance of claim of sales tax incentive. (ii) Whether the CIT (A) erred on the facts and in the ) Whether the CIT (A) erred on the facts and in the ) Whether the CIT (A) erred on the facts and in the circumstances of the case and in law, in holding that Sales circumstances of the case and in law, in holding that Sales circumstances of the case and in law, in holding that Sales Tax was embedded in the Sales prices charged by the Tax was embedded in the Sales prices charged by the Tax was embedded in the Sales prices charged by the assessee and the same was in the nature of capital receipt. assessee and the same was in the nature of capital receipt. assessee and the same was in the nature of capital receipt. The Ld. CIT(A) ignored the fact The Ld. CIT(A) ignored the fact that the assessee was legally that the assessee was legally required to collect Sales Tax on the Sales made, yet it had required to collect Sales Tax on the Sales made, yet it had required to collect Sales Tax on the Sales made, yet it had worked out the notional Sales Tax so collected and had worked out the notional Sales Tax so collected and had worked out the notional Sales Tax so collected and had claimed the same as capital receipts. claimed the same as capital receipts. (iii) Whether the CIT (A) erred on the facts and in the ) Whether the CIT (A) erred on the facts and in the ) Whether the CIT (A) erred on the facts and in the circumstances of circumstances of the case and in law, in relying on the the case and in law, in relying on the decision of ITAT, Mumbai and the decision of Bombay High decision of ITAT, Mumbai and the decision of Bombay High decision of ITAT, Mumbai and the decision of Bombay High Court (ITA No. 1299 of 2008) in the case of Reliance Industries Court (ITA No. 1299 of 2008) in the case of Reliance Industries Court (ITA No. 1299 of 2008) in the case of Reliance Industries Limited, even though subsequent to the Departmental appeal Limited, even though subsequent to the Departmental appeal Limited, even though subsequent to the Departmental appeal against the Order of High Court, the against the Order of High Court, the issue has been remitted issue has been remitted back to the Bombay High Court to decide afresh and the same back to the Bombay High Court to decide afresh and the same back to the Bombay High Court to decide afresh and the same is still pending for adjudication. is still pending for adjudication. 2. (i) Whether the CIT (A) erred on facts and in the Whether the CIT (A) erred on facts and in the Whether the CIT (A) erred on facts and in the circumstances of the case and in law in holding that the excise circumstances of the case and in law in holding that the excise circumstances of the case and in law in holding that the excise duty of Rs. 14,52,06 duty of Rs. 14,52,06,708/- stated to be collected by the stated to be collected by the assessee was capital in nature without any evidence placed assessee was capital in nature without any evidence placed assessee was capital in nature without any evidence placed
Everest Industries Limited 13 718/M/2020, 7793, 7794/M/2020 & ITA Nos. 715, 718/M/2020, 7793, 7794/M/2020 & 1423, 1418, 654, 653/M/2020 1423, 1418, 654, 653/M/2020 on record to establish that the said amount was actually on record to establish that the said amount was actually on record to establish that the said amount was actually collected on account of excise duty. collected on account of excise duty. (ii) Without prejudice to the ground at (i) above, whether the ) Without prejudice to the ground at (i) above, whether the ) Without prejudice to the ground at (i) above, whether the CIT (A) erred on facts and in the circumstances of the case (A) erred on facts and in the circumstances of the case (A) erred on facts and in the circumstances of the case and in law in holding that the excise duty of Rs. and in law in holding that the excise duty of Rs. and in law in holding that the excise duty of Rs. 14,52,06,708/ 14,52,06,708/- collected by the assessee was not revenue in collected by the assessee was not revenue in nature despite the fact that the same was collected by the nature despite the fact that the same was collected by the nature despite the fact that the same was collected by the assessee on goods which were e assessee on goods which were exempted from levy of any xempted from levy of any duty as per the Central Excise Department's Notification No. duty as per the Central Excise Department's Notification No. duty as per the Central Excise Department's Notification No. 50/2002-CE dated 10.06.2003 CE dated 10.06.2003 (iii) Whether the CIT (A) erred on facts and in the ) Whether the CIT (A) erred on facts and in the ) Whether the CIT (A) erred on facts and in the circumstances of the case and in law in holding that the excise circumstances of the case and in law in holding that the excise circumstances of the case and in law in holding that the excise duty of Rs. 14,52,06,708/ duty of Rs. 14,52,06,708/- collected by the assessee was collected by the assessee was capital in nature by comparing the scheme of exemption under capital in nature by comparing the scheme of exemption under capital in nature by comparing the scheme of exemption under which the claim was made by the assessee by such other which the claim was made by the assessee by such other which the claim was made by the assessee by such other schemes wherein the mode of incentive was in the nature of schemes wherein the mode of incentive was in the nature of schemes wherein the mode of incentive was in the nature of refund/reimbursement or subsidy. refund/reimbursement or subsidy. 3. (i) Whether th Whether the CIT (A) erred on the facts and in the e CIT (A) erred on the facts and in the circumstances of the case and in law, in directing the AO to circumstances of the case and in law, in directing the AO to circumstances of the case and in law, in directing the AO to exclude Sales Tax incentive and Excise Duty Exemption while exclude Sales Tax incentive and Excise Duty Exemption while exclude Sales Tax incentive and Excise Duty Exemption while computing the book profits us 115JB of the Act, without computing the book profits us 115JB of the Act, without computing the book profits us 115JB of the Act, without appreciating that they have not been sp appreciating that they have not been specifically excluded in ecifically excluded in Explanation 1 to section 115]B of the Act. Explanation 1 to section 115]B of the Act. (ii) Whether the CIT (A) erred on the facts and in the (ii) Whether the CIT (A) erred on the facts and in the (ii) Whether the CIT (A) erred on the facts and in the circumstances of the case and in law, in directing the AO to circumstances of the case and in law, in directing the AO to circumstances of the case and in law, in directing the AO to exclude Sales Tax incentive and Excise Duty Exemption, while exclude Sales Tax incentive and Excise Duty Exemption, while exclude Sales Tax incentive and Excise Duty Exemption, while computing the computing the book profits us 115JB of the Act despite the fact book profits us 115JB of the Act despite the fact that no adjustment other than the ones mentioned in that no adjustment other than the ones mentioned in that no adjustment other than the ones mentioned in Sec.115JB is permissible as held by the Supreme Court in the Sec.115JB is permissible as held by the Supreme Court in the Sec.115JB is permissible as held by the Supreme Court in the case of Apollo Tyres Ltd. (255ITR 273) case of Apollo Tyres Ltd. (255ITR 273) 12. The sole ground of the appeal of the assessee sole ground of the appeal of the assessee sole ground of the appeal of the assessee relates to disallowance in respect of foreign disallowance in respect of foreign-exchange fluctuations loss on the exchange fluctuations loss on the reinstatement of E External Commercial Borrowing orrowing (ECB) loan amounting to ₹13,41,01, 13,41,01,121/- holding it as capital in nature as capital in nature
Everest Industries Limited 14 718/M/2020, 7793, 7794/M/2020 & ITA Nos. 715, 718/M/2020, 7793, 7794/M/2020 & 1423, 1418, 654, 653/M/2020 1423, 1418, 654, 653/M/2020
The brief facts qua the issue in dispute that on this issue the The brief facts qua the issue in dispute that on this issue the The brief facts qua the issue in dispute that on this issue the assessee is before us in second round of proceedings. In first round, assessee is before us in second round of proceedings. In first round, assessee is before us in second round of proceedings. In first round, the Assessing Officer observed that duri the Assessing Officer observed that during the year under ng the year under consideration, the assessee availed a loan of US dollar 12 milli , the assessee availed a loan of US dollar 12 milli , the assessee availed a loan of US dollar 12 million, as external commercial borrowing (ECB) which was reinstated in external commercial borrowing (ECB) which was reinstated in external commercial borrowing (ECB) which was reinstated in the balance sheet at the end of the year on the basis of the the balance sheet at the end of the year on the basis of the the balance sheet at the end of the year on the basis of the exchange rate of US dollar prevai exchange rate of US dollar prevailing on the year, which , which resulted in a loss of ₹13,41,01,121/ 121/-.
13.1 In the books of accounts, In the books of accounts, the assessee capitalised the loss to the assessee capitalised the loss to the extent of ₹12,35.43 lakhs in accordance with accounting 35.43 lakhs in accordance with accounting 35.43 lakhs in accordance with accounting standard 11 as modified by the notification of Ministry of corporate standard 11 as modified by the notification of Ministry of corporate standard 11 as modified by the notification of Ministry of corporate affairs and balance amount of affairs and balance amount of ₹105.57 lakhs was transferred to 105.57 lakhs was transferred to “Foreign Currency Monetary Foreign Currency Monetary Item Translation Difference Account Item Translation Difference Account (FCMITDA)”following the notification issued by the Ministry of following the notification issued by the Ministry of following the notification issued by the Ministry of Corporate Affairs, and was proposed to be amortised over a period ffairs, and was proposed to be amortised over a period ffairs, and was proposed to be amortised over a period of three years. During the year During the year under consideration under consideration, the assessee₹amortised Rs. amortised Rs. 34.13 lakhs.
13.2 For the purpose of income tax, the assessee claimed entire For the purpose of income tax, the assessee claimed entire For the purpose of income tax, the assessee claimed entire loss of ₹13,41.01 lakhs as deduction treating it as business loss. 41.01 lakhs as deduction treating it as business loss. 41.01 lakhs as deduction treating it as business loss. The Tribunal while its order dated 20/01/2018 ribunal while its order dated 20/01/2018 in and in ITA No. 3804 and 3849/Mum/2015 , after analyzing the decision of 3849/Mum/2015 , after analyzing the decision of Hon’ble Hon’ble Supreme Court in the case of Sutlej Cotton Ltd Sutlej Cotton Ltd Vs CIT ( 1979) 116 ITR 1, Vs CIT ( 1979) 116 ITR 1, and other decisions including decision of Pune Bench of Tribunal in the other decisions including decision of Pune Bench of Tribunal in the other decisions including decision of Pune Bench of Tribunal in the Everest Industries Limited 15 718/M/2020, 7793, 7794/M/2020 & ITA Nos. 715, 718/M/2020, 7793, 7794/M/2020 & 1423, 1418, 654, 653/M/2020 1423, 1418, 654, 653/M/2020 case Cooper Corporation Ltd (2016) 159 ITD 165 Pune, restored case Cooper Corporation Ltd (2016) 159 ITD 165 Pune, restored case Cooper Corporation Ltd (2016) 159 ITD 165 Pune, restored the matter back to the Assessing Officer for the matter back to the Assessing Officer for deciding afresh deciding afresh. The relevant finding of the relevant finding of the Tribunal (supra) is reproduced as under: reproduced as under:
“49. We have heard rival contentions and perused the record.
We have heard rival contentions and perused the record.
49. We have heard rival contentions and perused the record. We notice that the Ld CIT(A) has confirmed the disallowance by We notice that the Ld CIT(A) has confirmed the disallowance by We notice that the Ld CIT(A) has confirmed the disallowance by taking the view that the foreign exchange valu taking the view that the foreign exchange valu taking the view that the foreign exchange valuation loss is a notional loss and not actual business loss. The view so taken notional loss and not actual business loss. The view so taken notional loss and not actual business loss. The view so taken by Ld CIT(A) is apparently not in accordance with the decision by Ld CIT(A) is apparently not in accordance with the decision by Ld CIT(A) is apparently not in accordance with the decision rendered by Hon'ble Supreme Court in the case of Woodward rendered by Hon'ble Supreme Court in the case of Woodward rendered by Hon'ble Supreme Court in the case of Woodward Governor India P Ltd (2009)(312 ITR 254)(SC), wherein the Governor India P Ltd (2009)(312 ITR 254)(SC), wherein the Governor India P Ltd (2009)(312 ITR 254)(SC), wherein the Hon'ble Supreme Court has expressed the view that the Hon'ble Supreme Court has expressed the view that the Hon'ble Supreme Court has expressed the view that the valuation is a part of accounting system and that the loss valuation is a part of accounting system and that the loss valuation is a part of accounting system and that the loss suffered by the assessee on account of exchange difference (on suffered by the assessee on account of exchange difference (on suffered by the assessee on account of exchange difference (on revenue account) as on the date of balance sheet is an item of revenue account) as on the date of balance sheet is an item of revenue account) as on the date of balance sheet is an item of expenditure u/s expenditure u/s 37(1) of the Act.
It is also pertinent to extract below the observations made 50. It is also pertinent to extract below the observations made 50. It is also pertinent to extract below the observations made by the Hon'ble Supreme Court in this regard in the above cited by the Hon'ble Supreme Court in this regard in the above cited by the Hon'ble Supreme Court in this regard in the above cited case:- "In the case of Sutlej Cotton Mills Ltd. v. CIT Sutlej Cotton Mills Ltd. v. CIT repo reported in 116 ITR 1 this Court has observed as under: 1 this Court has observed as under: "The law may, therefore, now be taken to be well settled that "The law may, therefore, now be taken to be well settled that "The law may, therefore, now be taken to be well settled that where profit or loss arises to an assessee on account of where profit or loss arises to an assessee on account of where profit or loss arises to an assessee on account of appreciation or depreciation in the value of foreign currency held appreciation or depreciation in the value of foreign currency held appreciation or depreciation in the value of foreign currency held by it, on conversi by it, on conversion into another currency, such profit or loss on into another currency, such profit or loss would ordinarily be a trading profit or loss if the foreign would ordinarily be a trading profit or loss if the foreign would ordinarily be a trading profit or loss if the foreign currency is held by the assessee on revenue account or as a currency is held by the assessee on revenue account or as a currency is held by the assessee on revenue account or as a trading asset or as a part of circulating capital embarked in the trading asset or as a part of circulating capital embarked in the trading asset or as a part of circulating capital embarked in the business. But, if on the business. But, if on the other hand, the foreign currency is held other hand, the foreign currency is held as a capital asset or as fixed capital, such profit or loss would as a capital asset or as fixed capital, such profit or loss would as a capital asset or as fixed capital, such profit or loss would be of capital nature." be of capital nature." (emphasis supplied) (emphasis supplied)
Everest Industries Limited 16 718/M/2020, 7793, 7794/M/2020 & ITA Nos. 715, 718/M/2020, 7793, 7794/M/2020 & 1423, 1418, 654, 653/M/2020 1423, 1418, 654, 653/M/2020
In conclusion, we may state that in order to find out if an 21. In conclusion, we may state that in order to find out if an 21. In conclusion, we may state that in order to find out if an expenditure is deductible the following expenditure is deductible the following have to be taken into have to be taken into account (i) whether the system of accounting followed by the account (i) whether the system of accounting followed by the account (i) whether the system of accounting followed by the assessee is mercantile system, which brings into debit the assessee is mercantile system, which brings into debit the assessee is mercantile system, which brings into debit the expenditure amount for which a legal liability has been incurred expenditure amount for which a legal liability has been incurred expenditure amount for which a legal liability has been incurred before it is actually disbursed and brings into c before it is actually disbursed and brings into c before it is actually disbursed and brings into credit what is due, immediately it becomes due and before it is actually due, immediately it becomes due and before it is actually due, immediately it becomes due and before it is actually received; (ii) whether the same system is followed by the received; (ii) whether the same system is followed by the received; (ii) whether the same system is followed by the assessee from the very beginning and if there was a change in assessee from the very beginning and if there was a change in assessee from the very beginning and if there was a change in the system, whether the change was bona fide; (iii) whether the the system, whether the change was bona fide; (iii) whether the the system, whether the change was bona fide; (iii) whether the assessee has given the same treatment to losses claimed to assessee has given the same treatment to losses claimed to assessee has given the same treatment to losses claimed to have accrued and to the gains that may accrue to it; (iv) have accrued and to the gains that may accrue to it; (iv) have accrued and to the gains that may accrue to it; (iv) whether the assessee has been consistent and definite in whether the assessee has been consistent and definite in whether the assessee has been consistent and definite in making entries in the account books in respect of losses and making entries in the account books in respect of losses and making entries in the account books in respect of losses and gains; (v) whether th gains; (v) whether the method adopted by the assessee for e method adopted by the assessee for making entries in the books both in respect of losses and gains making entries in the books both in respect of losses and gains making entries in the books both in respect of losses and gains is as per nationally accepted accounting standards; (vi) whether is as per nationally accepted accounting standards; (vi) whether is as per nationally accepted accounting standards; (vi) whether the system adopted by the assessee is fair and reasonable or is the system adopted by the assessee is fair and reasonable or is the system adopted by the assessee is fair and reasonable or is adopted only with a view t adopted only with a view to reducing the incidence of taxation." o reducing the incidence of taxation." The Hon'ble Supreme Court has made a distinction between the The Hon'ble Supreme Court has made a distinction between the The Hon'ble Supreme Court has made a distinction between the circulating capital/ trading asset and Fixed capital/capital circulating capital/ trading asset and Fixed capital/capital circulating capital/ trading asset and Fixed capital/capital asset. While the loss arising on revaluation of foreign currency asset. While the loss arising on revaluation of foreign currency asset. While the loss arising on revaluation of foreign currency held in the former category is held in the former category is a trading loss and the loss arising a trading loss and the loss arising on revaluation of foreign currency held in later category is a on revaluation of foreign currency held in later category is a on revaluation of foreign currency held in later category is a capital loss. 51. The Hon'ble Bombay High Court had an occasion to examine 51. The Hon'ble Bombay High Court had an occasion to examine 51. The Hon'ble Bombay High Court had an occasion to examine an identical issue in the case of an identical issue in the case of CIT Vs. V.S. Dempo and Co. P CIT Vs. V.S. Dempo and Co. P Ltd (206 ITR 291) and the Hon'ble Bombay High Court has laid (206 ITR 291) and the Hon'ble Bombay High Court has laid (206 ITR 291) and the Hon'ble Bombay High Court has laid down following principles: down following principles:- "15. The propositions that emerge from the above discussions "15. The propositions that emerge from the above discussions "15. The propositions that emerge from the above discussions may be summed up as follows : may be summed up as follows :
Everest Industries Limited 17 718/M/2020, 7793, 7794/M/2020 & ITA Nos. 715, 718/M/2020, 7793, 7794/M/2020 & 1423, 1418, 654, 653/M/2020 1423, 1418, 654, 653/M/2020 (i) A loss arising in the process of conve (i) A loss arising in the process of conversion of foreign currency rsion of foreign currency which is part of the trading asset of the assessee is a trading which is part of the trading asset of the assessee is a trading which is part of the trading asset of the assessee is a trading loss as any other loss. loss as any other loss. (ii) In determining the true nature and character of the loss, the (ii) In determining the true nature and character of the loss, the (ii) In determining the true nature and character of the loss, the cause which occasions the loss is immaterial; what is material cause which occasions the loss is immaterial; what is material cause which occasions the loss is immaterial; what is material is whether the loss has occurred in the course of carrying on the he loss has occurred in the course of carrying on the he loss has occurred in the course of carrying on the business or is incidental to it. business or is incidental to it. (iii) If there is loss in a trading asset, it would be a trading loss, (iii) If there is loss in a trading asset, it would be a trading loss, (iii) If there is loss in a trading asset, it would be a trading loss, whatever be its cause because it would be a loss in the course whatever be its cause because it would be a loss in the course whatever be its cause because it would be a loss in the course of carrying on the business, of carrying on the business, (iv) Loss in respect of circulating capital is revenue loss whereas oss in respect of circulating capital is revenue loss whereas oss in respect of circulating capital is revenue loss whereas loss in respect of fixed capital is not. loss in respect of fixed capital is not. (v) Loss resulting from depreciation of the foreign currency (v) Loss resulting from depreciation of the foreign currency (v) Loss resulting from depreciation of the foreign currency which is utilised or intended to be utilised in business and is which is utilised or intended to be utilised in business and is which is utilised or intended to be utilised in business and is part of the circulating capi part of the circulating capital, would be a trading loss, but tal, would be a trading loss, but depreciation of fixed capital on account of alteration in exchange depreciation of fixed capital on account of alteration in exchange depreciation of fixed capital on account of alteration in exchange rate would be a capital loss. rate would be a capital loss. (vi) For determining whether devaluation loss is revenue loss or (vi) For determining whether devaluation loss is revenue loss or (vi) For determining whether devaluation loss is revenue loss or capital loss what is relevant is the utilisation of the amou capital loss what is relevant is the utilisation of the amou capital loss what is relevant is the utilisation of the amount at the time of devaluation and not the object for which the loan the time of devaluation and not the object for which the loan the time of devaluation and not the object for which the loan had been obtained. Even if the foreign currency was intended or had been obtained. Even if the foreign currency was intended or had been obtained. Even if the foreign currency was intended or had originally been utilised for acquisition of fixed asset, if at had originally been utilised for acquisition of fixed asset, if at had originally been utilised for acquisition of fixed asset, if at the time of devaluation it had changed its character and the time of devaluation it had changed its character and the time of devaluation it had changed its character and had assumed the new character of stock assumed the new character of stock-in-trade or circulating trade or circulating capital, the loss that occurred on account of devaluation shall be capital, the loss that occurred on account of devaluation shall be capital, the loss that occurred on account of devaluation shall be a revenue loss and not a capital loss. a revenue loss and not a capital loss. (vii) The way in which the entries are made by an assessee in (vii) The way in which the entries are made by an assessee in (vii) The way in which the entries are made by an assessee in the books of account is n the books of account is not determinative of the question ot determinative of the question whether the assessee has earned any profit or suffered any whether the assessee has earned any profit or suffered any whether the assessee has earned any profit or suffered any loss. What is necessary to be considered is the true nature of loss. What is necessary to be considered is the true nature of loss. What is necessary to be considered is the true nature of the transaction and whether in fact it has resulted in profit or the transaction and whether in fact it has resulted in profit or the transaction and whether in fact it has resulted in profit or loss to the assessee." loss to the assessee."
The Hon'ble Supreme Court has also observed in the case of le Supreme Court has also observed in the case of le Supreme Court has also observed in the case of Woodward Governor India P Ltd (supra) that the profits and Woodward Governor India P Ltd (supra) that the profits and Woodward Governor India P Ltd (supra) that the profits and Everest Industries Limited 18 718/M/2020, 7793, 7794/M/2020 & ITA Nos. 715, 718/M/2020, 7793, 7794/M/2020 & 1423, 1418, 654, 653/M/2020 1423, 1418, 654, 653/M/2020 gains of the previous year are required to be computed in gains of the previous year are required to be computed in gains of the previous year are required to be computed in accordance with the relevant accounting standard (paragraph accordance with the relevant accounting standard (paragraph accordance with the relevant accounting standard (paragraph 16). Hence the Hon'ble Suprem 16). Hence the Hon'ble Supreme Court analysed various clauses e Court analysed various clauses of AS-11 and finally upheld the view taken by the assessee, in 11 and finally upheld the view taken by the assessee, in 11 and finally upheld the view taken by the assessee, in the case before Hon'ble Supreme Court, that the foreign the case before Hon'ble Supreme Court, that the foreign the case before Hon'ble Supreme Court, that the foreign exchange fluctuation arising on valuation as on the date of exchange fluctuation arising on valuation as on the date of exchange fluctuation arising on valuation as on the date of balance sheet is required to be adjusted to balance sheet is required to be adjusted to the value of assets the value of assets u/s 43A of the Act A of the Act.
The Ld D.R took the support of sec. 43 53. The Ld D.R took the support of sec. 43A of the Act A of the Act and accordingly supported the action of the AO in adjusti accordingly supported the action of the AO in adjusti accordingly supported the action of the AO in adjusting the foreign exchange loss to the value of assets. However, a perusal foreign exchange loss to the value of assets. However, a perusal foreign exchange loss to the value of assets. However, a perusal of the provisions of sec. 43A would show that the said section of the provisions of sec. 43A would show that the said section of the provisions of sec. 43A would show that the said section shall have application only in a case where any asset is shall have application only in a case where any asset is shall have application only in a case where any asset is acquired in any previous year from a country outside India for acquired in any previous year from a country outside India for acquired in any previous year from a country outside India for the purposes of he purposes of his business or profession. If the assets were his business or profession. If the assets were acquired in India, in our view, the provisions of sec. 43A shall acquired in India, in our view, the provisions of sec. 43A shall acquired in India, in our view, the provisions of sec. 43A shall not have application. not have application.
In the instant case, it is not clear as to whether the foreign 54. In the instant case, it is not clear as to whether the foreign 54. In the instant case, it is not clear as to whether the foreign currency loan availed by the assessee w currency loan availed by the assessee was used to acquire any as used to acquire any asset from a country outside India. Hence to decide about the asset from a country outside India. Hence to decide about the asset from a country outside India. Hence to decide about the applicability or otherwise of provisions of sec. 43A, the details of applicability or otherwise of provisions of sec. 43A, the details of applicability or otherwise of provisions of sec. 43A, the details of purchase of assets are required. However, we notice that the purchase of assets are required. However, we notice that the purchase of assets are required. However, we notice that the assessee has taken a plea before Ld CIT(A assessee has taken a plea before Ld CIT(A) that it has not used ) that it has not used the foreign currency loan for acquiring assets from a country the foreign currency loan for acquiring assets from a country the foreign currency loan for acquiring assets from a country outside India. However this submission of the assessee has not outside India. However this submission of the assessee has not outside India. However this submission of the assessee has not been examined by the tax authorities. Upon verification, if it is been examined by the tax authorities. Upon verification, if it is been examined by the tax authorities. Upon verification, if it is found to be correct, then the provisions o found to be correct, then the provisions of sec. 43A shall not be f sec. 43A shall not be applicable to the assessee. applicable to the assessee.
We have noticed earlier that the Hon'ble 55. We have noticed earlier that the Hon'ble Supreme Court has Supreme Court has held that the profits and gains are required to be computed in held that the profits and gains are required to be computed in held that the profits and gains are required to be computed in accordance with the relevant accounting standard. We have accordance with the relevant accounting standard. We have accordance with the relevant accounting standard. We have also noticed that the loss arising on valuation of foreign also noticed that the loss arising on valuation of foreign also noticed that the loss arising on valuation of foreign exchange can either be on revenue account or on capital exchange can either be on revenue account or on capital exchange can either be on revenue account or on capital account, depending upon the fact of the case, i.e., whether the ccount, depending upon the fact of the case, i.e., whether the ccount, depending upon the fact of the case, i.e., whether the Everest Industries Limited 19 718/M/2020, 7793, 7794/M/2020 & ITA Nos. 715, 718/M/2020, 7793, 7794/M/2020 & 1423, 1418, 654, 653/M/2020 1423, 1418, 654, 653/M/2020 loan has been used as circulating capital or as fixed capital. The loan has been used as circulating capital or as fixed capital. The loan has been used as circulating capital or as fixed capital. The Hon'ble Bombay High Court has held in the case of V.S.Dempo& Hon'ble Bombay High Court has held in the case of V.S.Dempo& Hon'ble Bombay High Court has held in the case of V.S.Dempo& Co. P Ltd (supra) that for determining whether devaluation loss Co. P Ltd (supra) that for determining whether devaluation loss Co. P Ltd (supra) that for determining whether devaluation loss is revenue loss or capital loss what is relevant is the utilisation s revenue loss or capital loss what is relevant is the utilisation s revenue loss or capital loss what is relevant is the utilisation of the amount at the time of devaluation and not the object for of the amount at the time of devaluation and not the object for of the amount at the time of devaluation and not the object for which the loan had been obtained, i.e., if the foreign currency which the loan had been obtained, i.e., if the foreign currency which the loan had been obtained, i.e., if the foreign currency loan was obtained to hold it a fixed capital and later on it loan was obtained to hold it a fixed capital and later on it loan was obtained to hold it a fixed capital and later on it was converted into circulating capital, then the valuation loss shall converted into circulating capital, then the valuation loss shall converted into circulating capital, then the valuation loss shall be considered as on revenue account. These principles, in our be considered as on revenue account. These principles, in our be considered as on revenue account. These principles, in our view, would govern the nature of treatment to be accorded to view, would govern the nature of treatment to be accorded to view, would govern the nature of treatment to be accorded to the loss arising on account of restatement of foreign currency the loss arising on account of restatement of foreign currency the loss arising on account of restatement of foreign currency loans.
In the instant case, the nature of foreign currency loan 56. In the instant case, the nature of foreign currency loan 56. In the instant case, the nature of foreign currency loan availed by the assessee; whether it was held as fixed capital or availed by the assessee; whether it was held as fixed capital or availed by the assessee; whether it was held as fixed capital or circulating capital etc., have not been examined or brought on circulating capital etc., have not been examined or brought on circulating capital etc., have not been examined or brought on record. The assessee has simply taken the record. The assessee has simply taken the plea that the for plea that the foreign currency loan has been used for the purpose of business and currency loan has been used for the purpose of business and currency loan has been used for the purpose of business and hence the loss arising its revaluation is allowable. In our view, it hence the loss arising its revaluation is allowable. In our view, it hence the loss arising its revaluation is allowable. In our view, it may be difficult to accept the said proposition of the assessee may be difficult to accept the said proposition of the assessee may be difficult to accept the said proposition of the assessee without examining the nature of loan and its utilisation. without examining the nature of loan and its utilisation. without examining the nature of loan and its utilisation.
Further we notice that the assessee has capitalised a sum 57. Further we notice that the assessee has capitalised a sum 57. Further we notice that the assessee has capitalised a sum of Rs.1235.43 lakhs by following paragraph 46 of the of Rs.1235.43 lakhs by following paragraph 46 of the of Rs.1235.43 lakhs by following paragraph 46 of the Accounting Standard Accounting Standard-11 inserted by the Ministry of Corporate 11 inserted by the Ministry of Corporate Affairs under the Companies (Accounting Standards) Rules, Affairs under the Companies (Accounting Standards) Rules, Affairs under the Companies (Accounting Standards) Rules, 2006. The accounting s 2006. The accounting standards, as we have seen earlier, are tandards, as we have seen earlier, are relevant to determine the profits and gains of business. Hence, relevant to determine the profits and gains of business. Hence, relevant to determine the profits and gains of business. Hence, this aspect would also require consideration. this aspect would also require consideration.
58. The Ld A.R took support from the decision rendered by 58. The Ld A.R took support from the decision rendered by 58. The Ld A.R took support from the decision rendered by Hon'ble Pune bench in the case of Cooper Corporat Hon'ble Pune bench in the case of Cooper Corporat Hon'ble Pune bench in the case of Cooper Corporation (P) Ltd (2016)(69 taxmann.com 244) to support the claim of loss. (2016)(69 taxmann.com 244) to support the claim of loss. (2016)(69 taxmann.com 244) to support the claim of loss. However, following observations made by the Pune bench of However, following observations made by the Pune bench of However, following observations made by the Pune bench of Tribunal would show that the facts prevailing there is different: Tribunal would show that the facts prevailing there is different: Tribunal would show that the facts prevailing there is different:-
Everest Industries Limited 20 718/M/2020, 7793, 7794/M/2020 & ITA Nos. 715, 718/M/2020, 7793, 7794/M/2020 & 1423, 1418, 654, 653/M/2020 1423, 1418, 654, 653/M/2020 "10.9 We find that the decision in the case of Sutlej Cotton M "10.9 We find that the decision in the case of Sutlej Cotton M
10.9 We find that the decision in the case of Sutlej Cotton Mills Ltd. (supra) relied upon by the Ld. Departmental Representative Ltd. (supra) relied upon by the Ld. Departmental Representative Ltd. (supra) relied upon by the Ld. Departmental Representative is of no assistance to the Revenue. The Hon'ble Supreme Court is of no assistance to the Revenue. The Hon'ble Supreme Court is of no assistance to the Revenue. The Hon'ble Supreme Court therein stated the principle of law that where any profit or loss therein stated the principle of law that where any profit or loss therein stated the principle of law that where any profit or loss arises to an assessee on account of depreciation in foreign arises to an assessee on account of depreciation in foreign arises to an assessee on account of depreciation in foreign currency held by him on conversion from another currency, such currency held by him on conversion from another currency, such currency held by him on conversion from another currency, such profit and loss would ordinary be trading loss if the foreign profit and loss would ordinary be trading loss if the foreign profit and loss would ordinary be trading loss if the foreign currency held by the assessee on revenue account as trading currency held by the assessee on revenue account as trading currency held by the assessee on revenue account as trading asset or as a part of circulating capital embargo in business. asset or as a part of circulating capital embargo in business. asset or as a part of circulating capital embargo in business. However, if the foreign currency is held as a capital asset, the , if the foreign currency is held as a capital asset, the , if the foreign currency is held as a capital asset, the loss should be capital in nature. The aforesaid principle of law loss should be capital in nature. The aforesaid principle of law loss should be capital in nature. The aforesaid principle of law is required to be applied to the facts of case to determine is required to be applied to the facts of case to determine is required to be applied to the facts of case to determine whether the foreign currency is held by the assessee on revenue whether the foreign currency is held by the assessee on revenue whether the foreign currency is held by the assessee on revenue account or as a part of circulating capital. In the present case, r as a part of circulating capital. In the present case, r as a part of circulating capital. In the present case, fluctuation loss inflicted upon the assessee bears no nexus or fluctuation loss inflicted upon the assessee bears no nexus or fluctuation loss inflicted upon the assessee bears no nexus or relation to the acquisition to the assets. The action of the relation to the acquisition to the assets. The action of the relation to the acquisition to the assets. The action of the assessee is tied up to its underlying objective i.e. saving in assessee is tied up to its underlying objective i.e. saving in assessee is tied up to its underlying objective i.e. saving in interest costs, hedging its revenue receipts etc. which are ts, hedging its revenue receipts etc. which are ts, hedging its revenue receipts etc. which are undoubtedly on revenue account. Thus, the loss generated in undoubtedly on revenue account. Thus, the loss generated in undoubtedly on revenue account. Thus, the loss generated in impugned action bears the character of revenue expenditure. impugned action bears the character of revenue expenditure." impugned action bears the character of revenue expenditure." It can be noticed that the decision in the above said case has It can be noticed that the decision in the above said case has It can be noticed that the decision in the above said case has been rendered by Pune be been rendered by Pune bench of Tribunal on the basis of facts nch of Tribunal on the basis of facts prevailing in that case. Hence, we are of the view that the prevailing in that case. Hence, we are of the view that the prevailing in that case. Hence, we are of the view that the assessee cannot take support from the said decision. assessee cannot take support from the said decision. assessee cannot take support from the said decision.
Thus, we notice that the facts relating to the foreign 58. Thus, we notice that the facts relating to the foreign 58. Thus, we notice that the facts relating to the foreign currency loan of USD 12 million availed by the currency loan of USD 12 million availed by the assessee have to assessee have to be examined in the light of principles discussed in the preceding be examined in the light of principles discussed in the preceding be examined in the light of principles discussed in the preceding paragraphs in order to arrive at a fair and just conclusion of the paragraphs in order to arrive at a fair and just conclusion of the paragraphs in order to arrive at a fair and just conclusion of the matter. We notice that neither the assessee nor the tax matter. We notice that neither the assessee nor the tax matter. We notice that neither the assessee nor the tax authorities have brought relevant facts on record authorities have brought relevant facts on record authorities have brought relevant facts on record. In the absence of the same, it will not be possible for us to apply the absence of the same, it will not be possible for us to apply the absence of the same, it will not be possible for us to apply the legal principles discussed above. Under these set of facts, we legal principles discussed above. Under these set of facts, we legal principles discussed above. Under these set of facts, we are of the view that this issue requires fresh examination at the are of the view that this issue requires fresh examination at the are of the view that this issue requires fresh examination at the end of the assessing officer. Accordingly we restore end of the assessing officer. Accordingly we restore end of the assessing officer. Accordingly we restore this issue to the file of the assessing officer with the direction to examine the the file of the assessing officer with the direction to examine the the file of the assessing officer with the direction to examine the Everest Industries Limited 21 718/M/2020, 7793, 7794/M/2020 & ITA Nos. 715, 718/M/2020, 7793, 7794/M/2020 & 1423, 1418, 654, 653/M/2020 1423, 1418, 654, 653/M/2020
same afresh by duly analysing the nature of loan, manner of its same afresh by duly analysing the nature of loan, manner of its same afresh by duly analysing the nature of loan, manner of its utilisation, the present position of loan etc., in the light of legal utilisation, the present position of loan etc., in the light of legal utilisation, the present position of loan etc., in the light of legal principles principles principles discussed discussed discussed above. above. above. After After After affording afford afford adequate opportunity of being heard to the assessee, the AO may take opportunity of being heard to the assessee, the AO may take opportunity of being heard to the assessee, the AO may take appropriate decision in accordance with the law. appropriate decision in accordance with the law. appropriate decision in accordance with the law. 13.3 The Assessing Officer examine The Assessing Officer examined the nature of the loan and the nature of the loan and concluded that loan had been sanctioned and utilised for concluded that loan had been sanctioned and utilised concluded that loan had been sanctioned and utilised purchase/acquisition of plant and machinery therefore relying on purchase/acquisition of plant and machinery therefore relying on purchase/acquisition of plant and machinery therefore relying on the decision of the Hon’ble Supreme Court in the case of Sutlej the decision of the Hon’ble Supreme Court in the case of Sutlej the decision of the Hon’ble Supreme Court in the case of Sutlej Cotton Ltd (supra); Hon’ble Bombay High Court in the case of CIT Cotton Ltd (supra); Hon’ble Bombay High Court in the case of CIT Cotton Ltd (supra); Hon’ble Bombay High Court in the case of CIT Vs Dempo and Co. Pvt. Ltd (supra) and Hon’ble Supreme Court in Vs Dempo and Co. Pvt. Ltd (supra) and Hon’ble Supreme Co Vs Dempo and Co. Pvt. Ltd (supra) and Hon’ble Supreme Co the case of Woodword the case of Woodword Governer India Private Limited(supra), Governer India Private Limited(supra), he treated the loss as capital expenditure and allowed the depreciation treated the loss as capital expenditure and allowed the depreciation treated the loss as capital expenditure and allowed the depreciation accordingly.
The Ld. CIT(A) following judicial precedents, upheld the The Ld. CIT(A) following judicial precedents, upheld the The Ld. CIT(A) following judicial precedents, upheld the disallowance observing as under: disallowance observing as under:
“8.2 It is seen that the Appellant has suffered Foreign s seen that the Appellant has suffered Foreign s seen that the Appellant has suffered Foreign Exchange Fluctuation Loss arising out of CB borrowing for Exchange Fluctuation Loss arising out of CB borrowing for Exchange Fluctuation Loss arising out of CB borrowing for assets acquired in India. The Appellant has claimed it as a assets acquired in India. The Appellant has claimed it as a assets acquired in India. The Appellant has claimed it as a "Revenue loss relying on various decisions, the AO has treated "Revenue loss relying on various decisions, the AO has treated "Revenue loss relying on various decisions, the AO has treated it as "capital loss". If the it as "capital loss". If the proceeds of the CBs were utilized to proceeds of the CBs were utilized to acquire any capital assets from outside India, Section 43CA of acquire any capital assets from outside India, Section 43CA of acquire any capital assets from outside India, Section 43CA of the I.T. Act, 1961 would be applicable However, in the case of the I.T. Act, 1961 would be applicable However, in the case of the I.T. Act, 1961 would be applicable However, in the case of the Appellant this is not so. Under the circumstances, judicial the Appellant this is not so. Under the circumstances, judicial the Appellant this is not so. Under the circumstances, judicial pronouncements need to be ex pronouncements need to be examined. There are certain amined. There are certain judicial pronouncements analogous to the issue under judicial pronouncements analogous to the issue under judicial pronouncements analogous to the issue under consideration, wherein such deductions has been denied consideration, wherein such deductions has been denied consideration, wherein such deductions has been denied holding to be "capital" in nature. In Shell Company of China holding to be "capital" in nature. In Shell Company of China holding to be "capital" in nature. In Shell Company of China Ltd [22 ITR 1(A)], it was held that "gains arising on deposit Ltd [22 ITR 1(A)], it was held that "gains arising on deposit Ltd [22 ITR 1(A)], it was held that "gains arising on deposits (in foreign currency) are capital receipts as the deposits were in foreign currency) are capital receipts as the deposits were in foreign currency) are capital receipts as the deposits were in essence loan/capital & not trading receipts". essence loan/capital & not trading receipts".
Everest Industries Limited 22 718/M/2020, 7793, 7794/M/2020 & ITA Nos. 715, 718/M/2020, 7793, 7794/M/2020 & 1423, 1418, 654, 653/M/2020 1423, 1418, 654, 653/M/2020 Further in Sutlej Cotton Mills Ltd., (1979) 116 IT 1 (SC)] it was Further in Sutlej Cotton Mills Ltd., (1979) 116 IT 1 (SC)] it was Further in Sutlej Cotton Mills Ltd., (1979) 116 IT 1 (SC)] it was held by Supreme Court that, "the law may, therefore, now be held by Supreme Court that, "the law may, therefore, now be held by Supreme Court that, "the law may, therefore, now be taken to be wel taken to be well settled that where the profit or loss arises to l settled that where the profit or loss arises to an assessee on account of appreciation or depreciation in the an assessee on account of appreciation or depreciation in the an assessee on account of appreciation or depreciation in the value of foreign currency held by it, on conversion into value of foreign currency held by it, on conversion into value of foreign currency held by it, on conversion into anothercurrecny currecny, such profit or loss would ordinarily be a , such profit or loss would ordinarily be a trading profit or loss if th trading profit or loss if the foreign currency is held by the currency is held by the assessee on revenue account or as a trading assetor as a part assessee on revenue account or as a trading assetor as a part assessee on revenue account or as a trading assetor as a part of circulating capital embarked in the business. But, if on the of circulating capital embarked in the business. But, if on the of circulating capital embarked in the business. But, if on the other hand, the foreign currency is held as a capital asset or other hand, the foreign currency is held as a capital asset or other hand, the foreign currency is held as a capital asset or as fixed capital, such profit or as fixed capital, such profit or loss would be of capital nature." loss would be of capital nature." Also in Tata Locomotive & Engineering Co. Ltd. [TELCO Also in Tata Locomotive & Engineering Co. Ltd. [TELCO Also in Tata Locomotive & Engineering Co. Ltd. [TELCO - (1966) 60 IT 405 (SC)] a similar view was again reiterated. (1966) 60 IT 405 (SC)] a similar view was again reiterated. (1966) 60 IT 405 (SC)] a similar view was again reiterated. The aforesaid decisions were later consistently followed by The aforesaid decisions were later consistently followed by The aforesaid decisions were later consistently followed by some High Courts in Bestobell (India) Ltd. Uni some High Courts in Bestobell (India) Ltd. Uni some High Courts in Bestobell (India) Ltd. Union Carbide India, Oil India Limited ], Bharat General and Textile India, Oil India Limited ], Bharat General and Textile India, Oil India Limited ], Bharat General and Textile Industries Limited I. Groz Industries Limited I. Groz-BeckertSaboo Ltd. Sandoz (India) BeckertSaboo Ltd. Sandoz (India) Electric Lamp Manufacturers (India) Limited and V. S. Electric Lamp Manufacturers (India) Limited and V. S. Electric Lamp Manufacturers (India) Limited and V. S. Dempo& Co. (P) Ltd. in the context of CB holding that if the Dempo& Co. (P) Ltd. in the context of CB holding that if the Dempo& Co. (P) Ltd. in the context of CB holding that if the foreign exchang foreign exchange fluctuation loss arises on restatement of e fluctuation loss arises on restatement of ECBs utilized for acquiring capital asset indigenously in India, ECBs utilized for acquiring capital asset indigenously in India, ECBs utilized for acquiring capital asset indigenously in India, then such loss will be capital in nature. then such loss will be capital in nature. Considering the facts brought on record and the judicial Considering the facts brought on record and the judicial Considering the facts brought on record and the judicial pronouncements on the issue the foreign exchange pronouncements on the issue the foreign exchange pronouncements on the issue the foreign exchange loss of Rs. 13,41,01, 121/ 13,41,01, 121/- is held to be capital in nature. However, the is held to be capital in nature. However, the AO is directed to give appropriate adjustment in depreciation AO is directed to give appropriate adjustment in depreciation AO is directed to give appropriate adjustment in depreciation on such fixed assets. Ground partly allowed. on such fixed assets. Ground partly allowed.”
Before us, the Ld. counsel Ld. counsel of the assessee referred to decision of the assessee referred to decision of the Hon’ble Supreme Court in the case of e Hon’ble Supreme Court in the case of CIT Vs UP State CIT Vs UP State Industrial Development Industrial Development Corporation reported in (1997) 92 Corporation reported in (1997) 92 Taxman 45 (SC) wherein it is held that for the purpose of wherein it is held that for the purpose of wherein it is held that for the purpose of ascertaining profit and and gains, the ordinary principle of commercial gains, the ordinary principle of commercial accounting should be applied, so long as they don’t conflict with the accounting should be applied, so long as they don’t conflict with the accounting should be applied, so long as they don’t conflict with the express provision of the relevant statute. express provision of the relevant statute.
Everest Industries Limited 23 718/M/2020, 7793, 7794/M/2020 & ITA Nos. 715, 718/M/2020, 7793, 7794/M/2020 & 1423, 1418, 654, 653/M/2020 1423, 1418, 654, 653/M/2020 15.1 The Ld. counsel for the counsel for the assessee referred to accounting referred to accounting standard (AS)-11 (Revised Revised 2003) and submitted that as per normal submitted that as per normal accounting standard the foreign accounting standard the foreign-exchange gain or loss on loans in exchange gain or loss on loans in foreign currency is required to be recorded as income or loss in is required to be recorded as income or loss in is required to be recorded as income or loss in books of accounts. books of accounts. Regarding recognition of the exchange Regarding recognition of the exchange difference, the Ld. counsel referred to counsel referred to clause 13 of the AS clause 13 of the AS-11, which is reproduced as under: is reproduced as under:
“13. Exchange differences arising on the settlement of 13. Exchange differences arising on the settlement of 13. Exchange differences arising on the settlement of monetary items or on reporting an enterprise's monetary monetary items or on reporting an enterprise's monetary monetary items or on reporting an enterprise's monetary items at rates different from those at which they were items at rates different from those at which they were items at rates different from those at which they were initially recorded during the perio initially recorded during the period, or reported in previous d, or reported in previous financial statements, should be recognised as income or as financial statements, should be recognised as income or as financial statements, should be recognised as income or as expenses in the period in which they arise, with the expenses in the period in which they arise, with the expenses in the period in which they arise, with the exception of exchange differences dealt with in accordance exception of exchange differences dealt with in accordance exception of exchange differences dealt with in accordance with paragraph 15. with paragraph 15. " It may be noted that the Institute ha " It may be noted that the Institute has issued in 2003 an s issued in 2003 an Announcement titled"Treatment of exchange differences Announcement titled"Treatment of exchange differences Announcement titled"Treatment of exchange differences under Accounting Standard (AS) 11 (revised2003), The under Accounting Standard (AS) 11 (revised2003), The under Accounting Standard (AS) 11 (revised2003), The Effects of Changes in Foreign Exchange Rates vis Effects of Changes in Foreign Exchange Rates vis Effects of Changes in Foreign Exchange Rates vis-a-vis Schedule VI to the Companies Act, 1956. As per the Schedule VI to the Companies Act, 1956. As per the Schedule VI to the Companies Act, 1956. As per the Announcement, the requi Announcement, the requirement with regard to treatment rement with regard to treatment of exchange differences contained in AS 11 (revised 2003), of exchange differences contained in AS 11 (revised 2003), of exchange differences contained in AS 11 (revised 2003), is different from Schedule VI to the Companies Act, 1956, is different from Schedule VI to the Companies Act, 1956, is different from Schedule VI to the Companies Act, 1956, since AS 11 (revised 2003) does not require the since AS 11 (revised 2003) does not require the since AS 11 (revised 2003) does not require the adjustment of exchange differences in the carrying amount adjustment of exchange differences in the carrying amount adjustment of exchange differences in the carrying amount of the fixed assets, in the situations envisaged in Schedule f the fixed assets, in the situations envisaged in Schedule f the fixed assets, in the situations envisaged in Schedule VI. It has been clarified that pending the amendment, if VI. It has been clarified that pending the amendment, if VI. It has been clarified that pending the amendment, if any, to Schedule VI to the Companies Act, 1956, in respect any, to Schedule VI to the Companies Act, 1956, in respect any, to Schedule VI to the Companies Act, 1956, in respect of the matter, a company adopting the treatment described of the matter, a company adopting the treatment described of the matter, a company adopting the treatment described in Schedule VI will st in Schedule VI will still be considered to be complying with ill be considered to be complying with AS 11 (revised 2003) for the purposes of section 211 of the AS 11 (revised 2003) for the purposes of section 211 of the AS 11 (revised 2003) for the purposes of section 211 of the Act. Accordingly, the auditor of the company should not Act. Accordingly, the auditor of the company should not Act. Accordingly, the auditor of the company should not assert non-compliance with AS 11 (2003) under section compliance with AS 11 (2003) under section compliance with AS 11 (2003) under section 227(3)(d) of the Act in such a case and should 227(3)(d) of the Act in such a case and should not qualify not qualify his report in this regard on the true and fair view of the his report in this regard on the true and fair view of the his report in this regard on the true and fair view of the Everest Industries Limited 24 718/M/2020, 7793, 7794/M/2020 & ITA Nos. 715, 718/M/2020, 7793, 7794/M/2020 & 1423, 1418, 654, 653/M/2020 1423, 1418, 654, 653/M/2020 state of the company's affairs and profit or loss of the state of the company's affairs and profit or loss of the state of the company's affairs and profit or loss of the company under section 227(2) of the Act. (published in company under section 227(2) of the Act. (published in company under section 227(2) of the Act. (published in "The Chartered Accountant', November, 2003, pp. 497.) "The Chartered Accountant', November, 2003, pp. 497.) "The Chartered Accountant', November, 2003, pp. 497.) The full text of th The full text of the Announcement has been reproduced in e Announcement has been reproduced in the section titled "Announcements of the Council regarding the section titled "Announcements of the Council regarding the section titled "Announcements of the Council regarding status of various documents issued by the Institute of status of various documents issued by the Institute of status of various documents issued by the Institute of Chartered Chartered Chartered Accountants Accountants Accountants of of of India' India' India' appearing appearing appearing at at at the the the beginning of this Compendium. beginning of this Compendium.” 15.2 The Ld. counsel counsel further counsel further referred further referred to referred to to revise revisedaccounting revise standards, which superseded superseded the accounting standard AS accounting standard AS-11 and came into effect in respect of accounting periods commencing on or came into effect in respect of accounting periods commencing on or came into effect in respect of accounting periods commencing on or after 01/04/2004. The learne after 01/04/2004. The learned counsel particularly referred to para counsel particularly referred to para 46 of said revised accounting standards and submitted that in accounting standards and submitted that in accounting standards and submitted that in respect of accounting periods commencing on or after 07/12/2006 respect of accounting periods commencing on or after 07/12/2006 respect of accounting periods commencing on or after 07/12/2006 and ending on or before 31/03/2011, at the option of the and ending on or before 31/03/2011, at the option of the and ending on or before 31/03/2011, at the option of the enterprise, exchange difference arising and reporting of long-term enterprise, exchange difference arising and reporting of long enterprise, exchange difference arising and reporting of long foreign currency monetary items at rates different from those at monetary items at rates different from those at monetary items at rates different from those at which they were initially recorded during the period, or reported in which they were initially recorded during the period, or reported in which they were initially recorded during the period, or reported in previous financial statements, insofar as they relate to the previous financial statements, insofar as they relate to the previous financial statements, insofar as they relate to the capital asset, can be added to or acquisition of an depr depreciable capital asset, can be added to or reciated over the deduced from the cost of the asset and shall be he cost of the asset and shall be depreciated over the balance life of the asset and in other set and in other cases can be accumulated in a cases can be accumulated in a Foreign Currency Monetary Item Translation Difference Account “Foreign Currency Monetary Item Translation Difference Account Foreign Currency Monetary Item Translation Difference Account (FCMITDA)in the enterprise in the enterprise’s financial statement and amortised financial statement and amortised term asset/liability but not over the balance life of life of such long-term asset/liability but not beyond 31/03/2011. beyond 31/03/2011. The Ld. counsel further referred to Institute of counsel further referred to Institute of Chartered Accountants of India website to support that said ccountants of India website to support that said ccountants of India website to support that said
Everest Industries Limited 25 718/M/2020, 7793, 7794/M/2020 & ITA Nos. 715, 718/M/2020, 7793, 7794/M/2020 & 1423, 1418, 654, 653/M/2020 1423, 1418, 654, 653/M/2020 modification in the accounting standard was done by the Corporate modification in the accounting standard was done by the modification in the accounting standard was done by the Affairs ministry in March 2009 to ease accounting treatment on ffairs ministry in March 2009 to ease accounting treatment on ffairs ministry in March 2009 to ease accounting treatment on foreign exchange difference to help the companies to tie over the foreign exchange difference to help the companies foreign exchange difference to help the companies global financial crisis in 2008 global financial crisis in 2008-09 and therefore the India Inc was 09 and therefore the India Inc was given an option to refrain from complying with the AS 11, which given an option to refrain from complying with the given an option to refrain from complying with the stipulated that exchange difference on foreign currency borrowing stipulated that exchange difference on foreign currency borrowing stipulated that exchange difference on foreign currency borrowing should be recognised only in the profit and loss account. should be recognised only in the profit and loss account. should be recognised only in the profit and loss account.
15.3 The Ld. counsel, submitted that following abo counsel, submitted that following abo counsel, submitted that following above transitory changes in the accounting changes in the accounting standard, the assessee capitalised th the assessee capitalised the foreign exchange difference loss in respect of the depreciable assets foreign exchange difference loss in respect of the depreciable assets foreign exchange difference loss in respect of the depreciable assets as capital expenditure as capital expenditure, but these modification in the accounting these modification in the accounting standard were transitory and not standard were transitory and not falls under normal accounting normal accounting principle. Therefore, for the purpose of income tax, , for the purpose of income tax, , for the purpose of income tax, the assessee claimed the said foreign exchange loss as revenue expenditure as said foreign exchange loss as revenue expenditure as said foreign exchange loss as revenue expenditure as per the normal accounting standard As per the normal accounting standard As-11.
15.4 The Ld. counsel of the assessee further relied on the decision counsel of the assessee further relied on the decision counsel of the assessee further relied on the decision of theCoordinate bench of the oordinate bench of the Tribunal in the case of Hyundai ribunal in the case of Hyundai Motor India dia Ltd Ltd v. DCIT, DCIT, LTU, LTU, Chennai Chennai in in ITA ITA No. No. 853/Chny/2014 and563/Chny/2015 for assessment year 2009- 853/Chny/2014 and563/Chny/2015 for assessment year 2009 853/Chny/2014 and563/Chny/2015 for assessment year 2009 10 and 2010-11 to support that once the to support that once the asset is put to use the set is put to use the foreign exchange difference for subsequent period is to be treated as foreign exchange difference for subsequent period is to be treated as foreign exchange difference for subsequent period is to be treated as revenue expenditure in vi revenue expenditure in view of analogous treatment to interest ew of analogous treatment to interest under section 36(1)(iii) of the under section 36(1)(iii) of the Act.The Tribunal (supra) relied on the (supra) relied on the Everest Industries Limited 26 718/M/2020, 7793, 7794/M/2020 & ITA Nos. 715, 718/M/2020, 7793, 7794/M/2020 & 1423, 1418, 654, 653/M/2020 1423, 1418, 654, 653/M/2020 decision of coordinate bench in the case of decision of coordinate bench in the case of Cooper Corporation Cooper Corporation Private Limited Vs DCIT (2016) 159 165 (Pune) Private Limited Vs DCIT (2016) 159 165 (Pune).
15.5 The Ld. counsel also relied on the decision dated 16/03/2018 counsel also relied on the decision dated 16/03/2018 counsel also relied on the decision dated 16/03/2018 ribunal Cochin Bench in the case of MFAR MFAR Hotels and of the Tribunal Cochin Bench in the case of Resorts Ltd reported in (2019) 105 taxmann.com 335 Ltd reported in (2019) 105 taxmann.com 335 Ltd reported in (2019) 105 taxmann.com 335, wherein it is held that the Assessing Officer is held that the Assessing Officer should bifurcate foreign should bifurcate foreign-exchange fluctuation in respect of foreign currency loan used for assets n in respect of foreign currency loan used for assets n in respect of foreign currency loan used for assets acquired outside India and acquired outside India and indigenous assets and apply provisions assets and apply provisions of section 43A orAS-11 (2003) accordingly. 11 (2003) accordingly.
15.6 The Ld. counsel also counsel also referred to the decision of the Mumbai to the decision of the Mumbai bench of the Tribunal dated ribunal dated 19/06/2020 in the case of 19/06/2020 in the case of Mahindra and Mahindra Ltd (2020) 117 taxmann.com 518 ( td (2020) 117 taxmann.com 518 ( td (2020) 117 taxmann.com 518 (Mumbai-Trib) in support of the claim that foreign exchange loss should be allowed in support of the claim that foreign exchange loss should be allowed in support of the claim that foreign exchange loss should be allowed as revenue expenditure. as revenue expenditure.
On the contrary, the On the contrary, the Ld.DR relied on the order of the Ld. relied on the order of the Ld. CIT(A) and submitted and submitted thatin the case of the assessee, assessee, the forex gain/loss is arising from a fixed capital gain/loss is arising from a fixed capital, in view of , in view of the decision of the Hon’ble Supreme Court in the cas the Hon’ble Supreme Court in the case of Sutlej Cotton Mils Limited e of Sutlej Cotton Mils Limited (supra), same would be capital in nature, and thus decisio same would be capital in nature, and thus decision of the same would be capital in nature, and thus decisio Tribunal cited by the learne ribunal cited by the learned counsel of the assessee need not to be counsel of the assessee need not to be acted upon keeping in view the judicial hierarchy. The ld.DR further acted upon keeping in view the judicial hierarchy. The acted upon keeping in view the judicial hierarchy. The submitted that complete details of application of foreign currency submitted that complete details of application of foreign currency submitted that complete details of application of foreign currency loan for purchase of assets were not provi loan for purchase of assets were not provided before the Assessing ded before the Assessing
Everest Industries Limited 27 718/M/2020, 7793, 7794/M/2020 & ITA Nos. 715, 718/M/2020, 7793, 7794/M/2020 & 1423, 1418, 654, 653/M/2020 1423, 1418, 654, 653/M/2020 Officer even in the second round of assessment proceeding. She Officer even in the second round of assessment proceeding. She Officer even in the second round of assessment proceeding. She referred to the finding of the Assessing Officer in para 5.2 of the referred to the finding of the Assessing Officer in para 5.2 of the referred to the finding of the Assessing Officer in para 5.2 of the assessment order wherethe AO wherethe AO has mentioned that the assessee has mentioned that the assessee had provided bills of had provided bills of ₹ 34.11 crores and not provided bills of d not provided bills of balance purchase for rupees 18.26 crores, out of the total loan purchase for rupees 18.26 crores, out of the total loan purchase for rupees 18.26 crores, out of the total loan amount of ₹ 48.37 48.37 crores. Thus according to the learne Thus according to the learnedDR , whether the assets to the extent of to the extent of Rs. 18.26 crore are indigenous 18.26 crore are indigenous or foreign assets is not clear and therefore without prejudice she ore without prejudice she submitted that if at all, the assessee is allowed the claim then submitted that if at all, the assessee is allowed the claim then submitted that if at all, the assessee is allowed the claim then revenue expenditure should be restricted to the amount of ₹30.11 revenue expenditure should be restricted to the amount of revenue expenditure should be restricted to the amount of crore only.
We have heard rival submission of the parties on the issue in We have heard rival submission of the parties on the issue in We have heard rival submission of the parties on the issue in dispute and perused the relevant material on record. The issue in dispute and perused the relevant material on record. dispute and perused the relevant material on record. dispute before us is dispute before us is determination of character of foreign foreign-exchange fluctuation loss/gain in respect of the foreign loans, which fluctuation loss/gain in respect of the foreign loans, which fluctuation loss/gain in respect of the foreign loans, which according to the assessee have been utilised for purchase of assets according to the assessee have been utilised for purchase of assets according to the assessee have been utilised for purchase of assets from domestic market. The revenue has from domestic market. The revenue has also also disputed the application of quantum of loan utilised for purchase of domestic application of quantum of loan utilised for purchase of domestic application of quantum of loan utilised for purchase of domestic assets in view of incomplete details filed by the assessee before the assets in view of incomplete details filed by the assessee before assets in view of incomplete details filed by the assessee before Assessing Officer.
17.1 As far as any gain or loss due to foreign exchange fluctuation As far as any gain or loss due to foreign exchange fluctuation As far as any gain or loss due to foreign exchange fluctuation in respect of the foreign loan for purchase of capital asset from in respect of the foreign loan for purchase of capital asset from in respect of the foreign loan for purchase of capital asset from overseas market is concerned overseas market is concerned, the section 43A of the , the section 43A of the Act which is Everest Industries Limited 28 718/M/2020, 7793, 7794/M/2020 & ITA Nos. 715, 718/M/2020, 7793, 7794/M/2020 & 1423, 1418, 654, 653/M/2020 1423, 1418, 654, 653/M/2020 effective from 01/04/1967, deals effective from 01/04/1967, deals with the issue and any such gain with the issue and any such gain or loss are to be adjusted to the written down value (WDV) of the or loss are to be adjusted to the written down value (WDV) of the or loss are to be adjusted to the written down value (WDV) of the Asset as per the provisions of the section 43A of the set as per the provisions of the section 43A of the Act. set as per the provisions of the section 43A of the 17.2 The question before us, is however in relation to gain or The question before us, is however in relation to gain or The question before us, is however in relation to gain or loss due to foreign exchange fluc to foreign exchange fluctuation arising from the loans utilised tuation arising from the loans utilised for purchase of domestic assets. With effect from 01/04/2017, the for purchase of domestic assets. With effect from 01/04/2017, the for purchase of domestic assets. With effect from 01/04/2017, the legislation has introduced section 43AA of the legislation has introduced section 43AA of the Act, which deals with ct, which deals with the taxation of forex fluctuation. The said section prescribe that the taxation of forex fluctuation. The said section prescribe that the taxation of forex fluctuation. The said section prescribe that subject to the provisions of section 43A, any gain loss arising on provisions of section 43A, any gain loss arising on provisions of section 43A, any gain loss arising on account of any change in foreign exchange rates shall be treated as account of any change in foreign exchange rates shall be treated as account of any change in foreign exchange rates shall be treated as income or loss, as the case may be income or loss, as the case may be and such gain or loss shall be such gain or loss shall be computed in accordance with computed in accordance with Income Computation and Disclosure Income Computation and Disclosure Standard (ICDS) notified under section 145(2) of the notified under section 145(2) of the notified under section 145(2) of the Act. The section 43AA is applicable in respect of all forex transactions section 43AA is applicable in respect of all forex transactions section 43AA is applicable in respect of all forex transactions including those relating to monetary, non including those relating to monetary, non-monetary, transactions of monetary, transactions of financial statement of foreign operations, forward exchange contract financial statement of foreign operations, forward exchange contract financial statement of foreign operations, forward exchange contract etc. thus, barring the situation of purchase of capital asset etc. thus, barring the situation of purchase of capital asset etc. thus, barring the situation of purchase of capital asset overseas, in all of the situations rseas, in all of the situations, the gain arising from foreign , the gain arising from foreign- exchange transactions is to be dealt in accordance with section exchange transactions is to be dealt in accordance with section exchange transactions is to be dealt in accordance with section 43AA read with relevant ICDS. The section 145(2) of the Act has 43AA read with relevant ICDS. The section 145(2) of the 43AA read with relevant ICDS. The section 145(2) of the notified 10 ICDS with effecting from assessment year 2017-18. The notified 10 ICDS with effecting from assessment year 2017 notified 10 ICDS with effecting from assessment year 2017 ICDS-06, deals with effect of foreign 06, deals with effect of foreign-exchange rates exchange rates. The said ICDS has provided different treatment for foreign exchange fluctuation has provided different treatment for foreign exchange fluctuation has provided different treatment for foreign exchange fluctuation arising from monetary items and nonmonetary items. The para 2(k) arising from monetary items and nonmonetary items. The p arising from monetary items and nonmonetary items. The p
Everest Industries Limited 29 718/M/2020, 7793, 7794/M/2020 & ITA Nos. 715, 718/M/2020, 7793, 7794/M/2020 & 1423, 1418, 654, 653/M/2020 1423, 1418, 654, 653/M/2020 of the ICDS-06 defines ‘ 06 defines ‘monetary items’ as money held in assets to monetary items’ as money held in assets to be received on liabilities to be paid in fixed or determinable be received on liabilities to be paid in fixed or determinable be received on liabilities to be paid in fixed or determinable amounts of money. Thus, the cash receivables and payables are amounts of money. Thus, the cash receivables and payables are amounts of money. Thus, the cash receivables and payables are monetary items. In the instant case before us the foreign-exchange monetary items. In the instant case before us the foreign monetary items. In the instant case before us the foreign fluctuation is relating to payables and therefore it is one of the ng to payables and therefore it is one of the ng to payables and therefore it is one of the monetary item. The para 5(i) of the ICDS monetary item. The para 5(i) of the ICDS-06 prescribe that in 06 prescribe that in respect of monetary items, exchange difference arising on the respect of monetary items, exchange difference arising on the respect of monetary items, exchange difference arising on the settlement thereof or on conversion thereof at the last day of the settlement thereof or on conversion thereof at the last day of the settlement thereof or on conversion thereof at the last day of the previous year shall be recognised as income or expense in that be recognised as income or expense in that previous year. Para 6 of the ICDS previous year. Para 6 of the ICDS-06 notwithstanding anything 06 notwithstanding anything contained in para 5, recognition of the exchange difference shall be , recognition of the exchange difference shall be , recognition of the exchange difference shall be subject to the provision of section 43A of the subject to the provision of section 43A of the Act. In view of the . In view of the above provisions of the ns of the Act, it is evident that except for the is evident that except for the circumstances as described i circumstances as described in section 43A, after 01/04/2017 n section 43A, after 01/04/2017, the gain or loss arising from foreign gain or loss arising from foreign-exchange fluctuation on monitory exchange fluctuation on monitory items has to be treated as income items has to be treated as income or loss in terms of ICDS loss in terms of ICDS-06 read with section 43AA of the tion 43AA of the Act.
17.1 But, the assessment year involved he assessment year involved before us is for the period of era of pre-43AA of the Act. 43AA of the Act. Therefore, we have to examine we have to examine the position of law emerging from the judicial precedentsdealing with position of law emerging from the judicial precedentsdealing with position of law emerging from the judicial precedentsdealing with the issue of gain or loss from fore the issue of gain or loss from foreign-exchange fluctuation in exchange fluctuation in respect of the monetary items. respect of the monetary items.
Everest Industries Limited 30 718/M/2020, 7793, 7794/M/2020 & ITA Nos. 715, 718/M/2020, 7793, 7794/M/2020 & 1423, 1418, 654, 653/M/2020 1423, 1418, 654, 653/M/2020 17.2 We find that in the case of n the case of Tata Locomotive and engineering Tata Locomotive and engineering Co Ltd (1966) 60 ITR 405 (SC), (1966) 60 ITR 405 (SC),the assessee was in the business of in the business of manufacturing locomotive boilers and locomotive. The assessee was manufacturing locomotive boilers and locomotive. The assessee manufacturing locomotive boilers and locomotive. The assessee also acting as a selling agent for locomotives of a USA company acting as a selling agent for locomotives of a USA company acting as a selling agent for locomotives of a USA company namely ‘Baldwin’. The assessee earned commission of UDS . The assessee earned commission of UDS . The assessee earned commission of UDS 36,123/- for sale of their products in India and requested the said for sale of their products in India and requested the said for sale of their products in India and requested the said company to deposit this amount with its agent company to deposit this amount with its agent namely namely ‘Tata Inc, New York’. The assessee intimated . The assessee intimated this deposit to the to the Exchange Control Regulator of India of India (i.e. RBI) that said amount will be used that said amount will be used for purchase of capital goods for purchase of capital goods from USA and not for any other and not for any other purposes. The commission income earned was though offered to tax purposes. The commission income earned was though offer purposes. The commission income earned was though offer in India in respective assessment years in India in respective assessment years, but subsequently due to ubsequently due to the devaluation of the Indian rupee, the assessee found purchase of the devaluation of the Indian rupee, the assessee found purchase of the devaluation of the Indian rupee, the assessee found purchase of capital goods from USA capital goods from USA as more expensive and also noted that more expensive and also noted that Government of India had put some sanctions on purchase of g overnment of India had put some sanctions on purchase of g overnment of India had put some sanctions on purchase of goods from the USA. The assessee then with the permission of Exchange from the USA. The assessee then with the permission of from the USA. The assessee then with the permission of Control Regulator, brought the said amounts back egulator, brought the said amounts back egulator, brought the said amounts back into India. According to the revenue According to the revenue, gain on account of foreign gain on account of foreign exchange fluctuation on the commission income retained in the USA was fluctuation on the commission income retained in the USA was fluctuation on the commission income retained in the USA was revenue in nature and subjected to tax, since it is a profit incidental enue in nature and subjected to tax, since it is a profit incidental enue in nature and subjected to tax, since it is a profit incidental to the business. The assessee however contended that since the to the business. The assessee however contended that since the to the business. The assessee however contended that since the amounts amounts amounts were were were retained retained retained outside outside India outside India India for for for the the the purpose purpose purpose of of of procurement of capital goods, any gain arising on foreign exchange procurement of capital goods, any gain arising on foreign exchange procurement of capital goods, any gain arising on foreign exchange fluctuation account pertained to fixed capital and accordingly not uctuation account pertained to fixed capital and accordingly not uctuation account pertained to fixed capital and accordingly not Everest Industries Limited 31 718/M/2020, 7793, 7794/M/2020 & ITA Nos. 715, 718/M/2020, 7793, 7794/M/2020 & 1423, 1418, 654, 653/M/2020 1423, 1418, 654, 653/M/2020 subjected to tax. The Hon’ble Supreme Court held that The Hon’ble Supreme Court held that in the case The Hon’ble Supreme Court held that with the permission of RBI, the assessee retain with the permission of RBI, the assessee retained such amount for such amount for the purpose of capital goods, the purpose of capital goods, the same would obtain the nature of the same would obtain the nature of capital even though the said capital goods were not ultimately capital even though the said capital goods were not ultimately capital even though the said capital goods were not ultimately purchased. The gain arising due to foreign action fluctuation was purchased. The gain arising due to foreign action fluctuation was purchased. The gain arising due to foreign action fluctuation was held as capital in nature and no tax was to be paid. held as capital in nature and no tax was to be paid.
17.3 In the case of Sutlej cotton mi Sutlej cotton mills limited Vs CIT (1979) 116 Vs CIT (1979) 116 ITR 1 (SC), the assessee was engaged in the business of the assessee was engaged in the business of the assessee was engaged in the business of manufacturing and sales of cotton fabrics. The cotton mill of the manufacturing and sales of cotton fabrics. The cotton mill of the manufacturing and sales of cotton fabrics. The cotton mill of the assessee located in W West Pakistan (i.e. present Bangladesh) (i.e. present Bangladesh) earned profit for the period ended 31 profit for the period ended 31st March, 1954, which which was taxed on accrual basis and included in the profit of the Indian company. At accrual basis and included in the profit of the Indian company. At accrual basis and included in the profit of the Indian company. At the time of offering profit for tax in India the exchange rate between the time of offering profit for tax in India the exchange rate the time of offering profit for tax in India the exchange rate Pakistan and India was Pakistan and India was at 100 Pakistan rupees being equal to 144 at 100 Pakistan rupees being equal to 144 Indian rupees. Subsequent Indian rupees. Subsequently, when the assessee company applied ly, when the assessee company applied for repatriation of said amount of the profit lying in west Pakistan for repatriation of said amount of the profit lying in west Pakistan for repatriation of said amount of the profit lying in west Pakistan branch, the exchange rate changed to 100 Pakistan rupees being branch, the exchange rate changed to 100 Pakistan rupees being branch, the exchange rate changed to 100 Pakistan rupees being equal to hundred Indian rupee. The Indian company accordingly equal to hundred Indian rupee. The Indian company accordingly equal to hundred Indian rupee. The Indian company accordingly claimed loss of amount d claimed loss of amount due to foreign action fluctuation under ue to foreign action fluctuation under section 10(1) of Income section 10(1) of Income-tax Act, 1922. The Assessing Officer did not tax Act, 1922. The Assessing Officer did not allow such deduction which allow such deduction which arose due to foreign due to foreign-exchange fluctuation holding that such loss was due to state action and not holding that such loss was due to state action and not holding that such loss was due to state action and not relating to the business relating to the business of the assessee. The Hon’ble Supreme Court of the assessee. The Hon’ble Supreme Court held that any devaluation of foreign held that any devaluation of foreign-exchange on account of trading exchange on account of trading
Everest Industries Limited 32 718/M/2020, 7793, 7794/M/2020 & ITA Nos. 715, 718/M/2020, 7793, 7794/M/2020 & 1423, 1418, 654, 653/M/2020 1423, 1418, 654, 653/M/2020 asset would be trading loss set would be trading loss and on account of the capital asset on account of the capital asset would be capital loss. The Hon’ble Supreme Court laid down the would be capital loss. The Hon’ble Supreme Court laid down the would be capital loss. The Hon’ble Supreme Court laid down the test that in order to decide whether a foreign r to decide whether a foreign-exchange fluctuation exchange fluctuation gain or loss is taxable or allowable, the important question that gain or loss is taxable or allowable, the important question that gain or loss is taxable or allowable, the important question that need to be addressed is whether the gain or loss arising from fixed need to be addressed is whether the gain or loss arising from fixed need to be addressed is whether the gain or loss arising from fixed capital of circulating capital. If the gain or losses arising from fixed capital of circulating capital. If the gain or losses arising from fixe capital of circulating capital. If the gain or losses arising from fixe capital, the same wouldbe wouldbe capital in nature and not allowed as loss capital in nature and not allowed as loss or taxed and if same is arising from circulating capital than it shall or taxed and if same is arising from circulating capital than it shall or taxed and if same is arising from circulating capital than it shall be accordingly allowed as deduction or taxed. be accordingly allowed as deduction or taxed.Relevant finding of the Relevant finding of the Hon’ble Supreme Court has already been reprodu Hon’ble Supreme Court has already been reproduced above in the ced above in the order of the Tribunal (supra) in first round of proceedings in the order of the Tribunal (supra) in first round of proceedings in the order of the Tribunal (supra) in first round of proceedings in the case of the assessee. case of the assessee.
17.4 In the case of Tata iron and steel Co Ltd Tata iron and steel Co Ltd (1998) 22 ITR 285 (1998) 22 ITR 285, the Hon’ble Supreme Court held that the actual cost of asset the Hon’ble Supreme Court held that the actual cost of the Hon’ble Supreme Court held that the actual cost of depend upon the amount paid by the assessee to acquire the asset. depend upon the amount paid by the assessee to acquire the asset. depend upon the amount paid by the assessee to acquire the asset. The amount may have been borrowed by the assessee, but it will The amount may have been borrowed by the assessee, but it will The amount may have been borrowed by the assessee, but it will not alter the cost of the asset even if the assessee did not repay the not alter the cost of the asset even if the assessee did not repay the not alter the cost of the asset even if the assessee did not repay the loan. According to the Hon’ble Supreme Court the cost of the asset loan. According to the Hon’ble Supreme Court the cost o loan. According to the Hon’ble Supreme Court the cost o and the cost of raising money for purchase of the asset are two and the cost of raising money for purchase of the asset and the cost of raising money for purchase of the asset different and independent transactions. The Hon’ble Supreme Court different and independent transactions. The Hon’ble Supreme Court different and independent transactions. The Hon’ble Supreme Court held that more of repayment of loan has nothing to do with the held that more of repayment of loan has nothing to do with the held that more of repayment of loan has nothing to do with the actual cost of the asset. The Hon’ble Supreme Court held that all actual cost of the asset. The Hon’ble Supreme Court actual cost of the asset. The Hon’ble Supreme Court the matters other than matters falling under section 43A, the actual the matters other than matters falling under section 43A, the actual the matters other than matters falling under section 43A, the actual cost cannot be altered based on a subsequently event of foreign cost cannot be altered based on a subsequently event of foreign cost cannot be altered based on a subsequently event of foreign
Everest Industries Limited 33 718/M/2020, 7793, 7794/M/2020 & ITA Nos. 715, 718/M/2020, 7793, 7794/M/2020 & 1423, 1418, 654, 653/M/2020 1423, 1418, 654, 653/M/2020 action fluctuation. The relevant part of the decision of the Hon’ble The relevant part of the decision of the Hon’ble The relevant part of the decision of the Hon’ble Supreme Court is reproduced as under: Supreme Court is reproduced as under:
“4. Coming to the questions raised, we find it difficult to follow 4. Coming to the questions raised, we find it difficult to follow 4. Coming to the questions raised, we find it difficult to follow how the manner of repayment of loan can affect the cost of the how the manner of repayment of loan can affect the cost of the how the manner of repayment of loan can affect the cost of the assets acquired by the assessee. What is the actual cost must assets acquired by the assessee. What is the actual cost must assets acquired by the assessee. What is the actual cost must depend on the amount paid by the assessee to acquire the depend on the amount paid by the assessee to acquire the depend on the amount paid by the assessee to acquire the asset. The amount may have been borrowed by the assessee. he amount may have been borrowed by the assessee. he amount may have been borrowed by the assessee. But even if the assessee did not repay the loan it will not alter But even if the assessee did not repay the loan it will not alter But even if the assessee did not repay the loan it will not alter the cost of the asset. If the borrower defaults in repayment of a the cost of the asset. If the borrower defaults in repayment of a the cost of the asset. If the borrower defaults in repayment of a part of the loan, cost of the asset will not change. What has to part of the loan, cost of the asset will not change. What has to part of the loan, cost of the asset will not change. What has to be borne in mind is that cost of an asset and cost of raising in mind is that cost of an asset and cost of raising in mind is that cost of an asset and cost of raising money for purchase of the asset are two different and money for purchase of the asset are two different and money for purchase of the asset are two different and independent transactions. Even if an asset is purchased with independent transactions. Even if an asset is purchased with independent transactions. Even if an asset is purchased with no repayable subsidy received from the Government, the cost of no repayable subsidy received from the Government, the cost of no repayable subsidy received from the Government, the cost of the asset will be the pri the asset will be the price paid by the assessee for acquiring ce paid by the assessee for acquiring the asset. In the instant case, the allegation is that at the time the asset. In the instant case, the allegation is that at the time the asset. In the instant case, the allegation is that at the time of repayment of loan, there was a fluctuation in the rate of of repayment of loan, there was a fluctuation in the rate of of repayment of loan, there was a fluctuation in the rate of foreign exchange as a result of which, the assessee had to foreign exchange as a result of which, the assessee had to foreign exchange as a result of which, the assessee had to repay a much lesser amount than repay a much lesser amount than he would have otherwise he would have otherwise paid. In our judgment, this is not a factor which can alter the paid. In our judgment, this is not a factor which can alter the paid. In our judgment, this is not a factor which can alter the cost incurred by the assessee for purchase of the asset. The cost incurred by the assessee for purchase of the asset. The cost incurred by the assessee for purchase of the asset. The assessee may have raised the funds to purchase the asset by assessee may have raised the funds to purchase the asset by assessee may have raised the funds to purchase the asset by borrowing but what the assessee has paid for i borrowing but what the assessee has paid for it, is the price of t, is the price of the asset. That price cannot change by any event subsequent to the asset. That price cannot change by any event subsequent to the asset. That price cannot change by any event subsequent to the acquisition of the asset. In our judgment the manner or the acquisition of the asset. In our judgment the manner or the acquisition of the asset. In our judgment the manner or mode of repayment of the loan has nothing to do with the cost mode of repayment of the loan has nothing to do with the cost mode of repayment of the loan has nothing to do with the cost of an asset acquired by the assessee for the purpose of an asset acquired by the assessee for the purpose of an asset acquired by the assessee for the purpose of his business. We hold that the questions were rightly answered by business. We hold that the questions were rightly answered by business. We hold that the questions were rightly answered by the High Court. The appeals are dismissed. There will be no the High Court. The appeals are dismissed. There will be no the High Court. The appeals are dismissed. There will be no order as to costs. order as to costs.” 17.5 In the case of Cooper Corporation (P) Cooper Corporation (P) Ltd. (supra), (supra), the Pune bench of Tribunal, observed that the ribunal, observed that the assessee initially taken loan in assessee initially taken loan in Indian currency and later unconverted them to foreign currency in Indian currency and later unconverted them to foreign currency in Indian currency and later unconverted them to foreign currency in order to save interest order to save interest. The Tribunal also observed that the assessee ribunal also observed that the assessee acquired capital assets in India from the term loan and those assets acquired capital assets in India from the term loan and those assets acquired capital assets in India from the term loan and those assets
Everest Industries Limited 34 718/M/2020, 7793, 7794/M/2020 & ITA Nos. 715, 718/M/2020, 7793, 7794/M/2020 & 1423, 1418, 654, 653/M/2020 1423, 1418, 654, 653/M/2020 had already been pu had already been put to use. The Tribunal held that loss ribunal held that loss from fluctuation of foreign foreign currency loans so converted is post facto currency loans so converted is post facto subsequent to the capital asset having been put to use. The subsequent to the capital asset having been put to use. The subsequent to the capital asset having been put to use. The Tribunal held that, whether the losses ribunal held that, whether the losses are in revenue in revenue or capital account has to be teste account has to be tested in the light of generally accepted d in the light of generally accepted accounting principles, pronouncement and guidelines etc. The accounting principles, pronouncement and guidelines etc. accounting principles, pronouncement and guidelines etc. Tribunal further observed that there is no provision or explanation ribunal further observed that there is no provision or explanation ribunal further observed that there is no provision or explanation in the Act which deals with any gain or loss on foreign currency which deals with any gain or loss on foreign currency which deals with any gain or loss on foreign currency loan acquired for purchas loan acquired for purchase of indigenous assets which directs for which directs for addition or reduction in the cost of the asset. Accordingly, the reduction in the cost of the asset. Accordingly, the reduction in the cost of the asset. Accordingly, the Tribunal held that nothing can be added or reduced to the actual ribunal held that nothing can be added or reduced to the actual ribunal held that nothing can be added or reduced to the actual cost of the asset except the situation envisaged in section 43A set except the situation envisaged in section 43A of the set except the situation envisaged in section 43A Act because of its non its non-obstinate clause. The Tribunal followed the ribunal followed the finding of Hon’ble Supreme Court in the case of Tata iron and steel finding of Hon’ble Supreme Court in the case of Tata iron and steel finding of Hon’ble Supreme Court in the case of Tata iron and steel Co Ltd (supra).
17.6 In the case of Hyundai motor India Ltd (supra) Hyundai motor India Ltd (supra) Hyundai motor India Ltd (supra), the Tribunal followed the finding in the case of Cooper Corporation (supra). followed the finding in the case of Cooper Corporation (supra). followed the finding in the case of Cooper Corporation (supra).
17.7 In the case of In the case of MFAR Hotels & Resorts Ltd (supra) MFAR Hotels & Resorts Ltd (supra)the Tribunal held that section 43A is only relating to foreign held that section 43A is only relating to foreign-exchange held that section 43A is only relating to foreign rate fluctuation in respect of the assets rate fluctuation in respect of the assets acquired from a acquired from a country outside India by using foreign currency loan, which is not outside India by using foreign currency loan, which is not outside India by using foreign currency loan, which is not applicable to the indigenous assets acquired out of foreign currency applicable to the indigenous assets acquired out of foreign currency applicable to the indigenous assets acquired out of foreign currency loan. Hence the Assessing Officer was directed to bifurcate the loan. Hence the Assessing Officer was directed to bifurcate the loan. Hence the Assessing Officer was directed to bifurcate the Everest Industries Limited 35 718/M/2020, 7793, 7794/M/2020 & ITA Nos. 715, 718/M/2020, 7793, 7794/M/2020 & 1423, 1418, 654, 653/M/2020 1423, 1418, 654, 653/M/2020 foreign-exchange fluctuation in respect of the foreign c exchange fluctuation in respect of the foreign c exchange fluctuation in respect of the foreign currency loan used for assets acquired outside India and the indigenous assets used for assets acquired outside India and the indigenous assets used for assets acquired outside India and the indigenous assets and apply the provision of section 43A or AS and apply the provision of section 43A or AS-11 (2003) respectively. 11 (2003) respectively. Regarding the application of AS Regarding the application of AS-11 (2003), the Tribunal Tribunal observed as under:
“6.8 In view of the revision made in AS 6.8 In view of the revision made in AS-11 in 2003, it can be 11 in 2003, it can be said that treatment of foreign exchange loss arising out of said that treatment of foreign exchange loss arising out of said that treatment of foreign exchange loss arising out of foreign currency fluctuations in respect of fixed assets foreign currency fluctuations in respect of fixed assets foreign currency fluctuations in respect of fixed assets acquired through loan in foreign currency shall required to acquired through loan in foreign currency shall required to acquired through loan in foreign currency shall required to be given in profit be given in profit and loss account. Said exchange loss and loss account. Said exchange loss should be allowed as revenue expenditure in view of should be allowed as revenue expenditure in view of should be allowed as revenue expenditure in view of amended AS amended AS-11 (2003). It may be noted that Apex Court 11 (2003). It may be noted that Apex Court had followed treatment of exchange loss or gain as per AS had followed treatment of exchange loss or gain as per AS had followed treatment of exchange loss or gain as per AS- 11 (1994). In view of revision made in AS 11 (1994). In view of revision made in AS-11, now trea 11, now treatment shall be as per revised AS shall be as per revised AS-11 (2003). Exchange gain or loss 11 (2003). Exchange gain or loss on foreign currency fluctuations in respect of foreign on foreign currency fluctuations in respect of foreign on foreign currency fluctuations in respect of foreign currency loan acquired for acquisition of fixed asset should currency loan acquired for acquisition of fixed asset should currency loan acquired for acquisition of fixed asset should be allowed as revenue expenditure.However, in the be allowed as revenue expenditure.However, in the be allowed as revenue expenditure.However, in the Preamble of AS Preamble of AS-11 (Revised 2003), it was stated that the ed 2003), it was stated that the Revised Standard supersedes AS Revised Standard supersedes AS-11(1994) except that in 11(1994) except that in respect of accounting for transactions in foreign currencies respect of accounting for transactions in foreign currencies respect of accounting for transactions in foreign currencies entered into by the reporting enterprise before the date of entered into by the reporting enterprise before the date of entered into by the reporting enterprise before the date of AS-11 (2004) comes into effect, AS 11 (2004) comes into effect, AS-11 (1994) will continue ll continue to be applicable. to be applicable.” 17.8 In the case of the case of Mahindra and Mahindra Ltd (supra), Mahindra and Mahindra Ltd (supra),the Tribunal observed observed that up to assessment year year 2008-09, the assessee capitalised assessee capitalised foreign exchange fluctuation difference in the fluctuation difference in the books of accounts, to the extent foreign books of accounts, to the extent foreign currency loans were utilised currency loans were utilised for acquisition of the fixed assets in India, as part of cost of fixed for acquisition of the fixed assets in India, as part of cost of fixed for acquisition of the fixed assets in India, as part of cost of fixed assets/CWIP. To the extent foreign currency loans were utilised for . To the extent foreign currency loans were utilised for . To the extent foreign currency loans were utilised for acquiring other monetary items ( cquiring other monetary items ( i.e.basically investment in foreign tment in foreign companies) the difference in exchange was debited to an account erence in exchange was debited to an account erence in exchange was debited to an account
Everest Industries Limited 36 718/M/2020, 7793, 7794/M/2020 & ITA Nos. 715, 718/M/2020, 7793, 7794/M/2020 & 1423, 1418, 654, 653/M/2020 1423, 1418, 654, 653/M/2020 called “Foreign Currency Monetary Items T called “Foreign Currency Monetary Items Translation Difference ranslation Difference Account (FCMITDA). From assessment year 2009 FCMITDA). From assessment year 2009 FCMITDA). From assessment year 2009-10, in view of notification amending accounting standard 11 dealing with notification amending accounting standard 11 dealing with notification amending accounting standard 11 dealing with accounting treatment for effec accounting treatment for effects of changes in foreign ts of changes in foreign exchange rates, the assessee charged the amount of difference in exchange to rates, the assessee charged the amount of difference in exchange to rates, the assessee charged the amount of difference in exchange to (i) fixed assets (ii) capital work in progress and (iii) carried forward (i) fixed assets (ii) capital work in progress and (iii) carried forward (i) fixed assets (ii) capital work in progress and (iii) carried forward certain amount in the FCMITDA account to be written off to the certain amount in the FCMITDA account to be written of certain amount in the FCMITDA account to be written of profit and loss account and later years over the life of the profit and loss account and later years over the life of the profit and loss account and later years over the life of the corresponding foreign currency loans. According to the assessee, corresponding foreign currency loans. According to the assessee, corresponding foreign currency loans. According to the assessee, there was no specific provision there was no specific provision in the Act dealing with adjustment dealing with adjustment based on foreign action fluctuation for assets acquired locally in based on foreign action fluctuation for assets acquired based on foreign action fluctuation for assets acquired India, the assessee claim India, the assessee claimed the difference in exchange of the difference in exchange of ₹63,02,52,539/- to the fixed assets/capital work in progress and to the fixed assets/capital work in progress and to the fixed assets/capital work in progress and ₹56,34,75,052/-carried forward in the FCMITDA as deductible carried forward in the FCMITDA as deductible carried forward in the FCMITDA as deductible revenue expenditure. The Assessing Officer disallowed the act . The Assessing Officer disallowed the action of . The Assessing Officer disallowed the act claiming fluctuation loss as notional fluctuation loss as notional or contingent and also contingent and also held it to be capital in nature. The capital in nature. The Ld. DR submitted that issue was DR submitted that issue was decided against the assessee by the order of the Tribunal for decided against the assessee by the order of the decided against the assessee by the order of the assessment year 2009-10 10 in in assessee’s assessee’s own own case. case. The The Ld.Authorised Representative thorised Representative of the assessee on the other hand of the assessee on the other hand stated that decision of the stated that decision of the Tribunal in assessment ribunal in assessment year 2009-10 covers the claim of ₹63,02,52, 63,02,52,539/-being exchange loss relatable to the fixed assets/capital work in progress, for which at least the fixed assets/capital work in progress, for which at least the fixed assets/capital work in progress, for which at least depreciation should be granted to the assessee in any case and eciation should be granted to the assessee in any case and eciation should be granted to the assessee in any case and Everest Industries Limited 37 718/M/2020, 7793, 7794/M/2020 & ITA Nos. 715, 718/M/2020, 7793, 7794/M/2020 & 1423, 1418, 654, 653/M/2020 1423, 1418, 654, 653/M/2020 requested for allowing loss debited to FCMITDA as revenue requested for allowing loss debited to FCMITDA as revenue requested for allowing loss debited to FCMITDA as revenue expenditure and direction for depreciation on loss to be adjusted to expenditure and direction for depreciation on loss to be adjusted to expenditure and direction for depreciation on loss to be adjusted to the cost of the capital assets. The the cost of the capital assets. The Tribunal in the case held as in the case held as under:
“12.12 We have gone through the order of the Tribunal for 12.12 We have gone through the order of the Tribunal for 12.12 We have gone through the order of the Tribunal for A.Y. 2009-10 and we find force in the argument advanced 10 and we find force in the argument advanced 10 and we find force in the argument advanced by the Id. AR in this regard. We find that this Tribunal had by the Id. AR in this regard. We find that this Tribunal had by the Id. AR in this regard. We find that this Tribunal had held that the exchange loss need to be adiusted held that the exchange loss need to be adiusted to the cost to the cost of fixed assets/cost of capital work of fixed assets/cost of capital work-in-progress. Hence, we progress. Hence, we hold that assessee is entitled for depreciation on such hold that assessee is entitled for depreciation on such hold that assessee is entitled for depreciation on such capital portion of the exchange fluctuation loss. capital portion of the exchange fluctuation loss. 12.13 The another related issue involved in this regard is 12.13 The another related issue involved in this regard is 12.13 The another related issue involved in this regard is what is the period what is the period for which such loss should be for which such loss should be capitalised. In this regard, the ld. AR argued that under the capitalised. In this regard, the ld. AR argued that under the capitalised. In this regard, the ld. AR argued that under the Income-tax Act, any item that is added to the fixed asset tax Act, any item that is added to the fixed asset tax Act, any item that is added to the fixed asset need to be capitalised till the asset is put to use. This is need to be capitalised till the asset is put to use. This is need to be capitalised till the asset is put to use. This is supported by Explanation 8 to section 43(1) supported by Explanation 8 to section 43(1) and proviso to and proviso to section 36(1)iii) of the Act. Any cost incurred beyond that section 36(1)iii) of the Act. Any cost incurred beyond that section 36(1)iii) of the Act. Any cost incurred beyond that period should be charged off as revenue expenditure. period should be charged off as revenue expenditure. period should be charged off as revenue expenditure. Accordingly, he argued that irrespective of the accounting Accordingly, he argued that irrespective of the accounting Accordingly, he argued that irrespective of the accounting treatment given by the assessee in the books, the exchange treatment given by the assessee in the books, the exchange treatment given by the assessee in the books, the exchange loss could be added to the cost of fixed assets only till such be added to the cost of fixed assets only till such be added to the cost of fixed assets only till such time, the assets were not put to use. Thereafter, such time, the assets were not put to use. Thereafter, such time, the assets were not put to use. Thereafter, such exchange loss should be allowed as revenue expenditure. exchange loss should be allowed as revenue expenditure. exchange loss should be allowed as revenue expenditure. We find that this line of argument was not taken up by the We find that this line of argument was not taken up by the We find that this line of argument was not taken up by the assessee for A.Y. 2009 assessee for A.Y. 2009-10 while addressing this issue ddressing this issue before the Tribunal for A.Y. 2009 before the Tribunal for A.Y. 2009-10. Accordingly, there was 10. Accordingly, there was no occasion for this Tribunal to adjudicate this aspect of the no occasion for this Tribunal to adjudicate this aspect of the no occasion for this Tribunal to adjudicate this aspect of the issue.The Id AR submitted that this exchange loss that is issue.The Id AR submitted that this exchange loss that is issue.The Id AR submitted that this exchange loss that is debited to FCMITDA is not related to acquire fixed as debited to FCMITDA is not related to acquire fixed as debited to FCMITDA is not related to acquire fixed assets and hence, the same should be allowed as revenue and hence, the same should be allowed as revenue and hence, the same should be allowed as revenue expenditure. The Id. AR further stated that, in any event, expenditure. The Id. AR further stated that, in any event, expenditure. The Id. AR further stated that, in any event, the process of capitalisation of such exchange loss should the process of capitalisation of such exchange loss should the process of capitalisation of such exchange loss should end with the commencement of overseas investments end with the commencement of overseas investments end with the commencement of overseas investments utilizing foreign currency loans. utilizing foreign currency loans. Exchange loss for the period Exchange loss for the period after acquisition of investments and therefore, be allowed after acquisition of investments and therefore, be allowed after acquisition of investments and therefore, be allowed as revenue expenditure according to the Id. AR. We find as revenue expenditure according to the Id. AR. We find as revenue expenditure according to the Id. AR. We find that the decision taken by this Tribunal in A.Y. 2009 that the decision taken by this Tribunal in A.Y. 2009 that the decision taken by this Tribunal in A.Y. 2009-10
Everest Industries Limited 38 718/M/2020, 7793, 7794/M/2020 & ITA Nos. 715, 718/M/2020, 7793, 7794/M/2020 & 1423, 1418, 654, 653/M/2020 1423, 1418, 654, 653/M/2020 may not be fully applicable to the facts of the instant may not be fully applicable to the facts of the instant may not be fully applicable to the facts of the instant case and we hold that the said decision would hold good with and we hold that the said decision would hold good with and we hold that the said decision would hold good with some modifications as suggested below based on factual some modifications as suggested below based on factual some modifications as suggested below based on factual developments that had happened later: developments that had happened later:- (a) Foreign currency loans utilised for acquiring fixed assets (a) Foreign currency loans utilised for acquiring fixed assets (a) Foreign currency loans utilised for acquiring fixed assets and overseas investments is to be cap and overseas investments is to be capitalised and italised and correspondingly depreciation need to be granted to the correspondingly depreciation need to be granted to the correspondingly depreciation need to be granted to the assessee. In this, the exchange loss pertaining to the period assessee. In this, the exchange loss pertaining to the period assessee. In this, the exchange loss pertaining to the period till the asset was put to use should alone be capitalised and till the asset was put to use should alone be capitalised and till the asset was put to use should alone be capitalised and thereafter, the same should be allowed as revenue thereafter, the same should be allowed as revenue thereafter, the same should be allowed as revenue expenditure. expenditure. (b) Foreign exchange loss attributable to other monetary b) Foreign exchange loss attributable to other monetary b) Foreign exchange loss attributable to other monetary items debited to FCMITA as per AS 11 ofICAI should be items debited to FCMITA as per AS 11 ofICAI should be items debited to FCMITA as per AS 11 ofICAI should be allowed as revenue expenditure. allowed as revenue expenditure. Accordingly, the concise ground No. 10 raised by the Accordingly, the concise ground No. 10 raised by the Accordingly, the concise ground No. 10 raised by the assessee is disposed off in the aforesaid manner. assessee is disposed off in the aforesaid manner.” ” 17.9 In back ground of above precedents available, we find that ck ground of above precedents available, we find that ck ground of above precedents available, we find that there are two sets of decisions. One set of decisions are of Hon’ble there are two sets of decisions. One set of decisions there are two sets of decisions. One set of decisions Supreme Courts and Hon’ble High Court. The Another set is Supreme Courts and Hon’ble High Court. The Another set is Supreme Courts and Hon’ble High Court. The Another set is decisions of Tribunal, where mainly the decision in the case of decisions of Tribunal, where mainly the decision in the case of decisions of Tribunal, where mainly the decision in the case of Cooper Corporation (supra) (supra) has been followed. 17.9.1 In the instant case, The Tribunal in the first round of In the instant case, The Tribunal in the first round of In the instant case, The Tribunal in the first round of proceeding, restored the matter back to restored the matter back to the Assessing Officer the Assessing Officer and directed to decide the issue in the lights of principles laid down in to decide the issue in the lights of principles laid down in to decide the issue in the lights of principles laid down in the case of Sutlaj Cotton Mills Ltd (supra) Cotton Mills Ltd (supra) and other decisions. and other decisions. We find the decision on the issue find the decision on the issue-in dispute in the case Sutlej Cotton in dispute in the case Sutlej Cotton Mills Ltd (supra) and Tata Iron and Steel Ltd (supra) are Mills Ltd (supra) and Tata Iron and Steel Ltd (supra) are Mills Ltd (supra) and Tata Iron and Steel Ltd (supra) are contradictory. The Tribunal in the case of The Tribunal in the case of MFAR Hotels and Resorts MFAR Hotels and Resorts Ltd (supra)b has also made similar observations. has also made similar observations. has also made similar observations. In such a Everest Industries Limited 39 718/M/2020, 7793, 7794/M/2020 & ITA Nos. 715, 718/M/2020, 7793, 7794/M/2020 & 1423, 1418, 654, 653/M/2020 1423, 1418, 654, 653/M/2020 situation of conflict in two decisions coordinate bench of Hon’ble of conflict in two decisions coordinate bench of Hon’ble of conflict in two decisions coordinate bench of Hon’ble Supreme Court, it is difficult for a subordinate authority to decide, it is difficult for a subordinate authority to decide, it is difficult for a subordinate authority to decide, which decision should be followed. which decision should be followed. However, Hon’ble supre Hon’ble supreme Court in the caseHyder Consulting (UK) Ltd. v. State of Orissa (2015) 2 Hyder Consulting (UK) Ltd. v. State of Orissa (2015) 2 Hyder Consulting (UK) Ltd. v. State of Orissa (2015) 2 SCC 189and Indian Oil Corporation Limited v. Municipal Indian Oil Corporation Limited v. Municipal Indian Oil Corporation Limited v. Municipal Corporation and Another (1995) 4 SCC 96 Corporation and Another (1995) 4 SCC 96, held , held that the earliest decision on a point of law would continue to be a good law, especially decision on a point of law would continue to be a good law, especially decision on a point of law would continue to be a good law, especially when the latter especially when the latter decisions have not the latter especially when the latter decisions have not the latter especially when the latter decisions have not considered the earlier judgment considered the earlier judgment – because had they considered, they because had they considered, they could not have differed from the earlier decision, and it would have to could not have differed from the earlier decision, and it would have to could not have differed from the earlier decision, and it would have to be referred to a full bench. be referred to a full bench.
We find that Hon’ble We find that Hon’ble Supreme Court in the case of Tata Iron Supreme Court in the case of Tata Iron and steel Ltd (supra) has not discussed the earlier decision in the Ltd (supra) has not discussed the earlier decision in the Ltd (supra) has not discussed the earlier decision in the case of Sutlej Cotton Mills Ltd (supra), therefore, with due case of Sutlej Cotton Mills Ltd (supra), therefore, with due case of Sutlej Cotton Mills Ltd (supra), therefore, with due respect,we are bound to follow the decision of Hon’ble Supreme are bound to follow the decision of Hon’ble Supreme are bound to follow the decision of Hon’ble Supreme Court in the case of Sut Court in the case of Sutlej Cotton Mills Ltd (supra). lej Cotton Mills Ltd (supra). We also note that that that Tribunal in Tribunal Tribunal in in the case the case of the case of Cooper of Cooper Cooper Corporation (supra) Corporation Corporation (supra) (supra) distinguished the decision of the Hon’ble Supreme Court in the case the decision of the Hon’ble Supreme Court in the case the decision of the Hon’ble Supreme Court in the case of the” Sutlej cotton mills limited (supra) observing that in the case of the” Sutlej cotton mills limited (supra) observing that in the case of the” Sutlej cotton mills limited (supra) observing that in the case fluctuation loss inflicted upon the assessee bears no nexus of nflicted upon the assessee bears no nexus of nflicted upon the assessee bears no nexus of relation to the acquisition of the asset, and the action of the relation to the acquisition of the asset, and the action of the relation to the acquisition of the asset, and the action of the assessee was for saving in interest cost i.e. hedging its revenue assessee was for saving in interest cost i.e. hedging its revenue assessee was for saving in interest cost i.e. hedging its revenue receipts and therefore the foreign action fluctuation loss was on receipts and therefore the foreign action fluctuation loss was on receipts and therefore the foreign action fluctuation loss was on Everest Industries Limited 40 718/M/2020, 7793, 7794/M/2020 & ITA Nos. 715, 718/M/2020, 7793, 7794/M/2020 & 1423, 1418, 654, 653/M/2020 1423, 1418, 654, 653/M/2020 revenue account. The relevant funding of the . The relevant funding of the Tribunal is . The relevant funding of the reproduced as under: reproduced as under:
“10.9 We find that the decision in the case of Sutlej Cotton 10.9 We find that the decision in the case of Sutlej Cotton 10.9 We find that the decision in the case of Sutlej Cotton Mills Ltd. (supra) relied upon by the Ld. Departmental Mills Ltd. (supra) relied upon by the Ld. Departmental Mills Ltd. (supra) relied upon by the Ld. Departmental Representative is of no assistance to the Revenue. The Representative is of no assistance to the Revenue. The Representative is of no assistance to the Revenue. The Hon'ble Supreme Court Hon'ble Supreme Court therein stated the principle of law therein stated the principle of law that where any profit or loss arises to an assessee on that where any profit or loss arises to an assessee on that where any profit or loss arises to an assessee on account of depreciation in foreign currency held by him on account of depreciation in foreign currency held by him on account of depreciation in foreign currency held by him on conversion from another currency, such profit and loss conversion from another currency, such profit and loss conversion from another currency, such profit and loss would ordinary be trading loss if the foreign curr would ordinary be trading loss if the foreign curr would ordinary be trading loss if the foreign currency held by the assessee on revenue account as trading asset or as by the assessee on revenue account as trading asset or as by the assessee on revenue account as trading asset or as a part of circulating capital embargo in business. However, a part of circulating capital embargo in business. However, a part of circulating capital embargo in business. However, if the foreign currency is held as a capital asset, the loss if the foreign currency is held as a capital asset, the loss if the foreign currency is held as a capital asset, the loss should be capital in nature. The aforesaid principle of law is should be capital in nature. The aforesaid principle of law is should be capital in nature. The aforesaid principle of law is required to be applied to the facts of case to determine ired to be applied to the facts of case to determine ired to be applied to the facts of case to determine whether the foreign currency is held by the assessee on whether the foreign currency is held by the assessee on whether the foreign currency is held by the assessee on revenue account or as a part of circulating capital. In the revenue account or as a part of circulating capital. In the revenue account or as a part of circulating capital. In the present case, fluctuation loss inflicted upon the assessee present case, fluctuation loss inflicted upon the assessee present case, fluctuation loss inflicted upon the assessee bears no nexus or relation t bears no nexus or relation to the acquisition to the assets. o the acquisition to the assets. The action of the assessee is tied up to its underlying The action of the assessee is tied up to its underlying The action of the assessee is tied up to its underlying objective i.e. saving in interest costs, hedging its revenue objective i.e. saving in interest costs, hedging its revenue objective i.e. saving in interest costs, hedging its revenue receipts etc. which are undoubtedly on revenue account. receipts etc. which are undoubtedly on revenue account. receipts etc. which are undoubtedly on revenue account. Thus, the loss generated in impugned action bears Thus, the loss generated in impugned action bears Thus, the loss generated in impugned action bears the character of revenue expenditure. Similarly, decision of the character of revenue expenditure. Similarly, decision of the character of revenue expenditure. Similarly, decision of the Apex Court in the case of Tata Iron and Steel co. (supra) Apex Court in the case of Tata Iron and Steel co. (supra) Apex Court in the case of Tata Iron and Steel co. (supra) also weighs in favour of the assessee.We also note that also weighs in favour of the assessee.We also note that also weighs in favour of the assessee.We also note that reliance placed by the CIT(A) on Elecon Engineering Co.Ltd. reliance placed by the CIT(A) on Elecon Engineering Co.Ltd. reliance placed by the CIT(A) on Elecon Engineering Co.Ltd. (supra) is mispla (supra) is misplaced. The decision concerns applicability of ced. The decision concerns applicability of S. 43A in the facts of that case and thus clearly S. 43A in the facts of that case and thus clearly S. 43A in the facts of that case and thus clearly distinguishable. distinguishable.” 18.1 Thus, in our opinion, the opinion, the decisions of Tribunal relied upon by decisions of Tribunal relied upon by the Ld Counsel of assessee, where ratio of Copper Corporation the Ld Counsel of assessee, where ratio of Copper Corporation the Ld Counsel of assessee, where ratio of Copper Corporation (supra) has been followed, followed, are of no assistance. are of no assistance. The Cooper corporation (supra) was also distinguished by the Tribunal in first corporation (supra) was also distinguished by the Tribunal in first corporation (supra) was also distinguished by the Tribunal in first round of proceedings. round of proceedings. As far as other decisions, where the issue of As far as other decisions, where the issue of Everest Industries Limited 41 718/M/2020, 7793, 7794/M/2020 & ITA Nos. 715, 718/M/2020, 7793, 7794/M/2020 & 1423, 1418, 654, 653/M/2020 1423, 1418, 654, 653/M/2020 Forex gain or loss has been decided on the basis of accounting Forex gain or loss has been decided on the basis of accounting Forex gain or loss has been decided on the basis of accounting principles, is considered, first of all, the assessee itself has followed is considered, first of all, the assessee itself has followed is considered, first of all, the assessee itself has followed the accounting principles in operation during the relevant period the accounting principles in operation during the relevant period the accounting principles in operation during the relevant period and treated the forex loss as item of capital expenditure except and treated the forex loss as item of capital expenditure except and treated the forex loss as item of capital expenditure except small amount transferred to FCMITDA, which has been further small amount transferred to FCMITDA, which has been further small amount transferred to FCMITDA, which has been further written off in the books of account. The claim of the assessee that itten off in the books of account. The claim of the assessee that itten off in the books of account. The claim of the assessee that those accounting standard were issued for transitory period and not those accounting standard were issued for transitory period and not those accounting standard were issued for transitory period and not normally following acco normally following accounting principles and therefore unting principles and therefore, forex loss should be allowed following accounting standard in existence in should be allowed following accounting standard in exis should be allowed following accounting standard in exis prior period, is devoid of any merit period, is devoid of any merit. In exactly identical In exactly identical circumstances in the case of Mahindra & Mahindra Ltd. (supra), the circumstances in the case of Mahindra & Mahindra Ltd. (supra), the circumstances in the case of Mahindra & Mahindra Ltd. (supra), the assessee accepted the loss as capital expenditure assessee accepted the loss as capital expenditure. Further, we are of the view that when the Hon’ble of the view that when the Hon’ble Supreme Court has already laid Supreme Court has already laid down the law on a particular issue then , the plea of the assessee down the law on a particular issue then , the plea of the assessee down the law on a particular issue then , the plea of the assessee that for the purpose of ascertaining profits and gains the ordinary for the purpose of ascertaining profits and gains the ordinary for the purpose of ascertaining profits and gains the ordinary principles of commercial accounting should be applied , so long as principles of commercial accounting should be applied , so long as principles of commercial accounting should be applied , so long as they do not conflict w they do not conflict with any express provision of the relevant ith any express provision of the relevant statute [relying on the decision of the Hon’ble supreme Court in the statute [relying on the decision of the Hon’ble supreme Court in the statute [relying on the decision of the Hon’ble supreme Court in the CIT vs UP State Industrial Development Corporation (supra) ] is also CIT vs UP State Industrial Development Corporation (supra) ] is also CIT vs UP State Industrial Development Corporation (supra) ] is also of no assistance, accordingly, we reject said contention of the ld. of no assistance, accordingly, we reject said contention of the ld. of no assistance, accordingly, we reject said contention of the ld. Counsel of the assessee. of the assessee.
18.2 When we examine the facts of the instant case in the light of When we examine the facts of the instant case in the light of When we examine the facts of the instant case in the light of the above decisions, we find that assessee has made the accounting the above decisions, we find that assessee has made the accounting the above decisions, we find that assessee has made the accounting entries in respect of foreign entries in respect of foreign-exchange fluctuation difference to the exchange fluctuation difference to the Everest Industries Limited 42 718/M/2020, 7793, 7794/M/2020 & ITA Nos. 715, 718/M/2020, 7793, 7794/M/2020 & 1423, 1418, 654, 653/M/2020 1423, 1418, 654, 653/M/2020 fixed assets following the Ministr fixed assets following the Ministry of corporate affairs notification y of corporate affairs notification for modification of accounting standard As for modification of accounting standard As-11 and treated the forex and treated the forex loss as capital expenditure. In the ratio of the Hon’ble Supreme loss as capital expenditure. In the ratio of the Hon’ble Supreme loss as capital expenditure. In the ratio of the Hon’ble Supreme Court in the case of Sutlej Cotton Mills Ltd (supra) , as reproduced Court in the case of Sutlej Cotton Mills Ltd (supra) , as reproduced Court in the case of Sutlej Cotton Mills Ltd (supra) , as reproduced above, if the loan is utilised for fixed capital, the forex gain or loss , is utilised for fixed capital, the forex gain or loss , is utilised for fixed capital, the forex gain or loss , will be capital in nature. We will be capital in nature. We also note that the Hon’ble note that the Hon’ble Bombay High Court in the case of CIT Vs V S Dempo and Co. Pvt Ltd (1994 ) High Court in the case of CIT Vs V S Dempo and Co. Pvt Ltd (1994 ) High Court in the case of CIT Vs V S Dempo and Co. Pvt Ltd (1994 ) 206 ITR 291(Bom), relying on the decision of Hon’ble Supreme 206 ITR 291(Bom), relying on the decision of Hon’ble Supreme 206 ITR 291(Bom), relying on the decision of Hon’ble Supreme Court in the case Sutlej Cotton Mills Ltd (supra) ; the decision of in the case Sutlej Cotton Mills Ltd (supra) ; the decision of in the case Sutlej Cotton Mills Ltd (supra) ; the decision of Calcutta High Court in the case of Oil India Co. Ltd Vs CIT (1982) Calcutta High Court in the case of Oil India Co. Ltd Vs CIT (1982) Calcutta High Court in the case of Oil India Co. Ltd Vs CIT (1982) 137 ITR 156 ; decision of Hon’ble Supreme Court in the case of CIT 137 ITR 156 ; decision of Hon’ble Supreme Court in the case of CIT 137 ITR 156 ; decision of Hon’ble Supreme Court in the case of CIT vs Tata Locomotive and Engineering Co. Ltd (supra) . The ratio of vs Tata Locomotive and Engineering Co. Ltd (supra) vs Tata Locomotive and Engineering Co. Ltd (supra) the decision in the case of CIT Vs V S Dempo and Co. Pvt Ltd the decision in the case of CIT Vs V S Dempo and Co. Pvt Ltd the decision in the case of CIT Vs V S Dempo and Co. Pvt Ltd (supra) has been discussed by the Tribunal in first round of (supra) has been discussed by the Tribunal in first round of (supra) has been discussed by the Tribunal in first round of proceedings.
18.3 In the case before the Assessing Officer in second of before the Assessing Officer in second of before the Assessing Officer in second of proceedings, the assessee has provided details of bills , the assessee has provided details of bills and vouchers , the assessee has provided details of bills in support of purchase of assets of in support of purchase of assets of ₹ 30.11 crores out of the loan of es out of the loan of ₹ 48.37 corrodes and no details of the balance 48.37 corrodes and no details of the balance Rs. Rs. 18.26 crores have been submitted. been submitted. This is second round of proceeding before us. This is second round of proceeding before us. The assessee was required to provide all details before the assessing was required to provide all details before the assessing was required to provide all details before the assessing officer in second round of proceedings still incomplete detils have officer in second round of proceedings still incomplete detils have officer in second round of proceedings still incomplete detils have been filed. The ld Counsel of the assessee intimated that complete been filed. The ld Counsel of the assessee intimated that complete been filed. The ld Counsel of the assessee intimated that complete were provided and still all details are available with the assessee. were provided and still all details are available with the asse were provided and still all details are available with the asse
Everest Industries Limited 43 718/M/2020, 7793, 7794/M/2020 & ITA Nos. 715, 718/M/2020, 7793, 7794/M/2020 & 1423, 1418, 654, 653/M/2020 1423, 1418, 654, 653/M/2020 Therefore , in facts and Therefore , in facts and circumstances of the case and the interest of the case and the interest of substantial justice of substantial justice, we feel it appropriate to restore this issue , we feel it appropriate to restore this issue back to the file of the Assessing Officer back to the file of the Assessing Officer with the with the direction to the assessee for providing evidence in support for providing evidence in support as to what amount of to what amount of the foreign loan ( ECB) has been utilised for has been utilised for assets indigenously indigenously and what amount of loan has been utilised for acquiring assets from what amount of loan has been utilised for acquiring assets what amount of loan has been utilised for acquiring assets outside India , and then then the Assessing Officer is directed to decide he Assessing Officer is directed to decide the issue following the finding o following the finding of Hon’ble Supreme Court in the case f Hon’ble Supreme Court in the case of Sutlej Cotton Mills Ltd of Sutlej Cotton Mills Ltd (supra), which has been further followed , which has been further followed in the case of V S Dempo and Co Ltd (supra), in respect of assets in the case of V S Dempo and Co Ltd (supra), in respect of assets in the case of V S Dempo and Co Ltd (supra), in respect of assets purchased indigenously and as per the provisions of section 43A in purchased indigenously and as per the provisions of section 43A in purchased indigenously and as per the provisions of section 43A in respect of assets purchased from outside India. urchased from outside India. The ground of the The ground of the appeal of the assessee, is allowed for statistical purposes. appeal of the assessee, is allowed for statistical purposes. appeal of the assessee, is allowed for statistical purposes.
As far as ground No. As far as ground No. 1 and 2 of the appeal of the of the appeal of the Revenue are concerned, the Ld. counsel Ld. counsel of the assessee, at the outset submitted the outset submitted that issue in dispute are covered in favour of the assessee by the that issue in dispute are covered in favour of the assessee by the that issue in dispute are covered in favour of the assessee by the order of the Tribunal Tribunal for assessment year 2010 for assessment year 2010-11, which is reported in (2022) 141 taxmann.com 176(Mumbai-Trib.). The Ld. reported in (2022) 141 taxmann.com 176(Mumbai reported in (2022) 141 taxmann.com 176(Mumbai DR also could not contro DR also could not controvert the statement of Ld. counsel Ld. counsel of the assessee.
As far as ground No. As far as ground No. 1 of the appeal concerning sales tax of the appeal concerning sales tax incentive as capital receipt is concerned as capital receipt is concerned, we find the , we find the Tribunal (supra) has mentioned in para 9.1 that grounds of the appeal No. (supra) has mentioned in para 9.1 that grounds of the appeal No. (supra) has mentioned in para 9.1 that grounds of the appeal No.
Everest Industries Limited 44 718/M/2020, 7793, 7794/M/2020 & ITA Nos. 715, 718/M/2020, 7793, 7794/M/2020 & 1423, 1418, 654, 653/M/2020 1423, 1418, 654, 653/M/2020 1(i) to 1(iv) of the Revenue Revenue relates to sales tax incentive under new relates to sales tax incentive under new packages scheme of incentives. The packages scheme of incentives. The Tribunal(supra) (supra) after hearing both the parties on the taxability of sales tax incentive held the both the parties on the taxability of sales tax incentive held the both the parties on the taxability of sales tax incentive held the same as capital receipt observing as under: same as capital receipt observing as under:
“12. We have heard the submissions of b “12. We have heard the submissions of both the parties and oth the parties and perused the material available on record. We find that the perused the material available on record. We find that the perused the material available on record. We find that the present issue is fully covered in assessee's own case in ITA.No. present issue is fully covered in assessee's own case in ITA.No. present issue is fully covered in assessee's own case in ITA.No. 814/Mum/2007 for the A.Y. 2003 814/Mum/2007 for the A.Y. 2003-04 wherein the Tribunal 04 wherein the Tribunal allowed relief in respect of the matter in issue. Further allowed relief in respect of the matter in issue. Further allowed relief in respect of the matter in issue. Further, the Special Bench of the Tribunal in the case of Dy. CIT v. Reliance Special Bench of the Tribunal in the case of Dy. CIT v. Reliance Special Bench of the Tribunal in the case of Dy. CIT v. Reliance Industries Lid. (2004] 88 ITD 273 (Mum) held that sales tax Industries Lid. (2004] 88 ITD 273 (Mum) held that sales tax Industries Lid. (2004] 88 ITD 273 (Mum) held that sales tax subsidy received under the Package Scheme of Incentives, 1979 subsidy received under the Package Scheme of Incentives, 1979 subsidy received under the Package Scheme of Incentives, 1979 is for the purpose of industrial development of the backward is for the purpose of industrial development of the backward is for the purpose of industrial development of the backward districts stricts stricts as as as well well well as as as generation generation generation of of of employment, employment, employment, thus, thus, thus, establishing a direct nexus with the investment in fixed capital establishing a direct nexus with the investment in fixed capital establishing a direct nexus with the investment in fixed capital assets and hence, a capital receipt. Against this Special Bench assets and hence, a capital receipt. Against this Special Bench assets and hence, a capital receipt. Against this Special Bench order of the Tribunal, the Department filed an appeal before the order of the Tribunal, the Department filed an appeal before the order of the Tribunal, the Department filed an appeal before the Hon'ble High Court of Bombay which h Court of Bombay which is pending for h Court of Bombay which is pending for is pending for adjudication. In this connection, it is relevant to state that the adjudication. In this connection, it is relevant to state that the adjudication. In this connection, it is relevant to state that the Hon'ble Supreme Court in the case of Union of India v., Hon'ble Supreme Court in the case of Union of India v., Hon'ble Supreme Court in the case of Union of India v., Kamlakshi Finance Corpn. Lid., 1992 taxmann.com 16 has held Kamlakshi Finance Corpn. Lid., 1992 taxmann.com 16 has held Kamlakshi Finance Corpn. Lid., 1992 taxmann.com 16 has held that ' mere fact that the order of that ' mere fact that the order of the appellate authority is not the appellate authority is not "acceptable" to the Department and is the subject matter of an "acceptable" to the Department and is the subject matter of an "acceptable" to the Department and is the subject matter of an appeal can furnish no ground for not following it unless its appeal can furnish no ground for not following it unless its appeal can furnish no ground for not following it unless its operation has been suspended by a competent court. We find operation has been suspended by a competent court. We find operation has been suspended by a competent court. We find that since the order of the Special Bench that since the order of the Special Bench of the Tribunal is still of the Tribunal is still holds the field and in absence of any contrary decision brought holds the field and in absence of any contrary decision brought holds the field and in absence of any contrary decision brought to our notice by the Ld. D.R, and the order of the Ld. CIT(A) in to our notice by the Ld. D.R, and the order of the Ld. CIT(A) in to our notice by the Ld. D.R, and the order of the Ld. CIT(A) in deleting the addition made by the A.O, is in accordance with deleting the addition made by the A.O, is in accordance with deleting the addition made by the A.O, is in accordance with law, we find no reason to interfere with law, we find no reason to interfere with the order of the Ld, the order of the Ld, CIT(A) on this issue and, therefore, we hold that the amount of CIT(A) on this issue and, therefore, we hold that the amount of CIT(A) on this issue and, therefore, we hold that the amount of incentive is not a revenue receipt, but, it is a capital receipt and; incentive is not a revenue receipt, but, it is a capital receipt and; incentive is not a revenue receipt, but, it is a capital receipt and; therofore, we direct the A.O. to delete the addition. The Revenue therofore, we direct the A.O. to delete the addition. The Revenue therofore, we direct the A.O. to delete the addition. The Revenue fails in its grounds of appeal
Nos fails in its grounds of appeal Nos. 1(i) to 1(iv) and, therefore, the . 1(i) to 1(iv) and, therefore, the grounds on this issue are dismissed.” grounds on this issue are dismissed.”
21. As far as ground far as ground of the appeal concerning excise duty the appeal concerning excise duty incentive as capital receipt is concerned, the incentive as capital receipt is concerned, the Tribunal Tribunal(supra) in para 16, has held the same as capital receipt observing as under: para 16, has held the same as capital receipt observing as para 16, has held the same as capital receipt observing as Everest Industries Limited 45 718/M/2020, 7793, 7794/M/2020 & ITA Nos. 715, 718/M/2020, 7793, 7794/M/2020 & 1423, 1418, 654, 653/M/2020 1423, 1418, 654, 653/M/2020
“16. We have heard the rival submissions of both the 16. We have heard the rival submissions of both the 16. We have heard the rival submissions of both the parties and perused the material available on record. We parties and perused the material available on record. We parties and perused the material available on record. We find that the objective of grant of Excise Duty Incentive as find that the objective of grant of Excise Duty Incentive as find that the objective of grant of Excise Duty Incentive as envisaged in Office Memorandum dated 7 envisaged in Office Memorandum dated 7-01-2003 [Refer 2003 [Refer Page No. 245 Page No. 245-262 of FBI issued by Ministry of Commerce y Ministry of Commerce & Industry is industrialization of backward area of & Industry is industrialization of backward area of & Industry is industrialization of backward area of Uttaranchal for generation of employment and utilization Uttaranchal for generation of employment and utilization Uttaranchal for generation of employment and utilization of local resources. Hence, the incentive received by of local resources. Hence, the incentive received by of local resources. Hence, the incentive received by assessee is on capital account. The Ld. CIT(A) also treated assessee is on capital account. The Ld. CIT(A) also treated assessee is on capital account. The Ld. CIT(A) also treated the sum as the sum as capital receipt by taking strength from the capital receipt by taking strength from the Judgment of Hon'ble Jammu & Kashmir High Court in the Judgment of Hon'ble Jammu & Kashmir High Court in the Judgment of Hon'ble Jammu & Kashmir High Court in the case of Shree Balaji Alloys (supra) which has been case of Shree Balaji Alloys (supra) which has been case of Shree Balaji Alloys (supra) which has been affirmed by Hon'ble Apex Court vide Civil appeal No. affirmed by Hon'ble Apex Court vide Civil appeal No. affirmed by Hon'ble Apex Court vide Civil appeal No. 10061 of 2011 dated 19 10061 of 2011 dated 19-04-2016. Further the Hon'ble 2016. Further the Hon'ble Jammu and Kashmeer High Court while rendering its mmu and Kashmeer High Court while rendering its mmu and Kashmeer High Court while rendering its Judgment in the case of Shree Balaji Alloys (supra) had Judgment in the case of Shree Balaji Alloys (supra) had Judgment in the case of Shree Balaji Alloys (supra) had relied on the principles laid down by the Hon'ble Apex relied on the principles laid down by the Hon'ble Apex relied on the principles laid down by the Hon'ble Apex Court in the case of Sahney Steel & Press Works v. CIT Court in the case of Sahney Steel & Press Works v. CIT Court in the case of Sahney Steel & Press Works v. CIT (1997) 94 Taxman 368/228 ITR 253 &Ponni Su (1997) 94 Taxman 368/228 ITR 253 &Ponni Su (1997) 94 Taxman 368/228 ITR 253 &Ponni Sugars & Chemicals Ltd. (supra) and after analyzing the Office Chemicals Ltd. (supra) and after analyzing the Office Chemicals Ltd. (supra) and after analyzing the Office Memorandum dated 14 Memorandum dated 14-06-2002 behind the grant of 2002 behind the grant of Incentive has held that Excise Duty refund granted with Incentive has held that Excise Duty refund granted with Incentive has held that Excise Duty refund granted with the object of creating avenues for Perpetual Employment, the object of creating avenues for Perpetual Employment, the object of creating avenues for Perpetual Employment, to eradicate the social problem of to eradicate the social problem of unemployment in the unemployment in the State by accelerated industrial development was a capital State by accelerated industrial development was a capital State by accelerated industrial development was a capital receipt. Further, the Departmental Appeal filed against the receipt. Further, the Departmental Appeal filed against the receipt. Further, the Departmental Appeal filed against the said High Court decision of Shree Balaji Alloys (supra) has said High Court decision of Shree Balaji Alloys (supra) has said High Court decision of Shree Balaji Alloys (supra) has also been dismissed by the Hon'ble Apex Court. So, this also been dismissed by the Hon'ble Apex Court. So, this also been dismissed by the Hon'ble Apex Court. So, this issue has attained finality. Since we find no infirmity in ssue has attained finality. Since we find no infirmity in ssue has attained finality. Since we find no infirmity in the order of the Ld. CIT(A) and the Ld. D.R. failed to put the order of the Ld. CIT(A) and the Ld. D.R. failed to put the order of the Ld. CIT(A) and the Ld. D.R. failed to put forth any contrary decision, we confirm the order of the Ld. forth any contrary decision, we confirm the order of the Ld. forth any contrary decision, we confirm the order of the Ld. CIT(A) on this issue and dismiss the grounds of appeal no. CIT(A) on this issue and dismiss the grounds of appeal no. CIT(A) on this issue and dismiss the grounds of appeal no. 2(i) to 2(w) of the 2(i) to 2(w) of the Revenue.” 21.1 The issue in dispute involved in the year under consideration issue in dispute involved in the year under consideration issue in dispute involved in the year under consideration being identical to the issues decided by the being identical to the issues decided by the Tribunal Tribunal(supra), therefore respectfully following the same, the ground No. 1 and 2 of therefore respectfully following the same, the ground No. therefore respectfully following the same, the ground No. the appeal of the Revenue Revenue are dismissed.
Everest Industries Limited 46 718/M/2020, 7793, 7794/M/2020 & ITA Nos. 715, 718/M/2020, 7793, 7794/M/2020 & 1423, 1418, 654, 653/M/2020 1423, 1418, 654, 653/M/2020
The ground No. No.3 of the appeal of the Revenue Revenue relates to excluding sales tax incentive and excise duty exemption while excluding sales tax incentive and excise duty exemption while excluding sales tax incentive and excise duty exemption while computing the book profit under section 115 JB of the Act. computing the book profit under section 115 JB of the computing the book profit under section 115 JB of the
We find that identical issue has been decided by We find that identical issue has been decided by We find that identical issue has been decided by us in the case of the assessee for assessment year 2008 essee for assessment year 2008-09, therefore following our 09, therefore following our finding in assessment year 2008 finding in assessment year 2008-09, the ground of the appeal of the 09, the ground of the appeal of the revenue is dismissed. revenue is dismissed.
Now, we take up the cross appeal we take up the cross appeals for assessment for assessment year 2012- 13. The grounds raised
by the assessee
13. The grounds raised by the assessee are reproduced as under: reproduced as under:
1. That on the facts and in the circumstances of the case, That on the facts and in the circumstances of the case, That on the facts and in the circumstances of the case, the Ld.Commissioner of Income Tax (Appeals) (here the Ld.Commissioner of Income Tax (Appeals) (here the Ld.Commissioner of Income Tax (Appeals) (here-in-after referred to as'Ld. CIT(Appeals)' was not justified & grossly referred to as'Ld. CIT(Appeals)' was not justified & grossly referred to as'Ld. CIT(Appeals)' was not justified & grossly erred in confirming disallowance in respect of provision erred in confirming disallowance in respect of provision erred in confirming disallowance in respect of provision for leave encashment debited to Profit & Loss Account leave encashment debited to Profit & Loss Account leave encashment debited to Profit & Loss Account amounting to Rs. 45,22,238/ amounting to Rs. 45,22,238/-in computing total income in computing total income under the normal provisions of the Act. under the normal provisions of the Act.
2. That on the facts and in the circumstances of the case, That on the facts and in the circumstances of the case, That on the facts and in the circumstances of the case, the Ld.CIT (Appeals) was not justified &grossly the Ld.CIT (Appeals) was not justified &grossly the Ld.CIT (Appeals) was not justified &grossly erred in confirming the action of the A.O. in not allowing additional confirming the action of the A.O. in not allowing additional confirming the action of the A.O. in not allowing additional depreciation u/s32(1) (iia) amounting to Rs. 7,26,59,325/ depreciation u/s32(1) (iia) amounting to Rs. 7,26,59,325/ depreciation u/s32(1) (iia) amounting to Rs. 7,26,59,325/- in respect of new Plant & Machinery acquired and in respect of new Plant & Machinery acquired and in respect of new Plant & Machinery acquired and installed after 31 installed after 31-03-2005 but before 01-04-2011. 2011. 24.1 The grounds raised by t grounds raised by the revenue are reproduced as under: he revenue are reproduced as under:
1. (i) Whether the CIT (A) erred on the facts and in the Whether the CIT (A) erred on the facts and in the Whether the CIT (A) erred on the facts and in the circumstances of the case and in law, in deleting an circumstances of the case and in law, in deleting an circumstances of the case and in law, in deleting an amount of Rs. 2,34,15,232/ amount of Rs. 2,34,15,232/- being disallowance of claim being disallowance of claim of sales tax incentive. of sales tax incentive. (ii) Whether the CIT (A) erred on the facts and in the ) Whether the CIT (A) erred on the facts and in the ) Whether the CIT (A) erred on the facts and in the circumstances of the case and in law, in holding that Sales circumstances of the case and in law, in holding that Sales circumstances of the case and in law, in holding that Sales
Everest Industries Limited 47 718/M/2020, 7793, 7794/M/2020 & ITA Nos. 715, 718/M/2020, 7793, 7794/M/2020 & 1423, 1418, 654, 653/M/2020 1423, 1418, 654, 653/M/2020
Tax was embedded in the Sales prices charged by the Tax was embedded in the Sales prices charged by the Tax was embedded in the Sales prices charged by the assessee and the same was in the nature of capital assessee and the same was in the nature of capital assessee and the same was in the nature of capital receipt. The Ld. CIT(A) ignored the fact receipt. The Ld. CIT(A) ignored the fact that the assessee that the assessee was legally required to collect Sales Tax on the Sales was legally required to collect Sales Tax on the Sales was legally required to collect Sales Tax on the Sales made, yet it had worked out the notional Sales Tax so made, yet it had worked out the notional Sales Tax so made, yet it had worked out the notional Sales Tax so collected and had claimed the same as capital receipts. collected and had claimed the same as capital receipts. collected and had claimed the same as capital receipts. (iii) Whether the CIT (A) erred on the facts and in the ) Whether the CIT (A) erred on the facts and in the ) Whether the CIT (A) erred on the facts and in the circumstances of circumstances of the case and in law, in relying on the the case and in law, in relying on the decision of ITAT, Mumbai and the decision of Bombay decision of ITAT, Mumbai and the decision of Bombay decision of ITAT, Mumbai and the decision of Bombay High Court (ITA No. 1299 of 2008 in the case of Reliance High Court (ITA No. 1299 of 2008 in the case of Reliance High Court (ITA No. 1299 of 2008 in the case of Reliance Industries Limited, even though subsequent to the Industries Limited, even though subsequent to the Industries Limited, even though subsequent to the Departmental appeal against the Order of High Court, the Departmental appeal against the Order of High Court, the Departmental appeal against the Order of High Court, the issue has been remitted back to the Bombay High Court to ssue has been remitted back to the Bombay High Court to ssue has been remitted back to the Bombay High Court to decide afresh and the same is still pending for decide afresh and the same is still pending for decide afresh and the same is still pending for adjudication. adjudication. (iv) Without prejudice to the above grounds, whether the (iv) Without prejudice to the above grounds, whether the (iv) Without prejudice to the above grounds, whether the CIT (A) erred on facts and in law, directing the AO that the CIT (A) erred on facts and in law, directing the AO that the CIT (A) erred on facts and in law, directing the AO that the Sales Tax Incentive Sales Tax Incentive is not required to be deducted from the is not required to be deducted from the cost of assets, if the same is treated as capital receipts by cost of assets, if the same is treated as capital receipts by cost of assets, if the same is treated as capital receipts by the A.O. ignoring the provisions of explanation 10 to the A.O. ignoring the provisions of explanation 10 to the A.O. ignoring the provisions of explanation 10 to section 43(1) of the Act? section 43(1) of the Act? 2. (i) Whether the CIT (A) erred on facts and in the (i) Whether the CIT (A) erred on facts and in the (i) Whether the CIT (A) erred on facts and in the circumstances of the circumstances of the case and in law in holding that the case and in law in holding that the excise duty of Rs. 35,13,87,884/ excise duty of Rs. 35,13,87,884/- stated to be collected by stated to be collected by the assessee was capital in nature without any evidence the assessee was capital in nature without any evidence the assessee was capital in nature without any evidence placed on record to establish that the said amount was placed on record to establish that the said amount was placed on record to establish that the said amount was actually collected on account of excise duty. actually collected on account of excise duty. (ii) Without prejudice to the ground at () above, whether the ) Without prejudice to the ground at () above, whether the ) Without prejudice to the ground at () above, whether the CIT (A) erred on facts and in the circumstances of the case CIT (A) erred on facts and in the circumstances of the case CIT (A) erred on facts and in the circumstances of the case and in law in holding that the excise duty of Rs. and in law in holding that the excise duty of Rs. and in law in holding that the excise duty of Rs. 35,13,87,884/ 35,13,87,884/- collected by the assessee was not revenue collected by the assessee was not revenue in nature despite the fact tha in nature despite the fact that the same was collected by t the same was collected by the assessee on goods which were exempted from levy of the assessee on goods which were exempted from levy of the assessee on goods which were exempted from levy of any duty as per the Central Excise Department's any duty as per the Central Excise Department's any duty as per the Central Excise Department's Notification No. 50/2002 Notification No. 50/2002-CE dated 10.06.2003 (iii) Whether the CIT (A) erred on facts and in the ) Whether the CIT (A) erred on facts and in the ) Whether the CIT (A) erred on facts and in the circumstances of the case an circumstances of the case and in law in holding that the d in law in holding that the excise duty of Rs. 35,13,87,884/ excise duty of Rs. 35,13,87,884/- collected by the collected by the Everest Industries Limited 48 718/M/2020, 7793, 7794/M/2020 & ITA Nos. 715, 718/M/2020, 7793, 7794/M/2020 & 1423, 1418, 654, 653/M/2020 1423, 1418, 654, 653/M/2020 assessee was capital in nature by comparing the scheme assessee was capital in nature by comparing the scheme assessee was capital in nature by comparing the scheme of exemption under which the claim was made by the of exemption under which the claim was made by the of exemption under which the claim was made by the assessee by such other schemes wherein the mode of assessee by such other schemes wherein the mode of assessee by such other schemes wherein the mode of incentive was in th incentive was in the nature of refund/reimbursement or e nature of refund/reimbursement or subsidy. (iv) Without prejudice to the above, whether the CIT (A) (iv) Without prejudice to the above, whether the CIT (A) (iv) Without prejudice to the above, whether the CIT (A) erred on facts and in law, directing the AO that the Excise erred on facts and in law, directing the AO that the Excise erred on facts and in law, directing the AO that the Excise duty exemption is not required to be deducted from the duty exemption is not required to be deducted from the duty exemption is not required to be deducted from the cost of assets, if the same is treated cost of assets, if the same is treated as capital receipts by as capital receipts by the A.O. ignoring the provisions of explanation 10 to the A.O. ignoring the provisions of explanation 10 to the A.O. ignoring the provisions of explanation 10 to section 43(1) of the Act? section 43(1) of the Act? (v) Whether the CIT (A) erred on the facts and in the (v) Whether the CIT (A) erred on the facts and in the (v) Whether the CIT (A) erred on the facts and in the circumstances of the case and in law, in not appreciating circumstances of the case and in law, in not appreciating circumstances of the case and in law, in not appreciating the fact that the provision to explanatio the fact that the provision to explanation 10 section 43(1) n 10 section 43(1) of the IT .Act, was intended to cover any subsidy or grant of the IT .Act, was intended to cover any subsidy or grant of the IT .Act, was intended to cover any subsidy or grant or reimbursement directly or indirectly met by the Central or reimbursement directly or indirectly met by the Central or reimbursement directly or indirectly met by the Central or State Government or any authority established under or State Government or any authority established under or State Government or any authority established under any law and the asesseee's claim of excise duty any law and the asesseee's claim of excise duty any law and the asesseee's claim of excise duty exemption is cov exemption is covered in indirect subsidy? 3. Whether the CIT (A) erred on facts and in law in 3. Whether the CIT (A) erred on facts and in law in 3. Whether the CIT (A) erred on facts and in law in allowing allowing allowing the the the foreign foreign foreign exchange exchange exchange fluctuation fluctuation fluctuation loss loss loss on on on reinstatement of loan without verifying whether the reinstatement of loan without verifying whether the reinstatement of loan without verifying whether the underlying transaction was on capital or revenue account underlying transaction was on capital or revenue account underlying transaction was on capital or revenue account and without verifyi and without verifying whether the underlying transaction ng whether the underlying transaction was in US dollar and Japanese Yen. was in US dollar and Japanese Yen. 5. (i) Whether the CIT (A) erred on the facts and in the Whether the CIT (A) erred on the facts and in the Whether the CIT (A) erred on the facts and in the circumstances of the case and in law, in directing the AO circumstances of the case and in law, in directing the AO circumstances of the case and in law, in directing the AO to exclude Sales Tax incentive and Excise Duty Exemption, to exclude Sales Tax incentive and Excise Duty Exemption, to exclude Sales Tax incentive and Excise Duty Exemption, while computing the book profits us 115JB of the Act, while computing the book profits us 115JB of the Act, while computing the book profits us 115JB of the Act, withoutappreciating that they have withoutappreciating that they have not been specifically not been specifically excluded in Explanation 1 to section 115JB of the Act . excluded in Explanation 1 to section 115JB of the Act . excluded in Explanation 1 to section 115JB of the Act . (ii) Whether the CIT (A) erred on the facts and in the ) Whether the CIT (A) erred on the facts and in the ) Whether the CIT (A) erred on the facts and in the circumstances of the case and in law, in directing the AO circumstances of the case and in law, in directing the AO circumstances of the case and in law, in directing the AO to exclude Sales Tax incentive and Excise Duty Exemption, to exclude Sales Tax incentive and Excise Duty Exemption, to exclude Sales Tax incentive and Excise Duty Exemption, while computing the book profits us 115JB of the Act omputing the book profits us 115JB of the Act omputing the book profits us 115JB of the Act despite the fact that no adjustment other than the ones despite the fact that no adjustment other than the ones despite the fact that no adjustment other than the ones mentioned in Sec.115JB is permissible as held by the mentioned in Sec.115JB is permissible as held by the mentioned in Sec.115JB is permissible as held by the Everest Industries Limited 49 718/M/2020, 7793, 7794/M/2020 & ITA Nos. 715, 718/M/2020, 7793, 7794/M/2020 & 1423, 1418, 654, 653/M/2020 1423, 1418, 654, 653/M/2020
Supreme Court in the case of Apollo Tyres Ltd. (255 IT Supreme Court in the case of Apollo Tyres Ltd. (255 IT Supreme Court in the case of Apollo Tyres Ltd. (255 IT 273) 6. (i) Whether the CIT (A) erred on the f Whether the CIT (A) erred on the facts and in the acts and in the circumstances of the case and in law, in not following circumstances of the case and in law, in not following circumstances of the case and in law, in not following precedent in the decision of hon'ble ITAT vide order dated precedent in the decision of hon'ble ITAT vide order dated precedent in the decision of hon'ble ITAT vide order dated 31.01.2018 in assessee's own case for A.Y. 2009 31.01.2018 in assessee's own case for A.Y. 2009 31.01.2018 in assessee's own case for A.Y. 2009-10 wherein hon'ble ITAT rejected the grounds raised by the wherein hon'ble ITAT rejected the grounds raised by the wherein hon'ble ITAT rejected the grounds raised by the assessee in respect assessee in respect of Education Cess. (ii) Whether the CIT (A) erred On the facts and in the ) Whether the CIT (A) erred On the facts and in the ) Whether the CIT (A) erred On the facts and in the circumstances of the case and in law, to appreciate that circumstances of the case and in law, to appreciate that circumstances of the case and in law, to appreciate that fact that the education cess has been levied under Finance fact that the education cess has been levied under Finance fact that the education cess has been levied under Finance Act as an item to increase income tax and it has been held Act as an item to increase income tax and it has been held Act as an item to increase income tax and it has been held to be part of"income tax" by Hon'ble Calcutta High Court in part of"income tax" by Hon'ble Calcutta High Court in part of"income tax" by Hon'ble Calcutta High Court in the case of Srei Infrastructure the case of Srei Infrastructure Finance Ltd.
25. As far as grounds of the appeal of the assessee is concerned, as grounds of the appeal of the assessee is concerned, as grounds of the appeal of the assessee is concerned, the learned counsel of the assessee l of the assessee did not press the grounds did not press the grounds raised and accordingly same are dismissed as infructuous. raised and accordingly same are dismissed as infructuous. raised and accordingly same are dismissed as infructuous.
As far as ground No. As far as ground No. 1 and 2 of the appeal of the of the appeal of the Revenue are concerned, same are identical to ground No. one and two raised by concerned, same are identical to ground No. one and two raised by concerned, same are identical to ground No. one and two raised by the revenue for assessment assessment year 2009-10 and therefore following 0 and therefore following our finding in assessment our finding in assessment year 2009-10, the ground 10, the ground 1 and 2 of the appeal of the Revenue Revenue for year under consideration are dismissed. under consideration are dismissed.
Revenue is related to 27. The ground No. The ground No.3 of the appeal of the Revenue fluctuation loss on the reinstatement of loan. We foreign exchange fluctuation loss on the reinstatement of loan. We fluctuation loss on the reinstatement of loan. We find that identical issue has been adjudicated by us in the appeal of find that identical issue has been adjudicated by us in the appeal of find that identical issue has been adjudicated by us in the appeal of 10, therefore following our the assessee for assessment the assessee for assessment year 2009-10, therefore following our finding in assessment finding in assessment year 2009-10, the ground of the appeal of the 10, the ground of the appeal of the evenue accordingly allowed for statistical purposes. revenue accordingly allowed for statistical purposes. evenue accordingly allowed for statistical purposes.
Everest Industries Limited 50 718/M/2020, 7793, 7794/M/2020 & ITA Nos. 715, 718/M/2020, 7793, 7794/M/2020 & 1423, 1418, 654, 653/M/2020 1423, 1418, 654, 653/M/2020
We find that assessee has also raised an additional ground We find that assessee has also raised an additional ground We find that assessee has also raised an additional ground stating that in case the foreign exchange loss is not allowed to the stating that in case the foreign exchange loss is not allowed to the stating that in case the foreign exchange loss is not allowed to the assessee as revenue expenditure, then depreciation in respect of the assessee as revenue expenditure, then depreciation in respect of the assessee as revenue expenditure, then depreciation in respect of the said foreign exchange expenditure exchange expenditure, should be allowed. , should be allowed. In principle, we agree with the contention of the assessee, but we agree with the contention of the assessee, but we have already we have already restored this issue of foreign exchange loss of foreign exchange loss to the file of the learne to the file of the learned Assessing Officer, this additional ground of the assessee is also Assessing Officer, this additional ground of the as Assessing Officer, this additional ground of the as allowed for statistical purpose to be decided by the Assessing allowed for statistical purpose to be decided by the Assessing allowed for statistical purpose to be decided by the Assessing Officer, accordingly.
The ground No. No. 5 raised in the appeal of the raised in the appeal of the Revenue relates to exclusion of sales tax incentive and excise duty exemption for the to exclusion of sales tax incentive and excise duty exemption for the to exclusion of sales tax incentive and excise duty exemption for the purpose of computati purpose of computation of book profit under section 115JB of the on of book profit under section 115JB of the Act. The identical issue has been adjudicated by . The identical issue has been adjudicated by us us in the case of the assessee for assessment year 2008 the assessee for assessment year 2008-09, therefore following our 09, therefore following our finding in assessment finding in assessment year 2008-09, this ground of the 09, this ground of the appeal of theRevenueis accordingly dismissed. accordingly dismissed.
The ground No. 6 The ground No. 6 of the appeal of the Revenue Revenue relates to deduction in respect of education cess. eduction in respect of education cess.
The relevant finding of the Ld. CIT(A) allowing the education The relevant finding of the Ld. CIT(A) allowing the education The relevant finding of the Ld. CIT(A) allowing the education cess to the assessee is reproduced as under : cess to the assessee is reproduced as under :
“15. I have duly considered the submissions of the appellant.
15. I have duly considered the submissions of the appellant.
15. I have duly considered the submissions of the appellant. The issue under consideration is covered in the favour of the The issue under consideration is covered in the favour of the The issue under consideration is covered in the favour of the appellant company by the appellate order dated 16.10.2019 in appellant company by the appellate order dated 16.10.2019 in appellant company by the appellate order dated 16.10.2019 in appeal appeal No. No. NSK/CIT(A) NSK/CIT(A)-3/139/2017-18 for 18 for AY AY 2010-11 2010
Everest Industries Limited 51 718/M/2020, 7793, 7794/M/2020 & ITA Nos. 715, 718/M/2020, 7793, 7794/M/2020 & 1423, 1418, 654, 653/M/2020 1423, 1418, 654, 653/M/2020 wherein elaborate dis wherein elaborate discussion was made by the undersigned in cussion was made by the undersigned in para-15 as to why the education cess was an allowable 15 as to why the education cess was an allowable 15 as to why the education cess was an allowable expenditure. Under Section 40(a)(ji) of the Income Tax Act, any expenditure. Under Section 40(a)(ji) of the Income Tax Act, any expenditure. Under Section 40(a)(ji) of the Income Tax Act, any sum paid on account of any rate or tax levied on the profits or sum paid on account of any rate or tax levied on the profits or sum paid on account of any rate or tax levied on the profits or gains of any business or profession gains of any business or profession or assessed at a proportion or assessed at a proportion of or otherwise on the basis of, any such profits or gains, is not of or otherwise on the basis of, any such profits or gains, is not of or otherwise on the basis of, any such profits or gains, is not allowable as deduction. As per aforesaid provision, any tax allowable as deduction. As per aforesaid provision, any tax allowable as deduction. As per aforesaid provision, any tax levied on profits or gains of any business or profession in levied on profits or gains of any business or profession in levied on profits or gains of any business or profession in computing the gross total income of a ta computing the gross total income of a taxpayer, is not an xpayer, is not an allowable expenditure. While computing Book Profit under allowable expenditure. While computing Book Profit under allowable expenditure. While computing Book Profit under section 1151B of the Act (for MAT purpose), Explanation 2 to section 1151B of the Act (for MAT purpose), Explanation 2 to section 1151B of the Act (for MAT purpose), Explanation 2 to section 115]B(2) specifically states that for adding income tax section 115]B(2) specifically states that for adding income tax section 115]B(2) specifically states that for adding income tax paid/payable, income tax shall include inter alia, educa paid/payable, income tax shall include inter alia, educa paid/payable, income tax shall include inter alia, education cess and Secondary & Higher education cess, if any, as levied cess and Secondary & Higher education cess, if any, as levied cess and Secondary & Higher education cess, if any, as levied by the Central Act. Section 40(a)(ji) states only tax whereas by the Central Act. Section 40(a)(ji) states only tax whereas by the Central Act. Section 40(a)(ji) states only tax whereas section 115JB states that for computing book profit, tax section 115JB states that for computing book profit, tax section 115JB states that for computing book profit, tax includes cess as levied by the Central Act. Hence it could be includes cess as levied by the Central Act. Hence it could be includes cess as levied by the Central Act. Hence it could be seen that where the legislature intended to disallow cess, it t where the legislature intended to disallow cess, it t where the legislature intended to disallow cess, it had provided specifically for the same. However in case of had provided specifically for the same. However in case of had provided specifically for the same. However in case of computation under regular provisions, the same had not been computation under regular provisions, the same had not been computation under regular provisions, the same had not been mentioned in section 40(a)(ji) of the Act. Further education cess mentioned in section 40(a)(ji) of the Act. Further education cess mentioned in section 40(a)(ji) of the Act. Further education cess was levied on the was levied on the amount of income-tax, it was not levied on tax, it was not levied on the profits or gains of any business or profession.Also it was the profits or gains of any business or profession.Also it was the profits or gains of any business or profession.Also it was not assessed at a proportion of or otherwise on the basis of any not assessed at a proportion of or otherwise on the basis of any not assessed at a proportion of or otherwise on the basis of any suchprofits or gains. Therefore education cess was not covered suchprofits or gains. Therefore education cess was not covered suchprofits or gains. Therefore education cess was not covered by section 40(a)(il) by section 40(a)(il) of the Act. Under the old income Tax Act, of the Act. Under the old income Tax Act, section 10(4) of the Income section 10(4) of the Income-tax Act, 1922 stated that any sum tax Act, 1922 stated that any sum paid on account of any cess, rate or tax levied on the profits or paid on account of any cess, rate or tax levied on the profits or paid on account of any cess, rate or tax levied on the profits or gains of any business, profession or vocation or assessed at a gains of any business, profession or vocation or assessed at a gains of any business, profession or vocation or assessed at a proportion of or otherw proportion of or otherwise on the basis of any such profits or ise on the basis of any such profits or gains was not an allowable expense. Thus the Legislators gains was not an allowable expense. Thus the Legislators gains was not an allowable expense. Thus the Legislators specifically added the word "cess" in aforesaid provision of old specifically added the word "cess" in aforesaid provision of old specifically added the word "cess" in aforesaid provision of old law whereas same was missing in the present law. The "cess" law whereas same was missing in the present law. The "cess" law whereas same was missing in the present law. The "cess" was not in the nature of a"tax". W was not in the nature of a"tax". While proceeds from collection hile proceeds from collection of tax were used by the Government for general purposes and of tax were used by the Government for general purposes and of tax were used by the Government for general purposes and running of the state of affairs of the country, cess proceeds running of the state of affairs of the country, cess proceeds running of the state of affairs of the country, cess proceeds were collected and utilized separately with a specific purpose. were collected and utilized separately with a specific purpose. were collected and utilized separately with a specific purpose. As in the case of education cess, the pr As in the case of education cess, the proceeds were not credited oceeds were not credited to Consolidated Fund but to a non to Consolidated Fund but to a non-lapsable Fund for lapsable Fund for elementary education i.e. "Prarambhik Shiksha Kosh" and used elementary education i.e. "Prarambhik Shiksha Kosh" and used elementary education i.e. "Prarambhik Shiksha Kosh" and used only for that purpose. Reliance was also placed on the decision only for that purpose. Reliance was also placed on the decision only for that purpose. Reliance was also placed on the decision of Hon'ble Rajasthan High Court in case of Chambal Fer of Hon'ble Rajasthan High Court in case of Chambal Fer of Hon'ble Rajasthan High Court in case of Chambal Fertilisers
Everest Industries Limited 52 718/M/2020, 7793, 7794/M/2020 & ITA Nos. 715, 718/M/2020, 7793, 7794/M/2020 & 1423, 1418, 654, 653/M/2020 1423, 1418, 654, 653/M/2020 and Chemicals Limited Vs. JCIT in wherein it and Chemicals Limited Vs. JCIT in ITA No. 52/2018, wherein it and Chemicals Limited Vs. JCIT in ITA No. 52/2018, wherein it was held that education cess was not a tax, therefore the same was held that education cess was not a tax, therefore the same was held that education cess was not a tax, therefore the same was not required to be disallowed under section 40(a)(i), in was not required to be disallowed under section 40(a)(i), in was not required to be disallowed under section 40(a)(i), in computing profits and gains from business as part of total computing profits and gains from business as part of total computing profits and gains from business as part of total income of the taxpayer. The Hon'ble High Court further held come of the taxpayer. The Hon'ble High Court further held come of the taxpayer. The Hon'ble High Court further held that education cess cannot be treated at par with tax and that education cess cannot be treated at par with tax and that education cess cannot be treated at par with tax and hence it is an allowable expenditure. It was the only available hence it is an allowable expenditure. It was the only available hence it is an allowable expenditure. It was the only available decision of a High Court on the issue and was binding on the decision of a High Court on the issue and was binding on the decision of a High Court on the issue and was binding on the appellate autho appellate authorities. While deciding the issue, the High Court rities. While deciding the issue, the High Court specifically referred to the CDT Circular issued in the year specifically referred to the CDT Circular issued in the year specifically referred to the CDT Circular issued in the year 1967. It also held that CBDT Circulars are binding on the 1967. It also held that CBDT Circulars are binding on the 1967. It also held that CBDT Circulars are binding on the Department. The issue under consideration is also covered in Department. The issue under consideration is also covered in Department. The issue under consideration is also covered in the favour of the assessee the favour of the assessee by the decision of Hon'ble Pune ITAT by the decision of Hon'ble Pune ITAT rendered in the case of Atlas Copco (India) Pvt. Ltd. Vs. DCIT in rendered in the case of Atlas Copco (India) Pvt. Ltd. Vs. DCIT in rendered in the case of Atlas Copco (India) Pvt. Ltd. Vs. DCIT in ITA No.732 & 736/Pun/2011 for AY 2005 ITA No.732 & 736/Pun/2011 for AY 2005-06. Reliance was 06. Reliance was also placed on the decision of the Hon'ble Apex Court in the also placed on the decision of the Hon'ble Apex Court in the also placed on the decision of the Hon'ble Apex Court in the case of JaipuriaSamla Amalgamated Col case of JaipuriaSamla Amalgamated Collieries (82 IT 580) held lieries (82 IT 580) held that section 10(4) of the Income Tax Act, 1922 (parimateria to that section 10(4) of the Income Tax Act, 1922 (parimateria to that section 10(4) of the Income Tax Act, 1922 (parimateria to section 40(a)(ii) of the Income Tax Act,1961) provides only for section 40(a)(ii) of the Income Tax Act,1961) provides only for section 40(a)(ii) of the Income Tax Act,1961) provides only for disallowance of rates and taxes levied on profits or gains of disallowance of rates and taxes levied on profits or gains of disallowance of rates and taxes levied on profits or gains of any business or profession computed in acc any business or profession computed in accordance with the ordance with the provisions of section 10 of Income Tax Act, 1922. Since provisions of section 10 of Income Tax Act, 1922. Since provisions of section 10 of Income Tax Act, 1922. Since 'education cess' was not levied on profits or gains of any 'education cess' was not levied on profits or gains of any 'education cess' was not levied on profits or gains of any business or profession, the same did not fall within the purview business or profession, the same did not fall within the purview business or profession, the same did not fall within the purview of section 40(a)(ii) of the Act. In view of the above facts 40(a)(ii) of the Act. In view of the above facts 40(a)(ii) of the Act. In view of the above facts, I direct the AO to delete the addition of ₹66,31,870/- made by him. the AO to delete the addition of made by him. This ground of appeal is accordingly allowed.” This ground of appeal is accordingly allowed.”
32. We find that legislat We find that legislature has brought an amendment to the amendment to the provisions of section provisions of section 40(a)(ii) treating the education cess as part of reating the education cess as part of the income tax retrospectively w.e.f 1/4/2005, retrospectively w.e.f 1/4/2005, and therefore and therefore said deduction is not allowable. The said amendment is reproduced as not allowable. The said amendment is reproduced as not allowable. The said amendment is reproduced as under :
“(ii) any sum paid on account of any rate or tax levied on the ) any sum paid on account of any rate or tax levied on the ) any sum paid on account of any rate or tax levied on the profits or gains of any business or profession or assessed at profits or gains of any business or profession or assessed at profits or gains of any business or profession or assessed at a proportion of, or otherwise on the basis of, any such profits or proportion of, or otherwise on the basis of, any such profits or proportion of, or otherwise on the basis of, any such profits or gains.
Everest Industries Limited 53 718/M/2020, 7793, 7794/M/2020 & ITA Nos. 715, 718/M/2020, 7793, 7794/M/2020 & 1423, 1418, 654, 653/M/2020 1423, 1418, 654, 653/M/2020
[Explanation 1. For the removal of doubts, it is hereby declared [Explanation 1. For the removal of doubts, it is hereby declared [Explanation 1. For the removal of doubts, it is hereby declared that for the purposes of this sub that for the purposes of this sub-clause, any sum paid on clause, any sum paid on account of any rate or tax levied includes and shall be dee account of any rate or tax levied includes and shall be dee account of any rate or tax levied includes and shall be deemed always to have included any sum eligible for relief of tax under always to have included any sum eligible for relief of tax under always to have included any sum eligible for relief of tax under section 90 or, as the case may be, deduction from the Indian section 90 or, as the case may be, deduction from the Indian section 90 or, as the case may be, deduction from the Indian income-tax payable under section 91. tax payable under section 91.] [Explanation 2. [Explanation 2. For the removal of doubts, it is hereby declared For the removal of doubts, it is hereby declared that for the purposes of this sub that for the purposes of this sub-clause, any sum paid on clause, any sum paid on account of any rate or tax levied includes any sum eligible for account of any rate or tax levied includes any sum eligible for account of any rate or tax levied includes any sum eligible for relief of tax under section 90A.] relief of tax under section 90A.] [Explanation 3. For the removal of doubts, it is h [Explanation 3. For the removal of doubts, it is hereby clarified ereby clarified that for the purposes of this sub that for the purposes of this sub-clause, the term "tax" shall clause, the term "tax" shall include and shall be deemed to have always included any include and shall be deemed to have always included any include and shall be deemed to have always included any surcharge or cess, by whatever name called, on such tax;] surcharge or cess, by whatever name called, on such tax;] surcharge or cess, by whatever name called, on such tax;]” 32.1 Further, we find Hon’ble Supreme Court in the case Further, we find Hon’ble Supreme Court in the case Further, we find Hon’ble Supreme Court in the case of JOINT COMMISSIONER COMMISSIONER COMMISSIONER OF OF OF INCOME INCOME INCOME TAX TAX TAX vs vs vs M/S. M/S. M/S. CHAMBAL CHAMBAL CHAMBAL FERTILISERS & CHEMICALS LIMITED (2022) TAXSCAN (SC) 212, FERTILISERS & CHEMICALS LIMITED (2022) TAXSCAN (SC) 212, FERTILISERS & CHEMICALS LIMITED (2022) TAXSCAN (SC) 212, in view of the amendment vide the Finance Act, 2022 with in view of the amendment vide the Finance Act, 2022 with in view of the amendment vide the Finance Act, 2022 with retrospective effect from 01.04.2005 to Section 40(a) (ii) of Act, has retrospective effect from 01.04.2005 to Section 40(a) (ii) of Act, retrospective effect from 01.04.2005 to Section 40(a) (ii) of Act, allowed the appeal of th allowed the appeal of the Revenue. Therefore, respectfully following Therefore, respectfully following the Supreme Court (supra), t the Supreme Court (supra), the finding of the Ld. CIT(A) on the he finding of the Ld. CIT(A) on the issue in dispute are accordingly set aside. The ground No. 6 of the The ground No. 6 of the appeal of the revenue appeal of the revenue is accordingly allowed.
Now, we take up cross appeals for assessment year 2013 we take up cross appeals for assessment year 2013 we take up cross appeals for assessment year 2013-14. The grounds raised by the assessee The grounds raised by the assessee are reproduced as under: reproduced as under:
1. That on the facts and in the circumstances of the case, the That on the facts and in the circumstances of the case, the That on the facts and in the circumstances of the case, the Ld. Commissioner of Income Tax (Appeals) (here Ld. Commissioner of Income Tax (Appeals) (here Ld. Commissioner of Income Tax (Appeals) (here-in-after referred to as 'Ld. CIT (Appeals)' was not justified & grossly referred to as 'Ld. CIT (Appeals)' was not justified & grossly referred to as 'Ld. CIT (Appeals)' was not justified & grossly erred in confirming disallowance in respect of provision for erred in confirming disallowance in respect of provision for erred in confirming disallowance in respect of provision for leave encashment leave encashment debited to Profit & Loss Account amounting debited to Profit & Loss Account amounting
Everest Industries Limited 54 718/M/2020, 7793, 7794/M/2020 & ITA Nos. 715, 718/M/2020, 7793, 7794/M/2020 & 1423, 1418, 654, 653/M/2020 1423, 1418, 654, 653/M/2020 to Rs. 1,02,01,402/ to Rs. 1,02,01,402/-in computing total income under the normal in computing total income under the normal provisions of the Act. provisions of the Act.
2. That on the facts and in the circumstances of the case, the That on the facts and in the circumstances of the case, the That on the facts and in the circumstances of the case, the Ld.CIT(Appeals) was not justified & grossly erred in confirming Ld.CIT(Appeals) was not justified & grossly erred in confirming Ld.CIT(Appeals) was not justified & grossly erred in confirming the action of the A.O. in not allowing additional depreciation the action of the A.O. in not allowing additional depreciation the action of the A.O. in not allowing additional depreciation u/s 32(1) (ia) amounting to Rs. 6,08,94,395/ u/s 32(1) (ia) amounting to Rs. 6,08,94,395/- in respect of Plant in respect of Plant & Machinery acquired and installed after 31 & Machinery acquired and installed after 31 & Machinery acquired and installed after 31-03-2005 but before 01-04 04-2012. 33.1 The assessee also raised additional ground, wh assessee also raised additional ground, wh assessee also raised additional ground, which is reproduced as under: reproduced as under:
“1. Additional Ground No. 1: 1. Additional Ground No. 1: 1.1 In case Ground No. 2 of Department's appeal is decided In case Ground No. 2 of Department's appeal is decided In case Ground No. 2 of Department's appeal is decided against the Assessee against the Assessee and the foreign exchange loss on and the foreign exchange loss on reinstatement reinstatement of foreign currency loan is held reinstatement of foreign currency loan is of foreign currency loan is held held to be to be to be disallowable, in that event, the Appellant Assessee be allowed disallowable, in that event, the Appellant Assessee be allowed disallowable, in that event, the Appellant Assessee be allowed to claim depreciation on the same for the year under to claim depreciation on the same for the year under to claim depreciation on the same for the year under consideration as also the depreciation on the adjuste consideration as also the depreciation on the adjuste consideration as also the depreciation on the adjusted opening written down value of the related block of assets and that the written down value of the related block of assets and that the written down value of the related block of assets and that the Id. AO be directed accordingly. Id. AO be directed accordingly.” 33.2 The grounds raised grounds raised by theRevenue are reproduced as under: reproduced as under:
1. (i) Whether the CIT (A) erred on facts and in the (i) Whether the CIT (A) erred on facts and in the (i) Whether the CIT (A) erred on facts and in the circumstances of the case and in l circumstances of the case and in law in holding that the excise aw in holding that the excise duty of Rs. 46,09,77,123/ duty of Rs. 46,09,77,123/- stated to be collected by the stated to be collected by the assessee was capital in nature without any evidence placed on assessee was capital in nature without any evidence placed on assessee was capital in nature without any evidence placed on record to establish that the said amount was actually collected record to establish that the said amount was actually collected record to establish that the said amount was actually collected on account ofexcise duty. on account ofexcise duty. (ii) Without prej (ii) Without prejudice to the ground at (i) above, whether the CIT udice to the ground at (i) above, whether the CIT (A) erred on facts and in the circumstances of the case and in (A) erred on facts and in the circumstances of the case and in (A) erred on facts and in the circumstances of the case and in law in holding that the excise duty of Rs. 46,09,77,123/ law in holding that the excise duty of Rs. 46,09,77,123/ law in holding that the excise duty of Rs. 46,09,77,123/- collected by the assessee was not revenue in nature despite the collected by the assessee was not revenue in nature despite the collected by the assessee was not revenue in nature despite the fact that the same wa fact that the same was collected by the assessee on goods s collected by the assessee on goods which were exempted from levy of any duty as per the Central which were exempted from levy of any duty as per the Central which were exempted from levy of any duty as per the Central Excise Department's Notification No. 50/2002 Excise Department's Notification Excise Department's Notification No. 50/2002-CE dated No. 50/2002 10.06.2003
Everest Industries Limited 55 718/M/2020, 7793, 7794/M/2020 & ITA Nos. 715, 718/M/2020, 7793, 7794/M/2020 & 1423, 1418, 654, 653/M/2020 1423, 1418, 654, 653/M/2020
(iii) Whether the CIT (A) erred on facts and in the circumstances ) Whether the CIT (A) erred on facts and in the circumstances ) Whether the CIT (A) erred on facts and in the circumstances of the case and in law in h of the case and in law in holding that the excise duty of Rs. olding that the excise duty of Rs. 46,09,77,123/ 46,09,77,123/- collected by the assessee was capital in nature collected by the assessee was capital in nature by comparing the scheme of exemption under which the claim by comparing the scheme of exemption under which the claim by comparing the scheme of exemption under which the claim was made by the assessee by such other schemes wherein the was made by the assessee by such other schemes wherein the was made by the assessee by such other schemes wherein the mode of incentive was in the nature of r mode of incentive was in the nature of refund/reimbursement efund/reimbursement or subsidy. (iv) Without prejudice to the above, whether the CIT (A) erred on (iv) Without prejudice to the above, whether the CIT (A) erred on (iv) Without prejudice to the above, whether the CIT (A) erred on facts and in law, directing the AO that the Excise duty facts and in law, directing the AO that the Excise duty facts and in law, directing the AO that the Excise duty exemption is not required to be deducted from the cost of exemption is not required to be deducted from the cost of exemption is not required to be deducted from the cost of assets, if the same is treated as capital re assets, if the same is treated as capital receipts by the A.O. ceipts by the A.O. ignoring the provisions of explanation 10 to section 43(1) of the ignoring the provisions of explanation 10 to section 43(1) of the ignoring the provisions of explanation 10 to section 43(1) of the Act? (v) Whether the CIT (A) erred on the facts and in the (v) Whether the CIT (A) erred on the facts and in the (v) Whether the CIT (A) erred on the facts and in the circumstances of the case and in law, in not appreciating the circumstances of the case and in law, in not appreciating the circumstances of the case and in law, in not appreciating the fact that the provision to explanation 10 section fact that the provision to explanation 10 section 43(1) of the IT 43(1) of the IT .Act, was intended to cover any subsidy or grant or .Act, was intended to cover any subsidy or grant or .Act, was intended to cover any subsidy or grant or reimbursement directly or indirectly met by the Central or State reimbursement directly or indirectly met by the Central or State reimbursement directly or indirectly met by the Central or State Government orany authority established under any law and Government orany authority established under any law and Government orany authority established under any law and the asesseee's claim of excise du exemption is covered in the asesseee's claim of excise du exemption is covered in the asesseee's claim of excise du exemption is covered in indirect subsidy? subsidy? 2. Whether the CIT (A) erred on facts and in law in allowing the 2. Whether the CIT (A) erred on facts and in law in allowing the 2. Whether the CIT (A) erred on facts and in law in allowing the foreign exchang fluctuation loss on reinstatement of loan foreign exchang fluctuation loss on reinstatement of loan foreign exchang fluctuation loss on reinstatement of loan without verifying whether the underlyir transaction was on without verifying whether the underlyir transaction was on without verifying whether the underlyir transaction was on capital or revenue account and without verifying whether tr capital or revenue account and without verifying whether tr capital or revenue account and without verifying whether tr underlying transaction was in US dollar and Japanese Yen. underlying transaction was in US dollar and Japanese Yen. underlying transaction was in US dollar and Japanese Yen. 3. (i) Whether the CIT (A) erred on the facts and in the (i) Whether the CIT (A) erred on the facts and in the (i) Whether the CIT (A) erred on the facts and in the circumstances of the case al in law, in directing the AO to circumstances of the case al in law, in directing the AO to circumstances of the case al in law, in directing the AO to exclude Excise Duty Exemption, while computing ti book profits exclude Excise Duty Exemption, while computing ti book profits exclude Excise Duty Exemption, while computing ti book profits u/s 115JB of the u/s 115JB of the Act, without appreciating that they have not Act, without appreciating that they have not be specifically excluded in Explanation 1 to section 115JB of be specifically excluded in Explanation 1 to section 115JB of be specifically excluded in Explanation 1 to section 115JB of the Act. (ii) Whether the CIT (A) erred on the facts and in the ) Whether the CIT (A) erred on the facts and in the ) Whether the CIT (A) erred on the facts and in the circumstances of the ca and in law, in directing the AO to circumstances of the ca and in law, in directing the AO to circumstances of the ca and in law, in directing the AO to exclude Excise Duty Exempt exclude Excise Duty Exemption, while computi the book profits ion, while computi the book profits us 115JB of the Act despite the fact that no adjustment other th us 115JB of the Act despite the fact that no adjustment other th us 115JB of the Act despite the fact that no adjustment other th the ones mentioned in Sec.115JB is permissible as held by the the ones mentioned in Sec.115JB is permissible as held by the the ones mentioned in Sec.115JB is permissible as held by the Supreme Court the case of Apollo Tyres Ltd. (255 IT 273) Supreme Court the case of Apollo Tyres Ltd. (255 IT 273) Supreme Court the case of Apollo Tyres Ltd. (255 IT 273)
Everest Industries Limited 56 718/M/2020, 7793, 7794/M/2020 & ITA Nos. 715, 718/M/2020, 7793, 7794/M/2020 & 1423, 1418, 654, 653/M/2020 1423, 1418, 654, 653/M/2020
4. (i) Whether the CIT (A) erred on ) Whether the CIT (A) erred on the facts and in the the facts and in the circumstances of the c and in law, in not following precedent in circumstances of the c and in law, in not following precedent in circumstances of the c and in law, in not following precedent in the decision of hon'ble ITAT vide or dated 31.01.2018 in the decision of hon'ble ITAT vide or dated 31.01.2018 in the decision of hon'ble ITAT vide or dated 31.01.2018 in assessee's own case for A.Y. 2009 assessee's own case for A.Y. 2009-10 wherein hon'ble IT 10 wherein hon'ble IT rejected the grounds raised
by the assessee in respect of rejected the grounds raised by the assessee in respect of rejected the grounds raised by the assessee in respect of Education Cess. Education Cess. (i) Whether the CIT (A) erred On the facts and in the ) Whether the CIT (A) erred On the facts and in the ) Whether the CIT (A) erred On the facts and in the circumstances of the c and in law, to appreciate that fact that circumstances of the c and in law, to appreciate that fact that circumstances of the c and in law, to appreciate that fact that the education cess has been levied un Finance Act as an item the education cess has been levied un Finance Act as an item the education cess has been levied un Finance Act as an item to increase income tax and it has been held to be par"incom to increase income tax and it has been held to be par"incom to increase income tax and it has been held to be par"income tax" by Hon'ble Calcutta High Court tax" by Hon'ble Calcutta High Court in the case of Srei in the case of Srei Infrastructure Infrastructure Finance Ltd.
34. We find that the grounds and original ground raised by the find that the grounds and original ground raised by the find that the grounds and original ground raised by the assessee in the year under consideration are identical to grounds assessee in the year under consideration are identical to grounds assessee in the year under consideration are identical to grounds raised in assessment raised in assessment year 2012-13. The grounds raised raised have not been pressed by the assessee pressed by the assessee, therefore same are dismissed as same are dismissed as infructuous. The identical identical additional ground raised in AY ed in AY 2012-13, has been allowed for statistical purpose, has been allowed for statistical purpose, therefore therefore following the same, the additional ground for the ye , the additional ground for the year under consideration ar under consideration is allowed for statistical purpose allowed for statistical purpose.
The ground No. The ground No. 1 of the appeal of the revenue relates to excise of the appeal of the revenue relates to excise duty exemption as capital receipt. The identical ground of the duty exemption as capital receipt. The identical ground of the duty exemption as capital receipt. The identical ground of the revenue has been dismissed in assessment year 2009-10. revenue has been dismissed in assessment revenue has been dismissed in assessment Accordingly, following our finding in assessment following our finding in assessment year year 2009-10, the ground of the appeal of appeal of Revenue is dismissed.
The ground no.2 2 of the appeal of the Revenue relates to foreign relates to foreign exchange fluctuation loss on the reinstatement of the loan. The fluctuation loss on the reinstatement of the loan. The fluctuation loss on the reinstatement of the loan. The identical ground raised by the identical ground raised by the revenue in assessment revenue in assessment year 2012-13,
Everest Industries Limited 57 718/M/2020, 7793, 7794/M/2020 & ITA Nos. 715, 718/M/2020, 7793, 7794/M/2020 & 1423, 1418, 654, 653/M/2020 1423, 1418, 654, 653/M/2020 has been allowed for statistical purposes, accordingly following our has been allowed for statistical purposes, accordingly following our has been allowed for statistical purposes, accordingly following our finding in assessment year 2012 finding in assessment year 2012-13, the ground No. two of the appeal of the assessee for y appeal of the assessee for year under consideration is all r under consideration is allowed for statistical purposes.
37. The ground No. 3 No. 3 of the appeal of the Revenue Revenue relates to exclusion of excise duty exemption for the purpose of computation exclusion of excise duty exemption for the purpose of computation exclusion of excise duty exemption for the purpose of computation of book profit under section 115 JB of the of book profit under section 115 JB of the Act. The identical . The identical ground of the revenue has been dism of the revenue has been dismissed in assessment issed in assessment year 2012-13, therefore following our finding in assessment therefore following our finding in assessment year year 2012-13, this ground of the appeal of the revenue is accordingly dismissed. ground of the appeal of the revenue is accordingly dismissed. ground of the appeal of the revenue is accordingly dismissed.
The ground No. The ground No. 4 of the,the Revenue relates to relates to deduction of education cess, which we have already allowed in the case of the , which we have already allowed in the case of the , which we have already allowed in the case of the assessee for assessment year 2012 assessee for assessment year 2012-13, therefore following our 13, therefore following our finding in assessment year 2012 and 13, this ground of the appeal finding in assessment year 2012 and 13, this ground of the appeal finding in assessment year 2012 and 13, this ground of the appeal of the revenue is allowed. of the revenue is allowed.
In the result, the In the result, the assessee and Revenue are are educated as under: AY Result /assessee 2008-09 715/M/2020 715/M/2020 Assessee Dismissed 2008-09 1423/M/2020 1423/M/2020 Revenue Dismissed 2009-10 718/M/2020 718/M/2020 Assessee Allowedfor statistical purpose Allowedfor statistical purpose 2009-10 1418/M/2020 1418/M/2020 Revenue Dismissed.
Everest Industries Limited 58 718/M/2020, 7793, 7794/M/2020 & ITA Nos. 715, 718/M/2020, 7793, 7794/M/2020 & 1423, 1418, 654, 653/M/2020 1423, 1418, 654, 653/M/2020
2012-13 7793/M/2019 7793/M/2019 Assessee Allowed Allowed partly partly for for statistical statistical purpose 2012-13 654/M/2020 654/M/2020 Revenue Allowed Allowed partly partly for for statistical statistical purpose 2013-14 7794/M/2019 7794/M/2019 Assessee Allowed Allowed partly partly for for statistical statistical purpose 2013-14 653/M/2020 653/M/2020 Revenue Allowed Allowed partly partly for for statistical statistical purpose