CLASSIC CITI INVESTMENT PVT.LTD,PUNE vs. PR. COMMISSIONER OF INCOME TAX -1, PUNE

This appeal by the assessee is directed against the order dt. 27-03-2017 passed by the Pr.CIT-1, Pune u/s.263 of the Income-tax Act, 1961 (hereinafter also called ‘the Act’) in relation to the assessment year 2012-13.

It is a recalled matter inasmuch as the earlier ex parte order passed by the Tribunal on 11-09-2020 was subsequently recalled vide its later order dated 10-07-2023 in M.A.No.32/PUN/2023.

Briefly stated, the facts of the case are that the assessee filed its return declaring certain amount of loss. In the assessment completed u/s.143(3), the income was again determined at a loss but with a different figure. The ld. Pr.CIT, on perusal of records, observed that the assessee had borrowed funds for construction of its hotel building and acquiring other fixed assets. The assessee claimed deduction towards foreign exchange loss amounting to Rs.6,23,43,841/- in the Profit and loss account. Since the amount was borrowed in foreign currency for acquisition of certain capital assets, the ld. Pr.CIT opined that Assessing Officer (AO) wrongly granted deduction in respect of such foreign exchange loss. He, therefore, held the assessment order to be erroneous and prejudicial to the interest of the Revenue and directed the AO to examine the eligibility of deduction claim on account of foreign exchange loss of Rs.6.23 crore. Aggrieved thereby, the assessee has come up in appeal before the Tribunal.

Having heard the rival submissions and gone through the relevant material on record, it is seen that the assessee is engaged in the business of running hotels at Pune and Nagpur. Certain amount of loan was taken in foreign currency for capital purposes. Loss on foreign exchange fluctuation in respect of such loan amounting to Rs.6.23 crore was claimed as deduction. The same could not have been allowed as deduction in terms of the judgment of Hon’ble Ltd.(2009) 312 ITR 254 (SC). The AO, without conducting any enquiry on this issue, finalized the assessment u/s.143(3) and eventually allowed the deduction. In view of the fact that such foreign exchange fluctuation loss is not deductible as it pertains to loans taken for capital purposes, the AO by allowing deduction for this sum, passed an erroneous order which was prejudicial to the interest of the Revenue. In our considered opinion, no exception can be taken to the view canvassed by the ld. Pr.CIT in this regard.

In the result, the appeal is dismissed. Order pronounced in the Open Court on 22nd August, 2023.