The Commissioner of Income -Tax - III, vs. M/s. VST Industries

Heard Ms. Bokaro Sapna Reddy, leamed Senior Standing Counsel for Income Tax Department appearing on behalf of the appellant; and Mr. A.V.A. Siva Kartikeya, leamed counsel for the respondent / assessee.

The appeal pertains to the Assessmcnt Year 2002-03. 4. Vide the impugned order; the Tribunal had reversed the order passed by the Commissioner of Income Tax (III), dated,20.02.2007, passed under Section 263 ofthe Act

The two grounds on which the instant case has been assailed is firstly so far as the justification o[ the Tribunal in reversing the order passed by the Commissioner of lncome Tax on the aspect of foreign exchange fluctuations which the Assessing Olficer at the first instance had allowed, as revenue expenditure is proper, legal and justified; and the second ground on which the challengc is the finding of the Tribunal in reversing the order passed by the Commissioncr of Income Tax insofar as allowing the entire miscellancous expcnditure put forth by the assessee which was again allowed by the Assessing Officer.

It is this order of remand made by the Commissioner of Income Tax which was challenged before the Tribunal by the assessee. The Tribunal, in tum, had reached to the conclusion rhat the findings given by the Assessing Offrcer are more legal, sound and jusrifiabte and finatly allowed the appeal of the assessee by reversing the older passed by the Commissioner of lncome Tax under Section 26i ol thc Act.

According to the leamed Senior Standing Counsel for [ncome Tax Department the assessee received a huge amount ol lnoney equivalent to Rs.23.81 crores from the British American Tobacco Cornpany Ltd. as F*-,--, ,/. ,/,, ,/,/ l l I i I I I I advance subscription towards 'rights issue'. The said amount was meant for expansion of the capital base of the company and, therefore, the said amount was to be treated as capital in nature. However, on account of non-obtaining of the Government's permission, the said amount was convefted inlo loan amount declaring it to be an extemal commercial borrowing. According to the leamed Senior Standing Counsel for lncome Tax Department since the said amount was for expansion of the capital base and on account of the increase in liability from the date of amount borrowed to the date of conversion of the amount into an external commercial bonowing, the said amount has to be treated as capital in naturc

According to the leamed Senior Standing Counsel for Income Tax Department the tbreign exchange fluctuation that took place betr.veen July, t997 to December, 1998 cannot be treated as revenue loss, as the amount received lrom the British American Tobacco Company Ltd. stood convefied into external commercial borrowings only on 2,+.12. t998 and it only the exchange fluctuations that took place beyond l.+.12.1998 u,hich could be treated as a revenue loss. It is on this basis

On the other hand, the leamed counsel for the respondent / opposing the instant appeal contended that the order of the I ASSCSSCC Tribunal does not wat'ranl any interference ore than one reasons. ,"f '12023; Ia9 tarmann.com 115 (SC) '1202a1 160 tarmann.com 759 (sc) r [2oool lo9 Taxman 66 (sc] i I I

The High Court for the State of Telangana and Andhra Pradesh in the case ofV. Dhana Reddy and Co. (supra) has held as under:

On an ttxhaustive consideration of the case law, a Division Bench of this Court in Spectra Shares and Scrips P'tt. Ltd. (4 supra) summarized the legal position regarding the scope of.jurisdiction of the Commissioner under Section 263 of the Act, as under c1 To int,oke lhe suo mollt revisional powers to reopen a concluded assessment under Sec. 263, the Conmissioner must gNe reasons; that a bare reiteration bt, him that the order of the Income Tax OlJicer rs erroneous in soJbr as it is prejudicial to the interests oJ the Revenue, v,ill not sufrce; that the rea.tons musl be such as to show that the enhancement or nrodificcrtion of the asses.sment or cancellation of thc asscssntenl or direclions issued for a ftesh .r.rsc.rs/rer7r tere colledJitr, and must irresistibly lead kt thc cttnclusion thol the order of the Income Tax O.//icer n as not onl.1,' erroneous bul v,as prejudicial to the intet(sts ol the Revenue. Thus, while the Income kn OJJiL:er is not calletl upon to wrile an elaborate jrrdgnrcnt giving detailecl reasons in respect of each and evt r), disallov'ance, deduction, etc., it is ittcunbett upon the Conmtissioner not to exercise his It I I 'l

The Hon'ble Supreme Court in the case of V-Con Integratcd Solutions Pvt. Ltd. (supra) has held as under:

In our opinion. the order passed by the High Court [Pr. CIT v. V-Con [ntegrated Solutions Pvt. Ltd., (2025) 476 ITR

The assessee does ttot have control over the pen of the Assessing Olficer. Once the Assessing Oficer carries out the investigation hul tloes nol make anv addition, it can be taken that he accept.s tlrc plea and stand of the assessee.

Recording the aforesaid, the special leave Wtition is disntissed. "

When we look into the finding given by the Tribunal it will clearly give an indication of the entire arguments put forth by the learned counsel for the respondent being primarily factual in nafure. Moreover, the findings given are also based on justifiable reasons, that which was given by the Assessing Olficer and later by the Tribunal. Since it was based on logical reasoning, the aspect ol interfering with the findings given by the Tribunal becomes more and more weak.

So far as the aspect of foreign exchange fluctuation is concerned, we are in concurrence with the findings given by the Tribunal more particularly lor the reasons that have been given coupled with the fact that similar was the stand taken by the Commissioner of Income Tax in respect of the assessee itsell in the previous assessment year 1999-2000. Undisputedly, the British American Tobacco Company Ltd. has given an I Page l3 of 14 advance subscription money towards 'rights issue, in January, 1997. The said subscription was recognized in the books at Rs.23.81 crores on the then prevailing exchange rate. Subsequently, an agreement was entered into on 24.12.1998 wherein the said amount gor accounted in the books as share application money and it was recognized as extemal commercial borrowing under the head of loans and the closing head of exchange prevailing on 31.03.1999 was recognized as loss of Rs.372.53 lakhs in its Profit & Loss account on account of the exchange fluctuations. This was in accordance with the accounts also of the company itself on foreign fluctuations. It was also submitted thar the respondent / assessee had meanwhile also utilized the portion of that amount lor the purpose of meeting the various revenue expenses, particularly for payment olexcise duty, etc.

Similarly, in the case ol rnisccllancous expenses also what is reflected is that under new sub-head .Brand Development Expenses' Rs.66.58 lakhs was incurred. Thercfbre, rvhat r.vas neccssary to be ascertained was whether on examination of records the findings of the commissioner of Income Tax rvith regard to the order of assessment was fl I prejudicial to the interest of the Revenue. It was found that tlrcre was no strong material cogent and tangible to reach to the conclusion that the findings of the Assessing Offrcer to be either prejudicial to the interest of Revenue or to be an erroneous judgment. In the absence of any shong material insofar the miscellaneous expenditure is concemed, the findirgs given by the Assessing Olficer and also that of the Tribunal being totally factual in nature without there being any strong material on the basis of which the Commissioner of Income Tax had reversed the assessment order cannot be lound lault with.

Accordingly, the instant appeal being devoid of merit, deserves to be and is accordingly rejected

As a sequel, miscellaneous petitions pending if any, shall stand closed. However, there shall be no order as to costs. To, //// MOHD.ISMAIL PUTY REGISTRAR CTION OFFICER 'A', Hyderabad. ncome Tax), Advocate 1 2 3 4 i ti . The lncome Tax Appellate Tribunal, Hyderabad . One CC to Sri Bokaro Sapna Reddy (SeniorSCl loPUCl bn" CC to Srr A V A Siva Kartikeya. Advocate [OPUC] . Two CD CoPies ABK /PSL