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Facts
The revenue filed two separate appeals against the orders of the NFAC for AYs 2013-14 and 2014-15. The appeals involved common grounds concerning the deletion of disallowances made by the Assessing Officer (AO) related to interest expenses, foreign exchange fluctuation losses, and prior period expenses.
Held
The Tribunal, following the decision of a coordinate bench for AY 2012-13, dismissed the revenue's grounds related to interest disallowance and foreign exchange fluctuation losses. The Tribunal also found that the AO erred in disallowing prior period expenses that were crystallized in the relevant year, upholding the CIT(A)'s order.
Key Issues
Whether the CIT(A) erred in deleting disallowances related to interest expenses and foreign exchange fluctuation losses; and whether prior period expenses crystallized in the current year are allowable.
Sections Cited
36(1)(iii), 46A
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Before: SHRI SAKTIJIT DEY & SHRI NARENDRA KUMAR BILLAIYA
स िवाई की िारीख / Date of Hearing 04.06.2025 घोर्णा की िारीख/Date of Pronouncement 09.06.2025 आदेश / O R D E R PER NARENDRA KUMAR BILLAIYA [A.M.]:-
& 5032/Mum/2024 are two separate appeals by the revenue preferred against to separate orders of NFAC, Delhi [hereinafter referred to as “CIT(A)”] dated 01.08.2024 for Assessment Years [AYs] 2013-14 & 5032/Mum/2024 A.Y. 2013-14 & 2014-15 Thirumalai Chemicals Ltd. & 2014-15. Since the common grounds are involved in both these appeals, they were heard together and are disposed of by this common order for the sake of convenience and brevity, though the quantum may differ.
Representatives were heard at length on the facts of AY 2013-14 in ITA No. 5029/Mum/2024. The grievance of the revenue reads as under:
1 Ground No. 1 Whether the Ld. CIT(A) erred in deleting the disallowance of Rs. 1,06,76,766/- in interest expense without sufficient evidence from the assessee to prove that the investment in Taraderiv International was for business purposes as required by Section 36(1)(iii)? 2 Ground No. 2 Whether the Ld. CIT(A) erred in disallowing the interest only on current year overdraft amounting to Rs. 2,20,59,332/- and not on the cumulative overdraft amount of Rs. 7,57,03,928/- during F.Ys. 2010-11 to 2012-13 as part of disallowance u/s. 36(1)(iii) of the Act, as it related to the capital acquisition? 3 Ground No.3 Whether the Ld. CIT(A) erred in treating the foreign exchange fluctuation loss of Rs.94,12,972/- on the loan taken to acquire shares of the subsidiary as an allowable business expense, without considering that the loan was used for acquiring a capital asset and the loss is capital in nature? 4 Ground No. 4 Whether the Ld. CIT(A) erred in allowing the foreign exchange fluctuation loss of Rs. 94,12,972/- as an allowable business expense, despite the loss arising from a loan taken for acquiring shares of a subsidiary, which constitutes a capital transaction, thereby misapplying the provisions of the ICDS that pertain solely to revenue transactions?
5 Ground No. 5 Whether the Ld. CIT(A) erred in allowing the expenses of Rs. 53,82,230 for the current year, despite the fact that these expenses were related to a prior period and the assessee did not provide sufficient evidence to show that they were crystallized in the current year? 6 Ground No. 6 Whether the Ld. CIT(A) erred in allowing the expenses of Rs. 53,82,230/- by admitting the additional evidences without recording any reason for admitting the documents and without remanding the same to the Assessing Office under Rule 46A of Income Tax Rules to verify the additional evidences.”
& 5032/Mum/2024 A.Y. 2013-14 & 2014-15 Thirumalai Chemicals Ltd.
At the very outset, it has been brought to our notice that the issues raised in the captioned appeals were considered by the coordinate bench in and 1683/Mum/2021 for AY 2012-13.
We have carefully perused the order of the coordinate bench (supra) qua the grievance of the revenue. We find force in this contention and find that similar issues were considered by the coordinate bench in the assessee’s own case in AY 2012-13.
The issues raised in ground No. 1 were considered by the coordinate bench in AY 2012-13 and decided as under: “On the other issue, the CIT(A) has granted relief in respect of interest expenses amounting to Rs. 33,72,105/-, the contentions of the Ld. DR that the claim has to be disallowed as no proper explanations and evidences were filed. We find the CIT(A) considered the source of barrowed funds and its utilization for the purpose of business and granted the relief. The Ld. DR could not controvert the findings of the CIT(A) with any new evidence or information on these two disputed issues to take a different view. Accordingly, we do not find any infirmity in the order of the CIT(A) on these disputed issues and uphold the same and the grounds of appeal
of the revenue are dismissed.” On finding the parity of the facts, respectfully following the decision of the coordinate bench, ground No. 1 is dismissed.
6. The issues raised vide ground No. 2 were considered by the coordinate bench as under:
10. The The fourth disputed issue that, the lower authorities have confirmed the disallowance of interest paid to GIDC in respect of industrial land allotment. The CIT(A) has dealt at page 20 para 6.4 as under: 6.4 Ground No. 5 The Assessing Officer disallowed interest of 38,24,845. This interest was calculated at rate of 13% of an amount of Rs. 3,15,85,264/ paid to GIDC from Axis Bank cash credit account. The assessee claimed that this amount was paid out of internal accruals and therefore no disallowance should be made.
& 5032/Mum/2024 A.Y. 2013-14 & 2014-15 Thirumalai Chemicals Ltd. To verify the claim of assessee, the assessee was asked to produce a copy of bank account for the relevant period however, the assessee submitted summary of bank account for the relevant period. On the given date the opening balance was (-)15.53 Cr., there were credits of 5.36 Cr. and debit of Rs. 3.95 Cr.. From the above, it can be seen that the money received by assessee from business went to reduce the negative balance. The money given to GIDC resulted in increase in debit balance. This shows that the money was paid out of the borrowings from bank. In view of the above, the assessee should have capitalised this interest as per proviso to section 36(1)(iii). In view of the above, this disallowance of interest is upheld. This ground of appeal is dismissed The Ld.AR has made submissions on the claim. Since we took a reasonable view that interest on loan on land cannot be allowed as revenue expenditure till it commenced the production in the ground of appeal dealt at Para
9. Therefore we can not accept the Ld.AR contentions and up hold the action of the CIT(A) and dismiss this ground of appeal of the assessee.”
7. In line with the above findings of the coordinate bench, no disallowance has to be made on the cumulative overdraft amount during FY 2010-11 to 2012- 13, and only interest pertaining to the year under consideration has to be considered. Therefore, we decline to interfere with the findings of the CIT(A). Ground No. 2 is also dismissed.
8. The grievance raised vide ground Nos. 3 & 4 are consequential to the grievance raised vide ground No.
1. Since ground No. 1 is dismissed, ground No. 3 & 4 become infructuous.
9. Ground Nos. 5 & 6 relate to the allowance of the expenses of the prior period. After giving a thoughtful consideration to the assessment order, we are of the considered view that the AO has proceeded on the wrong assumption of fact. The AO was of the opinion that the impugned expenditure did not accrue during & 5032/Mum/2024 A.Y. 2013-14 & 2014-15 Thirumalai Chemicals Ltd. the year under consideration, whereas the impugned expenditure was actually crystallised during the year. Since the liability was crystallised during the year, though the expenditure was of prior years, the same was claimed during the year of crystallisation of the liability. Therefore, we do not find any reason to interfere with the findings of the CIT(A).
10. Ground No. 5 is dismissed, and since there is no element of any additional evidence considered by the CIT(A), there is no violation of Rule 46A. Ground No. 6 is also dismissed.
Considering the facts in totality, is dismissed, and since the facts are identical in , though the quantum may differ, the same is also dismissed.
In the result, both the appeals of the revenue are dismissed. Order pronounced in the open court on 09.06.2025.