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Income Tax Appellate Tribunal, DELHI BENCH: ‘C’ NEW DELHI
Before: SHRI N. K. BILLAIYA & MS SUCHITRA KAMBLE
ORDER
PER SUCHITRA KAMBLE, JM
This appeal is filed by the assessee against order dated 02/05/2017 passed by CIT(A)-18 New Delhi for assessment year 2012-13.
The grounds of appeal
are as under:- “1. On the facts and circumstances of the case and in law, the Ld. CIT (A) has erred in confirming addition of Rs. 2,39,030/- to the income of the assessee, on account of Business & Promotion expenses.
2. On the facts and circumstances of the case and in law, the Ld. CIT (A) has erred in confirming the addition of Rs. 41,90,480/- to the income of the assessee, on account of fluctuation loss arising on loan taken in foreign currency.
3. On the facts and circumstances of the case and in law, the Ld. CIT (A) has failed in adjudicating the penalty proceedings initiated by the Ld. AO under section 271(1 )(c) of the Income Tax Act.1961.”
3. The assessee is engaged in the business of running software development and other services and sale of computer software documents and cargo of domestic and international destinations. The assessee filed original return of income declaring ‘NIL’ income after claiming set off of losses income u/s 115JB at Rs. 42,17,343/- on 27/12/2013. The Assessing Officer made addition of disallowance of rates and taxes at Rs. 2,50,742/-, disallowance of business and promotion expenses at Rs.8,02,005/- and addition on account of disallowance of fluctuation loss in respect of loan taken in foreign currency at Rs. 41,90,480/-.
Being aggrieved by the assessment order, the assessee filed appeal before the CIT(A). The CIT(A) partly allowed the appeal of the assessee.
The Ld. AR submitted that Ground No. 1 is not pressed. Hence, Ground No. 1 is dismissed.
As regards Ground No. 2, relating to addition of Rs.41,90,480/- on account of fluctuation loss, the Ld. AR submitted that the assessee has claimed fluctuation loss on two loans at Rs. 41,90,480/- as the same is taken in connection with purchase of capital assets. The assessee has taken interest free loan from Associated Enterprises i.e. Biotech International Inc., British West Indies for obtaining loan from USD 12,00,000/- (actually company has taken a loan of $ 11.2 lakh). The purpose of the loan was to construct office building including software R & D Centre, Marketing Centre & Trading Centre etc. at Noida UP India and purchase of plant and machinery office equipment, Furniture, computers and other assets as well as to meet working capital requirements. The assessee during the assessment proceedings filed a detailed chart of loan which are reproduced as under:-
Chart-1 Details of unsecured loan as appearing in the books of the assessee company as on 31/3/2021 Name & PA Amount Amount Amount Diff in Closing Total loan Interest address of N O/S as on accepted repaid forex balance as Amount in paid Lendor 1/4/2011 during on Rs. the year 31.03.2012 Biotech NA 3,99,57,120 - 1,56,57,600 - 2,84,90,000 7,15,75,900 - International 41,90,480 Inc. The Hallmark Building, Suite, 227, Old Airport, British West Indies Chart-2 Details of exchange fluctuation and its treatment I respect of loan taken from M/s. Biotech International Inc. which was waived off i.e. $11,20,000.
S. A.Y Fluctuation Treatment of the No. Loss/gain same 1 2004-05 -1,961,000 P &L 2 2005-06 -112,737 P &L 3 2006-07 946,400 P &L 4 2007-08 -1,276,800 Credited to Fixed assets 5 2008-09 -3,752,000 Credited to Fixed assets 6 2009-10 11,872,000 P &L 7 2010-11 -6,518,400 P &L 8 2011-12 217,280 P &L 9 2012-13 -4,190,480 P &L TOTAL -47,75,737
The Ld. AR further submitted that the assessee is treating loan in Assessment Year 2004-05 to 2012-13 as business loan and accordingly claimed fluctuation loss in the profit and loss account as business loss. For Assessment Year 2007-08 & 2008-09, the assessee treated these loan amounts is capital receipt and credited fluctuation loss in the fixed assets and evident from the chart noted above. Therefore, the Ld. AR submitted that Section 43A is not applicable as the pre-conditions of the said Section are not fulfilled in assessee’s case. Therefore, the Ld. AR submitted that the fluctuation loss should have been allowed by the Assessing Officer as well as by the CIT(A).
The Ld. DR submitted that since the assessee company itself treated this loan amount as capital loan and in some other years as business loan and claimed excess deprecation on the assets without reducing the WDV with the amount of fluctuation loss, the Assessing Officer has rightly disallowed fluctuation loss at Rs.41,90,480/-. Thus, adding the same to the total income of the assessee. The Ld. DR relied upon the order of the CIT(A).
We have heard both the parties and perused the material available on record. The assessee itself categorically treating this loan as business loan as per its own convenience and in 2007-08 & 2008-09 treating the fluctuation loss in the fixed assets. The assessee is not following the proper method fro treating the same as business loan or either that of capital loan. The Assessing Officer has rightly made an addition. Further, the CIT (A) has also considered this aspect and given a categorical finding that Section 43A permits capitalization of realized foreign exchange fluctuation loss on liability incurred for acquisition of assets outside India. But in the present case, the assets are acquired in India, the assessee is an Indian company and has taken a loss on the loan which was taken from foreign AE. Besides this, from the Accounting perspective, para 46A of Accounting Standard 11 “The Effects of Foreign Exchange Rates” permits capitalization of exchange difference on foreign borrowings to the cost of the depreciable assets irrespective of asset being acquired in India or outside India. The CIT(A) rightly relied upon the decision of the Hon’ble Madras High Court in case of Tube Investment of India Ltd. vs. JCIT (2014) 45 taxmann.com 78 (Madras) wherein it is held that in terms of approval of RBI, when assessee utilized foreign loan for purchase of capital equipment, loss incurred on said loan due to fluctuation in foreign exchange rate has to be regarded as capital in nature and could not be allowed as deduction. Thus, the CIT(A) has rightly dismissed the claim of the assessee. There is no need to interfere with the findings of the CIT(A). Ground No. 2 is dismissed.
As regards Ground No. 3, the same is related to penalty, hence not adjudicated upon herein.