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Income Tax Appellate Tribunal, DELHI BENCH ‘A’, NEW DELHI
Before: Ms. Suchitra KambleDr. B. R. R. Kumar
Per Dr. B. R. R. Kumar, Accountant Member:
The present appeal has been filed by the assessee against the order of the ld. CIT(A)-2, New Delhi dated 24.10.2017.
2. Following grounds have been raised by the assessee: “That on the facts and circumstances of the case and in law, the Learned Commissioner of Income Tax (Appeals) - 2, New Delhi (hereinafter referred to as the ‘Ld CIT (Appeal)) erred in upholding disallowance made by the Assessing Officer towards foreign exchange fluctuation loss of Rs 3,38,97,823.
That the Ld CIT (Appeal) erred in law in upholding the 50% of disallowance made by the Assessing Officer towards foreign exchange loss of Rs 3,38,97,823 without applying his mind to the merits of the case, and on ad-hoc basis as not being
2 Bumi Hiway (India) P. Ltd. incurred wholly and exclusively for the purpose of business of the Appellant.
That the Ld CIT (Appeal) failed to appreciate that the gain on revaluation of foreign exchange of similar basis has been taxed as income in earlier years by the Appellant following mercantile system of accounting and in accordance with the accounting policy prescribed in Accounting Standard 11 - ‘Accounting for the Effects of Changes in Foreign Exchange Rates’.”
At the outset, it was brought to our notice that the similar issue in the case of the assessee stands adjudicated for earlier assessment years 2010-11 and 2011-12.
The brief facts and the decision of the ld. CIT (A) are as under:
The appellant company has categorically submitted that it supervised the two projects (Jalandhar and Orissa) directly undertaken by its Malaysian AE i.e. M/s Bomi Hiway (M) Sdn. Bhd (BHM) in India while it also supervised one road project (Vijayawada), awarded to it directly by Swama Tollway Private Limited (STPL). Regarding the projects of Jalandhar and Orissa, the same were originally awarded by the National Highway Authority of India (NHAI) to M/s Bum! Hiway (M) (BHM) but subsequently M/s Bumi Hiway (M) (BHM) sub contracted them to the appellant company. Moreover, BH1 (appellant company) held 16.8% equity shares in STPL, a consortium company specifically incorporated in executing agreement between the Government of India and die group of companies in Malaysia, to build a certain length of national highway, by way of design, build, operate and transfer and as a shareholder of STPL, the appellant was awarded project by STPL to construct certain stretch of Highways. In order to finance the working capital requirement and investment in STPL, the appellant secured loan financing from M/s Bank of Nova
3 Bumi Hiway (India) P. Ltd. Scotia, India in 2002, The loan used for investment in STPL equity amounting to Rs.20,67,83,000 was repaid by the appellant company in the FY 2002-03 itself.
Therefore, the advances received from Bumi Hiway Ventures Berhad, Bumi Hiway (M) (SDN BHD). Bumi Hiway Mauritius Limited, ECB Loan A/c were utilized for business purposes and since the advances received were in foreign currency, they have been revalued in accordance with AS-11 issued by ICAI and also following accrual system of accounting. Therefore, the appellant company has established that- i. Loans, funds and ECB loans as appearing in the financial statements of the appellant company for the year ending 2013 have been used for revenue expenditure and for business purpose. ii. The investment made in STPL equity was under commercial expediency to secure contract and its grouping in the books of account as investment was as per Companies Act and also according to the accounting standards issued by the ICAI. iii. The appellant company has rightfully transferred profit as well as loss accruing on revaluation of unsecured loan to its profit and loss account following mercantile system of accounting followed consistently and as per the AS-11 in the respective year.
The ld. CIT (A) held that the identical issue was involved in the case of the appellant for A.Y. 2011-12 and the CIT (Appeals)-14 vide his order in A.No. 551/14-15/I.T./Del/2015- 16 dated 23.03.2016 and restricted the disallowance to 50% of Rs.6,77,95,765/- made by the Assessing Officer.
Aggrieved, the assessee filed appeal before us.
4 Bumi Hiway (India) P. Ltd.
We have gone through the order of the Co-ordinate bench of the Tribunal for the earlier years in and in CO Nos. 239 & 240/Del/2016 wherein the matter has been referred to the file of the Assessing Officer for verification of the utilization of the loan for business purpose by taking into account the amount of the loan raised, the quantum of the own capital and the reserves & surplus, utilization of the amount for day-to-day running of the business and utilization off the amount for investment in the equity shares of the subsidiary company or the amount invested for infusion of the capital in any other company.
The AO may then take a considered decision in tune with the directions given earlier with regard to disallowance of interest on loan and bank charges in accordance with the provisions of the Income Tax Act.
In the result, the appeal of the assessee allowed for statistical purpose. Order Pronounced in the Open Court on 05/03/2021.