M/S. NEWMAN & ESSER COMPRESSOR APPLICATION CENTRE PVT. LTD,PUNE vs. INCOME-TAX OFFICER, WARD - 10(1), PUNE

आदेश / ORDER

PER ANIL CHATURVEDI, AM :

These two appeals filed by the assessee are emanating out of 1. separate orders of Commissioner of Income Tax (Appeals) – 6, Pune dated 04.07.2017 and 29.09.2017 for A.Ys. 2012-13 and 2013-14, respectively.

appeals can be heard together. In view of the aforesaid submissions of

both the parties, we, for the sake of convenience, proceed to dispose of

both the appeals by a consolidated order but however, proceed with

narrating the facts in ITA No.2656/PUN/2017 for assessment year

2012-13.

as under :-

Assessee is a company engaged in the business of Engineering

Consultancy Services. Assessee filed its original return of income for

A.Y. 2012-13 on 28.11.2012 declaring total income at

Rs.1,78,14,437/-. The case was selected for scrutiny and thereafter

assessment was framed u/s 143(3) of the Act vide order dt.31.12.2014

and the total income was determined at Rs.1,99,43,112/-. Aggrieved

by the order of AO, assessee carried the matter before Ld.CIT(A), who

vide order dt.04.07.2017 (in appeal No.PN/CIT(A)-6/DCIT Cir-

10/650/2014-15) dismissed the appeal of assessee. Aggrieved by the

order of Ld.CIT(A), assessee is now in appeal before us and has raised

the following grounds :

“1. On the facts & in circumstances of the case & in law, the lower authorities have erred in incorrectly disallowing Foreign Exchange Loss amounting to Rs.25,28,675/- by treating it to be of capital nature & by incorrectly invoking provisions of section 43A of The Income Tax Act, 1961 without appreciating the facts of the case and the submissions made by the assessee before the lower authorities.

A.Y. 2013-14.

6.1. During the course of assessment proceedings, it was noticed

that assessee had claimed expenditure of Rs.25,28,675/- on account

of fluctuation of Foreign Exchange loss. The assessee was asked to

explain the admissibility of expenses in view of provisions of Sec.43A

of the Act and also to explain as to why the amount should not be

capitalized. Assessee inter-alia submitted that it had availed

unsecured loan from the holding company for purchase of capital

asset. The submission of the assessee was not found acceptable to the

AO. AO was of the view that foreign exchange was utilized for the

purchase of capital equipment and the purpose of sanction of loan and

the approval of RBI was for the purchase of capital asset. He therefore

treated the foreign exchange loss as capital in nature which should

have been capitalized. He therefore disallowed the amount of

Rs.25,28,675/- on account of fluctuation of Foreign Exchange loss by

invoking the provisions of Sec.43-A of the Act. Aggrieved by the order

of AO, assessee carried the matter before Ld.CIT(A), who upheld the

order of AO by observing as under :

“5.2. The appellant's submissions were considered and the issue is highly debatable. There is no specific provision for allowing such deductions. The only issue to be considered is whether the loss is a rising in revenue or capital field. The Accounting Standards provide for such deduction but however, they have not been made mandatory by the I.T.Act. It is only through the CBDT Notification the provisions of AS- 11 have been incorporated in the ICDS and they are made applicable only for A.Y. 17-18. As there is no clarity for the intervening period, reliance has to be placed on the various judicial decisions for deciding

this issue. The decisions relied upon by the AO mostly relate to the assets purchased from outside India. Only in the Madras High Court decision in the case of Tube Investments of India Ltd Vs. JClT Spl. R-1 [2014] 45 Taxmann.com. 78 (Mad), it was held that the loss on foreign currency fluctuation arising on the restatement of the liability at the end of the reporting period as capital expenditure as the foreign currency loan was approved by the RBI for the purpose of capital expenditure. The Court also held that the asset need not be purchased from outside India. In view of this decision of the High Court and there are no other contradictory decisions, the view of the same has to be adopted in the appellant's case also. In the present case also, the RBI had granted permission for raising foreign exchange loan of parent company subject to the conditions stipulated therein. The foreign loan was also utilized for the purchase of capital assets. As the facts are similarly placed, following the decision of the Madras High Court, the loss has to be treated as capital expenditure.

Aggrieved by the order of Ld.CIT(A), assessee is now before us.

and Ld.CIT(A) and further submitted that Sec.43A of the Act becomes

applicable when the assets are acquired from a country outside India

and does not apply to acquisition of indigenous assets. In the present

case, he submitted that the assets were acquired in India and

therefore provisions of Sec.43A of the Act are not applicable. He also

placed reliance on the decision of Pune Tribunal in the case of Cooper

Corporation (P) Ltd. Vs. DCIT reported in (2016) 180 TTJ 0727. He also

placed on record the copy of the aforesaid decision. Ld.D.R. on the

other hand, supported the order of lower authorities.

on record. The issue in the present ground is with respect to invoking

the provisions of Sec.43A of the Act. It is an undisputed fact that

assessee had obtained a loan from a holding company. It is also a fact

that the loan was utilized for acquisition of capital assets in India and

was not utilized for acquisition of capital asset from outside India. We

find that Sec.43A of the Act becomes applicable when the assets are

acquired from a country outside India and does not apply to

acquisition of indigenous assets. Similar view was taken by the Co-

ordinate Bench of the Tribunal in the case of Cooper Corporation Pvt.

Ltd. Vs. DCIT (supra). In the present case, since assets were acquired

in India, we are of the view that provisions of Sec.43A of the Act are

not applicable in the present facts. We therefore set aside the

invocation of Sec.43-A of the Act. Thus, the grounds of the assessee

are allowed.

No.2656/PUN/2017 for A.Y. 2012-13 is allowed.

A.Y 2013-14.

No.2657/PUN/2017 for A.Y. 2013-14 is concerned, in view of the

submission of both the parties that the facts of the case in the year

being identical to the facts and issue of the case in ITA

No.2656/PUN/2017 for A.Y. 2012-13, we therefore for the reasons

stated herein while disposing of the appeal in ITA No.2656/PUN/2017

for A.Y. 2012-13, and for similar reasons, allow the grounds of assessee. Thus, the grounds of the assessee are allowed.

Order pronounced on 7th day of June, 2019.

Sd/- Sd/- (SUSHMA CHOWLA) (ANIL CHATURVEDI) �या�यक सद�य / JUDICIAL MEMBER लेखा सद�य / ACCOUNTANT MEMBER

पुणे Pune; �दनांक Dated : 7th June, 2019. Yamini

आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent 3. The CIT(Appeals)-6, Pune. 4 The PCIT-5, Pune. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, “ए” / DR, 5. ITAT, “A” Pune; गाड� फाईल / Guard file. 6.

आदेशानुसार/ BY ORDER

// True Copy // व�र�ठ �नजी स�चव / Sr. Private Secretary आयकर अपील�य अ�धकरण ,पुणे / ITAT, Pune.