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Income Tax Appellate Tribunal, PUNE BENCH “A”, 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.
Before us, at the outset, both the parties submitted that though the appeals filed by the assessee are for two different assessment years but the facts and issues involved in both the appeals are identical except for the assessment year and the amounts involved and therefore the submissions made by them while arguing one appeal would be equally applicable to the other appeal also and thus both the
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.
The relevant facts as culled out from the material on record are
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.
Without prejudice to the above ground on the facts & in circumstances of the case & in law, the lower authorities have erred in quantifying Foreign Exchange Loss to be disallowed, without appreciating the fact that total foreign exchange loss includes foreign Exchange Loss on revenue items to the tune of Rs.18,77,675/-.”
Similar grounds have been raised in ITA No.2657/PUN/2017 for
A.Y. 2013-14.
Both the grounds being inter-connected are considered together.
First ground is with respect to invocation of Sec.43A of the Act.
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.
The appellant had claimed that the AO had erred in not considering that some of the foreign exchange fluctuation loss claimed is on account of revenue items. The appellant filed ledger extracts and it is not clear from these ledger extract as to the amounts which pertain to the revenue items. It is claimed that at one place the net impact of ECB loan to be Rs.11,16,756/- however, in the submissions made he claimed the exchange loss to be only Rs.6,51,000/-. A close reading of the submissions indicates that the loss of Rs.6,51,000/- relates only to the ECB loan amounts repaid, The appellant did not submit these revenue items even before the AO, as can been seen from the assessment order. The appellant should have provided all the particulars to arrive at the loss due to revenue items. In the absence of complete details, the claim cannot be allowed.
In the result, the appeal is dismissed.”
Aggrieved by the order of Ld.CIT(A), assessee is now before us.
Before us, Ld.A.R. reiterated the submissions made before AO
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.
We have heard the rival submissions and perused the material
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.
In the result, the appeal of assessee in ITA
No.2656/PUN/2017 for A.Y. 2012-13 is allowed.
Now we take up assessee’s appeal in ITA No.2657/PUN/2017 for
A.Y 2013-14.
As far as the grounds raised in appeal in ITA
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.
In the result, the appeal of assessee in ITA No.2657/PUN/2017 for A.Y. 2013-14 is allowed.
To sum up both the appeals of 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.