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Before: Shri Duvvuru RL Reddy & Shri S. Jayaraman
O R D E R
PER DUVVURU RL REDDY, JUDICIAL MEMBER:
This appeal filed by the assessee is directed against the order of the ld. Principal Commissioner of Income Tax-1, Coimbatore, dated 26.03.2018 relevant to the assessment year 2013-14 challenging the order passed under section 263 of the Income Tax Act, 1961 [“Act” in short].
Brief facts of the case are that the assessee filed its return of income for the assessment year 2013-14 on 07.09.2013 declaring an income of ₹.22,26,86,520/-. The return of income filed by the assessee was processed under section 143(1) of the Act. Subsequently, the case of the assessee was selected for scrutiny and against the statutory notices, the assessee filed the details. After examining the details of the assessee, the assessment under section 143(3) of the Act was completed by accepting the returned income.
However, on verification of assessment records, the ld. PCIT was of the opinion that the assessee has purchased 619000 shares having face value of ₹.10/- per share pertaining to M/s. Maple Renewable Power P. Ltd. during the assessment year 2013-14. A per the provisions of section 56(2)(viia) of the Act, if an assessee received any property (being shares) for a consideration which is less than the aggregate fair market value of the property by an amount exceeding fifty thousand rupees, the aggregate fair market value of such property as exceeds such consideration is required to be treated as income from other sources. The determination of fair market value is to be carried out as provided for in Rule 11UA of IT Rules. Moreover, on perusal of the details of foreign currency loan payable restated as on 31.03.2013, the ld. PCIT has observed that the assessee availed SBI term loan for purchase of windmill and the balance as on 31.03.2013 was reported at ₹.10,22,65,336.82/- and the same was restated at ₹.10,53,02,137/- with a difference of ₹. 30,36,801/- claiming as forex loss. Since the assessee has utilized foreign loan for purchase of capital equipment, the ld. PCIT has observed and held that the loss incurred on said loan due to fluctuation in foreign exchange rate was to be regarded as capital in nature and could not be allowed as deduction. Since the Assessing Officer while completing the assessment has ignored the above facts, the ld. PCIT was of the opinion that the assessment order is erroneous and prejudicial to the interest of the Revenue. Therefore, by invoking the provisions of section 263 of the Act as well as relying on various judgements, the ld. PCIT passed order under section 263 of the Act in directing the Assessing Officer to redo the assessment afresh.
Against the order under section 263 of the Act, the assessee preferred an appeal before the Tribunal. By filing copy of the Directors report of M/s. Flow Link Systems P. Ltd. for the financial year ended 31.03.2012, the ld. Counsel for the assessee has submitted that the investment in shares of M/s. Flow Link Systems P. Ltd. was made during the year ending 31.03.2012. It was further submission that the assessee has not acquired any asset outside India by availing foreign currency loan and the assessee has purchased indigenous windmill only. Further, the ld. PCIT has not considered the written submissions of the assessee filed in the form of letter dated 17.03.2018 and thus, prayed for quashing the revision order.
Per contra, the ld. DR has fairly conceded that the matter may be remitted back to the file of the ld. PCIT.
We have heard both the sides, perused the materials available on record and gone through the orders of authorities below. With regard to the observations of the ld. PCIT that the assessee has purchased shares in the assessment year 2013-14 as well as claim of deduction of forex loss, on perusal of the order under section 263 of the Act, we find that the ld. PCIT has not considered the written submissions of the assessee communicated to him in the form of letter dated 17.03.2018 against the notice issued under section 263 of the Act dated 13.03.2018. The letter of the assessee dated 17.03.2018 has been received in the office of the ld. PCIT on 19.03.2018, but, the ld. PCIT has ignored the explanations of the assessee and hurriedly passed the revision order on 26.03.2018. Thus, the order passed under section 263 of the Act is liable to be quashed. However, on merits, it was the submissions of the assessee in his letter dated 17.03.2018 that it has not acquired any shares during the assessment year 2013-14 warranting the provisions of section 56(2)(viia) of the Act. The ld. PCIT neither considered the reply of the assessee nor given any details in the revision order.
6.1 Moreover, while rejecting the claim of deduction of forex loss, the ld. PCIT has relied on the decision in the case of Tube Investments of India Ltd. v. JCIT [2014] 45 taxmann.com 78 (Madras). However, the revision order was vague as the ld. PCIT has not given any details as to whether the assessee has utilized foreign currency loan other than the purpose of purchasing the asset indigenously so as to rely on the above decision for rejecting the claim of deduction of forex loss, whereas, before the ld. PCIT, the assessee has submitted that the assessee company raised the foreign currency loan for purchase of assets domestically and not from a foreign country. In the case law relied on by the ld. PCIT, the Assessing Officer was justified in capitalizing the exchange fluctuation in respect of the imported machinery by invoking section 43A of the Act since some part of the loan was not used for purchase of assets by the assessee. Thus, the question of law raised before the Hon’ble High Court was as to whether the Tribunal was right in confirming the disallowance of interest and additional expenditure incurred on account of exchange fluctuation and therefore, the Hon’ble High Court has held that if any part of the loan was not used for purchase of a capital asset, the corresponding loss had to be treated as a capital expenditure. In the present case, the assessee has not imported any plant & machinery from foreign country, but purchased the assets domestically. Thus, the above case law has no application to the facts of the present case in case if any part of the loan was not utilized other than for acquiring the capital asset. While reconsidering the matter, the ld. PCIT shall keep in mind the decision of this Tribunal in the case of The Madras Silks India Pvt. Ltd. v. DCIT in dated 31.10.2017. Thus, we direct the ld. PCIT to examine the explanations as well as records and thereafter take a decision for the necessity of invoking the provisions of section 263 of the Act after allowing meaningful opportunity of being heard to the assessee.
In the result, the appeal filed by the assessee is allowed for statistical purposes. Order pronounced on the 14th June, 2021 in Chennai.