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Income Tax Appellate Tribunal, BANGALORE BENCHES “ A ” BENCH: BANGALORE
Before: SHRI A.K. GARODIA & SHRI PAVAN KUMAR GADALE
IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCHES “ A ” BENCH: BANGALORE BEFORE SHRI A.K. GARODIA, ACCOUNTANT MEMBER AND SHRI PAVAN KUMAR GADALE, JUDICIAL MEMBER ITA. No.1902/Bang/2016 (Assessment Year: 2012-13) M/s. Health Care Global Vs. Asst. Commissioner Enterprises Ltd., of Income Tax, HCG Tower, No.8, Circle – 2(3)(1), Kalinga Rao Road, Bangalore. Sampangiram Nagar, Bengaluru-560 027 PAN: AAACC 8412H (Appellant) (Respondent)
Assessee By: Shri K.P.Srinivas, C.A. Revenue By: Shri Sunil Kumar Agarwal, Addl. CIT (D.R)
Date of Hearing : 08.11.2019 Date of Pronouncement : 22.11.2019
O R D E R PER SHRI PAVAN KUMAR GADALE, JM : The assessee has filed Misc. Petition No.15/Bang/2019 in the present appeal ITA No.1902/Bang/2016 and was heard with observations at paras 2 to 5 which are as under :
2 ITA No.1902/Bang/2016
Accordingly, as per the directions of the co-ordinate Bench of Tribunal, we adjudicate the additional ground of appeal which is read as under :
3 ITA No.1902/Bang/2016
The learned Authorised Representative argued on the ground of appeal that the learned CIT(Appeals) has erred in not considering the premium of forward contract of Rs.1,76,28,004 as cost of acquisition of assets as per the provisions of Section 43A of the Income Tax Act, 1961 (the Act). The learned Authorised Representative also referred to the observations of the Assessing Officer where the assessee has claimed forex loss as premium on contract note. Whereas the Assessing Officer observed that it was related to the capital asset and the assessee has signed the forward contract note with the lenders on purchase of capital asset and emphasized that the expenditure is claimed as per the standard accounting systems. Whereas the Assessing Officer observed that the loss incurred in capital borrowing which was utilized for purchase of capital asset has to be treated as capital expenditure and notional loss cannot be claimed. The learned Authorised Representative supported the arguments with filing of Paper Book and judicial decisions and prayed for allowing the losses. Contra,
4 ITA No.1902/Bang/2016 the learned Departmental Representative supported the order of the CIT(Appeals) on disputed issue. 4. We heard the rival contentions and perused the material on record. We found the assessee has raised the alternative ground of appeal Nos.23 & 24 referred in the CIT(Appeals) at page 6 of the order. The CIT (Appeals) dealt on the alternative ground of appeal and observed at page 8 para 5.4 which read as under :
The learned Authorised Representative filed the Paper Book with supporting evidences and judicial decision to substantiate that premium on forward contracts be considered as cost of acquisition of Capital Assets as per provisions of Sec. 43A of the Act. We consider proper to refer section 43A of the Act which is as under : “ 43A. Notwithstanding anything contained in any other provision of this Act, where an assessee has acquired any asset in any previous year from a country outside India for the purposes of his business or profession and, in consequence of a change in the rate of exchange during any previous year after the acquisition of such asset, there is an increase or reduction in the liability of the assessee as expressed in Indian currency (as compared to the
5 ITA No.1902/Bang/2016 liability existing at the time of acquisition of the asset) at the time of making payment— (a) towards the whole or a part of the cost of the asset; or (b) towards repayment of the whole or a part of the moneys borrowed by him from any person, directly or indirectly, in any foreign currency specifically for the purpose of acquiring the asset along with interest, if any, the amount by which the liability as aforesaid is so increased or reduced during such previous year and which is taken into account at the time of making the payment, irrespective of the method of accounting adopted by the assessee, shall be added to, or, as the case may be, deducted from— (i) the actual cost of the asset as defined in clause (1) of section 43; or (ii) the amount of expenditure of a capital nature referred to in clause (iv) of sub-section (1) of section 35; or (iii) the amount of expenditure of a capital nature referred to in section 35A; or (iv) the amount of expenditure of a capital nature referred to in clause (ix) of sub-section (1) of section 36; or (v) the cost of acquisition of a capital asset (not being a capital asset referred to in section 50) for the purposes of section 48, and the amount arrived at after such addition or deduction shall be taken to be the actual cost of the asset or the amount of expenditure of a capital nature or, as the case may be, the cost of acquisition of the capital asset as aforesaid: Provided that where an addition to or deduction from the actual cost or expenditure or cost of acquisition has been made under this section, as it stood immediately before its substitution by the Finance Act, 2002, on account of an increase or reduction in the liability as aforesaid, the amount to be added to, or, as the case may be, deducted under this section from, the actual cost or expenditure or cost of acquisition at the time of making the payment shall be so adjusted that the total amount added to, or, as the case may be, deducted from, the actual cost or expenditure or cost of acquisition, is equal to the increase or reduction in the aforesaid liability taken into account at the time of making payment.”
The ld. AR relied on the decision of Hon'ble Supreme Court in the case of ACIT Vs. Elecon Engineering Co. Ltd. (2010) 189 Taxman 83 (SC) in paras 10 to 12 which read as under :-
6 ITA No.1902/Bang/2016 “ 10. In the present case, one of the main arguments advanced on behalf of the assessee before us was that s. 43A was not applicable because roll over charge stood paid to avoid increase or reduction in liability as a consequence of the change in the rate of exchange. According to the assessee, s. 43A, as it stood at the material time, applied only to cases where there existed a fluctuation in the rate of exchange and since the roll over charge was paid to the authorized dealer by the assessee to avoid increase or reduction in liability on account of such fluctuation, s. 43A r/w Expln. 3 thereto would not apply to such roll over charges. We find no merit in this argument advanced on behalf of the assessee. According to the assessee, the cost for carrying forward the contracted foreign currency, not immediately required for repayment, is called the roll over charge(s). As stated above, according to the assessee, s. 43A was not applicable in this case as there was no increase or reduction in liability because such roll over charges were paid to avoid increase or reduction in liability consequent upon change in the rate of exchange. To answer this submission, one needs to keep in mind that during the relevant assessment years s. 43A applied to the entire liability remaining outstanding at the year-end, and it was not restricted merely to the instalments actually paid during the year. Therefore, at the relevant time, the year-end liability of the assessee had to be looked into. Further, it cannot be said that roll over charge has nothing to do with the fluctuation in the rate of exchange. In the present case, the notes to the accounts for the year-ending 31st Dec., 1986 (Sch. 17) indicates adverse fluctuations in the exchange rate in respect of liabilities pertaining to the assets acquired. This note clearly establishes existence of adverse fluctuations in the exchange rate which made the assessee opts for forward cover and which made the assessee pay roll over charges. The word "adverse" in the note itself presupposes increase in the liability incurred by the assessee during the year-ending 31st Dec., 1986. In the circumstances, we find no merit in the contention of the assessee that roll over charges have nothing to do with the fluctuation in the rate of exchange. Lastly, in this case we are concerned with capitalization of exchange difference in respect of acquisition of fixed assets acquired from abroad. According to Indian Accounting Standards by Dolphy D’Souza, roll over charges are indicative of the increase or decrease in the liability of the company in the next specified period, generally of six months. Roll over charges represent the difference arising on account of change in foreign exchange rates. Roll over charges paid/received in respect of liabilities relating to the acquisition of fixed assets should be debited/credited to the asset in respect of which liability was incurred. However, roll over charges not relating to fixed assets should be charged to the P&L a/c (see p. 325). 11. Before concluding, we may state that this judgment is confined to the facts of the present case. We may also clarify that the judgments cited on behalf of the assessee concerning commitment charges, warranty charges, etc., do not apply to the present case. None of these judgments deal with roll over charges. Hence, it is not necessary to discuss those judgments. 12. An alternative argument was advanced on behalf of the assessee that in the event this Court holds that roll over charges are to be capitalized in
7 ITA No.1902/Bang/2016 terms of Expln. 3 to s. 43A as it stood prior to asst. yr. 2003-04, then, in that event the Tribunal may be directed to grant depreciation allowance on the written down value of the asset not only for the concerned years but also for the subsequent years till the entire value of the asset is written off. According to the assessee, such a direction is required to be given because the depreciation, according to the assessee, is available even for the assessment years after asst. yr.1994-95. On behalf of the assessee it was further submitted, as and by way of alternative submission, that the Department may not be allowed to charge interest or penalty as the issue involved is debatable.”
We found the later decision of the Hon'ble Supreme Court in the case of ACIT Vs. Elecon Engg. Co. Ltd. (supra) was not brought to the knowledge of the Bench in the case of M/s. Archidply Industrial Ltd. Vs. DCIT (supra) the learned CIT (Appeals) declined the claim of the assessee and dismissed the alternative ground of appeal. Further in the course of hearing, when a query was raised to the ld. AR about acquisition of fixed assets from Abroad or purchased in India as the assessee has obtained Rupee Term loan and converted into foreign exchange loan. The learned Authorised Representative explained that some of the assets are acquired from Abroad and supported with Bill of Entry and other documents and accepted the fact on conversionof Rupee Loan. We considering the submissions of the learned Authorised Representative and on perusal of the assessment order these facts were not discussed or disclosed in the assessment proceedings by
8 ITA No.1902/Bang/2016 the assessee and the learned Authorised Representative prayed for an opportunity to substantiate with Bills and evidences. Therefore in the interest of substantial justice we restore the entire disputed issue for limited purpose to the file of Assessing Officer for verification and examination of claims made by the assessee on acquisition of assets from Abroad and assessee shall be provided adequate opportunity of hearing and co-operate in submitting the information expeditiously and allow additional ground of appeal of the assessee for statistical purposes. 6. In the result, the assessee's appeal is partly allowed for statistical purposes because earlier the appeal was dismissed without deciding additional ground. Order pronounced in the open court on 22nd Nov., 2019.
Sd/- Sd/- (A.K. GARODIA) (PAVAN KUMAR GADALE) ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 22.11.2019.
*Reddy GP
9 ITA No.1902/Bang/2016 Copy to 1. The appellant 2. The Respondent 3. CIT (A) 4. Pr. CIT 5. DR, ITAT, Bangalore. 6. Guard File By order
Assistant Registrar Income-tax Appellate Tribunal Bangalore