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Income Tax Appellate Tribunal, “A” BENCH, CHENNAI
Before: SHRI N.R.S. GANESAN & SHRI, M. BALAGANESH
आदेश /O R D E R
PER M. BALAGANESH, ACCOUNTANT MEMBER:
This appeal of the assessee arise out of the order of the ld Commissioner of Income Tax (Appeals) [in short CITA] –I, Coimbatore, in dated 24.04.2017.
The only issue to be decided in this appeal is as to whether the ld CITA was justified in confirming the addition made by the ld AO with respect to loss arising out of restatement of foreign currency convertible bonds as notional loss, in the facts and circumstances of the case.
ITA No.1547/Mds./2017 :- 2 -:
The brief facts of this issue is that the assessee is a public limited company carrying on the business of manufacture and sale of sugar, industrial alcohol, power generation (co-generation plant) and soya products. The return of income for the Asst Year 2009-10 was filed by the assessee company on 27.9.2009 admitting loss of `232,11,10,127/- under normal provisions of the Act and Nil income u/s 115JB of the Act. The ld AO determined the loss of `73,26,37,623/- under normal provisions of the Act u/s 143(3) of the Act. Later the ld CIT initiated proceedings u/s 263 of the Act and directed the ld AO to disallow foreign currency fluctuation loss on foreign currency convertible bonds. Foreign currency convertible bonds (in short FCCB) were issued by the assessee on 31.5.2006. These bonds are in the nature of debentures with convertible option on maturity, only difference being funds were raised from foreign countries. The assessee company has been consistently following the method of mark to market exchange loss / gain on account of these foreign currency bonds. The ld AO observed that assessee had claimed foreign exchange loss of `65,88,00,000/- on FCCB .
The ld AO categorized the same as only a notional loss incurred by the assessee as admittedly the said loss arose only on restatement of the outstanding FCCB as on the balance sheet date. Since the exchange loss did not got incurred at the time of making payment / redemption of FCCB, and in the absence of the details of acquisition of assets, if any, outside India, the ld AO held that the provisions of section 43A of the Act would also not become applicable in the instant case. With these observations, the ld AO
ITA No.1547/Mds./2017 :- 3 -: disallowed the claim of exchange loss arising out of restatement of FCCB as on the balance sheet date amounting to `65,88,00,000/- in the assessment by treating the same as capital loss. This action of the ld AO was upheld by the ld CITA. Aggrieved, the assessee is in appeal before us.
The ld AR pleaded that the foreign currency loan was utilized for acquiring capital assets and as such any exchange loss arising out of restatement on the balance sheet date would have to be added to the cost of concerned assets and depreciation to be granted accordingly on the same.
He pleaded that the ld AO had also stated the same in his order that the foreign currency loan has been utilized for acquisition of capital assets. In response to this, the ld DR vehemently opposed to this argument of the ld AR on the ground that the assessee had not raised any specific ground seeking for alternative argument of claim of depreciation.
We have heard the rival submissions and perused the materials on record. It is not in dispute that the foreign currency loan has been utilized for acquisition of capital assets and hence the utilization of the borrowing has been made on capital account. Then the exchange loss arising due to restatement of the foreign currency loan as on the balance sheet date would also be on capital account to be added to the cost of assets Once the same is on capital account, it is logical and automatic that the assessee would be entitled for claim of depreciation thereon . Hence we direct the ld AO to ITA No.1547/Mds./2017 :- 4 -:
grant depreciation on the portion of exchange loss which is in dispute before us. Accordingly, the grounds raised by the assessee are partly allowed.
6. In the result, the appeal of the assessee is partly allowed. Order pronounced on 25th January, 2018 at Chennai.