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Income Tax Appellate Tribunal, DELHI BENCH “C” NEW DELHI
Before: SHRI S.V. MEHROTRA : & SMT. BEENA A. PILLAI:
These are assessee’s appeals against separate orders of ld. CIT(A) in quantum and penalty appeals relating to AY 2004-05. Both the appeals were heard together and are being disposed of by a common order for the sake of convenience.
2 ITA 253 & 1226/Del/2 (Quantum appeal): 2. Sole effective ground raised in this appeal is as under:
1. That the Hon’ble CIT(Appeals ) is wrong and unjustified both in law and facts in disallowing Rs. 5,91,902/- on Working Capital Interest.”
3. Brief facts of the case are that the assessee in the relevant assessment year was engaged in the business of manufacturing and marketing of sorbitol. Assessee filed its return of income declaring profit of Rs. 1,16,83,210/-. Originally the assessment was completed at an income of Rs. 1,21,83,210/-, which was set aside vide CIT’s order dated 20.3.2009 u/s 263 of the Act. Subsequently, the AO vide order dated 27.11.2009 framed the assessment at an income of Rs. 1,71,34,460/- u/s 143(3)/263 of the Act by making addition of Rs. 49,51,250/- on account of working capital interest, inter alia, by observing that assessee had claimed and allowed an expenditure of Rs. 49,51,250/- on account of interest on bank borrowings for working capital but the amount was not paid before filing of the return and as such the same was not an admissible expenditure. The assessee vide its reply dated 22.8.2009 stated that the interest on bank borrowings for working capital was charged and collected by the bank from their account at the end of every month on monthly basis and, hence, there did not arise any question of non- payment of such interest. In support of its contention, he noted that assessee filed copy of bank statement. AO has further observed that information were also called for from Bank of Baroda, Defence Enclave, Preet Vihar,Delhi and Industrial Estate branch, Aankleshwar (Gujarat). He pointed out that Bank of Baroda, Delhi branch declined to have any cash credit in the name of the company. Aankleshwar branch had furnished a certificate for the recovery of interest amounting to Rs.
3 ITA 253 & 1226/Del/2012 1,18,101/- including penal interest of Rs. 2,099/-. He, therefore, disallowed interest of Rs. 49,51,250/-.
Before ld. CIT(A) the assessee had, inter alia, pointed out that company had cash credit account with Bank of Baroda, Large Corporate Branch, Bank of Baroda Building, Parliament Street, New Delhi and the letter seeking information was sent to Bank of Baroda Defence Enclave, Preet Vihar Branch with which it had no account. Therefore, assessee had filed bank certificate from Large Corporate Branch, which confirmed and certified having received the interest. Ld. CIT(A) after considering the assessee’s submissions, deleted the addition to the tune of Rs. 43,59,348/-, inter alia, observing that since no evidence had been produced by the assessee for the balance of Rs. 5,91,902/-, therefore, the addition to that extent was upheld.
Ld. counsel has filed before us detailed submissions dated 3.9.2014, wherein it has been pleaded that ld. CIT(A) should have deleted the sum of Rs. 5,91,902/- also as the same is as per the certificate from the bank regarding finance charges.
We have considered the submissions of both the parties and have perused the record of the case. The assessee’s submissions are reproduced hereunder: “Sub: Appeal No. 2531DEL-2012 for the A.Y. 2004-05- Hon 'ble Sirs, This is our appeal against CIT(A)'s order dated 01-12-2011 for upholding the addition of Rs.5.92Lacs. (out of total Addition of Rs.49.51 Lacs made by Assessing Officer under the head of Finance Charges)
4 ITA 253 & 1226/Del/2012 This Rs.5.92 Lacs is Loss on account of Foreign exchange Fluctuation which has not been considered by the CIT(A). The fact of the case is that the Company had raised a Foreign Currency Loan of USD 960000 From Bank of Baroda on 09- 06- 2003( copy of Bank sanction letter to confirm this sanction is annexed at page 17 of the Paper Book) when dollar rate was Rs. 46.81 per USD and accordingly Rs.44937600/- ($960000*Rs.46.81) was debited by Bank to our account. (Our statement of account is annexed at page no.15 of the Paper Book to confirm this loan). As per the condition of the Loan, the Loan had to be Rolled over after every six months at Re-pricing at Roll over time (copy of sanction letter to confirm this condition is annexed on page 17 of Paper Book) At roll over time i.e. 10-12-2003, USD rate was Rs.45.645 per USD (proof of Rate annexed on page no.19 of Paper Book) hence company gained Rs.l.165 (46.81- 45.645) per USD amounting in aggregate Rs.ll.l8 Lacs ($960000*Rs.1.165) which after setting off bank charges Rs.0.20 Lacs charged by bank Net Rs.I0.98 Lacs was credited to foreign exchange fluctuation income by debiting loan liability, in our books (Please refer to page no.l6 of Paper Book) Another condition of loan was that the Company will have to take necessary hedge against currency fluctuation Risk. (Please refer sanction letter annexed on page no. 17 of Paper Book) In compliance of the second condition of the sanction, company had taken forward cover for USD 972000 (Loan amount USD 960000 + Interest thereon USD 12000) @ Rs. 47.36 per USD (proof of Rate is annexed on page no. 18 of Paper Book) on 10.06.2003 which was cancelled at roll over time and fresh cover was taken which was available @ Rs.45.54 per USD. This had resulted in net loss of Rs.1.82 ($47.36-$45.54 )per USD amounting in aggregate RS.17.46 Lacs which was debited by our bank to our account on 10.12.2003(Copy of Bank 5 ITA 253 & 1226/Del/2012 statement debiting the figures is annexed on page no.29 of paper book). The same was booked under the head of foreign exchange fluctuation expenses in our books of accounts (Please refer our statement of account annexed on page no. 16 of Paper Book). Out of this RS.17.46 Lacs, amount of gain Rs.IO.98 Lacs on Foreign Exchange Fluctuation as per para 4 of our letter was set-off and balance remained Rs.6.48 Lacs which after setting off Rs.0.56 Lacs on account of Misc. Bank credits net Rs. 5.92 Lacs were charged to Profit and Loss account as Foreign Exchange Fluctuation Expenses. In view of our above explanation it is requested that the addition of Rs.5.92 Lacs under the head of Finance charges be deleted”
The aforementioned submissions require factual verification and, therefore, we restore this matter to the file of AO to examine the aforementioned contentions of assessee and if the same are found to be correct, then to delete the addition.
In the result, assessee’s appeal is allowed for statistical purposes. (penalty appeal u/s 271(1)(c): 9. Sole effective ground raised
in this appeal is as under: “That the Hon’ble CIT(Appeals ) is wrong and unjustified both in law and facts in imposing penalty on addition of Rs. 5,91,902/- on account of on Working Capital Interest.”
10. Brief facts giving rise to the impugned appeal are that AO had initiated penalty proceedings against the assessee u/s 271(1)(c) for furnishing of inaccurate particulars of its income and vide penalty order dated 28.5.2010 imposed the penalty of Rs. 17,76,261/- @ of 100% of the tax sought to be evaded, for furnishing of inaccurate particulars of its income to the extent of Rs. 49,51,250/- on account of working capital interest.
6 ITA 253 & 1226/Del/2012 11. In appeal the ld. CIT(A) reduced the penalty by directing the AO to work out the penalty in respect of income of Rs. 5,91,902/-. Aggrieved, the assessee is in appeal before the Tribunal.
While dealing with quantum appeal, as above, we have set aside the issue relating to addition of Rs. 5,91,902/- to the file of AO to verify the claim of the assessee and then to decide the issue in accordance with law. Since the very basis for levy of penalty u/s 271(1)(c) has been set aside to the file of AO, the penalty in question cannot be sustained in the eye of law and the same is directed to be deleted. However, the AO will be at liberty to initiate penalty proceedings, if any, depending on the outcome of the set aside issue. We order accordingly.
In the result, is allowed. Order pronouncement in open court on 15/06/2016.