DCIT, C-I, LUDHIANA vs. M/S R. N. GUPTA & CO. LTD., LUDHIANA

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ITA 403/CHANDI/2018Status: DisposedITAT Chandigarh13 December 2018AY 2014-154 pages
AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that if an assessee possesses sufficient interest-free funds, it is presumed that capital advances and investments are made from these own funds. The loss on foreign currency fluctuation was also considered an allowable revenue expenditure for saving interest costs.

What were the facts?

The Revenue appealed against the CIT(A)'s order deleting additions related to capitalization of interest on investments in fixed assets and capital work-in-progress, and allowing relief on foreign currency fluctuation loss. The assessee had sufficient own interest-free funds for capital advances and work-in-progress.

What were the issues?

Whether interest on funds used for capital advances and work-in-progress is deductible when the assessee has sufficient own interest-free funds. Whether loss on foreign currency fluctuation is an allowable revenue expenditure.

Which sections of the Income-tax Act were involved?

Section 36(1)(iii),Section 37(1)

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आदेश/Order

Per Sanjay Garg, Judicial Member:

The present appeal has been preferred by the Revenue against the order dated 08.01.2018 of the Commissioner of Income Tax-I, Ludhiana [hereinafter referred to as ‘CIT’].

2.

The Revenue has taken the following effective grounds of appeal:- 1. Whether upon the facts and circumstances of the case, the Ld. CIT(A) was justified in law and on facts in allowing relief on account of capitalization of interest as per proviso to section 36(1)(iii) on investment in fixed assets, capital work in progress and capital advances?

ITA No. 403-Chd-2018- M/s R.N. Gupta & Company Ltd., Ludhiana 2

2.

Whether upon the facts and circumstances of the case, the Ld. CIT(A) was justified in law and on facts in allowing relief on account of disallowing loss on foreign currency fluctuation ignoring the facts of the case.?

3.

Ground No.1 : Vide Ground No.1, the Revenue has agitated the

action of the CIT(A) in deleting the addition made by the Assessing officer

u/s 36(1)(iii) of the Income-tax Act, 1961 (in short 'the Act') out of the

interest expenditure in respect of investments made in fixed assets capital

work in progress and capital advances.

4.

We have heard the rival contentions. The CIT(A) in this case after

considering the facts and circumstances of the case has given a

categorical finding that assessee was possessed of sufficient own interest

free funds to cover the capital work in progress and capital advances. He,

therefore, relying upon the decision of the Jurisdictional High Court in

the case of ‘Bright Enterprises Pvt Ltd Vs. CIT, Jalandhar’ 381 ITR 107

and also considering the fact that the assessee had not borrowed any

specific loans for the aforesaid capital advances and capital work in

progress, deleted the additions so made by the Assessing officer.

5.

The issue is now squarely covered by the various decisions of the

High Courts including that of the decision of the Hon'ble Jurisdictional

High Court in the case of ‘Bright Enterprises Pvt. Ltd Vs. CIT, Jalandhar’

(supra), ‘CIT Vs. Kapsons Associates’ (2016) 381 ITR 204 (P&H) and the

latest decision of the Coordinate Bench of the Tribunal (incidentally

consisted of both of us) in the case of ‘ACIT Vs. Janak Global Resources

Pvt Ltd’ ITA No. 470/Chd/2018 order dated 16.10.2018, wherein, the issue

ITA No. 403-Chd-2018- M/s R.N. Gupta & Company Ltd., Ludhiana 3

has been decided in favour of the assessee by also considering the decision

of the Hon'ble Apex Court in the case of ‘Hero Cycles Vs. CIT’ 379 ITR

347 (SC) and also findings arrived in the case of Avon Cycles Ltd. Vs.

CIT in ITA No.277 of 2013. The Hon'ble Courts have held that if the

assessee is possessed of sufficient own interest free funds to meet the

investments / interest free advances, then, under the circumstances,

presumption will be that interest free advances / investments have been

made by the assessee out of own funds / interest free funds.

In view of this, there is no merit in this ground of the Revenue and

the same is accordingly dismissed.

6.

Ground No.2: In ground No.2, the Revenue has agitated the action

of the CIT(A) in allowing the relief on account of disallowance made by

the Assessing officer on loss on foreign currency fluctuation.

7.

The relevant discussion has been made by the CIT(A) in para 5 of

the impugned order. The Ld. CIT(A) has given a categorical finding that

the loan in foreign currency was taken by the assessee at a lower rate of

7.5% as against the normal rate of 12% per annum. The sole purpose was

to get the benefit of the lower rate of interest thereby improving the

income by way of saving the interest cost. The Ld. CIT(A) while relying

upon the decision of the Hon'ble Pune Bench of the Tribunal in the case

of ‘Cooper Corporation Private Limited’ ITA No.866/PN/2004, AY2008-

09 order dated 29.4.2016, on identical facts, has deleted the additions

holding that the conversion in foreign currency loan which led to the

impugned losses, were dictated by Revenue considerations towards saving

ITA No. 403-Chd-2018- M/s R.N. Gupta & Company Ltd., Ludhiana 4

interest cost and further held that the said loss was on Revenue account and was an allowable expenditure under the provisions of section 37(1) of the Act.

8.

The Ld. DR could not point out any distinguishing facts or case laws in this respect. In view of this, we do not find any infirmity in the order of the CIT(A). There is no merit in the appeal of the Revenue and the same is accordingly dismissed.

Order pronounced in the Open Court on 13.12.2018 Sd/- S/d- ( बी , आर . आर . कुमार / B.R.R. KUMAR) (संजय गग� / SANJAY GARG ) लेखा सद�य/ Accountant Member �या�यक सद�य /Judicial Member

Dated : 13.12.2018 “आर.के.” आदेश क� ��त�ल�प अ�े�षत/ Copy of the order forwarded to : 1. अपीलाथ�/ The Appellant 2. ��यथ�/ The Respondent 3. आयकर आयु�त/ CIT 4. आयकर आयु�त (अपील)/ The CIT(A) 5. �वभागीय ��त�न�ध, आयकर अपील�य आ�धकरण, च�डीगढ़/ DR, ITAT, CHANDIGARH 6. गाड� फाईल/ Guard File

आदेशानुसार/ By order, सहायक पंजीकार/ Assistant Registrar

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