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Income Tax Appellate Tribunal, “C” Bench, Mumbai
Before: Shri B.R. Baskaran (AM) & Shri Pawan Singh (JM)
O R D E R Per B.R. Baskaran (AM) :-
The appeal filed by the revenue is directed against the order dated 01-08- 2014 passed by ld CIT(A)-17, Mumbai and it relates to the assessment year 2009-10. The revenue is aggrieved by the decision of Ld CIT(A) in directing the AO to allow depreciation on the loss on exchange rate difference by capitalising the same to the value of assets.
We heard the parties and perused the record. The AO noticed that the assessee has revalued the outstanding ECB loan as at the Balance Sheet date and claimed the loss on valuation as deduction. The AO noticed that the assessee has utilised ECB loan of Rs.3,62,62,500/- for purchasing assets as detailed below:-
2 M/s. Phoenix Mecano (India) Pvt. Ltd.
Assets purchased outside India Rs. 84,51,126/- Assets purchased within India Rs.2,78,11,374/- Since the ECB loan was used to purchase assets, the AO held that the assessee cannot claim deduction of the loss on revaluation of outstanding loan as revenue expenditure u/s 37(1) of the Act. He further held that the provisions of sec. 43A shall apply to the instant case and accordingly held that the adjustments towards foreign exchange difference could be made only at the time of making payment as per the provisions of sec. 43A of the Act. Accordingly he disallowed the claim of the assessee.
The Ld CIT(A) upheld the view taken by the AO that the loss on revaluation of outstanding ECB loan is not a revenue expenditure, since the same has been used to purchase assets. By referring various case laws and accounting standard, the Ld CIT(A) held that the same is required to be added to the cost of assets. In particular, the Ld CIT(A) placed reliance on the decision rendered by Hon’ble Calcutta High Court in the case of CIT Vs. Hindustan Aluminium Corpn Ltd (1989)(76 CTR 183), which was rendered on the basis of pre- amended provisions of sec. 43A of the Act. The Ld CIT(A) noticed that the amended provisions of sec. 43A provide for making adjustments only when the actual payment is made. He noticed that the amended provisions of sec. 43A shall apply only when the asset has been acquired from a country outside India. Accordingly the Ld CIT(A) upheld the disallowance made by the AO in respect of assets acquired outside India. With regard to the assets acquired from within India, the Ld CIT(A) held that the loss on revaluation of foreign exchange loan should be capitalised and the depreciation should be allowed. The revenue is aggrieved by his decision.
The provisions of sec. 43A, which are relevant here, read as under:-
3 M/s. Phoenix Mecano (India) Pvt. Ltd.
“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 liability existing at the time of acquisition of the asset) at the time of making payment--- ......
A careful perusal of the provisions of sec. 43A would show that the same would apply only when an assessee acquires any asset from a country outside India, meaning thereby, the provisions of sec. 43A would not apply when the asset was acquired from within India. We notice that the Ld CIT(A) has taken note of this fine distinction and accordingly upheld the order passed by the AO in respect of assets acquired from a country outside India. Accordingly, in respect of assets purchased from within India by utilising foreign currency loan, the Ld CIT(A) has held that the loss on revaluation of foreign currency loan should be capitalised and depreciation should be allowed. In this regard he has placed reliance on the decision rendered by Hon’ble Calcutta High Court in the case of Hindustan Aluminium Corporation Ltd (supra) and other decisions. The loss on revaluation cannot be considered to be notional loss in view of the decision rendered by Hon’ble Supreme Court in the case of Woodward Governor India P Ld (312 ITR 254)(SC). In view of the foregoing, we are of the view that the Ld CIT(A) has taken a conscious view of the matter by considering the legal position surrounding the issue. Hence we do not find any reason to interfere with the order passed by Ld CIT(A) on this issue.