ACIT, CHENNAI vs. M/S. M CT M GLOBAL INVESTMENTS P. LTD., CHENNAI

आदेश /O R D E R

PER N.R.S. GANESAN, JUDICIAL MEMBER:

All the appeals of the assessee and Revenue are directed

against the respective orders of the Commissioner of Income Tax

(Appeals)-V, Chennai. The assessee has also filed cross-

objections. Since common issues arise for consideration in these

appeals and cross-objections, we heard these appeals and cross-

objections together and disposing of the same by this common

order.

earned by the assessee from investment made in Malaysia.

submitted that the Malaysian branch of the assessee-company was

registered as a company in Malaysia. The assessee invested in

bonds, debentures, derivatives, shares, etc. in Malaysia. Since the

assessee invested its funds in Malaysia, the income earned by the

assessee-company from Malaysian investment is exclusively

3 ITA Nos.1873, 1954/Mds/08 ITA Nos.456, 1438, 1465 & 1654/Mds/09 ITA Nos.1102, 1285/Mds/11 ITA Nos.115 & 1936/Mds/12 CO Nos.167 & 200/Mds/09 attributable to Malaysian branch, therefore, the provisions of Double

Taxation Avoidance Agreement between Union of India and

Government of Malaysia would come into operation. According to

the Ld. counsel, the income earned by the Malaysian branch of the

assessee-company cannot be assessed in India.

Ld.counsel for the assessee submitted that the asset of the

Malaysian branch was assessed by the assessee-company in

making investment in Malaysia. Therefore, according to the Ld.

counsel, the income earned on the investments made out of the

assets of the Malaysian branch is attributable only to Malaysian

branch, therefore, the same has to be assessed only in Malaysia

and not in India. Referring to the decision of this Bench of the

Tribunal in the assessee's own case for assessment year 2000-01

in I.T.A. No. 659/Mds/2005, the Ld.counsel submitted that in fact,

this Tribunal has not considered the provisions of Double Taxation

Avoidance Agreement while coming to conclusion that there was no

permanent establishment in Malaysia. According to the Ld.

counsel,, the Malaysian branch of the assessee-company was

registered as a separate company in Malaysia, therefore, it has to

4 ITA Nos.1873, 1954/Mds/08 ITA Nos.456, 1438, 1465 & 1654/Mds/09 ITA Nos.1102, 1285/Mds/11 ITA Nos.115 & 1936/Mds/12 CO Nos.167 & 200/Mds/09 be constitute a permanent establishment in Malaysia, hence the

income earned by the Malaysian branch of the assessee-company

by making investment from the assets of Malaysian branch has to

be treated as income of the Malaysian branch and liable for taxation

under Mayalsian Income Tax Act, therefore, the same cannot be

subject matter of taxation in India. The Ld.counsel further submitted

that the business of the Malaysian branch of the company is

investment, therefore, the income earned by the assessee in

investments in Malaysia has to be treated as business income.

since the assessee has permanent establishment in Malaysia, the

CIT(Appeals) is not justified in placing reliance on the order of this

Tribunal for assessment year 2000-01 in holding that the income is

taxable in India.

Departmental Representative, submitted that the assessee-

company had a branch in Malaysia. The assessee invested its

funds through Malaysian branch in Malaysia. The decision to make

investment was taken at Chennai. In fact, all the directors of the

assessee-company were residing in Chennai. Therefore, according

to the Ld. D.R., the assessee-company functions from Chennai and

5 ITA Nos.1873, 1954/Mds/08 ITA Nos.456, 1438, 1465 & 1654/Mds/09 ITA Nos.1102, 1285/Mds/11 ITA Nos.115 & 1936/Mds/12 CO Nos.167 & 200/Mds/09 making investment in Malaysia. Therefore, according to the Ld.

D.R., the assessee has no permanent establishment in Malaysia. In

fact, this Tribunal in the assessee's own case for assessment year

2000-01 examined this issue elaborately and found that the income

earned by the Malaysian branch of the assessee-company is liable

for taxation in India.

“income from other sources”, the Ld. Departmental Representative

submitted that once the income earned by the Malaysian branch of

the assessee-company is taxable in India, the classification of

interest income has to be made under the provisions of Income-tax

Act. In fact, according to the Ld. D.R., the income of the Malaysian

branch of the assessee-company was from investments. The

income was in the nature of interest and dividend from such

investments. Therefore, it has to be classified as “income from

other sources” and not from business.

case for assessment year 2000-01, the Ld. D.R. submitted that the

Tribunal found that the assessee’s branch at Malaysia was holding

6 ITA Nos.1873, 1954/Mds/08 ITA Nos.456, 1438, 1465 & 1654/Mds/09 ITA Nos.1102, 1285/Mds/11 ITA Nos.115 & 1936/Mds/12 CO Nos.167 & 200/Mds/09 the investment not as a stock-in-trade but as investments only.

Therefore, the purchase and sale of the investments is liable for

capital gain. Since in the assessee's own case, this Tribunal found

that the assessee was holding the shares, debentures, etc. as

investments only and not as stock-in-trade, the Tribunal found that

the loss on sale of investments cannot be set off. Therefore,

according to the Ld. D.R., the CIT(Appeals) disallowed the claim of

the assessee by rightly placing his reliance on the order of this

Tribunal for assessment year 2000-01.

perused the relevant material available on record. As rightly

submitted by the Ld. D.R., this Tribunal examined the issue for

assessment year 2000-01 and found that there was no permanent

establishment in Malaysia. The Malaysian branch of the assessee-

company invested in M/s Goldman Sachs on the basis of the

decision taken at Chennai. This Tribunal found that M/s Goldman

Sachs invested in various bonds and shares. The Malaysian

branch of the assessee-company was, in fact, operated from

Chennai. This Tribunal, for the assessment year 2000-01,

examined entire nature of investments made by the assessee-

7 ITA Nos.1873, 1954/Mds/08 ITA Nos.456, 1438, 1465 & 1654/Mds/09 ITA Nos.1102, 1285/Mds/11 ITA Nos.115 & 1936/Mds/12 CO Nos.167 & 200/Mds/09 company in Malaysia and found that the interest / income earned by

the assessee from investments in Malaysia has to be construed as

“income from other sources”. The loss suffered by the assessee on

sale of shares and investments cannot be allowed to set off against

the capital gain. This Tribunal further found that the income earned

by the Malaysian branch of the assessee-company is taxable in

India and not taxable in Malaysia. In view of the decision of this

Tribunal in the assessee's own case for the assessment year 2000-

01, this Tribunal do not find any reason to interfere with the order of

the lower authority and accordingly the same is confirmed.

incurred by the assessee in Malaysian branch. This issue arises for

consideration in the Revenue’s appeal for assessment year 2001-

02.

Representative, submitted that this Tribunal in the assessee's own

case for assessment year 2003-04 found that the expenditure

cannot be allowed while computing the total income. Therefore,

according to the Ld. D.R., the order of the CIT(Appeals) allowing the

8 ITA Nos.1873, 1954/Mds/08 ITA Nos.456, 1438, 1465 & 1654/Mds/09 ITA Nos.1102, 1285/Mds/11 ITA Nos.115 & 1936/Mds/12 CO Nos.167 & 200/Mds/09 expenditure incurred by the assessee in Malaysian branch of the

assessee-company is not justified.

assessee, submitted that the CIT(Appeals) found that the income

earned by the assessee’s branch in Malaysia is taxable in India.

Therefore, according to the Ld. counsel, the expenditure has also to

be allowed while computing the taxable income. Since the entire

foreign income was taxed under the head “Income from other

sources”, the CIT(Appeals) found that the expenditure incurred by

the assessee in Malaysia for earning such income has also to be

allowed while computing taxable income in India. According to the

Ld. counsel, the claim of the assessee is that the income earned in

Malaysia is not taxable in India. Therefore, the expenditure incurred

by the assessee for earning such income has to be reduced from

the income earned in Malaysia. According to the Ld. counsel, the

assessee made investments through Goldman Sachs, Singapore,

therefore, the CIT(Appeals) has rightly allowed the claim of the

assessee.

9 ITA Nos.1873, 1954/Mds/08 ITA Nos.456, 1438, 1465 & 1654/Mds/09 ITA Nos.1102, 1285/Mds/11 ITA Nos.115 & 1936/Mds/12 CO Nos.167 & 200/Mds/09 12. We have considered the rival submissions on either side and

perused the relevant material available on record. Apparently, the

CIT(Appeals) allowed the claim of the assessee on the ground that

the expenditure incurred by the assessee has to be reduced from

the income earned from investments in Malaysia. The Revenue in

ground No.2.2 clarifies that this Tribunal in I.T.A. No.558/Mds/2007

for the assessment year 2003-04, by an order dated 26.06.2009,

decided the matter in favour of Revenue. The Revenue has filed a

copy of the order of this Tribunal dated 26.06.2009 in the paper-

book.

This Tribunal found that the income from Malaysian branch has to

be classified as “income from other sources” and it cannot be said

to be arising from business, therefore, there cannot any question of

allowing the expenditure against the business income. In view of

this order of the Tribunal, the CIT(Appeals) is not justified in

allowing the claim of the assessee. In fact, this order of the Tribunal

was not brought to the notice of the CIT(Appeals). By following the

order of this Tribunal in I.T.A. No.558/Mds/2007 dated 26.06.2009,

10 ITA Nos.1873, 1954/Mds/08 ITA Nos.456, 1438, 1465 & 1654/Mds/09 ITA Nos.1102, 1285/Mds/11 ITA Nos.115 & 1936/Mds/12 CO Nos.167 & 200/Mds/09 the order of the CIT(Appeals) is set aside and that of the Assessing

Officer is restored.

234B of the Act. This was raised by the Revenue in I.T.A. No.

1438/Mds/2009 for assessment year 2001-02.

Representative, submitted that the Assessing Officer levied interest

under Section 234B of the Act. The Assessing Officer found that

the income of Malaysian branch of the assessee-company has to be

taxed in India. However, the CIT(Appeals) allowed the claim of the

assessee on the ground that the assessee-company would not have

anticipated the foreign income would be held to be taxable in India.

Referring to Section 234B of the Act, the Ld. D.R. submitted that

when the assessee is liable to pay advance tax and the advance tax

paid by the assessee was less than 90% of the assessed tax, the

assessee has to pay a simple interest at the rate of 1% every month

or part of a month comprised in the period. In this case, it is not in

dispute that the assessee is liable to pay advance tax and the

advance tax paid by the assessee is less than 90% of assessed tax,

11 ITA Nos.1873, 1954/Mds/08 ITA Nos.456, 1438, 1465 & 1654/Mds/09 ITA Nos.1102, 1285/Mds/11 ITA Nos.115 & 1936/Mds/12 CO Nos.167 & 200/Mds/09 therefore, the Assessing Officer has rightly levied under Section

234B of the Act.

assessee, submitted that the assessee has not anticipated that the

income of the Malaysian branch of the assessee-company would be

included in the total income of the assessee in India. According to

the Ld. counsel, the Malaysian branch has to be construed as

having permanent establishment in Malaysia, therefore, the income is not taxable in India. Since the assessee was under the bona fide

belief that the income of the Malaysian branch is not taxable in

India, there cannot be any levy of interest under Section 234B of the

Act. Placing reliance on the judgment of Madras High Court in CIT

v. Revathi Equipment Limited (2008) 298 ITR 67, the Ld.counsel

submitted that the assessee has paid the advance tax voluntarily in

respect of Indian income. The assessee never anticipated that the

income earned in Malaysian investments would be included in the

total income of the assessee, therefore, the assessee is under the bona fide belief that the Malaysian income is not taxable in India,

hence the interest under Section 234B of the Act is not chargeable.

12 ITA Nos.1873, 1954/Mds/08 ITA Nos.456, 1438, 1465 & 1654/Mds/09 ITA Nos.1102, 1285/Mds/11 ITA Nos.115 & 1936/Mds/12 CO Nos.167 & 200/Mds/09 17. We have considered the rival submissions on either side and

perused the relevant material available on record. The payment of

advance tax was increased due to inclusion of income of Malaysian

branch in India. The assessee claims that there was a bona fide

belief that the Malaysian income would not form part of total income

of the assessee in India.

High Court in Revathi Equipment Limited (supra). In the case

before Madras High Court, the assessee has paid advance tax

voluntarily. Section 35DDA of the Act was introduced by Finance

Act, 2001 with effect from 01.04.2001. In fact, Finance Bill received

assent of President on 11.05.2000. Therefore, the Madras High

Court found that the assessee could not have envisaged that the

voluntary retirement payments are liable for taxation. In view of the

legislative change brought in by Finance Act, 2001, the Madras High Court found that the assessee was under the bona fide belief,

therefore, the interest is not leviable. In the case before us, it is not

the case of legislative change. The income of Malaysian branch of

Indian company was not included in the total income of the

assessee. It is a well settled principle of law that the global income

13 ITA Nos.1873, 1954/Mds/08 ITA Nos.456, 1438, 1465 & 1654/Mds/09 ITA Nos.1102, 1285/Mds/11 ITA Nos.115 & 1936/Mds/12 CO Nos.167 & 200/Mds/09 of the resident company is liable for taxation in India unless

otherwise it was excluded by Double Taxation Avoidance

Agreement between two sovereign countries.

case, for assessment year 2000-01, after examining the Double

Taxation Avoidance Agreement, and the investment said to be

made by the Malaysian branch, found that the assessee is not doing

any business in Malaysia other than making investments in M/s

Goldman Sachs. The assessee-company is not making

investments in any another companies. The other company M/s

Goldman Sachs was doing business. The decision to make

investment was taken in India, therefore, the Malaysian branch

cannot be construed a permanent establishment. In those factual

circumstances, this Tribunal found for the assessment year 2000-

01, in the assessee's own case, that the income earned on

investments by Malaysian branch of the assessee-company is

taxable in India. The taxability of income at Malaysian branch is not

because of any legislative change brought in subsequently.

Therefore, it cannot be said that the assessee was under the bona

fide belief. This is the case of levy of tax on the income. Since

14 ITA Nos.1873, 1954/Mds/08 ITA Nos.456, 1438, 1465 & 1654/Mds/09 ITA Nos.1102, 1285/Mds/11 ITA Nos.115 & 1936/Mds/12 CO Nos.167 & 200/Mds/09 there was no legislative change brought in by the Parliament, this

Tribunal is of the considered opinion that the judgment of Madras

High Court in Revathi Equipment Limited (supra) may not be

applicable to the facts of the case. Therefore, when the assessee

admittedly paid advance tax, which is less than 90% of assessed

tax, the assessee is liable to pay interest under Section 234B of the

Act. Therefore, this Tribunal is unable to uphold the order of the

CIT(Appeals). Accordingly, the order of the CIT(Appeals) is set

aside and that of the Assessing Officer is restored.

under Section 234D of the Act.

Representative, submitted that the interest under Section 234D of

the Act was levied on the amount refunded to the assessee.

Referring to the judgment of Madras High Court in CIT v.

Infrastructure Development Finance Co. Ltd. (2013) 33

taxmann.com 622, the Ld. D.R. submitted that since the excess

amount was refunded to the assessee, the assessee is liable to pay

interest on the excess amount refunded. The Ld. D.R. has also

placed reliance on the decision of the Bangalore Bench of this

15 ITA Nos.1873, 1954/Mds/08 ITA Nos.456, 1438, 1465 & 1654/Mds/09 ITA Nos.1102, 1285/Mds/11 ITA Nos.115 & 1936/Mds/12 CO Nos.167 & 200/Mds/09 Tribunal in Sigma Aldrich Foreign Holding Company v. ACIT (104

ITD 95) and Ahmedabad Bench of this Tribunal in JCIT v. Sardar

Sarovar Narmada Nigam Ltd. (93 ITD 321).

assessee, also. It is not in dispute that the excess amount was

refunded and the levy of interest under Section 234D was made on

excess amount refunded. The claim of the assessee before the

lower authorities was that no interest could be chargeable under

Section 234D of the Act prior to assessment year 2001-02. The

Madras High Court in Infrastructure Development Finance Co. Ltd.

(supra) found that Section 234D of the Act came into force with

effect from 01.06.2003. When the regular assessment was

completed after the provisions of Section 234D of the Act came into

force, the assessee was liable to pay interest on the excess amount

refunded as contemplated under Section 234D of the Act. In this

case also, the regular assessment was admittedly made on

21.01.2009 after Section 234D of the Act came into operation.

Therefore, the assessee is liable to pay interest under Section 234D

of the Act on the excess amount refunded in view of the judgment of

Madras High Court in Infrastructure Development Finance Co. Ltd.

16 ITA Nos.1873, 1954/Mds/08 ITA Nos.456, 1438, 1465 & 1654/Mds/09 ITA Nos.1102, 1285/Mds/11 ITA Nos.115 & 1936/Mds/12 CO Nos.167 & 200/Mds/09 (supra). By respectfully following the judgment of Madras High

Court in Infrastructure Development Finance Co. Ltd. (supra), the

order of the CIT(Appeals) is set aside and that of the Assessing

Officer is restored.

assessment year 2001-02, the first issue raised by the assessee is

with regard to reopening of assessment.

submitted that the Malaysian branch of the assessee-company

constitutes a permanent establishment in terms of Article 5 of

Double Taxation Avoidance Agreement between India and

Malaysia. Therefore, the income of Malaysian branch is not liable

for taxation. Hence, according to the Ld. counsel, the Assessing

Officer is not justified in reopening the assessment.

Departmental Representative, submitted that the income of the

assessee escaped assessment, therefore, the Assessing Officer

has rightly reopened the assessment by issuing notice under

Section 148 of the Act. Referring to the judgment of Madras High

17 ITA Nos.1873, 1954/Mds/08 ITA Nos.456, 1438, 1465 & 1654/Mds/09 ITA Nos.1102, 1285/Mds/11 ITA Nos.115 & 1936/Mds/12 CO Nos.167 & 200/Mds/09 Court in Areva T&D India Ltd. v. ACIT (2007) 294 ITR 233, the Ld.

D.R. submitted that when the income was escaped assessment,

reassessment was initiated by issuing notice under Section 148 of

the Act without giving notice under Section 143(2) of the Act

amounts to procedural irregularity, therefore, it would not make

reassessment nullity in law. Therefore, the Assessing Officer has

rightly reopened the assessment. Similarly, for assessment year

2003-04, this Tribunal found that the assessment was rightly

reopened on identical situation.

perused the relevant material available on record. The assessee is

challenging the reopening of assessment on the ground that the

Malaysian branch of the assessee-company constitutes a

permanent establishment in Malaysia, therefore, the income does

not escape from assessment. This Tribunal for assessment year

2000-01, in the assessee's own case, found that the Malaysian

branch of the assessee-company cannot constitute a permanent

establishment and the assessee’s Malaysian branch is not doing

any business other than making investments. Therefore, income

from Malaysian branch is taxable India. In view of the finding of this

18 ITA Nos.1873, 1954/Mds/08 ITA Nos.456, 1438, 1465 & 1654/Mds/09 ITA Nos.1102, 1285/Mds/11 ITA Nos.115 & 1936/Mds/12 CO Nos.167 & 200/Mds/09 Tribunal for assessment year 2000-01 that the income escaped

assessment, therefore, the Assessing Officer has rightly reopened

the assessment under Section 147 of the Act. On identical

situation, for assessment years 2002-03 and 2003-04, this Tribunal

confirmed the order of the Assessing Officer for reopening

assessment. Therefore, this Tribunal do not find any reason to

interfere with the order of the lower authority and accordingly the

same is confirmed.

interest income and dividend income.

submitted that the business of the assessee is investment,

therefore, the interest income earned by the assessee from

investments and dividend income have to be classified as “income

from business”. However, the CIT(Appeals) classified the same

as “income from other sources” and thus confirmed the order of the

Assessing Officer.

Departmental Representative, submitted that the assessee was not

19 ITA Nos.1873, 1954/Mds/08 ITA Nos.456, 1438, 1465 & 1654/Mds/09 ITA Nos.1102, 1285/Mds/11 ITA Nos.115 & 1936/Mds/12 CO Nos.167 & 200/Mds/09 engaged in any business in Malaysia. The assessee has simply

invested in Malaysia in M/s Goldsman Sachs through Malaysian

branch and earned interest income and dividend income. In fact,

the business was done by M/s Goldsman Sachs. Therefore,

according to the Ld. D.R., the interest income received by the

assessee on investment in M/s Goldsman Sachs and dividend

income have to be necessarily classified as income from other

sources under Indian Income-tax Act. The entire investment made

by the assessee in M/s Goldsman Sachs was treated as mere

investment and not as stock-in-trade. Therefore, according to the

Ld. D.R., the CIT(Appeals) has rightly found that the income has to

be classified as “income from other sources”.

perused the relevant material available on record. It is not in

dispute that the assessee has invested in one M/s Goldsman Sachs

through its Malaysian branch. The assessee has not done any

other business other than making investment in M/s Goldsman

Sachs. In those circumstances, this Tribunal is of the considered

opinion that the income by way of interest and dividend income

received from M/s Goldsman Sachs have to be classified as income

20 ITA Nos.1873, 1954/Mds/08 ITA Nos.456, 1438, 1465 & 1654/Mds/09 ITA Nos.1102, 1285/Mds/11 ITA Nos.115 & 1936/Mds/12 CO Nos.167 & 200/Mds/09 from other sources and not as income from business. Therefore,

this Tribunal do not find any reason to interfere with the order of the

lower authority and accordingly the same is confirmed.

currency translation.

submitted that Rule 115 of Income-tax Rules, 1962 was not taken

into consideration by the CIT(Appeals). The assessee claimed

before the Assessing Officer that the gain on currency conversion is

only a notional gain and ought not to have been included in the

taxable income. The assessee also claimed that the profit on

account of foreign exchange currency has to be excluded from

taxable income. However, the Assessing Officer disallowed the

claim of the assessee. On appeal by the assessee, the

CIT(Appeals) found that the unrealised gain on foreign transaction

is only a notional gain, the same was not crystallised. The

CIT(Appeals) placed his reliance on the judgment of Uttarakhand

High Court in CIT v. ONGC (301 ITR 415). Accordingly, he deleted

the addition made by the Assessing Officer. Referring to Rule 115,

21 ITA Nos.1873, 1954/Mds/08 ITA Nos.456, 1438, 1465 & 1654/Mds/09 ITA Nos.1102, 1285/Mds/11 ITA Nos.115 & 1936/Mds/12 CO Nos.167 & 200/Mds/09 the Ld. D.R. submitted that the rate of exchange for the calculation

of value in rupees has to be deemed to be received or arrived or

accrued to the assessee depending upon foreign exchange rate

prevailing on the particular date. This rule was not taken into

consideration by the CIT(Appeals) while placing reliance on the

judgment of Uttarakhand High Court in ONGC (supra).

assessee, submitted that unrealised foreign currency translation is

only a contingent and notional gain. Even though it was credited to

the Profit & Loss account, it is not a real income. Therefore,

according to the Ld. counsel, it has to be excluded, hence, the

CIT(Appeals) has rightly allowed the claim of the assessee.

perused the relevant material available on record. The gain on

foreign currency translation from various international currencies is

notional one. The Uttarakhand High Court in ONGC case (supra)

examined this issue and found that the gain is only a notional one

and it is not taxable in the hands of the assessee. Since the

CIT(Appeals) has followed the judgment of Uttarakhand High Court,

22 ITA Nos.1873, 1954/Mds/08 ITA Nos.456, 1438, 1465 & 1654/Mds/09 ITA Nos.1102, 1285/Mds/11 ITA Nos.115 & 1936/Mds/12 CO Nos.167 & 200/Mds/09 this Tribunal do not find any reason to interfere with the order of the

lower authority and accordingly the same is confirmed.

diminution in the value of current investment.

submitted that the assessee-company invested in various

investments and the same was classified as “current investment”

and “permanent investment”. The assessee has valued the

investments at cost or market value, whichever is less, on the date

of the balance sheet. The difference between the opening value or

the cost price of the previous year and the market value on the last

day of financial year was chargeable to Profit & Loss account. The

statement showing the computation of amount claimed as provision

for diminution in the value of current investment was claimed as

deduction. The Assessing Officer disallowed the claim of the

assessee on the ground that it is only a provision. However, on

appeal by the assessee, the CIT(Appeals) allowed the claim of the

assessee on the ground that diminution in the value of investment

claimed as deducted in the Profit & Loss account is permissible

23 ITA Nos.1873, 1954/Mds/08 ITA Nos.456, 1438, 1465 & 1654/Mds/09 ITA Nos.1102, 1285/Mds/11 ITA Nos.115 & 1936/Mds/12 CO Nos.167 & 200/Mds/09 deduction under the Income-tax Act. Accordingly he deleted the

addition. According to the Ld. D.R., it is only a provision made in

the books of account, therefore, it cannot be allowed.

assessee, submitted that Section 145 of the Act provides for

computation of profits and gains of the business or profession are

income from other sources in accordance with method of account

regularly employed by the assessee. The assessee is regularly

valuing its current investment at cost or market value, whichever is

lower. This practice of valuing current asset was approved by

Accounting Standards also. The diminution in the value of current

asset on the last date of financial year was ascertained. Therefore,

it cannot be said that it is only a provision. Therefore, the

CIT(Appeals) has rightly allowed the claim of the assessee.

perused the relevant material available on record. As rightly

submitted by the Ld.counsel for the assessee, the assessee

continuously valuing the current investments at cost or market price,

whichever is lower Therefore, as on the last day of the financial

24 ITA Nos.1873, 1954/Mds/08 ITA Nos.456, 1438, 1465 & 1654/Mds/09 ITA Nos.1102, 1285/Mds/11 ITA Nos.115 & 1936/Mds/12 CO Nos.167 & 200/Mds/09 year, the quantum of diminution in the value of current asset can be

ascertained. Hence, as rightly submitted by the Ld.counsel for the

assessee, it is not a provision. Therefore, the CIT(Appeals) has

rightly allowed the claim of the assessee. This Tribunal do not find

any reason to interfere with the order of the lower authority and

accordingly the same is confirmed.

08, the first ground of appeal is with regard to diminution in the

value of stocks.

submitted that the profit on sale of investments was found to be a

capital gain by this Tribunal for assessment years 2002-03 and

2003-04. Therefore, diminution in the value cannot be allowed as

deduction.

assessee, submitted that the current investment was found to be an

investment by this Tribunal. The assessee is valuing the current

investment either at market value or at cost, whichever is lower.

Therefore, according to the Ld. counsel, the diminution in the value

25 ITA Nos.1873, 1954/Mds/08 ITA Nos.456, 1438, 1465 & 1654/Mds/09 ITA Nos.1102, 1285/Mds/11 ITA Nos.115 & 1936/Mds/12 CO Nos.167 & 200/Mds/09 is ascertainable at the last day of financial year. Accordingly, the

CIT(Appeals) has rightly allowed the claim of the assessee.

perused the relevant material available on record. The investment

made by the assessee has been continuously valued either at

market price or at cost, whichever is lower, as per the provisions of

Section 145 of the Act. Therefore, the diminution in the value of

investment is ascertainable at the end of the financial year. Hence,

the CIT(Appeals) has rightly allowed the claim of the assessee.

This Tribunal do not find any reason to interfere with the order of the

lower authority and accordingly the same is confirmed.

made under Section 14A of the Act.

submitted that the Assessing Officer disallowed the expenditure for

earning the exempt income by applying the provisions of Rule 8D of

the Income-tax Rules, 1962. However, the CIT(Appeals) restricted

the disallowance to 2% of the exempt income. Since Rule 8D is

26 ITA Nos.1873, 1954/Mds/08 ITA Nos.456, 1438, 1465 & 1654/Mds/09 ITA Nos.1102, 1285/Mds/11 ITA Nos.115 & 1936/Mds/12 CO Nos.167 & 200/Mds/09 mandatory, according to the Ld. D.R., the CIT(Appeals) is not

justified in restricting the disallowance at 2%.

assessee, submitted that Rule 8D is applicable from assessment

year 2008-09. The assessment year under consideration is 2007-

08, therefore, Rule 8D cannot be applied for assessment year under

consideration. Hence, according to the Ld. counsel, by placing

reliance on the decision of this Tribunal, the CIT(Appeals) has

rightly restricted the disallowance to 2%.

perused the relevant material available on record. As rightly

submitted by the Ld.counsel for the assessee, Rule 8D of Income-

tax Rules, 1962 is not applicable for assessment year 2007-08.

This Tribunal is uniformly taking a view that 2% of the exempt

income has to be taken as expenditure for earning that income.

Therefore, this Tribunal do not find any reason to interfere with the

order of the lower authority and accordingly the same is confirmed.

fluctuation loss.

27 ITA Nos.1873, 1954/Mds/08 ITA Nos.456, 1438, 1465 & 1654/Mds/09 ITA Nos.1102, 1285/Mds/11 ITA Nos.115 & 1936/Mds/12 CO Nos.167 & 200/Mds/09

submitted that the Assessing Officer disallowed the claim of the

assessee on the ground that it is only a notional loss. However, the

CIT(Appeals) found that the loss is a capital loss, therefore, it has to

be considered under the head “capital gain”. According to the Ld.

D.R., the loss is on account of restatement of valuing of investment

made in foreign currency, therefore, it cannot be allowed as loss.

assessee, submitted that on identical situation, for the assessment

year 2001-02, the CIT(Appeals), placing his reliance on the

judgment of Uttarakhand High Court in CIT v. ONGC (301 ITR 415),

deleted the addition made by the Assessing Officer. Referring to

Rule 115, the Ld. D.R. submitted that the rate of exchange for the

calculation of value in rupees has to be deemed to be received or

arrived or accrued to the assessee depending upon foreign

exchange rate prevailing on the particular date. This rule was not

taken into consideration by the CIT(Appeals) while placing reliance

on the judgment of Uttarakhand High Court in ONGC (supra).

28 ITA Nos.1873, 1954/Mds/08 ITA Nos.456, 1438, 1465 & 1654/Mds/09 ITA Nos.1102, 1285/Mds/11 ITA Nos.115 & 1936/Mds/12 CO Nos.167 & 200/Mds/09 50. We have considered the rival submissions on either side and

perused the relevant material available on record. The gain on

foreign currency translation from various international currencies are

notional one. The Uttarakhand High Court in ONGC case (supra)

examined the issue and found that the gain is only a notional one

and it is not taxable in the hands of the assessee. Since the

CIT(Appeals) has followed the judgment of Uttarakhand High Court,

this Tribunal do not find any reason to interfere with the order of the

lower authority and accordingly the same is confirmed.

incurred on bank guarantee to the extent of `5,45,500/-.

submitted that the assessee has paid a sum of `5,45,500/- to M/s

Goldsman Sachs for the purpose of issuing a bank guarantee to

HDFC bank. According to the Ld. D.R., the expenditure incurred by

the assessee is not relatable to business of the assessee.

Therefore, the CIT(Appeals) is not justified in allowing the claim of

the assessee.

29 ITA Nos.1873, 1954/Mds/08 ITA Nos.456, 1438, 1465 & 1654/Mds/09 ITA Nos.1102, 1285/Mds/11 ITA Nos.115 & 1936/Mds/12 CO Nos.167 & 200/Mds/09 53. On the contrary, Dr. Anita Sumanth, the Ld.counsel for the

assessee, submitted that the bank guarantee was given for

installation of windmill by the assessee. In fact, the guarantee was

taken from bank since the interest rate chargeable by HDFC bank

was very lower. Therefore, the expenditure is only for the purpose

of business, hence, the CIT(Appeals) has allowed the same under

Section 37(1) of the Act.

perused the relevant material available on record. It is not in

dispute that the assessee borrowed loan from HDFC Bank on the

basis of the bank guarantee given by M/s Goldsman Sachs. It is

also not in dispute that the assessee has paid lower rate of interest.

Therefore, the expenditure incurred by the assessee in giving bank

guarantee of `5,45,500/- is for business purpose. Therefore, the

CIT(Appeals) has rightly allowed the same. Therefore, this Tribunal

do not find any reason to interfere with the order of the lower

authority and accordingly the same is confirmed.

No.1873/Mds/2008 & 456/Mds/2009 are dismissed, appeals in

30 ITA Nos.1873, 1954/Mds/08 ITA Nos.456, 1438, 1465 & 1654/Mds/09 ITA Nos.1102, 1285/Mds/11 ITA Nos.115 & 1936/Mds/12 CO Nos.167 & 200/Mds/09 I.T.A. No. 1102/Mds/2011, 115 & 1936/Mds/2012 are partly allowed. The Revenue’s appeals in I.T.A. No.1954/Mds/2008 and 1438/Mds/2009 are allowed and I.T.A. No.1465/Mds/2009 & 1654/Mds/2009 are partly allowed and I.T.A. No. 1285/Mds/2011 is dismissed. Coming to the assessee’s cross-objections, C.O. No.167/Mds/2009 is dismissed and C.O. No.200/Mds/2009 is partly allowed.

Order pronounced on 21st October, 2016 at Chennai.

sd/- sd/- (ए. मोहन अलंकामणी) (एन.आर.एस. गणेशन) (A. Mohan Alankamony) (N.R.S. Ganesan) लेखा सद�य/Accountant Member �या�यक सद�य/Judicial Member

चे�नई/Chennai, �दनांक/Dated, the 21st October, 2016.

Kri.

आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. �नधा�रती /Assessee 2. Assessing Officer 3. आयकर आयु�त (अपील)/CIT(A)-V, Chennai-34 4. आयकर आयु�त/CIT, Chennai-III, Chennai 5. �वभागीय ��त�न�ध/DR 6. गाड� फाईल/GF.