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Income Tax Appellate Tribunal, MUMBAI BENCH “A”, MUMBAI
Before: SHRI B.R. BASKARAN & SHRI SANJAY GARG
Per Sanjay Garg, Judicial Member:
The above captioned three appeals by the assessee and one cross appeal by the Revenue have been preferred against the orders of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment years 2004-05, 2005-06 & 2009-10. Since all the four appeals were
2 ITA No.2536/M/2013 & Ors. M/s. Advani Hotels & Resorts (India) Ltd. heard together and hence the same are being disposed of by this common order.
We take up assessee’s appeal bearing ITA No.630/M/2009 for A.Y. 2004-05 as lead case. ITA No.630/M/2009 for A.Y. 2004-05 3. In this appeal, the assessee has raised the following grounds of appeal:
“1. On the facts and circumstances of the case and in law, the Learned Commissioner of Income-tax (Appeals) {{CIT(A)}] erred in confirming the disallowance of Rs.16,91,710/- made by the Assessing Officer under section 36(1)(va) in respect of Employees contributions to Provident Fund and ESIC actually paid by the appellant, though delayed. 2. (a) On the facts and circumstances of the case and in law, the ld. CIT(A) erred in confirming the action of the A.O. of taxing as revenue receipt an amount of Rs.1,00,07,200/- being notional gain due to fluctuation in foreign exchange rates in respect of foreign currency loans, which were utilized for capital purpose and which gain was claimed by the appellant as capital receipt not liable to tax. (b) The ld. CIT(A) erred in failing to appreciate that the aforesaid foreign exchange fluctuation gain was on capital account and not relatable to any circulating capital and as such he ought to have held it to be capital receipt not liable to tax. (c) Without prejudice to the above, the ld. CIT(A) erred in not directing the A.O. to allow depreciation on fixed assets without reducing the aforesaid foreign exchange fluctuation gain adjusted by the appellant under section 43A of the Act.
On the facts and circumstances of the case and in law, the ld. CIT(A) erred in confirming the disallowance of Rs.1,29,839/- made by the A.O. in respect of expenses incurred and relatable to the previous year ended 31.3.2004 but accounted in subsequent year.
Your appellant craves leave to add to alter, amend or delete the above ground of appeal, which are independent and without prejudice to each other, on or before the date of hearing.
Ground No.1: 4. The assessee through this ground has agitated the action of the Ld. CIT(A) in confirming the disallowance of Rs.16,91,710/- made by the Assessing Officer (hereinafter referred to as the AO) under section 36(1)(va) of
3 ITA No.2536/M/2013 & Ors. M/s. Advani Hotels & Resorts (India) Ltd. the Act in respect of Employees Contribution Provident Fund and ESIC on account of delayed payment. The AO had made the disallowance observing that the contribution to the above stated funds was paid by the assessee after the due date as specified in explanation to section 36(1)(va) of the Act.
The Ld. CIT(A) also confirmed the disallowance.
Before us, the Ld. A.R. of the assessee has relied upon the decision of the Hon’ble Supreme Court in the case of “CIT vs. Alom Extrusions Ltd.” reported in 185 Taxman 416 (SC) wherein the Hon’ble Supreme Court has held that the effect of deletion of second proviso to section 43B of Finance Act, 2003 is retrospective therefore, the assessee would be entitled to claim the benefit of deduction if the amount of contribution to Employees’ Provident Fund is deposited on or before the due date of filing of return for the relevant assessment year.
We therefore restore this issue to the file of the AO to examine whether the contribution was made by the assessee to the Employees’ provident fund and ESIC on or before the due date of filing of the return of income for the relevant assessment year and if it is found so, then not to make any disallowance in the light of the decision of the Hon’ble Supreme Court.
Ground No.2 8. With this ground, the assessee has agitated the action of the Ld. CIT(A) in confirming the action of the AO in taxing the notional gain due to fluctuation in foreign exchange rates in respect of foreign currency loans which were utilized for purchase of capital assets holding the same as revenue receipt as against the claim of the assessee that the same being a capital receipt was not liable to tax. The Ld. A.R. of the assessee has brought our attention to various documents on the file to demonstrate that the assessee had set up a five star resort and a flight catering unit at Goa in earlier years. It had borrowed
4 ITA No.2536/M/2013 & Ors. M/s. Advani Hotels & Resorts (India) Ltd. fixed term loans including under Project Financing Schemes from various lenders for financing the cost of these business units. These loans were also utilized for importing plant & machinery, furniture & fixtures and other equipments, which were installed in the hotel unit and flight kitchen unit. In respect of foreign currency loan, included in above, which was utilized for importing fixed assets, the assessee has been adjusting the loss or gain arising out of foreign exchange rates fluctuation as per the provisions of Section 43A of the I.T. Act. As the above existing loans were high interest bearing loans, the assessee under its capital re-structuring plan, negotiated for an external commercial borrowing in foreign exchange and borrowed Rs.20,28,68,000/- from Bank of Baroda, London Branch in the previous year ended 31.3.2004 relevant to the assessment year under consideration. The new ECB loan was disbursed to the assessee by way of direct payment by the new lender to the old lenders in full and final settlement of their respective dues. Thus, the new foreign currency loan was fully utilized to repay the existing high cost fixed term loans, which were also utilized for import of plant & machinery etc. in earlier years.
These facts narrated above have not been disputed by the Revenue authority. The AO disallowed the claim of the assessee and taxed the notional gain on account of fluctuation in foreign exchange treating the said gain as revenue receipt on the ground that the new loan taken by the assessee was not utilized for the purchase of an asset but for repayment of earlier loan.
The Ld. CIT(A) also confirmed the above finding of the AO.
The Ld. A.R. of the assessee, before us, has demonstrated from the various documents on the file that it was not a case of taking of new loan for any other purpose but it was just a case of shifting of the loan liability. Since the assessee had to pay the loan and interest liabilities to various banks/financial institutions and a proposal had come from the Bank of Baroda
5 ITA No.2536/M/2013 & Ors. M/s. Advani Hotels & Resorts (India) Ltd. to consolidate all the loans of the assessee in one bank which was convenient to the assessee. Hence all the old loans which were relatable to acquisition of fixed assets regarding which the assessee had already been adjusting the loss or gain arising out of the foreign exchange rates fluctuation as per the provisions of section 43A of the Act were taken over by the Bank of Baroda. The Ld. A.R. has also demonstrated that the assets which were already pledged as primary security with the old banks were accordingly taken over by the new bank. The present loan was not taken for any other purpose but for the repayment of the old loan which was admittedly used for the purpose of purchase of capital assets. After considering the above submissions and going through the undisputed fact that the new loan was taken for repayment of old loan which, in fact, was paid by the new bank i.e. Bank of Baroda directly to the old banks/financers of the assessee, it can be well observed that it was not a case of taking of a new loan for any other purpose but it was a simple case of shifting of the loan from the one bank to other. The assessee is thus entitled to the benefits/adjustments of the corresponding losses and gains as per the provisions of section 43A of the Act. We accordingly allow this issue in favour of the assessee. So far as the alternate contentions of the assessee for directing the AO to allow depreciation on fixed assets without reducing the aforesaid foreign exchange fluctuation gain adjusted by the assessee under section 43A of the Act is concerned, the said issue has become infructuous as we have already decided the main issue of adjustment of gain towards the cost of asset in favour of the assessee.
The Ld. A.R. of the assessee has stated at bar that he does not press ground No.3 of the appeal. Thus, the ground No.3 of the appeal is dismissed as not pressed.
This appeal of the assessee is thus treated as partly allowed.
6 ITA No.2536/M/2013 & Ors. M/s. Advani Hotels & Resorts (India) Ltd. ITA No.631/M/2009 for A.Y. 2005-06 (Assessee’s appeal) Ground Nos.1 & 2 14. The assessee, in this appeal has taken six grounds of appeal. Ground Nos.1 & 2 are relating to the disallowance on account of delayed payment in respect of Employees Contribution to ESIC under section 36(1)(va) of the Act. This issue has already been adjudicated by us while deciding ground No.1 of the assessee’s appeal for A.Y. 2004-05. This issue is accordingly restored to the file of the AO for verification as per our directions given above. Ground No.3 15. Ground No.3 is identical to that of ground No.2 taken in assessee’s appeal for A.Y. 2004-05 regarding the adjustments of notional gain/loss on foreign exchange under section 43A of the Act. In view of our findings given above, this issue is accordingly decided in favour of the assessee.
Ground Nos.4 & 5 16. Ground Nos.4 & 5 are relating to disallowance made by the AO under section 40(a)(ia) of the Act. The Ld. A.R. of the assessee has stated at bar that he does not press ground Nos.4 & 5 of the assessee’s appeal. Ground Nos.4 & 5 of the assessee’s appeal are therefore dismissed as not pressed.
ITA No.2536/M/2013 for A.Y. 2009-10 (Assessee’s appeal) 17. The sole issue taken by the assessee in this appeal is regarding the action of the AO in rejecting the claim of the assessee treating the notional loss on account of foreign exchange fluctuation as revenue loss. The assessee during the year had claimed the loss on account of foreign exchange fluctuation in respect of loan which was used for the purpose of capital asset as revenue loss which claim was consistent with the department’s stand in earlier years. However, surprisingly for the year under consideration, the AO treated the said loss as capital loss in complete contradiction to his earlier stand. However, as observed above while adjudicating the issue for the earlier years, we have already allowed the claim of the assessee to claim adjustments of notional
7 ITA No.2536/M/2013 & Ors. M/s. Advani Hotels & Resorts (India) Ltd. loss/gain as per the provisions of section 43A of the Act. We, therefore, dismiss this appeal of the assessee with the direction that the assessee will be eligible to claim the adjustments under section 43A of the Act in the light of the observations made above while deciding the assessee’s appeal for A.Y. 2004-05.
ITA No.3101/M/2013 for A.Y. 2009-10 (Revenue’s appeal) 18. This cross appeal has been preferred by the Revenue against the order of the Ld. CIT(A) dated 16.01.2013.
At the outset, the Ld. D.R. has submitted that the tax effect in this appeal of the is less than Rs.10 lakhs. He, therefore, has stated that the CBDT circular No.21/2015 is applicable to this appeal and hence, this appeal is not maintainable/not pressed in terms of the said CBDT Circular No.21/2015 dated 10/12/2015.
The Revenue’s appeal is therefore dismissed.
In the result, subject our observations made above, the assessee’s appeals for A.Y. 2004-05 and 2005-06 are partly allowed whereas assessee’s appeal as well as Revenue’s cross appeal for A.Y. 2009-10 is treated as dismissed.
Order pronounced in the open court on 31.08.2016.
Sd/- Sd/- (B.R. Baskaran) (Sanjay Garg) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Dated: 31.08.2016. * Kishore, Sr. P.S. Copy to: The Appellant The Respondent The CIT, Concerned, Mumbai The CIT (A) Concerned, Mumbai
8 ITA No.2536/M/2013 & Ors. M/s. Advani Hotels & Resorts (India) Ltd. The DR Concerned Bench //True Copy// By Order
Dy/Asstt. Registrar, ITAT, Mumbai.