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Income Tax Appellate Tribunal, DELHI BENCH ‘E’ NEW DELHI
Before: SHRI C.M. GARG & SHRI L.P. SAHU
ORDER
Per L.P. Sahu, Accountant Member:
This appeal, at the instance of Revenue, arises out of the order dated 30.09.2011 of ld. CIT(A)-XVI, New Delhi for the assessment year 2008-09. By way of various grounds of appeal, the Revenue has assailed the impugned order basically on the two issues in this appeal – (i) deletion of addition of Rs.96,54,000/- made by AO towards notional gain on foreign exchange and (ii) deletion of disallowance of Rs.5,78,24,881/- made by AO u/s. 80IA with respect to the profit of the power plant division of the company.
2. Addressing to the first issue, the brief facts of the case are that during the course of assessment proceedings, the AO noticed from Schedule 16 of Profit & Loss Account that the assessee had shown income of Rs.1,41,24,490/- under the head “other income”. However, in the computation of income, the assessee has reduced foreign exchange fluctuation gain of Rs.96,54,000/- under the head “unrealized exchange gain”. On being asked to explain, the stand of the assessee was that fluctuation gain of Rs.96,54,000/- pertained to foreign currency loan borrowed by assessee for purchase of power plant. This gain arose due to foreign exchange rate difference on the outstanding amount of loan as on 31st March, 2008, being the difference in the rate of US Dollar on which the loan was disbursed and the rate of US Dollar as on 31st March, 2008 and this gain was accounted for as other income. It was also submitted that the loan was borrowed for capital expenditure and therefore, this income, being in capital nature, was not offered for taxation, as the assessee was eligible for deduction u/s. 80IA for generation of power at its plant at Porbandar and profit pertaining to power division was exempted from tax. It was also submitted on behalf of the assessee that in earlier year 2002-03, the loss incurred to the assessee on account of unrealized foreign exchange was disallowed by AO saying it as notional and therefore, following the same analogy, the assessee did not offer the notional income for taxation in the year under consideration. The Assessing Officer was not satisfied with the reply of assessee observing that the assessee failed to bring on record any corroborative evidence regarding the claim that the foreign exchange gain is on account of borrowings which are capital in nature or that the ECB borrowings from ICICI bank were for acquisition of assets or it was a working capital loan. For want of such evidence, the AO mad addition of Rs.96,54,000/- treating the same as revenue receipts. The learned CIT(A), in appeal by assessee, deleted the addition after accepting the contention of assessee that the foreign currency loan was taken to acquire a capital asset and following the decision of Hon’ble Supreme Court in the case of Sutlej Cotton Mills Ltd. vs. CIT, 116 ITR 1 (SC), observed that therefore, any gain arising on account of fluctuation in the value of the currency would not be exigible to tax. Being aggrieved, the Revenue is in appeal before us.
During the course of hearing, the ld. DR relying upon the order of the AO, submitted that admittedly, no evidence in support of the stand that the foreign currency loan was taken for acquiring capital asset was laid either before the AO or before the CIT(A). Therefore, the ld. CIT(A) was not justified to accept the contention of assessee without having any corroborative evidence to support the stand of assessee.
The ld. AR of the assessee, on the other hand, relied on the order of the ld. CIT(A) and on the query of the Bench regarding non-production of any evidence in support of nature of loan taken, also submitted requisite evidence in the shape of letter of ICICI Bank dated 30.10.2006 giving the details of foreign currency loan taken by assessee alongwith the terms & conditions of said loan in support of its contention that the said loan was taken to acquire capital asset. The ld. AR has requested to take this evidence on record as additional evidence u/r. 29, as it goes to the root of the matter.
Having considered the rival submissions and perused the material available on record, we find it justifiable to admit the evidence placed by assessee on record, as the same goes to the root of the matter. It is notable that the decision of Hon’ble Supreme Court in the case of Sutlej Cotton Mills Ltd. (supra) can render help to the assessee only after deciding the core issue whether the foreign exchange fluctuation gain was earned on the borrowings of capital nature, for which no evidence was laid by assessee before the authorities below. Therefore, the finding of the ld. CIT(A) is not justifiable being not supported by any evidence on record. The evidence substantiating the nature of borrowings is laid before us which needs examination at the stage of Assessing Officer. We, therefore, set aside the finding of the ld. CIT(A) and restore the issue to the file of Assessing Officer for deciding the same de novo after examining the evidence referred to above and in the light of decision of Hon’ble Supreme Court (supra). Accordingly, this ground is allowed for statistical purposes.
Adverting to the second issue regarding deletion of disallowance of Rs.5,78,24,881/- u/s. 80IA with respect to the profit of the power plant division of the company, the AO disallowed the claim of assessee stating that similar claim was disallowed in assessment orders for A.Yrs. 2002-03 and 2004-05 to 2006-07 after considering the similar submissions of the assessee as made for the year under consideration; that the captive power plant was installed as a extension of the Abrasive Division for meeting out the energy requirement of the Abrasive Division and the assessee has devised its method for sale of power generated from its power division to abrasive division just to reduce the taxable profits of abrasive division; that there was no separate undertaking or enterprise engaged in the business of generation of power within the meaning of section 80IA(1) as the undertaking was completely incapable of running its business independently as it was solely dependent on the management of Abrasive Grain Division; that the profit worked out in the books of accounts is an internal arrangement of account keeping and there is apparent diversion of profits from taxable activities to non-taxable activities and thus, the profits from the DG set are the profit attributable to its manufacturing unit which have been diverted by manipulating the accounts; that the assessee is showing profits in power plants only at the cost of the profits of manufacturing units for the purpose of deduction u/s. 80IA while the net profit of the alleged undertaking comprising the DG Set along declared during the preceding 3-4 years is as high as 30% to 40% and that the assessee’s contention that the deduction u/s. 80IA has been allowed by CIT(A) and ITAT, New Delhi, in A.Y. 2002-03 and 2004-05 to 2006-07, though correct, but the department has not accepted the order and the same have been appealed against. The ld. CIT(A) deleted the addition after relying on the decisions of ITAT in the assessee’s own cases for A.Y. 2002-03 and 2004-05 to 2006-07, wherein it has been held that the deduction under section 80IA is allowable to the assessee on the profit arising on supply of electricity to its own division and the deduction u/s. 80IA is to be computed after allocating indirect expenses on prorate basis for the computation of profit of power generating unit. Being aggrieved, the revenue is in appeal before us.
The ld. DR relied on the order of the AO whereas the ld. AR of the assessee supported the order of ld. CIT(A) based on the decisions of Tribunal for A.Y. 2002-03 and 2004-05 to 2006-07 which stood confirmed by Hon’ble jurisdictional High Court in appeals by the Revenue in the case of assessee.
We have considered the rival submissions and have gone through the relevant record before us. The issue under consideration is found covered in favour of the assessee by the decision of ITAT in own case of assessee for A.Yrs. 2002-03 and 2004-05 to 2006-07 which stands confirmed by Hon’ble Delhi High Court, observing that the profits derived by the assessee’s power generation unit would be eligible for deduction u/s. 80IA as a separate undertaking. Respectfully following the decision of Hon’ble jurisdictional High Court, the order of the ld. CIT(A) does not call for any interference and is sustained on this count. Accordingly, the grounds of appeal of Revenue raised on this issue are dismissed.