PTC INDIA FINANCIAL SERVICES LTD,NEW DELHI vs. DCIT, CIRCLE- 19(1) & (2), NEW DELHI
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Income Tax Appellate Tribunal, DELHI BENCH ‘F’ : NEW DELHI
per the convenience of the assessee and AO held that proper method is
prescribed under Rule 8D if section 14A is applicable, therefore, AO
recorded his dissatisfaction with disallowance made by the assessee. He
made his own disallowance as per Rule 8D.
On assessee’s appeal, ld. CIT (A) noted that AO has mechanically
applied the formula given in Rule 8D, hence he found that AO has
computed the disallowance which is far in excess of the exempt income
disclosed by the assessee. In this regard, he referred to Hon’ble Delhi
High Court decision in the case of Joint Investment (P) Ltd. vs. CIT and
held that disallowance u/s 14A cannot exceed the exempt income.
Hence, he directed that assessee has dividend income of RS.57,66,026/-
whereas AO disallowed an amount of Rs.17,35,02,922/- which is not
logically or prudently possible. Therefore, following the aforesaid
decision of Hon’ble Delhi High Court, ld. CIT (A) directed the AO to
limit the disallowance to RS.57.66 lakhs.
Against this order, Revenue and assessee are in cross appeals
before us. We have heard both the parties and perused the records.
11 ITA No.4985/Del./2017 ITA No.5051/Del./2017 18. We find that ld.CIT (A)’s opinion is that Hon’ble Delhi High Court
decision in the case of Joint Investment (P) Ltd. needs to be followed and
disallowance be limited to exempt income which is correct. We do not
find any infirmity in this. Hence, we affirm the decision of the ld. CIT
(A) to the aforesaid extent.
As regards assessee’s appeal on the same issue, ld. Counsel of the
assessee submitted that
• No satisfaction was recorded by the Ld. DCIT under section 14A (2) of the Act to reject the amount suo-moto computed and disallowed by the Appellant under section 14A of the Act. Reliance placed upon:
i. Maxopp Investment Ltd (347 ITR 272) Delhi HC [Refer Para 42 on Page 20 of case law compilation binder].
ii. Consolidated Photo & Finvest Ltd. [2012] 25 taxmann.com 371 Delhi HC [Refer Page 24 of case law compilation binder]
iii. Godrej and Boyce Mfg. co. ltd. Vs. DCIT [2010] 194 taxman 203 Bombay HC [Refer Page 28 of case law compilation binder] • The Appellant has sufficient shareholder funds/owned funds for making investments i.e. the shareholders funds available with the Company as on March 31, 20 II was INR 117,196.28 lacs viz-a-viz the investment of INR 42, 110.14 lacs [Refer Page. 1 of PB}. Reliance is placed upon the SC judgment passed in the case- South India Bank [2021] 438 ITR 1 (SC), wherein SC held that if investments is made out of common funds and the assessee has available, non-interest-bearing funds larger than the investments made in tax-free securities then in such cases, disallowance under section 14A cannot be
12 ITA No.4985/Del./2017 ITA No.5051/Del./2017 made [Refer Para 17 and 20 on Page 77c and 77d, respectively of case law compilation binder]. • Without prejudice, all borrowed funds were utilized for the purpose of the business of the Appellant i.e., for onward lending activities. Reference is invited to Form 83 pertaining to loan agreement submitted to RBI, stating that loan borrowed under ECB route would be utilized for the purpose of onward lending only. [Refer Page. 60 of PB] • Only dividend yielding investments should be considered for computing amount of disallowance under Rule 8D(iii). Reliance placed upon the judgment passed by the jurisdictional HC in the case of - ACB India Ltd (2015) (374 ITR 108) Delhi He [Refer Para 8 on Page 90 of case law compilation binder, and by Special bench in the case of Vireet Investment (P.) Ltd [2017] 58 ITR(T) 313 (Delhi - Trib.) (SB).”
Per contra, ld. DR for the Revenue relied upon the order of the ld. CIT (A). 21. Upon careful consideration, we accept the proposition that
assessee’s own fund are more than the investment made, hence no disallowance should be made for interest. This aspect may be verified by the AO. Another plea of the assessee is that only dividend yielding
investments should be considered for computing amount of disallowance under Rule 8D (iii). We agree with this proposition also as it has the mandate of Hon’ble Delhi High Court (supra) and the Special Bench decision in the case of Vireet Investment (P) Ltd. (supra).
13 ITA No.4985/Del./2017 ITA No.5051/Del./2017 22. Apropos addition of Rs.9,81,86,182/- made by the AO on account
of foreign exchange loss : During the year, the assessee incurred loss of
Rs.10.22 crore on ECB liability and earned gain ofRs.40.07 lac on
derivative contracts. According to the assessee, the case of Woodward
Governor India (P) Ltd. (supra) should be taken to be the authority for the
general proposition that loss due to exchange rate fluctuation in respect of
the value of ECBs is, as a rule, revenue expenditure to be allowed as
deduction u/s. 37 (1) of the Act.
Upon assessee’s appeal, ld. CIT (A) affirmed the order of AO. Ld.
CIT (A)’s conclusion in this regard is as under :-
“ After going through the order of CIT (A) for AY 2013- 14, it is seen that it discusses all aspects along with the decision of Hon’ble Supreme Court in case of Indian Molasses Co. Pvt. Ltd. & in case of Woodward Governor (relied upon by the assessee). The facts being the same, in my opinion the ld. CIT (A) has rightly disallowed the notional loss on ECB liability and I follow the same. The disallowance of Rs.10.2194 crore is upheld.
(vi) Further, there is income of Rs.40.07 lac offered by the assessee on derivative contracts. As held by Hon’ble Supreme Court, the same treatment as in loss should apply in case of gain also. It is therefore held that the loss/gain may be computed in year of final settlement. In case the transaction matured in FY 2011-12, the amount may be treated as speculation profit (following the order of Ld. CIT (A)-7 as to nature of transaction). If no final settlement is made in FY 2011-12, it may not be treated as income for AY 2012-13 (same lines as that of loss). The AO has also netted off the loss with profit. So there remains no cause of appeal by the assessee.”
14 ITA No.4985/Del./2017 ITA No.5051/Del./2017 24. Against this order, assessee has filed appeal before us. We have
heard both the parties and perused the records.
Arguments of the ld. Counsel for the assessee in this regard are as
under :-
“Appellant is an NBFC and engaged in the business of providing long term loans to infrastructure/power projects and the proceeds of ECBs were utilized by the Company for its business objective of onward lending. These loans were not utilized by the Company for the acquisition of any capital assets. Accordingly, foreign exchange loss in relation to the reinstatement of ECBs liability is an allowable deduction under Section 37(1) of the Act. Reliance placed on the following SC judgments: i. Woodward Governor India (P) Ltd (179 taxman 326) (SC) [Para 13,15,18,21 on Page 226 to 229 of PB]; ii. Oil & Natural Gas Corpn. Ltd (189 taxman 292) [Para 9-11 on page. 237 and 238 of PB] • Appellant also rebutted the judgment referred by the CIT(A) while upholding the order of Ld. DCIT. Indian Molasses Co. P. Ltd. (supra) and Southern Technologies (supra) judgments deals with the allowability of different nature of expense and Woodward Governor India (P) Ltd (supra) covers allowability of forex gain! loss both in the nature of revenue and capital extensively and directly covers the claim of the Appellant. • Woodward Governor India (P) Ltd (supra) extensively discussed the judgement of Indian Molasses and duly distinguished the same [Refer para 13 on page. 226 of PB]. • Moreover, it is highlighted that during A Y 2017-18 and A Y 2018-19, the Appellant earned income on reinstatement of ECB, and the same was duly offered to tax and was also accepted by the jurisdictional officer during the assessment proceedings.
Per contra, ld. DR for the Revenue relied upon the order of the ld.
CIT (A).
15 ITA No.4985/Del./2017 ITA No.5051/Del./2017 27. Upon careful consideration, we agree with the submissions of the ld. Counsel for the assessee that the decision of Hon’ble Supreme Court in the case of Woodward Governor India (P) Ltd. (supra) is applicable.
Facts highlighted by the ld. Counsel of the assessee also show that Woodward Governor India (P) Ltd. (supra) extensively discussed the judgment of Indian Molasses Co. P. Ltd. and duly distinguished the same.
Another factor in favour of the assessee is that during AYs 2017-18 & 2018-19, assessee earned income on reinstatement of ECB and the same was duly offered to tax and the same was accepted by the assessing officer during the assessment proceedings. So, when the Revenue is accepting the gains, the same treatment should be given to the loss and we are convinced by the submissions of the ld. Counsel for the assessee.
Hence, we set aside the orders of the authorities below and delete the addition. 28. In the result, the appeal filed by the assessee is allowed and the appeal filed by the Revenue is dismissed. Order pronounced in the open court on this day of 9th May, 2023.
Sd/- sd/- (ANUBHAV SHARMA) (SHAMIM YAHYA) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated the 9th day of May, 2023 TS
16 ITA No.4985/Del./2017 ITA No.5051/Del./2017
